Category: Equitablog

Must- and Shall-Reads:

• Joshua Brown: iPhone 6: Adventures in Global Manufacturing

1. Sam Wang: Senate Conditions Are Back to September 3: “As of today, conditions in the battle for Senate control are just about back to where they were on the day after the shake-up in the Kansas Senate race. Using polls alone in a 2-3 week window (see right sidebar), current medians show the following key margins: Alaska D+5%, Colorado D+2%, Iowa D+0.5%, North Carolina D+4%, and Kansas I+5.5%. In an election based on today’s polled sample, the most likely outcome is 51 votes for Democrats and Independents. [Update: see comments. At the moment, significant drivers of the difference between PEC and other sites appear to be (1) we’re using all polls, including partisan ones, which changes Alaska; and (2) we’re using Kansas two-candidate matchups and don’t have fundamentals to drag those polls in the GOP direction.]”

2. Barry Ritholtz: After 30,000 posts, Big Picture blogger has figured a few things out: “After more than a decade of getting up before the crack of dawn to write a daily journal about all things financial, here is what I’ve learned: (1) Writing is a good way to figure out what you think…. (2) Writing is a good way to become a better writer…. (3) Mainstream media ignored blogs, occasionally stole from, then adopted the format wholesale…. (4) Content: creativity, criticism and curation. Content is king. When you are asking people to read you several times a day, you better have some fine content. Mixing original content, intelligent criticism and curation (a.k.a. reading linkfests) has been a successful formula for me…. I would describe it [as]… ‘First, here is something I CREATED which I think is worthwhile; second, THAT OVER THERE is wrong and not especially compelling and here’s why; and third, you should see ALL OF THESE. They are excellent.’ I am oversimplifying, but that’s the basic three-part content structure of a good blog…. Reader comments have become useless…. This is a shame. At one time, commenters had tremendous value within given communities…. (5) Advertising is a terrible business model (unless you are Google)…. (6) Authors vs. publishers. People read publications less than they do authors…. There is a caveat…. Any powerful platform will potentially expose a writer to a wider audience. That has been my experience here at The Washington Post as well as on Bloomberg View. (7) People lie to themselves…. For a data guy like me, this is both utterly fascinating and somewhat disturbing…. Whenever I encounter someone who refuses to accept reality, all I can do is shrug and remind myself that someone has to be on the losing side of the trade. It might as well be him. (8) It can be difficult for readers to distinguish between good information and distracting nonsense. Despite a tremendous amount of information online, readers are still mired in lots of bad thinking and disproven memes.”

3. Steven J. Davis and John Haltiwanger: Labor Market Fluidity and Economic Performance: “U.S. labor markets became much less fluid in recent decades. Job reallocation rates fell more than a quarter after 1990, and worker reallocation rates fell more than a quarter after 2000. The declines cut across states, industries and demographic groups defined by age, gender and education. Younger and less educated workers had especially large declines, as did the retail sector. A shift to older businesses, an aging workforce, and policy developments that suppress reallocation all contributed to fluidity declines. Drawing on previous work, we argue that reduced fluidity has harmful consequences for productivity, real wages and employment. To quantify the effects of reallocation intensity on employment, we estimate regression models that exploit low frequency variation over time within states, using state-level changes in population composition and other variables as instruments. We find large positive effects of worker reallocation rates on employment, especially for men, young workers, and the less educated. Similar estimates obtain when dropping data from the Great Recession and its aftermath. These results suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

4. Paul Krugman: Conservative Canadian Cockroach “Oh, my. Josh Barro tells us that conservatives are once again touting Canada as a role model, in particular using its experience in the 90s to claim that austerity is expansionary after all. I think this qualifies as a cockroach idea (zombies just keep shambling along, whereas sometimes you think you’ve gotten rid of cockroaches, but they keep coming back.) I thought we had disposed of all this four years ago. But nooooo. Barro hits the main points. Canadian austerity in the 1990s was offset by a huge positive movement in the trade balance, due to a falling Canadian dollar and raw material exports…. Also, the whole debate about austerity versus stimulus was driven by the problem that interest rates were at the zero lower bound, so that there wasn’t any easy way to offset the effects of austerity. Canada in the 1990s? Not so much…. However, Josh misses a trick. When dealing with right-wing claims about economic data, you should never forget Moore’s Law: not only shouldn’t you accept their assertions, you should assume that what they say is probably wrong…. So conservatives have fallen in love with an imaginary Canada, whose history and current reality is nothing like the real place. Are you surprised?”

5. Jason Millman: Millions have joined Medicaid under Obamacare. Here’s what they think of it: “All the study participants said they feel better off with free or low-cost Medicaid coverage… worry less about being able to afford bills or see a doctor…. The majority said they’ve already used their coverage and feel healthier…. Most said they didn’t even know they were eligible for Medicaid…. There’s some confusion about what the program actually covers, and researchers found some feared receiving low-quality or limited care. The enrollees’ biggest problem has been finding a primary care doctor…. Some new enrollees in the focus groups said they had to call at least six practices to find a doctor…. Others said they weren’t used to the process of finding a primary care physician, and others didn’t try because they didn’t see an urgent need to find one…”

Should Be Aware of:

• Federico Vittici: iOS 8 Changed How I Work on My iPhone and iPad
• Scott Kaufman: 9 college freshmen dead in alcohol-related incidents in first weeks of new school year
• Robert Hutchins (1951): The Freedom of the University

1. Benedict Carey: Implant bolsters memory in rats: “Scientists have designed a brain implant that restored lost memory function and strengthened recall of new information in laboratory rats…. In the new work, being published today, researchers at Wake Forest University and the University of Southern California… read neural activity… [and] translated those signals internally, to improve brain function rather than to activate outside appendages…. Scientists at Wake Forest led by Sam A. Deadwyler trained rats to remember which of two identical levers to press…. To test the effect of the implant, the researchers used a drug to shut down the activity of CA1. Without CA1 online, the rats could not remember which lever to push to get water…. The researchers, having recorded the appropriate signal from CA1, simply replayed it, and the animals remembered. The implant acted as if it were CA1, at least for this one task…”

2. Nick Cohen: Alex Salmond’s tactic of making the rest of the UK the enemy was depressingly successful: “WHEN the great leader makes his last bow, there’s an awful temptation to play the hypocrite and mutter warm words…. For me the true measure of Alex Salmond’s worth came last weekend when a crowd of protestors surrounded BBC Scotland’s headquarters…. Nick Robinson had asked hard questions of the first minister at a rigged press conference packed with SNP stooges and said on air that Salmond had ducked them. The demonstrators found his lèse-majesté intolerable. They demanded the BBC fire their political editor for holding power to account. Think about it. A mob takes to the streets because the first minister does not like what an independent journalist has said about him…. By voting No and seeing Salmond resign, it looks to me as if Scotland has had a ‘joyous’ escape. A view confirmed when I read how he had tried to force the principal of St Andrews University to tone down her warning that independence would bring a ‘catastrophic’ loss of UK research funds. St Andrews is an ancient, revered and, above all else, independent Scottish institution. But Salmond couldn’t tolerate Professor Louise Richardson behaving as free women in free countries ought to behave and speaking her mind…. I hope there’ll be a reassessment of the guff he said about ‘civic nationalism’. How soothing that phrase sounds. How cuddly and safe. On the one hand, we have the nasty nationalism that start wars and racial conflicts. On the other, civic nationalism, which wouldn’t hurt a fly…. It’s not true…. Even though he lost, Salmond’s tactics of making the rest of the UK the enemy were depressingly successful.”

3. Leah Schnelbach: H.G. Wells Invented Everything You Love: “H.G. Wells is considered one of the fathers of science fiction, and if you look at a brief timeline you’ll see why he’s so extraordinary: 1895: The Time Machine. 1896: The Island of Doctor Moreau. 1897: The Invisible Man. 1898: The War of the Worlds. 1901: The First Men in the Moon. So basically for four consecutive years Wells got out of bed on New Year’s Day and said, ‘What ho! I think I’ll invent a new subgenre of scientific fiction!’ And then he took a year off, only to return with a story about a moon landing. If it wasn’t for that gap in 1900, he probably would have invented cyberpunk, too…”

Over at the Grauniad Guardian: Why is Thomas Piketty’s 700-page book a bestseller? I like Thomas Piketty’s Capital in the Twenty-First Century a lot. It follows Larry Summers’s advice – which I have always thought wise–that the further ahead in time we want to forecast, the further back in time we should look. It deals with very big and important questions. It takes a broad moral-philosophical view, rather than a narrow technical-economist view. It combines history, quantitative estimation, social science theory, and a deep concern with societal welfare in a way that is too rare these days.

But I thought it would be a book for a narrow audience: me and a few others. I expected people who did not have the souls of accountants to start to snore at Piketty’s numbers, numbers, numbers and more numbers.

What we can think about is why the soil was fertile: why was there the potential for a mass-audience viral explosion of interest in Capital in the Twenty-First Century rather than our standard set of viral propagation memes – cat videos and Buzzfeed’s Twenty-Seven Things You Won’t Regret When You Are Older?

I confess that I do not know. I do have a guess. My guess is that the book-buying upper-middle class of America today is greatly distressed when it looks at the world around it, specifically at two things.

The first is that our society today is largely failing its non-migrant non-college-completing majority, in that for all of our cheap electronic toys, life is no easier than it was a generation ago in spite of an enormous explosion of technology and productivity.

The second is that they now know of a plutocracy that did not use to exist and makes us very uneasy. Last generation’s Michigan governor and American Motors president George Romney lived in a large-but-not-abnormal house and bossed a company that created lots of good jobs at good wages. This generation’s Massachusetts governor and Bain Capital CEO Mitt Romney has seven houses worth perhaps $25m in total, and bossed a company whose core business model appears to have been exploiting legal anomalies like the fact that pension funds have little control over their money after it’s invested.

And because the book-buying upper-middle class does not trust the entrenched positions of America’s ideologues, they are looking for fresh thinking – which a foreigner like Piketty, whose positions are not those of any large American political faction, provides.

Now Piketty’s grand argument may be wrong. It could be that in the future, capital will turn out to complement rather than substitute for labor, and the wealth accumulation of plutocrats will generate their self-euthanasia as a social class by pushing down the rate of profit.

It could turn out that growing fortunes will be a lot harder in the future than Piketty thinks it will. It could turn out that our plutocrats as a social class will decide to play the status game of spend-their-money-and-change-the-world rather than enrich great-grandchildren that they will never see.

My guess is that the grimmer elements of Piketty’s forecast have only a 50-50 chance of coming true even if plutocrats achieve and maintain a lock on politics for the next three generations. But that is much more than enough to worry about the scenario he paints, and figure out how to guard against it.

Steven J. Davis and John Haltiwanger: Labor Market Fluidity and Economic Performance: “U.S. labor markets became much less fluid in recent decades…

…Job reallocation rates fell more than a quarter after 1990, and worker reallocation rates fell more than a quarter after 2000. The declines cut across states, industries and demographic groups defined by age, gender and education. Younger and less educated workers had especially large declines, as did the retail sector. A shift to older businesses, an aging workforce, and policy developments that suppress reallocation all contributed to fluidity declines. Drawing on previous work, we argue that reduced fluidity has harmful consequences for productivity, real wages and employment. To quantify the effects of reallocation intensity on employment, we estimate regression models that exploit low frequency variation over time within states, using state-level changes in population composition and other variables as instruments. We find large positive effects of worker reallocation rates on employment, especially for men, young workers, and the less educated. Similar estimates obtain when dropping data from the Great Recession and its aftermath. These results suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.

Barry Ritholtz: After 30,000 posts, Big Picture blogger has figured a few things out: “After more than a decade of getting up before the crack of dawn…

…to write a daily journal about all things financial, here is what I’ve learned: (1) Writing is a good way to figure out what you think…. (2) Writing is a good way to become a better writer…. (3) Mainstream media ignored blogs, occasionally stole from, then adopted the format wholesale…. (4) Content: creativity, criticism and curation. Content is king. When you are asking people to read you several times a day, you better have some fine content. Mixing original content, intelligent criticism and curation (a.k.a. reading linkfests) has been a successful formula for me…. I would describe it [as]… ‘First, here is something I CREATED which I think is worthwhile; second, THAT OVER THERE is wrong and not especially compelling and here’s why; and third, you should see ALL OF THESE. They are excellent.’ I am oversimplifying, but that’s the basic three-part content structure of a good blog…. Reader comments have become useless…. This is a shame. At one time, commenters had tremendous value within given communities….

(5) Advertising is a terrible business model (unless you are Google)…. (6) Authors vs. publishers. People read publications less than they do authors…. There is a caveat…. Any powerful platform will potentially expose a writer to a wider audience. That has been my experience here at The Washington Post as well as on Bloomberg View. (7) People lie to themselves…. For a data guy like me, this is both utterly fascinating and somewhat disturbing…. Whenever I encounter someone who refuses to accept reality, all I can do is shrug and remind myself that someone has to be on the losing side of the trade. It might as well be him. (8) It can be difficult for readers to distinguish between good information and distracting nonsense. Despite a tremendous amount of information online, readers are still mired in lots of bad thinking and disproven memes.

Sam Wang: Senate Conditions Are Back to September 3: “As of today, conditions in the battle for Senate control…

…are just about back to where they were on the day after the shake-up in the Kansas Senate race. Using polls alone in a 2-3 week window (see right sidebar), current medians show the following key margins: Alaska D+5%, Colorado D+2%, Iowa D+0.5%, North Carolina D+4%, and Kansas I+5.5%. In an election based on today’s polled sample, the most likely outcome is 51 votes for Democrats and Independents. [Update: see comments. At the moment, significant drivers of the difference between PEC and other sites appear to be (1) we’re using all polls, including partisan ones, which changes Alaska; and (2) we’re using Kansas two-candidate matchups and don’t have fundamentals to drag those polls in the GOP direction.]

The smart David Giles writes things that thousands of time-series econometricians out of the San Diego tradition have written, and continue to write:

David Giles: The (Non-) Standard Asymptotics of Dickey-Fuller Tests: “One of the most widely used tests in econometrics…

…is the (augmented) Dickey-Fuller (DF) test. We use it in the context of time series data to test the null hypothesis that a series has a unit root (i.e., it is I(1)), against the alternative hypothesis that the series is I(0), and hence stationary…

A stationary time series is one in which (once a deterministic non-stochastic trend is removed) you are willing to bet at very heavy odds that if you look far into the future the variable will still be close to what you calculate as its past sample average. A non-stationary time series is one that is not. This is kinda important: whether (and how much) radical uncertainty there is about the long run is a thing. This is a big issue if a piece of what enters your model is not what the time series has been over the course of your sample but rather what the agents in your model anticipate that the time series will be in the distant future. Things that look very well-behaved from today’s perspective and in the past may well have underlying generating processes that are not so well-behaved in the future.

But consider for the white-noise innovation ε the time series:

x_t = x_t-1 + ε_t – (1-θ)ε_t-1

• For θ = 0 the time series is stationary: it is x_t = ε_t.

• For θ > 0 the time series is non-stationary: it is x_t = ε_t + θ(ε_t-1 + ε_t-2 + ε_t-3 + … + ε₁)

Because the null contains generating processes that are close in distribution over any finite sample to the alternative, no test can ever have any power against the generalized alternative. It can have power over the alternative that the time series is non-stationary with θ > 1/2, or θ > 1/10. But not against the alternative that time series is non-stationary with θ > 0. When the variable that enters one’s model is the present value of expected future x’s, for a real interest rate of r the impact on that present value of an innovation ε is:

(1 + θ/r)ε_t

For small values of r and time series less than centuries in length, points in the null against which Giles’s tests have no power at all are economically very different indeed from the stationary alternative.

Dave Giles might respond that the null hypothesis is, obviously, not that the time series is non-stationary but that the time series is non-stationary and has a low-order ARIMA representation in which all of the moving-average coefficients are identically zero.

But where does the assumption that all of the time series we are interested in have (or ought to have, or can be modeled as having) low order ARI representations come from? And why should we believe it?

Must- and Shall-Reads:

• Dutch Book: My Ten Commandments for Finance Twitter
• Sam Wang: How Our Predictions Work
• Chris Giles et al.: Pay Pressure: Economists from across the political spectrum offer their ideas to jump-start wage growth
• Robert Pollin et al.: Green Growth: A U.S. Program for Controlling Climate Change and Expanding Job Opportunities

1. James Pethokoukis: Is it time to retire the most important chart in the world?: /The gap between actual GDP and potential GDP. It represents trillions in missing economic growth caused by a failure of the US economy to return to its previous trend growth path. The cost of the Two Percent Economy is staggering, and it’s a big reason — along with quiescent inflation — that “market monetarists” have been in no hurry to see the Federal Reserve do less. In fact, many would prefer the central bank do more — or, actually, do different. But at this point, economist David Beckworth thinks it’s time to look forward and forget about returning to the pre-crisis trend level…. That is reality talking. The Fed is winding down QE and will begin nudging up rates next year (hopefully avoiding a repeat of the Fed’s 1936-37 mistake). From this point on, I suppose, better to focus on crisis avoidance through smarter, rule-based, market-based monetary policy. That, and faster potential GDP growth through supply-side reforms in areas such as taxation, regulation, and education.’

2. Paul Krugman: Could Fighting Global Warming Be Cheap and Free? “Where is the new optimism about climate change and growth coming from? It has long been clear that a well-thought-out strategy of emissions control, in particular one that puts a price on carbon via either an emissions tax or a cap-and-trade scheme, would cost much less than the usual suspects want you to think. But the economics of climate protection look even better now than they did a few years ago. On one side, there has been dramatic progress in renewable energy technology…. On the other side, it turns out that putting a price on carbon would have large ‘co-benefits’–positive effects over and above the reduction in climate risks–and that these benefits would come fairly quickly. The most important of these co-benefits, according to the I.M.F. paper, would involve public health: burning coal causes many respiratory ailments, which drive up medical costs and reduce productivity…”

3. Reuters: U.S. House Speaker Boehner bemoans notion ‘I don’t have to work’: “Boehner’s remarks were in response to a question following a speech he delivered to the conservative-leaning American Enterprise Institute…. Boehner… lamented ‘this idea that has been born, maybe out of the economy over the last couple years, that you know, I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around. This is a very sick idea for our country.’…. Boehner talked about his large family of 11 brothers and sisters, saying that as a youngster… ‘If you wanted something you worked for it’… adding, ‘Trust me, I did it all’…. [Paul] Ryan… spoke of a ‘tailspin of culture in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value of work’. Ryan later said his remarks were ‘inarticulate’…”

4. Joe Romm: NOAA: Hottest August On Record: Last month was the warmest August since records began being kept in 1880, the National Oceanic and Atmospheric Administration (NOAA) reported Thursday…. The oceans were particularly warm. In fact, ocean warming blew more than one record out of the water: ‘The August global sea surface temperature was 0.65°C (1.17°F) above the 20th century average of 16.4°C (61.4°F). This record high departure from average not only beats the previous August record set in 2005 by 0.08°C (0.14°F), but also beats the previous all-time record set just two months ago in June 2014 by 0.03°C (0.05°F).'”

5. Peterson Institute: Event: Labor Market Slack: Assessing and Addressing in Real Time: “Live Webcast September 24, 2014…. Demographics versus demand as determinants of US labor force participation. Erica Groshen… Betsey Stevenson… David Blanchflower… Julie Hotchkiss… Michael Kiley… Justin Wolfers, University of Michigan and PIIE…. Hhow estimates of labor market slack are constructed… David Stockton… Wendy Edelberg… William Wascher… Andrew Levin… Michael Horrigan…. Charles Evans…. Angel Ubide… implications of current labor slack for monetary policymaking… Laurence Ball… William Dickens… Jan Hatzius… Stephen Oliner… Adam S. Posen…. Implications of current labor lack assessments for structural reform… Karen Dynan… Jared Bernstein… Jennifer Hunt… Jacob Kirkegaard… Michael Strain…”

6. Pedro da Costa: Fed economic projections: A colorful patchwork of downward revisions (via Deutsche): http://t.co/i6oqsQzf1G

Should Be Aware of:

• Gershom Gorenberg: The Jerusalem Approach: After a summer of war, we need a different way to think about Israeli-Palestinian peace. It starts with the holy city
• Jo Walton: Love as Struggle in the Works of Mary Renault
• Thomas I. Palley: Milton Friedman’s economics and political economy: an old Keynesian critique

1. Squarely Rooted: Margins and Ecosystems: “James Pethokoukis… ‘…humans have a poor record of understanding risk in complex systems, full of interdependencies, feedback loops, and nonlinear responses. Perhaps humility and caution and consideration are warranted.’… The economic way of thinking is deeply rooted in margins. This is, in many instances, very useful, and has a lot of explanatory power in dealing with a diverse set of market outcomes…. The problem, however, that this mode of thinking runs into is that it’s very poor at understanding ecosystems, and therefore poor at detecting the boundaries between changes that do and don’t disturb that ecosystem…. Where economists and that mode of understanding and problem solving tend to go wrong are those places where ecosystemic factors and risks go undetected by a mindset not trained to see them…”

2. James Surowiecki: Give the Homeless Homes: In 2005, Utah set out to fix a problem that’s often thought of as unfixable: chronic homelessness…. Housing First… started by just giving the homeless homes. Handing mentally ill substance abusers the keys to a new place may sound like an example of wasteful government spending. But it turned out to be the opposite: over time, Housing First has saved the government money. Homeless people are not cheap to take care of. The cost of shelters, emergency-room visits, ambulances, police, and so on quickly piles up. Lloyd Pendleton, the director of Utah’s Homeless Task Force, told me of one individual whose care one year cost nearly a million dollars, and said that, with the traditional approach, the average chronically homeless person used to cost Salt Lake City more than twenty thousand dollars a year. Putting someone into permanent housing costs the state just eight thousand dollars, and that’s after you include the cost of the case managers who work with the formerly homeless to help them adjust. The same is true elsewhere. A Colorado study found that the average homeless person cost the state forty-three thousand dollars a year, while housing that person would cost just seventeen thousand dollars. Housing First isn’t just cost-effective. It’s more effective, period. The old model assumed that before you could put people into permanent homes you had to deal with their underlying issues—get them to stop drinking, take their medication, and so on. Otherwise, it was thought, they’d end up back on the streets. But it’s ridiculously hard to get people to make such changes while they’re living in a shelter or on the street…”

Pedro da Costa: Fed economic projections: A colorful patchwork of downward revisions (via Deutsche): http://t.co/i6oqsQzf1G

Peterson Institute: Event: Labor Market Slack: Assessing and Addressing in Real Time: “Live Webcast September 24, 2014…

…Demographics versus demand as determinants of US labor force participation. Erica Groshen… Betsey Stevenson… David Blanchflower… Julie Hotchkiss… Michael Kiley… Justin Wolfers, University of Michigan and PIIE…. Hhow estimates of labor market slack are constructed… David Stockton… Wendy Edelberg… William Wascher… Andrew Levin… Michael Horrigan…. Charles Evans…. Angel Ubide… implications of current labor slack for monetary policymaking… Laurence Ball… William Dickens… Jan Hatzius… Stephen Oliner… Adam S. Posen…. Implications of current labor lack assessments for structural reform… Karen Dynan… Jared Bernstein… Jennifer Hunt… Jacob Kirkegaard… Michael Strain…

Joe Romm: NOAA: Hottest August On Record: Last month was the warmest August since records began being kept in 1880…

…the National Oceanic and Atmospheric Administration (NOAA) reported Thursday…. The oceans were particularly warm. In fact, ocean warming blew more than one record out of the water: ‘The August global sea surface temperature was 0.65°C (1.17°F) above the 20th century average of 16.4°C (61.4°F). This record high departure from average not only beats the previous August record set in 2005 by 0.08°C (0.14°F), but also beats the previous all-time record set just two months ago in June 2014 by 0.03°C (0.05°F).'”