Category: Equitablog

Should-Read: Atif Mian, Amir Sufi, and Emil Verner: How do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s: “Does an expansion in credit supply affect the economy by increasing productive capacity, or by boosting demand?… http://www.nber.org/papers/w23802

…We design a test to uncover which of the two channels is more dominant, and we apply it to the United States in the 1980s where the degree of banking deregulation generated differential local credit supply shocks across states.

The stronger expansion in credit supply in early deregulation states primarily boosted local demand, especially by households, as opposed to improving labor productivity of firms. States with a more deregulated banking sector see a large relative increase in household debt from 1983 to 1989, which is accompanied by an increase in the price of non-tradable relative to tradable goods, an increase in wages in all sectors, an increase in non-tradable employment, and no change in tradable employment.

Credit supply shocks lead to an amplified business cycle, with GDP, employment, residential investment, and house prices increasing by more in early deregulation states during the expansion, and then subsequently falling more during the recession of 1990 and 1991. The worse recession outcomes in early deregulation states appear to be related to downward nominal wage rigidity, household debt overhang, and banking sector losses…

Should-Read: OK. We are agree that you should never do anything in Excel. But what should you do?

Jake VanderPlas: Reproducible Data Analysis in Jupyter: “Jupyter notebooks provide a useful environment for interactive exploration of data… http://jakevdp.github.io/blog/2017/03/03/reproducible-data-analysis-in-jupyter/

…A common question I get, though, is how you can progress from this nonlinear, interactive, trial-and-error style of exploration to a more linear and reproducible analysis based on organized, packaged, and tested code. This series of videos presents a case study in how I personally approach reproducible data analysis within the Jupyter notebook…

Must-Read: Ben Thompson: Defining Aggregators: “Value has shifted away from companies that control the distribution of scarce resources to those that control demand for abundant ones… https://stratechery.com/2017/defining-aggregators/

…The purpose of this article is to catalog exactly what the latter look like. Aggregators have… Direct Relationship with Users… Zero Marginal Costs For Serving Users… Demand-driven Multi-sided Networks with Decreasing Acquisition Costs…. Aggregation is fundamentally about owning the user relationship and being able to scale that relationship.

That said, there are different levels of aggregation based on the aggregator’s relationship to suppliers…. Level 1 Aggregators acquire their supply; their market power springs from their relationship with users, but is primarily manifested through superior buying power… Netflix…. Level 2 Aggregators… incur transaction costs in bringing suppliers onto their platform… industries with significant regulatory concerns that apply to the quality and safety of suppliers…. Level 3 Aggregators do not own their supply and incur no supplier acquisition costs (either in terms of attracting suppliers or on-boarding them). Google is the prototypical Level 3 Aggregator…. Social networks are also Level 3 Aggregators…. Level 3 aggregators are predicated on massive numbers of users, which means they are usually advertising-based (which means they are free to users)…. Super-Aggregators operate multi-sided markets with at least three sides — users, suppliers, and advertisers — and have zero marginal costs on all of them. The only two examples are Facebook and Google…

Should-Read: Christopher Jeffery: Fed’s [John] Williams floats co-ordinated shift from 2% targets: “Williams… believes 2% inflation targets adopted by most of the developed world’s central banks will prove to be suboptimal over the next 10 years… https://www.centralbanking.com/central-banks/monetary-policy/operating-framework/3301501/feds-williams-floats-co-ordinated-shift-from-2-targets

…Real productivity and the associated natural rate of interest (used in the Taylor rule, for example) are both in decline – and there is no reason to believe this will change in the next decade or so. “There could be a mutual benefit for countries to change their price-stability policies together,” says Williams in the in-depth interview, to be published tomorrow…. “QE is viewed – fairly or unfairly (I would say unfairly) – as a ‘beggar-thy-neighbour’ policy,” he says. “Research has indicated that if several countries are at the lower bound, while these policies primarily work by boosting demand, they also result in shifting demand from one country to another. So maybe co-operation and co-ordination should be happening in the discussion about frameworks.”… If all central banks stick with “current low inflation targets”, when one country has to stimulate the economy via QE, “a lot of the effect will happen through demand shifting, or beggaring thy neighbour”: “The scary scenario is a repeat of what we’ve seen, where everybody’s at the lower bound – not because of a crisis, but due to the reasons recessions happen – and we’re all stuck with uncomfortable choices.”…

“If you want to see my gloomy view of the future, just open up your computer and look at the last five years,” he says. “I’m not saying that we’re going to have another financial crisis, it’s just that the challenges of using interest rates to keep the economy on track and inflation stable are going to be very difficult.” Instead of people calling for central banks to co-ordinate regular policy actions – which Williams says is “almost impossible, tactically, in most circumstances” – they should engage in a “true policy strategy debate”.

Must-Read: Josh Barro: Trump, GOP tax plan is looming political disaster: “President Donald Trump tweeted Wednesday morning, hours before the announcement of the latest Republican tax proposal, that… http://www.businessinsider.com/trump-gop-tax-plan-political-disaster-2017-9

…”virtually no President has accomplished what we have accomplished in the first 9 months.” This is probably a good time to reflect on George W. Bush. While Trump likes to talk about “massive tax cuts,” Bush actually signed one less than five months into his term in office. Bush’s proposal was popular and attracted substantial Democratic support. And much of it is still the law today. Bush understood the politics of tax cuts in a way that Trump and House Speaker Paul Ryan do not — which is why Ryan and Trump have produced a tax plan that is a political time bomb.

Tax cuts are more popular if they don’t increase taxes on people
A key talking point the Bush administration used repeatedly to sell their tax plan was that it would “reduce taxes on everyone who pays income taxes.” This statement was right there in the first paragraph of Treasury Department’s announcement of the tax proposal — which, I would note, was released in February of Bush’s first year in office, not September. Most importantly, the statement was true…. The proposal was explicitly designed to have extensive benefits for middle-income families, so he could go around the country and accurately say it offered a tax cut for everyone who paid income taxes and that nobody’s income taxes would go up.

Trump is about to propose to raise taxes on a lot of middle-income people to cut taxes for the rich. Because a lot of details of the Republican tax plan have yet to be filled in, we can’t say yet who would pay what…. But… we can identify a group of taxpayers likely to face tax increases from this proposal: people with moderate to upper-moderate incomes who take itemized deductions, like those for mortgage interest and state and local taxes paid…. While these taxpayers would lose key tax benefits, rich taxpayers would come out ahead….

“A tax cut for everyone who pays income taxes” was popular. Republicans won’t be able to say that this time. “A tax increase for many ordinary families to pay for a tax cut for the rich” is what Democrats will say. They’ll be right. And it will make this plan impossible to pass.

Should-See: Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science: “The rapid growth in the size and scope of datasets in science and technology has created a need for novel foundational perspectives on data analysis that blend the inferential and computational sciences… https://bids.berkeley.edu/resources/videos/computational-thinking-inferential-thinking-and-data-science

…That classical perspectives from these fields are not adequate to address emerging problems in Data Science is apparent from their sharply divergent nature at an elementary level—in computer science, the growth of the number of data points is a source of “complexity” that must be tamed via algorithms or hardware, whereas in statistics, the growth of the number of data points is a source of “simplicity” in that inferences are generally stronger and asymptotic results can be invoked. On a formal level, the gap is made evident by the lack of a role for computational concepts such as “runtime” in core statistical theory and the lack of a role for statistical concepts such as “risk” in core computational theory. I present several research vignettes aimed at bridging computation and statistics, including the problem of inference under privacy and communication constraints, and including a surprising cameo role for symplectic geometry…

September 26, 4:10 PM PDT