Category: Equitablog

C. Northcote Parkinson: Parkinson’s Law:

When first examined under the microscope, the cabinet council usually appears–to comitologists, historians, and even to the people who appoint cabinets–to consist ideally of five. With that number the plant is viable, allowing for two members to be absent or sick at any one time. Five members are easy to collect and, when collected, can act with competence, secrecy, and speed. Of these original members four may well be versed, respectively, in finance, foreign policy, defense, and law. The fifth, who has failed to master any of these subjects, usually becomes the chairman or prime minister…

Noah Smith: I love microfoundations. Just not yours:

Check out the debate between Tony Yates and Simon Wren-Lewis…. It was kind of cute that Yates singled out Calvo pricing as an unrealistic, kludgey, hold-your-nose sort of microfoundation…. Lagos-Wright (2005)… is every bit as unrealistic as Calvo pricing, but you don’t hear Freshwater guys like Yates kvetching about that…. In the comments to Wren-Lewis’ post, I wrote “YES YES A THOUSAND TIMES YES”. In a follow-up post, Yates caricatures my comment as “NO NO GET RID OF ALL THE MOTHER&&&&&&G MICROFOUNDATIONS WHILE YOU ARE AT IT.” But let us ignore that particular flerp-o’-derp for now, and focus on why Wren-Lewis is so very very right….

Yates says I just want to get rid of all the microfoundations. But that is precisely, exactly, 180 degrees wrong! I think microfoundations are a great idea! I think they’re the dog’s bollocks! I think that macro time-series data is so uninformative that microfoundations are our only hope for really figuring out the macroeconomy. I think Robert Lucas was 100% on the right track when he called for us to use microfounded models. But that’s precisely why I want us to get the microfoundations right. Many of microfoundations we use now (not all, but many) are just wrong…

Larry Summers: Why stagnation might prove to be the new normal:

Is it possible that the US and other major global economies might not return to full employment and strong growth without the help of unconventional policy support? I raised that notion….

Continue reading “Larry Summers Says “Stagnation Might Prove to Be the New Normal”; But I Say: “Only If We Make It So”: Wednesday Focus (December 18, 2013)” →

The English-language translation (by Arthur Goldhammer) of Tomas Piketty’s Capital in the Twenty-First Century is coming out in March. And he gave a talk on it in Helsinki.

The hawk-eyed Cardiff Garcia writes:

Piketty previews Piketty | FT Alphaville: A hat tip to reader @zapatique for sending us to Thomas Picketty’s recent lecture, which previews the forthcoming English-language edition of his new book…

Continue reading “Tomas Piketty: Inequality and Capitalism in the Long Run” →

Ezra Klein’s attempt to provide some pushback and context to–well, to the mission of Equitable Growth–has gone semi-viral, or, rather, as semi-viral as things can go in this restricted technocrat-wannabe circle. So let me pick up that thread again

If I may paraphrase Ezra, or rephrase Ezra, or chop his argument into bits and reassemble the bits into something of my own liking, Ezra sees three dangers:

1. A left that primary focuses on distribution will focus on raising taxes on the rich, and neglect issues of investment in technologies, structures, ideas, and people and so neglect growth, and also neglect aggregate demand and so neglect restoring full employment.
2. A left that focuses primarily on growth will focus only on various forms of investment, and so neglect issues of distribution and equity and also issues restoring full employment.
3. A left that primarily focuses on employment will focus only on boosting aggregate demand, and neglect issues of spurring growth and also issues of distribution.

Ezra thinks–I think–that what we need is a balance, and if we are going to fall off balance in any direction it should be in direction (3).

Continue reading “(Late) Tuesday Focus: Responses to Ezra Klein’s Worries About Over Focus on Inequality, and Ezra Klein’s Response…” →

Antonio Fatas: Four missing ingredients in macroeconomic models:

oI would like to go further and add a few items to their list that I wished could become part of the mainstream modeling in economics. In random order:

1. The business cycle is not symmetric….
2. As much as the NBER methodology emphasizes the notion of recessions (which, by the way, are asymmetric in nature), most academic research is produced around models where small and frequent shocks drive economic fluctuations, as opposed to large and infrequent events. The disconnect comes probably from the fact that it is so much easier to write models with small and frequent shocks than having to define a (stochastic?) process for large events. It gets even worse if one thinks that recessions are caused by the dynamics generated during expansions. Most economic models rely on unexpected events to generate crisis, and not on the internal dynamics that precede the crisis….
3. There has to be more than price rigidity…. Price rigidities are important and they help us understand some of the features of the business cycle. But there must be more than that. There are other frictions…. They might not be easy to measure or model, they might be different across different economies but it is difficult to imagine that an adjustment of prices and wages to their optimal level would automatically restore full employment….
4. The notion that co-ordination across economic agents matters to explain the dynamics of business cycles receives very limited attention in academic research….

Continue reading “Let Me 110% Endorse Antonio Fatas’s Mini-Macroeconomic Manifesto…” →

Must-Reads:

1. Martin Wolf: Why Abenomics will disappoint: “Abenomics consists of ‘three arrows’. The first is a monetary policy aimed at eliminating deflation. The second is a flexible fiscal policy, aimed at supporting the Japanese economy in the short run and at fiscal stability in the long run. The third is structural reform, aimed at raising investment and trend growth…. Supported by the new monetary policy, Japan is enjoying a cyclical upswing. Deflation may disappear. But hopes for faster trend economic growth are too optimistic and the discussion of structural obstacles too limited. Given its demography, Japan would do well to attain growth of 1-1.5 per cent a year. The country will be unable to combine economic dynamism with fiscal consolidation without a rise in consumption’s share in GDP. Since household savings rates are low, this can only happen if income is transferred from corporations. Nobody seems to be willing to recognise this challenge. It is assumed, instead, that Japan’s already excessive investment should rise still further. This is mistaken. How, then, can the first year of Abenomics be assessed? As an early success, but a far from complete one.”

2. Economist: The ECB’s online game: Being Mario Draghi: “A game to educate Europeans about monetary policy skips some detail…. The instructions have a clarity that induces nostalgia: “Keep the inflation rate just under 2% and stable. Raise the interest rate to push inflation down. Lower the interest rate to push inflation up.”… Extra guidance is provided by a ragtag group of advisers, including a hippy, a narcoleptic and a gambler—which may be how Bundesbank officials now view their euro-zone colleagues…. €conomia badly needs an update if the ECB really wants to educate Europeans about its current job. Players need more data on sovereign-borrowing costs, cross-border deposit flows and Target 2 balances. They should also have many more tools at their disposal, such as unlimited loans for troubled banks and programmes to buy unlimited amounts of sovereign debt…. Instead of stabilising the rate of euro-zone inflation, players should prevent any country from leaving the single currency. The crisis-hit countries will exit if they become trapped in recession but the northern-tier nations will quit if their domestic inflation rates exceed an annual average of, say, 3%. Anyone who succeeds should go on the shortlist to be the next ECB president.”

Continue reading “Things You Should Read on the Evening of December 17, 2013” →

Martin Wolf: Why Abenomics will disappoint:

Abenomics consists of ‘three arrows’. The first is a monetary policy aimed at eliminating deflation. The second is a flexible fiscal policy, aimed at supporting the Japanese economy in the short run and at fiscal stability in the long run. The third is structural reform, aimed at raising investment and trend growth…. Supported by the new monetary policy, Japan is enjoying a cyclical upswing. Deflation may disappear. But hopes for faster trend economic growth are too optimistic and the discussion of structural obstacles too limited. Given its demography, Japan would do well to attain growth of 1-1.5 per cent a year. The country will be unable to combine economic dynamism with fiscal consolidation without a rise in consumption’s share in GDP. Since household savings rates are low, this can only happen if income is transferred from corporations. Nobody seems to be willing to recognise this challenge. It is assumed, instead, that Japan’s already excessive investment should rise still further. This is mistaken. How, then, can the first year of Abenomics be assessed? As an early success, but a far from complete one.

http://www.reuters.com/article/2013/12/17/us-glaxosmithkline-payment-idUSBRE9BG03620131217?feedType=RSS&feedName=topNews:

Glaxo says it will abandon the practice of paying doctors to push its drugs…

Must-Reads:

1. Richard Leon: This Is The Most Important Paragraph In The Court Decision Against The NSA: “he question in this case can more properly be styled as follows: When do present-day circumstances–the evolutions in the Government’s surveillance capabilities, citizens’ phone habits, and the relationship between the NSA and telecom companies–become so thoroughly unlike those considered by the Supreme Court thirty-four years ago that a precedent like Smith simply does not apply? The answer, unfortunately for the Government, is now.”

2. Anil Dash: What Medium Is: “MEDIUM IS BLOGGING IN FORM, BUT NOT IN STRUCTURE: Ev explicitly evokes blogfather Dave Winer’s definition of blogging as the ‘unedited voice of a person’…. I think that’s an adequate description of the content of blogging, but that the reverse-chronological structure that’s defined blogging and its descendants such as Twitter’s timeline and Facebook’s news feed is just as essential…. Medium eschews reverse chronology, organizing instead by ‘collections’ (which seem to be an aspect of the platform that is in significant, if largely behind-the-scenes, evolution)…. The abandonment of reverse chronology has the effect of undoing a core tenet of blogging: The social contract… an implicit promise from the blogger that more content will appear in the future, and the expectation changes the nature of reading what’s written. The promise of updates to a blog has positive impacts… but it’s also been the biggest cause of stress for bloggers: Having to keep updating is seen as an overwhelming obligation by many, and the requirement of newest-on-top has frustrated countless bloggers who want to assign some semblance of editorial judgment (or simply want to inflict their authorial authority) on behalf of readers. Trying to fight reverse chronology has been the impetus behind most of Gawker’s never-ending parade of reader-enraging redesigns…. Despite the good reasons for Williams, Winer, Denton and many others to resist the tyranny of reverse chronology has triumphed…. So what does Medium resemble more, with its organization-by-collection, diminished prominence of the creator’s identity, and easy flow between related pieces of content? It’s simple: YouTube…. Medium is evolving to be the same; We get sent an article that someone wants us to read…. Medium is much closer to ‘YouTube for Longform’ than it is ‘Blogger Revisited’…

3. Jesse Rothstein: Teacher Quality Policy When Supply Matters: “Recent proposals would strengthen the dependence of teacher pay and retention on demonstrated performance. One intended effect is to attract those who will be effective teachers and repel those who will not. I model the teacher labor market, incorporating ability heterogeneity, dynamic self-selection, noisy performance measurement, and Bayesian learning. Simulations with plausible parameter values indicate that labor market interactions are important to the evaluation of alternative teacher contracts. Reasonable bonus policies create only modest incentives and thus have very small effects on selection. Tenure and firing policies can have larger effects, but must be accompanied by substantial salary increases. Both bonus and tenure policies pass cost benefit tests, though the magnitudes of the benefits are quite sensitive to parameters about which little is known.”

Continue reading “Things to Read on the Morning of December 17, 2013” →