Should-Read: John Austin: A tale of two Rust Belts: Diverging economic paths shaping community politics: “Some communities have assets (and have advanced strategies to build on those assets)…

…that now find them and their residents not only participating in, but actually leading the move to a more knowledge-based, technology-driven and urbanized economy. Pittsburgh, Columbus, Indianapolis, Minneapolis, and Milwaukee are today economically diversified, dynamic and growing metro economies. Big university towns like Madison, Ann Arbor, and Bloomington are magnets of state talent, innovation centers, and largely recession-proof. All of these communities are attracting and keeping highly educated populations, producing rising incomes, and maintain a diversified economic base. They are no longer beholden as manufacturing monocultures, as was the norm across the region fifty years ago when Minneapolis was “Flour City,” or Pittsburgh as the “Steel City.” And these communities all voted “blue” last fall.

It’s a very different story in many other Rust Belt communities, however. The small- and medium-sized factory towns that dot the highways and byways of Michigan, Indiana, Ohio and Wisconsin have lost their anchor employers and are struggling to fill the void. Many of these communities, including once solidly Democratic-voting, union-heavy, blue collar strongholds, flipped to Trump in 2016…

Should-Read: Good advice from Chris Dillow about how economists can try to avoid degrading the quality of the discussion in the public sphere: Chris Dillow: Stumbling and Mumbling: Economists in public: “There was a debate on Twitter this morning about how economists can better engage with the public….

…Our efforts to do so have not been wholly futile. Granted, economists’ influence on the debate about Brexit and austerity hasn’t been as great as we would like. But on the other hand, Tim Harford and Steve Levitt have gotten a wide public audience–one perhaps more deservedly so than the other, And my attempts to bring proper economics to the albeit niche readership of the Investors Chronicle have not been met with complete derision…. It is possible for economists to gain some influence. What follows are some suggestions as to how or when this can be done:

First, economists cannot hope to challenge beliefs that are part of people’s self-identity. If you tell someone “economics says you’re a twat” you’ll not get a sympathetic hearing even if you are bang right. This helps explain the success of Freakonomics and the failure over Brexit: nobody had strong prior beliefs about whether Sumo wrestlers cheat, but they did about the EU. In this context, I have it easy at the IC. People might not want to hear they are fools but they do want to know ways of making money, or at least to stop losing it egregiously. I can therefore try to be Keynes’ dentist, offering humble but competent advice without telling them they are fools. Secondly, try to appeal to facts rather than the consensus…

Should-Read: State-of-the-art, and very best thing I have seen recently on what potential output really is in the United States today: Olivier Coibion, Yuriy Gorodnichenko, and Mauricio Ulate: Real-Time Estimates of Potential GDP: Should the Fed Really Be Hitting the Brakes?: “CBO’s and other similar estimates of potential output are too pessimistic… Continue reading “Should-Read: Olivier Coibion, Yuriy Gorodnichenko, and Mauricio Ulate: Real-Time Estimates of Potential GDP: Should the Fed Really Be Hitting the Brakes?“ →

Should-Read: Amazon—and other employers—have become very good at squeezing money out of mayors and others in relatively depressed areas in return for job-creation headlines. This does not mean that it is a pure winners’s curse situation: agglomeration economies are very real. but it does mean that the premium on not electing a stupid and corrupt mayor has just gone way up: Janelle Jones and Ben Zipperer: Unfulfilled promises: Amazon fulfillment centers do not generate broad-based employment growth: “When Amazon opens a new fulfillment center, the host county gains roughly 30 percent more warehousing and storage jobs but no new net jobs overall…

…jobs created in warehousing and storage are likely offset by job losses in other industries. Why it matters: State and local governments give away millions in tax abatements, credits, exemptions, and infrastructure assistance to lure Amazon warehouses but don’t get a commensurate “return” on that investment. What we can do about it: Rather than spending public resources on an ineffective strategy to boost local employment (luring Amazon fulfillment centers), state and local governments should invest in public services (particularly in early-childhood education and infrastructure) that are proven to spur long-term economic development…

Should-Read: Regionally-concentrated deaths of despair: Mike Males: The Truth About Teen Suicide: “Trend[s] in suicide rates among teens… track… trend among… adults…

…And what jumps out from the data is not technology use, but geography. Rising suicide is overwhelmingly a feature of rural America, where teenagers have less access to smartphones and use Facebook less than urban teens do….Girls are branded as particularly depressed and suicidal due to modern social-media trends. Yet girls’ suicide remains rare, especially in urban areas, and while it has become more common over the past two decades, its increase closely parallels the increase among women of their parents’ age….

One unexplored factor may be the influence of immigration and racial diversity (more than half of Los Angeles and New York youth have at least one immigrant parent). Asians and Latinos who make up the bulk of immigrants have distinctly lower suicide rates than native-born populations. Emerging analyses show rapidly rising suicide, firearms, and addiction-related “deaths of despair” afflict whites the most in rural and suburban areas where white populations are most concentrated. There are many more suicides among the seven million white rural 35-64 year-old men than among all 40 million American teenagers…

Should-Read: I agree with David here: BitCoin will have long run value only if some organization decides that it wants BitCoin to have long-run value, in which case it is no longer a decentralized emergent phenomenon, but rather a managed one—managed in the interest of the stabilizing entity, not of BitCoin holders: David Glasner: Noah Smith on Bitcoins: A Failure with a Golden Future : “Noah Smith and I agree that… Bitcoins have no chance of becoming a successful money…

…However, I think that Bitcoins must sooner or later become worthless, while Noah thinks that Bitcoins, like gold, can be a worthwhile investment for those who think that it is fiat money that is going to become worthless. Here’s how Noah puts it….

Why has gold increased in price? One reason is that it’s not quite useless—people use gold for jewelry and some industrial applications, so the metal slowly goes out of circulation, increasing its scarcity. And another reason is that central banks now own more than 17% of all the gold in the world…. But another reason is that people simply believe in gold. In the end, the price of an asset is what people believe it’s worth…

Yes, but it sure does help when there are large central banks out there buying unwanted gold, and piling it up in vaults where no one else can do anything with it…. The problem with cryptocurrencies is that there is no reason to think that central banks will start amassing huge stockpiles of cryptocurrencies, thereby ensuring that the demand for cryptocurrencies will always be sufficient to keep their value at or above whatever level the central banks are comfortable with. It just seems odd to me that some people want to invest in Bitcoins, which provide no present or future real services, and almost no present or future monetary services, in the belief that it is fiat money, which clearly does provide present and future monetary services, and provides the non-trivial additional benefit of enabling one to discharge tax liabilities to the government, is going to become worthless sometime in the future. If your bet that Bitcoins are going to become valuable depends on the forecast that dollars will become worthless, you probably need to rethink your investment strategy.

Should-Read: That the truly valuable skills will lie in understanding what are robots and software ‘bots can and cannot do—how they think, and how their thinking is different from ours—so that we can use them for good rather than evil seems a good bet: Andrew Wachtel: Universities in the Age of AI: “Over the next 50 years or so, as AI and machine learning become more powerful, human labor will be cannibalized by technologies that outperform people in nearly every job function…

…How should higher education prepare students?… Educators must consider what skills graduates will need when humans can no longer compete with robots…. Tomorrow’s leaders will need an intimate familiarity with computers…. But graduates will also need experience in psychology, if only to grasp how a computer’s “brain” differs from their own…. Business majors should study economic and political history to avoid becoming blind determinists. Economists must learn from engineering students, as it will be engineers building the future workforce. And law students should… gain the insight that will be needed to defend people from forces that may seek to turn individuals into disposable parts. Even students studying creative and leisure disciplines must learn differently. For one thing, in an AI-dominated world, people will need help managing their extra time…. Today… [the] future looks to be dominated by machines. To succeed, educators–and the universities we inhabit–must evolve.

Must-Read: Yes, Trump appointments are doing substantial damage to the competence of the government. Why do you ask?: Paul Krugman: The Gang That Couldn’t Think Straight: “Puerto Rico[’s]… residents, almost a third of whom are still without power…

…four months after the storm…. FEMA officials told NPR that the disaster agency was ending its work on the island. FEMA later said that this was a miscommunication. But at the very least it suggests a complete lack of focus….

Trump… declared… that he is “committed” to taking action on the opioid epidemic. But… what he did do was appoint a 24-year-old former campaign worker, with no relevant experience before joining the administration—who appears to have lied on his résumé…. The Trump-appointed director of the Centers for Disease Control and Prevention resigned after Politico reported that she had purchased tobacco-industry stocks after taking office…. These aren’t isolated examples…. The Trump administration is a graveyard for reputations: Everyone who goes in comes out soiled and diminished. Only fools, or those with no reputation to lose, even want the positions on offer. And in any case, Trump, who values personal loyalty above professionalism, probably distrusts anyone whose credentials might give some sense of independence….

America is a very big country with a lot of strengths, and it can run on momentum for a long time even if none of the people in charge know what they’re doing. Sooner or later, however, stuff happens—and then incompetence becomes a very big deal, as it already has in Puerto Rico. What kind of stuff may happen? The scariest scenarios involve national security. But we can’t count on smooth sailing for the economy….

Lower-level Fed appointments are becoming cause for concern…. Marvin Goodfriend, whom Trump has nominated for the Fed’s Board of Governors. Democrats pointed out that Goodfriend was wrong, again and again, about monetary policy during the crisis, repeatedly predicting inflation that didn’t happen. Now, everyone makes bad predictions now and then; God knows I have. But you’re supposed to face up to your mistakes, figure out what went wrong and adapt your views. Goodfriend refused to do any of that. And why should he? His errors were politically correct; they reinforced Republican orthodoxy. From the G.O.P.’s point of view, having been completely wrong about monetary policy isn’t a defect, it’s practically a badge of honor.

The point is that even at the Fed, which is partly insulated from the Trumpian reign of error, U.S. policymaking is being denuded of expertise. And the whole nation will eventually pay the price.

Should-Read: There is a deep problem with simulations as teaching tools, nailed by the international treasure Dan Davies here on Twitter: Chris Hanretty: LRT: study in most recent APSR suggests getting people to take perspective of marginalised group…

…through a choose-your-own-adventure game reduces hostility to group by 0.2-0.3 standard deviations. This confirms my belief that choose your own adventure games are awesome.

Dan Davies: The trouble is they’re too powerful. Anthony Stafford Beer gave up on simulation exercises in management training because he wasn’t happy with the idea of million pound decisions being made on the basis of what worked in a game he dreamt up in an afternoon.

Chris Hanratty: I’m happy with forms of communication which, in moderation, give power to creative imaginative people capable of writing narratives!

Yorkshire Ranter: I’m fairly sure you could construct one to have the opposite effect.

Dave Andress: More time on the Kobayashi Maru?

Celestial M. Weasel: With our simulation software we would certainly have senior people come into the room look at the coloured boxes moving round the screen (as was the fashion at the time ((c) Abe Simpson)) and say ‘yes, I knew that was the problem’ and go off to make decisions…

Should-Read: A good Twitter debate—yes, I know that is a near-oxymoron—about macroeconomics in the public sphere: Simon Wren-Lewis, Tony Yates, and Dan Davies: “Journalists need a place they can go to get an idea of what the balance of opinion is on any issue, and why economists think that way…

…Tony Yates: ‘Professor for the Public Understanding of Economics’ akin to similar roles that exist for science and statistics. Needs a department brave enough to fund it, ie not spend money on generating REFable research output.

Dan Davies: At this stage in the development of economics as a science, the last thing we need is public understanding of how bad things are. They’d murder us.

Simon Wren-Lewis: I think they have already with Brexit. The status quo where politicians make stuff up about economics and find economists who are in an extreme minority to support that position means economics is currently worthless as a public policy tool.

Dan Davies: It also has to be faced up to that brexit gave the mainstream of economists a chance to make a big high profile prediction and we massively swung and missed.

Simon Wren-Lewis: But why was that. Plenty of economists I know worked very hard to get the message across. So where did we go wrong—what was missing?

Dan Davies: Any single prominent figure prepared to talk authoritatively because the profession had spent a decade saying “macro forecasting is for charlatans and true economics is quirky datasets”. The main message of the economics profession between 2008 and 2015 was “you can’t blame us, economics isn’t the sort of thing that lets you

Simon Wren-Lewis: Again, this confuses conditional (Brexit) and unconditional (there will be a banking crisis in 2007/8) forecasting. I didn’t hear any serious economist say we were right not to pay attention to the financial sector.

Dan Davies: I heard dozens of serious economists saying we were in a Great Moderation and could expect stable growth. It’s just not tenable to claim that failure to understand what was happening in the 00s shouldn’t affect our credibility. The 07/08 crisis demonstrated that the majority of economists didn’t understand what was happening in the actual economy for a decade. Then we popped up in 2016 saying “well, we understand this and what will happen here”.

Simon Wren-Lewis: And what, exactly, has a failure to understand the importance of finance and the possibility of crisis got to do with gravity equations. It is like saying doctors cannot cure your cold so I’m going to ignore what they say about cancer.

Dan Davies: Yes! It’s like saying “blood-letting doesn’t cure tuberculosis, so I’m not going to take mercury as a treatment for syphilis”. For the majority of the history of medicine, it was correct to assume that doctors were working on a totally mistaken understanding. Economics is not in the position of modern medical science. It would be flattering to say we were near the position of medical science shortly be before Pasteur. We make lots of mistakes, and we make them because our understanding of the economy is very bad. In the case of brexit it might be one of the areas we understand better, but it’s wholly reasonable for the public not to give us the benefit of the doubt.

Simon Wren-Lewis: So once the GFC hit, economists should have said we know nothing, so we will not advise you to cut interest rates, or bail out banks, or undertake fiscal stimulus. Yes, maybe QE will cause hyperinflation, and yes maybe all this debt will send rates through the roof.

Dan Davies: A very large proportion of the economics profession should have said “our models are clearly inadequate so we will work hard on improving our understanding, in the meantime please listen to this small subset of us who appear to have been right”. But really after a mistake that big there is no way at all that the economics profession could have expected to be listened to for a long time, and this is not really the public’s fault or the fault of politicians.

Simon Wren-Lewis: You could say exactly the same about US medics and the opioid crisis in the US, and it would be equally stupid. You cannot just ignore economics when you take economic decisions all the time.

Tony Yates: It’s explicable that we struggle to get a hearing; but not right. I personally failed to see the crisis coming, or some of the defects in our institutions that made dealing with it difficult, but I think I understand more deeply than non economists [that’s all politicians and a lot of journalists] what went wrong and what to do about it. That is not a very strong claim either as the bar is quite low…