Must-See: Why “three principles”? Why not “five principles”?

Bin Yu: Three principles for data science: predictability, stability, and computability: “September 12, 2017 :: 4:10pm to 5:00pm :: 190 Doe Library” https://bids.berkeley.edu/events/three-principles-data-science-predictability-stability-and-computability

Bin Yu: Three principles for data science: predictability, stability, and computability: “Prediction is a useful way to check with reality… http://delivery.acm.org/10.1145/3110000/3105808/p5-yu.pdf?

…Good prediction implicitly assumes stability between past and future. Stability (relative to data and model perturbations) is also a minimum requirement for interpretability and reproducibility of data driven results (cf. Yu, 2013). It is closely related to uncertainty assessment. Obviously, both prediction and stability principles cannot be employed without feasible computational algorithms, hence the importance of computability…

https://www.youtube.com/watch?v=xqBW8QKs9q4

Should-Read: This was remarkably off-base at the time. It reads even worse now. I don’t know which is worse: the endorsement of do-nothing climate policies, the refusal to face the fact that high-income tax cuts have not generated faster growth, or the “nation of takers” bs with respect to “paying no taxes”…

Why do Republican economists burn their reputations this way?

Michael Boskin (March 6, 2009): Obama’s Radicalism Is Killing the Dow: “our new president’s policies are designed to radically re-engineer the market-based U.S. economy… https://www.wsj.com/articles/SB123629969453946717

…Instead of combining the best policies of past Democratic presidents—John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance—President Obama is returning to Jimmy Carter’s higher taxes and Mr. Clinton’s draconian defense drawdown. Mr. Obama’s $3.6 trillion budget blueprint… more than doubles the national debt… reduces defense spending to a level not sustained since the dangerous days before World War II… and it would raise taxes to historically high levels….

Increasing the top tax rates on earnings to 39.6% and on capital gains and dividends to 20% will reduce incentives for our most productive citizens and small businesses to work, save and invest—with effective rates higher still because of restrictions on itemized deductions and raising the Social Security cap…. The president claims he is only hitting 2% of the population, but many more will at some point be in these brackets. As for energy policy, the president’s cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse….

The president’s proposed limitations on the value of itemized deductions for those in the top tax brackets would clobber itemized charitable contributions… exacerbate tax flight from states like California and New York…. New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president’s budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government….

The European social welfare states present a window on our potential future: standards of living permanently 30% lower than ours. Rounding off perceived rough edges of our economic system may well be called for, but a major, perhaps irreversible, step toward a European-style social welfare state with its concomitant long-run economic stagnation is not.

Should-Read: Piketty’s elasticity of substitution between capital and labor is, in his model, produced by the constancy of the rate of profit near 5%/year in spite of wide swings in the capital-output ratio. You can’t say that substitution parameter is wrong without providing an alternative explanation for the constancy of the rate of profit. Yet very few of Piketty’s critics even attempt that:

Diane Coyle: Inequality, revisited: “Recently I’ve been dipping into The Contradictions of Capital in the 21st Century: The Piketty Opportunity, edited by Pat Hudson and Keith Tribe… http://www.enlightenmenteconomics.com/blog/index.php/2017/09/inequality-revisited/

…There is a reasonable consensus among the contributors to these various collections that Piketty’s theorising is flawed (in particular depending on an empirically invalid assumption about the substitution between capital and labour), that his application of a theory about productive capital to the data including housing wealth and financial capital is troubling, and that his call for a global wealth tax is (as Avner Offer puts it in his essay in this book) ‘utopian’. Equally, pretty much all would agree that Piketty, with co-authors, has done a terrific service in putting together the database, and in getting inequality on the agenda of both economists and policymakers.

Pat Hudson[‘s]… challenge to Capital in the 21st Century is its omission of globalisation and technology as drivers of inequality–if one is thinking about policies to mitigate inequality, r>g isn’t much help. She pinpoints financial markets, and regulatory and political beliefs, as key points of intervention–in other words, the specifics Piketty ignores in his generalisations. Avner Offer focuses on housing, and limiting its tendency to make wealth more unequal through credit controls. The main sections of the book aim to particularise the analysis of inequality by looking at the trends, institutions and politics of different countries – one section on western economies, one on major economies elsewhere. As Luis Bértola points out here, Piketty is very Eurocentric. Having these different national perspectives is a useful contribution…

Must-Read: Every year since 2007 the Fed has been too optimistic and forecast that its interest rates will be higher than has turned out to be the case. Every single year. 2^-11 = 1/2048:

Pedro Nicolaci da Costa: Fed may pause rate hikes if inflation weakness persists: “The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth… http://www.businessinsider.com/fed-may-pause-rate-hikes-if-inflation-weakness-persists-2017-7

…Janet Yellen’s testimony to Congress this week… acknowledging that a recent decline in inflation further below the central bank’s 2% target may not, in fact, be as fleeting as policymakers had hoped…. The latest figures are clearly heading in the wrong direction. Consumer prices held flat in June despite expectations for a 0.1% increase and the annual rate, which the Fed watches closely, registered just 1.6%. The Fed’s preferred measure of inflation, the personal consumption expenditures index, has also been slipping…. Not one but two regional Fed banks have just downgraded their growth estimates….

The Fed has frequently been overly optimistic about its predictions for rate hikes in the post-recession era. This rather stunning chart from Deutsche Bank’s Torsten Slok is rather instructive:

Should-Read: The price level is the (inverse) price of symbols of purchasing power in terms of an index of useful commodities. The nominal interest rate is the price of liquidity services. The real interest rate is the slope of the intertemporal price system for useful commodities.

Is that clear?

David Glasner: Milton Friedman Says that the Rate of Interest Is NOT the Price of Money: Don’t Listen to Him!: “Friedman’s repeated claims that the rate of interest is not the price of money… https://uneasymoney.com/2017/09/07/milton-friedman-says-that-the-rate-of-interest-is-not-the-price-of-money-dont-listen-to-him/

…have been echoed by his many acolytes so often that it is evidently now taken as clear evidence of economic illiteracy (or “a freshman error,” as Patrick Sullivan describes it) to suggest that the rate of interest is the price of money. It was good of Sullivan to provide an exact reference to this statement of Friedman, not that similar references are hard to find, Friedman never having been one who was loathe to repeat himself. He did so often, and not without eloquence. Even though I usually quote Friedman to criticize him, I would never dream of questioning his brilliance or his skill as an economic analyst, but he was a much better price theorist than a monetary theorist, and he was a tad too self-confident, which made him disinclined to be self-critical or to admit error, or even entertain such a remote possibility…

Must-Read: Amanda Bayer and Cecilia Elena Rouse: Diversity in the Economics Profession: A New Attack on an Old Problem: “The economics profession includes disproportionately few women and members of historically underrepresented racial and ethnic minority groups… https://www.aeaweb.org/articles?id=10.1257/jep.30.4.221

…This underrepresentation… is present at the undergraduate level, continues into the ranks of the academy, and is barely improving over time. It likely hampers the discipline, constraining the range of issues addressed and limiting our collective ability to understand familiar issues from new and innovative perspectives…. We… offer an overview of… research on the reasons for the underrepresentation…. We argue that implicit attitudes and institutional practices may be contributing to the underrepresentation of women and minorities at all stages of the pipeline, calling for new types of research and initiatives to attack the problem. We then review evidence on how diversity affects productivity and propose remedial interventions as well as findings on effectiveness…

Must-Read: Frank Pasquale (2011): Economic Policy for the Worried Wealthy: “Why is the austerity movement so powerful in the US?… https://concurringopinions.com/archives/2011/04/economic-policy-for-the-worried-wealthy.html

…Why not expect a little more from the wealthy? Why are states from Arizona to New York going after poor Medicaid patients and schools instead? We know the economic case for austerity in a deep recession is bunk. Why its enduring appeal?… The wealthy in the US may have extraordinary influence over the political process, but they could use it in many different ways. Warren Buffett complained about being taxed less than his secretary, and Bill Gates’s father has fought for the estate tax…. At some point the marginal value of money diminishes; why not spread it around a bit?…

Consider the research of BU sociologists on the lives of “people with fortunes in excess of $25 million.” It is featured at The Atlantic, which, in between ads for Goldman Sachs and planning for its Aspen Ideas festival, earlier this year informed us that “we need a creative, dynamic super-elite more than ever.” But that super-elite is worried:

They are frequently dissatisfied even with their sizable fortunes. Most of them still do not consider themselves financially secure; for that, they say, they would require on average one-quarter more wealth than they currently possess. (Remember: this is a population with assets in the tens of millions of dollars and above.) One respondent, the heir to an enormous fortune, says that what matters most to him is his Christianity, and that his greatest aspiration is “to love the Lord, my family, and my friends.” He also reports that he wouldn’t feel financially secure until he had $1 billion in the bank….

The mental agony of being so close to the billionaire’s circle, but just not quite there, must be enormous. Those in the upper echelons of industry may well be looking at the 400 persons who own more wealth than half the country, and say, “why not me?”… The “fear of falling” Barbara Ehrenreich diagnosed among middle class households in the 1990s has infected the very wealthy today…. Many millionaires will need to pay a lot less taxes to join the ultra-high-net worth crowd, which in turn envies a finance elite. And why not—given the extremely low tax rates on “carried interest,” hedge funders are getting quite a deal…. The “worried wealthy” can choose to create a more equal society, where no one could fall too far, or to build a fortress of personal wealth designed to keep generations secure from the vicissitudes of market driven “creative destruction”…