Must-Read: Paul Krugman: Being An Inflation Hawk Means Never Having To Say You’re Sorry

Paul Krugman talks to journalists during a news conference. (AP Photo/Francisco Seco)

Must-Read: As long as reporters–even good reporters–act as stenographers, and thus neither make readers aware of their sources’ track records nor ask sources to justify why one should place confidence in their assessments, our public intellectual sphere and our dialogue will continue to be broken.

Paul Krugman: Being An Inflation Hawk Means Never Having To Say You’re Sorry: “Jeffrey Lacker…

…Here’s what he just said: “If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness.” Oh, wait: That’s what he said six years ago. It is, however, pretty much indistinguishable from what he is saying now. It seems to me that this is a bit of much-needed context.

Jeffrey Lacker (2009): Charlotte Chamber of Commerce: “The perception of inflation risk could be particularly pertinent to the current recovery…

…given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion…. If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous…

Noted for the Morning of November 13, 2015

  • Erik Brynjolfsson and Andrew McAfee: Labor in the Second Machine Age: “People, unlike horses, can choose to prevent themselves from becoming economically irrelevant…” :: B&M see human sociability, extraordinary human brain reach, and the fact that we humans control our politics as forces that will prevent any robotic dystopia
  • Felix Schönbrodt: The False Discovery Rate (FDR) and the Positive Predictive Value (PPV): “The False Discovery Rate (FDR) and the Positive Predictive Value (PPV): Together with Michael Zehetleitner I developed an interactive app that computes and visualizes these numbers…” :: Everybody reading (or writing) statistical work should use this tool–it is the best quick way to understand how to assess any study given its ex-ante plausibility and its statistical power.
  • Bridget Ansel: Daniel Hamermesh… and Elena Stancanelli… [on] the tendency to work what the authors call ‘strange hours’… nights and weekends…” :: part-time, flex-time, unusual-time, and on-call work make Americans’ labor significantly more laborious than work schedules in other countries (except, I believe, Britain)
  • Ben Thompson: TensorFlow and Monetizing Intellectual Property: “Monetizing infinitely reproducible intellectual property [is] akin to selling ice to an Eskimo: it can be done, but it better be some really darn incredible ice…” :: how Alphabet’s (Google’s) strategy may suggest that our current intellectual property system and defaults may not even be to the advantage of those who hold the rights to the crown jewels of technology

Must-Read: Erik Brynjolfsson and Andrew McAfee: Labor in the Second Machine Age

Erik Brynjolfsson and Andrew McAfee: Labor in the Second Machine Age: “In 1983, the Nobel Prize–winning economist Wassily Leontief brought the debate into sharp relief…

…through a clever comparison of humans and horses. For many decades, horse labor appeared impervious to technological change. Even as the telegraph supplanted the Pony Express and railroads replaced the stagecoach and the Conestoga wagon, the U.S. equine population grew seemingly without end, increasing sixfold between 1840 and 1900 to more than 21 million horses and mules…. But then, with the introduction and spread of the internal combustion engine, the trend rapidly reversed. As engines found their way into automobiles in the city and tractors in the countryside, horses became largely irrelevant. By 1960, the United States counted just three million horses…. Once the right technology came along, most horses were doomed as labor. Is a similar tipping point possible for human labor?…

For Leontief, the answer was yes…. But… Leontief missed a number of important differences…. We humans are a deeply social species, and the desire for human connection carries over to our economic lives… human interaction is central to the economic transaction, not incidental to it…. Recent technological progress, while moving surprisingly fast, is still not on track to allow robots and artificial intelligence to do everything better than humans can within the next few years…. A quote attributed to a 1965 NASA report: “Man is the lowest-cost, 150-pound, nonlinear, all-purpose computer system which can be mass-produced by unskilled labor.”…

The story doesn’t end there, however. Having valuable labor to offer is not the only way to remain economically important; having capital to invest or spend also ensures continued relevance. A critical difference between people and horses is that humans can own capital, whereas horses cannot…. The challenge here is that capital ownership appears to have always been highly uneven and has become increasingly skewed recently…. People, unlike horses, can choose to prevent themselves from becoming economically irrelevant…. It’s not unreasonable to expect people to vote for policies that will help them avoid the economic fate of the horse…

Must-Read: Felix Schönbrodt: The False Discovery Rate (FDR) and the Positive Predictive Value (PPV)

Must-Read: Felix Schönbrodt: The False Discovery Rate (FDR) and the Positive Predictive Value (PPV): “To answer the question ‘What’s the probability that a significant p-value indicates a true effect?’…

…we are interested in a conditional probability Prob(effect is real | p-value is significant). Inspired by Colquhoun (2014)… a tree-diagram….

You re probably thinking of p values all wrong p 0 05 The Incidental Economist

[For a population in which 30% of investigated effects are real and statistical power is 35%,] the false discovery rate (FDR): 35 of (35+105) = 140 significant p-values actually come from a null effect… much more than… 5%…. Together with Michael Zehetleitner I developed an interactive app that computes and visualizes these numbers…. Run the App

More Americans are working “strange” hours

Photo of illuminated neon 24 hours sign by Sam2172, veer.com

It’s no secret that Americans are working harder than ever. But newly updated research by Daniel Hamermesh of the Royal Holloway, University of London (and a professor emeritus at the University of Texas at Austin) and Elena Stancanelli of the Paris School of Economics examines another aspect of our work-devoted culture: the tendency to work what the authors call “strange hours,” or nights and weekends.

The authors compare work hours between the United States and four other European countries—the United Kingdom, France, Germany, and the Netherlands. Unsurprisingly, American workers win the prize for the longest average workweek among these countries, clocking an average of 41 hours a week from 2003-2011 (a number that is much higher for a increasing portion of workers in the United States). And the disparity is even wider when looking at average annual hours. The typical American employee now puts in 1,800 hours a year, more than any other wealthy country—including Japan, a country whose killer work ethic even has its own term: Karoshi, or “death by overwork.”

In most other countries, work hours have declined since 1979. But for most Americans, this is not the case. Stagnant wages propelled many of us to work even harder to stay afloat. Combined with the United States’ lack of paid vacation or holiday time requirements (unlike other developed countries), the typical work-life balance began to skew more and more toward work.

To make matters worse, Hamermesh and Stancanelli find that one in three Americans spend time on paid work during the weekend. And more than a quarter of U.S. workers work during night-time hours, which the authors define as between 10 PM and 6 AM. The fraction for both weekend and night hours is much lower in France, Germany, Spain, and the Netherlands. Even in the United Kingdom, which is catching up to the United States in terms of overall hours worked, only 19 percent of workers are burning the midnight oil.

It seems that these two phenomena would be connected—doing at least some work during nights or weekends seems inevitable for those employees with extreme work hours. But while Americans’ long work hours do play a role in the incidence of strange hours, the connection is not as strong as common sense would have us believe. Hamermesh and Stancanelli found that even if all Americans working more than 45 hours per week were to cut back their hours, U.S. workers would still be logging strange hours at a higher rate than the other countries. Rather, the way that work is structured seems to be the major factor driving differences between the United States and the other four countries’ strange-hours incidence.

While most European countries regulate working time (including provisions that limit the total number of work hours and laws pertaining to when people work), the United States’ policy is limited to paying certain workers overtime if they work more than 40 hours per week. The relatively lax regulations may be one reason why it is much more common to find 24-hour restaurants, gyms, or stores, in the United States than it is in other rich economies. But our convenience comes at a cost.

In the United States, those working strange hours are more likely to be low-skilled and minority workers, and sometimes turn to these jobs because of a lack of other options, or because of higher wages. But even if workers receive higher pay to work at these times (which most do not), they still face consequences for their individual and familial health and well-being.

Parents working strange hours have to figure out child care when most centers are closed, and commute when public transportation is not readily available. The stress and sleep deprivation associated with these strange hours put workers’ health at risk. And the time away from home during these periods have been shown to put a major strain on relationships and marriages. What’s more, children of those working these schedules are more prone to behavioral problems and perform lower on cognitive skills tests compared to the kids of those who work more traditional schedules.

Hamermesh and Stancanelli conclude that more research is needed to better investigate the rising incidence of night and weekend work in the United States. But what is clear is that, despite the increasing prevalence of strange work hours, our society continues to revolve around the traditional 9-to-5 work schedule. Considering policy reforms such as paid leave, increased access to child care at odd hours, and a wage premium for night and weekend hours could help these disproportionately low-income workers more successfully balance their work and family responsibilities.

Must-Read: Ben Thompson: TensorFlow and Monetizing Intellectual Property

Must-Read: Ben Thompson: TensorFlow and Monetizing Intellectual Property: “Ten years ago Bill Gates suggested that open source software…

…was the province of “modern-day sort of communists” whose views on intellectual property were hopelessly outdated…. “We’ve had the best intellectual property system…. Intellectual property is the incentive system for the products of the future.” Gates’ perspective was understandable…. Microsoft is still a big company… but an even bigger company today is Alphabet…. Its Google subsidiary announced it was open-sourcing TensorFlow, its formerly proprietary machine learning system…. Machine learning is super important to Google…. At a superficial level, this doesn’t make sense: if machine learning is core to Google’s future, then what is the point of giving it away?…

There’s a parallel to be drawn to my piece last week about Grantland and the (Surprising) Future of Publishing. The fundamental nature of the Internet makes monetizing infinitely reproducible intellectual property akin to selling ice to an Eskimo: it can be done, but it better be some really darn incredible ice, and even then the market is limited. A far more attainable and sustainable strategy is to instead focus on monetizing complements to said intellectual property, resulting in an outcome where everyone wins: intellectual property consumers, intellectual property copiers, and above all intellectual property creators.”

Must-Reads: For the Morning of November 12, 2015

Must-Read:

  • Neel Kashkari confuses an unsustainable level of investment, a sectoral maldistribution of demand, with an unsustainable level of output…
  • Mark Thoma and company on live questions for monetary policy…
  • Noah Smith and company on the reading list for bubbles and panics…
  • And…
  • Plus…

Sorry Japan, printing money is morphine. makes u feel better but doesn't cure. BOJ Unveils Bold Bid to End Deflation http://t.co/9G9mnAOdOq

— Neel Kashkari (@neelkashkari) April 5, 2013

And in January 2014, arguing that U.S. real GDP in 2007 was unsustainably high, and thus that the economy needed a recession:

In response, Paul Krugman quotes himself from 2011: A Note on Aggregate Demand and Aggregate Supply: “One thing that keeps appearing in comments is the notion that…

…because we had a bubble, in which some people were borrowing too much, the economic growth of 2000-2007 wasn’t [sustainable]…. This is confusing demand with supply. We really did produce all the goods and services… because we had willing workers, a sufficient capital stock, the right technology, and so on…. Some… spending… was debt-financed, and those [particular] debtors can’t continue to spend…. But that doesn’t say… the capacity has somehow ceased to exist; it only says that… someone else has to spend instead…. Past growth wasn’t an illusion, or a fraud[, or unsustainable]; but we need policies to sustain aggregate demand. And yes, I have a model.

Paul Krugman’s model: : Debt, Deleveraging, and the Liquidity trap: A New Model: “Debt is the crux of advanced economies’ current policy debates…

…Some argue for fiscal expansion to avoid recession and deflation. Others claim that you can’t solve a debt-created problem with more debt. This column explains the core logic of a new model by Eggertsson and Krugman in which debt shocks and policy reactions can be examined. Relying on heterogeneous agents, the model naturally produces the paradox of thrift but also finds new supply-side paradoxes, those of toil and flexibility. The model suggests that most economists have been misthinking the issues and that actual policy in the US and EU is misguided.

These are must-reads because Neel Kashkari’s views of potential output and monetary policy are, Milton Friedman would say, profoundly wrong. Friedman would say: the way you tell whether a boom is artificial and unsustainable or not is whether it generates unexpected and rising inflation. Friedman would say: When employment and production are below their sustainable supply-side trends, the right monetary policy is for the central bank to boost the money stock. Milton Friedman would say: Friedrich von Hayek was a great economist–but his greatness was definitely not in the field of business-cycle theory.

Also: Charles Steindel (2009): Implications of the Financial Crisis for Potential Growth: Past, Present, and Future; (2010): The Financial Crisis and the Measurement of Financial Sector Activity.

And, if you wish: Brad DeLong: Neel Kashkari to Replace Narayana Kocherlakota at the Minneapolis Fed?


The second must-read is one from the estimable Mark Thoma: Questions for Monetary Policy: “James Bullard, president of the St. Louis Fed…

says there are five questions for monetary policy…. “What are the chances of a hard landing in China? Have U.S. financial market stress indicators worsened substantially? Has the U.S. labor market returned to normal? What will the headline inflation rate be once the effects of the oil price shock dissipate? Will the U.S. dollar continue to gain value against rival currencies?” I would add: Will wage gains translate into inflation (or something along those lines)? Anything else?

I would add: if the Federal Reserve starts raising interest rates, will there be wage gains?


Third, Noah Smith presents his “Panics and Bubbles” reading list: “There are a lot of good non-macro and empirical papers out there on the topic of ‘Panics and Bubbles’…

…Harrison and Kreps (1978)… [on] overconfidence can lead to asset price volatility. Scheinkman & Xiong (2003) follow up. Barber and Odean (2001) provide some evidence…. Heterogeneous beliefs… a good overview by Xiong… Morris… David Romer… Barsky talking about the Japanese bubble…. Learning… Zeira…. Noise trader models… DeLong et al. (1990)… Abreu & Brunnermeier (2003). Mendel and Shleifer (2012) is yet another good one… Brunnermeier and Nagel (2004) on hedge funds and the technology bubble for some evidence…. ‘Information cascades’… Avery and Zemsky (1998), Chari and Kehoe (2003), and Park and Sabourian (2009)…. Variance bounds… other kinds of bubble tests… Refet Gurkaynak… surveys… by Brunnermeier and by Scherbina and Schlusche…. The finance theory literature has developed in parallel to the macro literature, with incomplete communication between the two…

Noah is responding to Tony Yates: If I was devising a panics and bubbles course…: “Looking through the reading list for the [proposed] PCE Manchester course…

…it seemed to miss… mainstream financial macro and microeconomics.  If I were teaching a course on panics and bubbles… I would take them through Diamond and Dybvig’s classic model of banks runs… And I would take them through the analyses of moral hazard in the provision of public deposit insurance to stop these runs [for example, see the references in Sargent’s LSE lecture, or indeed Andy Haldane’s speeches]… Geanakoplos’ work on how leverage and bouts of optimism creates booms and busts in asset prices…. Karaken and Wallace…. Angelotos and co-authors, Morris and Shin and Shleifer and Vishny… have sought to model how beliefs (eg about the value of an asset, or the likelihood of a future event) can spread and become self-fulfilling…. Roger Farmer…. I would stuff the reading list with reams of papers I hadn’t even properly read myself… Brunnermeir and Sannikov… Shin, and John Moore… Kiyotaki-Moore… Lucas, Svensson, Mehra and Prescott, Campbell and Cochrane, Epstein and Zin, Fama, Shiller…. Banking and finance in macro [due to Bernanke, Gertler, Gilchrist, Carlsrom, Fuerst, and others]…. I don’t really know why the proposal for the Manchester course on panics and bubbles was rejected.  But, if it were me, I would have ditched it too, in favour of a course that looked more like the above.

Who is responding to Claire Jones: Students’ hopes dashed over ‘crash’ course in economics teaching: “Students from the birthplace of the Industrial Revolution have had their hopes for a course on financial crashes…

…dashed after the University of Manchester refused to put it on next year’s syllabus…. The University of Manchester said: ‘We have decided not to run the Bubbles, Panics and Crashes module next academic year, but will launch other new economics-run modules to address broader areas of the economics curriculum.’


And:

Matthew Klein: The Euro Was Pointless: “It’s easy to forget now, but… many economists in the 1980s and 1990s…

…thought monetary union would encourage cross-border investment and trade by eliminating the risk premiums associated with the supposedly destabilising devaluations of the past. The net effect would be converging living standards, dampened business cycles, slower inflation, and faster productivity growth for everyone. This was a laudable goal, but unfortunately it’s not how things worked out. The policy mistakes that exacerbated the eurozone crisis, while deeply destructive, can’t be blamed. A stimulating conference recently hosted by the Centre for European Reform made it clear to us the euro had already failed to meet the expectations of its architects before the crisis.

Claudia Olivetti and M Daniele Paserman: When US intergenerational income mobility vanished: 1900-1920: “Intergenerational income mobility is currently not very high in the US…

…compared to other developed countries…. US intergenerational income equality was high in the 19th century but plummeted between 1900 and 1920. The income-mobility ladder was thus pulled up during the so-called Great Gatsby era.

Plus:

Must-Read: Paul Krugman: The Investment Accelerator and the Woes of the World

Must-Read: I must say, I want to go back to Larry Summers’s and my discussants for our 2012 paper, and ask them whether they want to amend their remarks, or whether they still stand by them.

Valerie Ramey: Do you still believe that any valid inferences can be made about long-run properties from AR models that match the first several autocorrelations? And do you still believe that the rate of long-run potential output growth is invariant to whether the short-run sees depression or boom?

Marty Feldstein: Do you still believe that a downturn like the one that began in 2008 is “cleansing” and leads potential output onto a higher growth path in the long run?

Paul Krugman: The Investment Accelerator and the Woes of the World: “Jason Furman… refuting the ‘Ma! He’s looking at me funny!’ school…

…which attributes US economic weakness to the way the Obama administration has created uncertainty, or hurt businessmen’s feelings, or something…. It’s a global slowdown, very much consistent with the ‘accelerator’ model, in which the level of investment demand depends on the rate of growth of overall demand…. If weak demand leads to lower investment, which it does, and if fiscal austerity is contractionary, which it is, then in a depressed economy deficit spending… crowds investment in…. Austerity policies [then] don’t release resources for private investment… [but] reduce future capacity in addition to causing present pain, [while] stimulus… supports, not hinders, long-run growth…

And let me say two further things to Jason Furman:

  1. Housing: the failure of the Obama administration to do anything to set the pattern of housing finance in stone may well be boosting uncertainty, and retarding investment in housing

  2. Investment and interest rates: If you are unhappy with a Federal Reserve that thinks that investment is growing too rapidly and needs to be cooled-off with interest rate increases, there is, on January 4, 2017, a recess of the Congress, during which recess appointments can be made.

Must-Read: Rich Yeselson: The Decline of Labor; The Increase in Inequality

Must-Read: The question I always find myself going back and forward on is this: Do strong unions primarily reflect or primarily cause a high labor share of income? And I find my views on this question both disturbingly ungrounded in evidence and disturbingly volatile…

Rich Yeselson: The Decline of Labor; The Increase in Inequality: “Between the end of the Second World War and the early 1970s, the American labor movement was one of the reliable signposts…

…that defined the parameters of American life. But if history has taught us anything, it’s that the signposts of our culture, economics, and politics are continually evolving, even as we believe they will be perennially rooted…. No less a figure than Dwight Eisenhower assumed an America that would always have strong unions…. Timothy Noah, relying on the work of economists Claudia Goldin and Robert Margo, describes this period in his book about American inequality, The Great Divergence (2012), as one in which “incomes became more equal and stayed that way.” Union density peaked at about 1/3rd of the non-farm workforce in the decade following the second world war…. States like Alabama and Tennessee had “low” union density rates in the high teens that were equal to the “high” density rates of “union states” like Michigan today….

During the 1972 election, Meany’s AFL-CIO, enraged by George McGovern’s opposition to the Vietnam War and the influence of the New Left and the counter-culture that permeated his campaign, remained neutral rather than endorse the Democratic candidate. Organized labor was so important to the Democrats that the wily Republican president, Richard Nixon, had courted Meany over several rounds of golf and sought to identify the administration with what Nixon and his top aides took to be the cultural symbols of blue collar, white manhood. The Federation’s neutrality was his reward…. By the middle of the 1980s, history had fooled the present again: the “secure place” of American labor which Ike had spoken of so confidently in 1952, turned out to be, in fact, evanescent. By 1991, union density had declined to just 16%. (It is now about 11%.)… In 1978, despite the most massive lobbying drive in union history, Carter placidly watched a modest labor reform bill be filibustered to death by Republicans and Southern Democrats in an overwhelmingly Democratic Congress….

Why did this happen?… For some of the same structural, macro-economic reasons it has declined in almost every advanced country… but… also occurred for reasons intrinsic to the American political economy…. Just as labor and the economic base of much of its membership lost altitude, unions faced the egalitarian necessity to modernize themselves. This was not without complications. Title VII of the1964 the Civil Rights Act accelerated a much longer struggle by black workers to have full and equal representation within unions. Arguments against racial (and gender) discrimination, especially in building trades and manufacturing unions, that had mostly been ignored by the NLRB, gained salience before the new Equal Employment Opportunity Commission (EEOC)….

Labor… today… remains the most effective institutional bulwark against income inequality. Within its blue state zones of urban power, labor has, effectively, fought inequality via the “fight for 15” led by the still formidable SEIU, and promoted the passage of minimum wage laws in states and cities around the country. Unions, despite their inability to win legislation of direct benefit to themselves, still lead efforts to augment social insurance and regulate companies and banks…. Advancing beyond their previous racism and sexism, unions are, in significant ways, better advocates for such concern today than they were when George Meany was refusing to endorse the March on Washington and, then during the McGovern campaign, railing about the Democratic party being seized by “people named Jack who look like Jill and smell like johns.”…

The numbers of union members and the dollars in the stagnant paychecks of millions of American workers tell an unhappily congruent story. If, in subsequent years, union membership numbers don’t increase dramatically, workers’ paychecks aren’t likely to increase very much either.