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July 1, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View


"The Global Jobs Competition Heats Up"

Posted: 01 Jul 2010 12:42 AM PDT

The canaries are squawking:

The Global Jobs Competition Heats Up, by Martin Bailey, Matthew Slaughter, and Laura D'Andrea Tyson, Commentary, WSJ: For generations, coal miners gauged the health of their workplace with a critical indicator: canaries. ... Today, another leading indicator—multinational companies headquartered in the U.S.—is signaling widespread and legitimate concerns about the health of the U.S. economy. ...
U.S. multinational companies have long been among America's strongest firms..., they account for about 19% of all private jobs, 25% of all private wages... They are responsible for 41% of the increase in private labor productivity since 1990.
Despite the common allegation that multinationals simply "export jobs" out of the U.S., research shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations. More investment and employment abroad have tended to create more American investment and jobs as well. ...
But there is no guarantee that the past will be prologue. McKinsey conducted in-depth interviews with senior executives from 26 of America's largest ... multinationals. Their message is sobering: Today the U.S. is in an era of global competition to attract, retain and grow the operations of multinational companies that it's never faced before. ...
All of the business leaders interviewed ... agreed that U.S. tax policy has a "major impact" on their competitiveness and investment decisions, and most said that policies like limits on skilled immigration handicap their companies. ...
It is our strong belief that their concerns must be taken seriously by U.S. policy makers at all levels. We aren't saying that America's economic policy should be driven by the considerations of U.S. multinational firms alone—far from it. But when millions of American workers are facing severe hardship, driving our strongest companies with the best-paying jobs overseas certainly won't help. ... The ... U.S. cannot rest on past success and take its multinationals for granted. Policy makers must partner with business leaders to craft policies aimed at sustaining an environment in which U.S. multinationals can thrive. ...
These firms are now the canaries in the U.S. economic coal mine. Will our lawmakers pay attention?

"Can/Should the Blogosphere Replace the Journal-Sphere?"

Posted: 01 Jul 2010 12:24 AM PDT

Andrew Gelman responds to Rajiv Sethi:

You can't put Pandora back in the box, by Andrew Gelman: Rajiv Sethi writes:

I suspect that within a decade, blogs will be a cornerstone of research in economics. Many original and creative contributions to the discipline will first be communicated to the profession (and the world at large) in the form of blog posts, since the medium allows for material of arbitrary length, depth and complexity. Ideas first expressed in this form will make their way (with suitable attribution) into reading lists, doctoral dissertations and more conventionally refereed academic publications. And blogs will come to play a central role in the process of recruitment, promotion and reward at major research universities. This genie is not going back into its bottle.

And he thinks this is a good thing:

In fact, the refereeing process for blog posts is in some respects more rigorous than that for journal articles. Reports are numerous, non-anonymous, public, rapidly and efficiently produced, and collaboratively constructed. It is not obvious to me [Sethi] that this process of evaluation is any less legitimate than that for journal submissions, which rely on feedback from two or three anonymous referees who are themselves invested in the same techniques and research agenda as the author.

I don't disagree with these sentiments, although I do think that, if blogging every becomes important in statistics, it will come much slower than in economics, political science, computer science, or even mathematics. Blogging has been big since 2003... But in all these years, very few statistics blogs have achieved much attention.

Sethi points out that, compared to journal articles, blog entries can be subject to more effective criticism. Beyond his point (about a more diverse range of reviewers), blogging also has the benefit that the discussion can go back and forth. In contrast, the journal reviewing process is very slow, and once an article is published, it typically just sits there. I personally like to publish discussion papers (that is, articles where others discuss and then I write a rejoinder), but most published journal articles don't have that format. (In that way, statistics may be better than economics. The field of statistics appears to accept that articles are attempts rather than realizations of perfection, whereas my impression is the economists worship at the altar of the "home run," the article that is such a perfect jewel that it is beyond criticism.

Can/should the blogosphere replace the journal-sphere in statistics? I dunno. At times I've been able to publish effective statistical reactions in blog form (see, for example, my skepticism about reported statistical significance in a brain-scan study) or to use the blog as a sort of mini-journal to collect different viewpoints (for example, our discussion with Pearl, Dawid, and others on causal inference). And when it comes to pure ridicule (I think you know who I'm thinking of here), maybe blogging is actually more appropriate than formally writing a letter to the editor of a journal.

But I don't know if blogs are the best place for technical discussions. This is true in economics as much as in statistics, but the difference is that many people have argued (perhaps correctly) that econ is already too technical, hence the prominence of blog-based arguments is maybe a move in the right direction. Even technical types such as Paul Krugman and Greg Mankiw have become much more talky and less algebraic as bloggers than as authors of journal articles.

Statistics, though, is different. Setting aside debates about whether Ph.D. students in statistics should learn the strong law of large numbers (I think you can guess my position on that one), even the applied stuff that I do is pretty technical--algebra, calculus, differential equations, infinite series, and the like.

Can this sort of highly-technical material be blogged? Maybe so. Igor Carron does it, and so does Cosma Shalizi--and both of them, in their technical discussions, clearly link the statistical material to larger conceptual questions in scientific inference and applied questions about the world. But this sort of blogging is really hard--much harder, I think, than whatever it takes for an economics professor with time on his or her hands to regularly churn out readable and informative blogs at varying lengths commenting on current events, economic policy, the theories of micro- and macro-economics, and all the rest.

I think few will disagree that the most effective statistics blogging, by a longshot, has been Nate Silver's polling and election analysis on fivethirtyeight.com. Here, Nate and I have actually published a couple of journal articles based on material related to the blog, but (a) the journal articles are quite a bit more technical than the blog entries, and (b) as journal articles, they don't represent major research efforts--rather, they fall into the "fun applications" category. Ultimately, Nate's blogging succeeds because it is news, not because of its research content. From another direction, I think Scott Sumner's econ blogging succeeds because it is well-written and because it supports a fiscally-conservative position that many people want to hear. Krugman's blog works because it's linked to a popular New York Times column and he takes a strongly partisan political stance, and Levitt and Dubner's blog succeeds along the same lines as Cowen and Tabarrok's--readers are getting a mix of news, provocation, and bite-sized analyses. All of these play important roles, but not quite the roles of journal articles.

On the other hand, the current system of scientific journals is, in many ways, a complete joke. The demand for referee reports of submitted articles is out of control, and I don't see Arxiv as a solution, as it has its own cultural biases. I agree with Sethi that some sort of online system has to be better, but I'm guessing that blogs will play more of a facilitating informal discussions rather than replacing the repositories of formal research. I could well be wrong here, though: all I have are my own experiences, I don't have any good general way of thinking about this sort of sociology-of-science issue.

links for 2010-06-30

Posted: 30 Jun 2010 11:02 PM PDT

Dallas Fed: Risk of Slower Growth Ahead

Posted: 30 Jun 2010 10:08 AM PDT

The Dallas Fed, like the rest of us, is having trouble figuring out where future growth in GDP is going to come from. What many people don't realize is how much of recent growth has been driven by inventory correction, and that this is coming to an end:

Risk of Slower Growth Ahead, by —Tyler Atkinson, Evan F. Koenig and Max Lichtenstein , National Economic Outlook, FRB Dallas: The U.S. economic recovery appears to have been solid through second quarter 2010. However, with fiscal stimulus measures and the inventory correction nearing an end, there are reasons to be concerned that growth will slow in the second half of the year. ...
An Unusual Recovery
The composition of growth so far in this recovery is a source of concern. During the recession, real GDP fell below final sales as firms sought to reduce bloated inventories. Once final sales began to recover, firms sought to moderate the pace of the inventory drawdown—they began to close the gap between production and sales. The recovery up to now, which began in third quarter 2009, has been unusual in how much it has relied on this production catch-up effect. Inventory investment has accounted for 57 percent of GDP growth in the first three quarters of the current recovery—the largest percentage in the past 60 years (Chart 2). In comparison, the fraction of GDP increase accounted for by residential investment during the first three quarters of the recovery, 2 percent, is a record low. This feeble contribution comes despite new home-purchase tax credits and Federal Reserve intervention in the market for mortgage-backed securities. Growth contributions from consumption and government purchases have been smaller than normal also, but well within the past range. Contributions from nonresidential fixed investment and net exports have been about average.

Chart 2: Inventory investment accounts for a record share of growth during this recovery

Unfortunately, it looks like this is coming to an end:
The Inventory Cycle Draws to a Close
It appears the inventory correction has nearly run its course. Output has now caught up with final demand for domestic product, signaling that the main boost to GDP growth from inventory investment is coming to an end (Chart 3). Unless producers or retailers now want to add to their inventories, in coming quarters GDP growth will be tied to growth in final demand. However, the inventory-to-sales ratio is at a level that in the past has meant little or no change in inventories relative to GDP (Chart 4). ...
If inventory correction is ending, what will take its place?:
Where Will Growth Come From?
Increasing government purchases were an important early source of growth in final demand during the recovery but have gradually faded. Support for residential investment from special tax incentives is at an end. Business investment has been growing well in recent quarters but usually acts as an amplifier of growth that originates elsewhere, rather than an independent source of strength. Real consumption spending is growing at roughly the same 3 percent pace as before the recession but starting from a lower base (Chart 5). To replace inventory investment's contribution to the recovery, this growth rate would have to increase to 5.5 percent—a pickup that is uncertain, at best, given still-tight credit and households' aversion to debt. Such an acceleration might even be undesirable because it would risk an exacerbation of global imbalances (large U.S. trade deficits and rising U.S. international indebtedness).

Chart 5: Real consumer expenditures resume their growth, but on a lower path

Net Exports a Possible Bright Spot
Net exports provided a big boost to U.S. final demand in second quarter 2009 with a 1.6 percentage point growth contribution. Since then, net exports have contributed little to growth, but there is some reason to believe that this will change in the second half of 2010. Through the first quarter, leading indexes for the U.S. and for the major industrialized countries as a group suggested that economic prospects here and abroad were improving about equally rapidly—a neutral for our net exports' prospects. Meanwhile, the U.S. gross domestic purchases price index has been rising relative to the U.S. gross domestic product price index (Chart 6). A growing purchases/product price ratio means that U.S. imports are becoming more expensive relative to U.S. exports, encouraging growth in exports relative to imports. Ordinarily, this relative-price effect would kick in during the second half of 2010. However, recent developments in Europe have added to financial strains there and increased calls for fiscal restraint. So, while some increase in the growth contribution from net exports in the second half is possible, it is by no means certain.
Slower Growth Likely, on Balance
In sum, GDP growth will continue in the second half of the year but quite possibly at a slower rate than we've seen during the recovery to date. Deceleration is likely because the boost to growth from rising inventory investment is near an end now that output has caught up with final demand. The inventory boost has accounted for over 50 percent of GDP growth so far during the recovery, so a substantial pickup in final demand growth will be necessary to keep gains in employment and output from slowing. That the required pickup will occur is far from obvious.

So net exports is the big hope, but troubles in Europe cloud this forecast. However, even if the troubles in Europe end, or had not occurred at all, I'm not very confident that net exports can carry the load. But what else can?

Given this worrisome short-run outlook for GDP growth, and hence for employment, why do some people think cutting stimulus, which is what cuts to the deficit do, is the way to enhance the recovery?

Output can be written as Y = C + I + G + NX (output = consumption + investment + government spending + net exports). If we cut the deficit through reductions in spending and increases in taxes, we know G will go down (as spending falls) and that C and I will also fall (from tax increases on consumers and businesses). But somehow, the story goes, as GDP and employment are falling, confidence will go up so much that C, I, and perhaps NX will go up more than enough to compensate for the fall, and then some. However, if the confidence effect doesn't appear and generate very strong effects, and it's unlikely that it will despite the wishful thinking from some, deficit reduction makes things worse in the short-run, not better.

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