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August 7, 2012

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Latest Posts from Economist's View


Posted: 05 Jul 2012 12:24 AM PDT
Tim Duy:
What Are We Expecting From Housing?, by Tim Duy: Josh Lehner and Bill McBride note that the manufacturing slowdown does not necessarily indicate recession, something I noted as well. Another version of that story is seen by comparing the ISM headline number with the new orders data:
Ismno
Again, manufacturing slowdowns in 1995 and 1998 did not presage recessions (albeit possibly due to offsetting monetary policy). McBride reiterates that housing is a better leading indicator than manufacturing, and Lehner discusses a "tradeoff" from manufacturing to housing.
For my part, I am wondering what people expect when they talk about a housing recovery. I tend to break the housing story into two parts. One is the residential construction story, the activity that amounts to screwing sticks of wood onto slabs of concrete. The related contribution to GDP growth since 1985:
Rescont
During the 2002-2005 period, arguably the height of the housing bubble, residential construction contributed an average of 0.4 percentage points to GDP growth each quarter. In the first quarter of this year, the contribution was 0.42 percentage points. So, barring the occasional pop in the data, housing is already contributing to GDP growth about what we would expect.
Presumably, we would be hoping that as the housing rebound deepens, there will be secondary impacts. For this reason I am hesitant to embrace the "tradeoff" terminology. Certainly we can envision accelerated home building triggering an increase in both manufacturing (capital equipment) and consumer (job/income growth) activity as well; these tend to be interconnected activities. So maybe the overall impact is a bit higher.
That said, there is another element to the housing story - the household balance sheet issue. Arguably, as Karl Smith has said, the housing bubble was less about a construction bubble (again, note the relatively limited contribution to GDP growth; we didn't necessarily build too many units, especially given the subsequent construction drought), and more about a price bubble. And that price bubble fueled spending activity via mortgage equity withdrawal. The chart via Bill McBride:
Mew
Of course, equity withdrawal has collapsed because equity as collapsed:
Equity
So here is the question: What was more important in holding the economy close to potential output, residential construction itself, or the housing price bubble? I tend to believe the price-driven balance sheet effects were driving dynamics over this past business cycle. Absent a healing of household balance sheets (or, relatedly, monetary policy that supported such healing via somewhat higher inflation expectations to reduce debt in real terms), I would expect overall growth to remain subdued, despite a rebound in residential construction. The latter is helpful and important, but not by itself a magic bullet.
Posted: 05 Jul 2012 12:06 AM PDT
Posted: 04 Jul 2012 01:35 PM PDT
[Following up on this post.] I don't usually do the "here's what I've been reading" thing, but if you want to know the history of the Higgs boson, and of developments in quantum physics more generally, see:
Close, Frank (2011-11-29). The Infinity Puzzle: Quantum Field Theory and the Hunt for an Orderly Universe. Perseus Books Group. Kindle Edition.
This isn't the only book I read prior to coming to Lindau, I read several more as well, but it was the best at the history of the people involved -- who got credit for discoveries, who got left out, and so on -- and it is also good at explaining the underlying physics.
Here's a (very) small part of Chapter 9, "The Boson That has Been Named after Me," A.K.A. The Higgs Boson: How Peter Higgs—and many others—discover the "Higgs Mechanism" for creating mass. The Higgs Boson—why it is now so important for particle physicists, why it is named after him, and how to become famous in three weeks. The excerpts focus on the people part:
...To be fair to Peter Higgs, it was not he who yoked his name to the particle. He modestly refers to it as "the Boson that has been named after me."12 Why, how, and when it came to be so named are some of the questions that I shall discuss. The British media, eager for a Nobel laureate, have headlined his name, and "Higgs Boson" has also been a convenient sound bite for those promoting the LHC. A counterpoint to this adulation has come from Philip Anderson, for whom Higgs was "a rather minor player." Furthermore, he has written that the so-called Higgs phenomenon "was, in fact, discovered in [BCS] theory by me and applied to particle physics in 1963, a year before Higgs' great inspiration."13 As far as "The Mechanism" for generating a mass for gauge bosons such as W goes, this is indeed true. Anderson is the "A" of what Higgs himself has referred to as the "ABEGHHK'tH" mechanism,14 the full acronym referring to Anderson, Brout, Englert, Guralnik, Hagen, Higgs, Kibble, and 't Hooft. When we discussed this together, between events at the Edinburgh Festival in 2010, Higgs added, "However, I do accept responsibility for the Higgs Boson; I believe I was the first to draw attention to its existence in spontaneously broken gauge theories."15 The properties of "The Boson" in particle physics are what the LHC is investigating. While debates about priority for "The Mechanism" may continue, "The Boson" is another issue. So, first, let's meet the saga of "The Mechanism." ...
"The portion of my life for which I am known is rather small—three weeks in the summer of 1964. It would have been only two if Physics Letters [the European journal to which Higgs had sent the first version of his manuscript] had accepted the paper. But initially they rejected it." Higgs's interpretation of the editor's letter was that "they didn't understand it as it was written in a dead language—the dead language of field theory."39 In the early 1960s, "field theory is a dead end" was a widespread belief. However, this rejection of Peter Higgs's first draft of the 1964 paper that would eventually make him famous had profound consequences for the course of physics.
Higgs decided that to improve the paper's credibility, he should "add some practical consequences of the theory. That took a week, hence the third week of 1964, and included the [Higgs] boson." So it was that the paper's initial rejection led Higgs to add the feature that helped set him apart from the pack. ...
Within the community of particle physicists it is Higgs's name that is freely associated with the "Boson that has been named after [him]." That is how it is likely to remain. A historian of science might argue, as some have, that misnomers pollute this particular part of the record. The massless boson attributed to Goldstone is perhaps more justly credited to Nambu, and indeed is often referred to as the Nambu-Goldstone Boson. The massive boson, which in particle physics is named for Higgs, may be traced to Goldstone's original paper. Tom Kibble recalled a suggestion that the Higgs Boson "should be called the Goldstone boson, while the Goldstone boson should be called the Nambu boson—though that would be very confusing!" The words on the tomb of President Kennedy will always be attributed to him, though it was Ted Sorensen who wrote them. Their impact and resonance through the years come from the writer and the orator both. So perhaps will be the legacy with this boson. It will be attributed to Higgs, if only because its discovery will be in a particle-physics experiment and that is the name by which that community knows it. ...
Intermission: Mid-1960s: We've reached the middle of the 1960s. A theory uniting the electromagnetic and weak forces has been achieved, and the earlier worries about the apparent need for massless force carriers assuaged. This has emerged out of ideas on symmetry being hidden, which had been known in other areas of science, and then applied to relativistic quantum field theory–particle physics. Originally, a theorem due to Jeffrey Goldstone had been thought to show that this could not happen. The loophole in his theorem, which led to the possibility that mass can emerge spontaneously in theories where, initially, there was no mass, has been established independently by six people, who published their work within a few weeks of one another in the summer of 1964. One of the sextet is Peter Higgs, whose name today has become associated with this development, and is best known for its—as yet unproved—consequence: the existence and properties of the "Higgs Boson." While this is a central focus of particle physics investigation today, later chapters will show that in 1964 the concepts were widely regarded as an interesting mathematical discovery, awaiting some realistic application.
Summary of next chapter (10):
Kibble turns the Higgs Mechanism into a useful tool and teaches Salam the idea, who then incorporates this into the Salam-Ward model of the weak and electromagnetic forces. Weinberg also uses The Mechanism, and publishes a paper, which leads to his Nobel Prize. Salam sees Weinberg's paper and realizes he's been scooped. Meanwhile, almost everyone else ignores these ideas.
How does the Higgs Boson create mass? When asked that question today during the press conference, one of the scientists at CERN gave the classic example (except he used journalists in the room gathering around Nobel Prize winners):
Imagine a cocktail party of political party workers who are uniformly distributed across the floor, all talking to their nearest neighbours. The ex-prime minister enters and crosses the room. All of the workers in her neighbourhood are strongly attracted to her and cluster round her. As she moves she attracts the people she comes close to, while the ones she has left return to their even spacing. Because of the knot of people always clustered around her she acquires a greater mass than normal, that is, she has more momentum for the same speed of movement across the room. Once moving she is harder to stop, and once stopped she is harder to get moving again because the clustering process has to be restarted. In three dimensions, and with the complications of relativity, this is the Higg's mechanism.
Hope that helps. The political party workers represent the Higgs field -- though as the Close book emphasizes, the Higgs mechanism described above differs from the Higgs boson. Continuing, here's the Higgs Boson:
Now consider a rumour passing through our room full of uniformly spread political workers. Those near the door hear of it first and cluster together to get the details, then they turn and move closer to their next neighbours who want to know about it too. A wave of clustering passes through the room. It may spread out to all the corners, or it may form a compact bunch which carries the news along a line of workers from the door to some dignitary at the other side of the room. Since the information is carried by clusters of people, and since it was clustering which gave extra mass to the ex-Prime Minister, then the rumour-carrying clusters also have mass. The Higgs boson is predicted to be just such a clustering in the Higgs field.

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