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March 8, 2013

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 20 Feb 2013 12:03 AM PST
Posted: 19 Feb 2013 05:56 PM PST
Daniel Hamermesh argues that innovation in economics is slowing, and that allows older economists to stay in the game longer than in the past:
Ageing and productivity: Economists and others, by Daniel S. Hamermesh, Vox EU: Is economics still a young person's game? If not, what is changing? This column argues that although top-level economic research in the 1990s was very much a young person's game, the last 15 years has been kinder to older economists. More and more economists over 50 are being published in the top journals. Why? Because technological change in economic research is slowing, giving young researchers less competitive edge. ...
There's an alternative explanation. Older economists have more power over journals and other key research outlets than they used to, and they have kept the topics they work on alive much longer than in the past.
As for the thesis about technological change, it may be true about micro, though even there I'm not sure -- Varian does differ from Mas-Colell -- but what students in macro learn today is very different, both in technique and content, from what they learned 50 years ago. Same for some aspects of econometrics, e.g. the rise of the Bayesians. But if you take a shorter horizon in macro, since the rise of DSGE as a technique, and consider the forces for change that ought to exist in macro presently, it's harder to disagree with the stagnation thesis Hammermesh puts forward (which is mainly over the last 15 years). I think it's the hold that some of the "older" macroeconomists still have over the journals, NBER meetings, and the like -- that allows them to steer the theoretical agenda. But it's mostly just an hypothesis, I don't really have any hard evidence to back it up and I'm not all that confident it's correct. Maybe it's just that nothing better has come along.
In any case, here's a hint he's mostly thinking about micro:
In no way should the implied slowdown in methodological advance be viewed as negative for the profession as a whole. For the role of economics in society, the question is whether the profession is keeping up with the problems of an evolving complex society, not how it solves them. While one might despair of our progress in understanding issues and offering solutions for macroeconomic difficulties, the remarkable advances in the application of microeconomic ideas to real-world problems should be reassuring.
The "implied slowdown in methodological advance" might be okay for microeconomists, and for the "profession as a whole" if micro carries the most weight, but innovation -- perhaps aided by a change in the power structure within the profession -- is surely needed in macro.
Posted: 19 Feb 2013 04:45 PM PST
The biggest driver of the "we must cut the national debt now, now, now" is the expectation that the cost of medical services (and hence the cost of Medicare) will escalate rapidly. But that argument is being undercut by new estimates from the CBO:
Here's some good news on the fiscal front: projected Medicare spending over the 2011-2020 period has fallen by more than $500 billion since late 2010 — based on a comparison of the latest Congressional Budget Office (CBO) projections with those of August 2010. ...
CBO has reduced its projections of Medicare spending in response to a pattern of very low spending growth in the past three years. ... Medicare spending growth has slowed even more than costs in private health insurance, according to Standard & Poor's and Medicare's actuary. Although some of the slowdown stems from the recession, CBO Director Douglas Elmendorf and other experts have concluded that a substantial part reflects structural changes in the health care system. Professional associations, hospitals, and doctors are taking steps to curb costly and ineffective procedures and treatment. ...
The deficit hawks want to hurry and cut spending now. Their goal, after all, is smaller government and lower taxes on the wealthy needed to support it. Thus, they need to get the cuts in place before people figure out that they've been misled about the immediacy of the problem -- the scary projections are down the road, not tomorrow -- and that the problem is not as big as we thought.
(And who the hell cares what Bowles and Simpson think? I certainly don't. But apparently someone cares, because even though they couldn't get the committee they headed to agree on their previous budget plan, the unofficial plan they released was treated as official by the media. Now they are back in the news again with a another plan -- sanctioned by nothing but their own egos -- that tries to move the budget discussions more in the direction of what the GOP desires. Please just go away.)
Posted: 19 Feb 2013 10:56 AM PST
Tim Duy:
And the Pressure on the Bank of Japan Rises, by Tim Duy: The Wall Street Journal reports that Japanese Prime Minister Shinzo Abe is serious about a 2 percent inflation target:
"It would be necessary to proceed with revising the BOJ law if the central bank cannot produce results under its own mandate," Mr. Abe said during a debate Monday. He didn't elaborate on the substance of any revision, but indicated he was seeking ways to hold the bank responsible for meeting the inflation target, saying that under the current law, the government can't even introduce a target without the BOJ's consent.
Not exactly a veiled threat. Hit a 2 percent target, or your independence (what little you have left) is history. Abe doesn't comment on current policy, but "hints" at some future policies:
"There are views calling for foreign-bond purchases," as well as for purchases aimed at directly boosting the stock market, he noted, without expressing his own opinion on such proposals. "I hope the BOJ will take effective policy steps that would contribute to overcoming deflation."
The problem with foreign bond purchases - a problem that Abe may simply choose to ignore - is that such purchases would be consistent with outright intervention in the foreign exchange market. It would then become much more difficult to defend the depreciation of the Yen as simply a side-effect of domestic monetary policy. Refer to ECB President Mario Draghi's efforts to limit some of the currency war hysteria:
"Most of the exchange rate movements that we have seen were not explicitly targeted; they were the result of domestic macroeconomic policies meant to boost the economy," Mr. Draghi told the committee, without mentioning any countries by name. "In this sense, I find really excessive any language referring to currency wars."
Draghi did add:
But Mr. Draghi also seemed to suggest that central banks could succumb to mutual suspicion about whether exchange rates were being deliberately weakened.
"The less we talk about this, the better it is," he said.
If the BOJ goes on a foreign bond-buying spree, such suspicion will spread further.
Also interesting is the possibility that Abe will push the next BOJ head to a more active role in supporting equity prices. Japan's economy minister Akira Amari already made clear that boosting stocks is a high priority, even going so far as to put a goal of 13,000 on the Nikkei buy the end of March. The BOJ could help make this a reality.
The question is how they would go about it? My suspicion is that they continue with purchases of equities in fixed quantities, much as it has in the past. From MarketWatch last year:
The central bank emphasizes that the program has only broad goals such as supporting interest rates and reducing risk premiums, rather than supporting financial markets.
Jefferies Japan's head of Japanese strategy Naomi Fink says that while the ETF purchases are really part of the broad push to reflate asset prices in the deflation-plagued country, they do "provide a bit of a backstop, when they think they can curb the downside" for the market.
"Still, it's a very small amount," Fink said of the ETF purchases. "It's more designed to bolster sentiment ... [and] it works best when sentiment is fragile."
What would be much more interesting is if the BOJ simply set a price target, offering to purchase a Nikkei ETF at 13,000 from whoever wants to sell. If policymakers want 13,000, why not just take the direct route?
Bottom Line: The pressure on the BOJ shows no signs of easing.
Posted: 19 Feb 2013 10:37 AM PST
Paul Krugman:
Data, Stimulus, and Human Nature, by Paul Krugman: David Brooks writes about the limitations of Big Data, and makes some good points. But he goes astray, I think, when he touches on a subject near and dear to my own data-driven heart:
For example, we've had huge debates over the best economic stimulus, with mountains of data, and as far as I know not a single major player in this debate has been persuaded by data to switch sides.
Actually, he's not quite right there, as I'll explain in a minute. But it's certainly true that neither stimulus advocates nor hard-line stimulus opponents have changed their positions. The question is, does this say something about the limits of data — or is it just a commentary on human nature, especially in a highly politicized environment?
For the truth is that there were some clear and very different predictions from each side of the debate... On these predictions, the data have spoken clearly; the problem is that people don't want to hear..., and the fact that they don't happen has nothing to do with the limitations of data. ...
That said, if you look at players in the macro debate who would not face huge personal and/or political penalties for admitting that they were wrong, you actually do see data having a considerable impact. Most notably, the IMF has responded to the actual experience of austerity by conceding that it was probably underestimating fiscal multipliers by a factor of about 3.
So yes, it has been disappointing to see so many people sticking to their positions on fiscal policy despite overwhelming evidence that those positions are wrong. But the fault lies not in our data, but in ourselves.
I'll just add that when it comes to the debate over the multiplier and the macroeconomic data used to try to settle the question, the term "Big Data" doesn't really apply. If we actually had "Big Data," we might be able to get somewhere but as it stands -- with so little data and so few relevant historical episodes with similar policies -- precise answers are difficult to ascertain. And it's even worse than that. Let me point to something David Card said in an interview I posted yesterday:
I think many people are concerned that much of the research they see is biased and has a specific agenda in mind. Some of that concern arises because of the open-ended nature of economic research. To get results, people often have to make assumptions or tweak the data a little bit here or there, and if somebody has an agenda, they can inevitably push the results in one direction or another. Given that, I think that people have a legitimate concern about researchers who are essentially conducting advocacy work.
If we had the "Big Data" we need to answer these questions, this would be less of a problem. But with quarterly data from 1960 (when money data starts, you can go back to 1947 otherwise), or since 1982 (to avoid big structural changes and changes in Fed operating procedures), or even monthly data (if you don't need variables like GDP), there isn't as much precision as needed to resolve these questions (50 years of quarterly data is only 200 observations). There is also a lot of freedom to steer the results in a particular direction and we have to rely upon the integrity of researchers to avoid pushing a particular agenda. Most play it straight up, the answers are however they come out, but there are enough voices with agendas -- particularly, though not excusively, from think tanks, etc. -- to cloud the issues and make it difficult for the public to separate the honest work from the agenda based, one-sided, sometimes dishonest presentations. And there are also the issues noted above about people sticking to their positions, in their view honestly even if it is the result of data-mining, changing assumptions until the results come out "right," etc., because the data doesn't provide enough clarity to force them to give up their beliefs (in which they've invested considerable effort).
So I wish we had "Big Data," and not just a longer time-series of macro data, it would also be useful to re-run the economy hundreds or thousands of times, and evaluate monetary and fiscal policies across these experiments. With just one run of the economy, you can't always be sure that the uptick you see in historical data after, say, a tax cut is from the treatment, or just randomness (or driven by something else). With many, many runs of the economy that can be sorted out (cross-country comparisons can help, but the all else equal part is never satisfied making the comparisons suspect).
Despite a few research attempts such as the billion price project, "Little Data" and all the problems that come with it is a better description of empirical macroeconomics.

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