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December 3, 2014

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Posted: 03 Dec 2014 12:06 AM PST

Marking Beliefs to Market: What I Got Wrong about the Great Recession

Posted: 02 Dec 2014 08:58 AM PST

New column:

Marking Beliefs to Market: What I Got Wrong about the Great Recession: It's the time of year when analysts and pundits begin "marking their beliefs to market" – telling us what they got right or wrong in the previous year. In that spirit, here are some of the things I got wrong about the Great Recession...

With everyone talking about what they got right about the Great Recession, thought I'd do the opposite. [Also, the title of the column is from an editor -- it doesn't fit very well...]

'Why Economists Are Paid So Much'

Posted: 02 Dec 2014 08:57 AM PST

Noah Smith:

Why Economists Are Paid So Much: The profession of economics periodically finds itself under rhetorical attack from sociologists. Part of this is due to the differing political slants of the disciplines -- sociology tends to lean heavily to the left, while economics, being fairly well balanced between liberals and conservatives, is thus the most right-wing discipline in academia. Part of the rivalry is due to the attempts by some economists, such as Gary Becker, to model phenomena such as discrimination and family life that were traditionally in the realm of sociologists. In the siloed social sciences, people fear such "imperialism." ...
But there is one way in which economists clearly do dominate the other social sciences, and that is in the amount of money they make. ... They have many lucrative outside options. The most important of these are the consulting and financial industries.
But why do economists have the option to go work in consulting and finance? The answer is simple: They have the technical skills to do so. I'm not talking about fancy math. No one hires you to do real analysis... If financial companies need someone to do serious math, they will hire a mathematician or a physicist. ...
The technical skill I am talking about is statistics. Economists learn a lot of statistics... Statistics is hugely valuable in the real world. ... As Econ 101 would tell us, these skills command a large premium. ... If sociologists want to crack this bastion of economists' "superiority," they need to tech up with statistics. ...
Sociologists... It's time to stop whining and tech up. 

I'm staying out of this one...

'Why so Glum?'

Posted: 02 Dec 2014 08:56 AM PST

Ryan Avent responds to Tim Duy:

Why so glum?: Tim Duy, one of the best writers on macro policy issues, is optimistic about America's economy and wonders why more people aren't...
Have we all been too pessimistic about the American economy? What attitude should we have?
One metric might be a cross-country comparison. On that score one might suppose optimism is clearly warranted. America's recovery is the envy of the rich world. On the other hand, that is not saying much. Being the best of the bunch when the bunch has done so miserably is not exactly reason for cheer. ...
An historical comparison, by contrast, leads to a much bleaker assessment of the current recovery. ...
That brings us to another case for pessimism... GDP is growing, but ... Real GDP per capita is only a shade above its level of seven years ago... At the median the performance has been much worse...
Sentiment is an important economic variable; if you want people to buy things and invest, rather than grasp fearfully to their incomes, then you need them to be confident: indeed, optimistic. Optimism is self-fulfilling. But it is not detached from reality. ... I don't find it remotely surprising that people are glum. That is an indictment of the Fed, whose job it is to coordinate our expectations so that we all anticipate, and therefore cause to occur, maximum employment and an average inflation rate of 2%. ...
Being down so long things look like up is not optimism. ... I will turn optimistic when the Fed convinces me such a turn is warranted.

I don't think the Fed performed perfectly, but to me this places too much of the blame in their hands.

'Some Serious Nonsense on CBO from the WSJ'

Posted: 02 Dec 2014 08:55 AM PST

Jared Bernstein is unhappy with the WSJ editorial page:

 Some serious nonsense on CBO from the WSJ: I almost never bother with editorials from the Wall St. Journal, which read to me something like, "Boy, if toasters could sing and dance, breakfast would be a lot more fun!"
But this AMs entry was almost like a satire—an Onion version—of their usual fare. They want to get rid of the Congressional Budget Office (and the tax revenue score-keeper, the Joint Tax Committee) because they were created, according to the Journal, by Democrats to "support the agenda of expanding government." ...
There's been a fair bit of scribbling about the roles and practices of CBO since the election... I disagree with ... calls for "dynamic scoring"... CBO doesn't go there, because there's insufficient evidence that such macroeconomic feedback effects can be reliably estimated (CBO does allow for some behavioral responses to tax changes, such as timing changes in realizing capital gains).
Thus, dynamic scoring that correctly reflects this uncertainty returns a range of results... While I don't always agree with CBO, I think they're already giving us the best numbers they can... The job is not to be innovative. It's to honestly apply the state of our knowledge.
In fact, here's where I'd argue the budget office could improve: by being more explicit about the limits of that knowledge state. CBO's estimates should always be delivered to the public with explicit confidence intervals, to better convey to the public the uncertainty of their guesstimates. ...
Instead of pretending they can accurately estimate macroeconomic impacts, as ... the Journal would like, the CBO could help us avoid our bad habit of over-confidence in their current estimates by really hammering on the uncertainty therein.

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