Saturday, March 14, 2015

Michael Gerson Unclear on Current events

I've finished reading the Gerson op-ed. I also read "Nicaraguan dictator Daniel Ortega in the 1980s". Gerson doesn't mention that, at the moment, Daniel Ortega is the democratically elected president of Nicaragua, and not even Tom Cotton has made any objection to that lately.

Gerson describes Obama's approach: "The exact shape of a possible Iran deal remains unknown. I’m on record predicting that it may be a bad one — a very unlikely throw of the dice that a terror-sponsoring, clerical regime will become a minimally responsible regional power."

I contest the analogy. When one throws dice one risks somethign which would have been safe if one didn't throw the dice. I agree that, if there is an agreement, the world will be a risky place and one of the risks will be that Iran makes an atomic bomb. But, Gerson certainly doesn't describe a less risky approach.

His proposal is: "The alternative to a bad nuclear deal is not war; it is strong sanctions and covert actions to limit Iranian capacities until the regime falls (as it came close to doing in 2009) or demonstrates behavior change in a variety of areas. " This would be a throw of the dice. It is clearly a high risk strategy for two reasons. First, while tough sanctions and cover operations might work eventually, there is no reason to think they will work before Iran has the bomb; Gerson's approach gives Iran no incentive to stick to their current policy of not working on a bomb (as their policy is assessed by the US intelligence community). Second, pressure on Iran might cause the current regime to fall, but it doesn't mean the replacement will be preferable.

I also note the dishonesty in the first sentence I quoted. Note that Gerson doesn't consider a good nuclear deal a possible alternative to a bad nuclear deal. His proposed strategy has nothing to do with the details of a nuclear agreement. the "may be" asserts that there is a conceivable agreement which would satisfy him. This is clearly not true. He is lying, because he wants to argue that his rejection of an agreement (if there is one) is the fault of the Obama administration which could conceivably have negotiated an agreement he supported.

Also note the unseriousness of "behavior change in a variety of areas". One can't obtain concessions without making clear demands. Even in a pure hypothetical fantasy, Gerson doesn't explain anything the Iranian regime could do to convince him to accept a relaxation of sanctions. I'm quite confident there is nothing they could do and sure that they would believe this if Gerson were President.

Gerson assumes that Iranians would perceive tough sanctions as the cost of Iranian irresponsibility. I think that most Iranians (including Ayatollah Khameini) have the impression that Iran is trying to normalize relations with most of the rest of the world by making concessions. To me it seems obvious that Gerson's approach will convince them that President Rouhani's approach failed. The effect of tough sanctions depends on whether they are perceived to be the price of Iranian intransigence or the pointlessness of Iranian concessions. I am sure that Gerson's approach would lead, in the short run, to a much more confrontational Iran. I dont guess what would happen in the long run, but I am willing to guess that they would have atomic bombs when it arrives.

Gerson perceives his point to be that the US can't impose tough sanctions unilaterally, so his approach requires convincing other countries that we negotiated in goood faith (while also not reaching an agreement -- in other words we shouldn't negotiate in good faith but we should trick the naive French, inexperienced English and the Americanophilic Putin). I agree with him that the Cotton approach is excellent news for Iran, since it makes it much more likely that they will only have to deal with US sanctions which the Islamic Republic has endured for almost all of its history.

Here I think part of the problem is 700 words per op-ed. Gerson can't explain an approach to Iran other than Obama's or bombs, because he is mostly writing about the folly of the 47. But I think most of the problem is that he arrived at a terrible proposal by the process of elimination. He can't agree with Obama. He doesn't think bombing will work, He doesn't support an invasion. So he's left with stick with sanctions and hope for the best.

Friday, March 13, 2015

Michael Gerson unclear on history

Same day same opinion pages more ignorance.

Michael Gerson denounced Cotton et al. He added a to be sure paragraph. To be sure, this paragraph demonstrates ignorance as well as intellectual dishonesty.

It is true that President Obama set this little drama in motion. Major arms-control treaties have traditionally involved advice and consent by the Senate. Obama is proposing to expand the practice of executive agreements to cover his prospective Iranian deal — effectively cutting senators out of the process. By renewing a long-standing balance-of-powers debate — in a way that highlights his propensity for power-grabbiness — Obama invited resistance. And there is a practical argument for Senate approval of arms-control agreements: It strengthens and empowers the president in punishing violations. The whole U.S. government is placed on record promising consequences for infractions (if, of course, the Senate concurs).
All treaties, by definition, require the approval of two thirds of the senate for ratification. However, it is very unusual for negotiations to lead to a treaty, and unusual for the US Senate to ratify signed treaties (the Senate did ratify an arms control treaty in 2011). It is absurd to suggest that it is normal practice for negotiations to eventually lead to ratification.

Ratified cold war arms control treaties ... is an error -- the bolded s implies a false claim of fact. There only was one such treaty during the cold war -- the ABM/SALT I treaty of 1972. The SALT II treaty of 1979 was never ratified. It is true that when Gorbachev and Shevernadze said yes to every demand then to every added demand, there were post cold war arms control treaties which were actually ratified.

But Gerson's real problem is with the interim agreement signed by Gerald Ford in Vladivostok November 24, 1974. That was an arms control agreement signed without extensive consultation of congress. It came as a genuine surprise. It was the not legally binding communique regulating strategic arms until the Salt II treaty was signed in 1979. Neither the Vladivostok "joint communique" nor the Salt II treaty ever had the force of law. Gerson's claim about arms control treaties is irrelevant, but it is also false. Treaties with friendly countries are ratified (hard as it is to remember the USA and Russia were friendly in 2011). Arms control agreements with hostile countries have hardly ever been ratified. Accepting an deal and not demanding a better one is politically costly. It is best for everyone for the President to have sole responsibility.

The proposed deal with Iran is not like arms control treaties, because it will impose no limits whatsoever on any country other than Iran. The offer is to relax sanctions in exchange for iranian concessions. Current law authorizes Obama to do this. It makes no sense to impose sanctions such that approval from congress is required to remove them (which doesn't mean it hasn't been done). Sanctions are coercive measures along the lines of twisting someone's arm until they say uncle. It does not make sense to twist someone's arm and say "I will keep twisting until you say uncle at which point I shall ask congress to consider when to begin marking up a bill which may auhorize me to cease to twist your arm unless it is voted down, filibustered or any senator decides to put a hold on it."

The unprecedented power grabbiness is the insistance by Republicans in congress that Obama may not exercize authority granted to the President by an earlier congress without asking them to repeat that he has permission.

Of course, Cotton et al, do not want an agreement negotiated with the active participation of Congress (can anyone even imagine how such negotiatoins would work) nor do they want a treaty ratified by the Senate. They oppose any possible agreement with Iran. I'm sure Gerson knows this and is just pretending that a ratified treaty is conceivably possible.

To be sure, the nonsense is in a to be sure aside. I'm sure Gerson considers his op-ed to be a bold denunciation of Cotton et al. Since the paragraph is the minimal concession which might be sufficient to allow him to remain a Republican in good standing, he can't be expected to notice the fact that it uses made up nonsense pseudo-history to criticize Obama.

General Eaton Unclear on the Concept

The normally sane Jonathan Capehart quotes an clearly confused retired General who is clueless about the constitution he swore to protect and defend.
I turned to retired Major Gen. Paul D. Eaton for perspective. He wouldn’t say Cotton and Co. were “traitors,” either. He had a better word. “I would use the word mutinous,” said Eaton, whose long career includes training Iraqi forces from 2003 to 2004. He is now a senior adviser to VoteVets.org. “I do not believe these senators were trying to sell out America. I do believe they defied the chain of command in what could be construed as an illegal act.” Eaton certainly had stern words for Cotton.

“What Senator Cotton did is a gross breach of discipline, and especially as a veteran of the Army, he should know better,” Eaton told me.

I will try to explain this using simple little words. No chain of command whatsoever has anything to do with the US Senate. The President does not outrank senators. They are not part of the same hierarchy. He has authority over employees of the executive branch, especially uniformed military personel.

An act is either legal or it isn't. If one claims something can be defined as an illegal act, one should cite and quote the law, and, if challenged explain why it is constitutional. I don't think General Eaton does not have a law in mind. I think he uses the series, good idea, bad idea, terrible idea, highly improper, could be defined to be illegal. If he is thinking of a law, it can only be the uniform code of military justice which is totally irrelevant.

In any case if the Senators did break a law by writing a letter, the law is unconstitutional violating the first amendment, "Each House may determine the Rules of its Proceedings, punish its Members for disorderly Behaviour, and, with the Concurrence of two thirds, expel a Member." article I section 5, and "they shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same; and for any Speech or Debate in either House, they shall not be questioned in any other Place." article I section 6.

Finally veterans are ex-military and not subject to military discipline. Cotton should remember that, in the past, he was not allowed to do what he just did, then take a drink and laugh at General Eaton who can't shoot a fish in a barrel.

What's the Matter with Wall Street ?

In his widely read (but not read by me) book "What's the Matter with Kansas" Thomas Frank asks why lower middle class people in middle America vote for Republicans against their own self interest. I wonder why wealthy investors vote for Republicans against their self interest. Brad DeLong wonders why they favor tight money and austerity against their self interest.

It should be clear that rich investors have done poorly when the president is named Bush and very very well when Clinton or Obama were if office. In general the rich get richer even faster when a Democrat is president.

Brad writes

It made sense for those of my great-great grandfathers who were rich back before World War I to be hard-money guys. The investment vehicles open to them were land that pretty much had to be rented out at fixed nominal rents, bonds that paid fixed nominal yields, and equities where–unless you ran the business–you were quite probably a fool soon to be parted from his money by financial engineering. But it made no sense for my rich grandfather after World War II to be a hard-money guy. He had a much bigger portfolio of assets to invest in: equities backed by more-or-less honest accounts, land that the coming of automobiles and superhighways and the move to the sunbelt meant could be developed as suburbs, as well as leveraged resource speculations. He profited immensely from investments in all of these. Yet, in his heart of hearts, he remained a hard-money guy.

And it really makes no sense for my contemporaries to be hard-money believers. Yet an astonishing share of the rich among them are.

A great and enduring puzzle…

He disagrees with his grandfather. This is what his "we are the 100%" photoshop effort means.

There are two separate issues actually three "fear, surprise, ruthless efficiency, and near fanatical devotion to the Pope!" No I mean support for hard money, austerity, and Republicans. I will try to focus on hard money (but I will fail). It seems likely that the Fed open market committee (FOMC) will raise the target federal funds rate some time this summer. This is an odd choice since inflation is below target and the dollar is rapidly appreciating. Why would the FOMC even consider doing something so odd ?

It is reasonably clear that financiers and policy makers who are in constant contact with financiers support tight money. Here I give up on finding an excuse to type "high priests" and link to these excellent posts.

Why ?

1. Economics as a morality play. The market is our judge and rewards virtue -- no pain no gain. I think this view is most frankly expressed by Michael Kinsley when he says we should eat our vegetables. Kinsley provides a valuable service, because he doesn't present any argument related to the effects of policy.

Here I think it is clear why the rich are eager to assume that the market rewards virtue -- they have been rewarded by the market and wish to believe they are virtuous. It must be tempting to assume that wealth is the result of effort and then tempting to apply the logic to countries as well as individuals. If there is an easy painless way to create more aggregate wealth, then it is harder to believe that the wealthy earned their individual wealth through great effort.

2. Sub sub class interest. Within the 1%, there is an organized, energetic subset who benefit from tight money. There is a very strong nominal rigidity at zero on returns on deposits. This is based on norms and people's sense of what is fair and reasonable. it is not the zero lower bound (I get negative nominal returns on my 2 bank accounts). But it means that bankers have a safe source of income roughly equal to the interest rate on T-bills. It has been argued, for example by Jeremy Stein, that the FOMC must guarantee bankers safe returns high enough to cover administrative costs or else bankers will gamble. The argument appears to be that bankers are telling us that we have a nice looking economy and it would be a shame if anythign were to happen to it, so how about we guarantee them 2% safe or else it might get blown up again.

It is true that tight money makes it easier for depository institutions to obtain profits. They have a good thing going in which they provide depositors liquidity and maturity transformation in exchange for paying a very low (or zero) interest rate. It only works if returns on the money obtained paying zero interest are higher than the cost of maintaning bank branches ATMS and all that. At current interest rates, they can earn those returns by taking risks or, change their whole business plan, and charge depositors for the services (as Italian banks do). Switching from no fees to fees can make people angry (although my US bank did informing me by mail I assume and I am only mildly irritated).

This does not make tight money good for investment banks, broker dealers, hedge fund managers or, obviously, industrial firms. Yet the fairly narrow interest group of commercial bankers has a clear common interest. They also have a very explicit role in influencing Fed policy through the selection of Federal Reserve Bank presidents.

3. partisanship. To discuss tight money, I must discuss Wall Streets unsurprising but marked Republican slant. Here the strange thing is that it has markedly increased during the Obama administration while markets are going through the roof. I suppose the even stranger thing is that, not so very long ago, many hedge fund managers and all of the top management of Goldman Sachs were Democrats. In any case, it isn't odd that rich investors tend to favor the GOP, since Republicans are very dedicated to attempting to serve their interests (incompetently) and sincerely praise them. Republicans favor tight money and austerity if and only if the President is a Democrat.

Notably, two salt water economists who advocate austerity and tight money, Martin Feldstein and John Taylor, are extremely partisan Republicans (click the link to Brad again).

Loose money increased the probability that Obama would be re-elected and that Clinton will be elected. Therefore, loyal Republicans must oppose it.

I think it is very possible that financiers favor their flatterers over those who actually make them richer.

Wednesday, March 11, 2015

Falling off the Ballance beam

My head is spinning,because the Washington Post appears to have abandoned Ballance. The letter to Iran signed by 47 Republican senators seems to have gone too far for the most dedicated equilabrist to claim that both sides have a point.

They person who writes the headlines sticks to the rule of not siding for Democrats v Republicans or reality v spin "In wake of GOP letter to Iran, battle erupts over blame for dysfunction" but Greg Jaffe and Juliet Eilperin do not quote a single defender of the letter. The closest they come is to quote one of the signatories - Mitch McConnell blaming Obama for the actions of Mitch McConnell -- he claimed that Congress hasn't been consulted, but wasn't quoted arguing that the letter had any redeeming social value. I thought they had found a second non critic of the letter "Rep. Adam Kinzinger (R-Ill.), an Iraq war veteran," until I read the quote which began "'“I’m not going to sit here and defend the Senate letter,'” .

The points awarded to the Republican side are that Obama is responsible for the actions of Republicans because he made them really mad and that the breach of norms is not unprecedented. The second Republican claim is fairly firmly rejected in the concluding paragraph.

I am pleased by the shift, but I do think it is sad that an open letter went too far for ballanced reporting while torture and wars of choice didn't. Ballance took a breather, but the principle that words speak louder than actions didn't.

Quote of the Day

"This leaves modern macro people in the odd position of saying that it's crucially important to model agents' decisions, but totally unimportant to model them in a realistic way." Quote of yesterday Assume that all equilibrium-selection and coordination problems are automagically solved. Also put much less well three years ago.

The Islamic State and the End Days

Graeme Wood received a lot of attention when he tried to understand the Islamic State (aka ISIS aka ISIL aka Daesh). He argued that their actions more nearly make sense given their belief that IS is "a key agent of the coming apocalypse." So how's the End of Days coming ?

Looks to me that they are well on their way. IS has managed to make de facto allies of the USA, Iran, the Assad regime, Hezbollah and the al Nusra front. Yes that would be al Qaeda in Syria. When the USA and al Qaeda agree on something, can the apocalypse be far ?

But, to me, the final proof was the following: The one and only Charles de Gaulle is under US command. The one and nuclear powered ship in the French navy, not President General Charles de Gaulle, who is rolling over in his sovereign grave.

Repent repent for the day of judgment is at hand.

Tuesday, March 03, 2015

On Chait on Yglesias on Our Possibly Doomed Presidential System

Jon Chait tries not to give in to Matt Yglesias council of dispair. His post has the otimistic title There’s a Chance American Democracy Is Not Doomed
During the Obama era, a number of liberal writers, including this one, have grown fascinated with the prophecies of the late political scientist Juan Linz. Noting that presidential systems (as opposed to parliamentary ones) have a persistent tendency to collapse into coups, Linz argued that failures were endemic to their design. They created two elected bodies, both of which could claim popular legitimacy, without any strong mechanisms for settling power struggles between them.

Matthew Yglesias surveys American political history and its rising polarization through the prism of Linz’s analysis, and concludes that our political system is doomed. The U.S. was the exception to the otherwise-universal worldwide trend of presidential systems falling apart only because its unusually loose parties lacked the motivation and partisan willpower to push their powers to the limit. Now it is only a matter of time until a crisis brings it down.

I don't want to sound naive, but I think that we should consider all conceivable possibilities, and, therefore, even the possibility that the public will actually pay attention to what politicians do. I don't think it is a necessary implication of the presidential system that people blame the president for obstruction by the other party in Congress.

The chutzpa strategy worked fairly well for Republicans so far. but that doesn't mean that it will continue to work when they have majorities in both houses of congress.

Also a horrible recession is a good time to be in opposition. The logic of Yglesias's rather convincing argument depends on his belief that politicians will believe that obstruction was the key to mid term victories. If the Republicans two land slides were due to economy dependent disatisfaction, the pattern of apparantly rewarding obstruction might not endure long enough to destroy the constitution.

OK now I want to sound naive. Most politicians aren't one hundred percent focused on their party's chances of winning the next election. Some want power to use it to change the world. Others want to be favorably described by future historians. Mitch McConnell is extraordinarily focused. In a way he is selfless -- he doesn't seem to mind being called the epitome of everything wrong with Washington by the Washington Post Editorial board so long as Republicans win the next election. The desire for elite approval from the very serious village centrists at least makes politicians pay attention to the perceptions of people who pay attention to what they do.

I'm not sure if I can pin my hopes on Fred Hyatt, but I do want to end this comment with the phrase to save the presidency it takes a village.

Sunday, March 01, 2015

Benjamin Netanyahu Peacemaker

I'm not kidding. I think that Benhamin Netanyahu has found the only way to achieve US-Iranian peace.

One risk was that Iranian hardliners would block a deal with the 5+1. Now what are they going to say ? Yes Netanayahu says it's a terrible deal, however it actually is a terrible deal ?

Another risk was that AIPAC fearing congressional Democrats would vote with Republicans to override Obama's inevitable veto of the inevitable deal sabotaging bill. Now that Netanyahu has made the negotiations with Iran a partisan issue, that is much less likely.

I have no idea what will happen, but if things do work out, Benjamin Netanyahu deserves the credit.

Quality Premiums and GDP growth

I am still thinking about the working paper (which has since been revised) by Marco Del Negro, Marc P. Giannoni, and Frank Schorfheide of the New York Fed (pdf warning -- also not light reading). Del Negro, Giannoni and Schorfheide manage to fit the huge and persistent decline in real GDP of the great recession using a combination of the standard new Keynesian Smets Wouters 2007 (SW) model and the Bernanke Gertler and Gilchrist (1999) (BGG) financial accelerator model. The paper is mathmatically difficult.

BGG 1999 isn't all that mathematically simple either, but the BGG story is simple: there are periods of financial distress when firms have to pay high interest rates to borrow. This causes low investment which exacerbates the financial distress. The story is very old (BGG added the not so simple math). In fact old old business cycle analysts used differentials on corporate bonds with different ratings (and treasury notes) to forecast. The crisis of 2008-9 made people focus on that issue and that type of variable.

I had some fun playing with data today. I think there might be two useful lessons which I should state before the long wandering vague post. First it is very hard for me to resist the temptation to fiddle with specifications until I like the fit if I play with data with no discipline from theory or standard empirical practice. Second, it is easier to fit the severity of the downturn than its duration. I actually have a question for Del Negro, Giannoni and Schorfheide. They show forecasts for GDP and inflation, but not for the interest rate differential. I think their model might imply a forecast of a persistently high differential not the huge spike and then rapid return to near normal. This is not at all typical. To me the mystery of the sluggish recovery is that GDP remained far below trend when the initial shock was long over. My guesses of the reasons aren't related to their model at all -- I guess they are low residential investment largely because of low expected house price appreciation and low public spending. The point of this post (if any) is that a financial frictions based explanation of the sluggish recovery requires evidence that severe financial frictions lasted during the recovery. This evidence does not appear in interest rates (including the mortgage interest rate)

OK off to play with data.

To start I show Moody's Seasoned Baa Corporate Bond Yield (c) minus Moody's Seasoned Aaa Corporate Bond Yield (c)

Clearly the differential rises during recessions. There isn't much evidence that sudden fear of corporate default is the cause of recessions -- the differential rises during the recession. If anything it peaks at the trough (as if fear of a wave of bankruptcies is what causes the Fed Open Market Committee (FOMC) to relent and reflate). This is why the model is called the financial accelerator. The idea is that, generally, something else causes low GDP and financial distress and the risk premium effect makes the decline in GDP worse.

I see two cases in which an increase in the differential was, arguably, the result of something other than a general downturn (maybe because I have vivid memories of both). One, of course is the gigantic spike when Lehman failed. The other occurred when Enron failed. If you look closely at the tiny 2001 recession, you can see that the differential spiked during the recovery.

For some reason I decided to do some embarrassingly primitive calculations related to the differential and real GDP growth (the motive was it's fun to play with data and I wanted to decide how impressed to be with Del Negro, Giannoni and Schorfheide 2013). I think the exercize is useful for two reasons.

First it is a warning about what can go wrong if one starts playing around with numbers completely unrestricted by any theory. It is very hard to resist data dredging and cherry pickign while looking at time series and fiddling with ad hoc specifications. In any case, I can't resist and just don't take the results of the fiddling seriously.

First a regression of the annualized percent growth rate of real GDP on the interest rate differential (in percent)

. reg grgdp00 idiff

Number of obs = 267

R-squared = 0.0961

grgdp00 | Coef. Std. Err. t

idiff | -2.715849 .5115451 -5.31

_cons | 5.712052 .5345035 10.69

A very large t-statistic. I should stress that this isn't really a forecasting equation as the interest rate data aren't lagged -- the idea is that people observe interest rates immediately long before real GDP has been calculated. Also I use all the available data for the regression including data from the great recession

Now I predict the annualized growth rate of GDP using the simple regression and see that it doesn't fit the great recession well

| qtr pgrgdp00 grgdp00 |

|---------------------------------|

242. | 2007.25 3.240629 3.056305 |

243. | 2007.5 3.322104 2.677107 |

244. | 2007.75 3.050519 1.456368 |

245. | 2008 2.208606 -2.70417 |

246. | 2008.25 1.937021 1.972044 |

247. | 2008.5 1.475327 -1.989932 |

248. | 2008.75 -2.489813 -8.796125 |

249. | 2009 -2.272546 -5.63592 |

250. | 2009.25 -.9960956 -.423468 |

251. | 2009.5 1.937021 1.266436 |

252. | 2009.75 2.643142 3.788124 |

The prediction is of a brief mild recession.

So I decided to play with the specification (or rather played with the specification because I can't resist). I added a lag of the interest rate differential (I expected a negative coefficient)

. reg grgdp00 idiff lidiff

Number of obs = 267

R-squared = 0.1338

grgdp00 | Coef. Std. Err. t

idiff | -6.371246 1.18959 -5.36

lidiff | 4.027055 1.18828 3.39

_cons | 5.362076 .5343076 10.04

This is what happens when you add 2 similar variables. I used this silly regression to predict real GDP growth and find that it matches the severity of the 2008 4th quarter downturn 2008 but not the fact that it continued in 2009 and also predicts a dramatic recovery in the third quarter of 2009.

Totally losing all intellectual self discipline, I couldn't resist regressing real GDP growth on the current quarter's interest rate differential and the differential lagged two quarters

. reg grgdp00 idiff l2idiff

Number of obs = 266

R-squared = 0.1800

- grgdp00 | Coef. Std. Err. t

idiff | -5.906914 .7877269 -7.50

l2idiff | 4.026046 .7861379 5.12

_cons | 4.941499 .5353582 9.23

. predict p2grgdp00

(option xb assumed; fitted values)

(2 missing values generated)

The blatant trick makes the effects of a spike in the diffential last two quarters so 2009q1 is fit as well.

The only point of this last bit with the differential lagged 2 quarters is as a warning about the temptations t data dredge. Looking at the graph, I realized I had gone too far.

update: I need help. Stop me before I regress further. For what it's worth I did regressions using only data from before 2008. The coefficients are a bit larger. the predicted values over fit the great recession and include a very dramatic recovery.

But the thing that really alarms me is that I estimated

reg grgdp00 idiff ddiffsilly l2idiff lidiff lgrgdp00

Where lgrgdp00 is the lagged growth rate of real GDP and ddiffsilly is idiff minus idiff lagged two quarters if idiff is greater than idiff lagged two quarters or zero if idiff is less than idiff lagged two quarters. Here I went back to using all available data for the regression. The regressions before the update are silly because they don't include lgrgdp00 or any recognition of the univariate dynamics of the GDP time series. However including ddiffsilly is obviously just a way to avoid predicting a dramatic recovery.

Here is a graph Finally I estimate that last crazy regression using only data from before 2008 (so 3rd quarter 1947 through fourth quarter 2007). reg grgdp00 idiff ddiffsilly l2idiff lidiff lgrgdp00 if qtr<2008

Saturday, February 28, 2015

Lucas Critique upside down

I think this is even more Noah Smith bait than Mark Thoma bait.

First the twitter version of the Lucas critique. Lucas argued that if one wishes to control some variables (say inflation and unemployment) it is a mistake to look for an equation which predicts them as a function of variables which you can control then assume that the function will stay the same if you manipulate the variables. The reason is that estimated coefficients are typically not discoveries of natural laws which always hold. Typically, the effort to use the estimated function to manipulate the system will cause the coefficients to change.

A very simple example is the statement that correlation is not causation.

In particular to the extent that people's behavior depends on expectations about the future and that policy affects the probabilities of future outcomes as a function of past data, relations which depend on expectations as a function of past data will change when policy makers attempt to exploit them.

Lucas stressed that he wasn't the first to worry about this problem. The critique is sometimes called the Marshack critique.

One proposed solution is to write down models in which agents' objectives and knowledge are modelled explicitly and add the assumption that they know the joint distribution of all variables (have rational expectations). I find this proposal totally unconvincing. In particular, it is not argued that the assumptions about objectives have to be accurate. I believe that the argument is that, while the model is not reality, it is important that, if the model were reality, statistics would be consistent estimates of deep structural parameters which are policy invarint. I am totally 100% unconvinced.

People who accept this argument will often make a concession to the other approach (reduced form modelling, atheoretic empiricism, in macroeconomics vector autoregressions (VARs)). The concession is that such models are useful for forecasting. If one is just trying to predict what will happen and don't have the power to change it, then the Lucas critique doesn't matter. The parameters are invariant to what you do as you have no power.

So the view which I don't accept is structural models with optimizing agents are required for valid policy evaluation by the strong who do what they will, but other models may be just as good or better for forecasting by the weak who suffer what they must.

In fact, I partially disagree with the Lucas critiquers' concession too. It is just not true that it is best to be completely open minded if one only wants to forecast. Imposing assumptions on the data is required for forecasting too. The imposition of false assumptions may produce lower expected squared forecast errors.

I think if one is attempting to forecast using very little data to estimate parameters of the forecasting rule (or in other words if one is a macroeconomist attempting to forecast) then one must impose a lot of assumptions (to estimate at all) and it is better to impose a lot more than are needed to come up with an estimate and a forecast.

So, I think that if one is attempting to forecast using aggregate time series, it is best to impose assumptions. first if you think they are more likely to be roughly close to true than alternative equally assumptions and second it is often better to impose more. I mention the Akaike information criterion in passing.

I might sometimes accept an argument along the following lines: actual behavior is more like the behavior of this type of rational agent with simple objectives than anything else I can think of, so I will assume that we are all rational agents of that type when using the few data I have to develop a forecasting rule.

I might sometimes accept the same argument when the aim is to evaluate policy and advise policy makers. I find it about roughly equally convincing in each case. Stories about how expectations matter, and will change in a predictable way, might convince me that some assumptions are better than others (including weaker assumptions) but I don't see anything especially special about them.

In contrast, arguments about how stronger assumptions should be made when one has fewer data make a whole lot of sense to me. There are mathematical examples in which the argument is entirely valid. I find it very plausible that it is generally valid.

Old Keynesian Financial Frictions

I had forgotten this passage from The General Theory which may be Brad DeLong's favorite.

Brad made very good use of

Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks.[4] For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy.
But I am interested in a paragraph which I forgot entirely until I just read it. I now suddenly find it interesting because it is Keynes on risk premia (and so financial frictions) and Keynes's view is notably different from that of the New Keynesians I discussed in my last post.

The only radical cure for the crises of confidence which afflict the economic life of the modern world would be to allow the individual no choice between consuming his income and ordering the production of the specific capital-asset which, even though it be on precarious evidence, impresses him as the most promising investment available to him. It might be that, at times when he was more than usually assailed by doubts concerning the future, he would turn in his perplexity towards more consumption and less new investment.
After long consideration I have decided to be honest (as I would have been caught anyway) and admit that Keynes is discussing the strange country in which financial intermediation is absolutely banned so individual income must be divided between consumption and investment. However note that he assumes that, in this strange case, risky returns cause high consumption. This doesn't have to be true (it is easy to come up with a model in which risky returns on capital cause more precautionary saving or in Keynestopia precautionary investment). But it is completely unlike the disturbance term which is called epsilon superscript b in Smets Wouter 2007 and "b" in Del Negro, Giannoni, and Schorfheide (2013 last revised 2014). This is justified as a risk premium but appears in the Consumer's problem as an increase in a totally safe interest rate.

Friday, February 27, 2015

New Keynesian Financial Frictions

Over a year ago, Noah Smith wrote a blog post with an excellent illustration of the first extremely unsuccessful attempted machine gun. The hint was that if at first you don't succeed plausibility might be right around the corner. The post mainly reported a working paper (which has since been revised) by Marco Del Negro, Marc P. Giannoni, and Frank Schorfheide of the New York Fed (pdf warning -- also not light reading). I didn't click the link. I had read a note on the web by Del Negro, Giannoni, and Schorfheide and come to the silly conclusion that they had done something silly. Now 20 months late I finally clicked the link and found the working paper very impressive. As Noah explains
The model they use is a combination of two existing models: 1) the famous and popular Smets-Wouters (2007) New Keynesian model that I discussed in my last post, and 2) the "financial accelerator" model of Bernanke, Gertler, and Gilchrist (1999). They find that this hybrid financial New Keynesian model is able to predict the recession pretty well as of 2008Q
4. Importantly, the forecasts (of the current version) are based on parameter estimates using data available December 2008, so not including 4th quarter 2008 GDP but including the differential between Baa corporate bonds and the Treasury 10 year rate. The model correctly forecasts a deep recession followed by a sluggish recovery. I want to raise a quibble mostly with Smets and Wouters (SW) . In Smets and Wouters (2007) (SW 2007) they assert that they have already considered financial frictions as in Bernanke, Gertler, and Gilchrist (1999)
Finally, the disturbance term [epsilon^b] represents a wedge between the interest rate controlled by the central bank and the return on assets held by the households. A positive shock to this wedge increases the required return on assets and reduces current consumption. At the same time, it also increases the cost of capital and reduces the value of capital and investment, as shown below.3 This shock has similar effects as so-called net-worth shocks in Ben S. Bernanke, Gertler, and Simon Gilchrist (1999) and Christiano, Roberto Motto, and Massimo Rostagno (2003), which explicitly model the external finance premium.
The paragraph explains a FOC for optimal consumption (an Euler equation). It it the real interest rate considered by consumers is the federal funds rate minus the expected inflation rate plus this disturbance term epsilon^b. That would be correct if this were a safe real interest rate. A risk premium which has something to do with risk would not appear in the Euler equation that way. IIRC the risk premium in Bernanke Gertler and Gilchrist doesn't affect consumption at all -- it is the difference between interest charged on loans to firms and interest paid to consumers (consumers get the risk free rate). In fact, consumers do not need to bear the risk of possible bankruptcy of firms. Optimization implies that the Euler equation holds for all assets including Treasury bills or, once they were introduced TIPS. It implies expected return differentials on all assets via the consumption CAPM. The SW 2007 risk premium is also paid by firms as in Bernanke, Gertler, and Gilchrist (1999). But if SW already consider a risk premium motivated by reference to Bernanke, Gertler, and Gilchirst (1999) what do Del Negro, Giannoni, and Schorfheide write about the epsilon^b disturbance in SW 2007 which also appears in their model relabeled simply "b"
The exogenous process [b_t] drives a wedge between the intertemporal ratio of the marginal utility of consumption and the riskless real return [R_t - ��Et[ pi_(t+1)]], and follows an AR(1) process with parameters [rho_ b] and [ sigma_b].
This is in section "2.1.1 The SW Model" the term b_t is justified simply because it appears in SW 2007. No explanation for whey there is such a wedge is given (nor is it easy to imagine one when presenting a model with a non-liquidity constrained representative consumer). In contrast the interest rate paid by firms includes a term which really does correspond to the external finance premium in Bernanke Gertler and Gilchrist (1999). I can't manage the notation with plain ascci it is The expected nominal interest rate paid by firms minus the safe interest rate is equal to b_t plus a constant times the (debt+equity) to equity ratio plus the dispersion of ability across entrepreneurs. Or in other words the differential is equal to a log linear approximation of the external finance premium as modelled in Bernanke Gertler and Gilchrist (1999) plus the disturbance term which Del Negro, Giannoni, and Schorfheide call b and which SW call epsilon^b and which SW justify with a reference to Bernanke, Gertler and Ghilchrist (1999). There is still no explanation of why it appears in the Euler equation. OK I trust no one has read this far [text deleted] update: Mark Thoma did it again. I am no longer confident that no one will read this far. I deleted the rest of of this post because it wasn't polite.

Tuesday, February 24, 2015

Can Someone Help me Balance the Japanese National Income and Product Accounts ?

I was sincerely shocked to read that the Japanese household savings rate was negative. "The savings rate in the year through March was minus 1.3 percent, the first negative reading in data back to 1955" I had always thought of Japanese as high savers (as they used to be). But the reason I was shocked is I can't get the national income and products accounts to balance. By my calculations, total effective demand is about 7% higher than total supply (this is impossible). I get household savings of about -1% of GDP (correspondind to the -1.3% of personal disposable income plus pension distributions) government savings famously -7% of GDP and Japan must have positive net exports mustn't it ? Well actually no. Another shocking fact is that Japan has suddenly shifted from the usual trade surplus to a trade deficit. Why has nobody told me ? However, the deficit is only about 1.5% of GDP. The only remaining category I can think of is corporate saving, which I get at around 6.5% of GDP. How can that be ? I can't find Japanese corporate profits at FRED (the first time it has failed me so no link for you today FRED). In the USA corporate profits net of taxes and depreciation are roughly 7% of GDP. The ratio must be much higher in Japan. Corporate savings would be net profits minus the sum of net investment and dividends paid by corporations. It's almost as if Japanese corporates were investing only to replace depreciated capital and not paying dividends. Or very profitable. Can someone explain to me what is going on ?

Monday, February 23, 2015

Time for a Drum head trial

Uh oh the usually solid front of Political Animals is divided. Current animal Ed Kilgore appreciates the DNC's appreciation of narrative
The one nugget in the DNC report that I found both valuable and amusing is this:
It is strongly believed that the Democratic Party is loosely understood as a long list of policy statements and not as people with a common set of core values (fairness, equality, opportunity). This lack of cohesive narrative impedes the party’s ability to develop and maintain a lifelong dialogue and partnership with voters. The Task Force recommends creating a National Narrative Project to work with party leaders, activists, and messaging and narrative experts to create a strong values-based national narrative that will engage, inspire and motivate voters to identify with and support Democrats.
In contrast animal emeritus brother Benen singled out the narrative nugget for criticism.
While some of the ideas in the document seem to have real merit, including an aggressive emphasis on voter registration, others seem considerably less valuable, such as the “creation of a National Narrative Project to work with party leaders, activists, and messaging and narrative experts to create a strong values-based national narrative.”
I know they share the same values but they really need to sit down and have a talk about narration. I think the judicious judge and moderate moderator of the Political Animal v Political Animal debate really has to be original Political Animal Kevin Drum.

Friday, February 20, 2015

Old Keynesians on Monetary Offset of Fiscal Policy

This is an ultra pointless "someone is wrong on the internet" post. I think I read somewhere the suggestion that Keynesians had to be told by market monetarists that fiscal stimulus can (at least usually) be offset by monetary policy. I think Keynesians have made this point for a while. Here I cut and paste from Samuelson and Solow (1960) "Analytic Aspects of Anti-Inflation Policy" pdf warning also known as the Phillips curve paper.

Wednesday, February 18, 2015

Republicans Worst Idea Ever ?

With the sarcastic hyperbole that won him millions of fans (OK that makes me read everything he writes) Jon Chait declares "Poll Confirms the Republican Immigration Shutdown Plan Is Their Worst Idea Ever". The proof

"Today, CNN has a poll about who to blame in the event of such a shutdown. Fifty-three percent of Americans would blame the Republican Congress, and only 30 percent would blame Obama."

Oddly he claims that 30% is the hard core base crazication factor, when it is well known that it is 27% but I'll spot him 3%.

I think Chait may be right (although the competition is fierce) but that doesn't mean that the DHS shutdown is clearly and by a wide margin the worst idea to which they are currently committed. It doesn't even mean that it is the idea that fares worst by a wide margin in the poll which Chait cites.

There is also the Netanyahu speech.

Josh Marshall (who clearly despises Netanyahu more passionately even than I do) reports with scarcastic delight (and the headline of the week)

"Great Times for Bibi-Boehner Bund!"

click his self link (Josh Marshall is wonderful but TPM links to itself too much)

The CNN/ORC poll found that 63 percent of Americans disagreed with Boehner's decision to extend the invitation without consulting the White House, while 33 percent said it was the right thing to do
.

Note how I strategically spotted Chait 3% above. Now I want my 3% back so I can claim that 33% = 30% ( to be honest, subtracting the 27% crazification factor, 3% of Alan Keyes resistant US adults would blame Obama and twice as many, a ful 6% think inviting Netanyahu was a good idea).

Continuing with the B-list, I recall that the rarely interesting and otherwise never snarky David Brooks once said that he sometimes wonders if George Bush is a Democratic mole.

There has been some discussion of whether Boehner is in an impossible situtation, incompetent or both. There is another possibility -- that he is a political genius Democratic mole.

Monday, February 16, 2015

Why do Macroeconomists Think We Know Macroeconomics ?

This post is a comment on Noah Smith's brilliant post "Why do non-experts think they know about macroeconomics?" which is, itself, a reply to Scott Sumner's presumably brilliant post (which I haven't read and on which I am not commenting -- for one think I can't find a link in Noah Smith's post).

Noah Smith doesn't have a very high opinion or really existing macroeconomics. However, I think he is a bit too diplomatic. I think I will quote bits of his post and comment.

Sumner argued that macroeconomics uses familiar words (with unfamiliar meanings) so people think they understand it. Like Noah, I agree that this is part of what is going on. I also mostly agree with Noah that

there are some other reasons too: 1. Macroeconomics is relevant to most laypeople. String theory, to use Scott's example, is not. String theory is something you hear Brian Greene or Michio Kaku talk about, and you think "Wow, neato, the Universe is mysterious and funky!", and then you never think about it again. Macroeconomics is something related to our jobs and our investments. It affects us every day. Notice that laypeople do not often hold forth on game theory or decision theory. 2. Macroeconomics has political implications. Many people have political agendas. The "heterodox" people you meet in the blogosphere are almost all just leftists who see mainstream econ as a tool of the neoliberal oppressor, and since macro is by far the most visible branch of econ, they equate "econ" with "macro" and bash it. Or take the "Austrians", whose goal is actually to make econ into a tool of the neoliberal oppressor, for real. Then you have a whole bunch of people who aren't pushing political agendas, but who feel that macroeconomists are pushing agendas, and don't like that. In fact, some macroeconomists are pushing political agendas, though I think it's a clear minority (no, I won't name names). This is also why a lot of laypeople get involved in climate science debates. 3. There is the perception that macroeconomists don't understand their own subject. The Great Recession convinced a lot of people that macroeconomics hasn't solved any of the problems it was created to solve. Contrast that with physics or bio or chem, which have very obviously given us a lot of the awesome stuff that makes our society rich. In addition, you have very public and acrimonious debates between macroeconomists like Krugman, Cochrane, and Sumner. That convinces a lot of people that there is no consensus within macro, which in turn makes them suspect that macroeconomists haven't gotten any answers out of the Universe. If the experts don't understand anything, why can't the amateurs weigh in?
update: I see Mark Thoma found this post (this blog is for stuff I don't want many people to read update: I post stuff which I think is worth reading at http://angrybearblog.com -- I do put some effort into those posts end update). I wish to clarify and revise my remarks.

First, ordinary people think they know other technical subjects too. It is easy to get into debates about microeconomics (think pf discussing the incentive effects of welfare or the economic effects of international trade) climate science, food science, and military strategy. Clearly Noah's first two points are valid.

However, I think there is special disrespect for the opinions of macroeconomists. I see two quite different problems. The first (discussed vaguely below and discussed better by Noah) is that there isn't a macroeconomists' consensus on anything. There isn't even a consensus among academics (or for that matter Nobel memorial prize winners) but also wingnut welfare recipient hacks are presented to the public as prominent economists.

I think there is a main stream of contemporary macroeconomics -- New Keynesian DSGE. It matters that the implications of those models are dismissed by real business cycle theorists, austrians, market monetarists, Post-Keynesians, and modern monetary theorists (you can't imagine how much fun I had putting real business cycle theory in that list). But it also definitely matters that new Keynesian DSGE models don't explain patterns which would otherwise be puzzling and don't generate very good forecasts.

end update:

That [Noah's] is an excellent effort. I disagree with two points. First I think macroeconomists with a political agenda are a clear majority (I will name one name -- Robert Waldmann). Second, I don't really think that the Krugman, Cochrane, Sumner debate has a big effect on the opinion the general public has of macroeconomics. The reason is simply that most people don't know who Cochrane and Sumner are ( many times as many people know who Cochrane and Sumner are than know who Robert Waldmann is, but the number is still small). I think that radically different views on everything expressed by Nobel memorial prize winners does have that effect. I note (as a member of the public) that I haven't heard anything from Lucas or Prescott recently.

I realize that I have very little sense of what most people think macroeconomists say. I'm pretty sure that most people think of macroeconomics when they think of economics. I think it is a sign of the strength of the perception that we don't understand our subject that pollsters don't ask people what they think we think.

I hand the microphone back to Noah

Ryan Decker writes in response to my Reason #3 above: When I fire up my web browser I'm not bombarded with confident non-expert opinions about earthquakes, despite seismology's apparent inability to predict them.
True, but seismologists are pretty up front about this, including any seismologist in the press. I think there's a public perception that while seismologists realize their shortcomings, and are therefore probably "on the job" in terms of trying new stuff, macroeconomists might have declared premature victory.
I don't think the modesty of seismologists is the issue. For one thing I don't think that declaring premature victory deprives people of their influence. Prominent pundits and politicians all express extreme confidence that they understand the world. They are influential. I think one clear difference is that seismologists can predict lots of things, just not the thing that we care about for practical reasons. It is hard to doubt that their model of earthquakes is approximately correct. In any case, there is an overwhelming consensus -- when there is an earthquake siesmologists publicly agree about things that happened under the earth.

I think the problem here is that the analogy is much too kind to macroeconomists. It is true that macroeconomists can't predict recessions. It is also true that macroecomists almost all admit this. However, macroeconomists don't agree on the explanation of what happened. Also macroeconomic models have lots of implications which can be confronted with the data. However they don't fit the data as the implications of models of plate tectonics do.

Finally, I think point 2 it is critical. Seismology does not involve ideology (although it has gigantic implications such as get the hell out of Tokyo). Notably lots of non experts have strong opinions about global warming and evolution by natural selection.

A lot of macro people in the press express a lot of certitude about things. John Taylor expresses incredible confidence that the Taylor Rule (with coefficients of exactly 1.5 and 0.5!) is THE best monetary policy rule. Scott Sumner expresses incredible confidence that NGDP targeting is best. Paul Krugman expresses incredible confidence that fiscal stimulus is effective and that austerity is counterproductive. John Cochrane expresses incredible confidence that structural form - removing "sand in the gears" - is the best medicine for an economy in recession. Robert Lucas said that the "central problem of depression prevention has been solved." And so on, and so forth.

I think normal people realize that that certitude is basically never warranted. Yes, those economists often (but not always) have some evidence to back up their claims. But not the kind of evidence that people have in disciplines where data is more abundant, controlled, and replicable.

Here I object to the Ballance. I think there is overwhelming evidence that, when the economy is at the zero lower bound, stimulus is effective and austerity is counterproductive. I think the evidence collected in the 1930 was overwhelming. I think the evidence collected so far in the 21st century is overwhelming. I actuall challenge Noah Smith -- do you really think that Krugman's confidence in claims on those points is "incredible" ? Here's another one -- do you doubt that austerity in economies at the ZLB is counterproductive ?

On the others, Lucas said that long ago (I remember I was in the room) and wasn't widely quoted in the mass media. Again I ask how prominent Sumner and Cochrane are.

update 2: I don't know where to put this but here's some more Krugman fandom. Prominent pundits all express extreme confidence that they understand the world, but none of the others in a small sample of 26 were as successful forecasters as Krugman (pdf warning). Almost everyone must have been put off by his intellectual confidence and his eagerness to say I told you so. However, people who have been keeping track have to notice just how often he claims he told us so and how he always provides links to him telling us so. Noah and Decker agree that a problem for macroeconomists is that we have very little data and no experimental data. I think this is special pleading. Existing macroeconomics is based on the the decision that the 30s are irrelevant and Indonesia is irrelevant and Argentina is irrelevant. We have few data, and we ignore a substantial fraction of them, because they are inconsistent with our models. Even the most standard data set (post WWII US quarterly) doesn't fit the models at all. Yes it is hard to do well without decent data. But it is also hard to do as badly as macroeconomists have without decent data.

And this brings us to

Macroeconomists know more than a lot of people think they do. That doesn't mean they know a lot. And macro discussions in the public sphere tend to focus more on the contentious stuff - the stuff where no one really knows all that much. That's where normal people feel justified jumping in. If you tell them that investment is the most volatile component of GDP, they're not going to argue.
I note again that Noah is no admirer of current macroconomics, but this is pathetic update: not a convincing defence of current macroeconomics which convincing defence is not likely to come from harsh critic of current macroeconomics Noah Smith who wasn't trying to defend existing macroeconomics in that post anyway end update. The discovery is a simple measurement. People can guess that macroeconomists know the coefficient of variation of consumption and investment. People also have good reason not to bow down to the superior insight of someone who has done that calculation. A more interesting question is whether the pattern is convincingly explained by existing models (no) and whether it is easy to explain in many different reasonably convincing ways (yes).

Update: welcome noahpinioners I really really want to extend and revise this paragraph. First, it is important that Noah Smith is a very harsh critic of macroeconomics. In the post to which I link, he mentions that there are non controversial claims in macroeconomics, but one just can't expect him to be the one who comes up with a convincing defence of current macroeconmics. I didn't mean to say that no example of a statement which is accepted by almost all macroeconomists and isn't obvious -- say just a measurement exists. I just mentioned that he (unsurprisingly ) didn't present such a statement. Oh now I am in a bit of trouble, as a commenter might ask me if I, Robert Waldmann, can come up with a non obvious statement accepted by almost all macroeconomists, and especially one not accepted by almost everyone in general. I will try 1. This recession isn't the end of the world. It's mostly cyclical. We are well into a recession so growth is likely to be unusually high averaged over the next 5 years. I think every reccession a lot of people decide that this time its different and we will go into a second great depression. Macroeconomists generally believe in mean reversion. This is, in fact, a measurement with atheoretical VARs implying hump shaped impulse response functions. I don't think it is controversial anymore and it is not obvious. Now maybe it should be controversial as the current troubles seem to have lasted for a long long time. but they haven't lead to total collapse (except in Greece -- massive foreign denominated debt makes things different and macroeconomists know this).

2.Government spending and deficits do not cause low output quickly and in the short run. There is a wide range of guesses of fiscal multipliers but none is well below zero. I think the range is zero (Fama Lucas) to 2.3 (Brad DeLong of course). I think this view is not shared by lots of ordinary people and also by a signficant number of policy makers. Macroeconomists also generally guess that deficits and unproductive government spending probably reduce the trend rate of growth.

I am, if anything, more harshly critical of existing macroeconomics than Noah, but that was a good faith effort. end update.

There are statements which aren't contentious in macroeconomics because almost all macroeconomists assume they are true, when doing academic work, and almost all macroeconomists agree that they are false (but maybe models based on those assumptions might be OK because who knows anything might be). This is not the sort of consensus which wins a field respect.

I think the post is excellent. I would put a lot of stress on point 3. I'd say that, when I think as a citizen and try to guess what policies are effective, I rely on Keynes and ignore the other stuff which was written since 1937 (date of the QJE article not The General Theory). I think I am not so unusual (and I am being paid as a macroeconomist). When I think of pure economic science, I think the same way. This is very unusual, but why ?

Matthew Yglesias's Gaffe

I learn from this wonderfully titled wonderful post "Randomgate is why politicians are so boring" that Obama's gaffe in which he said the attack on the Kosher supermarket in Paris was "random" violence when it was (as the Obama administration has said many times) anti semitic violence was an answer to a question asked by Matt Yglesias in the huge Klein Yglesias Obama interview (which I haven't watched). So Yglesias was right there. He complains that the gaffe he quoted was blown out of proportion. This sort of complaint (more ususally made by the person who uttered the gaffe not the one who reported it without noticing its gaffosity) is generally quite possible the most boring content of serious news. The media have to report the complaint to be fair, but the complaint usually is based on treating "quoted out of context" to mean "quoted." Strangely, Yglesias's post is absolutely brilliant. Read it. Yglesias fans will recognize some of his favorite themes, so the post is not a wildly original addition to the Yglesias literature, but the whole post is a devastating critique of political journalism made by someone right in the eye of the storm.

Saturday, February 14, 2015

Quote of the Day

Robert (not Paul) Waldmann wishes that he and not Paul (not Robert) Waldman had written
And New York City, population 8.4 million, just went ten days without a murder for the first time on record. Which is apparently what happens when you elect a socialist liberal hippie mayor who disrespects the police.