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Tuesday, July 30, 2013

UnBallanced Post

Kudos to Michael Birnbaum who writes it as it was in the sometimes Ballanced Washington Post

"raising fears of further violence after police and their plainclothes allies killed at least 80 Morsi supporters Saturday."  

Yep wasn't a bunch of angry civilians who just happened to shoot their political opponents when conveniently close to and protected by uniformed police.  

Monday, July 29, 2013


Minesweeper in the Washington Post.
“It’s like Minesweeper,” former Wyden staffer Jennifer Hoelzer told The Washington Post’s Ezra Klein in June, referring to the computer game in which players slowly probe unknown territory, looking for bombs. “You just have to ask questions to try to get the outlines of what they’re not telling you. Because they can’t tell you what they’re not telling you.”
Instead of targeting just the calls of terrorism suspects, the program records “metadata” for millions of calls between average Americans. This includes the numbers dialed and the duration of calls, but not the content of calls. Intelligence officials have defended this program, saying their ability to connect phone numbers has led them to disrupt dozens of terrorist plots in the United States and overseas.

Notice that "intelligence officials" didn't say that meta data from US to US phone calls has been useful in disrupting a terrorist plot.   Note that the officials didn't say how many plots were in the USA or whether they are counting the guy who planned to bring down the Brooklyn Bridge with a blowtorch.  

I think it is safe to assume that they would have stressed such highly relevant facts if the facts didn't prove the opposite of their claim.  Recall how intelligence officials described useful data obtained from the high value detainee interrogation program (the program which eventually involved "enhanced interrogation") and neglected to mention that the information was obtained *before* the interrogation was "enhanced."

Tuesday, July 23, 2013

Krugman Katz Horatio Alger William Julius Wilson moving to Opportunity Horatia Alger and Sprawl

Krugman has a fascinating post noting how there is more intergenerational class mobility in denser cities.  He asks if sprawl killed Horatio Alger

I say he should look up Katz et al on the Moving to Opportunity Experiment

There is honest to God experimental evidence related to Horatio Alger his sister Horatia Alger, sprawl and W.J Wilson -- the moving to opportunity experiment.  This starts with people in the projects who want section 8 housing vouture.  Then a lottery some lose and get back in line waiting for a voucher, some win a regular voucher and some win a special on which can be used only in low poverty areas .  The results are special vouchur causes differences from the controls larger than regular voucher.  The vouchers are good for girls an bad for boys.  The bad for boys part is quite strong with a  higher probability of being arrested.

Google scholar Larry Katz.  Also Brad has a summary on his blog.

A disclaimer.  The study was conducted in the late 90s. The original question is would people with the special voutures find jobs.  In the late 90s everyone did including the lottery losers stuck in the projects. Assuming the results would be the same in the roaring 90s and the terrible teens is foolish.

But enough of a glaring blaring gender difference that I would check if the low mobility sprawl effect is stronger for females than males.  If not I strongly guess the issue is that evil uh sorry Republican politicians don't regulate building or help the poor at all so non-causal correlation.  If so it ooks like sprawl killed Horatia Alger at least.

OK now stuff past his ruthless character limit.  I would guess that the bad effect on boys is related to bitter resentment of relative poverty compared to classmates etc. I guess also opportunity (more property around equals more temptation for property crimes).  Also maybe more police mean more arrests for the same rate of crimes.

The linked study is *not* the one I had in mind when I started typing.  I was thinking of an earlier interim study.  Now with more time after the lottery, the effects are smaller.  The good for girls is statistically significant mostly for psychological health, the bad for boys mostly for crime and delinquency.  You can look up the interim study and more than you coul ever read googling [Katz moving to opportunity girls boys] or much much more without the girls and boys.

Wednesday, July 17, 2013


From the We Need That Word dept:
deceipt(n.): a piece of paper given to you by a corporation, as proof that you've been had.

Sunday, July 14, 2013

Show me the Model

Uh oh. Please click this link to read it here.

Antonio Fatas wrote

Show me the modelMost of the commentary one reads these days about the negative consequences of the policies set by central banks (low-interest rate and quantitative easing) are not backed by any economic model that I know.[skip]
But what is the economic model that can provide a theoretical justification to an environment where the central bank can significantly affect equilibrium asset prices and interest rates for a prolonged period of time and without causing inflation?  I have not seen it yet.
When we teach the effects of monetary policy we tend to use economic models that have a Keynesian flavor to it, with some form of price rigidity and where changes in the nominal interest rate by central banks have a short-run impact on real interest rates (as inflation moves slowly). But this only works in the short run, while prices are rigid."

Emphasis mine.   OK I shall do so below (it will be a sketch of a model).
I claim that I can think up an economic model with rational agents which has any behavior I choose.  Thus I consider "Show me the model" a challenge which I can't honorably ignore.
I also like to argue that the insights which macroeconomists think they have obtained from models always and invariably are implied by the simplifying assumptions which no one claims are realistic.  
First, before going on, I note that my objection to current Fed policy is that I think that they should promise to keep the target federal funds rate essentially zero until inflation is over 4% and not until either inflation is over 2.5% or unemployment is under 6.5%.  Also I object to QE 3 because I think they should buy only agency issued mortgage bonds issued the day before the purchase and that they should buy 100% of them.  That is I want Fed policy to have the effect which I claim it can have.
Second note Fatas's equivocation.  He mentions "quantitative easing," he asks for a model in which "the central bank can," but when he discusses existing models he discusses only "changes in the nominal interest rate".  Quantitative easing has vanished, because it is not considered in standard models. The absense of quantitative easing in standard models is a reason to not rely on standard models, not a reason to dismiss arguments about the effect of quantitative easing.
Third note that Fatas implicitly asserts that there is only one nominal interest rate when he writes "the nominal interest rate." In fact there are thousands of nominal interest rates on debt with different maturities and defult risks.
Clearly the Fed can affect risk premia permanently by changing the amount of risky asset which private investors hold.  It is also easy to obtain such an effect in standard asset pricing models.  This means that central banks can subsidize sectors.  It is clear that the Fed is attempting to do exactly this by buying RMBS (residental mortgage backed securities).  It is clear that, even without nominal rigidity of any kind, the Fed could affect the economy if it could purchase RMBS issued by profit seeking firms for prices much higher than the market price.  This would be a subsidy to mortgage lending.  In a flexible price real business cycle type model, it would cause higher investment in housing and lower investment in plant and equipment.
This would have effects which would be modest unless the Fed's purchases were huge -- say $ 85 billion a month.  Actually the effects need not be modest even for less huge purchases.  If you add Marshallian (Romer 86) type spillovers caused by equipment investment but not by housing investment, then the Fed policy could cause a permanently lower GDP growth rate in a model with perfect foresight and flexible prices.  In general, I would strongly oppose such a policy.  I strongly support it now, because the economy is in a liquidity trap so housing investment doesn't crowd out other investment.  But the claim that central banks can't influence the real economy permenently is clearly based on absolutely false assumptions about what central banks are doing.
OK finally the last bolded "if".  In the USA the Fed can't buy RMBSs issued by a profit seeking firm. They can only buy Federal agency issued RMBS.  The weak link in the chain linking Fed policy and the real economy is the FHFA which is legally obliged to minimize the cost (soon to maximize the profit) to the Treasury of the Fannie Mae/Freddie Mac, but whose actions are more easily understood if the aim were to minimize GDP.  But models are magic and I can assume that the scales will fall from Ed DeMarco's eyes in my model.
OK so the model would be a totally non standard model in which there is a housing sector and in which the nominal mortgage interest rate is higher than an equal maturity nominal default risk free rate.  Then this risk premium has effects and Fed purchases of RMBS have portfolio balance effects.  It is totally conventional for macroeconomists to assume that there is no housing sector.  I think this is just one of many many reasons why standard macroeconomic models are not useful.

Saturday, July 13, 2013

Adam Smith on Deportation

"To remove a man who has committed no misdemeanour from the parish where he chuses to reside, is an evident violation of natural liberty and justice. " - Adam Smith

He wrote about restrictions on migration within England, but I think it is clear how he would vote on comprehensive immigration reform.

A quote from Samuelson and Solow 1960

Click this link or else bears will be angry.

I think this quote makes it clear that the rational expectations revolution was based on fraudulent intellectual history.  I don't think it shows that the fresh water and new Keynesian schools of macroeconomics have made no useful advances during my lifetime (that is since 1960).  I'm sure they have made useful advances, although their claim to have improved on the thought of Samuelson and Solow is based entirely on critiquing the legend of one figure quoted out of context.   It is the legend to their figure 2 which shows a stylized Phillips curve.  The following paragraph basically explains what a graph is.

I quote the immediately following three paragraphs as published in May 1960 before I was born.
(update: emphasis mine)

Aside from the usual warning that these are simply our best guesses we must give another caution.  All of our discussion has been phrased in short-run terms, dealing with what might happen in hte next few years.  It would be wrong, though, to think that our Figure 2 menu that related obtainable price an unemployment behavior will maintain its same shape in the longer run.  What we do in a policy way during the next few years might cause it to shift in  a definite way. 
Thus, it is conceivable that after they ha produced a low-pressure economy, the believers in demand-pull might be disappointed in the short run; i.e., prices might continue to rise although unemployment was considerable.  Nevertheless, it might be that the low-pressure demand would so act upon wage and other expectations as to shift the curve downward in the longer run -- so that over a decade, the economy ight enjoy higher employment with price stability than our present day estimate would indicate. 
But also the opposite is conceivable.  A low-pressure economy might build within itself over the years larger and nd larger amounts of structural unemployment (the reverseof what happene from 1941 to 1953 as a result of strong war and postwar demands).  The result would be an upward shift of our menu of choice, with more and more unemployment being needed just to keep prices stable.

 "Analytical Aspects of Anti-Inflation Policy" Paul H. Samuelson; Robert M. Solow American Economic Reivew Vol. 50, No. 2, Papers and Procedings of the Seventy-second Annual Meeting of the American Economic Association (May, 1960), 177-194.

I don't think that Milton Friedman had anything useful to add.

In 1960 Samuelson and Solow  did not at all write what Friedman insinuated that they wrote.  In fact, in 1960 they said the Phillips curve showed a short term but *not* a long term tradeoff. They explained that it would shift for two reasons. First, they predicted that it would shift up and down with expected inflation.  In other words, Friedman is guilty not only of distorting the claims of Samuelson and Solow but of presenting their clearly stated prediction as his own.  Not to put to fine a point on it, he plagiarized them when pretending to critique them.  But wait, there's more.

 In the next paragraph they went on to note that the Phillips curve will shift out as cyclical unemployment becomes structural.  Samuelson's nephew (and OJ Blanchard) presented this insight as original 25 years later and called it "hysteresis".  In standard watererd down for the public histories of macro thought it is fairly common  to present the progression Samuelson and Solow claimed the Phillips curve was a stable long term tradeoff.  Friedman and Phelps achieved a scientific revolution by noting that the Phillips curve depended on expected inflation. Further research suggests it is even more complicated that Friedman knew as the NAIRU can shift due to hysteresis (this is still so brand new that it hasn't been incorporated into standard macro models after an alleged 28 but actual 52 years).  In fact, it is all there in Samuelson and Solow 1960.

update: typo corrected and a word bolded

Accountability betting

Pundit Steve Benen notes that punditry is an accountability free field.  

Republican officials and the Beltway media gambled on the IRS "scandal," betting heavily on its viability and seriousness, convinced that the odds were in their favor
Ideally, this would a time for at least some accountability. There were countless Republicans and mainstream pundits -- left, right, and center, from Limbaugh to Jon Stewart -- who were absolutely convinced that this story was legitimate and President Obama bore responsibility for the wrongdoing we now know didn't exist.

In comments "JMK of CT
You really think you are going to hear any of those people say "Oooops"? Dont hold your breath."

OK so I open betting.  I am willing to offer 1 to 2 odds that Jon Stewart will admit that he was wrong. If he does you owe me one "I told you so" if not I owe you two "I told you sos".  Given the huge number of bets which I expect in comments, I will set up a tote board and update the odds.

Tuesday, July 09, 2013

Get the Lead Out III

Criminology is a predictive science.  In 2007, I predicted that UK violent crime would peak in around 2008 13 years after the US peak because the UK began the phaseout of leaded gasoline 13 years after the USA.  The data are in.  The UK crime peak came in 2006/7.  So says The Royal Statistical Society

  1. Crime: 58% do not believe that crime is falling, when the Crime Survey for England and Wales shows that incidents of crime were 19% lower in 2012 than in 2006/07 and 53% lower than in 1995. 51% think violent crime is rising, when it has fallen from almost 2.5 million incidents in 2006/07 to under 2 million in 2012.