Monday, June 30, 2014

Sumner Demolishes Piketty: Or Not So Much

     It all comes down to the Jews. This is how Sumner 'demolishes Piketty.' Actually he had a post called exactly that but there Scott clearly was engaging in wishful thinking. 

     "Just back from the UK and just finished Piketty’s new book.  I’ll have lots to say when I get caught up, but I thought I’d begin with a little puzzle."

     "Explain the title of this post.  Hint."

       His demolition of Piketty is just too facile-The Sting Deduction. He seems to think that because anyone anywhere ever chooses to donate a large piece of their fortune to a charity than to their kids this shows that there is nothing to see here and we have perfectly functioning social mobility here. Everyone has an equal chance of getting wealthy at birth. 

          Is that what Sumner believes? He never quite says this but the extreme nature of this all or nothing argument-if anyone anywhere ever chooses not to live the significant part of their wealth to their kids then there is nothing to worry about in the U.S. or any other country seeing a decline in social mobility. 

          Ok, well this was facile enough-Sting disproves Piketty in one fell swoop. If nothing else the title of the post does indeed give us the Zizekean move of giving us a hint as to Sumner's Desire. He wants to demolish Piketty-and why does he want this? Well, every conservative economist wants to and this is obviously because they see Piketty's theory as very dangerous. 

         As facile as the Sting Defense was, wait til you see Sumner Demolishes Piketty 2.0. Turns out the Jews disprove inequality en toto. That Jews according to Scott show up on the Forbes list in much higher percentages than their numbers shows that there is no problem here.  

           "Interestingly, I don't recall any Piketty reviews discussing the role of ethnicity and great wealth. One of the wealthiest people in the world is Mexican telecom owner Carlos Slim, who is of Lebanese descent (a fairly small minority in a mostly Hispanic culture.) In many Southeast Asian nations the wealth is disproportionately owned by a relatively small group of Chinese immigrants. America has many examples of immigrant success, perhaps none more famous than Jewish immigrants from Europe."

         An obvious reason why no reviews have discusses enthncity is that it hasn't been seen as relevant by any reveiwers-until Scott. He seems to suspect this because he says this:

         "If I could hazard a guess, it might be that the lack of discussion of ethnicity in the Piketty debate might partly reflect the fact that explanations of disproportionate ethnic success that are not merit-based might seem slightly non-PC. I'm not sure that would be fair to those on the other side---my own view is that we have become so sensitive to these issues (mostly a good thing!) that the charge of prejudice is somewhat overused in contemporary American intellectual debates. Still, I feel slightly better finding myself on the "merit" side of the question of ethnic success, than having to defend some sort of non-merit theory of disproportionate ethnic success (where discrimination is clearly not the deciding factor.)"

         It seems to me that he has it backwards-he wants it to be that those who don't discuss ethnicity or Jewish success are the ones who need to justify their silence whereas it's the opposite: those who want to argue ethnicity must be very clear of its relevance. 

           Sumner also complains that Piketty sounds as if he thinks that wealth is entirely due to luck which I don't think he is reading Piketty right at all here. It seems to me that the luck of being born to the right parents is a major factor but there are others-including 'merit.  David Glasner says that while Piketty isn't necessarily wrong his idea that inequality grows thanks to the rate of profit on capital increases at a higher rate then growth is the wrong way to prove it. 

          That goes double for Scott's attempt to 'demolish Piketty' by simply counting how many people sound Jewish on the Forbes top 400. 


           P.S. Not all reasons parents have for giving away a lot of their money somewhere else than their kids are so admirable to say the least. A big part of why Buffett is giving away so much to charity is that he has no desire to see his daughter with it. In this case we have a kind of individual vice-vindictiveness-giving us a social benefit-billions in charity to those who really need it. 

Wednesday, June 25, 2014

I Must Disagree with Noah Smith on Kartik Athreya

     I tried to pick Dr. Athreya's brain today. Here was my email to him:

     "Hello Sir. I know your busy but I wonder if I could ask you a quick question-I admit I feel like being able to pick your brain now and again is a kind of resource. This is kind of a question statistics." 

     "If a salesman consistently gets 15-20 sales a week selling drain cleaner to maintenance guys for 8 months and then has a month where he's getting just 10 sales a week on average how likely is this to be an aberration or a new lower trend?"

     "Yes this could be autobiographical!"

     Basically I wanted to know if he has anything in his economist's bag of tricks that might tell me if I'm just in a slump or if maybe now I have now regrettably peaked as a salesman. I guess there is no Royal Way to Truth eve in in economics. I always dream that maybe the technical analysts in the stock market are right but apparently to no avail. Here was his response. 

      "Tough to tell, actually. You'd need to compare with the more routine volatility in sales you experience. If you *always* get sales of 15-20, then the drop seems more significant. But, one month is not everything. Good luck!"

     "Btw--Noah Smith reviewed my book, and interestingly, argued that it would be inaccessible to most readers without background in economics. Your experience, and others I've heard directly from, belie this--and I hope he's not putting off too many non-economist readers."

      He did do one very clever trick on second thought-he turned my concern into a discussion about his concern-Noah's review. Nevertheless, I have no problem with it and am still starstruck enough to be flattered. After the treatment I've received by Sumner it's nice that some economists are honest enough to admit my worthiness! 

      I must disagree with Noah on the question of accessibility. Whether Dr. Athreya is all right or all wrong or some place in the middle I must say that I found his book very accessible and I'm certainly a noneconomist-just ask Sumner. So I left Noah this note. 

      "I will say this in his defense. I read his book-and I come in as one of those laypeople that folks like Sumner stick his nose up about-who are disposed not to believe the Neoclassical economists-and I found him highly readable. I mean certainly at least compared to what has been offered by establishment econ before, his work is very accessible."

      "Traditionally establishment economists take Sumner's attitude-laypeople are too stupid to understand anyway and there's no time for displaying pearls for the swine."

       "So I have to disagree with you at least that it was inaccessible. I feel that I came away knowing a lot that I didn't before reading him. Also because he's been very nice to me and has had ongoing email correspondences with me while you have always seemed to treat me like I'm kind of like the economic blog equivalent of that chick who used to break into David Letterman's house. You seem like you take pains not to encourage me."

      "So on a personal level-and hey I'm not a professional economist so I will capriciously go with my intuitions!-I like him a lot more than you whether I agree with him or not!"

     "Here is more on my conversations with him.

      I do feel that Noah doesn't like me. He seems quite stuck up though perhaps it's just that I bring that out in him-in other words he just doesn't like me. However, I have plenty of other economists who have embraced me-or at least have been very friendly-Nick Rowe, Brad Delong, others, and now Kartik. At least Dr. Athreya's heart is in the right place-he clearly wants to educate the public-rather than sneer at them as Sumner and perhaps Noah prefer to do. 

         Don't get me wrong, while I understood his Athreya's book, I have done a fair amount of reading up on economics the last few years starting in about 2011. Still, if you're an interested layperson who's willing to work at it a little then I should say you should be able to read him with profit. If you're not willing to put in the work then you don't care about understanding it all that much-maybe a little bit but not if it cuts into your time at the bar. 

         Let me quote Noah's passage where he levels the inaccessibility charge. 

        "Who should read this book? If you've taken graduate-level econ courses, Big Ideas will be a review, but it may point you toward a couple of important theory papers that you've overlooked; Athreya is verywell-read. So I'd say skim it for the lit-review value. If you haven't taken grad-level econ, but you want to understand modern macro, then my recommendation is to first read a textbook (e.g. this one), and then maybe skim Big Ideas for interesting paper references. If you're mostly just interested in the policy kind of stuff and informal ideas that you can read about in blogs - in other words, if you follow macro debates just for fun - skip Athreya's book; it'll be too dense, and you'll just get bored and quit."

      "If you're one of those few people who wants to understand macro by poring through dense literary tomes (Keynes, Hayek, Minsky), but who flees at the sight of a single equation, then I guess Big Ideas could be just the book for you. But to be frank, I don't think you'll really understand modern macro by reading this book. Maybe it's possible to write a book that teaches modern macro without equations - macro's answer to the Feynman Lectures? - but Athreya has not written it here."

     Aha-this time Noah can't get me with the read a textbook line-like Nick Rowe did before- as I'm just finishing up Greg Mankiw's Principles of Economics. That's the second edition but it was a lot cheaper than the latest version-I also got Krugman's recent textbook which I will read soon and Paul Sameulson's original 1948 The Foundations of Economics.

      "If Noah doesn't think you can understand 'Modern Macro'-see I'm still very skeptical-by reading Athreya, where would he recommend we start? Ok-after the textbook which is what I've been doing. As for this idea that if you are interested in 'policy stuff' you can skip it, I don't understand this either. Hasn't the point that Noah, and Sumner, and al these other econ bloggers shown over the last 5 years that to really properly understand the policy stuff you need to have some understanding of theory? If you are interested in policy and want to understand how policy actually gets made, this is not a bad place to start-most policymakers-certainly at the Fed believe the kinds of ideas Athreya talks about-Walrasian Equilbrium, Rational Expectations, etc. You might not care about this stuff and just want to debate policy but your policymaker either believes this stuff or has an economist advising him who does."

     None of this necessarily means that Athreya is right about most everything in the book-I'm still even now digesting it and still have a number of questions-on these questions, I agree with Noah on a number of things. However, it was a very accessible book and genuinely tries to reach the interested layman. So here I disagree with Smith. 

     P.S. One thing that Noah and Dr. Athreya seem to agree on is that Keyne's General Theory is a 'literary tome.' The question I have for Noah is if there is any book without equations that he wouldn't find a silly, literary tome?

     I wrote about Athreya's own issue with Keynes' literary masterpiece'-the General Theory.

      I notice that all mainstream economists without exception today find nothing more absurd than spending your time sitting down reading GT while stroking your beard and asking Now what did Keynes really mean? Is this just a clever way of shutting off debate with the Post Keynesians?

      This contempt for what Keynes really meant could be the defining characteristic of 'Modern Macro.'

      P.S.S. Maybe Noah doesn't like me because I'm literary-I never write any equations. Of course, for an economist to call another economist literary is like one supermodel calling the other one fat. 


Tuesday, June 24, 2014

Detroit Looks More Like a Third World Nation Every Day

     We have the city being taken over by a financial manager-Kevin Orr.

     Now the city has just seen thousands of residents threatened with shutoff notices from the Water Department for failure to pay their bills. 

      "With about 90,000 city residents and businesses behind on their water bills, the Detroit Water and Sewerage Department in March began more aggressively collecting debt."

     "In May, about 46,000 notices were delivered to non-paying customers and water was cut off to about 4,500 of them, said DWSD spokesman Gregory Eno."

     "With 24 hours of the shutoffs, 2,700 of them paid or made arrangements to make payments and had services restored, Eno said."

     "This is not an effort to shut peoples water off," he said. "The effort is to collect that debt and get folks to enter into payment arrangements... DWSD is basically trying to put a dent into the bad debt, i.e. delinquent bills."

    Yes, but from what I understand to avoid getting one's water shutoff, a resident must pay at least 30% of the outstanding bill-which is in many cases quite a large amount. In the last decade Detroit residents have gotten poorer as water prices have gotten more expensive. 

     "city residents have seen water rates more than double over the past decade at the same time that the city’s poverty rate rose to nearly 40 percent, putting the cost of basic running water beyond reach for tens of thousands of households. Earlier this week, city lawmakers voted to raise water rates by a further 8.7 percent."

     Now there is apparently going to be some relief for residents, but this took an act of the U.N. 

     "An $800,000 program to help low-income Detroiters pay their water bills will be put in place in July after services were cut off from some residents in recent months and complaints were made to a United Nations representative, officials said Tuesday."

     "Last week, the Michigan Welfare Rights Organization, the Detroit People’s Water Board and the Canada-based Blue Planet Project sent a letter to Catarina de Albuquerque, special rapporteur on the right to safe drinking water and sanitation for the United Nations' Office of the High Commissioner for Human Rights."

    "The letter expressed outrage over the water cutoffs and called the collection effort a "violation of the human right to water and sanitation in the City of Detroit."

    “Many poor people are forced to accept payment plans that they know they can’t afford just to keep their water on (or lights, gas, telephone) until the next shut-off notice," the groups wrote.

     "Eno said $800,000 raised from private donations and from a 50-cent charge on water bills will be used to help qualifying low-income residents pay their bills.

     "That's going to help out a lot of folks facing financial hardships," he said.

    "If you meet those guidelines, they could get as much $1,500 to help pay their water bill."

     This is the sort of thing that doesn't come up in Sumner's NGDPLT regime. This is why macro data alone can't always tell the story. Detroit is one of those poor cities that are basically Third World countries within a larger First World country. 

      P.S. Sumner no doubt would say that liberals are too nationalistic in worrying about poor people in America losing their water when there are even poorer people internationally who allegedly would benefit from Neoliberalism. Yet, the U.N. didn't see this as mere nationalism. 

      Maybe Morgan Warstler will think they're doing pretty good-who needs water if you have a smart phone?


Piketty on Wealth Inequality and Inflation: Was WWI the Good War?

     Obviously I intend the title to be a little jarring. As we see the turmoil in Iraq, we of course hear again conservative calls for war, of going back into Iraq. There is certainly no end of trouble there now though it's hard to see how us intervening again would be beneficial.

      What I recall is that in the drumbeat to war in Iraq 11 years ago-the foundation for this war had started long before. Neoconservatives had been demanding war in Iraq throughout the 90s. One thing they often said was that WWII was the 'Good War.' This was said with a rather blatant nostalgia. It's why I still don't really find the 9/11 Truthers nuts.

       In thinking of the concept of the 'good war' though, it occurs to me in reading Piketty that WWI gets too little respect. Don't get me wrong that war was a human tragedy of unheard of proportions-until WWII of course. Yet what is interesting is how much the world changed for good after WWI and many of these changes are for the good or at least far from clearly bad.

      According to Piketty's data, the inequality of wealth-which is always harder to gauge the inequality of income-hit its nadir on the eve of WWI, but after the war we saw a significant redistribution. What's also interesting is that after two centuries of zero inflation the world begun a new period of significant inflation that has never ended.

       Those monetary theorists like the Market Monetarist Bill Woosley and George Selgin-who is not technically a MMer-who call for zero inlfation are basically calling for a return to the pre 20th century monetary regime. See for example Selgin.

         Ok, I'm sure they would argue their not calling for all of the social and political orders and institution prior to the 20th century-slavery, aristocracy, gross economic inequality, but isn't this in reality what it amounts to?

          WWI was a terrible war and I'm certainly not arguing for war as a tool of redistribution but it's interesting that this was really the event that gave us the first significant redistribution. Now, I wouldn't say that war is the cause of such salutary things but it interesting that we had such a correlation in the case of WWI. It's also interesting that a big part of the cause of the compression of wealth we saw after WWI was the emergence of inflation.

            I think this is a fair theory to at least advance: could it be that zero inflation is much more efficacious for the wealthy than the poor? What is clear about WWI is that as bloody as it was, it ended the aristocracy of Old Europe-in Germany, in Austria, in Russia. Could it be that this was a necessary war-that this couldn't have been achieved by other, more peaceful means?

            I don't know, I'm speculating. However, it is food for thought. 

Monday, June 23, 2014

Scott Dischick Didn't Invite Kourtney Kardashian to His Birthday Bash

     I've admitted from the start that my quest to meet and possibly charm Kourtney Kardashian is rather Quixotic to say the least. After all, he's the father of her two children-and a third in her oven-they are married in everything but name. Surely I'm dreaming.

     This may well be the case-but there's nothing wrong with dreams either, even Quixotic dreams. My feeling is that much of what makes humanity human is its propensity for just such Quixotic dreams. Still I have to say that while my Kourtney Quest remains a long shot, it seems just a little less so after reading today that at Scott's birthday party I had chronicled in my earlier post-which I had tried to crash

     As I chronicled, I never got in finally giving up at 1 a.m. Kevin later suggested that had we waited another hour we might have gotten in. I thought so too-though he admitted he hadn't totally felt like staying at the time either which is why he didn't try to make the case  to me then. However, any worry that we missed the girls is now allayed as it turns out they were in LA the whole time.

    Scott had his party alone while Kourtney celebrated Kim's daughter''s first birthday-North West.

      Meanwhile Scott played his part as the Lord who got real drunk and partied with his friends while an unidentified  brunette sidled up to him.

      I mean come one Kourtney-I know you take being a Mom seriously and you care more about your family than anything else but surely after dealing with Lord Dischick you might be intrigued by a guy who wears a t-shirt with your picture on it that declares you're God?

Can Rational Expectations Explain Telemarketing?

      Looking back on Athreya's great book on 'Modern Macro'-which basically means Neoclassical Macro-he certainly is very convinced that it is necessary for the success of Macro to believe that agents are rational-in the very special definition of RE.

     What I still never get is what makes RE true. The main answers you get from Athreya as best I can tell are twofold.

       1. We should believe that agents are rational in the RE sense because any other believe about them is disrespectful of them as rational agents. For instance Adaptive Expectations was disrespectful as it believed that people could be consistently fooled in their expectations of future government policy.

       2. The other argument is utilitarian/pragmatic: basically we get a lot more out of models that assume RE than those that don't.

       Note what is missing from these two arguments: any straightforward  positive argument for the truth of RE. Number 1 is blatantly normative: Athreya and other NC economist have arrogated to themselves the right to police the way citizens are treated. So it assumes that this job is the job of Macro. However, it presumes that believing that people can be 'surprised' necessarily disrespects them. You could still argue that it doesn't.

      Number 2 is a utilitarian argument-maybe you could argue it's a positive argument but it's not about the truth of RE ut simply that models are much more useful if they assume RE than if they don't. Again, this doesn't necessarily follow. I certainly don't know where it was shown that RE is more useful than other assumptions-AE or other. I still don't see that the AE error was disproved on a positive basis. The most you get in pointing this out is that there was a lot of inflation in the 70s and this disproved the Phillips curve, etc.

      Interestingly, David Glasner argues that the very economists who seek to shield the public from being disrespected, are actuallyl the arrogant ones.

       The question you could ask is why don't people get wise to telemarketing? On an individual level this might seem to happen-but it clearly doesn't happen on an aggregate level because telemarketing remains a big business. So while you defintely see individuals learn overall it always continues.

        One explanation might be that its a generational thing. While victims learn there are always others who haven't experience TM yet to fill their places. Yet this would suggest that education is the answer-just teach this in school and everyone should be forearmed in adulthood. Yet this doesn't happen.

         In some ways it might seem that it has happened in the US-after things like Enron and the assorted scandals of the 90s people are more wary. Yet, TM not only remains big business is growing and more and more big, established companies open up TM departments-major banks do it now, etc.

        So wouldn't RE predict that TM would have died down by now? After all, it claims that you can consistently surprise people, much less continuously trick them. Of course, I'm assuming here that buying over the phone is not rational. As that's my current job, I need there to continue to be people who do so. Sti;l I can't help marvel how long this has worked.

        I know that one standard answer of the Neoclasical economist is that advertising more generally actually serves the cause of price discovery even if it tends to exaggerate the differences between products, etc, as people read ads as a sign that the company who did it must believe in its product or it wouldn't have gone to such trouble and expense.

        I wonder if a NCer would extend this argument to TM? Does TM somehow enhance price discovery?

        P.S. My explanation for the continuance of TM's success might be called 'hetergenous preferences'-there are always a certain amount o people who can be persuaded to buy a new shiny toy on impulse. Whehter this means their irrational, I don't know. There is the old saying You can fool some of the people some of the time but you can't fool all of the people all of the time. However, if you're in TM you just need some of the people. It's never true that 'all of the people can't be fooled.'

         The trouble with TM would be that in theory people shouldn't buy over the phone-even if they like what they hear they should wait and learn more while comparing it to other products-this of course, would seldom lead to the one call close looked for in TM. Many people however can be led to buy on impulse. In my mind this fact is problematic for RE but it's possible that some NC economist will insist that it's not a problem for it as it somehow enhances price discovery.

Sunday, June 22, 2014

Kourtney Kardashian, the Hamptons, and Following the Yellow Brook Road

     My long time reader and friend Nanute dropped by with this observation:

     "It's seems like you're following the yellow brick road, Mike. Glad to see things are going your way. Moderation my friend, moderation. :)"

        Indeed, I think that about sums it up. Note that this assumes there is a Yellow Brick Road-I believe there is no matter how much others may doubt. This weekend was Act II for my buddy Kevin and I's Quixotic quest to meet the Kardashians. 

       We came close last night, at least in physical proximity. At the club Oak 1 in Southampton we were close but no cigar as we didn't have a reservation-I had actually tried to get a reservation at 7:30 that evening but evidently that was way too late-we didn't know about the party until then. 

     You've heard the phrase May the Force be with you but this weekend it was all about The Power of the Shirt. That t-shirt I had made up which I previously mentioned-a white T with a picture of Kourtney Kardashian with the words In Kourtney Kardashian I Trust  On the back of the shirt reads Behold the Social Anomaly-I didn't think of Nietzsche's Behold the Man in time but I like the social anomaly phrase-for one thing that's the name of our group-Kev and I and few others who will be in it. Also I like to think of us as I kind of motley crue that is kind of unorthodox to say the least-ie, kind of a social anomaly. 

      That shirt got notices everywhere in Southampton. The Black security guard at Dash had a picture taken of the both of us in it-and today a woman at the beach took a picture of me. Yes I wore the shirt throughout the weekend. Of course, that party out One Oak was for: Scott Dishick, who is the Father of Kourtney's children and her husband in everything but name. 

      If I had gotten in there that might have been a rather interesting situation to say the least. This morning Kev and I also played our songs-I sung, he did the guitar as well as sung. We got some thumbs up there as well. At the beach I called out to no one in particular-but in the earshot of a young Indian boy 'Are you ready to be amazed?'-he turned around and said 'yeah!' 

      Our security guard friend at Dash told us that the Sisters are going out to LA but will be back in the middle of July. We will be back on the 13th through to the 18th-having booked a reservation over at the Southampton Inn already. Hey this is where the Yellow Brook Road is leading us. 

     P.S. I see my pursuit of Kourtney such as it is as rather a long shot-I said it's Quixotic. .They are after all expecting their third child together. My best pitch though is that Scott may not be a terrible guy but he spends all his time out with his drinking buddies being the Lord while his Lady is stuck at home with the kids alone. I can in this sense be a kind of anti Scott-not a big partier and someone who will give her lots of-not to say worshipful-attention. 

      I pitched this scenario at work in front of a 24 year old girl in our office and she thinks it will work that I will win her over with this but that she will ultimately break my heart. This girl should be a writer. 

Friday, June 20, 2014

In Kourtney Kardashian I Trust: Once Again, We're Back on the Road to the Hamptons

      It's almost as much fun as the Road to Rhode Island

      Yes, again I and my coworker are on another Quixotic pilgrimage to Southampton in the hopes of bumping into the Kardashians during their time here filming Kourtney and Khloe Do the Hamptontas. In my last visit, long time Diary of a Republican Hater Tom Brown told me he doesn't know who the Kardashains are and he's darn proud of that fact thank you very much.

      "Mike, I'm embarrassed (proud?) to say that I've never even heard of Kourtney Kardashian... I only read this because I was worried you might have a restraining order taken out on you. (seriously, I have no idea who most of these people are you're writing about). Keep safe!"      

     Well I should hasten to point out that we in no way trespassed or intend to trespass this week on their or anyone else's property and certainly don't intend to harm anyone or break any laws. If we meet them at their favorite restaurant and attempt to chat them up this is just a case of some enthusiastic fans, nothing dangerous. From what I understand, they're pretty nice to their fans and hopefully will take our antics for what they're worth-just two fans who like them a lot.

     I do have that t-shirt I may have mentioned in the previous posts-I had this custom made and it says 'In Kourtney Kardashian I Trust' and a very nice picture of her. I have to say that a young woman in my office-she's only about 24 certainly liked it and even predicted that I will win her over but that ultimately she will break my heart. I found her comments quite impressive.

     My guess is that her reaction will not prove atypical-I suspect that a lot of women will like this shirt too-most primarily, women will love this shirt because they dream that some guy would go to the trouble to get one with their picture on.

      My theory is that if we do chance to run into them anywhere-and as we are staying over the whole weekend this time we have a much better chance of this-then they're camera crew will obviously be there too. If they see this shirt surely they will want some pictures of it as will TMZ-which is trolling to catch the Kardashians at anything they think about.

       Of course, I got my pitch for Kourtney. I know it's an uphill climb as she's everything but married to Scot and they have their third child on the way. Yet for all that she's not totally happy with him even now which is why she still won't marry him-even though both Scott and her Mother want her too-as he parties too much while she's stuck at home with the kids.

      I can just point out all the time he spends being the Lord and contrast it to my obvious passion for her.

      P.S. That little sample sports piece I sent out early Tuesday morning paid off as the fellow really likes my writing. Evidently he's very serous about paying me to blog about sports. Could it be that fairy tales do come true after all? Here was the winning piece.

      He asked me how long it took me to write it. I told him 15 minutes. I wrote it at 3:30 Tuesday morning. It was only 3 paragraphs.


Tuesday, June 17, 2014

Thomas Piketty on the Causes of Inequality

     Now that I've finally finished Athreya, I'm onto Piketty's polarizing book on Capital.

     Obviously his book has hit a nerve with conservative economists.

     They are determined to discredit him and want to make him 'this years Reinhart and Rogoff.' Still, while I'm just in the introductory phase of the book, I can already see that this is a very impressive work. You can quibble with what he's done but you have to admit he's doing something that hasn't been done since Simon Kuznets-give us hard data on inequality. 

      His point of departure is that Kuznets while deservedly celebrated, gave too much optimism on inequality-basically that an amelioration in inequality is more or less automatic in the development of a capitalist economy. In some ways this was somewhat welcome at the time compared with the overly pessimistic theories of Malthus and Marx in the 19th century, but no doubt he went too far the opposite direction. 

     According to Piketty, the main force for increasing inequality is for the rate of return on capital to exceed the growth rate which he sees as unfolding over the last 30 years across the globe. On the other hand the main compressionary effect for incomes-for inequality to lessen-he explains is the diffusion of skill and knowledge. A classic example of this is what we saw in the 90s and especially the early 2000s, with so many previous white collar jobs being outsourced to Asia and Latin America. 

     This lead to the compression of economic inequality between first world nations-or at least the middle class of first world nations vs. the middle class of second world nations but it also led to increasing inequality within the first world nations themselves. Sumner when he discusses inequality tries to basically confound these issues by accusing liberals of not caring about inequality between nations because they are concerned about inequality within nations-very clever as always! You have to choose-one or the other, which one is it going to be? So Sumner thinks he can confound liberals. 

      I see that Piketty suggests some policy solutions-he touches on the in the intro. He recommends immigration reform in the U.S. This is why I think this part of Yglesias' analysis of the two parties is wrong. He is right that the Dems are united but suggests that because of increased partisanship we are going to have divided government for a long time to come. 

      "As a recent Pew report on polarization showed, completely apart from substantive policy issues both Democrats and Republicans are increasingly alarmed by the other party's agenda. This alarmism in fact stronger on the GOP side, but it's quite strong — and growing — on the Democratic side as well.
This seems like an unhealthy trend for the country, but it's excellent news for party cohesion. Splits require not just internal disagreement, but a relatively blasé attitude toward the opposition."
     "None of this means that victory is somehow assured for Democrats in 2016 — far from it. But it does mean that the coalition is at no risk of collapse. The kind of electoral mega-landslides that happened in 1964 or 1980 where one party's candidate gets utterly blown away simply can't happen under modern conditions.
     He's right about the Dems but I don't know about no more blowouts. I mean the GOP has just one electoral college win in the last 22 years. Piketty's advocacy of immigration reform just reinforces how it's just a no-brainer and everyone-most of the electorate outside of a couple of rabid conservative pockets-as well as the whole Democratic party and much of the thinking conservative intelligentsia understand that this is something that just needs to get done. As the GOP has made it clear that it will never get done with them having any power in the government at all, the natural solution is not make sure they have no power. I think the party in the next 20 years is going to be decimated-they were able to manipulate the last Census and have managed to gerrymander themselves into power in the House but this won't last forever. 
     I think that the victory of people like Dave Brat simply sound their death knell.


On the Miami Heat, the San Antonio Spurs and Carmelo Anthony: NBA Gods Taketh and Giveth Away

     With the 2013-2014 season over, I think you have to say that 'the NBA Gods Giveth, and the NBA Gods Taketh Away!' I'm speaking as a New York Knicks fan, of course, but I guess this is true of any team. In a way it just means you never get everything you want. I mean if this article is believed, even the Spurs have to worry-and they just won the Championship.

     The subtitle says that the chances of the whole team playing together for another year is small but 'all might not be lost.' You think? It also points out that last year the Oklahoma Thunder looked unbeatable. This is the reality of sports. I mean in football, the 1985 Chicago Bears looked unbeatable after 1985 and never won a Super Bowl again. My Giants looked unbeatable the next year but then badly slipped the next few years. Dynasties don't happen so often. Though they happen more in the NBA than say the NFL.

    The Spurs over the longer term have had something of a dynasty, Indeed their vanquished opponent, the Miami Heat has been something close to a dynasty coming into the finals having already won two. As a Knicks fan the fact  that they didn't win is what the NBA Gods gave me. Of course, what 'was taken away' is that the Knicks failed again. As for Melo leaving the Knicks for the Heat, all I can say is 'Say it aint so!' If anything, what this finals showed is that it's a team game not one for individuals. This is why the Spurs won. As great as Lebron is he couldn't do it on his own. So I don't know that Melo in Miami is a great fit as these two guys are too similar-they both are team high scorer types. As for the Knicks they are optimistic that they can sign Melo. Let's hope the Gods smile on us Knicks fans this time. You certainly can't say it's not our turn yet.

     UPDATE: For my regular readers, this is a pretty short post for me. Reason for this is that I wrote it as a sample for a job ad I saw at Craig's List where they want a blog sports writer but just wanted a 2 to 3 paragraph sample. I'll believe they're going to pay someone meaningful money for blogging about sports but figured it was worth a shot. Wish me luck! 

Monday, June 16, 2014

Krugman and Yglesias on the Democrats the Party of Discipline?!

     I think they both nail it. I think Ross Douthat's claim that the Democrats are about nothing but a cult of personality surrounding Hillary Clinton is exactly wrong. As Krugman says, any number of Democrats-Biden, O'Malley, could rally the party around them in just the same way because the party is more unified than it's been in many years. 

     "As Yglesias says, Democrats are remarkably unified on policy. They want to preserve health reform; they want to preserve financial reform, even though some would want to push it further; they want action on climate change; they may be conflicted on immigration, but that’s mostly internal soul-searching rather than a division between party factions."

     "This policy unity has been helped by the fact that Obama has had a moderate degree of success in achieving these goals. If he had had an easy time, the party might be divided between those wanting more radical action and those not in a hurry; if he had failed utterly, the party might be divided (as it was for much of the past three decades) between a liberal faction and a Republican-lite faction. As it is, however, Obama has managed to achieve a lot of what Democrats have sought for generations, but only with great difficulty against scorched-earth opposition. This means that the conflict between “the Democratic wing of the Democratic Party” — exemplified these days by Elizabeth Warren — and the more pro-big-business wing is relatively muted: the liberal wing knows that Obama has gotten most of what could be gotten, and the actual policies haven’t been the kind that would scare off the less liberal wing."

     "How do personalities matter in all this? Not so much. In the end, Obama implemented Clinton’s health plan (remember how he was against mandates?), and Clinton, if elected, will continue Obama’s legacy. The party is willing to rally around an individual because it’s unified on policy, not the other way around.
In fact, it’s the Republicans who desperately need a hero. In retrospect, they needed W much more than they realized: he combined policy fealty to the plutocrats with a personal manner that appealed to the base, in a way no Republican now manages."

     Krugman is exactly right: as counterintutitive as it sounds, it's the GOP that is totally undisciplined and 'needs a hero'-the desperation for this is getting so bad they're actually now even thinking that Romney will save them (!). I know I've pointed out numerous times that the GOP has learnt nothing from 2012-even on immigration-the one thing everyone seemed certain they had learned. However, this would truly put an exclamation on truly learning not one single thing form 2012-even opting for the same candidate again. 

    "How bad is it? So bad that some establishment Republicans — which means people who work for the corporate side — are pining for another run by, yes, Mitt Romney." Post&contentCollection=Opinion

     Actually what's hard to believe is not that the GOP has completely imploded-this is obvious to anyone not living under a rock for the last 10 years, but that the Dems are now a disciplined party. I mean this is the Democratic party for God's sake. The party that has always been divided among itself-think of years like 1924 or 1968, or for that matter 2000 when Nader's candidacy likely cost Al Gore the Presidency. Here Yglesias makes a truly excellent point:

     "The much greater demographic diversity of the Democratic Party coalition may give it an illusion of fragility. Talk during recent primary campaigns of "wine track" versus "beer track" Democrats further amplifies that sense. But a look at the congressional caucus' behavior reveals a party that is dramatically more united than at any time in the past hundred years. Defections come overwhelmingly from outlier legislators representing very conservative states like Arkansas or Louisiana."

     "What you would expect to see from a party torn apart by demographics is elected officials who put together very different voting records. But even though Jerry Nadler (Greenwich Village and the Upper West Side), Peter Welch (in Vermont), and Maxine Waters (South LA) represent very different people they vote in very similar ways. And you see that on most big issues Democratic Senators representing the contested terrain in the Midwest, Southwest, and Virginia vote together with those from the Northeast and the Pacific Coast."
     "Rustbelt legislators back Obama's EPA regulations, and comprehensive immigration reform was unanimously endorsed by Democratic Party Senators. American politics is becoming more ideological, and the Democratic coalition is increasingly an ideological coalition that happens to be diverse (and, indeed, that upholds the value of diversity as an ideological precent) rather than a patchwork of ethnic interests or local machines."
      Demographic diversity does not mean ideological divisions and as he points out the ideological center of the party is widely held and cuts through ethnic lines. The irony is that this is the Democratic party which has always been a patchwork of ethnic interests and local machines-the original  dominance of the old slave owning Dixie South during the first 60 years till the Civil War was thanks to the Faustian Bargain of the Northern Democrats in giving way on slavery and other regional interests to the South in exchange for party unity. 
   Ironically with the final fizzling out of any old blue dog Democrats in 2010 the party has finally become a truly national party-with the regional stuff finally tamped down on. In any case, Douthat should worry about the Republicans more and the Democrats less as the GOP's problems truly are dour and indeed are the powder keg he wants to believe is the nature of the Democrats. 
    P.S. Throughout most of their history the Dems have been at least two and often three distinct parties. You had the Northern Yankee Democrats, the Southern Dixiecrat Democrats and then the 'ethnic' Democrats of the local machines Yglesias hints at-the Tamany Hall, the Daly machine in Chicago, the Catholic, Italian, Jewish, and Polish Democrats, e


Thursday, June 12, 2014

Rational Expectations: Protecting the Public From Economists or Methodlogical Arrogance?

     As I said in my previous post, I'm very impressed by Athreya's book.

      I did question him a little on RE though-he kindly corresponded with me via email. In rereading a somewhat critical review of his book by David Glasner I had read initially before reading the book itself, I think of anything Glanser's criticism of his defense of RE is in even sharper relief. 

      Essentially, Athreya's defense of RE amounts to the idea that sure it's an exaggeration, it's not literally true-but 'all models are false and the point for economists is to find false models that are useful'-and that, in any case, there is nothing feasible to replace RE with. I asked him about the previous Adaptive Expectations-as suspected, he had no use for that. 

        "Your read of my view is correct--though recent advances having to do with the modeling of "rational inattention" and "sticky information" are promising alternatives to full-blown RE."

     "Re: adaptive expectations--they are riddled with the same arbitrariness problems that afflict almost all alternatives to RE."

     "The ends of major hyperinflations also seem inconsistent with any sort of slow-moving expectations. This was important in the early arguments against such slow-moving expectations formation."

     "Also, AE can lead to very unpalatable policy implication-a model with adaptive expectations might then imply that an "optimal" policy is one where the policy authority tries (and will succeed, under AE) to fool the citizenry--for their "own good." This seems a risky proposition, unless one really trusts the political system."

     This idea that RE saves the citizenry from the machinations of economists-that it's a kind of straitjacket for their treacherous ambitions to control the public, I find rather questionable to say the least. Glasner does a great job here of describing it. 

     "Athreya offers the following explanation and defense of rational expectations:
[Rational expectations] purports to explain the expectations people actually have about the relevant items in their own futures. It does so by asking that their expectations lead to economy-wide outcomes that do not contradict their views. By imposing the requirement that expectations not be systematically contradicted by outcomes, economists keep an unobservable object from becoming a source of “free parameters” through which we can cheaply claim to have “explained” some phenomenon. In other words, in rational-expectations models, expectations are part of what is solved for, and so they are not left to the discretion of the modeler to impose willy-nilly. In so doing, the assumption of rational expectations protects the public from economists.
     "This defense of rational expectations plainly belies betrays the methodological arrogance of modern macroeconomics. I am all in favor of solving a model for equilibrium expectations, but solving for equilibrium expectations is certainly not the same as insisting that the only interesting or relevant result of a model is the one generated by the assumption of full equilibrium under rational expectations. (Again see Thompson’s “Reformulation of Macroeconomic Theory” as well as the classic paper by Foley and Sidrauski, and this post by Rajiv Sethi on his blog.) It may be relevant and useful to look at a model and examine its properties in a state in which agents hold inconsistent expectations about future prices; the temporary equilibrium existing at a point in time does not correspond to a steady state. Why is such an equilibrium uninteresting and uninformative about what happens in a business cycle? But evidently modern macroeconomists such as Athreya consider it their duty to ban such models from polite discourse — certainly from the leading economics journals — lest the public be tainted by economists who might otherwise dare to abuse their models by making illicit assumptions about expectations formation and equilibrium concepts"
      I don't get this concern by modern Macro where economists decide they're going to protect the public from themselves by imposing RE. Is it really the public they mean to protect? I think this question is one that will continue to be debated and rightly so.

      UPDATE: However, I should also second Glasner here. 

      "Anyway, despite my obvious and strong disagreements with much of what I read, I learned a lot from Athreya’s well-written and stimulating book, and I actually enjoyed reading it."