How LeBron’s Move Helps the Tea Party
Excellent! I like it.
That’s all for now.
I saw an interesting bit over at Bloomberg Businessweek about how to think about the trajectory. It’s colorful, gangsta-esque title is “Krugman or Paulson: Who You Gonna Bet On?” On the one hand, you have Paul Krugman warning of a depression without very tall cash-on-the-barrelhead government spending monetary outlays. On the other, you have billionaire Henry Paulson literally putting his money on a recovery:
Paulson’s latest 13f filing with the Securities & Exchange Commission indicates nearly $2.995 billion of Bank of America common stock and $2.052 billion of Citigroup common. Despite healthy advances from their spring 2009 lows, banks may have more room to run, particularly if Paulson is correct in the estimate he made to investors that housing prices will rise as much as 10 percent next year.
Since his initial forays in banks, Paulson has ventured into riskier assets like casino stocks and vacant residential land in the utterly busted Florida and Southern California markets. As a private hedge fund manager, Paulson is not obliged to provide a complete picture of his investments; long positions could be hedged with shorts and derivatives that he does not have to divulge. But nothing in either his statements or reports about what he’s buying suggests he is anything less than upbeat about the economy right now.
I’m not sure that’s a fair comparison, because Paulson is simply betting on certain sectors, some of which benefit handsomely from government policies. So his bets don’t necessarily represent a “stimulus v. no stimulus” type of comparison.
What is it about people wanting to bet Krugman? Last year, in what New York Magazine hailed as “the nerdiest bet ever,” Greg Mankiw threw down and bet Krugman about the administration’s GDP forecast.
Paul Krugman suggests that my skepticism about the administration’s growth forecast over the next few years is somehow “evil.” Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?
Who knew economists could be so catty?
“The safer they make the cars, the more risks the driver is willing to take. It’s called the Peltzman effect.” — Some CSI Episode
The basic idea is so simple that it’s hardly controversial. If you reduce the cost of doing something, you would expect more of it. The classic Sam Peltzman paper has to do with making cars safer, which reduces the costs (in terms of potential injury or fatality) and hence increases “driver intensity,” as Peltzman puts it. The startling result is that the behavioral changes completely offset the technological improvements, though this does not have to be so.
This is similar to the “rebound effect,” where improving energy efficiency or fuel economy, for example, causes people to set their thermostats more aggressively or to drive more miles (that is, because the marginal costs go down).
The Peltzman effect has crept into my RSS feed twice in the past week. From this morning’s Marginal Revolution:
The NHTSA had volunteers drive a test track in cars with automatic lane departure correction, and then interviewed the drivers for their impressions. Although the report does not describe the undoubted look of horror on the examiner’s face while interviewing one female, 20-something subject, it does relay the gist of her comments.
After she praised the ability of the car to self-correct when she drifted from her lane, she noted that she would love to have this feature in her own car. Then, after a night of drinking in the city, she would not have to sleep at a friend’s house before returning to her rural home.
Well, that certainly makes me feel safer.
One of the classic jokes associated with the Peltzman effect is that NHTSA should put a spear extending out of the steering column, making the driver exercise extra caution so as not to be impaled. In that vein, the good folks at Organizations & Markets alerted me to this cartoon:
Peltzman is one of the most prominent empirical economists ever. Certainly, having an “effect” named after you is a pretty big deal. Some of the more astute of you also recall Peltzman from the Stigler-Peltzman capture theory. Love him or hate him, he is an interesting character. I recommend this interview at EconTalk.
For today’s recommended reading, The New York Times profiles Carmen Reinhart and Kenneth Rogoff, authors of This Time Is Different: Eight Centuries of Financial Folly.
Both of these economists seem to be pretty interesting characters and the article is a fun read.
The misery accompanying the U.S. recession / depression manifests itself firstly, I think, through the job market. There seems to be an increasing perception that policymakers in Washington and at the Fed aren’t taking the unemployment situation seriously enough. Nonetheless, jobs are certainly on the minds of people who have them and, even moreso, people who don’t have them. We learned yesterday that the declining unemployment rate is actually bad news. Why? Well, in order to be counted as unemployed, a person has to be seeking employment, and consequently so-called discouraged workers, people who are no longer looking for work, do not count as unemployed. And would-be workers are pretty darned discouraged.
This gives us a fundamental measurement problem, how can we determine how bad the employment situation really is? One common way to tackle it has been to track the total adult population in the workforce.
As you can see, the picture isn’t a pretty one. (more…)
Most economists haven’t really been thinking about this issue, they haven’t really focused on it. It’s not their specialty. Most economists today, they haven’t really been thinking about this kind of multiplier issue… I don’t think most economists are focused on this, or that they’re familiar with the empirical evidence. I don’t think they’ve really worked on the theory. So I don’t know, maybe they have some opinion that they got from graduate school or something. — Robert Barro in The Atlantic Monthly
Even if by accident, you’ve probably noticed that there is an on-going debate on whether a massive government spending campaign is needed to “prime the pump” to stimulate the economy (the Keynesian route), or whether fiscal discipline (austerity) is in order. Last week, most members of the G-20 (but not the US) came down on the side of austerity.
As a trained economist, I know the basic institutional details and understand the basic arguments, but as Barro suggests, I have no great insight on the empirics or which side of the debate is likely to be correct.
Certainly, the primary mouthpiece for the pro-spend crowd is recent Nobel Prize winner, Paul Krugman. In a recent column, he tears into those who promote “austerity”:
So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good.
Of course, not all economists agree with Krugman’s assessment. In addition to our friend Hayek, Robert Barro is pretty clearly on the austerity side. This interview with Barro is a good place to see a sketch of the battle lines in the debate, and certainly indicates that he and Krugman are not on particularly friendly terms. This week, Harvard professor Alberto Alesina is getting some press for his advocacy of austerity measures. And, as for the regime uncertainty argument that Krugman caricatures, I would recommend Robert Higgs as the central proponent of that idea.
As for me, I am not sure exactly what I learned in grad school that prepares me to take a side in this debate. What I find interesting is that most people who engage me in a discussion seem to think the Keynsian spending route is the way to go, and many of these folks invoke Krugman on this point as if Krugman is the voice of the profession. As today’s Krugman piece indicates, he seems to think that many in the profession are moving in quite the opposite direction. It’s not clear to me whether this boils down to pre-conceived ideology or not, but that is certainly his claim.
I guess I will leave it at that.