Little Feat

I loved Little Feat. Lowell George is one of my favourites.

Here they are live.
First  Fatman in the Bathtub

and then Willing

Around the Traps 30/8/2013

It is time again for Around the Traps. We again have some riveting articles. Noah Smith has eventually taken his extended blog holiday BUT his guests have been prolific and Noahlike in quality.
I do not have anything under David Giles as I thought there weren't any articles this week suitable for we people who do not specialise in econometrics. Sorry Dave. ( Has sounds of 2001!)

Football is finished and Cricket yet to start and batching on sunday so updating over the week-end.
done and dusted



Aussie,Aussie,Aussie,Oy,Oy,Oy

• John Quiggin on time for Rudd to give a full-throated defence of keynesian stimulus
• Grog's Gamut on wages-breakout-or-lack-thereof-graphs
• The Piping Shrike on adwatch-labors-negative-ads
• Andrew Elder on all-in-good-time
• M0nty on and-down-stretch-they-come
• Tim Colebatch on why-we-should-not-trust-tony-abbott-
• Brian Banisch on budget-strategies-conundrum,king-hit-or-own-goal
• Paul Frtijers on paid-maternity-leave-part-ii
• Ross Gittins on parties-sameness-hides-big-difference , forest-logging-propped-up-by-conservationists
• Rodd Tucker on can-australia-afford-the-coalitions-nbn Thanks Steve from Brisbane!
• Kevin Bonham on poll-roundup-and-seat-betting-watch
• Mark the Ballot on weekly-update, midweek-update, betting-market-update_31,sunday-update
• Pottinger on model-update-26-august-2013
• Simon Jackman on poll-averaging-model-shows-coalition-in-lead, the-betting-markets-are-posting-prices-i-ve-never-seen
• Australian Political Betting on election-betting-from-bookmakers
• Mumble on better_pm_myth, the_expectations_game, how_low_can_numbers_go, another_53_to_47_poll
• Oh dear Neither Judith Sloan nor Samuel J understand the role of Treasury nor 'remember what Costello asked ( correctly) of them during his tenure. Very embarrassing.
• Steve from Brisbane gives us an-upset-possum which make Judith and Samuel look even more stupid. Helps to read documents!
• Matt Cowgill on has-the-unemployment-rate-been-manipulated. Deary me I remember when the CIS put out quality work.

Northern America

• Menzie Chinn on two_approaches_to_fiscal_policy, 2013q2_faster_gdp_growth
• Calculated Risk on the-future-is-still-bright, comment-on-house-prices-real-prices etc, freddie-mac-mortgage-serious-deliquency-rate
• Kruggers on news-flash-the-cbo-isnt-stupid
• Mark Thoma on whither-the-consumer, medicare-spending-growth-slowdown
• Steve Roth on ryan-avent-agrees-demand-inflation-now
• Mark Thoma on how-stimulatory-are-large-scale-asset-purchases, on Greg Mankiw on a-carbon-tax-that-america-could-live-with
• Macroblog on still-waiting-for-takeoff

Asia

• Kruggers on he-asian-crisis-versus-the-euro-crisis,the-baht-and-the-bubble-excuse
• Kevin O'Rourke on thailand-without-the-baht

Europe

• Brad De Long on mark-blyth-end-austerity-now
• Kruggers on the-gloire-to-come
• Jared Bernstein on a-quick-note-on-austerity-in-the-eurozone

Wonk

• Yichuan Wang on macroeconomics-illustrated-edition and then Steve Roth on walras-and-the-carpenter
• Brad De Long on balazs-egert-the-90-public-debt-threshold-the-rise-fall-of-a-stylised-fact
• Simon Wren-Lewis on banks-economists-and-politicians-just-the-money, macro-workers-and-macro-wars with Kruggers as well macroeconomists-at-war and Brad De Long as well.Back again with Simon on the-new-keynesian-model-in-grad-school
• Mark Thoma on The-Great-Lesson-from-the-Great-Recession
• and gives us Daniel Little on poverty-and-economics
• Nick Rowe on banks-and-the-medium-of-exchange-are-both-special-or-neither-special, the-two-james-tobins, how-can-you-get-an-economy-into-a-liquidity-trap
• Carola Binder on forecasting-profitability-new-study-of-uncertainty-and-investment
• Owen Zidar on fiscal-stimulus-the-open-economy-relative-multiplier
• Kruggers on the-arithmetic-of-fantasy-fiscal-policy

General

• Josiah Neeley on religion-and-monetary-policy-is-there-a-difference
• Kruggers on unnatural-models-of-the-labor-market-wonkish, the-real-trouble-with-economics
• Robert Waldeman on contra-hall
• Frances Woolley on will-the-textbook-industry-go-the-way-of-the-music-industry
• John Quiggin on a-note-on-the-ineffectiveness-of-monetary-stimulus
• Philip Lane on imf-on-fiscal-adjustment-construction-cycles
• Yichuan Wang on popping-bubble-bubble
• Lord Keynes on non-ergodicity-and-trends-and-cycles
• The hot and married Carola Binder on perceiving-job-insecurity
• Harry Clarke on merits-demerits-of-markets 
• Tim Harford on time-for-bankings-petulant-toddlers-to-grow-up
• Chris Dillow on signaling-problems

Brian Banisch (climate)

• soil-carbon-and-direct-inaction
• sick-seas
• Peter Dorman on more-mental-clutter-on-climate-change

Andrew Gelman( statistics)

• a-new-bem-theory
• bayesian-model-averaging-or-fitting-a-larger-model
• why-during-the-1950-1960s-did-jerry-cornfield-become-a-bayesian
• Kaiser Fong on an-ignored-issue-in-big-data-analysis, these-journal-editors-probably-forgot-to-drink-their-morning-coffee
• edgar-allan-poe-was-a-statistician
• blogging-2
• stan-project-continuous-relaxations-for-discrete-mrfs

Dave Giles ( Econometrics)
See above. Bad Bad Dave!!

• just for nerds new-econometrics-journal
• right-tail-augmented-dickey-fuller-tests-in-Eviews
• Francis Diebold on heteroskedasticity-econometrica-and-the-greeks

Dianne Coyle & Frances Woolley (Quirky + book reviews)

• Peter Dorman on way-more-heat-than-light 
• Tim Harford on a-lesson-from-the-other-sage-of-investing,do-you-believe-in-sharing
• Chris Dillow on tattoos-options-cognitive-biases
• Dianne on indians-turks& home-economicus, what-works, cities-triumphant, new-books-on-migration
• John Aziz  on-legalisation-of-marijuana-war-on-drugs 
• Brad De Long on 1996-review-of-john-maynard-keynes-a-tract-on-monetary-reform
• Kaiser Fong on round-up-of-book-news

voxwonk

• why-does-capital-flow-poor-rich-countries
• new-age-uncertainty-measuring-its-effect-uk-economy
• downsizing-dilemmas-european-employers
• market-based-bank-capital-regulation
• new-taxonomy-sudden-stops-which-sudden-stops-should-countries-be-most-concerned-about
• identifying-conventional-and-unconventional-monetary-policy-shocks
• india-and-emerging-market-crisis
• dilemma-not-trilemma-global-financial-cycle-and-monetary-policy-independence

Simon Wren-Lewis absolutely brilliant again

Simon Wren-Lewis is on fire with this article.


I will not comment but merely copy it for every body to read. It is long but so very worth it to read and understand..

Macro workers and macro wars

A long post I’m afraid, even with extensive use of footnotes. But I really think it is much more productive to try and understand someone’s opposing point of view than just be rude about it.

Most academic macroeconomists are just trying to advance the discipline by getting their papers published, and are certainly not consciously trying to defend some ideological viewpoint. As a result, there are lots of macroeconomists producing high quality work in a wide variety of diverse areas. There are many interesting new ideas being explored. Furthermore this work can be appreciated by most fellow researchers. Unlike the 60s and 70s, where members of different schools of thought talked across each other, we now have a shared language as a result of the microfoundation of macro. My own view is that as a result macro today is much more interesting than macro was back then. Furthermore, this work can be useful to policymakers, as Paul Krugman outlines in the case of monetary policy here.

Ahh - that may have made you pause for thought. Isn’t that the same Paul Krugman who says there is something “deeply wrong with economics”. Who talks about how ideology and politics distort the advice that economists - and perhaps particularly macroeconomists - give to policymakers. And who suggests that in many cases policymakers would be better off thinking about good old IS-LM than any of this more modern stuff.

One of the problems when Paul Krugman does this is that it gets on the nerves of many academic macroeconomists, who would much rather identify with the sentiments I express in my first paragraph. Economists like Tony Yates, for example. I suspect they see Paul Krugman’s attacks on the state of macroeconomics as akin to a personal attack on their own and colleagues work, and as a result they can go way over the top in reaction. I think this is understandable, but it is wrong.

As I see it both points of view are correct. As Stephen Williamson argues, in one sense macroeconomics is flourishing. Take the example of financial frictions. There is now a wealth of papers out there exploring different types of friction, in large part responding to events of just the last five years. This is hardly the response of a moribund, out of touch discipline. And as Krugman says, sometimes this work can be useful to policymakers. But that is not the acid test for the integrity of a supposedly scientific discipline. In days of old, policymakers made much use of astrology. The acid test is when the discipline tells policymakers something they do not want to hear, and unites behind this implication of its models and the data.

Nearly fifteen years ago I began working with DSGE models looking at monetary and fiscal interactions. [1] Doing this work taught me a lot about how fiscal policy worked in New Keynesian models. Iunderstood more clearly why monetary policy was the stabilisation tool of choice in those models, but also why fiscal policy - appropriately designed - was also quite effective in that role if monetary policy was absent (individual countries in the Eurozone) or impaired (the ZLB). Why New Keynesian models? Because if you were interested in business cycle stabilisation, that is the framework that most involved in that area (academics and policymakers) were using. So when we hit the ZLB, the reaction of policymakers in using fiscal stimulus seemed logical, entirely appropriate and fully in line with current theory.

I also found that in these models the basics of Barro’s tax smoothing hypothesis continues to apply, so if you needed to reduce debt, you should do so as gradually as possible. This also seemed like as robust a result as one can get in macro.

The acid test for macro came in 2010. Policymakers, for a variety of reasons, went into reverse with fiscal policy. Austerity replaced stimulus around the world. If academic macroeconomists had been true to their discipline, they would have been united in saying that our standard models tell us this will reduce output and raise unemployment. They would have said that if markets allow, the time to reduce debt is when the ZLB comes to an end, and then it should be done gradually. Many did say that, but many did not. This division at least encouraged policymakers to continue with austerity.

So macroeconomists as a collective failed this test, repeating errors made in the 1930s. But unlike the 1930s, it did not have ignorance as an excuse. 

This is a crucial point that many on both sides tend to ignore. In 2010, the standard business cycle model was the New Keynesian model, and the implications of that model for the efficacy of appropriately designed fiscal policy are clear. So to blame the failure of 2010 on the current dominant macro model is just wrong. You may not like that model, but it cannot be blamed for the widespread adoption of austerity, or the ambivalent attitude of many macroeconomists towards that policy change.

So in my view macroeconomists, not the dominant macroeconomic model, failed. Why? The easy answer is to say that macroeconomists were too influenced by ideology, but I think for most (not all) it is the wrong answer, as I said in my opening paragraph. I think for most (not all) it is not simple politics, so in that respect I agree with Stephen Williamson. [2] So what is it?

Here is one possible answer. First I have to appeal to macroeconomists who learnt their trade after the New Classical revolution to consider where the now dominant methodology in macro came from. If you start your history of macro thought in 1980, then everything can seem nicely progressive. First there were RBC models, applying basic micro to macro. The data showed that this framework could not explain how monetary policy appeared to work, so to resolve this puzzle New Keynesian theory was developed.

But it was not like that at all. [3]

Macro started well before 1980. Its theoretical basis may have been shaky, but it was a scientific discipline in the Popperian sense. The New Classical revolution attempted to kill off Keynesian ideas, and deny the importance of aggregate demand. In that respect it now seems clear, because of the dominance of New Keynesian theory, that this was regressive rather than progressive. 

 

Yet in many who were part of the New Classical revolution, or who were taught by its leaders, there remains a deep antagonism to Keynesian ideas. This was not enough to prevent the emergence of New Keynesian theory, but the NK model built upon rather than challenged the RBC framework, and it could always be dismissed with an assertion about price flexibility. As a result, in certain places NK theory was tolerated rather than embraced, or was quietly marginalised.

This attitude was facilitated by another aspect of the revolution. Although it failed to kill Keynesian economics, it did succeed in changing how macro was done. Microfoundations macro did not just become an important way of explaining the economy, it became the only acceptable way. Now we can debate the wisdom of that. But I think it is very difficult to deny that this methodological revolution reduced the discipline that data can provide on model proliferation. It becomes far too easy to say ‘but in this model something different happens’, even if there is compelling empirical evidence that said model is not applicable. [4] [5]

I think this may help explain why a good proportion of macroeconomists failed to advocate fiscal stimulus in 2009 and call the consequences of subsequent austerity. [6] Now you may disagree with my view that this represented a failure for macroeconomists as a whole. What I want to convince you of here is that my view that it did, and perhaps similar views of others, does not amount to an assertion that modern macro is fundamentally flawed, and that those working within it are wasting their time. While the New Classical revolution may have moved macro many steps forward, in condemning Keynesian ideas it took one large step backwards, and the consequences of that mistake are still with us.

[1] In part this was a reaction to a different policy decision. The work of various economists before the formation of the Euro had suggested that countercyclical fiscal policy should be a key stabilisation tool for individual Eurozone members. That work was ignored by policymakers, and they were backed up by a significant number of macroeconomists, in part using other models that focused on free rider problems and fiscal dominance. How this all turned out is another story, but once again the collective of academic macroeconomists hardly covered itself in glory.

[2] Personally, I do not think the actions of some eminent economists who ignore their economics when batting for their favoured politicians is critical here, regrettable though it is. Nor on its own were the comments of other eminent macroeconomists who appeared not to have kept up with the literature, although as I suggest here I think this was indicative. Both could have been isolated examples, quickly brushed aside. More revealing is this survey, where although 46% of economists agreed that the US stimulus was a good policy, a large 40% were uncertain or did not answer. That is just one survey, but it reflects a similar division amongst the macroeconomists I know, and the views you find on the web. See, for example, the quote from Tom Sargent in Stephen Williamson’s post. Now I think some of this 40% are equivocal about fiscal stimulus (and therefore not too worried about austerity) because of a deep distrust of government intervention or the state. Whatever the merits of this mistrust, this is exactly the ideology and politics that Paul Krugman and I complain about. I think some others of this 40% take a view that monetary policy is still up to the job, even at the ZLB. I have talked about this most recently here. This post provides a third possible explanation, although I am sure there are others. (I tried to be comprehensive here.) 

[3] Getting the history of macro thought right is important for other reasons as well. As I suggested here, the structure of NK models may owe as much to the need to work with rather than against the then dominant RBC paradigm, as to any intrinsic empirical merits of that structure.

[4] I have tried to argue that economists working in central banks take more notice of the data, which helps explain why the NK model is dominant there, but Stephen Williamson disagrees.

[5] Another arguable consequence is that modelbuilding became too conformist. The charge that some element of a model is ad hoc and lacks microfoundations hangs like a Sword of Damocles over modelbuilders. Probably too much intolerance of alternative methodologies came with this revolution as well. I think this is part of any explanation of why so little work was done on financial frictions before 2008, as Mark Thoma suggests. Again I am not arguing that the methodology is wrong, but instead that it may have certain perhaps unintended and unfortunate consequences. In my own experience if you talk to many microeconomists about DSGE in macro they can be quite critical: for example about how narrow the micro used is, or how obsessed with technicalities the analysis can become. Sometimes they can be downright dismissive. 

[6] You could argue that ideology lay behind the New Classical revolution’s attempt to kill off Keynesian economics, and I do not really know enough to agree or disagree. What I do think is that most of those involved in the revolution thought that they were just exposing deficient theory, which in many cases they were.

The election or another rant on why the ALP will lose

Two articles yesterday show why the ALP will lose this coming election.

First John Quiggin in a pretty good piece argues that the ALP should be aggressively defending their record and pursuing the Howard record because Keynesian economics has been vindicated through the GFC.
I wholeheartedly agree of course since I have written about this previously. Only mad people and liars think otherwise. The evidence is quite simply overwhelming.

However John misses the point. Even if Rudd and Bowen were at a Keating type level of economic persuasion ,and they are not, it is far too late to make a large dent in the economic debate. If you have withdrawn from the debate for 4 or 5 years you cannot make up for it in 3 or 4 weeks.

Grogs Gamut examines whether there has been a wages breakout or not.Again in this debate only airheads and madman have argued that there is one occurring.
 The RBA would be raising rates if this was happening and would be extremely vocal about it.
As it is they are almost mute on the subject and for good reason. Wages are simply doing what they normally do when the economy weakens. There has not been a skerrick of evidence around to suggest the labour market has become more regulated and that wages are behaving differently now than in the past.

The point here is a half decent political party should be ramming these points home. That they are not show how poor  political operators they have been.

Poor political operators with little to no political smarts in them do not deserve to win elections and never ever should complain.

The election- Do I have a problem?

I have stated previously I always vote against the incumbent government after two terms. This is enough time to embark on any major reforms. Any time after this and the government gets stale and becomes lacklustre. The history of Australia bears this out convincingly.

However I am in the electorate of Bennelong. The two major candidates are like chalk and cheese.
 Jason Yat-Sen Li , the ALP candidate,is as impressive a candidate as I have ever met. He is a local, quite personable, is very good on the subjects he understands and is honest about subject areas he is less than comfortable with.
John Alexander, The Liberal member, is the complete opposite. He is easily the most unimpressive candidate I have ever met. Let us just say as a candidate he makes a great tennis player.

This I appear to be in a quandary. I believe in a change of government but if I vote in such a way I vote for a very unimpressive person.
Yes in actual fact the decision who to vote for  is easy and no I want be changing my voting policy at all.

Eric Clapton

I have never been a great fan of Eric Clapton. A bit too slow for my liking but I do like this song and the Late Donald 'duck' Dunn plays bass.

Motherless Children. Enjoy

Around the Traps 23/8/13

It is time yet again for Around the Traps. I try to put articles in subject order as much as possible. hence this week there is a small debate on maths in economics and another on Keynes and  Kalecki. Noah Smith has yet to take a break and the Fifth Test is on.

updates tomorrow and sunday but my youngest son is in the grand final on Saturday!! ( alas his team lost!)

Aussie,Aussie,Aussie,Oy,Oy,Oy

• John Quiggin on reading-the-economic-theories-of-rudd-and-abbott, nbn-we-would-have-been-better-off-without-privatisation 
• Ricardian Ambivalence on rba-tries-again-with-easing-bias
• Ross Gittins on why-election-campaigns-have-become-so.-vacuous
• Nicholas Gruen on fascinating-chart
• Andrew Elder on full-of-promise , all-in-good-time
• Club Troppo gives us guest-post-by-philip-clarke-on-the-price-of-medicines
• Brian Banisch on checking-the-facts-and-no-fibs
• Ken Parish on lies-dam-lies-and-politics-restraining-political-porkies
• Katesy shows he has no dies of what an EBA is
• Gordon's Thoughts on thoughts-on-the-election-campaign-so-far
• Mumble on opposition_leader_net_satisfaction_rating , half_time_whistle
• Simon Jackman on australian-election-2013-polls
• The Piping Shrike on momentum
• Mark the Ballot on monday-update, betting-market-update
• Pottinger on model-update-19-august-2013
• Kevin Bonham on poll-roundup-and-seat-betting-watch, reachtel-state-same-story-told-many-times
• Australian Political Betting on perhaps-stop-in-coalition-momentum
• Tony and the boys with the filth-test-the-oval ( Mind the language)

Northern America

• Mark Thoma gives us Adam Posen on why-has-the-fed-given-up-on-americas-unemployed
• Calculated Risk on lawler-washington-post-and-reuters-get-it-wrong-on-GSEs-again 
• James Hamilton on california_econmist_says_US REal Debt _is_ $70Trillion actually Jim didn't say that!
• Liveo Di Matteo on canadian-macro-performance-better-than-the-g-7-but
• Philip Lane on wapo-can-ireland's-celtic-tiger-roar-again, em-storms-could-spread-to-europe
• Mark Thoma on yellen-vs-summers It's comprehensive  with plenty of links.
• Brad De Long on and-i-do-not-understand-the-federal-reserves-current-thinking-at-all
• Kruggers on 54-years-of-real-interest-rates
• Matt Yglesias on obamacare_health_care_spending_how_it_s_working Thanks Brad
• Kenneth Thomas on republicans-market-oriented-health-care-reforms-wont-work-part-1

Europe

• John Quiggin on the-failure-of-austerity-in-europe 

Asia

• Kruggers on rupee-panic

Wonk

• Robert Waldeman on quibbling-with-quiggin
• John Quiggin on krugman-keynes-kalecki-konczal
• Kruggers on keynes-kalecki-konczal-etc
• San Francisco Fed on monetary policy expectations at the zero bound
• Noah Smith on learn-to-stop-worrying-and-love -(moderate)-inflation , can-you-solve-debt-problem-with-more-debt
• Menzie Chinn on asymmetries_in_Aggregate_Supply_in_two_Frameworks
• Simon Wren-Lewis on measuring-the-cost-of-austerity and missing-point-at-imf
• Kruggers on the-macroeconomics-of-sisyphus
• Pro-Growth Liberal on on-michigan-survey-of-inflationary
• Brad De Long on genuinely-new-ways-of-understanding-is-lm-watch-karl-smith-is-really-smart-and-thoughtful-wednesday-hoisted-from-the-archive
• Nick Rowe on is-money-exogenous-or-endogenous
• The marvelous David Glasner on why-hawtrey-and-cassel-trump-friedman-and-schwartz 
• Menzies Chinn on a_forensic_analysis_of_global_imbalances
• Kruggers on the-monetary-base-is-lm-and-all-that-very-nerdy
• Edward Lambert on behavior-of-capital-income-as-precursor-to-a-recession

General

• Kruggers on anna-karenina-and-the-business-cycle
• Brad De Long on paul-krugman-prepare-for-alien-invasion-and-spend-our-way-to-economic-recovery
• Kruggers on coalmines-and-aliens-again
• Tim Harford on how-the-rich-are-making-sure-they-stay-on-top
• Lord Keynes on the-broken-window-fallacy-and-wwii, horwitz-on-post-wwii-boom, why-did-wwii-lift-america-out-of-the-depression
• Noah Smith on a-few-words-about-math
• Kruggers on the-point-of-economath, more-economath
• Robert Waldeman on whats-wrong-with-economath 
• Our own Nick Gruen on krugman-and-maths
• Simon Wren-Lewis on left-right-and-centre-some-recent-observations, new-keynesian-models-and-labour-market
• Harry Clarke on bruni-sugden-defend-capitalism
• David Madden on health-and-recessions-again
• Antonio Fatas on teaching-about-inflation-is-fun-but-dangerous  Thanks Mark
• Kruggers on generation-b-for-bubble
• Noah Smith on small-states-proposal
• Nick Rowe on what-steve-keen-is-maybe-trying-to-say
• Menzie Chinn on what_should_emerging_countries_should_do

Brian Banisch ( Climate)
Nuttin, Bad Brian

Andrew Gelman ( Statistics)

• a-lot-of-statistical-methods-have-this-flavor-that-they-are-a-solution-to-a-mathematical-problem-that-has-been-posed-without-a-careful-enough-sense-of-whether-the-problem-is-worth-solving-in-the-first-place
• bda3-still-i-hope-at-40-off-and-a-link-to-one-of-my-favorite-papers
• correcting-for-multiple-comparisons-in-a-bayesian-regression-model
• the-comment-section-is-open-but-im-not-going-to-read-them  Andrew reads his comments!
• i-mean-what-exact-buttons-do-i-have-to-hit
• all-inference-is-about-generalizing-from-sample-to-population
• Kaiser Fong on a-letter-to-reporters-on-the-economy , the-case-method-and-statistics

DaveGiles ( Econometrics)

• knoema-data-site-update
• forecasting-from-log-linear-regressions

Diane Coyle & Frances Woolley ( Quirky + Book Reviews)

• Tim Harford on pay-what-you-want-pricing-playing-tag-with-price-tags
• Dianne with economics-and-authoritarianism, moartgages-mayhem-murder, the-quantified-victorian-life, municipal-grandeur, where-to-start-learning-about-economics, the-internet-of-stuff
• Frances on flea-market-economics

Vox wonk

• removing-deadweight-loss-economic-discourse-income-taxation-and-public-spending
• who-becomes-a-top-politician-china
• informal-or-formal-financing-first-evidence-co-funding-chinese-firms
• immigration-diversity-and-economic-prosperity
• what-shadow-banking
• creativity-cities-and-innovation
• article/there-future-international-banks