Monday, February 23, 2015

Highly Linkable

First, some housekeeping. Now that I have broken the streak, allusions will continue, but not necessarily in all posts.

I could watch this all day--a toy world that is the real world of Iceland and Norway. (HT: Tyler Cowen)

Along that theme, the world is a splendid, big place.

Driverless cars > race car drivers. (HT: Tyler Cowen)

Economic reality > good intentions.

(Public choice) economic reality (is also) > good intentions.

This piece by Megan McArdle hits several good points; namely that it is basically impossible to defend the Crusades and crusaders, Christianity was not and is not the Crusades, and disassociating oneself from something ugly that one was in fact never associated with is a cheap political gimmick.

And now a bit about diet, nutrition, and health:

  • The [arguable] truth about "miracle" foods. (I'm a little uncomfortable with this otherwise very good article's appeal to regulatory authority.)
  • Speaking of the regulatory authority's lack of credibility . . . dietary cholesterol isn't a worry . . . what'chu talkin' 'bout Willis?
  • This Ask Altucher with Ari Whitten of The Low Carb Myth gives a view that speaks very closely to my own, novice view. It is short and rewarding, but takes a minute to get going.

Monday, February 9, 2015

Thoughts on Tyler Cowen's OU Talk

I had the privilege of hearing Tyler Cowen speak at OU this evening. It was a very good lecture and the Q&A after was equally rewarding. I was impressed by the OU students' questions. My thoughts follow.

He began by saying how his job is to view the world "weirdly"--to look beyond the obvious in a way many find weird. As such he wanted to discuss three basic contentions or predictions (my apologies for any butchering from poor memory):

  1. Globalization will decline. 
  2. There is a myth of the rational autocrat.
  3. "Fortress (North) America" will see a continuation of the current stagnating trend. 

To be fair he qualifies these predictions with the caveat that they may be the most likely of many altogether unlikely outcomes. Perhaps there is a 30% chance of one being correct where that is still the most likely outcome possible. 

Much of what he predicts I agree with, and part of the thesis supporting his three contentions is too vague in my understanding for me to form sharp disagreement. In fact I think he is wrongly maligned because of inferences people create from The Great Stagnation and Average Is Over that are not his actual argument. Nevertheless, I find some disagreement in how significant the trends he sees are or how meaningful they are as a guide to the near future. 

Thinking back over the past 115 years in American history I can think of a few periods where change and trends would lead one to make very similar arguments to The Great Stagnation and Average Is Over, but in each of those cases the future turned out quite a bit different (better in fact). My question going into tonight was if he had a testable hypothesis (i.e., how will we know if he was wrong 20 years from now?). In his talk he did give some specificity to the three contentions, but it was not as definitive as I would have liked.

My thoughts and questions on each contention:
  1. Globalization will decline, which he defines this as cross-border trade as a percentage of global GDP declining (peak trade).
    • Isn't this a natural process as wealth grows, as local markets get deeper? Local economies seem to import the good until they can import the technology to do the work themselves--sort of a territorial vertical integration. Oklahoma can produce a lot now that it used to import from more developed states. The division of labor is limited by the extent of the market--hence, a larger market allows for greater division within it.
  2. There is a myth of the rational autocrat. 
    • I was confused by what he meant here thinking "rational" meant responding to incentives in self-beneficial ways, but instead I think he means rational to be peaceful or choosing or agreeing to good outcomes. 
    • I think he is largely correct that it is wrong to assume autocrats will choose or can be made to choose good outcomes.
  3. "Fortress (North) America" will see a continuation of the current stagnating trend. 
    • He looks at 1999 as a turning point stating that real median income has declined since then. This one I was able to discuss with him briefly afterwards. I asked how many (if any) 15-year periods over the past 115 years would match this pattern. He said there were some. And he agreed that we are probably in the beginning half of a ~40 cycle between the major advancements of a technology and the benefits reaching the entire economy. It is just that he sees the interim as quite painful for many and not as typically fulfilling for most as in previous cases. 
    • We were specifically comparing the early automobile and today's tech sector. What became clear is how he was focusing on the labor implications while I was considering the consumption implications. To me he is caught up in considering labor income, but that is a cost. The economic benefits of a technology are not how it employs people; it is how it enriches their lives.
    • Related to this I had another question I didn't get to ask. He stated that median, male, real income was lower today than in 1969. But isn't this a data-mined straw man? If the typical man can get by (and really thrive) in 2015 vs 1969 because his wife works or stuff is cheaper or his family wealth from prior generations allow, isn't this progress to the good? I fully agree that the patterns to labor, the risk factors to labor, the options for labor have changed and are changing dramatically. I am just not convinced it is necessarily bad for labor or that we can tell with any reasonable certainty.
Again, it was a very engaging and educational talk. 

Sunday, February 8, 2015

The Problem With Interest-Rate Policy

Or . . . the problem with interest rates as the primary policy tool.

Interest rates are very blunt instrument. What's more the Fed only has control over a small portion of the entire yield curve. So because it wants to affect the entire yield curve through its policy, it has to act even more dramatically with its otherwise naturally blunt policy instrument.

The Austrians are right when they criticize the use of interest-rate policy as a distorting act of price fixing. Interest is the price of credit. Distortions to the interest-rate curves by the fixing of some prices along it affects the economy. And since the Fed has to act more dramatically since it has limited abilities to control the prices in this market, it has to hit harder with its big, blunt, interest-policy hammer. Right away that should strike us as problematic. We should be very concerned with the way this fractured fairy tale is playing out if this is in fact an accurate depiction, which I believe it is.

At the end of the day interest-rate policy is just a stand-in for communication. Communication is the real key policy for the Fed. The intentions that the Fed has for the money supply is the essential guideline for how that part of the economy is going to change in the future. But once we are down a particular road with monetary policy, a road the Fed may not be completely aware of much less have fully intended, we can't just hop in the Way-Back Machine to go correct matters.

This is the key advantage of using NGDP level targeting, NGPD futures price targeting, or wage growth targeting as the key policy tool. As long as the Fed can make a credible commitment by policy or by law to keeping NGDP towards a clearly communicated growth trajectory, then the economy will be on course to fulfill its potential. We need to lose the illusion that the council of elders with its fearless leader has some grand omniscience granting it the ability to figure out what monetary policy needs to be to keep NGDP on target. In truth the best the Fed can do is set the right long-term target for growth. It is the market that will best to decide what policy is necessary and what changes to policy are necessary to keep the economy on that path.

The economy is a massive ship at sea headed towards a port that lies perpetually over the horizon. The Fed is at the steering wheel, but it is not a navigator. The market is the great navigator. The market has the ability to help the Fed steer in the right direction making the needed corrections along the way and with much more rapid feedback than the long and variable lags our heroes are currently subject to.

In this universe all the Fed has to do is set the target for what level of growth it wants in the economy and then commit by law to pursuing whatever actions it takes to keep the economy at that growth rate. A highly credible Fed would not need to move interest rates and would not need to make significant asset purchases or sales to convince the market that it was truly going to pursue the proper policy to reach its target. A less credible Fed would have to make relatively larger asset purchases or sales as needed and move interest rates as needed to convince the market that it truly was going to follow policies as dictated by the market to reach the policy goal. But credibility has its own momentum, and as it grows it compounds. This is good in that it takes less to keep credibility. This is bad in that a loss of high credibility can portend dramatic repercussions. That is why central bank policy tends to be formalized in law and central bankers tend to be called to account.

Changing the policy tool and the method by which it is derived to a growth-oriented, market-driven focus isn't a magic bullet, but it is a massive step towards a much more sensible world.

Saturday, February 7, 2015

Warriors And Hero-Labeling

Sheldon Richman makes a compelling case that The American Sniper was no hero

Some questions regarding war, warriors, the military, and support for it all:
  • At what point does a soldier become a hero? 
  • Are any soldiers (of one's own military) not heros? 
  • Can you be a hero if you're on the "wrong" side (a hero in the eyes of the enemy while remaining an enemy)?
  • Are all heros equally heroic?
  • Are all villains equally evil?
  • At what point is a war unjust?
  • Can a originally just war become unjust?
  • If so, how does this change the status of those fighting in it (on both sides) and their supporters?
  • At what point do participants in an unjust war or those using unjust tactics or those engaging in unjust operations bear responsibility for their actions?
  • Are any or all acts unjust if done in support of evil and just if done in support of good?
  • Are any or all acts unjust if done in support of the enemy and just if done in support of one's own side?
  • At what point is a soldier responsible for the moral/ethical intentions or de facto results of the soldier's own actions or the actions of the soldier's own  side?
  • Same question but replace "soldier" with "citizen" and then also "government official".
  • Is it ever justified or morally required that a soldier actively switch sides in a conflict? 
  • Again, same question but replace "soldier" with "citizen" and then also "government official".
  • Can a soldier be held morally culpable for failing to abstain from fighting or for failing to switch sides?
  • If so, under what conditions?
  • Yet again, same questions but replace "soldier" with "citizen" and then also "government official".

Highly Linkable

I want to go to there.

I DON'T want to go back to there then.

Speaking of a then to be glad we are no longer in, Megan McArdle on bread bags as shoes.

How about going back to the days when a computer word processor could spell check your work but had no clue about what the correction should be (start at the 10:04 point for the "New Frontiers" part)? I knew Mr. Wizard's World well. I can remember each of these episodes like I watched them yesterday.

The people of these worlds are so tiny, I'm crushing their heads.

Here are a couple of reasons nobody likes me in my world . . .

  • I tend to look at sports discussions scientifically and logically rather than emotionally and indeterminately. Most people don't like that.
  • I acknowledge that I am not a grammar expert . . . or are I??? But I do love pointing out to people when grammar "rules" they believe in strongly are actually grammar myths not worth believing in. 
James Altucher would tell me not to bother with people who don't like me. He is right. I've been making my way through the interviews on his podcast that he summarizes here. They have ranged from mildly interesting to fascinating. Each has been rewarding in one way or another. A great example of learning by exposure to diverse points of view.

Here is a diverse point of view from Alex Tabarrok defending the company town.

Arnold Kling offers a diverse way of looking at the purpose of the study of economics.

Finally, Timothy Taylor has a different approach to understanding cooperation and competition.