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Joe Weisenthal, Business Insider, Meet The Blogger Who May Have Just Saved The American Economy, here.
It’s a step in the direction of Nominal GDP targeting, the hot idea endorsed recently by Michael Woodford at the Jackson Hole conference.
But while Woodford is one of the most respected monetary academics in the world, the economist who deserves the most credit for taking a wonky idea and making it mainstream is Bentley economics Professor Scott Sumner who writes the blog The Money Illusion.
Tyler Cowen of Marginal Revolution writes:
I haven’t seen anyone else say it yet, so I will. The Fed’s policy move today might not have happened — probably would not have happened — if not for the heroic blogging efforts of Scott Sumner. Numerous other bloggers, including the market monetarists and some Keynesians and neo Keynesians have been important too, plus Michael Woodford and some others, but Scott is really the guy who got the ball rolling and persuaded us all that there is something here and wouldn’t let us forget about it.
Professors at Bentley University who’ve never published a famous book don’t normally shift the public debate. But Sumner’s vigorous and relentless blogging throughout the crisis on the potential of expectations-focused monetary policy really broke through. It all began with some links from Tyler Cowen and perhaps a tiff with Paul Krugman. I became a regular reader and his ideas have done a lot to influence me, and you can clearly see the influence on Ryan Avent at the Economist, Matt O’Brien at the Atlantic, Ramesh Ponnuru at National Review, Josh Barro at Bloomberg, and a few of the Wonkblog contributors. Outside the exciting world of online economics punditry, NGDP targeting hasn’t (yet!) caught fire as rapidly but it gained explicit allegiance from Christina Romer, Krugman, the economics team at Goldman Sachs, and eventually Chicago Federal Reserve President Charles Evans who started out with a different but similar-in-spirit program.
That really is the key here: Not only has he been incredibly influential, but he really has done it almost entirely through his blog. Also, the bi-partisan swath of his adherents is remarkably rare for an economic pundit.
Evan Soltas, economics & thought, The Great Factor-Price Equalization, here. More on the theme of looking for the genesis of financialization post 1971.
Noah Smith’s recent post, “Something Big Happened in the Early 70s,” discussed how growth in productivity and in compensation appear to dramatically decouple at that time. Short version: Until the 1970s, real wages and compensation had increased roughly one-for-one with productivity; since then, productivity has soared with comparatively no change in real earnings.
Noah put forth two possible “stories” of causation: (1) the oil shock of 1973 and (2) the end of the Bretton Woods in 1971.
Cowen, Marginal Revolution, My favorite things China, here. Tuchman’s book on General Stilwell gets left out. There should be Cameron movie of Journey to the West or maybe the Coen Bros. should do it. It could be LOTR big. Comedian Jackie Chan oof. Cowen apparently is no fan of Bertolucci’s The Last Emperor or Raise the Red Lantern.
Joe Nocera, NYT, Financial Scandal Scorecard, here.
Meanwhile, it has become clear since the scandal broke that Libor is a problematic benchmark in any case, because a lot of the unsecured interbank lending it is supposed to represent doesn’t even occur anymore. “It is clear that the Libor system is structurally flawed,” Ben Bernanke, the chairman of the Federal Reserve, told the Senate this week.Now he tells us.
So, Nocera did not know of the structural flaws in Libor prior to Bernanke’s recent testimony? This is Joe Nocera the business columnist for the New York Times, right? You don’t really have to be John Meriwether to follow along with what is happening in Finance, if that is your job. I’m not saying you should be able to forecast how the BBA Libor process will be perceived and interpreted in 2012. Similarly, anticipating the release of the celebratory BarCap bromails is hard, although their existence should not be that surprising if you have ever met a Wall Street broham. Perhaps part of the problem is the disconnect between the reporters covering Wall Street at the major outlets and Wall Street since BBA defined LIBOR. NYT finance reporting folks, there’s this guy Blodget, runs a blog Fustercluck or something on the interweb, he seems to kind of follow along with what is happening in the money/business department, call him maybe?
Wall Street & Technology, Floodgates on U.S. Derivative Reforms Set to Open, here. Buncha folks just waiting for the IR swap market to open up.
The U.S. swaps regulator is set to finalize this week a critical reform that will trigger banks and traders having to comply with costly new derivatives rules.
Direct Edge to Offer Free Trades at the Close in Challenge to NYSE and Nasdaq, here.
Direct Edge, the No. 4 U.S. stock exchange operator, said on Tuesday it plans to offer free trading at the close of markets, in a direct pricing challenge to the New York Stock Exchange and the Nasdaq.
Noahpinion, Something Big happened in the early 70s, here. Seems similar to the question of when did finance become disproportionally large.
This leaves me with two candidate explanations for the possible early-70s trend break. These are the end of Bretton Woods in 1971, and the Oil Crisis in 1973.
The end of Bretton Woods seems like a big deal. It ushered in the era of floating exchange rates and ended the de facto gold standard that had prevailed since WW2. Why would this have held down wages in the U.S.? Well, it might have allowed the start of globalization, which began to add labor-rich, capital-poor countries to the rich-country trading system, thus holding down wages via factor price equalization. The catch-up of Europe and Japan in the 70s and 80s, and then of China et al. in the 2000s, might have held down U.S. wages as these countries’ catch-up productivity gains outpaced their wages. Alternatively, exchange rate risk must have spiked after the end of Bretton Woods; this could have reduced investment as a percent of GDP, raising the return on capital relative to labor, while simultaneously decreasing nondurables TFP via endogenous growth effects. I’m not quite sure if either of these mechanisms holds up under close scrutiny, however.
The Oil Crisis of ’73 seems like a big deal. It represented the start of an era of highly variable energy prices. Since energy is an input for basically everything, lots of people have speculated that higher (and more variable) energy costs have caused a general productivity stagnation.
John Paul Koning, 2010, History of the Fed, here. I’m thinking serious Tufte Jail time here, unless the unstated goal was to show the improbability of one person ever understanding what the Fed does. Maybe they get suspended sentence for being smart?
This is a free digital edition of a chart created by John Paul Koning. It has been designed to be appreciated
on paper as a 24×36 inch display. If you enjoy this chart please consider buying the paper
version at www.financialgraphart.com. Buyers of the chart will recieve a bonus chart “reimagining”
the history of the Fed’s balance sheet. The updated 2010 edition is also now available for purchase.
Alternatively, if you have found this chart useful but don’t want to buy a paper edition, consider
donating to me at www.financialgraphart.com/donate. It took me many months to compile the
data and design it, any support would be much appreciated.
Econ Coding Notes, Chicago Booth, RA Manual: Notes on Writing Code, here. For research assistants. Interested to see the notes on 1. Data and 2. Users. I would imagine the only thing worse than data for the research assistants would be the users.
MIT Economics, Charles P. Kindleberger, here.
Charles P. Kindleberger
Biography
Bibliography
Charles P. Kindleberger
Ford International Professor of Economics Emeritus
Massachusetts Institute of Technology
October 12, 1910Degrees
A.B. University of Pennsylvania, 1932
A.M. Columbia University, 1934
Ph.D. Columbia University, 1937
Wikipedia, Charles P. Kindleberger, here. Interesting, in the optometrist exam test Wikipedia wins easily. Not that this is the MIT Econ. Department’s fault but they do have a highly vested interest in driving this particular plot of history and the interpretation of history forward and they are outdone by a wiki. MIT Econ plays it like a tombstone with space for a LinkedIn resume and a bibliography, big mistake in the digital age, wake up. This is like the folks building Chartres Cathedral deciding stained glass portrayals of the lives of Saints are better left to the local ale houses.
Charles Poor “Charlie” Kindleberger (October 12, 1910 – July 7, 2003) was a historical economist and author of over 30 books. His 1978 book Manias, Panics, and Crashes, about speculative stock market bubbles, was reprinted in 2000 after the dot-com bubble. He is well known for hegemonic stability theory.
MIT News, Economists find evidence for famous hypothesis of ‘comparative advantage’, here.
“The basic insight of David Ricardo holds up pretty well,” says Costinot, the Pentti J.K. Kourri Assistant Professor in MIT’s Department of Economics. “As simple as the theory is, it still has substantial explanatory power in the data.”
The Economist, More 2,000 years in a single graphic, here.
Wipe away the tears from your eyes if you’re an economist, or the frothy-mouthed rage from your face if you’re an infographic designer. As the chart below shows, the first increment of time is 1,000 years. The next, same-sized increment is compressed into 500 years. This is followed by increments of some 100 years, 80, 30, 20, even one of 13 years and 27 years. It ends with a few decades and an eight-year increment.
…
The Economist has developed its own infographics of 2,000 years of economic history with Mr Maddison’s data. One in 2010, nicknamed “GDP since Jesus” charts just that (below, with commentary here). We encountered the same layout difficulties as Mr Cembalest, so chose a bar chart to distinguish specific years, and fiddled with the spacing of increments on the x-axis to designate missing chunks of time. The result is imperfect, but we did as much as possible to disclose, not camouflage, the imperfections. (In retrospect, we should have done more on the right-hand side of the chart, such as perhaps making the bar widths proportionately thinner….)
DeLong, NEW PREFACE TO CHARLES KINDLEBERGER, “THE WORLD IN DEPRESSION 1929-1939″, here. I can see why DeLong is featuring this on his blog. Got a minute? Read this.
The University of California Press is going to put out a new edition of Charles Kindleberger’s World in Depression early next year.
DeLong, RIP ANNA J. SCHWARTZ, here.
NY Times: After Even before Mr. Friedman’s death in 2006, Mrs. Schwartz “became the standard-bearer” of Friedman monetarism, said Michael D. Bordo, a professor of economics at Rutgers University and for decades a Schwartz collaborator himself.
Though “not a deep theorist,” “A superb analyst and empiricist,” he said, Mrs. Schwartz was “probably among the very bestwoman monetarist economist*s* of the 20th century.”
GeorgeSoros.com, Remarks at the Festival of Economics, Trento Italy, here. nice website.
Wall Street and Technology, Liquidity Shift, here. Nice drill down Execution Venue Map w. CME, Equinix, NYSE Mahwah, Nasdaq OMX, Savvis, Telx 8th Ave., Telx Clifton, Telx Hudson, Telx Weehawken, and Wall Street.
Mankiw, From Harvard Commencement, here. Sunshine debate settled.
NYT, For Tech Start-Ups, New York Has Increasing Allure, here.
Such collaborations are New York’s biggest draw. The biggest drawback is hiring. Silicon Valley has the deepest pool of qualified engineers in the country, because of Stanford and the major technology companies that are based there. On the East Coast, many talented engineers gravitate to finance, which offers salaries that start-ups cannot compete with.
Forbes, What Jack White Can Teach Us About Economics, here. Supply and Demand with Jack White via Mankiw.
You don’t think of rock stars as the bearers of economics lessons (despite the occasional London School of Economics student among them). But Jack White recently demonstrated an admirable understanding of basic economics. White’s record label, Third Man Records, puts out limited prints of records in order to meet customer demand “to be involved in collecting rare and interesting vinyl”. There is a problem with this though. If you make something rare and valuable, the market price will be high. So when White set the prices low, people would show up at the Third Man store and buy up dozens of copies then sell them on ebay for hundreds of dollars.
Sinostand, Video: Biking through China’s Countryside, here. Best video of the week via Marginal Revolution.
After I visited Yellow Mountain a few years ago and had the worst day of my China life, I swore to myself I would never endure another tourist trap again. Never again would I stand in line all day and pay hundreds of yuan for the privilege. Never again would I go to a “historical” site, only to be surrounded by droves of flag-wielding guides herding around groups in matching hats. So two years ago my girlfriend and I bought some long-distance bikes in order to access places you’d never think to buy a train ticket to. It was the best investment we ever made.
For our last trip, I brought along a video camera and have put together this short documentary with the footage. So watch as we ride through Shandong’s countryside, meet old farmers, chat with Catholic peasants, and get an up close look at China’s housing bubble:
DeLong, WHY OH WHY CAN’T WE HAVE A BETTER PRESS CORPS? YES, NEW YORK TIMES, I AM LOOKING AT YOU DEPARTMENT, here. DeLong on Douthat on Facebook.
So why does Ross Douthat think it is? Well, he reads his Bloomberg Businessweek, he hears of the (justified) annoyance of traders at the inability of the NASDAQ to smoothly manage the IPO, and he hears of the disappointment of those who had bet that the market would value Facebook not as a $75 billion (i.e., $32/share) but as a $90 billion business (i.e., the $38/share IPO price) or as a $100 billion business (i.e., $42/share). For those who had placed big bets that it would be at least a $90 billion business, the fact that it has turned out to be only a $75 billion business is–for them–the biggest IPO flop of the decade.
But to call the creation of a $75 billion company in 8 1/2 years ex nihilo a “stock market failure”?
Ross Douthat has no clue what he is talking about.
Boom!
ars technica, Revisiting why incompetents think they’re awesome, here.
In 1999 a pair of researchers published a paper called “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments (PDF).” David Dunningand Justin Kruger (both at Cornell University’s Department of Psychology at the time) conducted a series of four studies showing that, in certain cases, people who are very bad at something think they are actually pretty good. They showed that to assess your own expertise at something, you need to have a certain amount of expertise already.
Use that Kahneman result about donations doubling when witnessed by a picture with eyes. Make the subjects fill out their self-assessment in front of a picture with eyes watching them. I think they will straighten up a bit, even though they don’t know what they don’t know, they know.
