Tuesday, August 30, 2016

Asset Pricing Mooc, Resurrected

The online class "Asset Pricing" is resurrected, at least half-way.

The videos, readings, slides/whiteboards and notes are all now here on my webpage.  If you just want the lecture videos, they are all on Youtube, Part 1 here and Part 2 here.

These materials are also hosted in a somewhat prettier manner on the University of Chicago's Canvas platform. You may or may not have  access to that. It may become open to the public at some point.

I'm working on the quizzes, problems, and exams, and also on finding a new host so you can have problems graded and get a certificate. For now, however, I hope these materials are useful as self-study, and as assignments for in-person classes. I found that sending students to watch the videos and then having a more discussion oriented class worked well.

What happened? Coursera moved to a new platform. The new platform is not backward-compatible, did not support several features I used from the old platform, and some of the new platform features don't work as advertised either. Neither the excellent team at U of C, nor Coursera's staff, could move the class to the new platform. And Coursera would not keep the old platform open. So, months of work are consigned to the dustbin of software "upgrades," at least for now.

Obviously, if you are thinking of doing an online course, I do not recommend that you work with Coursera. And make sure to write strong language about keeping your course working in the contract.

Monday, August 22, 2016

Micro vs. Macro

The cause of sclerotic growth is the major economic policy question of our time. The three big explanations are 1) We ran out of ideas (Gordon); 2) Deficient "demand," remediable by more fiscal stimulus (Summers, say) 3); Death by a thousand cuts of cronyist regulation and legal economic interference.

On the latter, we mostly have stories and some estimates for individual markets, not easy-to-use  government-provided statistics. But there are lots of stories.

Here is one day's Wall Street Journal reading while waiting for a plane last Saturday:

1) Holman Jenkins,
... unbridled rent seeking.  That’s the term economists use for exercising government power to create private gains for political purposes. 
Channelling Jefferson,
Mr. Obama’s bank policy dramatically consolidated the banking industry, which the government routinely sues for billions of dollars, with the proceeds partly distributed to Democratic activist groups. 
His consumer-finance agency manufactured fake evidence of racism against wholesale auto lenders in order to facilitate a billion-dollar shakedown.

Thursday, August 18, 2016

The new voodoo

Scott Sumner sums up contemporary stimulus proposals well
...Old hydraulic Keynesianism from the 1960s was already a pretty implausible model. But what's happened since 2009 involves not just one, but at least five new types of voodoo: 
1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.

2. The claim that extended unemployment benefits---paying people not to work---will lead to more employment, by boosting AD.

3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.

4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.

5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?

In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.

Tuesday, August 16, 2016

Interview, talk, and slides

I did an interview with Cloud Yip at Econreporter, Part I and Part II, on various things macro, money, and fiscal theory of the price level. It's part of an interesting series on macroeconomics. Being a transcript of an interview, it's not as clean as a written essay, but not as incoherent as I usually am when talking.

On the same topics, I will be giving a talk at the European Financial Association, on Friday, titled  "Michelson-Morley, Occam and Fisher: The radical implications of stable inflation at the zero bound," slides here. (Yes, it's an evolution of earlier talks, and hopefully it will be a paper in the fall.)

And, also on the same topic, you might find useful a set of slides for a 1.5 hour MBA class covering all of monetary economics from Friedman to Sargent-Wallace to Taylor to Woodford to FTPL.  That too should get written down at some point.

The talk incorporates something I just figured out last week, namely how Sims' "stepping on a rake" model produces a temporary decline in inflation after an interest rate rise. Details here. The key is simple fiscal theory of the price level, long-term debt, and a Treasury that stubbornly keeps real surpluses in place even when the Fed devalues long-term debt via inflation.

Here is really simple example.

Friday, August 12, 2016

Clinton Plan

The WSJ asked me to review the Hillary Clinton economic plan, motivated by her August 11 speech introducing it.  The Op-Ed is here.

I read a good deal of the "plan" on hillaryclinton.com. What I discovered is that there is so much plan that there really isn't any plan at all.

Thursday, August 11, 2016

Zoning common sense

Kate Kershaw Downing has posted a worthy letter of resignation from the Palo Alto Housing commission, that seems to be going viral.

Palo Alto is absurdly expensive. People who want to come here for jobs can't afford to live anywhere nearby.  What to do about it?
 I have repeatedly made recommendations to the Council to expand the housing supply in Palo Alto so that together with our neighboring cities who are already adding housing, we can start to make a dent in the jobs-housing imbalance that causes housing prices throughout the Bay Area to spiral out of control. Small steps like allowing 2 floors of housing instead of 1 in mixed use developments, enforcing minimum density requirements so that developers build apartments instead of penthouses, legalizing duplexes, easing restrictions on granny units, leveraging the residential parking permit program to experiment with housing for people who don’t want or need two cars, and allowing single-use areas like the Stanford shopping center to add housing on top of shops (or offices), would go a long way in adding desperately needed housing units while maintaining the character of our neighborhoods and preserving historic structures throughout.

Regional price data

Some big news, to me at least: The Bureau of Economic Analysis is now producing "regional price parities" data that allow you to compare the cost of living in one place in the US to another. The BEA news release release is here; coverage from the tax foundation here (HT the always interesting Marginal Revolution). In the past, you could see regional inflation -- changes over time -- but you couldn't compare the level of prices in different places.

The states differ widely. It is in fact as if we live in different countries with different currencies. Hawaii (116.8) vs. Mississippi (86.7) is bigger than paying in dollars vs Euros (118) Yen (times 100, 1.01) and almost as big as pounds (1.30)

Tuesday, August 9, 2016

Summers on growth and stimulus

Larry Summers has an important, and 95% excellent, Financial Times column. Larry is especially worth listening to. I can't imagine that if not a main Hilary Clinton adviser he will surely be an eminence grise on its economic policies. He's saying loud and clear what they are, so far, not: Focus on growth.

Monday, August 8, 2016

A world without cash

Max Raskin and David Yermack have a nice WSJ OpEd last week, "Preparing for a world without cash." The oped summarizes their related paper.
What would a government-backed digital currency look like? A country’s central bank would need to become a deposit-taking institution and hold accounts on behalf of citizens and businesses. All of their debits would be tracked on the central bank’s blockchain, a digital ledger resistant to tampering. The central bank would pay interest electronically by adjusting the balances of depositor accounts.
I'm a big fan of the idea of abundant interest-bearing electronic money, and that the Fed or Treasury should provide abundant amounts of it. (Some links below.) Two big reasons: First, we then get to live Milton Friedman's optimal quantity of money. If money pays interest, you can hold as much as you'd like. It's like running a car with all the oil it needs. Second, it is a key to financial stability. If all "money" is backed by the Treasury or Fed, financial crises and runs end. As Max and David say,
Depositors would no longer have to rely on commercial banks to hold their checking accounts, and the government could get out of the risky deposit-insurance business. Commercial banks that wished to keep making loans would raise long-term capital in the debt and equity markets, ending the mismatch between demand deposits and long-term loans that can cause liquidity problems.
However, there are different ways to accomplish this larger goal. Do we all need to have accounts directly at the Fed, and is a blockchain the best way for the Fed to handle transfers?

Thursday, August 4, 2016

A Look in the Mirror

Tyler Cowen and Alex Tabarrok have written a splendid article, "A Skeptical View of the National Science Foundation’s Role in Economic Research" in the summer Journal of Economic Perspectives. Many of their points apply to research support in general.

The article starts with classic Chicago-style microeconomics: What are the opportunity costs -- money may be helpful here, but what else could you do with it? What are the unexpected offsetting forces -- if the government subsidizes more, who subsidizes less? What is the whole picture -- how much public and private subsidy is there to economics research without the NSF? Too many good economists just say "economic research is a public good, the government should subsidize it."

They go on to ask deeper questions, "Are NSF Grants the Best Method of Government Support for Economic Science?" The NSF largely supports mainstream research by established economists at high-prestige universities. Are there better "public goods," undersupported by other means, for it to support?

Tuesday, August 2, 2016

Federalization of Labor

We are getting a good hint that a centerpiece of economic policy in the Hillary Clinton administration will be an increase in Federal control over labor markets.

The news here is that serious economists are advocating these policies, not just to transfer income from one to another, reduce inequality, help specific groups, or enhance some sense of social justice, at the expense of dynamism and growth, but that more Federal control of the labor market will increase wages, productivity and economic growth for everyone!

Alan Blinder's cogent Aug 2 Wall Street Journal opinion piece gives a good sense of the language and logic,
... Hillary Clinton has presented an extensive list of policies that would raise wages, starting with a higher minimum wage. ...

Mrs. Clinton also advocates widespread profit-sharing as a way to put more money into workers’ pockets. She would promote that goal both by using the presidential bully pulpit and by providing tax incentives for businesses that share profits. Since the scholarly evidence suggests that profit-sharing raises productivity, such tax breaks will partly pay for themselves.

Increased vocational training and apprenticeships for the non-college-bound are also major Clinton policies....The U.S. can increase its productivity and reduce inequality by ensuring that the right people get vocational training and apprenticeships.

And then there is what may be the surest way to raise wages over the long run: providing pre-K education for all American children....
Labor market intervention is getting wrapped up in "stimulus," as reported in an excellent Bloomberg column by Brendan Greeley here,
 "It’s really simple," she said at a rally in June in Ohio. "Higher wages leads to more demand, which leads to more jobs, which leads to higher wages." ...

When Clinton uses the word "demand" on the stump, she’s blowing a dog whistle. (Economists have them, too.) Increase demand, she’s saying, and you get growth.... 
Bob Gordon signs on reluctantly,  
"I think it’s a very marginal way of promoting economic growth," says Robert Gordon, economist at Northwestern University who specializes in the subject. Like Summers, he prefers a massive investment in infrastructure. But he does agree that a shift in business income away from profits and toward salaries would create growth. Workers are more likely to buy things from their paychecks than businesses are to invest out of their profits.
Alan Krueger ["former chairman of the Council of Economic Advisers and an informal adviser to the Clinton campaign," and candidate for vice-president of the American Economic Association] agrees wholeheartedly:
... "I think the time could be right for a more virtuous growth model," he said, "which is driven by stronger wage growth...more consumption, more demand, creating more jobs." 
Novel rationalizations for decades-old policies are always suspect. And the usual passive or verb-less sentences hiding the heavy hand of Federal government always invites skepticism.

But let's take it seriously. How much sense do these analyses make?

Without rehashing the whole minimum-wage fight, it is worth asking, if the Federal Government forces businesses to raise some people's wages, but others become unemployed as a result, whether that really count as raising wages overall?

The words "presidential bully pulipit" has poor overtones in the current age. The bully pulpit means the DOJ, EEOC, IRS, NLRB, EPA and who knows even the fish and wildlife service may come calling if you don't do what the president wants. Schoolyard bully, not Teddy Roosevelt's jolly-good pulpit.

"The scholarly evidence indicates that profit-sharing raises productivity.." That's a new twist on the abominable "studies show" argument by reference to vague authority.  But even "scholarly evidence" has to make some sense.

It does make sense that firms which study the question and choose profit-sharing plans can thereby raise productivity, either by giving their employees better incentives or by attracting different and more productive employees. They would not do it otherwise.

But this classic subject-free sentence is about Federal Regulations to force profit-sharing that "puts money into workers' pockets" on all firms. It does not follow that such a mandate will have the same effect. This is the classic, "rich guys drive BMWs, so if we force BMW to give cars away we'll all get rich."

To belabor the obvious, that some firms choose it because they see it will work does not mean that the Federal Government forcing it on all firms will work.  That profit sharing which increases workers' incentives can work does not mean that reducing profits and paying lump sums to workers will work. That profit sharing accompanied by greater selection of productive workers works does not mean that forced profit sharing will work for everyone -- someone employs the less productive, I hope.

If it's about incentives, then there should be a widespread Federal initiative to promote piece-work, commissions rather than salaries, independent contractors rather than employees... Hmm, we're headed the other way.

As economists, we are supposed to start with a problem. What is the market failure that stops companies form putting in productivity enhancing profit sharing programs? Or are they just too dumb and need the benevolent hand of the "bully pulpit" to educate them?

"Increased vocational training and apprenticeships for the non-college-bound," are more Orwellian subject-less sentences. Who is going to do this increasing and how? What is the market failure? Do we need to have triple digit numbers of Federal Job-training programs?

"Providing pre-k education" is another subject-free sentence. I presume he does not mean reducing regulations and union requirements so more pre-k schools can start up! That might actually be effective. But perhaps it is technically correct: a large Federal subsidy for pre-k education, funneled through the public school systems and teacher's unions will raise someone's wages. The "scholarly evidence" is not that it will be the kids.

The idea that forcing companies to pay out greater wages is the key to "stimulus," and that demand-side "stimulus" is the key to long-run growth is...er... even more novel economics.

In classic Keynesian stimulus, there is something about the government borrowing money and spending it, or giving it to consumers to spend, that causes people to forget that the borrowed money must be paid back someday. Not here -- this is directly the claim that taking from Peter and giving to Paul is the key to prosperity. And not just temporary stimulus, but long run growth.

One of many fallacies at work here is the notion that companies face a choice between "paper" investment and "real" investment; that by piling up cash reserves they are somehow diverting resources that could be "real demand" into "paper investments." But every paper asset is a paper liability, so this possible truth about an individual company makes no sense for an economy as a whole.

And let's follow the logic.  If this works for stimulus and growth, force companies to give away cash to consumers. Consumers are, well, people who like to consume. Force them to give cash away to thieves. They consume quickly.  If this is a bad idea.. well then maybe the whole "stimulus" thin is a bit of bunk as well.

Gordon at least has the decency to belittle the idea. And on "a shift in business income [another subjectless sentence -- this shift is forced by the Federal Government!] away from profits and toward salaries would create growth"  because "Workers are more likely to buy things from their paychecks than businesses are to invest out of their profits," one can hope that a statement which violates basic accounting is a misquotation.

 Krueger has less defense: "a more virtuous growth model,...which is driven by stronger wage growth...more consumption, more demand, creating more jobs" is a direct quote. It may be "virtuous" to feel this way, but the classic criticism of Democratic economic policy is doing things that make you feel good but don't work.

Well maybe, maybe not. Economics is a work in progress. But it is certainly brand-new, made-up-on-the spot economics, designed to buttress policies decided on for other reasons.

A last grumpy comment. The WSJ titled Blinder's oped, "Only one candidate can make wages grow again."  Actually I agree with the sentence   Like most media they forgot there are more than two candidates!