New Economist

Why are some economists such snobs?

Bryan Caplan of EconLog has written his class autobiography. So has Arnold Kling, and Chris Dillow at Stumbling and Mumbling. All are worth reading (along with the comments and ensuing debate).

But of the class autobiographies so far, I was most struck by Mark Thoma's story, particularly this observation:

If you aren't from the right place, there's is a lot of baggage to overcome, more than you think as a naive new Ph.D. from my background. I used to go to NBER meetings, even presented, but I found it to be more of the same. I always felt on the outside and, though there were exceptions (and people I respect immensely because of it - they took a moment to be inclusive of someone from a lesser school - and I don't think I embarrassed myself when they did, I think I asked good questions, etc.), and I finally just stopped going. I was there to learn, not feel snubbed. It's less important now with the internet, but being from Oregon it was important to go to meetings to catch up with the latest research. But I never felt all that welcome, if that's the right word. That's too bad and there's really no reason to act that way.

That's a pity - but I know how he feels. Having attendeed a number of academic gabfests on both sides of the Atlantic, my personal experience has been that the North Americans are the most elitist (i.e. making distinctions based on which faculty you come from and the pedigree of your degrees), while continental European conferences are much less so. British conferences are somewhere imbetween.

My guess is that this is because in America the Ivy League/non-Ivy distinction is known by all, while in Europe people will often not really know how 'good' a department you come from. Greater heterogeneity and asymmetric information can sometimes be a good thing. Still, snobbery won't stop me attending NBER meetings (should they ever invite me to give a paper).

P.S. In my experience the foreign-born academics in US Ivy League universities are the worst snobs. Perhaps they still have a chip on their shoulder from their student days?

Krugman: Economist as crusader?

The latest IMF Finance & Development magazine has an interview with Paul Krugman: Economist as Crusader. Here is a small excerpt (warning: it may be necessary to have a bucket handy):

Krugman's abiding belief, like that of Keynes, is that ideas matter and matter a lot. The role of public intellectuals is less to come up with good ideas, which is fiendishly hard, but more to serve as a watchdog to get rid of bad ideas and prevent their coming back. There are more bad ideas and more purveyors of bad ideas than their benign counterparts. ...In Paul Krugman, we have the very best, with conviction and passion, rendering the struggle between good and bad ideas, and between disputation and acceptance, a little less unequal.

I appreciate much of his academic work, and I have generally liked - and more often than not, agreed with - Krugman's NYT op-ed pieces. But he has strayed awfully far from economics at times. And this kind of hagiography would give even the most ardent fan pause.

Hat tip: Greg Mankiw

Public expenditure reform: be ambitious, not timid

Major public expenditure cutbacks can be risky for politicians - attracting opposition, sometimes demonstrations and strikes, and potential loss of office. So is it worth it? Yes. A new ECB working paper suggests it is. Authors Sebastian Hauptmeier, Martin Heipertz and  Ludger Schuknecht found that those nations which had undertaken 'ambitious reform' gained more economically than 'timid reformers'.

Hauptmeier et al examined reforms of public expenditure in industrialised countries over the past two decades. They distinguished ambitious from timid reformers, and analysed in detail the reform experiences in eight case studies of ambitious reform episodes. Here are some brief extracts from their paper, Expenditure reform in industrialised countries: a case study approach (PDF):

Ambitious expenditure reform episodes coincided with more profound improvements in the soundness of public finances than timid ones and yielded significant scope for tax cuts. Furthermore, countries that undertook ambitious expenditure reforms experienced more favourable trend output developments. The study provides some evidence that positive confidence effects of ambitious expenditure reforms were potentially strong and coincided with a quick rebound in growth.

The authors note that public expenditure reform was part of a more comprehensive structural reform agenda:

In all cases, ambitious expenditure reform was part of a comprehensive agenda that changed countries’ economic policy regime significantly. Reforms included in most cases improved fiscal institutional, labour market incentives, taxation, privatisation and other measures to enhance macroeconomic stability.

A previous post of mine had discussed the importance for success of broad-based reform. This paper reinforces that view.

Is this a good time to buy Asia?

The short answer is "no", according to Bloomberg columnist Andy Mukherjee in today's piece, Asia's Growth Is No Foil for Vanishing Money. In the wake of a global liquidity squeeze, the risk of further falls in equity markets cannot be discounted:

A slightly longer answer is that this may not be the time to get swayed by long-term economic fundamentals of Asian emerging markets. Expectations of strong growth alone may not be much protection in the face of disappearing liquidity.

Assets in mature Asian markets -- a property in Singapore, for example -- may not be all that sexy; they may, however, be a better bet right now than software company stocks in India. True, stock-market gyrations apart, the real economy in most developing Asian nations is doing very well.

The only big exception is Indonesia, where there's a risk of stagflation. PT Astra International, the nation's biggest motor- vehicle retailer, now expects Indonesia's combined new car sales to decline as much as 44 percent this year.

One growth hot-spot is India. The Indian economy will expand 7.7 percent in the current fiscal year ending in March 2007, the National Council of Applied Economic Research in New Delhi forecast last week. Assuming normal rainfall and food production, the slowdown in the pace of economic expansion -- from 8.1 percent in the previous year -- will be marginal, and largely a result of the monetary tightening that must now occur to combat inflation.

Just because growth has a solid footing, it doesn't follow that the recent 17 percent slide in equity prices over eight days has taken all the froth out of valuations and that the Indian market is an ``opportunity to buy'' for small investors, as Finance Minister P. Chidambaram said last week.

Winnie Ma and other researchers at Nomura International (Hong Kong) Ltd. said in a May 22 report that the Sensex, India's benchmark equity index, may have a ``fair value'' of 7000 points. It closed last week at 10,809.35, having recovered some 3 percent from its May 22 close. This rally is too risky for small investors to start buying again.

Watch the rupee. A combination of falling currency values and rising short-term interest rates would indicate that ``risk aversion is rising, liquidity is being withdrawn faster than the authorities can introduce money, while foreigners would be more likely to be repatriating funds,'' the Nomura researchers say.

Singapore takes a small gamble

A New York Times/IHT story about Singapore from last week which I have belatedly come across, but is worth highlighting: Nanny state Singapore shows some ankle, by Wayne Arnold

When Lee Chin Koon was a member in the 1930's, the Chinese Swimming Club here offered more than just laps in the pool. There was mahjong and blackjack, too. "We Chinese are gamblers," he told club historians before his death in 1997. "If two lizards scale up a wall, someone would bet on them."

But what Mr. Lee's son, Kuan Yew, remembered was how, after a losing night, his father would come home in a violent rage demanding his wife give him jewelry to pawn. When Lee Kuan Yew became the first prime minister of independent Singapore in 1965, he set about transforming this once-squalid seaport into a tidy industrial park by putting vice in the crosshairs.

Cigarettes and alcohol were heavily taxed. Drug traffickers were promised they would get the noose. Casinos, naturally, were banned.

Times are changing once again. Lee Kuan Yew's son, Lee Hsien Loong, is now prime minister, and he is striving to shake Singapore's reputation as Asia's nanny state, where chewing gum was once banned because of the mess it makes when not properly disposed of.

With the country's basic manufacturing jobs shifting to China, Mr. Lee wants to stimulate tourism and other service industries by molding a more tolerant, fun-loving Singapore. And one of his signature projects — the world's most expensive casino complex — harks back more to his grandfather's Chinese Swimming Club than his father's profit-perfect industrial landscape.

Last year, the government ended its ban on casinos. Next month it is to choose who will build the first of two planned resorts, a $3 billion extravaganza that will include a casino, entertainment complex, convention center and hotels. The list of suitors includes some of the biggest names in Las Vegas — Harrah's Entertainment , Las Vegas Sands and MGM Mirage.

Strait-laced Singapore and free-wheeling Las Vegas make strange bedfellows. But Singapore is betting that in return for letting casino operators tap the Chinese penchant for gambling, it can create a world-class tourist attraction without sacrificing the image of low crime and cleanliness that make it so popular with multinational corporations.

"That's part of the secret to our success: maintaining this semipermeable membrane," said Vivian Balakrishnan, a former eye surgeon who as Minister for Community Development, Youth and Sports oversees the effort to enliven Singapore. "Make it permeable to success, impermeable to the unsavory elements."

The question among many casino operators, however, is whether Singapore's vision of a sanitized casino culture risks bleaching out the components that attract gamblers and drive profitability.

Semi-permeable membranes? More like your mum taking you to the beach and telling you to have fun - but don't get wet, don't stray, don't play with the other kids etc . While I remain very impressed by the huge gains in living standards achieved for ordinary Singaporean citizens, as a place to visit Hong Kong is more exciting. Singapore is just too sanitised and Orwellian for my liking.

Mankiw: Why are co-authors so important?

Following up on my previous post, Greg Mankiw also had some interesting advice on the importance of co-authors in economics in his American Economist article (PDF).

Why are co-authors so important for the way I work? One reason is found in Adam Smith's famous story of the pin factory. Smith observed that the pin factory was so productive because it allowed workers to specialize. Research is no different--it is just another form of production. Doing research takes various skills: identifying questions, developing models, providing theorems, finding data, expositing results. Because few economists excel at all these tasks, collaborating authors can together do things that each author could not do as easily on his own. In manufacturing knowledge, as in manufacturing pins, specialization raises productivity. (The puzzle is why Adam Smith chose to ignore his own analysis and write The Wealth of Nations without the benefit of a co-author.)

The second reason I work with co-authors is that it makes my job less solitary. Research and writing can be a lonely activity. It is easy to spend endless hours with a pad and pencil or in front of a computer without human contact. Some people may like that kind of work, but not me. Arguing with my co-authors makes my day more fun.

The third reason I work with co-authors is the most important: a good co-author improves you forever. In the most successful collaborations, both co-authors learn from the experience. A co-author can help you expand your knowledge, improve your skills, and expose your biases. Even after the collaboration is over, you take these benefits with you to future projects. To a large extent, as I have grown older, my co-authors have become my mentors.

What do other academics think? Comments welcome.

Not swinging satellites around the sun

Tim Duy is in top form in his latest Fed Watch: Chewing on the data

So this is what is has come to:

A price index for personal consumption expenditures excluding food and energy rose 0.2% in April, meeting expectations. However, the unrounded number was 0.24968%, failing to calm inflation concerns.

This gem is from the Wall Street Journals first take at the April’s Personal Income and Outlays report.  We are all going to go crazy if data dependence really means that we need to start rounding to the fifth decimal place.  Considering the likelihood of revisions and measurement error, talking about inflation to the third decimal place is not particularly constructive; the fifth decimal place is downright silly.

I will put this as simply as I can - never, not once, in any discussion I ever had with a Federal Reserve official, did an official round beyond the second decimal place. Actually, I am not even confident I heard anyone round beyond the first decimal place. Let’s try to keep some perspective. This is monetary policy. We are not swinging satellites around the sun here.

Duy expects the Federal Reserve to soon “ take a breather from the rate hikes” in June, but cautions that:

..while I feel my resolve on that call strengthening again, hawkish sounding rhetoric from some Fed officials reminds us that nothing is a sure thing at this point, and a month of data is yet to come.

Continue to remember that a pause does not mean done; with the economy set to bounce around capacity, Fed Chairman Ben Bernanke will keep one foot hovering over the brake.

And the other foot on the accelerator?

The politics of happiness

Can politicians make people happier? And should they even talk about it? A new poll by the BBC TV show The Daily Politics indicates mixed views by the English public. The telephonesurvey was conducted among a random sample of 1,012 adults aged 18+. The Populus poll results (PDF) found that the public were evenly split as to whether they thought "Governments can influence how happy I am": 48% agreed, while 50% disagreed with the statement.

Somewhat at odds with that viewpoint, two-thirds (65%) thought "We'd all be happier if politicians stopped talking about happiness". And a massive 82% said they would be happier if they spent more time with family and less at work. No wonder the government has been making work-life balance issues a focus for policymaking.

Why blogs are a good thing

Mark Thoma asks What Do Blogs Do? His post focuses on econoblogs, and he lists five positive contributions. First, they "act as a filter on information". They give more weight to more important topics. They add new information. They speed things up, and "have a collective capability to respond" when a crisis hits. And fifth, they "motivate the media to take care in how they write about economics and other topics". For those who want the fuller version, here are his "preliminary thoughts":

1. Blogs are often criticized for simply echoing information. But in doing so, they provide information to readers. Blogs act as filters on information. When you come to trust a blog, or know it well enough to judge its content, the fact that an article is posted there tells you that the person running the blog thought it was important enough to bring to your attention. Blogs can also help by pointing out information that is misleading, wrong, etc.

2. Even if you don't fully trust any one information source, there is value in repetition. As blogs echo information, it gives a sense of its importance and credibility. If a report is only discussed in one place it might be notable, but in general if an issue is being discussed most places you happen to visit, that indicates the information has some significance. So, beyond the filtering role that blogs play as they echo information from other sources, they also give it weight, e.g. if all blogs are worried about how to interpret labor force participation statistics, that is notable. And on those occasions when blogs on both sides of the political fence (or whatever fence divides the issue) are discussing an issue and coming up with similar answers, that is informative, as are the cases when heated debate erupts among reputable blogs on opposite sides on an issue.

3. Blogs add new information. On occasion, bloggers are inclined to seek out new information, for example to present economic information graphically, in tables, descriptively, and so on that helps to place economic statistics in perspective or to point in new directions. Thus, novel information provided on blogs can buttress or rebut the topic of the day, or it can point in new directions altogether. And the information does not have to be novel to enlighten and inform a discussion. There is also a role for pointing to, say, existing academic research on topics being discussed in the news and elsewhere.

4. This is something that I think is new, or at least a speeded up version of what we had in the past. In a sense, a traditional column in the newspaper is a blog as are editorials. A columnist posts articles say twice a week, then comments come back in the form of letters to the editor. There are also discussion at work, and so on. The modern blog speeds this process up considerably and allows broader participation in the dissemination of information and in feedback. When there is an important question, say a proposal for an energy tax as we saw recently, instead of the discussion being dominated by a few columnists, editorials, letters to the editor, discussion on talk shows, etc., we have almost instantaneous discussion of these topics on blogs, some from people with expert credentials, along with feedback in comments, email, etc., and many rounds of discussion happen quickly as ideas richochet back and forth.

I think this will become important when we have a crisis of some sort, say a currency crisis, and there are important policy questions that require immediate reaction. We saw something like this after Hurricane Katrina with questions about whether the Fed should lower rates, pause, or continue increasing them in light of all the uncertainty and destruction that existed. Blogs began debating this topic almost immediately and added important elements to the discussion.

When a crisis hits, we have a collective capability to respond that did not exist in the past and it will be interesting to see how well it works when it is needed.

5. In addition to their filtering role, blogs also motivate the media to take care in how they write about economics and other topics. Though anyone writing publicly develops a thicker skin, it can't be fun to be skewered for something you have written, and tools like Google and The WayBack Machine hold people accountable for things they have written in the past in ways they never were before. It's no longer possible to present misleading points of view without being immediately and thoroughly rebutted in public and if the issue is important enough, on fairly prominent platforms.

I broadly agree with each of these five points. Blogs certainly can add value - though we should remember they can also manifest less attractive behaviours too. It's a pity Mark didn't also cover some of those negatives. As he writes:

So, what have I missed or gotten wrong? I suppose there's a whole post to be written about the downside of blogs, e.g. bad information can get echoed and magnified as well as good, so on balance are blogs a positive or negative influence, questions like that. But that will have to wait for another day, or perhaps others can fill in the missing pieces.

I'll see what I can do on that score this weekend...

Will Wilkinson on happiness

Cato Institute gadfly Will Wilkinson appears pleased with David Cameron's recent remarks on "General Well-being"in his post Tories for Happiness. "This is interesting because up until now, the politics of “well-being” have been primarily a welfare-liberal or social democratic phenomenon", he notes.

There has been no force in history that has done more to promote “general well-being” than economic growth. There is no force that will do more good in the foreseeable future. I hope that Cameron takes note that in cross-national econometric studies the only variable that correlates with reported well-being more strongly than GDP per capita is a society’s degree of economic freedom.

There is a politics of limited government and personal repsonsibility lurking in the happiness data. If Cameron is going to run on happiness, let’s hope he is able to find it, and allay Frank Furedi’s worries, and mine, about an illiberal, infantalizing therapeutic state.

And in a separate post, Wilkinson takes issue with the BBC television series The Happiness Formula. His post, Formula for What? Aggregation v. Coordination, takes issue with what hel dubs "Lord Layard’s technocratic Benthamite vision".

A crucial distinction that I’m willing to make over and over is the distinction between aggregative and coordinative conceptions of social goals. In an aggregative or summative conception, the goal is simply to maximize the amount of something valuable, such as happiness or pleasure. ...“Social happiness” is a not a sum of individual utilities. Social happiness is a well-ordered system in which millions of acts of individual self-interest are harmoniously coordinated.

Now, happiness is a primary goal for very many people, and so knowledge of what contributes to happiness will be useful indeed. But it is a giant mistake to assume that happiness is the sole value, that science says so, or to extrapolate from millions of happiness-oriented projects to THE PROJECT, which is a pernicious myth. The divine science of social happiness is not the science of summation, it is the science of coordination.

Will adds that he will "be putting up several posts responding to a number of the articles posted on the BBC website."