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Assorted links
1. Defending Pluto as a planet
2. David Brooks on recovery; very good.
3. Acemoglu on the crisis, and summarized by Simon Johnson.
4. "Gourmand syndrome: eating passion associated with right anterior lesions"? Oddly, it's about quality, not quantity.
5. Bruce Bartlett: what kinds of stimulus work?
6. The GMAC debacle.
7. Fiscal stimulus: survey of the skeptics.
Posted by Tyler Cowen on January 9, 2009 at 08:41 AM in Web/Tech | Permalink
Comments
I am particularly fond of this passage of Acemoglu's:
"In our obliviousness to the importance of market-supporting institutions we were in sync with policymakers. They were lured by ideological notions derived from Ayn Rand novels rather than economic theory. And we let their policies and rhetoric set the agenda for our thinking about the world and worse, perhaps, even for our policy advice. In hindsight, we should not be surprised that unregulated profit-seeking individuals have taken risks from which they benefit and others lose."
He follows this with:
"But now we know better."
Do we? Really? I will be interested to see 20 or 30 years hence whether we do.
Posted by: Jared at Jan 9, 2009 9:52:12 AM
Will's GMAC article illustrates the Wonderland TARP and other bailout measures have brought us.
GMAC gets government help. GMAC is supposed to help GM sell cars. So GMAC uses government mo ney to help sell GM cars. From that logic, it's pretty simple and nothing is amiss. What else is GMAC supposed to do with the money?
From another angle, this is a government subsidy of weak players [GM] which acts to further weaken moderate players [Ford] and stronger players [Toyota], likely creating perverse incentives. If the computer industry had done this, we'd likely still be using 5.25 inch floppies and 64k memories on our Kaypro and Osborne portables.
In this mixed economy of capitalist and corporate-welfare, what are the rules beyond "hire good lobbyists"?
Posted by: ZBicyclist at Jan 9, 2009 9:55:19 AM
"gourmand"
Ok Tyler, as a food-lover yourself, we must ask when were you hit on the right side of your head? Did you fall off your bike maybe as a child? Did a playmate smack you with a toy truck in pre-school?
Posted by: StreetWalker at Jan 9, 2009 9:57:33 AM
With our budget problems, I say, "Let the aliens have Pluto if they want it."
Posted by: Yancey Ward at Jan 9, 2009 10:04:51 AM
From the summary:
"3. The way we think about reputation, including how it is acquired and maintained, is way off base... You walk into a grocery store with a mental model that is based on the premise that the individuals all through the production chain operate in a control structure designed to build brands and make you think their products are healthy and tasty. Such reputations are costly to build and not readily squandered. But, Daron points out, this is too simple. In particular, we should no longer make the mistake of saying “the company” wants this or that. There are no companies in any kind of behavioral sense. There are people, struggling to get ahead, and it is their interactions that can lead - particularly in finance - to products that are really terrible for you and your neighbors (and even quite bad for themselves)."
If this is true in finance (I do not think its true in retail, or in most sectors), then we should ask *why* - what are the institutional incentives that are destroying the reputation mechanism?
We must ask: (a) Why are not employees hired to do what is best for the company and held to account for it?
Maybe the liability structure is off; maybe the stockholders aren't wielding their power; maybe the pay structure is too associated with short-term gains; etc.
Then we have to ask (b): Why has the company not been held to account by its customers?
Why have not the companies that had this bad institutional framework not gone under, weeding it out. It could be because (a) the institutional structure is law, no company has a choice (b) those companies failing due to this structure were able to survive because of subsidy, bailout, or other advantage conferred by government, (c) this is the weeding out time right now ...
Posted by: liberty at Jan 9, 2009 10:52:48 AM
The linked comment repeats one of the silliest arguments made by Pluto planet proponents, a linguistic quibble, objecting to the fact that something called a "dwarf planet" is not considered a planet. Well, a "minor planet" (aka asteroid) is not considered a planet either, and astronomers have somehow managed to live with that contradiction for a very long time. In any case, this is an objection to terminology rather than an argument against the category distinction, so it's rather beside the point.
And if you insist on defining planets based on solely what they look like without taking into consideration where they orbit, you'd have to call the Moon a planet too, and a whole bunch of other satellites as well. There are seven satellites in the solar system larger and more massive than Pluto, including our own Moon.
Somehow it's just more satisfying to be able to answer the question "how many planets are there?" with "eight" rather than "who the hell knows?".
Posted by: at Jan 9, 2009 11:01:28 AM
I love Brooks. His main worries are that:
(1) Obama is deviating from "the economic doctrine that reigned up until a few months ago". Heaven forbid!
(2) Obama will be a broken president if he doesn't fix the current mess in twelve months. Newsflash to Brooks: It will take a lot more than twelve months to fix 20 years of Republican incompetence and economic boobery, which was (of course) cheered on and supported by the likes of David Brooks.
To sum up, if Brooks is against it, that is a necessary (although not sufficient) condition for the actions to be the right ones.
As a side note, I don't understand why the Republicans aren't calling for a massive war. Iraq and Afghanistan aren't the problem, it is that the Iraq and Afghanistan wars aren't big enough. To China, my hearties!
Posted by: es32 at Jan 9, 2009 11:07:28 AM
If economic freedom leads to occasional setbacks and bad outcomes and must therefore be regulated, can we make the same case against political freedom? Places like Singapore certainly do.
How should we deal with "unregulated vote-seeking individuals" aka politicians? Perhaps they need to be reined in too, lest the choices they make to benefit themselves cause harm to society.
Posted by: at Jan 9, 2009 11:11:10 AM
"But now we know better."
“We will learn an enormous amount in a very short time, quite a bit in the medium term, and absolutely nothing in the long term.” -- Jeremy Grantham
Posted by: at Jan 9, 2009 11:14:31 AM
On skepticism about fiscal policy: I keep hearing that economists have a consensus in favor, but I wonder if even a majority are in favor. A lot seem to be saying, "If we are going to have a stimulus costing $700 billion, then we ought to do it this way...", not "We ought to have a stimulus."
Feldstein favors stimulus, and old-style Keynesians, but Lucas and Mankiw do not, nor I, nor Tyler. All that the NYTimes could come up with was this:
http://www.nytimes.com/2009/01/07/business/economy/07spend.html?_r=1
Posted by: Eric Rasmusen at Jan 9, 2009 11:41:48 AM
Anonymous (two posts prior to mine) makes a great counter point.
I can certainly say that history has repeatedly shown that freely elected vote-seeking politicians have wrought just as much REAL harm (probably more) than freely "elected" (read employed) profit-seeking suits have.
Should we restrain political choice then, as you are proposing we restrain economic choice?
Posted by: Jason at Jan 9, 2009 11:48:20 AM
From the Pluto defense...
Pluto IS a planet because unlike most objects in the Kuiper Belt, it has attained hydrostatic equilibrium, meaning it has enough self-gravity to have pulled itself into a round shape. When an object is large enough for this to happen, it becomes differentiated with core, mantle, and crust, just like Earth and the larger planets, and develops the same geological processes as the larger planets, processes that inert asteroids and most KBOs do not have.
An exercise for the reader: What is the smallest object that can be called a planet by this definition? My entry is a body mostly composed of mostly depleted uranium. The density and ductility of the metal would be enough to round it out. But if it keeps itself extremely warm due to its being a natural fission reactor, then it's almost guaranteed to be round -- even if it's only a couple miles across!
Posted by: MikeP at Jan 9, 2009 12:09:15 PM
Gourmand syndrome: Utterly fascinating, and not even a hoax. Finds like this are why I love MR so much.
Posted by: Joshua Allen at Jan 9, 2009 12:13:29 PM
Regarding the stimulus, Obama is the Second Pig.
Everybody knows the story of the three little pigs. They are sent out by their mother to live on their own and become responsible pig citizens. The first pig makes his house out of straw -- quick, cheap, and easy -- then proceeds to have fun, at least until the wolf huffs and puffs and blows it all in (or down, whatever). (I'm dispensing with all discussions of hairs on chinny chin chins). The second pig (and it is unclear whether this pig first sees what happens with the first pig or is just a bit more cautious) builds his house with sticks, which would seem to offer more wolf-whistle resistance, but alas no. The third pig builds his house out of bricks, which not only withstands the wolf, but offers refuge to his risk-taking brothers.
The real idiot of this story is of course the second pig. The first pig gets something: playtime and the manifest support of his two brothers when he's in need. The third pig gets something too: the twin satisfaction of being prepared and of helping his brothers in need. But the second pig gets nothing: he takes no playtime, he gets no security. He can't even help out the first pig for very long.
The lesson: people who choose half-measures not only get nothing, they also lose the opportunity to get something. I'm a third pig who appreciates first pigs. But second pigs: ugh. Losers every one.
Posted by: HR at Jan 9, 2009 12:19:55 PM
It sounded to me like Acemoglu was partly justifying a big stimulus by saying "spend a trillion dollars in order to placate people, exercise government muscles, and protect our capitalist institutions against pitchfork-wielding mobs by showing people that someone will stick up for them."
This could be right. Psychology is the least understood of all sciences, particularly mass psychology.
However, this is very speculative, precisely because we don't understand.
There are risks of inaction and of action, and of everything in between.
We were in a similar fog before invading Iraq. The reasons had this sort of airy quality to them. "Let's invade this country because we need to teach people a lesson, and create XYZ in the middle of the Middle East, and maybe they have weapons which maybe someone would use against us."
None of those points were stupid but it was all very speculative.
I think David Brooks is right to say that hubris is the biggest concern here. Unfortunately hubris is why we shot ourselves in the foot with the invasion of Iraq. In Iraq it was "the hubris of the ballsy go-getters," in this situation it is "the hubris of the smart and careful." I prefer #2 to #1 but both are scary.
Posted by: mk at Jan 9, 2009 12:59:34 PM
On the subject of GM, being the former owner of an '89 Gran Prix & a '98 Malibu-
I know why people flock to Toyota-both of those cards were garage queens that
were history before 100,000 miles. My college friend's '75 Toyota consistently took four of us
anywhere we wanted to go, even though it had 150,000 miles on it.
I remember sitting in some strategic management B-School class in the early 90's when
GM started to notice GMAC was a BIG PART of its bottom line. The story concluded that
GM management began to debate whether they offered GMAC financing so they could sell cars or
whether they sold cars to have a reason to sell GMAC financing.
I used to think GM management was really stupid, seduced by really addled philosophizing,
but I was wrong. Apparently the value in having a financing company is the ability to get subsidies,
breaks and have the nature of your business changed because you are perceived as indispensible
to the health of the economy.
I really love the 'do something" response.
with the regulatory stroke of the pen.
Posted by: Superheater at Jan 9, 2009 1:38:28 PM
The analogy of the pigs is absolutely brilliant. I never understood why the second pig was in the story.
Posted by: Joshua Holmes at Jan 9, 2009 2:03:51 PM
If Bush failed massively because he was too gutsy and Obama fails massively [let's hope not] because he's too gutsy, does that mean we should pick presidents based on how ineffectual they seem?
Posted by: mk at Jan 9, 2009 2:18:06 PM
If Bush failed massively because he was too gutsy and Obama fails massively [let's hope not] because he's too gutsy, does that mean we should pick presidents based on how ineffectual they seem?
Posted by: mk at Jan 9, 2009 2:20:21 PM
Typepad sucks.
Posted by: mk at Jan 9, 2009 2:21:09 PM
Acemoglu (how do you pronounce his name? Ace - Magloo?) takes 13 pages when two or three pages would have sufficed. Does he believe that we have an unregulated market when the government determines the money supply, tinkers with interest rates and creates rogue entities like Fannie and Freddie? Big mistakes have been made by private actors, but they were hardly alone, and may have been misled by government actions.
Posted by: Rich Berger at Jan 9, 2009 2:23:25 PM
@Joshua Holmes: It's rhetoric. The second pig is in the story because there are almost always 3 entities in these stories: two failures (to establish the pattern, but not be too boring) followed by a success.
Posted by: ZBicyclist at Jan 9, 2009 4:38:15 PM
ZBicyclist -- indeed there are almost always three (like the three billy goats gruff) but in this case, the second pig isn't just a placeholder. He's an example of doing something halfway. But in any event, it looks like Obama is going to listen to reason and propose a Third Pig stimulus.
Posted by: HR at Jan 9, 2009 4:46:36 PM
"does that mean we should pick presidents based on how ineffectual they seem?"
Or lazy. That is why some people like Fred Thomson.
Posted by: liberty at Jan 9, 2009 4:54:41 PM
Ah-jem-ooh-loo. In Turkish it means the Persian's son.
Posted by: at Jan 9, 2009 4:55:57 PM
