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Assorted links
1. Robert Fogel on health care.
2. Living wills for banks: a way out of the mess?
3. Meta-data errors in Google book search.
4. Paul Krugman: how did economists get the crash so wrong?
5. William Galston: where is the U.S. economy headed?
Posted by Tyler Cowen on September 3, 2009 at 10:14 AM in Web/Tech | Permalink
Comments
The google meta-data errors can be fixed for pennies. OCR the first few pages and extract the publishing date. The criticism is incredibly premature and shortsighted. Remember when internet tied up phone lines... how did we ever get over that?! :)
Posted by: Alex Golubev at Sep 3, 2009 10:54:16 AM
The NYT things a lot of their articles, and while I probably signed up once to read something of Tyler's, can anyone tell me if it's worth my time to read past this?
"The Great Recession was the result not only of lax regulation in Washington and reckless risk-taking on Wall Street but also of faulty theorizing in academia. Can economists learn from their mistakes?"
For example, does Krugman come out and say, "oops, I was wrong about malinvestment."
Posted by: Andrew at Sep 3, 2009 10:59:03 AM
The William Galston piece is worth reading. A sober long-term fiscal analysis from a liberal. What are the chances that liberals currently in power will heed Galston's advice?
Posted by: Kent Guida at Sep 3, 2009 11:13:48 AM
Hey Geoffrey Nunberg, it's Beta!
Posted by: mobile at Sep 3, 2009 11:20:18 AM
"The google meta-data errors can be fixed for pennies."
Then Google should probably drop a few Lincolns and fix the damn thing, right?
Posted by: Vernunft at Sep 3, 2009 11:24:32 AM
As Kent Guida concludes the Galston piece is worth reading. Galston, however, limited himself to standard macro variables. He does not take account of the great change in the US political system and the new policies that progressives are pushing through the most corrupted Congress in history. The US has become the largest member of the Union of Banana Republics--there are many examples in the past few months to argue for his membership (you can watch the latest here
http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html )
What history tells us about banana republics is that huge amounts of resources will be wasted to get favors from government and that politicians will address any financial consequences of their spending too little and too late. In the next decade, the US economy will hardly grow--I'd say that most likely in 2019 the level of GDP per capita will be the same as in 2008.
Good luck. And welcome to the club.
Posted by: E. Barandiaran at Sep 3, 2009 11:57:34 AM
What coward Krugman is. He bashes other macroeconomists for complaining that "no-one could have predicted this" and has the temerity to shake his head in faux exasperation:
"Back in 1980, Lucas, of the University of Chicago, wrote that Keynesian economics was so ludicrous that “at research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another.” Admitting that Keynes was largely right, after all, would be too humiliating a comedown.
Yet not once does he admit that the Austrians saw this coming and predicted in detail the consequence. They suffered the same marginalization Krugman heralds in his fellow Keynesians. An honest account would have taken this into consideration. But we all know that's not really the point. It's to uplift Krugman's ideology and to marginalize his foes in this opportune moment.
Remember the Austrians who called it enduring the scorn from Keynesians of all parties. They were and are the true "embattled minority" not some academic Keynesians.
"Admitting that [Mises] was largely right, after all, would be too humiliating a comedown":
http://www.youtube.com/watch?v=2I0QN-FYkpw
http://mises.org/story/3128
http://blog.mises.org/archives/010153.asp
Posted by: Bill R at Sep 3, 2009 12:10:55 PM
I am just dumb enough to think this will get some play....from the seattle times, 9/3 - "it's easy to make 100k these days; ben roethlisberger does it in 3.6 snaps, alex rodrigues does it in 6 pitches, lebron james in 21.2 minutes of play, tiger woods in 11.2 holes...the average american, nearly 4 years." according to the wsj. feedback anyone?
Posted by: hubbabubba at Sep 3, 2009 12:40:58 PM
Bill R.,
The latest count in a paper by Dirk Bezemer (google it) on 11 economists who "called it," (admittedly
with some arbitrary criteria) has been analyzed as follows by one of the ones on the list (Steve Keen):
five Post Keynesians (including Dean Baker, who might not be one), two Austrians (including Peter Schiff),
one mixture of a Post Keynesian and Austrian (yes, they exist), two "mavericks with mainstream backgrounds"
(Robert Shiller, mentioned by Krugman, and Nouriel Roubini, aka "Dr. Doom"), and one indeterminate (Fred
Harrison of the UK). For some curious reason, Krugman also failed to mention the late Hyman Minsky or
the late Charles Kindleberger (author of _Manias, Panics, and Crashes_), both of whom were far more
important in analyzing speculative bubbles and crashes than (hack, cough!), Andrei Shleifer.
Posted by: Barkley Rosser at Sep 3, 2009 2:08:44 PM
Barkley Rosser,
Any perusal of Austrian econcomics sites over the last 5 years would reveal a multitude of Austrian Economists that predicted the credit crisis. Mises.org is a good place to start.
Posted by: Yancey Ward at Sep 3, 2009 2:42:28 PM
The inclusion of Roubini in that list raises an interesting point. He was wrong for years before he was right. Is there a way to distinguish those with uncommon insight from the gratified pessimists?
Posted by: Cyrus at Sep 3, 2009 2:55:37 PM
Is the American.com site maybe overloaded by all the MR readers trying to access the Fogel article?
I offer these links for today's topics combining economic crisis and healthcare:
Warren, Elizabeth, David U. Himmelstein MD, Deborah Thorne & Steffie Woolhandler MD MPH. "Medical Bankruptcy in the United States, 2007: Results of a National Study," American Journal of Medicine, August. http://download.journals.elsevierhealth.com/pdfs/journals/0002-9343/PIIS0002934309004045.pdf
CLINICAL SIGNIFICANCE
● 62.1% of all bankruptcies have a medical cause.
● Most medical debtors were well educated and middle class; three quarters had health insurance.
● The share of bankruptcies attributable to medical problems rose by 50% between 2001 and 2007.
And the related:
Warren, Elizabeth, Deborah Thorne, Ph.D. & Teresa A. Sullivan. "Bankruptcy's Aging Population - The Increasing Vulnerability of Older Americans: Evidence from the Bankruptcy Court," 3 Harvard Law & Policy Review 87 (2009).
http://www.hlpronline.com/Vol3.1/Thorne-Warren-Sullivan_HLPR3-1.pdf
This is the first report of data collected from the 2007 Consumer Bankruptcy Project (CBP). We have analyzed the age distribution of bankruptcy filers over the past sixteen years, and we present three crucial findings. Since 1991,
• Americans age fifty-five or older have experienced the sharpest increase in bankruptcy filings;
• Americans age thirty-four or younger have experienced the greatest decrease in bankruptcy filings; and
• the influence of Baby Boomers on bankruptcy filings has moderated substantially.
The story from these data is one of rising financial risk with age. The average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages sixty-five and older has more than doubled since 1991.
Posted by: mulp at Sep 3, 2009 3:14:03 PM
Yancey and Cyrus,
First of all, there are lots more economists than are on that list of various stripes (although fewer
of the clearly conventional variety), who "called it" to some extent or other, myself included (and I am
not on that list). You have to go to Bezemer's paper to get the full criteria, which were ultimately
clearly applied in some arbitrary way. However they included a sufficient degree of publicness, having
some sort of model or more formal argument behind it, and also making some kind of timing prediction that
was not too far off.
That said, regarding the Austrians, some of them have looked like stopped clocks, basically
forecasting imminent doom at any minute for a long time(yes, I have been to the Mises site, and some of
these people look utterly ridiculous), which did not happen, year after year after year. That is the
"stopped clock is right twice a day" syndrome. Actually, it looks to me like Schiff was sort of doing
that, but he got on the list anyway. Also, many of the Misesian-Austrians stressed arguments that seem
to have little to do with what happened (collapse of housing bubble crashing world derivative markets).
Schiff did get that one right.
Regarding Roubini, both he and Baker jumped the gun by about a year, calling a major recession for
2007, based on falling housing construction. At the time they made their forecasts, I was being skeptical
because I saw the low value of the dollar likely to stimulate exports, even though I did expect that
eventually the housing bubble-derivatives market mess would bring us down (I was right and they were wrong).
But I stayed away from timing forecasts, which is at least one reason that I am not on "the list."
As for those Krugman mentions, he quotes Brad DeLong extensively, but DeLong notoriously did not
call it and long predicted that the housing bubble would not cause a problem. And citing Andrei Shleifer
on being the one who figured out that noise traders could make money, well that was not done initially
in the 1997 paper with Vishny, but earlier in several papers with Summers, DeLong, and Robert Waldmann.
And, like DeLong and Summers, Shleifer did not at all forecast what was going to happen, not at all. I
will give Krugman some credit that he at least warned about the housing bubble pretty early on.
Posted by: Barkley Rosser at Sep 3, 2009 3:47:16 PM
Here are more golden nuggets found at mises.org:
"In 1994 it was called a "revolution" when Speaker of the House, Newt Gingrich, was called a "revolutionary" when he endorsed the New Deal and Social Security, and praised civil rights legislation, i.e. the affirmative action and forced integration which is responsible for the almost complete destruction of private property rights..."
"There is no such thing as ultimate moral truths and all of our factual, empirical knowledge is at best only hypothetically true."
On university faculty: "Almost completely protected from the vagaries of consumer demand ("tenured"), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen."
"Instead of ennobling the proletarians, democracy has proletarianized the elites and has systematically perverted the thinking and judgment of the masses."
Newt Gingrich is a bleeding heart liberal to this crowd.
Posted by: Trevindor at Sep 3, 2009 3:59:43 PM
I count Krugman among those who was way too optimistic, as I have been scratching my head over his lack of criticism of the past decade of tax cuts that were supposed to bring a great bounty of economic growth, wealth, and innovation.
How is it that the growth after the crushing Bush plus Clinton tax hikes resulted in far better employment growth in the 90s than at anytime after the 2001, 2002, 2003, 2004, 2006, 2008 tax cuts? Why did it tax tax hikes in 1982, 1983, 1984... before the fall in employment after the 1981 tax cut ended?
Why did employment increase rapidly after taxes were increased in 1933 and multiple times after until rates reached 90%? Why was employment growth very strong in the 60s when taxes were much much higher than since 2001?
What I observe is a rush to proclaim the devastating consequences of tax hikes, such as the Bush and Clinton tax hikes, as leading the US into recession or at best very slow growth, yet I don't see similar criticism that argues the 1997 tax cut and Bush tax cuts since 2001 are responsible for the economic disasters of the past decade.
Krugman writes The reason, I believe, is that New Keynesians, unlike the original Keynesians, didn’t think fiscal policy — changes in government spending or taxes — was needed to fight recessions. If Krugman is right, why weren't economists attacking the reasons behind the many Bush tax cuts, all justified because they would stimulate the economy and create jobs?? Were economists willing to sellout for their self interest in "stealing from their children" as consrvatives now describe the tax cut generated deficits? How is it that Krugman can argue economists rejected deficit spending as Keynesian fairy tales without addressing the entire Bush economic policy being deficit spending economic stimulus? Just because Bush called for the government spending be done by taxpayer going out and shopping doesn't mean it isn't government spending!
I just think that Krugman doesn't want to mix it up on the economic "taxes are a deadweight loss" dogma. Why not go with the flow that we can have the free lunch of government without paying for it....
Posted by: mulp at Sep 3, 2009 4:53:44 PM
Mulp:
Government spending multiplier > 1
Bush tax cut multiplier < 1.
Also, if you remember PK's columns from this era, they were more about how the Bush administration kept changing its justification for the tax cut to fit whatever the economic situation appeared to be. Keep in mind we went through one full business cycle from 1999-2003, and the Bush admin was able to justify its tax cuts (to the ironically named deficit "hawks") through all of it. Now that's what I call leadership (even if by deception).
Posted by: Michael Lachanski at Sep 3, 2009 5:24:50 PM
Yancey Ward: The people who run the Cafe Hayek site -- Donald Boudreaux and Russell Roberts -- are Austrian economists: in all the past several years of their posts, where have they have come even close to predicting either the financial collapse or the deep recession? On the contrary, both are still, to this day, wasting valuable bandwidth posting fairy tales about the "ever increasing wealth" of the average American (see Boudreaux' latest laugh-riot: http://cafehayek.com/2009/08/americans-are-becoming-richer.html; here's Roberts' Feb 2008 embarrassment: http://cafehayek.com/2008/02/the-romance-of.html).
Their "best of all possible worlds" pro-crapitalism B.S. might keep the checks coming in from the Koch Foundation, but it makes them and their ilk no less of laughing stocks.
Posted by: Henry Blankett at Sep 3, 2009 6:05:06 PM
Robert Fogel won the Nobel Prize in Economics in 1993, and writes: Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.
So, on the one hand, Obama is wrong to argue the cost of health care is a crisis. On the other hand, conservatives are wrong to argue Obama's call for covering everyone can not be afforded. Covering everyone is key to boosting economic growth and prosperity and will lead us out of the Great Recession! So, on with a big generous health care for all program and don't worry about the cost!
Posted by: mulp at Sep 3, 2009 6:10:11 PM
Henry,
There are a couple guys down the street from me that also didn't see it coming.
Barkley,
What really counts as a stopped clock? The Austrians have been warning for years about the dangers of credit inflation- were they correct to do so or not? Exactly how many credit crises must we have in order to dispense with the "stopped clock" dismissal?
Posted by: Yancey Ward at Sep 3, 2009 7:20:05 PM
Yancey,
The problem is that they tied it to this story of everything being driven by interest rates. So, the housing bubble was due to the low interest rates in 2003-04, a period nearly everybody agrees exhibited overly expansionary monetary policy. But the data from Shiller shows the housing bubble starting in 1998. This 2003-04 stuff just goosed it up a bit more. None of the people at Mises understand what actually happened, none, including Schiff. It was not all just a matter of excessive credit, although that played a role as things built up.
The really excessive credit came from the wild leverage ratios in the derivatives market. But, again, with the exception I think of Schiff, very few of the Mises crowd were on top of that one at all.
Posted by: Barkley Rosser at Sep 3, 2009 8:59:13 PM
Tyrone called it.
http://www.marginalrevolution.com/marginalrevolution/2005/01/if_i_believed_i.html
Maybe that's why we haven't heard from him a while. He's covered his shorts and is sipping margaritas on some beach somewhere.
Posted by: Andrew at Sep 3, 2009 9:08:46 PM
Mish Shedlock called it, but he's not really an economist. John Hussman didn't call it per se, but he didn't like what was going on. I read Gary North and Mike Rozeff multiple times warning of the coming recession and retrenchment. I don't know if they qualify as economists, but I am glad I read them and wish I listened to a greater degree.
Tyler, by the way, laid a lot of blame on the market. However, part of "the market" this time was the Chinese government. With them piling on the cash, that makes it harder for people buying houses to resist the internal and external validation that they are geniuses. House prices were going up after all. I don't know if you want to call that Austrian, but I call it pretty darn obvious.
Posted by: Andrew at Sep 3, 2009 9:12:32 PM
Newt Gingrich is a bleeding heart liberal to this crowd.
Gingrich is a neo-conservative, so they're not far off.
Posted by: ziel at Sep 3, 2009 9:14:35 PM
Yancey Ward: Henry,
There are a couple guys down the street from me that also didn't see it coming.
Are they tenured professors of economics also employed by the Koch Foundation to promulgate economic propaganda? If not, what does your comment mean?
Posted by: Henry Blankett at Sep 3, 2009 10:07:20 PM
Robert Fogel's article is really terrific and Paul Krugman's overview is excellent. Both of them should be read by everyone.
Robert Fogel's article argues that there is no need to suppress the demand for healthcare.
I want to point out that this could be used to argue for single-payer too, not to mention a public insurance choice or "public option." I agree with most of his particulars.
Fogel argues that the demand for healthcare is completely predictable and that there is no need to reduce it. To put it crudely the demand is some kind of constant, plus the rate of biotechnology innovation, and it has stabilized historically at an income elasticity of demand of around 1.6, due to the productivity growth in other necessary commodities.
Demand is not the same thing as the cost of healthcare, which will go up or down depending upon other factors, and he discusses the big ones. He is careful to include reasons for downward pressure on costs: (1) "the likely downward trend in age-specific prevalence rates of chronic diseases and disabilities" and (2) that biotechnology sometimes reduces the cost of treatment and may become increasingly effective.
I think you could use this to argue for single-payer. It would be a monopsony but not the textbook kind: in this particular monopsony the true demand is growing at a constant rate, and this is not going to change.
The reason the rate of growth of demand will not change is expressed in Friedrich Hayek's argument IN FAVOR of government intervention into health insurance:
"Where, as in the case of sickness and accident, NEITHER THE DESIRE TO AVOID such calamities NOR THE EFFORTS TO OVERCOME their consequences ARE as a rule WEAKENED BY the provision of ASSISTANCE -- where, in short, we deal with genuinely insurable risks -- the case for the state's helping to organize a comprehensive system of social insurance is very strong." [my caps] Friedrich Hayek, The Road to Serfdom, pp. 120-121.
"Neither the desire to avoid, nor the efforts to overcome, are weakened by assistance."
In other words, the will of the individual is not changed in these types of cases; the intentionality does not change.
Therefore making healthcare available for all, will not change the demand for healthcare: although some of the demand is presently not fulfilled, so there is a one-time growing pain.
That's the buyer side of the monopsony. On the seller side, the firms aren't perfect substitutes for each other, or in perfect competition, as the textbook-case monopsony requires. They are either dominant in a local geography (such as hospitals) or they are actually monopolistic competitors (such as pharmaceuticals.) They aren't interchangeable and so they don't suffer a big demand restriction. In reality Big Pharma does well in socialized medicine countries.
So it would not be a monopsony, actually more like a bilateral monopoly -- in which the demand is constant, and the supply cannot be done without.
This is a system which is not going to run out of control -- and it is not a system in which price controls must lead to rationing, or to restrictions upon innovations.
Posted by: Lee A. Arnold at Sep 4, 2009 12:52:13 AM
