Category Archives: economics

Sympathy for Scott Walker

The Milwaukee Journal-Sentinel suggests that the slow pace of job creation in Wisconsin, not recall campaign shenanigans, may be Scott Walker’s real enemy in his upcoming re-election campaign:

In each of Walker’s first three years, Wisconsin has added private-sector jobs more slowly than the nation as whole, and the gap is sizable. Wisconsin has averaged 1.3% in annual private-sector job growth since 2010; the national average has been 2.1%. Wisconsin’s ranking in private-sector job growth was 35 among the 50 states in 2011, 36 in 2012 and 37 in 2013.

Combining the first three years of Walker’s term, the state ranks behind all its closest and most comparable Midwest neighbors: Michigan (6 of 50), Indiana (15), Minnesota (20), Ohio (25), Iowa (28) and Illinois (33).

I think this is slightly unfair to Walker!  Part of the reason Michigan is doing so well in job growth since 2010 is that Michigan was hammered so very, very hard by the recession.  It had more room to grow.  Indiana’s unemployment rate was roughly similar to Wisconsin’s in the years leading up to the crash, but shot up to 10.8% as the economy bottomed out (WI never went over 9.2%.)  Now Indiana and Wisconsin are about even again.

But I do mean slightly unfair.  After all, Walker ran on a change platform, arguing that Jim Doyle’s administration had tanked the state’s economy.  In fact, Wisconsin weathered the recession much better than a lot of our neighbor states did.  (The last years Wisconsin was above the median for private-sector job growth?  2008 and 2010, both under Doyle.)   There’s some karmic fairness at play, should that fact come back to make Walker look like a weak job creator compared to his fellow governors.

 

 

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Quarreling with Cato

Last week Salon printed an excerpt from How Not To Be Wrong, in which I tweak Daniel J. Mitchell of the Cato Institute for asking the rhetorical question “Why is America trying to become more like Sweden when Swedes are Trying to be Less Like Sweden?”  I describe the vision of economics implied by the headline as “linear” (or, more generally, “monotone”)  In particular, the headline seems to take the view that smaller government is either a good thing or  a bad thing, independent of context.  If it’s good for Swedes, it’s good for us too.

 

Mitchell didn’t like what I had to say very much, accusing me of calling him a “buffoon”.  He complains that he doesn’t hold any such simplistic linear view.

 

And that’s right!  He doesn’t.  Nobody does, if they sit down to think consciously about what their views are.  But when you sit down to write a zingy headline, sometimes you just reach for something that expresses your vague rules of thumb instead of your carefully articulated beliefs.  (And yes, as a fellow blogger, I get that sometimes you stretch your point a little bit when you reach for that headline; take it from the guy who just published a piece about Berkson’s fallacy called “Why Are Handsome Men Such Jerks?”)

 

The headline makes it sound like there’s something incongruous about Sweden shrinking its government while we grow ours.  But there’s nothing strange about that at all – unless you have in mind something like the linear model that Mitchell correctly disavows.

So what is Mitchell’s actual view about the relation between Swedishness and prosperity?  He says it’s governed by something called the Rahn curve.  According to that curve, or at least Mitchell’s take on it, prosperity peaks when government spending is about 20 percent of GDP, and declines roughly linear thereafter.  As of 2012, there was only one country in the developed world, sorta-free Singapore, whose government spending was that low.  Which means that in the range occupied by countries from the United States to Sweden, from Australia to Korea, the relation between Swedishness and prosperity is more or less exactly the one I drew in the picture Mitchell objects to.  It may well be that the US government should spend less on its citizens.  But contra Mitchell’s headline, Sweden’s best course gives no guidance concerning ours.

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Guilt pangs

Not even going to link to this article but this is so magnificently dumb I had to share it with someone.

As everyone knows by now, GM’s entry into the electric car market–the Chevy Volt–costs $41,000 before tax breaks. After the tax breaks, you can happily drive one off the lot for $33,000 … if you can ignore those guilt pangs knowing your fellow Americans have chipped in $8,000 to your new ride.

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The trouble with billionaires

Cathy blogs today about the enthusiasm for billionaires displayed at the AMS public face of math panel, and her misgivings about it.  Cathy points out that, while gifts from big donors obviously accomplish real, useful, worthwhile goals for mathematics, they have a way of crowding out the public support we might otherwise have gotten, and sapping our will to fight for that support.

I think there’s an even deeper problem.  When we’re talking about putting up buildings or paying people’s salaries, we’re talking about things that require many millions of dollars, and asking:  who’s going to pay for them?  It’s not crazy that the answer “a rich person” is one of the things that comes to mind.

But when we talk about improving the public image of mathematics, we are not talking about something that automatically costs lots of money.  We’re talking about something that we can do on social media, something we can do in the newspaper, something we can — and frankly, should — do in the classroom.  Cathy describes the conversation as centering on “How can we get someone to hire a high-priced PR agent for mathematics?”  That means that the billionaire solution isn’t just crowding out other sources of money, it’s crowding out the very idea that there are ways to solve problems besides spending money.


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On Thermonuclear War

This is the world we used to live in.  Herman Kahn, one of the architects of postwar US nuclear policy, from his 1960 book On Thermonuclear War:

However, our calculations indicate that even without special stockpiles, dispersal, or protection, the restoration of our prewar GNP should take place in a relatively short time — if we can hold the damage to the equivalent of something like 53 metropolitan areas destroyed.

Reassuring!

 

 

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The Wall Street Journal‘s headline today:

TEPID JOB GROWTH FUELS WORRY:  Unemployment Rate Hits 7.8% as Economy Stays Sluggish

Doesn’t the word “hits” there kind of make you think the rate rose to 7.8%?  But no, it was 7.8% last month too, and is down from 8.5% at the end of last year.

Meanwhile, the New York Times goes with

JOB CREATION IS STILL STEADY DESPITE WORRY:  Gain of 155,000 Keeps Jobless Rate at 7.8%

which gets the constancy of the unemployment right — but “steady” alone conveys a misleadingly sunny impression.

Cheers to the Milwaukee Journal Sentinel, which rolls it pretty straight down the lane:

JOBLESS RATE STAYS PUT:  U.S. economy adds just 155,000 jobs in its 34th month of subpar growth

It’s steady and tepid!

Framing the jobs report

In defense of Nate Silver and experts

Cathy goes off on Nate Silver today, calling naive his account of well-meaning people saying false things because they’ve made math mistakes.  In Cathy’s view, people say false things because they’re not well-meaning and are trying to screw you — or, sometimes, because they’re well-meaning but their incentives are pointed at something other than accuracy.  Read the whole thing, it’s more complicated than this paraphrase suggests.

Cathy, a fan of and participant in mass movements, takes special exception to Silver saying:

This is neither the time nor the place for mass movements — this is the time for expert opinion. Once the experts (and I’m not one of them) have reached some kind of a consensus about what the best course of action is (and they haven’t yet), then figure out who is impeding that action for political or other disingenuous reasons and tackle them — do whatever you can to remove them from the playing field. But we’re not at that stage yet.

Cathy’s take:

…I have less faith in the experts than Nate Silver: I don’t want to trust the very people who got us into this mess, while benefitting from it, to also be in charge of cleaning it up. And, being part of the Occupy movement, I obviously think that this is the time for mass movements.

From my experience working first in finance at the hedge fund D.E. Shaw during the credit crisis and afterwards at the risk firm Riskmetrics, and my subsequent experience working in the internet advertising space (a wild west of unregulated personal information warehousing and sales) my conclusion is simple: Distrust the experts.

I think Cathy’s distrust is warranted, but I think Silver shares it.  The central concern of his chapter on weather prediction is the vast difference in accuracy between federal hurricane forecasters, whose only job is to get the hurricane track right, and TV meteorologists, whose very different incentive structure leads them to get the weather wrong on purpose.  He’s just as hard on political pundits and their terrible, terrible predictions, which are designed to be interesting, not correct.

Cathy wishes Silver would put more weight on this stuff, and she may be right, but it’s not fair to paint him as a naif who doesn’t know there’s more to life than math.  (For my full take on Silver’s book, see my review in the Globe.)

As for experts:  I think in many or even most cases deferring to people with extensive domain knowledge is a pretty good default.  Maybe this comes from seeing so many preprints by mathematicians, physicists, and economists flushed with confidence that they can do biology, sociology, and literary study (!) better than the biologists, sociologists, or scholars of literature.  Domain knowledge matters.  Marilyn vos Savant’s opinion about Wiles’s proof of Fermat doesn’t matter.

But what do you do with cases like finance, where the only people with deep domain knowledge are the ones whose incentive structure is socially suboptimal?  (Cathy would use saltier language here.)  I guess you have to count on mavericks like Cathy, who’ve developed the domain knowledge by working in the financial industry, but who are now separated from the incentives that bind the insiders.

But why do I trust what Cathy says about finance?

Because she’s an expert.

Is Cathy OK with this?

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Most tech writers are single but most phone buyers aren’t

Matthew Yglesias, in Slate, says you’d have to be nuts to buy a phone on a contract:

If you buy a subsidized iPhone 5 from AT&T, the cheapest plan available costs $85 per month and only comes with 1 GB of data, a minimum of $2,040 over the two years of the contract. A basic T-Mobile unlimited voice plan with 2 GB of data costs $59.99 per month, $1,440 over the two years. In order to get that $450 iPhone discount, you would end up paying $600 more to AT&T over the life of the contract, and get less data….

Of course, customers have to actually recognize that the new deal is better. The subsidy model is basically a scam, but it only arose thanks to our own collective mental failings

All this is true – if you’re buying a single phone.

Otherwise, it’s wrong.

On the basic AT&T family plan with two lines, you get your $450 subsidy on both phones, and you pay $40 for voice plus $45 per phone; so $130 a month in all.  On T-Mobile, with no annual contract, you’re paying $120 per month for your two phones; the $240 in bills you save over the life of the 2-year contract doesn’t come close to making up the money you lose by forgoing the $900 phone subsidy.  AT&T has LTE coverage in major cities already, and Verizon has even more; T-Mobile doesn’t even start building LTE until next year.  Now the T-Mobile family will have 2GB of data each, but the AT&T family will have only 1GB to share.  1GB is fine for me and my wife (I’ve never used more than 300MB in a single month) but if you want more, you can get 4GB shared between the two phones for $150 a month.  You’re still coming out ahead on money, plus you can share your 4GB of data however you like instead of splitting it 2 and 2, and you’re on a faster network.  By the way, if you want tethering on T-Mobile, you’ll have to pay extra:  on AT&T’s contract, it comes with.

The details of the AT&T family plan aren’t really the point — the point is that people who write about tech are largely drawn from the universe of young single people.  What applies to them does not apply to everyone!

 

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Ten-second tragedy

Two undergrads sitting against the wall this morning outside Ingraham Deli.

First undergrad:  “So, what are you going to do with your life?”

Second undergrad:  “Good question!  (very long pause)  I think I’m applying to journalism school?”

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Gigantic pensions are rare

From a 2010 New York Times story:

The use of public money for outsize retirement pay really stings when budgets don’t balance, teachers are being laid off, furloughs are being planned and everything from poison-control centers to Alzheimer’s day care is being cut, as is happening in New York.

According to pension data collected by The New York Times from the city and state, about 3,700 retired public workers in New York are now getting pensions of more than $100,000 a year, exempt from state and local taxes. The data belie official reports that the average state pension is a modest $18,000, or $38,000 for retired police officers and firefighters. (The average is low, in part, because it includes people who worked in government only part time, or just a few years, as well as surviving spouses getting partial benefits.)

Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.

The data do not belie anything.  If the average pension is $18,000 (the median is presumably lower still) then it should be extremely rare for anyone to be drawing above $100K.  And it is.  But “Most public pensions in New York State are quite modest” isn’t much of a headline.

Every system can be gamed.  There will always be a few public employees and CEOs who get fat pensions they don’t deserve but are contractually entitled to.  There will always be a few rich people who find legal ways to avoid paying any taxes.  By all means, be vigilant about rules and structures to reduce the number of gamers as much as you can.  But don’t expect to get it down to zero, not if you want the system to be complicated enough to do its job.

(Note:  I don’t see how 3700 people can be 1 in 250 retired public workers; there can’t possibly be almost a million retirees from state service in New York, can there?  But however many there are, 3700 is a tiny fraction of them.)

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