I have a new column on how the internet is changing the practice of economics:
Or at least it should be.
I have a new column on how the internet is changing the practice of economics:
Or at least it should be.
One Million Page Views and Round Number Bias: Earlier this week, this Conversable Economist blog reached 1,000,000 pageviews. ... Of course, being me, I can 't commemorate a landmark without worrying about it. Is focusing on 1,000,000 pageviews just another example of round-number bias? Are pageviews a classic example of looking at what is easily measureable, when what matters is not as easily measurable?
Round number bias is the human tendency to pay special attention to numbers that are "round" in some way. For example, in the June 2013 issue of the Journal of Economic Psychology (vol. 36, pp. 96-102) ,Michael Lynn, Sean Masaki Flynn, and Chelsea Helion ask "Do consumers prefer round prices? Evidence from pay-what-you-want decisions and self-pumped gasoline purchases." They find, for example, that at a gas station where you pump your own, 56% of sales ended in .00, and an additional 7% ended in .01--which probably means that the person tried to stop at .00 and missed. They also find evidence of round-number bias in patterns of restaurant tipping and other contexts.
Another set of examples of round number bias come from Devin Pope and Uri Simonsohn in a 2011 paper that appeared in Psychological Science (22: 1, pp. 71-79): "Round Numbers as Goals: Evidence from Baseball, SAT Takers, and the Lab." They find, for example, that if you look at the batting averages of baseball players five days before the end of the season, you will see that the distribution over .298, .299, .300, and .301 is essentially even--as one would expect it to be by chance. However, at the end of the season, the share of players who hit .300 or .301 was more than double the proportion who hit .299 or .298. What happens in those last five days? They argue that batters already hitting .300 or .301 are more likely to get a day off, or to be pinch-hit for, rather than risk dropping below the round number. Conversely, those just below .300 may get some extra at-bats, or be matched against a pitcher where they are more likely to have success. Pope and Simonsohn also find that those who take the SAT test and end up with a score just below a round number--like 990 or 1090 on what used to be a 1600-point scale--are much more likely to retake the test than those who score a round number or just above. They find no evidence that this behavior makes any difference at all in actual college admissions.
Round number bias rears its head in finance, too. In a working paper called "Round Numbers and Security Returns," Edward Johnson, Nicole Bastian Johnson, and Devin Shanthikumar desribe their results this way: "We find, for one-digit, two-digit and three-digit levels, that returns following closing prices just above a round number benchmark are significantly higher than returns following prices just below. For example, returns following “9-ending” prices, which are just below round numbers, such as $25.49, are significantly lower than returns following “1-ending” prices, such as $25.51, which are just above. Our results hold when controlling for bid/ask bounce, and are robust for a wide collection of subsamples based on year, firm size, trading volume, exchange and institutional ownership. While the magnitude of return difference varies depending on the type of round number or the subsample, the magnitude generally amounts to between 5 and 20 basis points per day (roughly 15% to 75% annualized)."
In "Rounding of Analyst Forecasts," in the July 2005 issue of Accounting Review (80: 3, pp. 805-823), Don Herrmann and Wayne B. Thomas write: "We find that analyst forecasts of earnings per share occur in nickel intervals at a much greater frequency than do actual earnings per share. Analysts who round their earnings per share forecasts to nickel intervals exhibit characteristics of analysts that are less informed, exert less effort, and have fewer resources. Rounded forecasts are less accurate and the negative relation between rounding and forecast accuracy increases as the rounding interval goes from nickel to dime, quarter, half-dollar, and dollar intervals."
In short, the research on round-number bias strongly suggests not getting too excited about 1,000,000 in particular. There is very little reason to write this blog post now, as opposed to several months in the past or in the future. However, I hereby acknowledge my own personal round number bias and succumb to it. ...
I was supposed to go on a three week trip tomorrow to Barcelona, Naples (actually the Amalfi coast), and Rome. But, well, fate intervened and the trip was canceled.
So I decided to go to Belize for a week or so instead. Don't ask me why I chose that location, I just did -- I needed to get a way for a bit. I leave later today.
I will blog as I can, hopefully seamlessly, but we'll see.
Spent the day in Albi, France and rented a car to go to painted caves (Grotte de Niaux) and a castle (Chateau de Montsegur) tomorrow (both were suggestions from the conference). I travel home the next day so -- though I don't usually do this -- limited blogging.
Every once in awhile I kind of need a bit of a break, so I decided to stay in Toulouse a few extra days. I ran out of energy a few weeks ago (as you may have noticed) and need to recharge so I can get back to it once I return to Eugene. I'll do my best until then, daily links at least somehow and short "echo" posts as usual, but I doubt I'll have time to say much myself -- we'll see how it goes (running out of energy plus travel also explains the lack of posts from me the last week or so, and I have quite a bit of travel yet to come this summer).
I'm reluctant to do this -- I find it really hard to back off -- and I'll probably end up posting more than I expect. Again, we'll see how it goes.
[There's a reason I haven't missed a day posting to the blog in over eight years. When I first started, I was afraid that if I missed a day new readers would bail out -- I didn't want a new reader to return the next day and and find the same posts they had already seen and conclude it wasn't a very active site -- so I made sure that didn't happen. I realize a missed day won't kill the blog at this point, but it's still important to me to keep posting every day.]
One other blogging note: I sent the first set of "whitelisted commenters" to TypePad, and they are passing them along to the service that does comment filtering for them, but I don't know how long it will take to process the list (I also sent a second list awhile ago, and will continue doing so until it this is fixed).
In a long response to my complaint about coments and the post recommending people avoid TypePad (actually two responses after (I reactred a bitr negatively to the first), I'm told it's a top priority, blah, blah, assured it's more than lip service, and that:
We're also working on integrating Disqus as an option. That will take a lot of testing but it's in progress.
Hoping we'll get that option soon (or the spam filter begins behaving).
I just let Typepad know that the comment situation is unacceptable. They need to allow me to approve commenters by IP so this doesn't happen, fix it themselves, or I am going to have to switch to a new blog provider. I can't take this much longer.
For now, if you are thinkig of starting a blog, I'd recommend something other than Typepad.
I just realesed 150+ comments trapped in spam (many were duplicates, I tried to only post the original comment when that happened).
Apologies for getting so far behind, and for the continuing problems with the spam filter.
Via Language Log:
I agree that the world is better off with more of what Ben Goldacre has called "The noble and ancient tradition of moron-baiting", and that the blogosphere, for all its many faults, is the best method so far invented for "[making] bluffing harder".
It's a comment on Paul Krugman's The Sloppiness Syndrome, though one other NY Times columnist is also mentioned:
David Brooks writes for the New York Times, as Prof. Krugman does, and his motivation for shockingly sloppy presentations of "facts" and theories is usually to reinforce an all-too-familiar point of view, like "boys and girls need to be educated differently", or "social roles are determined by 'patterns that nature and evolution laid down long, long ago'", or "Western societies have an individualist mentality and Eastern societies have a collectivist mentality", or "individualism and governmentalization are rising, and morality is declining", or some combination of the above.
I'm still not fully convinced on this point. The internet may make bluffing harder, but it also makes it easier for "bullshitting (to use the correct philosophical terminology)" to spread within conservative and/or liberal circles (which are relatively isolated). But perhaps those calling bullshit are, on average, prevailing over those spreading it -- I sure hope so.
Some of the RSS feeds in the sidebar stopped working for mysterious reasons (DeLong, Krugman, Econbrowser, Calculated Risk, Free Exchange, Environmental Economics, and a few more) -- I didn't change a thing -- and several of you have emailed/left comments wondering what happened.
United decided to delay yet another flight (grrr!!!), and it gave me some unexpected time so I fixed them. For now anyway. Let me know if the feedes stop working again.
(TypePad has a limit on how many RSS feeds you can have in the sidebar, but I found a way around it -- that may be the problem, don't know.)
In Praise of Econowonkery: ... I would say that in general the quality of economic discussion we’ve been having in recent years is the best I’ve ever seen. ...
Part of what he covers is
that we’re having a conversation in which issues get hashed over with a cycle time of months or even weeks, not the years characteristic of conventional academic discourse. ... events are moving fast, and the long lead times of conventional publication essentially guarantee that it will be irrelevant to current policy issues.
I've called this "real-time analysis" (this is from a much longer essay):
... Real-Time Analysis and Policy Prescriptions
Economic research is largely backward looking. After the fact – when all of the data has been collected and the revisions to the data are complete – economists examine data on, say, a financial crisis, and then figure out what caused the economy to become so sick. Once the cause has been determined, which may involve the construction of new theoretical frameworks, they tell us how to avoid it happening again, i.e. the particular set of policies that would have prevented or attenuated the damage.
But the internet and blogs are changing what we do, and to some extent we now act like emergency room physicians rather than pathologists who have the time to carefully examine data from tests, etc., determine what went wrong, and then recommend how to avoid problems in the future. When the financial crisis hit so unexpectedly, it was like a patient showed up at the emergency room very sick and in need of immediate diagnosis and care. We had to reach into our bag of macroeconomic models, choose the one that was correct for this question, and then use it to both diagnose the problems and prescribe policies to fix them. There was no time for a careful retrospective analysis that patiently determined the cause and then went to work on the potential policy responses.
That turned out to be much harder than expected. Our models and cures are not designed for that type of use. What data should we look at to make an immediate diagnosis? What tests should we conduct to give us data on what is wrong with the economy? If we aren’t sure what the cause is but immediate action is needed to save the economy from getting very sick, what is the equivalent of using broad spectrum antibiotics and other drugs to attack unknown problems? The development of blogs puts economists in real-time contact with the public, press, and policymakers, and when a crisis hits, traffic spikes as people come looking for answers.
Blogs are a start to solving the problem of real-time analysis, but we need to do a much better job than we are doing now at providing immediate answers when they are needed. If Lehman is failing and the financial sector is going down with it, or if Europe is in trouble, we need to know what to do right now, it won’t help to figure that out months from now and then publish the findings in a journal article. That means the discipline has to adjust from being backward looking pathologists with plenty of time to determine causes and cures to an emergency room mode where we can offer immediate advice. Blogs are an integral part of that process. ...
I am checking the spam filter as often as I can and releasing comments (I just released 10-15 that were held up this morning, and I released quite a few yesterday as well).
Apologies -- hoping the filter will learn when I move them out of the spam bin.
Bob Lawless at Credit Slips says what I was going to say:
... Our hosting service, Typepad, has tools to help us deal with the spam and recently rolled out a new service that has significantly reduced the amount of comment spam... At the same time, this new service seems to be creating false positives, at least judging by a few comments I have seen from long-time readers and regular commenters asking what happened to their comment. If the spam filter screens out a comment, it never shows up in my dashboard to allow me to "un-spam" it.
If your legitimate comment disappears, I apologize for that. You might try authenticating with a Typepad account or rewording the comment slightly. The anti-spam service is supposed to be a learning algorithm and should get better over time. ...
The forum will be streamed live at www.kauffman.org/EconBloggersLiveStream from 8:30 a.m. to 4:00 p.m. CDT.
Webcast Schedule: Economic Bloggers Forum 2013
Tentative agenda (subject to change)
Friday, April 12 (all times listed are Central Time)
8:30 a.m. Welcome by Brad Delong, Professor of Economics U.C. Berkeley and weblogger at "Grasping Reality with Both Invisible Hands"
8:35 a.m. Keynote – Economic and Financial Weblogging and the Future (Speaker: Hal Varian; Discussant Joshua Gans; Moderator, Mayor Sly James)
9:35 a.m. Break (no Webcast)
9:50 a.m. Panel discussion – Economic and Financial Weblogging, and New Modes and Orders in Education (Speaker: Clay Shirky; Discussant Ben Wildavsky; Moderator: R. Crosby Kemper III)
10:40 a.m. Break (no Webcast)
10:55 a.m. Panel discussion – Economic and Financial Weblogging and the Future and Sustainability of Financial Journalism (Panel: Cardiff Garcia, Joe Weisenthal, Allison Schrager; Moderator: Troy Davig)
11:45 a.m. Lunch (no Webcast)
12:45 p.m Panel discussion – Economic and Financial Weblogging and the Future and Sustainability of Mainstream Journalism (Panel: Bruce Bartlett; Megan McArdle; Josh Barro; Moderator: Felix Salmon)
1:35 p.m. Break (no Webcast)
1:50 p.m. Panel discussion – Economic and Financial Weblogging, Thinktanks and Policy Advocacy, and the Public Sphere (Panel: Stan Collender; Robert Litan; Sarah Kliff; Moderator: Corey Dillon)
2:40 p.m. Break (no Webcast)
2:55 p.m. Panel discussion – Economic and Financial Weblogging and Standard Ivy-Covered Academia (Speaker: Mark Thoma; Discussant Stephanie Kelton; Moderator: Bob Strom)
3:45 p.m. Closing remarks
I don't do this often, but two days ago I decided to ban two people from comments. One, Anthony Juan Bautista, is now attempting to "tattle" on me in comments and he is also impersonating many of you in numerous attempts to get his comments through (when people are banned -- I think there are five people in total who are -- they always think it's what they say, i.e. that it's political, etc., rather than how they say it, i.e. their behavior).
When he impersonates regular commentors, he says things you surely wouldn't appreciate. I was having second thoughts about banning him -- the other person was much worse, a no-brainer ban, and I was worried I might have made a mistake in my irritation at the time -- but his behavior since, the impersonation of regular commentors in particular, has convinced me the decision to ban him was correct (this post can serve as a character reference when he is Googled). If he impersonates you and I miss it when I clean his comments out, please let me know (so far, it's been cm, bakho, ilsm, paine, Emichael, Lafayette, and DrDick).
Not sure why this made me chuckle, but it did:
Trolls win: Rude blog comments dim the allure of science online, EurekAlert: The trolls are winning. Pick a story about some aspect of science, any story, scroll down to the blog comments and let the bashing begin:
- Wonder how much taxpayer cash went into this 'deep' study?
- I think you can take all these studies by pointy headed scientists, 99 percent of whom are socialists and communists, and stick them where the sun don't shine.
- Yawn. Climate change myth wackos at it again.
- This article is 100 percent propaganda crapola.
- Speaking of dolts, if you were around in the 70s, when they also had scientists, the big talk then was about the coming ice age. And don't give me any of that carbon emission bull@!$%#.
Such nasty back and forth, like it or not, is now a staple of our news diet, and in the realm of online science news, the diatribes, screeds and rants are taking a toll on the public perception of science and technology, according to a study by researchers at the University of Wisconsin-Madison. ...
UW-Madison science communication researcher Dominique Brossard reported the results of a study showing the tone of blog comments alone can influence the perception of risk posed by nanotechnology, the science of manipulating materials at the smallest scales. ...
While the tone of blog comments can have an impact, simple disagreement in posts can also sway perception: "Overt disagreement adds another layer. It influences the conversation," she explains.
UW-Madison Life Sciences Communication Professor Dietram Scheufele, another of the study's co-authors, notes that the Web is a primary destination for people looking for detailed information and discussion on aspects of science and technology. Because of that trend, "studies of online media are becoming increasingly important, but understanding the online information environment is particularly important for issues of science and technology."
As I look for something to post without being, or at least appearing, too anti-social, let me say a simple thanks to all of you.
Here's repeat from 2005:
They Held Their Noses, and Ate, by James E. McWilliams, Commentary, NY Times: No contemporary American holiday is as deeply steeped in culinary tradition as Thanksgiving. ... [It's] a feast with a narrowly proscribed list of foods - usually some combination of turkey, corn, cranberries, squash and pumpkin pie. Decorated with these dishes, the Thanksgiving table has become a secular altar upon which we worship America's pioneering character, a place to show reverence for the rugged Pilgrims who came to Plymouth in peace, sat with the Indians as equals and indulged in the New World's cornucopia with gusto. But you might call this comfort food for a comfort myth.
The native American food that the Pilgrims supposedly enjoyed would have offended the palate of any self-respecting English colonist ... Our comfort food ... was the bane of the settlers' culinary existence. Understanding this paradox requires acknowledging that there's no evidence to support the holiday's early association with food - much less foods native to North America. ... It wasn't until the mid-19th century that domestic writers began to play down Thanksgiving's religious emphasis and invest the holiday with familiar culinary values. Sarah Josepha Hale and her fellow Martha Stewarts of the day implored families to "sit down together at the feast of fat things" and raise a toast to the Thanksgiving holiday. When Abraham Lincoln declared Thanksgiving a national holiday in 1863, the cornucopia-inspired myth was, as a result of these literary efforts, in full bloom. ... [H]owever, the earthy victuals that Thanksgiving revisionists arranged on the Pilgrims' fictional table were foods that Pilgrims and their descendants would have rather avoided.
The reason is fairly simple. Hale and her fellow writers seem to have forgotten ... their Puritan forebears ... strict notions about food production and preparation. Proper notions of English husbandry generally demanded that flesh be domesticated, grain neatly planted and fruit and vegetables cultivated in gardens and orchards. Given these expectations, English migrants recoiled upon discovering that the native inhabitants hunted their game, grew their grain haphazardly and foraged for fruit and vegetables. ... [T]he English deemed the native manner of acquiring these goods nothing short of barbaric. ... They typically prepared fields by setting fire to the underbrush and girdling surrounding trees. Afterward, they planted corn, gourds and beans willy-nilly across charred ground, possibly throwing in fish as fertilizer. To the Indian women who tended the plants with clamshell hoes, the ecological brilliance of this arrangement was abundantly clear: the cornstalks stretched into sturdy poles for the beans to climb upon, the corn leaves fanned out to provide squash with shade, and the beans enriched the soil with extra nitrogen. But the English, blinded by tradition, never got it - they just looked on in horror. Where were the fences? The neat rows of cross-sectioned grain? The plows? ... The team of oxen? ... Why were perfectly good trees left to rot? ... And those fish! Why not salt them down and export them to Europe for a tidy profit? What was wrong with these people? The collective English answer - "everything" - honed the colonists' distaste for foods, especially corn and squash, that they quickly judged best for farm animals.
A similar culinary misunderstanding developed over meat. To be sure, the English frequently hunted for their meals. But hunting was preferably a sport. When the English farmer chased game to feed his family, he did so with pangs of shame. To resort to the hunt was, after all, indicative of agricultural failure... Thus the colonists reacted with extreme disapproval when they saw Indian men ... disappearing into the woods for weeks at a time to track down protein. Making the scene even more primitive was that the women who stayed behind ... toiling away at odd jobs that the English valiantly considered men's work. The elk, bear, raccoon, possum and indeed the wild turkeys that the men hauled back to the village were, for all these reasons, tainted goods reflective of multiple agricultural perversions.
They were also ... unavoidable. The methods that colonists condemned as agriculturally backwards ... became necessary to their survival. No matter how hard they tried, no matter how carefully they tended their crops and repaired their fences ... and furrowed their fields, colonial Americans failed to replicate European husbandry practices. Geography alone wouldn't allow it. The adaptation of Indian agricultural techniques ... provoked severe cultural insecurity. This insecurity turned to conspicuous dread when the colonists were mocked by their metropolitan cousins as living, in the words of one haughty Englishman, "in a state of ignorance and barbarism, not much superior to those of the native Indians." This hurt. And under the circumstances no status-minded English colonist would have possibly highlighted his adherence to native American victuals ... Indeed, it wasn't until after the Revolution, when the new nation was seeking ways to differentiate itself from the Old World, that these foods became celebrated as a reflection of emerging ideals like simplicity, manifest destiny and rugged individualism. ...
The year after Lincoln declared Thanksgiving a national holiday in 1863:
A Romney win would have provided fertile ground for econ blogging -- there were so many polices that I passionately disagree with. But even though it makes the job here a little tougher, and not quite as fun, I'll take the outcome we got. There will still be plenty to complain about in a second Obama administration, and the top priority for me is protecting social insurance programs from the cuts that the Republicans and misguided, centrist, grand bargain types on the left would like to make.
The other thing I would like to push even though it is pretty much hopeless to expect much change is our approach to fiscal policy. In deep recessions, we need it to buttress our monetary policy efforts with fiscal policy, but as it stands discretionary fiscal policy is largely dysfunctional due to the inability of Congress to agree on how to proceed (that would be easier to understand if it was simply an honest disagreement over the underlying economics, but politics -- winning the next election -- gets in the way and obstructs the ability of fiscal policymakers to respond to economic downturns).
But while discretionary policy is generally difficult to implement, and usually suboptimal when it is, another type of policy, what are known as automatic stabilizers, did much better (much of the increase in spending during the recessions was due to social programs expanding as conditions worsened). To the extent that we can shift policy from discretionary to automatic -- spending and tax cuts that kick in automatically when economic conditions deteriorate, and reverse themselves when things improve -- we would be better off.
We will worry a lot about improving the equivalent of automatic stabilizers for natural disasters in light of events like Sandy and Katrina. For example, Michael Spence could be writing about automatic versus discretionary fiscal policy instead of preparedness for national disasters:
Underinvesting in Resilience, by Michael Spence, Commentary, Project Syndicate: ... There are two distinct and crucial components of disaster recession preparedness. The one that understandably gets the most attention is the capacity to mount a rapid and effective response. Such a capacity will always be necessary, and few doubt its importance. When it is absent or deficient, the loss of ... livelihoods can be horrific...
The second component comprises investments [in automatic stabilizers] that minimize the expected damage to the economy. This aspect of preparedness typically receives far less attention. ...
Recessions like we have just been through are costly in both personal and economic terms, and we need to worry just as much about fixing fiscal policy -- both our preparedness to ease damage with automatic stabilizers and our ability to respond rapidly with additional fiscal policy measures -- as we do about preparing for hurricanes. We will likely think hard about ways to improve hurricane preparedness, but, unfortunately, there are few signs that politicians even understand what a disaster fiscal policy has been -- how much blame they should shoulder for the continuing unemployment problem for example. Since the first step in fixing a problem is recognizing you have one, I have little hope that any effort will be devoted to improving our ability to use fiscal policy to respond in deep recessions (there are ideological barriers as well, and while the mounting evidence that fiscal policy works ought to break those barriers down, that hasn't happened).
[See also: Putting Fiscal Policy on Autopilot, a column I wrote on this in late 2010.]
The last comment I can find from anne is 2:46 pm (11:46 am EST) on October 29. That's the day Hurricane Sandy hit.
It seems like she's been here longer than I have. Hope to hear from her again soon.
This can't be right -- I don't trust the ranking -- but I can't help but be amused at being ranked ahead of CNN's Political Ticker (and just behind The Caucus at the NYT). According to the Technorati Top 100:
One more quick one. Acemoglu and Robinson respond to a recent post that appeared here (and posts by others too, their point three responds to my comments):
Economic Research vs. the Blogosphere: Our new working paper, co-authored with Thierry Verdier, received an unexpected amount of attention from the blogosphere — unfortunately, most of it negative. The paper can be found here, and some of the more interesting reactions are here, here and here . A fairly balanced and insightful summary of several of the comments can be found here.
We are surprised and intrigued. This is the first time, to the best of our knowledge, that one of our papers, a theoretical one at that, has become such a hot button issue. Upon reflection, we think this says not so much about the paper but about ideology and lack of understanding by many of what economic research is — or should be — about. So this gives us an opportunity to ruminate on these matters. ...[continue reading]...
A few thoughts:
I started this blog a few months after George Bush was reelected (March 6, 2005). There was more than one motivation behind the choice to start a blog, but a key factor was the way in which liberal/progressive ideas were presented in the media prior to the election, particularly on television. The presentation of economic issues was abysmal, and the people the news shows chose to invite onto their programs were far to the left of what I thought of as the typical Democrat. More importantly, the people representing Democrats on news and talk shows were unable to articulate the economic reasoning behind many of the Democrat’s proposals and ideas. When Social Security was targeted as a socialist redistribution scheme, for example, and George Bush pushed privatization, the people speaking for Democrats were unable to explain Social Security’s role as social insurance rather than a purely redistributive scheme, and they were unable to articulate the market failures that underlie the need for the government to take an active role in these markets.
For one, as an economist, I wanted people to know that Democrats are not opposed to markets. The vast majority of us are not a bunch of socialists waiting for our chance to overthrow the system. In fact, at least from my perspective, we wanted to fix the market failures so that markets actually work in the best interests of society as a whole, not just the privileged few. We were trying to make the system work better through institutional and regulatory reform that improves markets, to come as close as we can to the ideal markets in our textbooks, not overthrow the capitalist system.
But that, and other messages such as the economic underpinnings of social insurance never got through. The people chosen by the networks to be the spokespeople for the Democratic Party were, I thought, generally far to the left -- extremists if you will -- who didn’t represent what I believed at all. I can remember watching CNN one day before the election and thinking that if I was an independent voter presented with this description of what the Democratic Party stands for, I’d be wary about signing on. It was really frustrating irritating to see this happening, and I can also remember writing Brad DeLong and Paul Krugman and telling him how jealous I was that they had a way to make their voices heard.
My response – my attempt to add my voice however small it might be – was to write several letter to the editor to the local paper. When that wasn’t enough I wrote three op-eds, then one day I started a blog. Somebody had to take the initiative, I thought, and if everyone free rides waiting for others to do it, it won’t happen. (To give you an idea of the scale of my expectations for this blog, I initially hosted all the external content – graphs, etc. – on my desktop internet server which maxed out at 10 simultaneous connections. The first time someone linked to me, it overwhelmed my PC and I had to scramble to move the content to a real server. I never expected that anyone would pay much attention to the blog, though I suppose I had hopes.)
My views have evolved since then. I’m not as much of a Clinton type deficit hawk as I was then, for example, I am somewhat more receptive to redistributive policies that go beyond correcting for the effects of market failures and unequal opportunity, and I have a lot more sympathy for the views of what I used to call extremists, especially with regard to the distorting influence of political power. When I started doing this, I was pretty naïve in many, many ways (and still am).
I suspect there are Republican economists who are having much the same reaction I had eight years ago. How, they must be wondering, did the Tea Party come to represent the Republican Party? Why do news organizations choose to only interview the extremists and ignore the more moderate, reasonable voices that actually represent our views? I thought the news media was biased in its choices back then and I can understand how Republicans must think that today. Those damn producers are choosing the loudest, most entertaining of the lot I’d tell myself, and those choices are distorting the Democratic Party’s views! (This was in addition to other biases I could see, e.g. reporting about Bush.) The only solution, as far as I could tell anyway, was for people with different views to do everything in their power to be heard.
I hope there are Republican economists (and others within the Republican Party) having the same reaction I had. The push to extremism is even more pronounced in the Republican Party, and it's far more mainstream relative to what I (at least thought) I faced. I wish these voices on the right had spoken up already, but it will probably take a loss to bring them to action. I know I couldn’t understand how anyone could lose to Bush, to Bush!!!!???, and it took a loss to get me to become more active. So I can't blame the moderate voices on the right too much for not doing more to blunt the extreme voices that now dominate the Republican Party (though, again, the Republican extremism has been more extreme). For me, the loss was the motivation I needed. With the economy in the shape it’s in, Republicans must be (and are) saying the same thing about Obama. How can anyone lose to him under these circumstances? If they lose – it’s not assured yet by any means that they will – some of the more reasonable voices may blame the influence of the Tea Party and be motivated to try to change how the world sees a typical member of the Republican Party.
I hope they do, and that they are successful. We have a mixed economy and that is not going to change. Some parts are left to the private sector, at least for the most part, and in other areas there is a strong government presence. We need a healthy, robust debate about where the lines ought to be drawn between the public and private sectors, and how best to regulate the economy when the government does intervene. We also need debates on how to conduct countercyclical fiscal policy, something Republicans have always supported in the past in one form or another, we need more sensible Republican voices when it comes to monetary policy, and we need a discussion of social insurance that doesn't have one-side calling for its annihilation. There are all sorts of questions that call for a debate at the margins rather than posturing at polar extremes, and I would welcome a healthier discussion of these issues.
Short travel day by train. Next stop: Lindau, Germany for this year's Lindau Nobel Laureate Meeting dedicated to Physics.
Here's the program for the firsmorning:
09.00 Plenary Lecture Main Hall
Brian P. Schmidt: Observations, and the Standard Model of Cosmology
09.30 Plenary Lecture Main Hall
John C. Mather: Seeing Farther with New Telescopes
10.00 Plenary Lecture Main Hall
George F. Smoot: Mapping the Universe in Space and Time
11.00 Plenary Lecture Main Hall
Paul J. Crutzen: Atmospheric Chemistry and Climate in the Anthropocene
Mario J. Molina
The Science and Policy of Climate Change
12.00 Plenary Lecture Main Hall
Ivar Giaever: The Strange Case of “Global Warming”
12.30 Plenary Lecture Main Hall
Hartmut Michel: Photosynthesis, Biomass, Biofuels: Conversion Efficiencies and Consequences
I'm particularly interested in the sessions on climate change.
Bryan Caplan is tired of being sneered at by "high-status academic economists":
The Curious Ethos of the Academic/Appointee, by Bryan Caplan: High-status academic economists often look down on economists who engage in blogging and punditry. Their view: If you can't "definitively prove" your claims, you should remain silent.
At the same time, though, high-status academic economists often receive top political appointments. Part of their job is to stand behind the administration's party line. They don't merely make claims they can't definitively prove; to keep their positions, appointees have to make claims they don't even believe! Yet high-status academic economists are proud to accept these jobs - and their colleagues admire them for doing so. ...
Noah Smith has something to say about "definitive proof":
"Science" without falsification is no science, by Noah Smith: Simon Wren-Lewis notes that although plenty of new macroeconomics has been added in response to the recent crisis/depression, nothing has been thrown out...
Four years after a huge deflationary shock with no apparent shock to technology, asset-pricing papers and labor search papers and international finance papers and even some business-cycle papers continue to use models in which business cycles are driven by technology shocks. No theory seems to have been thrown out. And these are young economists writing these papers, so it's not a generational effect. ...
If smart people don't agree, it may because they are waiting for new evidence or because they don't understand each other's math. But if enough time passes and people are still having the same arguments they had a hundred years ago - as is exactly the case in macro today - then we have to conclude that very little is being accomplished in the field. The creation of new theories does not represent scientific progress until it is matched by the rejection of failed alternative theories.
The root problem here is that macroeconomics seems to have no commonly agreed-upon criteria for falsification of hypotheses. Time-series data - in other words, watching history go by and trying to pick out recurring patterns - does not seem to be persuasive enough to kill any existing theory. Nobody seems to believe in cross-country regressions. And there are basically no macro experiments. ...
So as things stand, macro is mostly a "science" without falsification. In other words, it is barely a science at all. Microeconomists know this. The educated public knows this. And that is why the prestige of the macro field is falling. The solution is for macroeconomists to A) admit their ignorance more often (see this Mankiw article and this Cochrane article for good examples of how to do this), and B) search for better ways to falsify macro theories in a convincing way.
I have a slightly different take on this. From a column last summer:
What Caused the Financial Crisis? Don’t Ask An Economist, by Mark Thoma: What caused the financial crisis that is still reverberating through the global economy? Last week’s 4th Nobel Laureate Meeting in Lindau, Germany – a meeting that brings Nobel laureates in economics together with several hundred young economists from all over the world – illustrates how little agreement there is on the answer to this important question.
Surprisingly, the financial crisis did not receive much attention at the conference. Many of the sessions on macroeconomics and finance didn’t mention it at all, and when it was finally discussed, the reasons cited for the financial meltdown were all over the map.
It was the banks, the Fed, too much regulation, too little regulation, Fannie and Freddie, moral hazard from too-big-to-fail banks, bad and intentionally misleading accounting, irrational exuberance, faulty models, and the ratings agencies. In addition, factors I view as important contributors to the crisis, such as the conditions that allowed troublesome runs on the shadow banking system after regulators let Lehman fail, were hardly mentioned.
Macroeconomic models have not fared well in recent years – the models didn’t predict the financial crisis and gave little guidance to policymakers, and I was anxious to hear the laureates discuss what macroeconomists need to do to fix them. So I found the lack of consensus on what caused the crisis distressing. If the very best economists in the profession cannot come to anything close to agreement about why the crisis happened almost four years after the recession began, how can we possibly address the problems? ...
How can some of the best economists in the profession come to such different conclusions? A big part of the problem is that macroeconomists have not settled on a single model of the economy, and the various models often deliver very different, contradictory advice on how to solve economic problems. The basic problem is that economics is not an experimental science. We use historical data rather than experimental data, and it’s possible to construct more than one model that explains the historical data equally well. Time and more data may allow us to settle on a particular model someday – as new data arrives it may favor one model over the other – but as long as this problem is present, macroeconomists will continue to hold opposing views and give conflicting advice.
This problem is not just of concern to macroeconomists; it has contributed to the dysfunction we are seeing in Washington as well. When Republicans need to find support for policies such as deregulation, they can enlist prominent economists – Nobel laureates perhaps – to back them up. Similarly, when Democrats need support for proposals to increase regulation, they can also count noted economists in their camp. If economists were largely unified, it would be harder for differences in Congress to persist, but unfortunately such unanimity is not generally present.
This divide in the profession also increases the possibility that the public will be sold false or misleading ideas intended to promote an ideological or political agenda. If the experts disagree, how is the public supposed to know what to believe? They often don’t have the expertise to analyze policy initiatives on their own, so they rely on experts to help them. But when the experts disagree at such a fundamental level, the public can no longer trust what it hears, and that leaves it vulnerable to people peddling all sorts of crazy ideas.
When the recession began, I had high hopes that it would help us to sort between competing macroeconomic models. As noted above, it's difficult to choose one model over another because the models do equally well at explaining the past. But this recession is so unlike any event for which there is existing data that it pushes the models into new territory that tests their explanatory power (macroeconomic data does not exist prior to 1947 in most cases, so it does not include the Great Depression). But, disappointingly, even though I believe the data point clearly toward models that emphasize the demand side rather than the supply side as the source of our problems, the crisis has not propelled us toward a particular class of models as would be expected in a data-driven, scientific discipline. Instead, the two sides have dug in their heels and the differences – many of which have been aired in public – have become larger and more contentious than ever.
Finally, on the usefulness of microeconomic models for macroeconomists -- what is known as microfoundations -- see here: The Macroeconomic Foundations of Microeconomics.
Just a quick note. I have a somewhat brutal travel schedule the next few days, and when all is said and done, I ought to be in Nairobi, Kenya:
IRP’s International Bloggers Take on Reproductive Health in Kenya: Twelve international bloggers have been selected to report on pressing issues of reproductive health and population in Kenya this month.
In an exciting new global initiative, the International Reporting Project (IRP) is taking a group of 12 influential bloggers from around the world to Kenya on June 17-26 for an in-depth examination of reproductive health and population issues in that East African country.
Watch the IRP website for regular updates from the bloggers, and follow them on Twitter as they recount their impressions and observations of Kenya. This is the first time in its 15-year history that the IRP is taking a group of new media journalists from different countries around the world to focus on a specific global issue. The 12 bloggers come from eight countries and represent a unique diverse set of specialties – including religion, ethics, culture, economics and gender issues in the developed world. In an intensive schedule that will take them to three different regions of Kenya, the bloggers will talk to Kenyan parents and children, health officials, rural and urban citizens and experts on gender, religion and ethics. Kenya’s population is expected to double by 2040 and the country faces major health challenges, urban migration and environmental pressures caused by this rapidly growing population. [list of participants]
They know that I am not an expert on women's reproductive health issues, though I will talk about related economic issues, but my main focus will be on economic problems in Kenya (I already have around 10 background posts set to go). And no, you aren't the first person to make an Obama joke.
After that, I'm going to this year's Nobel meetings in Lindau, Germany (the meetings bring Nobel laureates together with 500-600 graduate students from around the world). I'll stop over in Zurich for three days first, but since I was going through Zurich anyway on the way back from Kenya, I figured why not go to Lindau too -- it isn't very far away. I went last year when the topic was economics, but this year the Nobel winners are from chemistry and physics. Since it isn't economics I was surprised to be invited, and had to be accredited as press to get in (ha, I was), but there are issues related to economics, e.g. global warming that I want to cover. But mostly I'm looking forward to hearing talks on something other than economics. It will be a nice break, and for the most part I have no idea what I'll be hearing (or writing about).
Then, home for 4 days and off to Boston for an NBER meeting, and some other stuff. Finally home in late July.
I am going to do my best to keep up with the blog. I have at least two posts already loaded for each day of the time I'll be in Kenya, we have been promised internet access daily and some blogging time (though nothing like usual -- withdrawals!), and I have an unlocked iPhone that I hope to load with a sim chip and tons of prepaid data (from Safaricom). We'll see how that goes, but if it works I can (fingers crossed) tether to my computer and have fairly good internet access. But I have no idea what's ahead, and I hope you will understand if I am not able to keep up with links in particular on the usual, regular schedule. I'll try, but realistically it will be hard.
I never would have guessed that an economics blog would bring so much travel.
Modeled Behavior has moved to Forbes, so I guess I should say that I have a blog there too. But I am not moving the blog, and no content will appear on the Forbes site that doesn't also appear here. My plan is to repost a small subset of the things that are posted at this blog each month, and nothing more (they are fully aware of my plans).
I have had many offers to move the blog over the years, and the first few were tempting (I think the Big Think was the first). However, though one should never say never, it's not moving. It took years of long, hard days to build this up to whatever meager status it might have attained (I try not to fool myself about how much influence it actually has), and I am not going to put that at risk by moving it somewhere else.
I could probably make a bit of money by moving, and I could also make quite a bit simply by pushing traffic to the Forbes blog. So if you want to show up there, interact in the comments thread, whatever, great. I'll make the most by far if you return a second time. But I am not going to do anything to encourage such behavior.
(On other outlets -- I don't make a dime more or less based upon traffic for my Fiscal Times columns, but they ask me not to reprint the columns on my blog and I honor that -- so not printing them here, except with a lag for the ones I think you'll be interested in, has nothing to do with making money for myself. I do get paid based upon traffic to the CBS stories I write, though not that much, and they have never protested when I reprint them here -- they have a huge traffic base to draw from already. So I try to dual post CBS stories whenever I think the story will be of interest. There are times when I don't post the whole story, just the title and a link, but that's usually when I write about something the editors suggest rather than something of my own choice, and I don't think there will be a lot of interest here.)
More generally, I could probably make a bit of spending money each month by placing ads on my blog. But I haven't done that, and I have no plans to do so. Why? Several reasons. For one, the state of Oregon pays me to educate the public (the education mission does not end with students, it's much more general than that, something too few professors understand). So I already get paid to do this. I suppose I should try to make enough to cover blog hosting fees, all the magazine and newspaper subscriptions I've added, and so on -- to at least break even -- but I haven't done that (and there are plenty of other perks, e.g. I'll be traveling to Kenya in a couple of weeks for a 10-day visit to report on economic conditions, we'll travel to quite a few areas of the country, more on this soon, and then on to this year's Nobel meetings in Lindau, Germany for a week all because of the blog -- and the costs are mostly covered by others so I have nothing to complain about).
But the fact that I am already paid to educate the public, and get credit from the Department and University for doing so, is not the biggest reason for the no-ads approach. Economists talk about incentives and how they affect behavior, and ads push me in directions I'd rather not go. As soon as I start trying to maximize monetary gains rather than maximizing education, it changes the posts -- the incentives are not well aligned. I become shriller, I find myself tempted by things that will attract lots of eyeballs even if they aren't as solid as they might be, and so on. It changes the posts in ways I don't want them to change, so it's best that I leave that temptation lying on the table (though I am far from perfect). Brad DeLong told me something important when I started -- don't write to your sitemeter. Check it once a week if you must (he suggested Saturday), but don't get trapped into writing to the ebb and flow of traffic or it will drive you nuts. Instead, write what you know best, that's what people want to read. It was great advice, at least for me. I follow inbound traffic closely -- where people are coming from -- but I haven't looked at daily traffic numbers for several years. I still have pretty good idea of what they are, but it's a bit vague and that is best for me.
Since I'm at this, one more thing. This blog has no color, it's blue and white mostly, there's a ton of wasted space in the header, etc., and every so often I think I should do a big redesign. However, I don't because I'm worried about changing from a somewhat colorless, dumpy looking blog would change its identity. I want it to look like what it is, a professor with a blog who is trying to help people understand economics and policy. It's not intended as a flashy, commercial, money-making device and giving it that look may rebrand it in a way that is harmful. So I haven't done much to add color and flare to the design (though I am still thinking I ought to try to make a few changes if I can ever find the time, but it's working as it is, pretty much, so why change?).
Finally, the blog at Forbes has been ready for a few days, but I haven't posted anything there yet (here's the address: http://blogs.forbes.com/markthoma/ ). I suppose I should let you know when I do post something, and if you want to click through and take a look, great. If not, you won't miss a thing. The reason I said yes is very simple to explain -- I saw it as a chance to extend the reach of the blog to more people. That's why I am only interested in reprinting content from here (and also why I allow the rss feed to be used freely by SeekingAlpha and RGE type aggregators). It allows me to potentially reach a few more people, and not necessarily be preaching to the already converted, which is important, without changing anything that I do here. The last thing I want to do is to make a move that might undermine Economist's View in any way whatsoever, and I hope this approach will meet that non-negotiable condition.
I'm not sure I see the connection, but when you blog they ask you to be in the course catalog:
I really wish I'd brought a smaller computer along when they shot the picture. That thing is huge. If the message is supposed to be "look how connected we are here at the UO," that computer sends the opposite message.
Friday, March 30, the Kauffman Foundation is hosting the fourth annual Economics Bloggers Forum in Kansas City, MO. Check back here at growthology.org for a live stream of the event starting around 8:30 AM. There will be presentations from some of your favorite bloggers. An agenda follows below. [agenda]
Here are 20 that come to mind:
Free trade is good.
Economics is a science.Climate change is real and it's caused by humans.
The Fed deserves a pat on the back.
Immigration is good.
Reagan and Bush were right all along.
Iraq, Afghanistan, Egypt, Libya.
Trade with China benefits low income households.
There's no need to worry about the national debt.
Healthcare is better in Europe.
Bike lanes impede the free movement of cars.
Sweatshops are better than nothing.
Nobody could have predicted the bubble.
Tax cuts are the answer to almost everything.
Gold is not the answer to anything.
We need big banks.
The rich deserve their incomes.
Comments on this, anonymous or otherwise?:
Where Anonymity Breeds Contempt, by Julie Zhou, Commentary, NY Times: There you are, peacefully reading an article or watching a video on the Internet. You finish, find it thought-provoking, and scroll down to the comments section to see what other people thought. And there, lurking among dozens of well-intentioned opinions, is a troll. ...
Trolling, defined as the act of posting inflammatory, derogatory or provocative messages in public forums, is a problem as old as the Internet itself, although its roots go much farther back. Even in the fourth century B.C., Plato touched upon the subject of anonymity and morality in his parable of the ring of Gyges.
That mythical ring gave its owner the power of invisibility, and Plato observed that even a habitually just man who possessed such a ring would become a thief, knowing that he couldn’t be caught. Morality, Plato argues, comes from full disclosure; without accountability for our actions we would all behave unjustly.
This certainly seems to be true for the anonymous trolls today. ...
Some may argue that denying Internet users the ability to post anonymously is a breach of their privacy and freedom of expression. But until the age of the Internet, anonymity was a rare thing. When someone spoke in public, his audience would naturally be able to see who was talking. ...
Content providers, stop allowing anonymous comments. ... In slowly lifting the veil of anonymity, perhaps we can see the troll not as the frightening monster of lore, but as what we all really are: human.
I've decided it's time to declare comment amnesty. All blocks, etc. are removed. Clean slate. I do this about once a year, though this is the first time I've noted it here.
I don't really have a formal comment policy. It's mostly discretionary. I read them as much as I can, and delete the ones I think should be deleted. But if I had to describe it, it's something like this:
I do all of the comment monitoring, and I sometimes I don't have time to do anything but scan through them fast and make quick, on the fly decisions (and there are times, like last week, when I don't get to them at all for several days -- still catching up on those). I'm sure I don't always get it right. I sometimes miss the context and misinterpret comments, and it's not always consistent. Things that get deleted one day might not on another. I try to guard against that, but I have my grouchy, intolerant days just like everyone else. There have been more than a few occasions when I've overreacted and regretted it later, and probably an equal number where I've underreacted. I do my best. It won't be perfect.
I dislike it when the very first comment on a post sets the wrong tone or sends the conversation in the wrong direction. So comments higher in the comment stream where they have a large impact on how the conversation proceeds, the first in particular, get more scrutiny. That's especially true if it's a post that took a lot of effort and is trying to explain something I think is important.
All comments about the comment policy are deleted. If you have something to say about that, send me an email.
There are some things that are simply out of bounds. The bounds are pretty loose, but they do exist.
I wish I could do more to manage comments, but I can barely keep up as it is.
I sometimes react negatively to pot shots at economics or economists. Not always -- context matters -- but sometimes I do.
Sometimes, and this happens on those grouchy, intolerant days in particular, I simply have a negative reaction to a comment, get mad, and delete it. Those are the ones I'm most likely to regret. I do try to catch myself, but don't always manage to do so. Some people rub me the wrong way too.
When guests post at my site, colleagues, etc., I am far less tolerant.
There are two reactions to getting a comment deleted. One is to try again after rewriting to tone things down, and I don't usually have any trouble after that. They get the message and that's that. The other is to protest loudly by various means, often email or another comment, and keep it up until I'm forced to block them altogether. It generally ends up that way. Having to deal with the few people who can't control themselves in commets is, to me, the very worst part of blogging. Some days, I can hardly read comments because I dread having to deal with the few that go to these extremes. And some days I don't read them for just that reason.
The best way to get a comment deleted is to misrepresent something I say in a post, and then attack me for it. In general, I don't see any reason why I should tolerate getting trashed on my own site. There are ways to disagree without doing that.
I sometimes delete comments that make false claims or link to sites I cannot, in good conscience, send people to. When you put links to those sites in your comments, they are likely to get deleted. False and misleading claims are sometimes deleted too, especially when they are used to try and counter a point I think is important (or when is the first comment on a post).
I do the best I can, but I can't check every word of every comment.
I used to send emails to people when I deleted comments, and I sometimes still do. But they mostly turn out to be fake emails, that appears to be highly correlated with getting a comment deleted, and it just brings a flaming email in return. So I mostly stopped bothering.
When fights break out in comments, and it seems to be interfering with the conversation, gets personal, etc., I am likely to delete the entire set of comments.
People who have been here a long time are given more leeway when they occasionally step over the line. There are a couple of people who have been here almost from day one, when they were, pretty much, the only ones on the site. They stuck around, kept the conversation going, and helped to build the site. They are more part of the site than visitors to it.
I don't delete as many comments as this post makes it seem, it's really not that many (excluding the never ending battle aganst spam which brings multiple deletions daily).
I'd hoped the comments under the daily links posts would be a way for people to pass on links I might have missed. People do add quite a few links (thanks), but mostly people treat these like open threads. Works for me. That's a good place to take off topic comments or conversations.
You are always welcome to get your own blog -- they're free at Google -- where you can say whatever you want without the worry that some unfair, grouchy, intolerant, ideological tyrant might not to allow your brilliant takedown comment to stay. That would be your blog, this is mine, and I will run it as I think is best. You can run yours as you think is best.
All of the rules I forgot to mention or haven't thought of yet are in force.
Most of you are great. Please keep commenting.
I expect it won't take long for some of you to get back on the banned list -- the same behavior will produce the same outcome -- but perhaps I misjudge. Hope so. I'll try to be tolerant, but there are limits.
I will probably regret this post.
I'm a little bit behind today. The reason is that I redid the "Tweet" link at the bottom of each post. I had been using the code that TypePad offers for advanced templates, but the code is faulty is two ways. First, it doesn't shorten URLs so most of the tweet is the address rather than the text. Because the URLs are generally relatively long, the tweets were essentially missing the post titles and were not very informative as to content. Second, if the address happened to be longer than 140-3=137 characters, as they can be easily under TypePad's address system, the code would truncate the URL making it dysfunctional. A tweet that has only part of the address isn't very useful.
I let TypePad know about this on several occasions, even tried to embarrass them by asking why they left faulty code up after being informed about it, but they basically said they didn't care. It's annoying. This isn't a problem with TypePad's standard templates, only advanced templates, and as I've explained to them, the fix is relatively easy if you have access to the internal database that holds the shortened codes (which are generated automatically if you send posts to Twitter, as I do).
The bottom line is that I can no longer recommend TypePad for people who plan to use advanced templates. There are other bits of code they offer that don't work either (e.g. the pictures for the social media buttons). I've informed them, but nothing happens. It's pretty clear that they have no intention of giving advanced templates the same level of support that they give standard templates. It's also pretty clear that they don't much care about code that doesn't work. That wasn't always true, but it is now.
TypePad used to be very good at their advanced template support. Unfortunately, instead of concentrating on their core business, blogging, they are trying to be Facebook and Twitter by adding things that are poor imitations of what Twitter and Facebook can do. So long as they try to be what they aren't, a social media provider rather than a blogging service, their core business will continue to suffer. Too bad, I used to recommend TypePad highly.
Andrew Gelman responds to Rajiv Sethi:
I suspect that within a decade, blogs will be a cornerstone of research in economics. Many original and creative contributions to the discipline will first be communicated to the profession (and the world at large) in the form of blog posts, since the medium allows for material of arbitrary length, depth and complexity. Ideas first expressed in this form will make their way (with suitable attribution) into reading lists, doctoral dissertations and more conventionally refereed academic publications. And blogs will come to play a central role in the process of recruitment, promotion and reward at major research universities. This genie is not going back into its bottle.
And he thinks this is a good thing:In fact, the refereeing process for blog posts is in some respects more rigorous than that for journal articles. Reports are numerous, non-anonymous, public, rapidly and efficiently produced, and collaboratively constructed. It is not obvious to me [Sethi] that this process of evaluation is any less legitimate than that for journal submissions, which rely on feedback from two or three anonymous referees who are themselves invested in the same techniques and research agenda as the author.
I don't disagree with these sentiments, although I do think that, if blogging every becomes important in statistics, it will come much slower than in economics, political science, computer science, or even mathematics. Blogging has been big since 2003... But in all these years, very few statistics blogs have achieved much attention.
Sethi points out that, compared to journal articles, blog entries can be subject to more effective criticism. Beyond his point (about a more diverse range of reviewers), blogging also has the benefit that the discussion can go back and forth. In contrast, the journal reviewing process is very slow, and once an article is published, it typically just sits there. I personally like to publish discussion papers (that is, articles where others discuss and then I write a rejoinder), but most published journal articles don't have that format. (In that way, statistics may be better than economics. The field of statistics appears to accept that articles are attempts rather than realizations of perfection, whereas my impression is the economists worship at the altar of the "home run," the article that is such a perfect jewel that it is beyond criticism.
Can/should the blogosphere replace the journal-sphere in statistics? I dunno. At times I've been able to publish effective statistical reactions in blog form (see, for example, my skepticism about reported statistical significance in a brain-scan study) or to use the blog as a sort of mini-journal to collect different viewpoints (for example, our discussion with Pearl, Dawid, and others on causal inference). And when it comes to pure ridicule (I think you know who I'm thinking of here), maybe blogging is actually more appropriate than formally writing a letter to the editor of a journal.
But I don't know if blogs are the best place for technical discussions. This is true in economics as much as in statistics, but the difference is that many people have argued (perhaps correctly) that econ is already too technical, hence the prominence of blog-based arguments is maybe a move in the right direction. Even technical types such as Paul Krugman and Greg Mankiw have become much more talky and less algebraic as bloggers than as authors of journal articles.
Statistics, though, is different. Setting aside debates about whether Ph.D. students in statistics should learn the strong law of large numbers (I think you can guess my position on that one), even the applied stuff that I do is pretty technical--algebra, calculus, differential equations, infinite series, and the like.
Can this sort of highly-technical material be blogged? Maybe so. Igor Carron does it, and so does Cosma Shalizi--and both of them, in their technical discussions, clearly link the statistical material to larger conceptual questions in scientific inference and applied questions about the world. But this sort of blogging is really hard--much harder, I think, than whatever it takes for an economics professor with time on his or her hands to regularly churn out readable and informative blogs at varying lengths commenting on current events, economic policy, the theories of micro- and macro-economics, and all the rest.
I think few will disagree that the most effective statistics blogging, by a longshot, has been Nate Silver's polling and election analysis on fivethirtyeight.com. Here, Nate and I have actually published a couple of journal articles based on material related to the blog, but (a) the journal articles are quite a bit more technical than the blog entries, and (b) as journal articles, they don't represent major research efforts--rather, they fall into the "fun applications" category. Ultimately, Nate's blogging succeeds because it is news, not because of its research content. From another direction, I think Scott Sumner's econ blogging succeeds because it is well-written and because it supports a fiscally-conservative position that many people want to hear. Krugman's blog works because it's linked to a popular New York Times column and he takes a strongly partisan political stance, and Levitt and Dubner's blog succeeds along the same lines as Cowen and Tabarrok's--readers are getting a mix of news, provocation, and bite-sized analyses. All of these play important roles, but not quite the roles of journal articles.
On the other hand, the current system of scientific journals is, in many ways, a complete joke. The demand for referee reports of submitted articles is out of control, and I don't see Arxiv as a solution, as it has its own cultural biases. I agree with Sethi that some sort of online system has to be better, but I'm guessing that blogs will play more of a facilitating informal discussions rather than replacing the repositories of formal research. I could well be wrong here, though: all I have are my own experiences, I don't have any good general way of thinking about this sort of sociology-of-science issue.
Going back to the subject of modern macro and who should talk about it, and more particularly, the nature of discourse, I've been surprised to hear some critics of New Keynesian models -- those who have been quite critical of the discourse of their intellectual opponents -- explain that it's OK for them to be shrill, call the other side names, and so on because, you know, they're right and the other side is wrong. But I am going to leave that alone and try to turn the conversation elsewhere.
Rajiv Sethi says economics blogs are here to stay, and that's a good thing:
On Blogs and Economic Discourse, by Rajiv Sethi: I was making my way back from a conference yesterday and completely missed the uproar over Kartik Athreya's provocative essay on economics blogs. Athreya argued, in effect, that most such blogging is done by ill-informed hacks who ought to be ignored while properly trained experts (such as himself) are left in peace to do the difficult work of making progress in the field. The original post has been taken down but (as a telling reminder that no public statement can subsequently be made private in this day and age) a copy may be viewed here.
The response from the accused was swift and brutal (see Thoma, DeLong, Sumner, Rowe, Cowen, Kling, Avent, Yglesias and Wilkinson for a sample). I don't want to pile on, and there's little I can add to what others have already said. But I'd like to take this opportunity to reiterate and expand upon a couple of points that I have made in previous posts about the rapidly changing role of blogs in economic discourse.
My view of the matter is almost diametrically opposed to that of Athreya: I consider these changes to be both irreversible and potentially very healthy. In a post commemorating the birthdays of two excellent economics blogs, I made this point as follows (see also Andrew Gelman's follow-up):The community of academic economists is increasingly coming to be judged not simply by peer reviewers at journals or by carefully screened and selected cohorts of students, but by a global audience of curious individuals spanning multiple disciplines and specializations. Voices that have long been silenced in mainstream journals now insist on being heard on an equal footing. Arguments on blogs seem to be judged largely on their merits, independently of the professional stature of those making them. This has allowed economists in far-flung places with heavy teaching loads, or those who pursued non-academic career paths, to join debates. Even anonymous writers and autodidacts can wield considerable influence in this environment, and a number of genuinely interdisciplinary blogs have emerged...This has got to be a healthy development. One might persuade a referee or seminar audience that a particular assumption is justified simply because there is a large literature that builds on it, or that tractability concerns preclude reasonable alternatives. But this broader audience is not so easy to convince. Persuading a multitude of informed, thoughtful, intelligent readers of the relevance and validity of one's arguments using words rather than formal models is a far more challenging task than persuading one's own students or peers. If one can separate the wheat from the chaff, the reasoned argument from the noise, this process should result in a more dynamic and robust discipline in the long run.
In fact, the refereeing process for blog posts is in some respects more rigorous than that for journal articles. Reports are numerous, non-anonymous, public, rapidly and efficiently produced, and collaboratively constructed. It is not obvious to me that this process of evaluation is any less legitimate than that for journal submissions, which rely on feedback from two or three anonymous referees who are themselves invested in the same techniques and research agenda as the author.
I suspect that within a decade, blogs will be a cornerstone of research in economics. Many original and creative contributions to the discipline will first be communicated to the profession (and the world at large) in the form of blog posts, since the medium allows for material of arbitrary length, depth and complexity. Ideas first expressed in this form will make their way (with suitable attribution) into reading lists, doctoral dissertations and more conventionally refereed academic publications. And blogs will come to play a central role in the process of recruitment, promotion and reward at major research universities. This genie is not going back into its bottle.
Conventional research is mostly backward looking. Academic economists look at an event like the 73-74 recession, ask what caused it, build models to try to understand it, and they try to find policies that would have worked better than the ones that were actually implemented at the time.
That's fine for many issues, but when big shocks hit the economy that do not fit into the standard models, there's no time to wait for academic economists to take their usual approach -- it can be several years or more before the research is complete.
This is one place blogs have an advantage. When the current crisis hit and economists looked into their tool boxes for models and policies that could effectively offset the problems we were seeing -- or at least explain what was happening -- we came up empty. The models weren't there and there was no time to wait before deciding what to do in terms of monetary and fiscal policy. Action was needed, that was clear, but without a model to rely upon, what type of action is best?
Suddenly, it was like being in an emergency room when a very sick patient shows up, and you are not quite sure what the cause is, or what to do about it. Blogs stepped in and began analyzing these issues in real time in a way conventional research never could have done. Online conversations among the best macroeconomists in the business, among others, were very helpful in understanding what was going on and in developing policy responses to it. Was it a solvency issue? A liquidity issue? Both? Should banks be nationalized, should we buy bad assets from them, should they be bailed out or allowed to fail, etc., etc., etc. There were so many answers that were needed and very little time to wait. The ability of blogs to step in and fill this void is a good and helpful development, one that the profession ought to embrace more than they have. It's not easy at all coming up with new theory and policy recommendations on the fly, especially when the answer is as important as it was -- the proper response could make a big difference in the outcome, and the wrong response could be devastating -- and blogs were very helpful in filling the void.
This is for Felix. If you run a website that depends upon advertising, what is the optimal number of aggregator sites (sites that run part of your original posts plus a link back to the original)? What is the optimal length of an excerpt? This won't produce any results that can't be obtained with a few minutes of thought, it simply formalizes the exercise so that the assumptions and critical parameters are evident.
Let's start by supposing that the profit for the original content site depends upon the number of visitors, i.e. that:
π = R(sN) - W
where R is the ad revenue function, sN is the number of visitors to the site, and W is costs. It is assumed that RsN > 0, i.e. that ad revenue increases with the number of visitors. This function could be made more complicated, but so long as profit is increasing in the number of visitors, this will suffice since the profit function will reduce to something along these lines in any case.
The number of visitors has two parts, s and N, where N is the total available audience for the type of content you are offering, and s is your share of that audience. I will assume that aggregators, denoted by A, increase the total size of the audience. That is, they provide a service by grouping and filtering content, the grouping/filtering of content lowers transactions (search) costs for readers, and this increases their number. More formally:
N = N(A), NA > 0
What determines the share of the audience, s, that comes to the site? The share is assumed to depend negatively upon the number of aggregators (since aggregators divert traffic), and positively upon he number of "clickthroughs" from the aggregators:
s = s(A,C), sA < 0, and sC > 0.
What determines the number of clickthroughs, C? The value of C depends upon two things, the number of visitors to aggregators, rN, where r is the share of the total audience captured by the aggregators, and the average length of excerpts among the aggregators, L:
C = C(rN,L), CrN > 0 and CL < 0.
Clickthroughs are assumed to go up when aggregators get more visitors, and to go down when aggregators run longer excerpts, so longer excerpts are bad for the originator. But there's also a benefit to longer excerpts, the share of visitors to aggregators goes up when the length of excerpts goes up, and this increases clickthroughs:
r = r(L,A), rL > 0, rA >0.
It is also assumed that the share to aggregators is increasing in the number of aggregators, A.
Finally, I am holding costs, W, constant since they don't vary in any important way with the parameters of interest, the number of aggregators, A, and the average length of an excerpt, L.
There are two tradeoffs built into this setup. First, as the number of aggregators goes up, the size of the audience goes up (at a decreasing rate), and that increases the visitors to the original content site. However, the share of the audience goes down since more people will choose to do their reading at the aggregators rather than the original site. For the length of an excerpt, L, the tradeoff is that as L goes up, more people visit the aggregator sites since the quality of their posts is higher, and that increases the total size of the audience and the number of clickthroughs. But it also reduces the originator's share of the audience.
More formally, the profit function is:
π = R[s(A,c(r(L,A)N(A),L))N(A)] - W
Then the first order conditions for A and L are:
πA = RsN[[sA + sCCrN(rNA + rAN)]N + sNA] = 0
πL = RsN[sCCrNrLN+ sCCL]N = 0
These are both intuitive (and obvious - hope I got the derivatives right). Let's take the second equation first. This equation, which is the first order condition for L, reduces to:
The term on the left-hand side is the marginal benefit to the original content provider from an increase in L (with A constant). It says that when L goes up, aggregators get a higher share of traffic since the quality of their services goes up (some of the increase in traffic is brand new, i.e. it does not all come from the content provider). The right-hand side is the marginal cost. It says that when L, the average excerpt length goes up, the percentage of clickthroughs goes down. The optimal L balances these two effects on the margin. Importantly, for some parameter values the solution is interior, i.e. the optimal excerpt length is greater than zero, and it's possible that the optimum is for full, uncut excerpts. (For example, if CL is relatively small, i.e. if increasing the excerpt length has little detrimental effect on the number of clickthroughs, then the solution is likely to be interior and the excerpt length longer. If CrN or rL is large, i.e., if clickthroughs are quite responsive to increases in aggregator traffic, or if traffic to aggregators responds strongly to increases in excerpt length, then this also points toward an interior solution and longer excerpt lengths, perhaps even full excerpts.)
The first order condition for the number of aggregators, A, can be written as:
RsN[sC(CrN(rNA + rAN))N + sNA] = -RsNsAN
As before, this says that marginal cost equals marginal benefit. When the number of aggregators, A, goes up, the marginal cost is that the share of the total available visitors, sN, for the original content provider goes down (because s falls), and this in turn lowers ad revenue. This is the right-hand side of the equation, -RsNsAN. The marginal benefit of A going up is threefold. First, as A goes up, N goes up and this increases traffic to the originator for any given value of s. This is the last term, RsNsNA, on the left-hand side of the equation. Second, because the increase in A also increases N, and visitors to aggregator sites depend upon rN, visitors to aggregator sites also go up, clickthroughs then go up, and this increases the share and ad revenue for the original content provider. This is captured by the term RsNsCCrNrNAN. Third, as A goes up, the share, r, to aggregators goes up, and this also increases clickthroughs to the original site. This term is RsNsCCrNrAN2.
More succinctly, on the benefit side, when A goes up, both r and N go up. Two of the marginal benefit terms capture the increase in the aggregators share, rN that results, and how the increase in rN affects clickthroughs and ultimately ad revenue. The other term captures how the increase in N affects the originators traffic, sN.
Again, importantly, the optimal number of aggregators (from the original content providers point of view) is not necessarily zero. An optimum at zero requires a corner solution, so it depends upon the value of the parameters.
Finally, let me emphasize that this is a very quick effort -- I literally threw it together while watching my Ph.D. students take their final this afternoon -- and there are many ways in which it could be improved. It is intended to illustrate some of the effects that are at work in this decision, and to make the argument that the optimal values of L and A are not necessarily zero, nothing more.
Next up -- when there's time -- what's the optimal length of an rss feed? If there are only two choices, all or (essentially) none, what are the conditions under which the full rss solution prevails?
I have a new blog at CBS MoneyWatch. They named it named Maximum Utility. I will be posting there approximately ten times a month on, for the most part, issues making headlines in the news (nothing will change in terms of what I do on his site). The first post is on the recent release of data showing the unemployment rate exceeds 10%:
Great. Organized, paid blog trolls:
Make no mistake: GOP is paying trolls to "blog attack", by Politics and Technology: This is unbelievable. We always knew that there were right-wing political hacks trolling the blogosphere, but this is a new low.
There's a company called Advantage Consultants that's offering up "professional blog warriors" to "flood the zone" with comments. In short, astro-turf trolls for the blogosphere.
Click to zoom on their ad..., but here's the text:
Are you ready for a blog attack?
Get ahead of your opponent with Professional Blog Warriors.
Be prepared to "flood the zone" with comments from professionals who are ready to put your talking points on the blogosphere 24/7.
Whether it's defense or offense, Advantage Consultants has a dedicated team of experienced blog warriors ready to advance your candidate or campaign.
Why wait for the attack? Launch your attack with a battery of blog and forum comments aimed at all media and blog sites in your district.
Contact us today and let us show you the Advantage in professional blog warfare.
...Incidentally, who are these people? Who is Advantage Consultants? Their president is Doug Guetzloe, a right-wing radio host and anti-tax activist in Florida.
The marketplace of ideas is far from ideal. This goes on in a variety of different formats, people are paid to call into radio shows, to write letters to the editor at local papers, to attend public meetings, if there's a public forum on an important issue you can bet someone, somewhere is doing their best to figure out how to manipulate the discussion in their favor. This is just the extension of an old technique to a new format (e.g. here's the same consulting group explaining how to manipulate talk radio).
But the basic dishonesty of it all bugs me.
The Perpendicular, by David Warsh: The morning that I visited him last week, Mark Thoma had fielded back-to-back calls first thing from Reuters and Bloomberg. The day before, The Wall Street Journal had sought to arrange for a photograph; the day after, N. Gregory Mankiw, of Harvard University, proudly pointed on his blog to a Thoma item about a speech that Mankiw had made some years before, as former adviser to George W. Bush. Paul Krugman, of The New York Times and Princeton University, had done as much the week before. No wonder, then, that during a recent meet-and-greet, the president of Thoma’s university, upon discovering himself to be shaking hands with the proprietor of Economist’s View, made a fuss and introduced the self-effacing professor to the assembled throng.
Not too shabby, considering that we were lunching in the leafy little city of Eugene, where the 52-year-old Thoma teaches at the University of Oregon. The WSJ last week was preparing to include Thoma in an article about the most popular economic bloggers. Earlier in the year he had been an invited guest at Kauffman Foundation and Milken Institute conferences. How did Thoma achieve a position of influence three times zones and a world away from the financial and political capitals back East?
The first part of the answer is, of course, the Internet. Thoma is an economic blogger of an unusual sort – a mostly disinterested editor and re-publisher of a selection of items from the daily torrent of informed opinion available on the Web. There are many other highly-rated economic bloggers: Tyler Cowen and Alex Tabarrok, of George Mason University, conduct a peripatetic patrol at Marginal Revolution; J. Bradford Delong, of the University of California at Berkeley, dispenses caustic wit and insight at Grasping Reality with Both Hands; Stephen Levitt, of the University of Chicago, and Steven Dubner and friends hold forth at Freakonomics; Yves Smith (a clever nom de net for a former lady banker) writes on Naked Capitalism from Wall Street; Dani Rodrik’s Weblog dispenses common sense on development economics; Baseline Scenario badgers governments with an above-the-fray sensibility rather like that of the International Monetary Fund. Krugman and Mankiw on their blogs are talking heads much more timely and topical, and only a little more gray, than when they began taking turns with one another at two-week intervals at Fortune magazine fifteen years ago. The ranking of these and other bloggers is continually appraised by the powerful collaborative filtering mechanism that is the heart of the custom of exchanging links. ... [...continue reading...] ...
Just a quick note to let you know about two changes to the sidebar:
First, I've added "Links to Links" which lists collections of links from other blogs. This is updated throughout the day as I discover new link collections.
Second, there is now a continuously updating feed called "New From Other Bogs." This combines the RSS feeds from 71 blogs (presently) into a single feed and lists the latest posts by author and title.
A couple of people have reported that their comments are being rejected by the TypePad system. I have no idea why -- they are not being tagged as spam so I cannot restore them -- all I can recommend for now is to keep trying (some people send the rejected comments to me by email, and that will work if there aren't too many, but I won't always be able to post them right away). I am looking into this. [I should probably add that not every missing comment is TypePad's doing...]
Nicholas Gruen says that while the "collaborative web ... can’t be easily explained within economists’ standard framework," Adam Smith "would have understood":
Adam Smith and Web 2.0, by Nicholas Gruen: History plays tricks on us. The real internet revolution picked up after the internet bubble had burst. And the economist whose framework helps most in thinking about the internet revolution is none other than Adam Smith, who kicked off economics more than 200 years ago.
The internet boom involved companies using the net to broadcast to customers — like ads on TV — or to automate the sales process: for instance, with customers booking their own airline tickets or ordering books. Today Web 2.0, or collaborative web, is enabling armies of volunteers to build a better world. Some are building and giving away public goods such as open-source software (Linux and Firefox) and reference resources (Wikipedia). Others provide expert analysis and commentary on blogs, often surpassing professional journalists. Others, such as Facebook, connect people with something in common.
These phenomena can’t be easily explained within economists’ standard framework, in which economic decision-makers are reduced to the ideal type known in the trade as homo economicus. Homo economicus is a pure, calculating egoist optimising his profit or “utility” without regard for others’ views or conduct (except where they’re useful to his ends).
Homo economicus might not explain which films we see or with whom we socialise. But a theory’s job is to highlight some aspects of reality — by leaving out others. When you make investments or haggle for a car or house, you’re probably doing the best homo economicus impression you can.
Even here, however, something’s seriously wrong. We’re socially comparative beings. We care deeply about the conduct, opinions and values of our peers, using comparisons with them to orient our own ideas about what we need or value and how wealthy we want or need to be. As for the subtler aspects of our economy, from the motivation of employees to those amazing things Web 2.0 is bringing forth, well, homo economicus doesn’t seem to get close to what’s going on.
Enter Adam Smith’s Theory of Moral Sentiments, published 250 years ago last month, a book he intended partly as a theoretical foundation for his later economics. As Smith sees it, we begin our lives as blobs of infantile egoism — infans economicus, if you like. But from then on Smith sees the process that we now call socialisation deepening and transforming us.
We learn from our immediate family, on whom we are utterly dependent, that some things win their approval and admiration, others their disapproval and even disgust. Our craving of approval and dread of disapproval and our ability to understand others by imagining ourselves in their shoes draw us into a lifelong dialectical social drama.
In modern economics, the attraction of great power, fame or wealth is simple greed for more. Smith’s richer psychology offers a more plausible explanation. “(T)o what purpose is all the toil and bustle of this world?” Smith asks. What human drive lies behind avarice and ambition?
Is it to supply the necessities of nature? The wages of the meanest labourer can supply them. To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. It is the vanity, not the ease or the pleasure, which interests us.
Smith was an advocate of self-interest in human affairs, but in a much richer, more interesting way than is usually thought. In advocating a larger role for self-interest, Smith identified the public goods that are prerequisites for self-interest becoming socially constructive. Within economics the invisible hand only works in a peaceful, lawful society, and with strong, free competition.
Within society more generally, self-interest becomes a rich ethical meal, not the morally anorectic egoism of homo economicus. Our natural sociality enriches and educates our self-interest. Craving esteem and imagining ourselves as others see us, we gain some objective appreciation of our own moral worth. And this is ultimately a spur towards virtue as we strive to be worthy of the esteem we crave (although, of course, as we are mere mortals there is much stumbling on our journey).
Web 2.0 is scaling up the scope for human sociality and opening up new vistas for the expression of self-interest. And yet profit-seeking is only a small part of how that self-interest is manifesting itself.
The way we express our self-interest on Web 2.0 is something new, and also as old as humanity itself. Why do millions of us blog? For the same reason we talk and write emails, text messages, instant messages and letters (remember them?). We do it to communicate feelings, ideas, needs and experiences with others who might understand us. They might even write back! Whether it’s the evolution of language itself or the evolution of culture and social mores, people’s interaction like this builds communities of shared meaning and understanding.
Even Smith’s description of a market was inherently social — he toyed with the idea that the fundamental human drive behind bargaining was the desire we each have to persuade others to see it our way. Smith would have understood the foundational proposition of an early Web 2.0 credo, “the cluetrain manifesto” — “Markets are conversations”.
As Web 2.0 burgeons, its denizens pursue their interests like the merchants in Smith’s Wealth of Nations, posting and commenting on blogs, making and exchanging programming code and mash-ups of each other’s content, making connections based on social or practical needs. Some serve practical needs — perhaps they need some software bug fixed. Others are “know-alls” proving their superior knowledge. Some express their love of a subject.
And just as the miracle of a healthy market enables the merchant’s self-interest to serve the common good, so this new alchemy of the web aggregates individual efforts into freely available public goods. Likewise this unruly mix of motives gives us glimpses of our better selves. To use Smith’s description of the psychology of ambition, it lures us on our quest for an “easy empire over the affections of mankind”, which is a hint, a tease calling us on a quest for a more distant and difficult destination — virtue itself.
Battle of the Barbecues, Kansas City: The Kaufmann Foundation brought together many bloggers and many servings of Kansas City barbecue. (Isn't America a great country? I met Mark Thoma for the first time and tomorrow we talk about blogging and the future of the world.) Then we voted, using Borda Point Count. Tim Kane tells me:
Oklahoma Joe's wins handily. Arthur Bryant's loses handily. Others are close. (Hmmm ... looks like a normal).
It's been fun to meet the people behind the posts. [Update: more here.]
Tanta Passes Away: My dear friend and co-blogger Doris “Tanta” Dungey passed away early this morning. I would like to express my deepest condolences to her family and friends. ... David Streitfeld at the NY Times: Doris Dungey, Prescient Finance Blogger, Dies at 47 ... This is a very sad day...
From Tyler Cowen:
Econ bloggers gain clout in financial crisis, Marginal Revolution: Here is the article, there is lots from me and from Mark Thoma, among others.
On a more casual note, I've enjoyed blogging the same topic week after week after week. I wonder at what point I will feel like cracking?
I'm not sure the quote about doctors came out quite right:
Are the econ bloggers able to better explain and analyze the often-complex factors that have led to the current crisis?
"I'm in academics," he replied. "On the academics side, you don't ever diagnose the patient. It's all theoretical, and what I'm doing now, especially with the financial crisis, is like having a patient show up at the doctor's office and say, 'I've got these symptoms, what's wrong with me?' And the doctor sticks him. That's a completely different use of economics -- a real time analysis -- that I haven't seen before."
Instead of "and the doctor sticks him," I meant that the doctor is asked to diagnose what is wrong and recommend a prescription - a cure of some sort - that will fix the problem (or explain why no cure is available and the patient will have to suffer through the problem until it fixes itself). You don't have the luxury you have as an academic of waiting until it's all over, looking at the data, and then figuring out how well the policy worked, what could have been done better, etc. Part of real-time policymaking is learning what to look at ("Get me a TED spread, stat!"), and then learning how to interpret the diagnostics that you get so that you can understand what is happening and recommend a course of action. Real-time policy making is not easy, and you find out very fast just how good your models really are, and I've gained a lot of respect for those who do it and do it well since I've started doing this.
As in the medical profession, we need an interface between theory and practice - in economics the gulf has been too wide for too long - and I think blogs are one way the profession has started to close the gap between the theoretical community and policymakers. Practitioners have a lot to learn from the theoretical research in medicine and in economics, but there also has to be a feedback in the other direction where the practitioners can say, "this treatement doesn't work, has the following flaws, etc., and it would work better if..." so that the theorists can provide better tools for polcymakers and other practitioners. The Fed and other policymaers have always had to do this - make policy decisions in real-time - but the process wasn't very visible. With blogs, it's starting to come out into the open, e.g. look what Krugman did on his as policies to abate the financial crisis were proposed, and I think that's a very healthy development.
Yesterday, after the latest data on housing prices were released, there were many analysts saying we might be nearing the bottom of the housing cycle. I have a guest post at The Big Picture on whether housing is anywhere near bottom.
The bottom line is:
Are we near the bottom? Is the end near? I wish I could answer yes, but I think we have a ways to go yet. Paul Krugman says:
When will it all end? The answer is, probably not until 2010 or later.
I'm hoping it won't be that long, but so far the crisis has unfolded in an almost eerily slow fashion - sort of like watching a train wreck in slow motion and being unable to do anything about it - and there's no reason to think that will change.
Update: Here's more on yesterday's price data from Dean Baker:
Two Items Missing in Coverage of the June Case-Shiller Data, Beat the Press: The coverage of the release of the June Case-Shiller housing prices indices overlooked two important items in the data. First, an examination of the tiered indices (these show separately the movement of house prices in each city for cheapest third of houses, the middle third, and upper third) indicates a sharp divergence within many markets. In several of the former bubble markets higher end home prices appear to be stabilizing, while prices for homes in the bottom tier continue to fall rapidly. ...
Ultimately, there must be some spillover in the sense that if the cheapest homes fall far enough, people looking to buy more high-end homes might instead opt for a cheaper one and then invest in major renovations. But the divergence that is showing up in the data at present is striking.
The other important point to note in connection with house prices is that inflation has picked up so that house prices would be falling rapidly in real terms, even if nominal house prices were flat. ... The bubble can be deflated either by a fall in nominal house prices or through inflation. There are important distributional implications for which route the collapse follows (borrowers will be helped by inflation, while lenders will be hurt), but either route can restore house prices to their long-term trend level.
Update: On Dean Baker's point about segmentation in the market and stabilization at the high end, a different perspective from Calculated Risk:
[P]rices are now falling for luxury homes too:
[E]ven luxury homes are now showing weakness. ... That "prestige homes" index found that in the second quarter this year, values on many such houses in San Diego dropped 2 percent from the first quarter and 7.8 percent from second quarter 2007. The average price among those homes has fallen to $2.02 million, from a peak of $2.19 million in the second quarter 2007.
No area is immune. The housing bust is now moving up the price chain.
Update: Free Exchange adds:
Bottom feeders, Free Exchange: In A guest post at Barry Ritholtz' Big Picture site, Mark Thoma gives it to us straight on the latest housing news. First, he says, lots of people have been calling a bottom since, well, since the top. Second, that wrongness doesn't obviate the fact that prices will cease falling eventually, at which point bottom callers will become correct and doubters incorrect. Third, based on prices and inventories, we don't have the support we need to call a bottom, yet.
Hard to argue with any of that. ... I would not counsel optimism at the moment.
But I will argue that optimism isn't an absurd state of mind. Looking at Case-Shiller home price data for the past year, and for 2008 in particular, we unquestionably see prices leveling off in recent months. For almost half of the markets involved, prices in 2008 have essentially been flat. ...
These moves may not portend an imminent recovery, but there are reasons to suspect that a recovery, once underway, will have a firm foundation. Potential homebuyers..., at present, ... generally see no reason to buy because the expectation is that prices will continue to fall. Why purchase now at $200,000 what you can get in two months at $190,000?
If it begins to seem that further declines are not a sure thing, however, those buyers will rush in..., the rush at the bargains will solidify the bottom, and potentially lead to a substantial upward revision in some markets.
The other critical point is in credit markets. As long as prices continue to fall, the full extent of the losses banks can expect is unclear. As such, banks will jealously guard their assets so as not to be caught undercapitalised by markets looking for blood. An apprent price bottom should begin to fix this problem. ... The combination of new credit with buyer interest should lay the groundwork for stabilisation. ...
And the other issue is this: once the credit crisis is resolved, housing needn't be a national issue anymore. Supply did not overshoot equally in all markets. When better borrowing conditions return, tight markets should quickly decouple from loose ones. That won't mean an end to pain for many, but it will mean an end to the national housing depression.
The question, of course, is when. I'm not foolish enough to guess. But there are reasons to find encouragement in the latest price data.
Update: From Richard Serlin:
Housing prices can't Drop too much. The Good far outweighs the bad.: In response to Mark Thoma's post today...:
"Are we near the bottom? Is the end near? I wish I could answer yes"
Mark, please think very carefully about this. Do you really wish housing prices would stop falling? Do you really think it would be better to have housing be more expensive? Do you really think the costs of lower housing prices outweigh the benefits? Do you really think it's better to preserve the wealth of a minority of wealthier homeowners and investors, at the expense of the middle class and poor, who are really hurt by high home prices? I know most of the middle class own homes, but they can't benefit from higher home prices unless they move to a smaller or otherwise less desirable home. Their children, on the other hand, can be devastated by high home prices. ...
Lowering of housing prices, over the long run, does immensely more good than bad. It's a great thing. They can't go too low. What if they went to 1 cent for the average home? That would be bad? Over the long run that would make almost all families and individuals immensely more financially secure, to have just a trivial mortgage or rent payment. The lower the better for housing prices. The good this does far far outweighs the bad. For more details, I have a brief paper regarding this.
I am trying something new which may not work, but it's worth a try. I have added a second comment link with the title "Technical Comments" to each post. I'm hoping to encourage a wider range of participation, particularly from people interested in the core economic issues surrounding a particular post (both theoretical and empirical).
I am going to moderate the comments in the new thread with a heavy hand and keep the discussion at the level you would find in the classroom or in a seminar. The idea is to promote a respectful interchange among people with some formal training in the area and in doing so, get participation from people who might not otherwise leave a comment. As far as I'm concerned, nothing is too technical. Clarifications, qualifications, extensions, links to related academic work (your own work included), debates about the technical merits of claims in a post, anything along those lines is welcome. [I have asked that people leave their names, and that is preferred, but pseudonyms are allowable if you identify yourself in an email.]
This is not intended to substitute for the regular comments which are unmoderated for the most part (though there are limits), and nothing will change there. It's intended to serve as a complement that (hopefully) brings about a wider range of participation and more discussion on substantive economic issues. I don't expect that there will be such a discussion with every post, or even that the discussions will be all that common, but hopefully there will be times when a debate on the more technical issues will take place. That would be nice, and I encourage those of you who have studied the economic issues related to things posted here to share what you know with the rest of us.