Is the Fed stupid?

I doubt it.

The editors if Bloomberg View write that the Fed’s latest stress tests for systemic risk in banks are too lenient and employs unrealistically simple kind of stress. They compare the Fed’s weak methodology to better stress tests by NYU researchers and the Bank of Canada to prove their point.

So is the Fed stupid? I doubt it. But if the BoC and NYU have better methods, why didn’t the Fed just adapt those? The only possible explanation here is that the Fed deliberately eschewed a superior methodology. So why did they do that? Is our government that corrupted by the power of big banks? We’ve seen it before with the FDA an USDA. But if the Fed is in fact in the pocket of the big banks then we are so screwed it doesn’t even matter anymore.


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I’m much better at the the pictures-based Doge 2048 than the original numbers-based 2048. What does that say about my brain?

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Is more output better output?

From an internship way back when, I recall there being two ways to calculate GDP, only one of which I actually remember.* That method is by adding up the total expenditure on factors of production in a country. Wikipedia tells me there are actually two others: adding up all income directly (which makes a heck of a lot of sense), and adding up expenditures.

France has lower output, as measured by one of these three techniques, than the US. Paul Krugman says that this is reason to be cautious about the new IMF redistribution paper. And I’d probably agree. In the same post Krugman says that he lower output is explained specifically by the fact that the French work less. But a quick look at data from FRED (it’s too annoying to post it from my iphone) reveals that France’s GDP per hours worked is in fact also lower than in the US.

Therefore the French are either less productive, or something else is going on. The BEA uses the third technique for calculating GDP (pg 6-8). This method literally adds up C+G+I+X-M and attempts to exclude intermediary purchases by businesses, eg of finished window glass by Honda. I’m going to assume France does the same. If so, it must be the case that expenditures per hour worked are lower in France than in the US. Is it possible that France’s output takes the form of more non-market income, such as unpaid childcare? Is it possible that expenditures could be masked or appear attenuated when they appear in G rather than in C? For instance, the value of a CT scan could be the same for two patients, but if Medicare only covers one of them then the gross total expenditures will differ.

What if France is actually more “efficient” (not in the welfare sense) in turning money into value? Even at purchasing power parity, is it possible or plausible that a typical dollar-equivalent in France buys more non-tangible stuff that cannot be accounted for in PPP?

This has the same flavor as arguments that the CPI overstates inflation because it isn’t possible to account for the value of certain advancements in society, thereby overestimating the extent to which prices grow relative to the value of services rendered. And as in that case, I keep being reminded of the Jencks, et al. paper I linked to a while ago.

For the record, I’m not some kind of Francophile/europhile and I’m not trying to imply “yes” answers to all of these things. I am however trying to break the illusion that the US is some kind of ideal standard. And I’m trying to work through macro in my head a bit more. I’m sure that my lack of macro knowledge is on full display here.

*I’m certain this wasn’t taught in my undergrad principles or macro courses.

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A theory of “slut shaming”

I know nothing about this topic.

Why do men revile women that have many sexual partners? This is particularly interesting because, based on my own unscientific observation, these same men tend to enjoy watching pornography with rough sex, rape fantasies, BDSM, young-looking girls, etc.The dual pattern seems particularly strong among teens and 20-somethings, and its strength seems inversely related to social immersion and aptitude. Just take a look on Reddit if you don’t believe me.

What do all of those forms of pornography have in common? Strong dominance-submission themes. Because of mirror neurons or what-have-you, this kind of porn — and more broadly, this kind of fantasy — makes a certain type of man feel powerful, which can be fleeting in day-to-day life. Yet the same man who gets rock hard at the thought of a gang bang might well be averse to dating a girl who actually likes them. He could even be a slut-shamer.

My theory is that slut-shaming is rooted in jealousy and low self esteem. Porn is more often than not designed to make a man feel like he is in fact the male talent, with six-pack abs and a big dick. The flipside of this is that he probably isn’t. That’s an extremely discouraging realization to come to, in an evolutionary biology-psychology sense, and I claim that this feeling is displaced (or whatever the right psychoanalysis term is) onto the girls. This has two reasons: 1) men feel threatened by the men that so-called sluts are thought to like, and 2) men feel hopeless knowing that these “sluts” are therefore out of their league.

As a corollary, this forms a loop of “reaction formation” (I got that one from Wikipedia) with seclusion that culminates in reprehensibly sexist behavior among nerds on the Internet.

My evidence for this is limited, but comes partly from observing my own thoughts and reactions. I don’t claim it’s uniquely causal, but it seems plausible to me and I can’t think of any glaring counterexamples. As always, I’d love to discuss this with someone who actually knows something about it.

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Things that are cheaper than WhatsApp

I love this gag blog and I think it should be shown in every economics classroom next week. (“Gag blog” is an unpleasant phrase).

The magic and mystery of resource allocation are on full display here. Even if we take Google’s enormous cash endowment for granted (I still don’t understand how they make any money at all), is it really true that WhatsApp is the best use of Google’s $15 billion? It’s probably not the best use of society’s $15 billion. I think this would be a great starting point for a complexity modeling project, but I would be surprised to find that cash (read: value; read: resources) recirculating to the benefit of mankind the way it would if it were, say, directly invested in a permanent clean water supply for the entire Central African Republic. Or even in a new, high-efficiency power grid for the U.S.A. Or in keeping community hospitals from closing in the outer boroughs of New York. Or in many of the things on that blog.

The great failure of undergraduate economics education, to me, is that this issue is generally left unaddressed. Or worse, students are told that things like this can’t really happen, and if they do it’s because of “policy interventions” or some analogous cop-out. Resource allocation is the most fundamental line of inquiry in economics. In my opinion it is the distinguishing topic from mere demographics, finance, and sociology (although some sociologists do great economics in places economics seems to have failed). It is also, from what I can tell, still quite poorly understood. How do individual organizations come to command so much raw value? Cumulative advantage models are tempting but fundamentally unsatisfying. How much of that value will manifest as human well-being? How much of it will be recirculated into the economy? Where will it end up? Economics, from what I can tell, has a few ad-hoc approaches, some of them taught at the Principles level, that could apply to these questions, but it has nothing nothing approaching a unified theory. General Equilibrium doesn’t come close and I haven’t heard of an alternative.

It’s fine to not have an explanation. What’s not fine is to leave things we can’t explain off the syllabus. To be fair, resource allocation does get talked about. For example, Principles students at Rochester are taught why tap water is cheap and diamonds are expensive. But that’s not nearly enough. Intro chemistry and physics courses are laden with demos. Demonstrate how to make fire out of water and some crystals, then explain what just happened. Lie down on a bed of nails and explain why you aren’t hurt. Yes, a buoyant Professor Rizzo gave out a bunch of money on the first day of Eco 108, in a fun activity that got everybody interested and one guy $20 richer. But it’s the exception that proves the rule. And frankly, his lesson was somewhat less exciting and a lot more subtle than “look how freaking cool this topic is!”

I want to make sure that, if I ever become a doctorate-wielding economist, I don’t lose sight of economics for its own sake.  I do care deeply about poverty and opportunity disparities and such, but there is so much more to social science than societal ills. If anything, widespread prosperity is one of the most amazing phenomena I have ever encountered in my young life. I could hardly call myself a scientist if I weren’t drawn to study it.

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I’m not paying attention in class

Then again, Birmingham is a relatively poor place and might appreciate it if New York could, in fact, outsource our care work there. Or how about Scranton?

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A high wage city

Mayor DeBlasio talks a lot about raising the floor. Great! But what’s stopping business, that by nature prefer a lower floor, from leaving?

Infrastructure, retail, and care services intended for consumers in New York cannot be outsourced to Trenton, Birmingham, Mexico City, or Mumbai. Rich people in New York consume a lot of these things and New York is increasingly full of such people. I suspect that the wage elasticity of employment is low in a city like New York for this reason, and indeed that putting a floor on wages, combined with the training programs DeBlasio wants to implement, would kick the city into some kind of higher wage equilibrium, rather than causing it to hemorrhage talent and business as the free marketeers might claim.

I don’t think this is a portable solution. But New York is a big place and if it works it would have a big impact, and hopefully provide insights that are portable to other cities.

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