Sunday, 29 August 2010

The economics zeitgeist, 29 August 2010


This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.


I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Friday, 27 August 2010

Two worlds (fail to) collide

Thank goodness we have economics blogs to explain Ben Bernanke to us.

On Wednesday, I read at Scott Sumner's blog that:
...there are lots of simple answers (massive QE...etc.) But...for some reason our monetary authorities don’t see it this way. They view all these ideas as exceedingly risky....
Scott is outraged that the Fed refuses to do more monetary stimulus to reduce unemployment because they are worried about inflation.

But it seems that other people live in a different world. On Thursday, I read at FT Alphaville that:
The current wisdom appears to be that more quantitative easing (QE) would be a good thing...Bernanke only has one playbook, which he has so far followed almost religiously. The final solution in that playbook involves helicopters and money. So, no, he will not stop printing - it's the only idea he possesses.
Alphaville is concerned that the Fed is increasing monetary stimulus to reduce unemployment, and thinks they should worry about inflation.

Now clearly Alphaville and Sumner differ on their opinion about which route is better. Sumner thinks we need lots of QE (and related policies), while Alphaville suggests that we shouldn't have any more. A difference of opinion on policy is par for the course.

But more puzzlingly, they disagree over what Ben Bernanke is actually doing, or at least what he's about to do. The Fed can't simultaneously fit Sumner's description and also Alphaville's.

So is massive QE imminent or not? Maybe we'll find out later today when he makes his keynote speech at the Fed's annual conference.

My opinion? I'm with Scott: launch the QE2.

Thursday, 26 August 2010

Kocherlakota and a monetary analogy

Nick Rowe has come up recently with a couple of nice analogies for monetary policy: the pole balancer and the farmboy.

And for those of you not reading the other economics blogs, there's a bit of an uproar right now about Narayana Kocherlakota, president of the Minnesota Federal Reserve, and his claim that long-term low interest rates will lead to deflation, when surely every schoolboy knows low rates lead to inflation.

I've been trying to work out why Kocherlakota's argument is so intuitively wrong and yet theoretically consistent with standard monetary models. I think I've got it, with a bit of inspiration from Nick, Karl Smith, Andy Harless and Scott Sumner. So here's my contribution to the monetary analogy industry:

You're driving a truck, one of those big articulated lorries with a trailer full of goods and services. There are three main variables which determine the truck's acceleration:
  • how much you push the gas pedal (let's call it i for internal combustion engine)
  • how much friction there is from the bumps in the road and other sources (r for road quality)
  • how steep is the hill you're on (p for, er, steepness)
In a simple physical model - if we choose the right units - you can relate these three variables in the following way. Provided that our speed is constant, that is our system is in equilibrium, i = r + p. That is, if you push the gas pedal just enough to balance the forces of friction and gravity, the truck will carry on at a constant rate.

Now Kocherlakota points out that in this system, if r is constant, a low i implies a low p. That is, if you manage to keep the truck steady without pushing the gas much, you must be on quite a shallow slope. And a higher i implies a higher p: if you need a lot of gas to keep the truck going, the hill must be steeper. Indeed, if i is low enough, p might even be negative (you are running downhill and only friction keeps you from accelerating). This is all true.

But what is not true is that pressing the gas pedal makes the hill steeper!

Instead, when you push the pedal, the system moves out of equilibrium. Your truck accelerates. You may end up on a different road. All sorts of things change.

What I learned from Karl's argument is that - eventually - flooring the gas does increase the steepness of the hill you're on. But only for this tenuous and indirect reason: if you have somehow managed to avoid crashing, the only way you could have kept the truck on the road is by finding a steeper hill to climb.

Translating back into monetary terms - where i is nominal interest rate, r is real interest rate and p is inflation - the only way a permanently low Fed funds rate leads to deflation is first by accelerating activity, then by causing a long-term shift in expectations, and ultimately by completely changing the equilibrium path of the economy. And that only happens if the economy gets back into equilibrium. Rest assured that is not the likely fate of the truck in this analogy.

You may have noticed the truck off-ramps you sometimes see on mountain highways. They're designed to give trucks somewhere to go if their brakes fail - and, of course, they always have a steep upwards incline. Kocherlakota's argument boils down to the following: if a trucker presses hard enough on the gas for long enough, the truck must end up on one of those ramps. While that may be true, it's no argument against using the gas pedal when you need it.

Wednesday, 25 August 2010

What exactly is data loss?

I am really confused by this article.
The UK operation of Zurich Insurance has been fined £2.27m by the Financial Services Authority (FSA) for losing personal details of 46,000 customers.
What is "losing"? Did the data get accidentally deleted? Or was it accidentally leaked to, or stolen by, miscreants?

"Lost" data implies deletion - say, a disk failed and the backup was faulty. Not an uncommon occurrence, and you might need to ask your customers to confirm their details to you again. But:
"The firm also failed to ensure that it had effective systems and controls to prevent the lost data being used for financial crime."
Also, they were penalised over £2 million for the loss. Both of these imply that someone else actually got the data.

But how do they know it went?
Zurich said that it had no evidence the data had been misused.
So it's very unlikely that they somehow discovered a third party had copied it. And yet, the comment on the case from a law firm is:
Better encryption of data, password protection, and measures to ensure large files cannot be downloaded to devices like memory sticks must all be improved...
So what has actually happened?

The author of the article seems to think that losing data is like losing a box of DVD players off the back of a lorry. If someone gets the data, the original owner must no longer have it. Of course, this isn't how it works. Data gets copied, not destroyed.

A bit more clicking uncovers the original story - a tape was lost, with 50,000 people's details on it. Makes a little more sense now.

So actually, these details have the potential to have been copied by a third party - but they aren't really "lost" at all.

Metaphor is very useful, of course - and "lost data" is often a handy metaphor to help people understand a slightly abstract issue. But the dangers of analogy are that you focus on the analogy and forget what has really happened. Journalists especially need to be careful to understand the reality as well as the metaphor.

Tuesday, 24 August 2010

Boris bike back

I am impressed. After the last incident, my new key showed up the very next morning. It worked immediately and I have had no problems since.

What's more, I have only been charged once for each of my daily hires and not twice, as I feared.

I even made it home tonight with two shopping bags hanging from the handlebars, though I'm not sure if I'll repeat that experiment.

In fact, I have nothing to complain about at all, which is both pleasing and strangely frustrating. Sorry if that makes this post a bit boring.

Sunday, 22 August 2010

The economics zeitgeist, 22 August 2010

This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.


I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Friday, 20 August 2010

Tempted to give up on Boris bikes

The latest twist in this stupid saga is that my Barclays Cycle Hire key has stopped working altogether. Seems to be a physical failure - the docking stations do not respond at all to the key being inserted.

Previously they at least showed a yellow then a red light when I tried. Now it just does nothing.

12 minutes on the phone with TFL did not improve matters: first they claimed that one of the docking stations might be faulty, then that the problem was with the auto-renew feature (same as last time). Then she claimed that I had made a journey already today (not true). Finally she charged my credit card for another day and then, as I fully expected, the key still did not work.

The new access period has been confirmed to me by email - twice - so perhaps they've charged me for two. The web interface has no record of anything that's happened today, which makes sense if it's a physical failure.

They're sending out a replacement - which will take three working days, of course - and my request for a refund of the cost of my 25 minutes of phone calls has been passed up the chain.

The next step in the epic is sadly predictable. As you can see from the image below, they think they have sent me TWO keys. Because of an unrelated bug in the Serco system, people with two keys are charged for two bikes even when they're only using one. So just wait to hear my screams of fury on Wednesday. I will of course write them up for your further entertainment.

Thursday, 19 August 2010

Thinking and attention

My former colleague Henri Yandell analyses the differences between context switching and multitasking, and between deep and shallow thinking here.

Rory Cellan-Jones has a less interesting but more...well, more BBC, take on the same subject here.

I guess they're both prompted by The Shallows by Nicholas Carr - a man with whose previous writings I have disagreed violently. Looks like the subtitle on the paperback has quietly been changed from "What the Internet is doing to our brains" to "How the Internet is changing the way we think, read and remember". Presumably the old title was provoking too much hostility.

Carr's thesis about shallow thinking is very different to, say, Tyler Cowen's Age of the Infovore, which argues that the Internet now allows us a much deeper and more engaged experience with the narratives of our lives.

Rory's argument (and that of Douglas Adams, to whom Henri links) is that this debate has been going on for millennia and that the cognitive changes are not in the direction Carr thinks. In fact, new media are more interactive and more creative than old-fashioned TV, radio and newspapers.

Hen's argument is more subtle. Each step in the evolution of media reveals something new about how we pay attention. Multitasking can work for some media - background radio music occupies little enough attention that we can still work (though see Peopleware for caveats); TV (and adverts in particular) move us to context-switching instead of multitasking; modern fragmented low-latency communication reminds us that deep thinking is not very natural to us.

Indeed, there's an economic argument about deep thinking which is a little like the argument I'm making in another blog post, still in draft mode (like most of them right now, sorry - will link to it when ready). Deep thinking is not really in our own interest. Shallow thinking - working out what tactical manoeuvre to try next, who you can trust and who to copy from, and simply impulsively satisfying yourself with whatever nuggets are available - will bring you a much easier and more fun life, and more quickly.

Deep thinking, on the contrary, is hard work, takes ages, might fail, and mainly benefits other people. If I discover the new theory of everything which reveals the purpose of the cosmos, what do I get? Sure, I'll probably make some money - at least Malcolm Gladwell's publishers will offer me a contract - but the rest of the world benefits much more than me.

Economics provides a simple explanation for this - deep thinking has a big positive externality. If we want people to think more - and we do, because it's good for human progress - we need to compensate them for it. Society should pay the people whose thinking fails as well as those who succeed. It should provide thinking-friendly environments - which provide a mix of different people from different disciplines to talk to each other...in a kind of "universal" knowledge blend...you might even call them "universities".

Economics provides another handy analogy here. Consumption - whether of material goods or fun experiences - is the goal of economic life. Saving and investment - virtuous as they might be - is just a means to an end. When people consume, we shouldn't be moralistic about it. As long as enough people are saving and investing, it's perfectly OK for others to consume. In fact, anyone who saves more than they consume is going to die with wasted wealth. What's the point?

And so, we shouldn't blame people for thinking shallow thoughts - if the Internet and the iPhone provide tools which make it easier for us to scan thousands of sources of information and pick out the facts, and the people, with whom we want a casual acquaintance, we should welcome them. Deep thinking is a necessary balance - society needs it, and from time to time each of us should probably do a bit of it too. It's even enjoyable for its own sake, at least for some people.

But don't make it holy. As soon as we start telling people which kind of thinking is best - well, you know where that leads. Diversity in all things should be our watchword - and in cognition too.

Wednesday, 18 August 2010

Bizarre Boris bike bugs

I've been a fan of the Barclays Cycle Hire scheme ("Boris bikes") since it launched, and have been using it regularly. It is quicker and cheaper than public transport, and has been getting me fitter too.

I did hear of a couple of anomalies from friends and media - but if I'm honest, I thought they were probably the fault of the user and not of the system. Clearly some people were not returning the bikes to the docking stations correctly - TFL has been reminding us incessantly to make sure the green light goes on when you take the bike back - and this was the reason for the extra charges.

However, when it happens to me, then clearly it is a fault with the scheme. And in the last couple of days I've had some very annoying experiences.

The first was just a bit strange. I logged onto my account and saw the following screen:


I can say with complete confidence that I did not cycle in Kensington, Hyde Park or the Strand during those days. The Milroy Walk/Abbey Orchard Street journey is correct.

More importantly, I have not paid £90. Fortunately this supposed payment has not been taken from my credit card. Either my account data is being mixed in with someone else's, the ID numbers of the docking stations have been changed, or the system is just showing random false information. I never believe that software bugs are random, so there's something else wrong under the surface.

However, no harm done there - just a confusing data display.

More frustratingly, I tried using the key yesterday and couldn't get a bike out. The status light turned red and it would not release the bike - I went to three different docking stations in succession and had the same experience with them all. So I had to switch to the bus - which cost me money and, more to the point, time. I then tried once more when I arrived at the destination, and it seemed to partly work: the light turned yellow, and then went out with neither a green or red confirmation. I was able to take the bike out, so I assumed it was working...but the hire has not been recorded on my account, so more likely the previous user had not returned it correctly and the bike was not even secured?

I assumed it was a temporary problem and went about my business. Then in the evening when I needed to get somewhere on time, the same thing happened. I called customer services - waited on hold for 5 minutes - and the guy told me there is a problem with the auto-renew feature. This means that I now have to call them or go online every time I want to hire a bike, instead of being charged automatically when I use one. Of course they have no idea when this problem will be fixed, or why it only affects some users. Therefore - on the principle that software never does things entirely at random - I don't think I believe them.

Either way, I went online this morning to pay for an access period. The first oddity is this: Apparently my account has been charged multiple times last night (the 18:42 charges are all from around the time I attempted to use it in the evening, just before ringing the call centre):


However there is no transaction on my credit card at that time, and I don't have a valid access period corresponding to the charges.

I clicked on the 'Activity log' link to get more history, and here is what I saw:


...and more...


...and more...


...and yet more! before we finally get to an actual transaction:



So apparently I have to buy an access period manually. Fine. Here is the screen which is meant to allow that:


A bit weird that it appears to be asking me to buy another key, but maybe that's just a strange user interface decision. I assume that I'm just confirming the total number of keys on the account to be the one that I already have.


That's odd too. They have my card number already, so why are they asking me for it again? Perhaps there's some problem with authorising the card? I filled in the details again and:


So it wants to charge me £4 instead of £1 - that is, it is not allowing me to order an access period without also ordering a new key! That's clearly wrong.

I decided to go back in and turn on auto-renew - maybe that will work. I tick the box and submit, and am presented with the following "error" message:

Of course my access period has expired. Why is that an error?

Well, at least it has saved the auto-renew status so I can now go downstairs and try it again. With little or no confidence that it will work. I'll update you (more concisely next time) on the outcome.


Update: It didn't work. But I called them again, and they have - supposedly - fixed my auto-renew settings. There seemed to be some problem with charging my card, though when they took the same card details again over the phone it worked fine.

Unsurprisingly, some other people have been having similar problems. I have a post coming soon on the economics of the scheme, which are surprising in a couple of ways.

Sunday, 15 August 2010

The economics zeitgeist, 15 August 2010

This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Friday, 13 August 2010

Blind football

I was intrigued recently to learn of the existence of the World Blind Football Championship - the BBC has now written a detailed article about it so I have found out some more.

Footballs with ball bearings...some careful and limited shouting techniques between the five players on each team...rebound walls and no throw-ins...opaque eye patches to keep players on an equal footing, since some of them have partial sight and others are fully blind. Would be fascinating to watch, although I don't think it will have TV coverage.

It's interesting to read about the various compromises they've designed into the game to keep it competitive and exciting and allowing visually impaired players to fully express their talents for the game. The goalkeepers, for example, can be sighted and do not wear the eyepatches, but may not leave their areas. And there's no offside rule.

Apparently they also tried to find blind referees to officiate the matches...

...but they are all busy in the Premiership this week.

Thursday, 12 August 2010

Learning and expectations of NGDP

A response to Niklas Blanchard's post supporting Scott Sumner's NGDP level targeting proposal (also posted as a comment on that page).

My thoughts on this subject are not complete, but I've been thinking recently about how expectations are formed. I wonder about the following scenario:

Let's say the Fed does adopt an NGDP level target with a 5% annual increase, and this becomes accepted as the new orthodoxy. How will future wage negotiations proceed?

As an employee, I'd say to management: presumably you are good managers, and you expect to achieve growth in the company's revenues, profits and productivity at least in line with the economy as a whole. (I've yet to meet a manager who'd admit that they are not as good as the national average manager).

Therefore, you'd expect your top line revenues to increase by at least 5%, given a fixed amount of labour in your company. What's more, now that the Fed has successfully achieved a 5% NGDP increase for the last three years, I can confidently expect my cost of living, based on my reasonable expectation of a rising living standard, to increase by about 5% each year.

I would therefore suggest that my salary should incorporate a fixed 5% escalation every year from now on. What do you say, dear boss?

This may or may not be the scenario that plays out in reality, and the negotiating skills of management and employees will vary. But it's at least plausible that a 5% annual increase will become the new standard of nominal wage rigidity. And the consequence may well be a default 5% annual price increase for the majority of products and services. Competitive pressures will operate of course, but against a background of 5% increases across the board. If so, then we are back in a situation of sticky nominal wages and prices - it's simply a sticky 5% increase instead of a sticky 0% increase.

If this happens, will the macroeconomic benefits of the steady upward NGDP path disappear? Will we end up back in the same situation as the last few decades - where the policy target broadly achieves balanced growth for eight years and then we get a two year recession when investors become overconfident and it fails?

Maybe not - perhaps there is something psychologically special about 0% increases - but I am not so sure.

I'm still a supporter of the Sumner proposal, but I raise this as a cautionary question. In short, is any policy target bound to lose its effectiveness once people learn to expect it?

Tuesday, 10 August 2010

Is QE deflationary: an update

Turns out quantitative easing is deflationary - at least the Federal Reserve thinks so.

Today the Fed announced that the interest and capital repayments from the bonds it bought last year will not be retired from the system (which would reduce the money supply). Instead, they will use them to buy new Treasury bonds.

Via Mark Thoma:
...the Fed will keep “securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities”
Now I hate to say I told you so, but I told you so...

There is, however, a point more important than my self-satisfaction: whether this policy will work. Unfortunately this policy adjustment appears to reveal a basic uncertainty in the Fed's goals. By making ad hoc adjustments like this, the Fed keeps the rest of us off balance - we don't know what it will do next because its signals are too vague.

In some cases this kind of policy is desirable - regulators and governments may want to create a degree of uncertainty in order to avoid people gaming their rules. But with central banks, the best strategy is - probably - to tie themselves to the mast. Predictable monetary policy - whether expressed in terms of NGDP, price levels or inflation - allows people to make firm long-term contracts relating to nominal prices and debt.

The Fed would be better off announcing what objective it wants to achieve, rather than trying to fiddle the dials to achieve it by surprise. Otherwise, the credibility Ben Bernanke is so keen on will be diminished - by lack of understanding of what the Fed wants, if not by lack of belief in its power to achieve it.

Update: the FT Money Supply blog has a little more on this, as does Lex (subscription may be required for Lex, which is lucky because it's a bit depressing).

Sunday, 8 August 2010

The economics zeitgeist, 8 August 2010


This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Friday, 6 August 2010

Responsible economic journalism shock

This easy-to-mock story about the "tax" on being single is notable in a couple of ways.

The first is that - for many - being single is a lifestyle willingly chosen. Perhaps there is a price tag on that choice, but that's different from a tax. £5,000 a year does seem like a lot, but for the luxury of choosing your own holiday destinations, spending all your free time in the way you want to, and designing your living environment entirely to your own tastes, it might be worth it.

The second is that the article contains a detailed methodological critique of its own argument.
But Stuart Adam, senior research economist at the Institute for Fiscal Studies (IFS), doubts whether the situation is as clearcut as the study presents.
"The quarter of a million figure depends first on whether you believe their £5,000 a year finding and I'd need quite a lot of convincing that they'd got their methodology right"... It's even possible that the research is skewed because the type of person who becomes part of a couple is different from someone who stays single, he says.
And crucially it ignores the impact of benefits and tax credits, which usually favour single people, he says.
The article goes on to quote yet another expert casting doubt on the headline argument. In fact, there are as many words devoted to arguing against the premise as for it.

However, presumably the BBC thinks impressionable children - or Radio 4 listeners - are going to be reading this article. In the entire 1,300 words there is not one mention of single people having more sex. The closest is this tantalising hint from Hannah Betts, Times columnist:
"The one thing they do is have fun. I go out every night... Part of being single is having this carpe diem lifestyle - when you're single one's social life is one's life."

Sunday, 1 August 2010

The economics zeitgeist, 1 August 2010



This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.