Sometimes it’s easy to take for granted the good things you’ve always had; you don’t know what you’ve got till it’s gone.
In that spirit, after lacking it for much of the last month, I am extremely thankful for reliable indoor plumbing. Our clay sewer pipes that had lasted 100+ years finally started to crack, which made for a big mess and took $8000 to repair. But we’re now back in business, and thanks to the magic of pipe relining we didn’t have to dig through our deck to do it.
Hopefully this lets you all appreciate your plumbing too without having to go through the whole experience yourself.
I’m heading to New Orleans tomorrow for the 2023 meeting of the Southern Economic Association, where I’ll present research on the labor market effects of Certificate of Need laws.
I’ll take this as an excuse to re-up two previous posts on New Orleans:
I recommend reading the whole thing, but here’s the conclusion:
As much as things have changed since 2013, my overall assessment of the city remains the same: its unlike anywhere else in America. It is unparalleled in both its strengths and its weaknesses. If you care about food, drink, music, and having a good time, its the place to be. If you’re more focused more on career, health, or safety, it isn’t. People who fled Katrina and stayed in other cities like Houston or Atlanta wound up richer and healthier. But not necessarily happier.
The RWI − Leibniz Institute for Economic Research has funding for researchers to replicate papers in development economics:
RWI invites applications for several positions of Replicator on a self-employed basis to conduct a robustness replication of a published microeconomic study in the field of Development Economics. The successful applicant will work with us on the project “Robustness and Replicability in Economics (R2E)”, funded by the German Science Foundation (DFG) Priority Programme “Meta-Rep”….
The ultimate goal is to contribute to the ongoing debate about replicability and replication rates in eco- nomics. We collaborate closely with the Institute for Replication (I4R). All robustness replications will contribute to a meta-paper summarizing the collective findings. We plan to publish this meta-paper by the end of 2024, and all replication fellows will be co-authors….
The position starts as soon as possible and is limited to six months. The work can be done fully remotely. The applicant will receive compensation of 2,500 € gross in total, possible distributed in installments based upon predetermined deliverables. Additionally, replication fellows will be listed as co-authors on the meta-paper. At the conclusion of the project, it is foreseen to gather all fellows for a final workshop at RWI in Essen, Germany.
I don’t know the team here but I’m alwayshappy to see more attempts to make economic research more reliable. The funding and the planned publication make this potentially a good deal for applied microeconomists, especially grad students. Full details are here (warning: PDF).
This week I was in Bretton Woods, New Hampshire. The Mount Washington Resort there is lovely on its own terms as a grand old hotel surrounded by mountains, but it is better known (at least among economists) as the site of the 1944 conference that gave us the International Monetary Fund, the World Bank, and the postwar international monetary system.
This got me thinking about what other destinations should top the list of sites for economics tourism. Adam Smith’s house in Scotland has to be on there. In the US I’ve been trying to visit all 12 Federal Reserve banks; they tend to have nice architecture as well as a Money Museum. You can stay at Milton and Rose Friedman’s cabin in Vermont, Capitaf. I’d like to go to Singapore for many reasons, but one is that they seem to listen to economists more than any other country; I’m not sure what places to visit within Singapore that best reflect that, though.
The places I’ve listed so far are somewhat inward looking to the economics profession; you could get a much bigger list by looking outward to the economy itself, doing “economic tourism” rather than “economics tourism”. Visit a port, a mine, or a factory (like Adam Smith visiting a pin factory and getting ideas for the Wealth of Nations); visit a stock exchange or a bazaar. Visit whatever country currently has the fastest economic growth, or the worst inflation.
Those are my ideas, but I’d love to hear yours: what are the best places for econ tourism?
President Biden winning the Democratic nomination is currently priced at 72 cents on PredictIt, implying a roughly 72% chance of winning the nomination. Not the general 2024 election- where he is priced at a mere 43 cents- but the Democratic nomination.
To me it seems crazily underpriced to put the odds of an incumbent president being renominated by his own party at only 72%. Yes, his approval ratings are underwater, and yes he’s old, but the base rates here very much work the other way. No incumbent president has lost a vote to be renominated since Chester Arthur in 1884. It think its extremely unlikely Biden would run for nomination and lose; it makes more sense that he would choose not to run, like LBJ in 1968, but I see no indications of that.
I think Biden will only fail to be renominated if he dies or experiences a major decline in his health by the convention next August. This is certainly possible for an 80 year old but the odds of it are well below the 28% implied by PredictIt. A recent WSJ article lays out the details:
a nonsmoking male with Biden’s birthday, in good health, would be expected to live nine more years after next year’s Election Day, while for one with Trump’s birthday, it would be 11 years.
WSJ focuses on his chance of finishing a second term and doesn’t give an estimate for just making it to renomination, but my own look at actuarial tables shows that the average 80 year old has only a 6.5% probability of dying within a year. The chance of dying or getting a disabling health condition in a year is of course higher than that, but the convention is actually less than a year away in August, and the primaries will be done by June. Plus the WSJ article gives several reasons to think Biden is in better health than the average 80 year old:
First, the median includes people who drink alcohol. Regular drinking of two or more drinks, three or more times a week, shortens life expectancy by about seven years. Both Trump and Biden are teetotalers, in addition to being nonsmokers.
“Those are two of the biggest killers right there,” said Bradley Willcox, a professor and research director at the Department of Geriatric Medicine at the University of Hawaii. “When you eliminate excessive alcohol intake and smoking, one thing you’re left with is genetics.”
Here, Trump and Biden picked their parents well. Trump’s mother lived to 88 and his father to 93, though late in life he developed Alzheimer’s disease. Biden’s mother died at 92—living long enough to see her son become the sixth-oldest vice president. Joe Biden Sr. died at 86. That is even more impressive than it sounds: When those four individuals were born, life expectancy was around 50.
Biden and Trump are each highly educated at a time when the life-expectancy gap between the educated and uneducated has been growing. They are wealthy, also a strong predictor of longer life. They receive excellent healthcare.
Add it all up and I think Biden has over a 90% chance of being renominated, so being able to bet on him at 72 cents seems like a great deal (even if it means tying up money that could now earn 5% interest elsewhere). PredictIt has betting limits and high withdrawal fees, but other prediction markets are in the same ballpark; Polymarket currently has Biden at 75c.
For similar reasons Trump is may also be underpriced to win the nomination, currently at 68 cents on PredictIt. He’s not an incumbent the same way, but he’s enough of one that I don’t think any of his electoral opponents can beat him for the nomination; he’d have to beat himself by dying or withdrawing (very unlikely), or be beaten by the legal system (he’ll continue to have trouble but I don’t think it will be enough to get him disqualified or in prison by the June convention).
It’s boring and its not my preference, but I think we are headed for a rematch of 2020. On the bright side, 80 isn’t what it used to be:
The latest Global Valuation update this week shows that Poland (along with Colombia) has some of the world’s cheapest stocks. Their overall Price to Earnings ratio is 8, compared to 28 for the US:
Does this mean Polish stocks are a good deal, or that investors are rationally discounting them as being risky or slow-growing? After all, they had a low P/E ratio last time I wrote about them too.
Stocks can rise either based on higher investor expectations (higher P/Es) or improved fundamentals (earnings rise, investors see this and bid up the price, but only enough to keep the P/E ratio roughly constant). Over the past year Polish stocks have done the latter; I bought EPOL (the only ETF I know of that focuses Poland) a year ago because its P/E was about 6. Since then its up 70% and the P/E is still… about 6.
Why haven’t investors been excited enough about this earnings growth to bid up the valuation? I think the biggest concern has been political risk, given that the ruling Law and Justice party has been alienating the EU and arguably undermining the rule of law and finding pretexts to arrest businessmen critical of the government.
The recent Polish election promises to change all this. A coalition of ‘centrist’ opposition parties won enough votes to oust the current government, and Washington, the EU, and business seem relieved:
As Europe’s sixth-largest economy, a revitalised pro-EU attitude in Poland would be particularly welcome.
“It will be a positive development for sure because it will unlock the (EU) money that has been withheld and reduce a lot of the tension that has been created with Brussels,” said Daniel Moreno, head of emerging markets debt at investment firm Mirabaud.
Some 110 billion euros ($116 billion) earmarked for Poland from the EU’s long-term budget and the post-pandemic Recovery and Resilience Facility (RRF) remain frozen due to PiS’ record of undercutting liberal democratic rules.
The case for optimism is an influx of EU funds, less risk for business, and an appetite for higher valuations among Western investors who no longer dislike the government.
Being an economist I also have to give you the “other hand”, the case for pessimism: the new government hasn’t actually formed yet, meaning the current one still has the chance for shenanigans; population growth has been strong recently with the influx of Ukrainian refugees, but it is likely to go negative again soon; and EPOL is almost half financial services, which have relatively low P/E even in the US right now.
Nothing is guaranteed but this is my favorite bet right now. I find it amusing that this “risky” emerging market has had a great year while “safe” US Treasury bonds are having a record drawdown (easy to be amused when I don’t own any long bonds and they have done surprisingly little damage in terms of blowing up financial institutions so far). I emphasize the investing angle here but hopefully this signals a bright future for the Polish people.
Disclaimers: Not investment advice, I’m talking my book (long EPOL), I’ve never been to Polandand I’m judging their politics based on Western media reports
This week the Nobel Foundation recognized Claudia Goldin “for having advanced our understanding of women’s labour market outcomes”. If you follow our blog you probably already know that each year Marginal Revolution quickly puts up a great explanation of the work that won the economics Prize. This year they kept things brief with a sort of victory lap pointing to their previous posts on Goldin and the videos and podcast they had recorded with her, along with a pointer to her latest paper. You might also remember our own review of her latest book, Career and Family.
But you may not know that Kevin Bryan at A Fine Theorem does a more thorough, and typically more theory-based explanation of the Nobel work most years; here is his main take from this year’s post on Goldin:
Goldin’s work helps us understand whose wages will rise, will fall, will equalize going forward. Not entirely unfairly, she will be described in much of today’s coverage as an economist who studies the gender gap. This description misses two critical pieces. The question of female wages is a direct implication of her earlier work on the return to different skills as the structure of the economy changes, and that structure is the subject of her earliest work on the development of the American economy. Further, her diagnosis of the gender gap is much more optimistic, and more subtle, than the majority of popular discourse on the topic.
He described my favorite Goldin paper, which calculates gender wage gaps by industry and shows that pharmacists moved from having one of the highest gaps to one of the lowest as one key feature of the job changed:
Alongside Larry Katz, Goldin gives the canonical example of the pharmacist, whose gender gap is smaller than almost every other high-wage profession. Why? Wages are largely “linear in hours”. Today, though not historically, pharmacists generally work in teams at offices where they can substitute for each other. No one is always “on call”. Hence a pharmacist who wants to work late nights while young, then shorter hours with a young kid at home, then a longer worker day when older can do so. If pharmacies were structured as independent contractors working for themselves, as they were historically, the marginal productivity of a worker who wanted this type of flexibility would be lower. The structure of the profession affects marginal productivity, hence wages and the gender gap, particularly given the different demand for steady and shorter hours among women. Now, not all jobs can be turned from ones with convex wages for long and unsteady hours to ones with linear wages, but as Goldin points out, it’s not at all obvious that academia or law or other high-wage professions can’t make this shift. Where these changes can be made, we all benefit from high-skilled women remaining in high-productivity jobs: Goldin calls this “the last chapter” of gender convergence.
There is much more to the post, particularly on economic history; it concludes:
When evaluating her work, I can think of no stronger commendation than that I have no idea what Goldin will show me when I begin reading a paper; rather, she is always thoughtful, follows the data, rectifies what she finds with theory, and feels no compunction about sacrificing some golden goose – again, the legacy of 1970s Chicago rears its head. Especially on a topic as politically loaded as gender, this intellectual honesty is the source of her influence and a delight to the reader trying to understand such an important topic.
This year also saw a great summary from Alice Evans, who to my eyes (admittedly as someone who doesn’t work in the subfield) seems like the next Claudia Goldin, the one taking her work worldwide:
Claudia Goldin has now done it all. With empirical rigor, she has theorised every major change in American women’s lives over the twentieth century. These dynamics are not necessarily true worldwide, but Goldin has provided the foundations.
I’ve seen two lines of criticism for this prize. One is the usual critique, generally from the left, that the Econ Nobel shouldn’t exist (or doesn’t exist), to which I say:
The critique from the right is that Goldin studied unimportant subjects and only got the prize because they were politically fashionable. But labor markets make up most of GDP, and women now make up almost half the labor force; this seems obviously important to me. Goldin has clearly been the dominant researcher on the topic, being recognized as a citation laureate in 2020 (i.e. someone likely to win a Nobel because of their citations). At most politics could explain why this was a solo prize (the first in Econ since Thaler in 2017), but even here this seems about as reasonable as the last few solo prizes. David Henderson writes a longer argument in the Wall Street Journal for why Claudia Goldin Deserves that Nobel Prize.
Best of all, Goldin maintains a page to share datasets she helped create here.
The last post where I attempted a macro prescription was in April 2022, when I said the Fed was still under-reacting to inflation. That turned out right; since then the Fed has raised rates a full 500 basis points (5 percentage points) to fight inflation. So I’ll try my luck again here.
Headline annual CPI inflation has fallen from its high of 9% at the peak last year to 3.7% today. Core PCE, the measure more closely watched by the Fed, is at a similar 3.9%. Way better than last year, but still well above the Fed’s target of 2%. Are these set to fall to 2% on the current policy path, or does the Fed still need to do more?
The Fed’s own projections suggest one more rate hike this year, followed by cuts next year. They expect inflation to remain a bit elevated next year (2.5%), and that it will take until 2026 to get all the way back to 2.0%. They expect steady GDP growth with no recession.
What do market-based indicators say? The yield curve is still inverted (usually a signal of recession), though long rates are rising rapidly. The TIPS spread suggests an average inflation rate of 2.18% of the next 5 years, indicating a belief the Fed will get inflation under control fairly quickly. Markets suggest the Fed might not raise rates any more this year, and that if they do it will only be once. All this suggests that the Fed is doing fine, and that a potential recession is a bigger worry than inflation.
Some of my other favorite indicators muddy this picture. The NGDP gap suggests things are running way too hot:
M2 shrank in the last month of data, but has mostly leveled off since May, whereas a year ago it seemed like it could be in for a major drop. I wonder if the Fed’s intervention to stop a banking crisis in the Spring caused this. Judging by the Fed’s balance sheet, their buying in March undid 6 months of tightening, and I think that underestimates its impact (banks will behave more aggressively knowing they could bring their long term Treasuries to the Fed at par, but for the most part they won’t have to actually take the Fed up on the offer).
The level of M2 is still well above its pre-Covid trend:
Before I started looking at all this data, I was getting worried about a recession. Financial markets are down, high rates might start causing more things to break, the UAW strike drags on, student loan repayments are starting, one government shutdown was averted but another one in November seems likely. After looking at the data though, I think inflation is still the bigger worry. People think that monetary policy is tight because interest rates have risen rapidly, but interest rates alone don’t tell you the stance of policy.
I’ll repeat the exercise with the Bernanke version of the Taylor Rule I did in April 2022. Back then, the Fed Funds rate was under 0.5% when the Taylor Rule suggested it should be at 9%- so policy was way too loose. Today, the Taylor Rule (using core PCE and the Fed’s estimate of the output gap) suggests:
3.9% + 0.5*(2.1%-1.8%) + 0.5%*(3.9%-2%) + 2% = 7%
This suggests the Fed is still over 1.5% below where they need to be. Much better than being 9% below like last April, but not good. The Taylor rule isn’t perfect- among other issues it is backward-looking- but it tends to be at least directionally right and I think that’s the case here. Monetary policy is still too easy. Fiscal policy is still way too easy. If current policy continues and we don’t get huge supply shocks, I think a mild “inflationary boom” is more likely than either stagflation or a deflationary recession.
Regular readers will know that we love not only economics, but also history and data. We especially love it when “data heroes” take data that was difficult or impossible to access and make it easily available to everyone. The Federal Reserve Bank of Philadelphia just announced a project that brings together all of these things we love, their new Center for the Restoration of Economic Data:
Our mission is to advance research in topics related to regional economics and consumer finance by making economic data available in readily accessible, digital form. CREED combines state-of-the-art machine learning technology with deep subject matter expertise to convert natively unstructured data (information in books, images, and other undigitized formats) into readily accessible digital data.
The CREED research team shares the original analog or unstructured data as well as the code used to recover and clean these data, which are aggregated for use in novel economic research. Our collection features volumes of old, often overlooked, and frequently inaccessible data, which have been mined, restored, and converted into unstructured digital and analytically usable formats.
Their first project is to map all of the racially restrictive covenants in the city of Philadelphia. Until the U.S. Supreme Court declared such covenants to be unenforceable in 1948, they often barred properties from being sold to non-whites or non-citizens. After 1948 redlining took different forms, some of which may still persist today.
CREED shares the underlying data used to build the map here, and they say much more is one the way. I love it when economic historians (and regular historians) digitize old paper records and share the resulting data, and hope to see more examples like this to share in the coming years.
Disclaimer: I am a visiting scholar at the Federal Reserve Bank of Philadelphia but I was not involved with this project
OpenAI created the popular Dall-E and ChatGPT AI models. They try to make their models “safe”, but many people make a hobby of breaking through any restrictions and getting ChatGPT to say things its not supposed to:
Now trying to fool OpenAI models can be more than a hobby. OpenAI just announced a call for experts to “Red Team” their models. They have already been doing all sorts of interesting adversarial tests internally:
Now they want all sorts of external experts to give it a try, including economists:
This seems like a good opportunity to me, both to work on important cutting-edge technology, and to at least arguably make AI safer for humanity. For a long time it seemed like you had to be a top-tier mathematician or machine learning programmer to have any chance of contributing to AI safety, but the field is now broadening dramatically as capable models start to be deployed widely. I plan to apply if I find any time to spare, perhaps some of you will too.
The models definitely still need work- this is what I got after prompting Dall-E 2 for “A poster saying “OpenAI wants you…. to fool their models” in the style of “Uncle Sam Wants You””
Economist Writing Every Day 