Is "The Curve" a Useful Model for Policy?

As Covid-19 has spread through the United States and the UK, so too has the meme of "flattening the curve" to reduce the strain on healthcare system capacity. The logic of flattening the curve is simple, by taking precautions to reduce the chance of contracting the virus, you reduce the number of new patients. This gives medical facilities the opportunity to let patients recover fully under their care without having to discharge early or restrict admission on the basis of medical priority.

Unfortunately, this model requires fairly extreme measures that have come under the rubric of "social distancing." The will to social distancing has varied across the country with some places offering widely-ignored health recommendations and others putting their jurisdictions on lock down enforced by the police.

At the furthest extreme, we are looking at the macroeconomic equivalent of a general strike in order to flatten the curve. With some projections claiming that social distancing may be required for a year or more, it's unclear what exactly the virus response is saving us from. What is clear, is that relying on the natural spread of the virus is not a viable option.

"Pay For" Questions Don't Make Sense on Fed Policy. Do Any?

The Fed announced further measures today designed to stave off the continued plummeting of prices in financial markets. Overall, the Fed has announced over $1.5 trillion in market operations so far. In response, numerous commentators who support robust free public services questioned the apparent hypocrisy of the lack of scrutiny over how such spending is to be financed when it comes to the financial sector. The question doesn't make a whole lot of sense, however, when you consider the difference between when the Fed spends money and when the federal government does it.

There's No Evidence of a Robot Takeover–This Is a Bad Thing

Noah Smith wrote a pretty compelling op ed in Bloomberg on Tuesday demonstrating that worries about a robot apocalypse–the eclipse of human labor by machine labor–are unfounded. He points to the rather steady employment-to-population ratio, the positive correlation between IT investment and jobs, and low productivity growth as proof that robots do not, in fact, cost at least the macroeconomy jobs. (We can't necessarily make assertions microeconomically.)

This is a bad thing.

Who Will Disrupt the Disruptors? A Review of Live Work Work Work Die

The final words of Corey Pein's Live Work Work Work Die are, "Off with their heads." In an engaging, hilarious, and gutwrenching first person account of the netherworld of Silicon Valley startup culture, Pein implores the reader to consider seriously the titans of tech are leading us into. By his account, it is a highly stratified society in which the toiling masses take turns pretending that they are among the tech elite.

UBI vs. JG: Communist Revolution Editiion

I like to talk a lot of shit. I've been talking a lot of shit lately on the Job Guarantee (JG) proposals relative to Universal Basic Income (UBI) in tweets and comments here and there. Since I generally grow bored of conversations on the internet fairly quickly, relatively few people have actually heard anything resembling my full argument in favor of UBI over a JG. So here I am, finding new ways to procrastinate my dissertation work.

The discussion here, I hope, will equip supporters of UBI and the JG with a more holistic understanding of both from the perspective of long-term revolutionary goals. As an anarcho-communist, I view both proposals (technically three proposals, more on that later) through the lens of which can best situate the working class to seize the means of production to establish a decentralized communist production and distribution network.

New Post at NSER: Experimental Evidence of Sunspot Bank Runs

Last week, I attended a seminar by Jasmina Arifovic. I did a write up at the New School Economic Review blog:

For all the adoration that the gold standard gets from radical libertarians, currency is surely more stable without it. On the gold standard, currency crises were so regular that social scientists and philosophers came up with all sorts of theories to explain them. Some of them were really weird.

Among the weirdest was the sunspot theory of bank runs. Through several blind leaps of conjecture, William Stanley Jevons connected the occurrence of sunspots as having an (unproven) effect on crop yields which, in turn affects farmers’ debt from seed to harvest.

Later Arthur Pigou and later John Maynard Keynes used the phrase to describe sudden shifts in financial markets not based on changes in the fundamentals. A fluke. A panic. A sunspot. A bankrun.

Read the rest here

When Commodities are Contracts

On Monday, I brutalized my muscles in my first Krav Maga class. Afterwards, I got drinks with one of the people from the class who turned out to have a really interesting finance job. He is a lawyer who writes contracts for derivatives.

In my naivete, I said something to the effect of, "That must be exhausting writing and reviewing all those contracts so quickly." His response made me think about something in derivatives markets I had never thought of before. As he explained it, his job was to draft template contracts in advance of trading. He said that a minor oversight in the wording could mean thousands of trades that have nothing to do with fundamentals.

So in addition to "animal spirits" affecting the financial markets seemingly at random, the legal frameworks under-girding the financial market itself pushes traders in various directions. So much for fundamentals.

The D.E.N.N.I.S. System of Capitalism

I'm a pretty big fan of It's Always Sunny in Philadelphia being a 20-minutes-outside-of-Philly boy myself. The show itself centers around five sociopaths who run an Irish bar in the only city where it's worth getting a cheese steak.

One of the characters, Dennis, is an incredibly narcissistic womanizer. Throughout the course of the series, it is revealed that he has multiple bench warrants for sexual misconduct and keeps duct tape, a Maglight, and a bundle of zip ties in a hidden compartment in his car.

In one episode, he reveals that he has a systematized his pattern of abusive and manipulative behavior into a mnemonic eponymous acronym. Oddly enough, this system also works quite well to explain how the capitalist system conditions the working class into accepting their conditions of poverty.

#tbt Matias Vernengo 2006 Technology, Finance, and Dependency: Latin American Radical Political Economy in Retrospect

Through my odd traverse through economics education, I admittedly haven't gotten into Dependency Theory. This past weekend, I decided to finally look into it. In general, I'm rather impressed. As an anarchist, I generally appreciate any theory which takes as its foundation relationships of power in thinking through social and political relations.

This paper by Matias Vernengo provides a great introduction to dependency theory. Vernengo, who maintains the blog Naked Keynesianism, outlines the development of Dependency Theory through the scholarship of primarily Latin American and US American neo-Marxist and structuralist thought.

Download the paper here

Neoclassical Production Function Reader

Two-Factor Production Function

Charles Cobb & Paul Douglas - A Theory of Production

Robert Solow - Technical Change and the Aggregate Production Function

Anwar Shaikh - Laws of Production and Laws of Algebra: Humbug II

CES Function

Kenneth Arrow, et al. - Capital Labor Substitution and Economic Efficiency

Jesus Felipe & John McCombie - The CES Production Function, the accounting identity, and Occam's razor

Endogenous Technical Change

Paul Romer - Endogenous Technological Change

Francesco Caselli - Accounting for Cross-Country Income Differences

Michael Isaacson - Braaaaaaaains! The Undead Humbug Production Function: Now With Human Capital

#tbt ICPH 2013 An Election Primer on New York City’s Homeless Families: The Public Policies of Four Mayors, 1978–2013

So in preparing for a job interview today, I am reading this report by the Institute for Children, Poverty & Homelessness. It's a fascinating tale of the increasingly terrible policies for homeless families since the Reagan counterrevolution. Prior to the mayorship of Ed Koch, New York City had no official emergency shelter system, and relied on a loose network of private landlords and non-profits to fill the gap. Koch implemented a more formalized public shelter system that often found itself underfunded, overcrowded, and in violation of the law. As the wave of privatization and means testing kicked in in the 90's, the shelter system was drawn down by contracting services and refusing requests for housing. When Bloomberg took office, he did everything in his power to take the burden of solving homelessness off of the city government by outsourcing services to private for-profit companies, most without any sort of contract.

The report does a really great job with telling the story of the Department of Housing Services and the city's battle with the law requiring that the homeless be taken care of. It does, in my opinion have two blind spots. The first is that it largely fails to present these events in the political and social context of their time. As such, it often presents the actions taken by certain mayors as merely bad decisions rather than ideologically driven decisions. Second, in its narrow scope to focus on just the provision of housing (and just emergency family housing at that), it fails to take into account the effect that policies around policing, public transfers, and public employment programs had on exacerbating the crisis of homelessness that the city has faced for at least the past 45 years.

Download the full report here

BRAAAAAAAAINS!!!!

After weeks of googling myself, I am pleased to announce that my working paper on human capital augmented production functions is finally live on RePEc. You can view it here. You might recognize the theoretical proof from a previous post I wrote on here a few months ago while the paper was still in development.

What is in the paper that was not in the blog post are as follows:

1. A reasonable review of the literature
2. A simulation to drive the point home
3. Zombie puns

Enjoy, and leave comments below. Or cite me in a rejoinder - that would be cool too!

UPDATE: In the interest of transparency and what I meant to do but just forgot (thanks to Robert Vienneau for reminding me), here are my R scripts. I apologize in advance about the run time of the second one:

Humbug Simulation
Success Simulation

If you have any trouble with the scripts, make sure you clear your R environment from one before running the other.

#tbt A.W. Phillips 1958 The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957

Perhaps one of the most misremembered paper in macroeconomic theory is that which gave birth to the famous Phillips Curve. The original paper, which drew upon nearly a century's worth of UK data, demonstrated an empirical relationship between the rate of unemployment and the change in nominal wages (commonly referred to as wage inflation). The result - that money wages increase more rapidly with less unemployment - opens a few potential theoretical interpretations.

The Marxian interpretation would have it that larger pools of unemployed workers would make the overall workforce more disposable, hence reducing worker power to secure higher wages. This is largely the position that Phillips himself took although I don't believe he labelled it Marxian.

Another interpretation embraced by the mainstream of economics asserts that this relationship indicates the tendency for programs geared towards "artificially" reducing unemployment ultimately results in inflation. The underlying presumption here is that any sort of policy intervention to boost employment will necessarily be less productive than the private sector. Thus, additional workers employed at the going wage but producing less value will lead to more money chasing fewer goods. With a larger supply of money in the hands of workers but not as much to spend it on, these wage earners will simply bid up prices, leading to inflation.

Here, we have the recipe for the bastardization of the Phillips Curve by the likes of Ned Phelps and Milton Friedman. These two reinterpreted the Phillips Curve to be a relationship between unemployment and price inflation. This version of the model broke down soon after it was developed during the oil price shocks of the early 70s. Hence, a new breed of economists, led by the likes of Robert Lucas, Finn Kydland, and Edward Prescott, proclaimed that discretionary economic policy could not work because the model that economists had (over)developed failed to predict inflation due to structural changes. These economists attributed this to reactions to policy pronouncements by economic actors on the basis of their expectations. Hence, this later breed recommended policy rules that would set incentives for individuals to work around.

Anwar Shaikh has shown, however, that although the later versions of the Phillips curve don't hold, the original model still holds.

Download the article here

A New Consensus Physics Problem

This past semester, I took a seminar on economic methodology. Throughout the course, we talked a lot about the New Consensus obsession with microfoundations among other things. I presented this physics problem to the class and the New Consensus answer.

Problem: You have enough 1 cm diameter marbles to fill a 40 cm diameter, 30 cm high bucket. If you were to pour them in, how many marbles would be touching the bottom of the bucket.

New Consensus Answer: All of them. Since an individual marble will be pulled down by the force of gravity to the bottom of the bucket, this means that each marble will go to the bottom of the bucket. Therefore all of them. If they don't all touch the bottom, then there's probably something wrong with the marbles.

"Heterodox Economists Don't Do Math" Reader

Anwar Shaikh - All the Humbug Papers. Literally all of them.

Herbert Simon - A Formal Theory of the Employment Relation

Thomas Herndon et al. - Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff

Duncan Foley and Deepankar Basu - Dynamics of Output and Employment in the U.S. Economy

Jesus de Felipe and John McCombie - The CES Production Function, the Accounting Identity, and Occam's Razor

Interview on Unemployment with Orchestrated Pulse

Yesterday, I sat down for an interview with Robert Stephens II of Orchestrated Pulse for an interview on how unemployment fits into the capitalist system. We talked about what unemployment is, and why the unemployed are necessary for the power of the boss over workers. Needless to say, I threw some Kalecki into the mix and somehow managed to work in a shout-out to Ed Baptist's new book.

R: What is unemployment?

Mike: Everyone, workers and business owners, needs employment, but for different reasons. The workers need consistent employment so that they can buy the things they need to survive. Business owners need employment because it is ultimately human effort that creates the things that they sell for a profit.

Thus, we can take two perspectives on employment. First, it can be for the purpose of determining how much work is needed for bosses to maximize their output. Second, it can be for the purpose of determining how much work is needed for workers to maintain a given standard of living. Whichever version we choose, unemployment becomes the amount of labor that we believe society isn’t producing.

To speak of unemployment, we need a very specific type of economic system. It has only been within the last 400-600 years that “employment” has become a necessity as an end in itself.

Check out the interview on Orchestrated Pulse

#tbt John Hicks 1980 "IS-LM": An Explanation

Nearly every intermediate macroeconomics class teaches the IS-LM model. I have to admit it never really made sense to me until grad school. To be technical, it never made sense to me, but I learned how the assumptions of the model worked.

This model, originally created by John Hicks as a pedagogical tool, became an analytical monster. This article was an attempt to correct this misapplication.

It didn't work.

Download the article here

#tbt Richard M. Goodwin 1967 A Growth Cycle

One of my mentors says that the best articles are short articles, and holds this one up as the shining example. At seven pages, "A Growth Cycle" breaks the boundaries of dynamic systems theory and develops a Marxian theory of economic growth and crisis.

It's important to note that the Goodwin model is a pedagogical tool. The model is designed to provide a mathematical and graphical example of the political and economic tension of class struggle. In representing the dynamics of class struggle, Goodwin borrows a model from evolutionary biology to explain the population dynamics between predators and prey.

Download the article here