Podcast: Miles Kimball on the Fed's New Jerome Powell Era

Link to the podcast shown above

Link to the podcast shown above

The interview with me on the Fed begins at the 26 minute mark. I posted "A New Era for the Fed" the same day I did this interview. 

There is also a segment about "What I Got Wrong" at the 53 minute mark, related to my posts "Jason Fung: Dietary Fat is Innocent of the Charges Leveled Against It" and "Obesity Is Always and Everywhere an Insulin Phenomenon." 

Analogies Between Economic Models and the Biology of Obesity →

Michael Weisbach: Posters on Finance Job Rumors Need to Clean Up Their Act, Too

                                                                MIchael Weisbach

                                                                MIchael Weisbach

Michael Weisbach holds the Ralph W. Kurtz Chair in Finance at Ohio State University. When he saw the two posts here on the Economics Job Market Rumors website

Michael thought immediately of how bad Finance Job Rumors was as well. Finance Job Rumors is technically part of Economics Job Market Rumors, but in practice involves a different set of people, but with similar online behavior. I encouraged Michael to write a guest post about Finance Job Rumors. You see his words below.

I, like many others, was appalled (but not surprised) when I read about Alice Wu’s study about sexism in EJMR.  We in finance have our own message board inside EJMR (called Finance Job Rumors).  Unfortunately, we are not immune to the issues Ms. Wu describes in her paper. Our board regularly contains sexist and racist comments about many members of the profession. After communicating with Miles about his entry on the subject, which I thought was terrific, he invited me to post some thoughts about the finance board on his blog.

The finance board appears to be dominated by graduate students and assistant professors who are having difficulty finding success, either in completing their degree, getting a job they are happy with, or publishing their research. The overall theme of the board is unfairness. Posters love to complain about how the profession plays favorites and values connections more than it should. They are not in the “mafia” that runs the profession, didn’t go to “HRM” schools as students (the EJMR name for the top 5 or 10 schools), are not of a protected minority, do not have connections (either personal or professional) with the powerful people in the profession, and, most of all, in their own minds, are themselves true scholars unlike the people who are successful at getting papers published (whom they call “regression monkeys”).

What has happened on the finance site is that the comments have become, in a large number of cases, very mean and personal. The targets of posters’ vitriol are anyone who is successful. Favorite targets tend to be top assistant professors and the current stars of the job market. As Ms. Wu pointed out, women are much more likely to be criticized, especially if posters think they are attractive. But there are others as well: if one is related to a senior member of the profession, or if posters have decided that one does not deserve his status in the profession for some reason, the board can be particularly mean.

I of course have been criticized on the site. For example, I was interested to learn from an anonymous poster that I free rode on the seven papers and one book that I wrote with Ben Hermalin. In fact, he did all of the work on them while I did nothing meaningful.  Fortunately, this criticism is fairly minor and obviously incorrect, and most importantly for me, nothing about my personal life or appearance has made it onto the board (that I know about). I’m sure if I were an attractive female instead of a balding middle aged guy, a lot more would have been written about my appearance. And I’m sure it would have been especially hurtful.  It actually hurt quite a lot to read the relatively mild things that were posted about me, I can only imagine what it is like to one of the frequent targets of the posters there. It must be truly awful to be a new member of the profession and to read these things about oneself online. 

Ours is a tough profession. It is hard to do research, to get a good tenure track job, and to publish one’s research. Some of the issues the board focuses on are real. There is way too much discrimination against Asians, and it is true that high profile people get a far easier time from journals than people who have not yet developed reputations. It is natural that there is resentment. Many very smart, hard-working people cannot get jobs they are happy with and cannot publish their research in top journals.

But the board creates real problems.  Young scholars should not have to have anonymous posters assaulting their character or personal appearance, or making cheap shots about their work in a forum where a large fraction of the profession will see it. It isn’t clear what to do about the situation. There is freedom of speech and it is impossible to monitor or regulate what is posted online. As a first step, I would implore all posters to remember that when you discuss someone online, they will undoubtedly read it, as will their friends and sometime their families too.

           

A New Era for the Fed

FederalReserve1 (1).jpg

Congratulations are due to Jerome Powell on being nominated to be Chair of the Board of Governors of the Federal Reserve. At this point I know Jerome Powell only from news reports, though I was pleased to realize a few days ago that the locked-down Twitter account @jeromehpowell created in 2011 is following me, as well as several of my friends in the blogosphere. If he is reading this, let me say that I would be glad to craft a blog post on any topic he would like to hear my opinion on, and would be happy to do so while keeping his query confidential. 

As top dog, Jerome Powell may reveal a strategic perspective that was hidden from view while he was just a member of the Board of Governors being a team player. That sort of thing does happen: my grandfather was a Mormon Church leader who faded into the background—until by longevity he became President of the Mormon Church and turned out to be one of the pivotal leaders of the Mormon Church in the 20th century, with a broad strategic vision no one expected. 

But there is also an excellent chance that Jerome Powell, as someone who believes in consensus, and has come to respect the Fed's excellent permanent staff through his service so far, will continue to be guided in important measure by the Fed staff.

Given that possibility, it is more important than ever for the Fed's staff economists to step up their efforts to prepare for the next recession or other crisis, even though several more years are likely to intervene before that next recession or other crisis hits. The decline of the natural interest rate and inflation call for the development of new tools of monetary policy, beyond what were used during the Great Recession and its aftermath. (Anyone on the Fed staff who feels complacent about the future after the experience we have been through and the dangers that remain should wake up and smell the coffee!) And even if we had in place the key tools for dealing with future shocks—deep negative interest rates and vert high capital requirements—there are many other improvements that can be made to monetary policy.  

I have laid out my views on the urgent research agenda for monetary policy in my paper "Next Generation Monetary Policy." In brief, the pluses and minuses of each of these possible dimensions of monetary policy need to be studied carefully, so that by the time of the next recession or other crisis, we know the virtues and vices of each:

  1. eliminating the zero lower bound or any effective lower bound on interest rates
  2. tripling the coefficients in the Taylor rule
  3. reducing the penalty for changing directions
  4. reducing the presumption against moving more than 25 basis points at any given meeting
  5. a more equal balance between worrying about the output gap and worrying about fluctuations in inflation
  6. focusing on a price index that gives a greater weight to durables
  7. adjusting for risk premia
  8. pushing for strict enough leverage limits for financial firms that interest rate policy is freed up to focus on issues other than financial stability.
  9. having a nominal anchor.

Many of these will be very good for the nation and the world, but have political ramifications as well. For the Fed staff, let me say there is a good chance Jerome Powell will not only listen to you, but will be good at running political interference for the Fed to make it feasible for the Fed to get away with doing the right thing.

John Locke on Diminishing Marginal Utility as a Limit to Legitimately Claiming Works of Nature as Property

At least on the surface, a great deal of the inequality in the United States today seems to be about the ownership of land. But on closer examination much of what we think of as the value of land is often the value of a grant from a local government (that doles such things out in a miserly fashion) of the right to build on a piece of land. Or often, it is the value of having something already built on a piece of land that has escaped by a grandfather clause from what would otherwise be a prohibition against building on a piece of land. The monopoly local governments have over all rights to build within a substantial area, and what they do with that monopoly, ends up keeping many people from being able afford to live near jobs that would sustain them financially or live near amenities that would brighten their lives. 

But even if there weren't such, one could worry that land ownership could be the source of much inequality--and a source of inequality that at some point in the past wasn't justified by an individual's effort or saving. John Locke tries to deal with this in two different way in his 2d Treatise on Government: “Of Civil Government”: by saying land can be claimed from an unowned state when labor mixed with it (see "On John Locke's Labor Theory of Property" and "John Locke: Property in the State of Nature"), and by saying that diminishing marginal utility limits how much land an individual can claim. In section 31 (in Chapter V "Of Property") he writes:

It will perhaps be objected to this, that if gathering the acorns, or other fruits of the earth, &c. makes a right to them, then any one may ingross as much as he will. To which I answer, Not so. The same law of nature, that does by this means give us property, does also bound that property too. “God has given us all things richly,” 1 Tim. vi. 12. is the voice of reason confirmed by inspiration. But how far has he given it us? To enjoy. As much as any one can make use of to any advantage of life before it spoils, so much he may by his labour fix a property in: whatever is beyond this, is more than his share, and belongs to others. Nothing was made by God for man to spoil or destroy. And thus, considering the plenty of natural provisions there was a long time in the world, and the few spenders; and to how small a part of that provision the industry of one man could extend itself, and ingross it to the prejudice of others; especially keeping within the bounds, set by reason, of what might serve for his use; there could be then little room for quarrels or contentions about property so established.

This means that the first few humans to go to a big new region should not have the right to claim the whole big region in order to profit from selling those rights to those who came later. Instead, they should only be able to claim the amount they can use with a reasonably high amount of additional utility from each acre. 

A principle that diminishing marginal utility limits the amount of previously unowned land one can claim can make land reform at the point a country modernizes reasonable: it is likely that those who have large amounts of land either inherited it from someone who claimed too much in the distant mists of the past, or inherited it from someone who stole the land from someone who had a more legitimate claim at that time. (There is a logical possibility that someone worked really hard and bought land from others fair and square, but I don't think that describes the modal large landowner in the types of countries that have done a land reform.) 

One current issue in the US where the principle that land claiming is limited by diminishing marginal utility is in rules governing coastal land. The Common Law makes land up to the high water mark a commons. This makes sense given the high marginal utility people get from swimming, enjoying the beach in other ways and walking along rivers. There is a constant temptation for those who own a house near a stretch of beach or river to obstruct others' access to that body of water. But the great enjoyment people get from having that access should make us suspicious of even very rich people who feel very much entitled to do so trying to get away with excluding people from that natural water access.  

One of the troublesome aspects of John Locke's principles for claiming land is that an amount of land that would be unreasonably large for someone to claim if the relevant technology is agricultural would be quite reasonable to claim if the only available technology was hunting and gathering. Thus, even though John Locke is coming from a place not very sympathetic to them, the Native Americans had a legitimate claim to their land even according to John Locke's principles according to the mostly hunting and gathering technology that prevailed when they, in fact claimed the land. To justify, theoretically, taking that land from the Native Americans, one would have to add the principle that when technology changes so that people need less land to support themselves, then previous land claims need to be reevaluated. In general, such a principle is a recipe for a big mess. Better to, at a minimum, require rich outsiders to purchase land as European Americans did from Native Americans in a few cases, and as the European New Zealanders did to a much greater degree from the Maori. If technology has really improved dramatically, they should be able to do so. So this is a safer principles for dealing with improvements in technology for getting more out of a given amount of land. To some, given large enough technological differences, the purchase prices in that kind of situation may look almost the same as forcible dispossession, but morally,  purchase even at a low price is vastly different from forcible dispossession.

(There is, of course, an issue of whether collectively-owned land was sold by appropriate collective decision-making processes. Did everyone who had partial ownership get compensated in some way? Did the individual who purported to sell violate group norms in doing so? This is akin to the idea that an important component of so-called colonial exploitation is often providing tools at a price to one set of indigenous people who want to oppress another set. One key subspecies of this is to give weapons to one set of indigenous people to steal ownership of something from another set of indigenous people and then sell portion of that to the outsiders.) 

I like it that (by my interpretation) John Locke has the equality-favoring principle of diminishing marginal utility built in as a component of his rule for claiming as property things created by nature. (Here I have written about land, but ideas logically available would be another set of things created by nature worthy of consideration in another post.) Diminishing marginal utility was one of the themes in my inaugural post "What is a Supply-Side Liberal?" and something I have followed up on in other posts as well:

Because John Locke's ideas are so often used as a justification for the inequality we see around us being morally legitimate, it is good to be alert to every place where what he says doesn't necessarily go in that direction. Some inequality is justified, some isn't—by John Locke's theory as well as most other theories. (Trying to make the distinction between legitimate wealth and illegitimate wealth is a key theme of my column "Odious Wealth: The Outrage is Not So Much Over Inequality but All the Dubious Ways the Rich Got Richer.")

 

Update: Related to this post, John Quiggin writes "John Locke Against Freedom." Highly recommended.

Don't miss other John Locke posts. Links at "John Locke's State of Nature and State of War."

Faye Flam: The Taboo on Dietary Fat is Grounded More in Puritanism than Science →

Kearns, Schmidt and Glantz—Sugar Industry and Coronary Heart Disease Research: A Historical Analysis of Internal Industry Documents

Hat tip to Jakob Nays's comment on my post "Obesity Is Always and Everywhere an Insulin Phenomenon"

In case it is too small to read above, here is the abstract, which says it much better than I could: 

Early warning signals of the coronary heart disease (CHD) risk of sugar (sucrose) emerged in the 1950s. We examined Sugar ResearchFoundation (SRF) internal documents, historical reports, and statements relevant to early debates about the dietary causes of CHD and assembled findings chronologically into a narrative case study. The SRF sponsored its first CHD research project in 1965, a literature review published in the New England Journal of Medicine, which singled out fat and cholesterol as the dietary causes of CHD and downplayed evidence that sucrose consumption was also a risk factor. The SRF set the review's objective, contributed articles for inclusion, and received drafts. The SRF's funding and role was not disclosed. Together with other recent analyses of sugar industry documents, our findings suggest the industry sponsored a research program in the 1960s and 1970s that successfully cast doubt about the hazards of sucrose while promoting fat as the dietary culprit in CHD. Policymaking committees should consider giving less weight to food industry-funded studies and include mechanistic and animal studies as well as studies appraising the effect of added sugars on multiple CHD biomarkers and disease development.

For more contrarian discussion of nutrition, obesity and chronic diseases, don't miss:

Paul Krugman on John Taylor and Admitting Error

In his October 23, 2017 New York Times op-ed "Trumpal Infallibility," Paul Krugman attacks what he characterizes as Republican Party attitudes toward monetary policy. Paul fails to emphasize the many Republicans who have very sensible attitudes toward monetary policy, including my dissertation advisor Greg Mankiw and Ben Bernanke himself when Ben was still a Republican. Moreover there are many bloggers who seem fairly conservative who are very sensible on monetary policy. I am thinking here of the deeply perceptive Scott Sumner, whose party affiliation I don't know. Nevertheless, Paul is right about a key subset of Republican-Party-linked commentators on monetary policy: 

... when the 2008 financial crisis struck, the Federal Reserve, led at the time by Ben Bernanke, took extraordinary action. It cut interest rates to zero and “printed money” on a huge scale — not literally, but it bought trillions of dollars’ worth of bonds by creating new bank reserves.

Many conservatives were aghast. TV pundits hyperventilated about hyperinflation, and even seemingly more respectable voices denounced the Fed’s actions. In 2010 a who’s who of conservative economists and pundits published an open letter warning that the Fed’s policies would cause inflation and “debase the dollar.”

But it never happened. In fact, the Fed’s preferred measure of inflation has consistently fallen short of its target of 2 percent a year. ...

An even bigger failure was the failure of this subset of commentators on monetary policy to admit their mistake: 

Four years after that open letter to Bernanke, Bloomberg tracked down many of the signatories to ask what they had learned. None of them — not one — was even willing to admit having been wrong.

I think of Paul Krugman as someone who is below average in willingness to admit a mistake. Yet even Paul is much better at admitting mistakes than that. Here is Paul's declaration of his own willingness to admit mistakes:

Now, every economist makes bad forecasts now and then — if you don’t, you’re not taking enough risks. I’ve certainly made my share, including a bad market call on election night — which I retracted three days later, acknowledging that my political dismay had gotten the better of my analytical judgment. But I always try to face up to my mistakes and learn from them.

I hope I am someone willing to admit mistakes. I promise to try in my bio (see the link at the top of my blog) where I write of myself "Miles ... holds many strong opinions—open to revision in response to cogent arguments." Many of my more popular storified Twitter discussions that you can see here feature me admitting error, as do many of my blog posts, and even two of my Quartz columns:

Now, apply that test of willingness to admit mistakes to John Taylor, who is being considered as Chair of the Federal Reserve Board:

Since the financial crisis, however, he has repeatedly demanded that the Fed raise interest rates in line with a policy rule he devised a quarter-century ago. Failing to follow that rule was supposed to cause inflation, which it hasn’t — but seven years of being consistently wrong hasn’t inspired any rethinking on his part.

What it has inspired is a descent into increasingly strange reasons the Fed should raise rates despite low inflation. Easy money, he declared, was part of a conspiracy to “bail out fiscal policy,” that is, an effort to help President Barack Obama. Or maybe it was like the monetary equivalent of rent control, discouraging lending the way rent control discourages building apartments — a bizarre analysis that had colleagues scratching their heads.

I like John Taylor personally very much, and have had several positive interactions with him at conferences. These positive interactions came in the years after I posted "Contra John Taylor," which Paul Krugman links to from the phrase "scratching their heads" in the passage just above. I have always wondered whether John didn't realize that I had written a post disagreeing with him so strongly, or if he did realize it but was fine with that kind of vigorous intellectual debate. If the latter, that should be counted in John Taylor's favor. The bottom line is that I haven't quite figured John Taylor out. If he does get appointed as Chair of the Federal Reserve Board, we will all learn a lot more about him and his deepest beliefs about monetary policy. 

Update: Lars Christensen adds this very interesting note on my Facebook page link to this post: 

Lars Christensen Krugman also forgets how silly many leftists are in regard to monetary policy. In fact most self-declared US leftist economist post-2008 said monetary easing would not work. Krugman himself said that. 

And Obama appointed hawks to Fed positions and since 2015 the Democrats Yellen and Fisher have argued for tighter monetary conditions despite the Fed continuing to undershoot its inflation target. 

But obviously as usual Krugman lets party political come before economic analysis. 

By the way Scott Sumner neither a Republican or a Democrats. He is a moderate (small l) libertarian. I think he voted for Hillary. But yes, he is traditionally seen on the right of US politics.

But Krugman should have the decency to acknowledge that the group of economists who consistently since 2008-9 has argued for monetary easing in the US have been market monetarists. And most of us a (mostly non-partisan) classical liberal/libertarians or conservatives.

Lars's note and Brad Delong's comment in response spilled over into an interesting debate on Twitter that I have storified as "Responses to the Great Recession." 

Diana Kimball: Listening Creates Possibilities

                                                                      &nbs…

                                                                                                Link to dianaberlin.com

                                                                                           Link to this letter from Diana

I had a wonderful conversation with my daughter Diana the other day. I didn't know quite why that conversation had gone so well until she shared with me this note for her blog. (We were both careful to get permission from the other to talk about this interaction with you.) Here is Diana's account:

Last Tuesday, my dad called. The plan was to talk briefly about a big decision I had coming up; Erik and I were considering making an offer on a house, and I’d texted my dad to see if he was free to talk it over.

On our way to the topic at hand, he asked: how are you? I mentioned that I’ve been busy at work recently, and that I’ve been trying to get to the bottom of my digestive problems. He picked up on the digestive thread, and said: I’ve been reading a book that could help you!

He started talking about the book. To be honest, it didn’t sound that related. But I listened politely, waiting for “my turn,” knowing he had my best interests at heart. We’d get around to talking about the house eventually.

And then the barest hint of an insight scraped the inside of my brain: he is so excited about this book.

“Dad!” I said at the next pause. “You sound so excited about this book.” And then a pattern that’s second nature from coaching tumbled out of me almost automatically. “What’s—what’s exciting about it?”

What happened next made me kick myself. That one simple question, born mainly of frustration, opened up an entire treasure chest.

The book was changing his life. He was realizing its topic was part of his life purpose—so much so that he’d added it to his Twitter bio. It wasn’t his discovery, but he figured that by steadily sharing the findings within his community of economists, he could still make the difference in the world that mattered most to him. It was a huge deal.

Before my question, my dad had been halfheartedly trying to wrap up his story—halfheartedly, because he couldn‘t really contain his excitement. His passion and the model of a balanced, see-saw conversation were in tension. After I asked my question, he shared at length—his voice going high and low, really expanding on what it all meant. As I listened, I couldn’t believe I’d nearly missed the chance to hear about something that mattered so much to him. Once I stopped rushing him with my polite, trying-to-be-patient silence, I started hearing about who he is and how he’s changing. One question changed the course of the conversation—and I wouldn’t be surprised if it changed the course of our relationship.

In the end, we got around to talking about the house. When we did, it felt natural—no more than a few minutes of comparing notes from a place of connection. Come to think of it, connection was probably all we both wanted in the first place. Connection comes from whatever’s true in the moment. And you can only hear what’s true in the moment if you’re really listening.

The ideas I was so excited about came from Jason Fung's books The Obesity Code and The Complete Guide to Fasting. (One of his key arguments is that going for periods of time without food has gotten a bad rap.) I distilled the insights I got from The Obesity Code in my post "Obesity Is Always and Everywhere an Insulin Phenomenon," and a brief overview in a few tweets I arranged in the story "On Fighting Obesity." 

In dollar terms, establishing the truth about what has caused the rise of obesity and the diseases of affluence correlated with obesity would be worth trillions and trillions. The diseases of affluence (diabetes, heart disease, strokes, ...) have caused people around the world untold suffering. And for some, obesity itself causes suffering. I believe Jason Fung is on the right track, having himself synthesized a great deal from research that has been done on the body's internal regulation of fat storage and from his own clinical experience as a physician.

As it is, in most people's minds, including the minds of many scientists, the truth about the causes of obesity and the diseases correlated with it is obscured. The continued rise in obesity is a hint that the conventional wisdom about obesity is wrong. So it is exciting to be involved in trying to get things right, not only in my own mind, but in the world at large as well.