Paul Krugman lives his words

I hope that readers will forgive a personal anecdote.

Over the weekend, Paul Krugman wrote a blogpost entitled "Pulling Rank:"

I don’t have time right now to track down all the examples, but if you look at how many freshwater macroeconomists have responded to Keynesian arguments in this crisis, you find over and over again that they resort to assertions of privilege — basically, I am a famous macroeconomic expert and you aren’t — rather than really addressing the issues. And this is so ingrained a response, apparently, that they use it in situations where it’s truly ridiculous: Lucas accusing Christy Romer of not understanding basic macro, then demonstrating that he doesn’t understand Ricardian equivalence; Barro belittling the credentials of yours truly, just after forgetting that there was rationing and investment controls during World War II. 

Now for the anecdote part.  When I was a Ph.D. student in economics at Wisconsin, my advisor, Bob Baldwin, invited me to present a piece of our joint work at an NBER Conference called "Trade Policy Issues and Empirical Analysis."

I remember the night before the presentation--I had gotten to meet many of the people whose papers I had read in my graduate classes: Leamer, Feenstra, Rodrick...and Krugman.  It was at once a thrilling and scary experience, and when I went to bed that night, contemplating my audience for the next day, the fear took over from the thrill.  Let's just say that by the time morning rolled around, I am guessing my stomach had never been emptier.

I gave the presentation, and as best as I can tell, it went reasonably well.  I very much doubt he would remember it, but afterward Krugman, the young MIT full professor new trade theory rock star, came up to me, the nobody, Wisconsin graduate student,  to give me encouragement and advice on the paper.  He was very respectful--even collegial.  I will never forget it.

Robert Barro channels Marie Antoinette

In his Wall Street Journal column this morning, Barro argues that after a generation of policies that have increased income and wealth disparities, what we really need are policies that further increase income and wealth disparities.  For the sake of "liberals," however, he would countenance an exemption in his proposed VAT for food. I guess he is not willing to consider the importance of such an exemption to, say, people who don't have a lot of income.

Barro is among a class of economists to whom the median American is invisible.  They could all be played in the movies by Lionel Barrymore.

Labor Statistics and Confidence Intervals

According to the BLS establishment survey, non-farm private and public employment rose by 117,000 jobs in July.   http://bls.gov/news.release/empsit.b.htm.  This number was better than the consensus forecast of growth of 85,000 jobs.  It led at least one business economist to say we have "avoided the precipice."

But can a monthly number really tell us that?  The technical notes for the employment report says the 90 percent confidence interval for the establishment survey is 100,000 jobs.  This means the estimate has a standard error of about 100,000/1.64 or about 61,000 jobs.  To the distance between the consensus forecast and the actual number reported is slightly more than 1/2 a standard deviation.  This means we can be only about 60 percent sure that the employment number was better than forecast, which is a little better than a coin flip.

Burn the Forest Down (Shot by Morgan Green)

If that bridge, tunnel, runway, railway or road gets a 3 percent return

...it is a substantial positive NPV opportunity.  Who would have thought?

Yet another reason to never pay attention to interest rate forecasts

Yields--especially long-term yields--were supposed to rise on news of a debt ceiling deal; at least that is what I read would happen.

Bloomberg's end-of day yield curve, along with changes in yields for the day, is above.  Oh well.

This is not good for Los Angeles

Bloomberg reports:

Container-Ship Plunge Signals U.S. Slowdown.

San Pedro and Long Beach are the largest container ports in the US.