2002. Msivorytower - June 7, 1998 - 8:38 PM PDT
Slack, congrats on the millennial, and I'm very happy it went to an economist this time.
Bubba, cool post number (wish I'd thought to do it). Are you feeling *spacy* yet?
2003. wexxford1 - June 8, 1998 - 2:38 AM PDT
Wonderful to see the New York Times following my suggestion that people's capitalism needs more and more crazy securities to pump up the bubble economy.Prudential,says the Times 6/7, will soon market Dusty Springfield securities.Hambro is working on a deal to sell the paper of Frank Thomas, the White Sox slugger.And the writers of
" Stop! in the name of Love," just sold $30 million of their securities backed by their royalties.This last one got an A rating from Moody's .( We will now take time for pseudofella to boringly tell us that Moody's, Prudential and Hambros are amusing, but crazy.) Will pseudo admit he's operating from an old worn out script ? Anything that earns money is turning into a security, pseudo, and that's how the bubble economy works, little man .Why, if you improve your thinking, and stop frothing at the mouth, maybe Prudential will some day sell you. Wall Street has the right script, pseudo and you'd better follow it or be declared obsolete . "Onwards with people's capitalism," says Wall Street.When I told you that the $55 million David Bowie bond deal was a landmark, pseudo, you began frothing at the mouth. Get real, fella and stop filling up the fray with your machine-made nonsense .In the meantime, the rest of you may be able to sell your future income stream and get an A rating from the rulers of the game at Moody's.In the meantime, economists continue to get paid and the number of needy lawyers employed on the Monica thing seems to be doubling.Washington lawyers need to be cut in on the bubble economy, too , as deregulation takes a good hold. Lighten up there pseudo.
2004. brerlou - June 9, 1998 - 1:25 AM PDT
I'd meant to say this to P.E., but now seems appropriate.
It should be clear by now that courtesy is not an exercise in hypocrisy but a technique of communication; and that impolite "resident" experts kill a thread, as surely as I've seen them kill many a college course. As Samuel Johnson commented once about some literary work; "It hath not enough wit to keep it sweet (palatable)."
Why should our politness hinge upon our confidence about the material, or ourselves? Why should one man's psychic pain set the literary tone for a whole magazine?
After the saloon proprietor has ejected the nice young man and lady who obviously didn't belong, his patrons depart, sickened. In a darkened corner is left an incoherent drunk, happily mumbling to himself,
"He's all Wex ... wex ... can afford!"
2005. brerlou - June 9, 1998 - 1:44 AM PDT
I'm not sure that I like this medium. It's too easy to vent verbiage.
I had the previous sentiment in mind to express, but I don't think I meant to say it on this thread, or did I? A glance at the back posts don't seem to justify it, except for the Wexford bit.
Boy, those rum and cokes will get you!
2006. Slackjaw - June 9, 1998 - 1:48 AM PDT
Pardon me for being thick, brerlou, but what are you talking about? Are you saying that a kinder, gentler group of locals would make for more activity around these parts?
2007. Msivorytower - June 9, 1998 - 5:53 AM PDT
Yes, Brerlou
Just what was that about? You must be nursing one hell of a bruise from PE if it's lingering around this long, since he's been almost absent for the last month.
Et. Al
The thing that always tickles me when people speak about courtesy is that they hardly *ever* remember their own discourtesies toward other people, just those perpetuated against them.
And just what constitutes courtesy in this forum anyway? Or, for that matter, what *does* kill a thread?
My own take on this last question is that nothing kills a thread faster than trivial chatter. Or interjections of inanity in a discussion. Utterly boring. I would bet others see it differently, however.
So, it seems to me that this is a classic problem in communication that's based on individual tastes and preferences. There is no consensus about what this site is about, what is reasonable behavior, and what is generally interesting to many. Under these circumstances, people interact based on their own views about the forgoing issues.
2008. wexxford1 - June 10, 1998 - 4:56 AM PDT
Bubble economy has just been exported to France through our great people's capitalism .And that "socialist" French P.M.just loves this bubble economy as a machanism to get the flogged out French system revved up.Looks like them French economists are going to be out of jobs, eh pseudo? Next step : we'll merge the Euro and U.S. markets and really get this bubble economy off to the races . The PR guys led the invasion, the money management fellas are pouring in.Pseudobaby, get on board,sonny.There's truckloads of money to be made in the bubble as its pumped bigger and bigger.
2009. thoughtful - June 10, 1998 - 10:06 AM PDT
In case anyone is interested in getting a conversation going again about the economy, we could start with Greenspan's testimony today. Here it is.
Sounds to me like he's buying into this new paradigm stuff more than he's relying on a slowdown from the trade sector. Foolish, foolish, person.
2010. bubbaette - June 10, 1998 - 10:18 AM PDT
Thoughtful
Shhhhh.... don't say the "P" word around here.
2011. bubbaette - June 10, 1998 - 10:19 AM PDT
If you absolutely must use the P word, use this symbol instead: *
2012. Msivorytower - June 10, 1998 - 10:49 AM PDT
Thoughtful
I agree with your interpretation. Given what Scottloar and Socko posted yesterday in the international thread about the most recent currency depreciations against the dollar, I'd expect the trade sector to slow even more, and the trade balance to deteriorate.
I posted a scenario in reaction to a question of Socko's that looks exactly like what Greenspan identified the trends to be over the last several months since the Asian financial crisis, and I didn't have the numbers at the time. Actually, I'm not sure why he's so optimistic in the fact of the maturing of this expansion and the continued rise in the dollars exchange rate.
My own take is that this next year will be hard to predict, it could go either way, but I'm expecting the economy to slow, and the market to correct again.
What do you think?
2013. Msivorytower - June 10, 1998 - 10:55 AM PDT
Btw,
I'm also anticipating a slowdown in labor markets, that is, I wouldn't be surprised if the unemployment rate begins to rise slightly next year, with the decline in exports and the leveling off of productivity growth (ie, can it continue to improve? and if so, where is it coming from?).
However, Clinton just signed the highway bill worth some $203 Billion, of which $167 billion will go to road and bridge repair and renovations nationwide. I saw an estimate of some 400,000 construction jobs tagged to this work, so that may ease some of the likely loosening of the labor market that would otherwise occur.
I'd still expect wage increases to remain modest, though, and all those cheap foreign goods will keep consumer prices down.
What think you?
2014. Seguine - June 10, 1998 - 12:24 PM PDT
Thoughtful,
Thanks for the G-span link. But why do you say, "Sounds to me like he's buying into this new paradigm stuff more than he's relying on a slowdown from the trade sector"? On balance, his remarks seemed pretty cautious, merely entertaining the possibilty of new-paradigmishness.
Just curious.
2015. wexxford1 - June 11, 1998 - 5:05 AM PDT
Economists cannot explain Japan, says Slate guru Krugman.There ya go,you enthusiastic fraygrants. You babble away like millionaire TV newsreader morons ,as if you knew something about the bubble economy .Question of the day is : why have economists hanging around if they know nothing ? Ah, well. Even poor little pseudo's begging bowl somehow gets filled, even though his snarling gets more childish by the day .A sign of the bubble economy times is that Fortune magazine went into the gutter last night transferring its brand onto CNN where it rubs shoulder swith that great American philosopher, Larry
King .To keep those morons marching, the business reporting business has been turned into another idiotic cable/TV channel.And that's the way the bubble economy works, pseudo baby.jest get used to it, kiddo.
2016. thoughtful - June 11, 1998 - 9:36 AM PDT
Mit, yeah, most forecasters see a slowing economy. The problem is we've foreseen that for the last 2 years and it hasn't happened yet. Instead the economy seems to rise faster. Yes, the exchange rate outlook continues to be stronger for the dollar which will dampen exports and keep imports flooding in with some further downward pressure on goods inflation -- er -- deflation.
The problem is, we can't expect this cycle to look like past cycles because its genesis is different. Normally, fearing inflation, the Fed jacks up rates, whacking housing and autos first. Inventories rise, production gets cut back. The trade deficit usually starts to shrink as we cut back imports and exports typically continue to grow. Hours start to fall, then employment, income and profits and other consumer spending with investment being the last to feel it.
This time, the Fed is letting the trade sector take it on the chin, so it's starting with a RISING trade deficit and feeding through to inventories and production before the consumer sector is even feeling it. Thus we've had very strong housing, autos and extremely tight labor markets. (The unemployment rate for college grads is now 1.5%!) Profits are squeezed sooner with price deflation and rising labor costs and productivity slips with lower domestic volume. So the investment sector will feel it sooner than normal.
The key in my mind is, with the consumer being 2/3 of the GDP and with labor being 2/3 of inflation increases, will the trade sector suck off enough aggregate demand to ease labor markets and slow wage inflation? I don't think so. The temporary "beneficial" drivers of low inflation are nearing an end (e.g. benefits costs, falling oil, etc.), so soon the rising wage pressures will become most apparent in the aggregate inflation indicators.
The problem is, Greenspan sure sounds like he's not doing anything in the hopes of (mirabile dictu) a new paradigm for productivity growth. Sinc
2017. thoughtful - June 11, 1998 - 9:41 AM PDT
Damn! All my good writing was cut. I Hate that when that happens.
The 2 longest recoveries ended when the Fed waited too long to tighten, then finally tightened too much for too long, leading to a recession. In fact all of the recessions ex 1 since WWII were the result of Fed tightening. I fear they are on the cusp of making the same mistake yet again.
Earlier this week Krugman had a piece in the Financial Times claiming that Greenspan and the rest of the Fed were listening to the New Paradigmers instead of doing what it knows needs to be done -- tighten policy. I wasn't sure I agreed with him at the time, but after reading Greenspan's testimony, it sure fits what Krugman was saying.
2018. thoughtful - June 11, 1998 - 9:50 AM PDT
Seguine, call it art more than science in attempting to discern the Fed Chief's POV from well written, though ponderous, maze-like, and seemingly contradictory messages buried in his testimony.
The newswire summaries I received yesterday -- at the same time no less -- were headed something like, "Fed Chief Sees No Need to Raise Rates," and "Greenspan Vows to Raise Rates to Keep Inflation Low."
That's why I go right to the testimony, read it for myself, and then decipher it as best as I can.
Fundamentally, his testimony is *always* well balanced and inscrutable. That's what it's supposed to be. That's done intentionally.
2019. FrayVader - June 11, 1998 - 1:36 PM PDT
ATTENTION:
We'll be doing some server maintenance tonight, so Slate and the Fray will be _Read Only_ from 7 pm to about 10 pm PDT (10 pm to 1 am EDT).
Sorry for the inconvenience. During this period, you will be able to read the Fray, but will be unable to post.
2020. TomHewson - June 12, 1998 - 6:08 AM PDT
Japan is officially in yet another recession. The Economic Planning Agency said growth was negative in the January to March quarter, the second straight quarter of negative growth.
2021. thoughtful - June 12, 1998 - 7:26 AM PDT
The outlook for Asia continues to deteriorate. So much for the forecasting ability of all those great US CEOs who only a month ago at the Business Roundtable said the worst of Asia was behind us. And they think economists can't forecast !?! Ha!
2022. Seguine - June 12, 1998 - 9:18 AM PDT
Alright, economists. Recognizing that none of you can be held accountable for any advice you might offer, a qestion: if you had a choice to buy a house either in 2 months or 2 years, what would you do?
2023. ScottLoar - June 12, 1998 - 11:00 AM PDT
re Message #2022: You buy the house now, locking into low interest rates - and I'm not an economist so label it common sense.
2024. Msivorytower - June 12, 1998 - 11:11 AM PDT
Seguine
For me the issue would be to what purpose? If you intend to live in it for the next 5 years or so, then buying the house now is the reasonable thing to do.
If you have to move in a year or so, relocating to something permanent in 2 years, then it might make more sense to wait, particularly if you don't want to lose any money on the transaction between now and when you anticipate having to leave.
The third alternative is to buy now in a highly desirable area, one that real estate agents say doesn't depreciate in value much even when the market is bad. Then, if you have to leave in 2 years, you're much less likely to lose any money, and should be able to get out of the home fairly quickly.
Those are the issues I usually take into consideration, but they may have no applicability to your situation.
Interest rates are not going to go much lower over the next several months (I bet), so the rate market is not likely to improve in the near future. Predicting rates two years from now is somewhat useless, since we can't really predict where the economy will be in two years, at least with much precision to help you with this decision.
Here's the bottom line. If you can afford a house right now (ie the interest rate is good for you), and your housing market isn't overinflated, and you intend to live in it for more than 2 years, I'd buy now.
2025. Seguine - June 12, 1998 - 11:50 AM PDT
MsIt,
Well... thanks. However, that wasn't quite what I was asking. What I was hoping for was an economic prediction! Now: out on that limb. If interest rates rise and house prices in the desireable area in which I'm planning to buy stabilize or fall somewhat, am I not better off from a tax standpoint paying the higher interest rate on a cheaper property, getting the income tax deduction, and selling in 5-7 years when the economic bubble has ruptured and begun to repair itself, and housing begins to rise in value? If assets are generally overvalued at the moment, mightn't a bust bubble hit real estate markets hard, even in desireable areas? Or does real estate appreciation over the long term have little to do with the overall economy...?
(Please tell me all the things I don't and cannot know why I stand on one foot. Thank you.)
2026. Msivorytower - June 12, 1998 - 12:14 PM PDT
Seguine
Real estate appreciation, over the long-term, has little to do with economic ups and downs. It has to do with real (long term) interest rates, demographics and the long-term increase in real wages.
A 5-7 year time frame is plenty of time to buy when rates are somewhat high (in the short-term) and to weather any ups and downs inbetween. Over the 5 year period you can expect to recoup your original investment (that is, get out what you put in) and at least a 5% increase in value. That doesn't include the tax reductions you'll get on a yearly basis between when you buy and then sell.
"If assets are generally overvalued at the moment, mightn't a bust bubble hit real estate markets hard, even in desireable areas?"
If assets are generally overvalued right now, it's likely that any depreciation in value will work itself out within the time period you plan on holding the property. Only in the severest of cases does it take a housing market more than 3-5 years to recover.
For instance, the Houston housing market suffered almost a decade long dip in values (the value of houses dropped in the early 80's and didn't recover until around 90-91). But this was predominantly because of the impact of contractions in the oil industry and related businesses that had a specific impact on the local economy. Austin was similarly affected by the decline in oil prices in the 80's, but other industries came into the city and took up the slack, and the local economy was never as dependent as the Houston economy was on oil industry generated economic activity.
con't
2027. Msivorytower - June 12, 1998 - 12:14 PM PDT
Anyway, that's a long way around saying that the long term trend in housing is that it has always appreciated, and that it is more a function of the size of the labor market, the age of workers, and the growth in long term wages, than in specific moments of economic growth. One other variable that affects housing over the long term is the real interest rate, and that should be pretty stable over the next decade given the philosophy of the current Fed Reserve.
So, the short answer? Given your time frame, buy now.
(Is this more in line with what you wanted?)
2028. Seguine - June 12, 1998 - 12:35 PM PDT
"So, the short answer? Given your time frame, buy now. (Is this more in line with what you wanted?)"
Why yes, thank you. Just exactly. And I am soothed by your answer.
I need soothing. I have just sold a house that appreciated almost 10% in 4 1/2 years, all of which gain was consumed by exorbitant local transfer taxes (2% of sale price at purchase and 2% at sale) and the cost of necessary maintenance.
"One other variable that affects housing over the long term is the real interest rate, and that should be pretty stable over the next decade given the philosophy of the current Fed Reserve."
Thoughtful thinks that philosophy is misguided. You don't anticipate Mr. Greenspan will come around to her way of thinking any time soon, or that a change in philosophy won't be substantial enough to raise mortgage interest rates to the point where they would have much effect on property sales/values?
A few months ago I saw a post from Pseudoerasmus about boarding an airplane with the Chairman. PE's physical description of Mr. Greenspan made our fearless Fed guy out to be near death. I would hate for a tragedy to occur during a period in which I am counting on low mortgage rates to persist.
2029. Msivorytower - June 12, 1998 - 12:45 PM PDT
Seguine
While we may be in a period of uncertainty wrt what is exactly causing the current growth, and the underlying economic characteristics, one thing most economists all agree on now: inflation is not a good thing and must be avoided at high costs.
Who resides in the Chairmanship of the Fed is less important than the almost universal agreement that the Fed needs to act quickly to ensure low inflation rates in the economy. Whoever replaces Greenspan will act like he has, with little variation in policy on this front.
So, real interest rates are likely to remain stable in the next decade.
I may be wrong, and perhaps Thoughtful, PE or Slack can add something, but I'm pretty sure that the philosophy of the Fed wrt inflation (ie interest rates) will remain the same for the foreseeable future.
2030. thoughtful - June 12, 1998 - 1:45 PM PDT
As I read through these past few posts, I'm thinking and commenting in my mind, only to find that my comments have been addressed in further posts.
Re housing, well, it depends. What Mit said is largely true, but the point she makes about regional economy is absolutely essential, especially in the housing market. Regional trends can easily outweigh events in the national market and one could be stuck in a downturn for even longer than the 5-yr time frame mentioned, as Mit suggested in the Houston economy. That also occurred in S. California with the defense cut backs and hit Alaska when the pipeline construction came to an end, and can hit a city or even neighborhoods in a city for very long periods of time. So one must consider the local market very seriously as one considers buying a house.
Secondly come the tax considerations. One you didn't mention is critical to many families but really is a function of income level and that is the deductability of mortgage interest. If your alternative is paying rent, then you won't get that kick from taxes -- the size of which depends on your tax bracket.
Mit is absolutely right though that a major consideration is the length of time you plan on spending in the house as in the short run not only price movements but transaction costs can get very high.
2031. thoughtful - June 12, 1998 - 1:49 PM PDT
If you haven't done so before, you might want to check out this web site: The Dismal Scientist which offers the latest economic indicators and some forecast and regional material. They call themselves the best free lunch on the web. Certainly can't hurt to take a look and see what they say about the housing market in the area you're looking at.
2032. thoughtful - June 12, 1998 - 1:53 PM PDT
I agree that the fundamental raison d'etre of the Fed is to keep inflation rates low, and while the next guy doing it is likely to try to continue the "Greenspan" approach only because it has been so successful, each Fed Chair varies in terms of tolerable inflation levels, theoretical prescriptions, and execution. So one never knows, do one. It's also pretty bold for economists to presume that we have such excellent control over the economy that the Fed can simply fine tune it at will. As soon as we start to believe it, something happens to prove us wrong.
2033. Slackjaw - June 12, 1998 - 2:07 PM PDT
"I may be wrong, and perhaps Thoughtful, PE or Slack can add something"
Though I follow with interest, you'll get no argument from me, Ms. I'm of the "idiot savant" generation. Both of our "applied" economists on the faculty here are editors of JET. One of them claims to have seen a dataset some years back. We're all a little dubious.
Anyone want to talk about Bayesian equilibrium with correlated types?
2034. thoughtful - June 12, 1998 - 2:17 PM PDT
I just reread Mit's post that real interest rates are likely to remain stable in the next decade. Well, I don't know about that. Currently with inflation about 1 1/2% (GDP deflator -- PPI is actually in deflation) and interest rates about 5 1/2%, 4% real interest rates are above the 40-year average of 2 3/4%. So there certainly is plenty of room for them to come down. This is part of Greenspan's current reluctance to raise rates. However, for them to stay where they are would require that the slowdown in Asia is just enough to offset the rapid growth in the US economy so that the Fed need do nothing. That's expecting a lot. That's also expecting Congress to maintain a balanced budget which is a lot. The problem is, will they go higher or lower? I think the reason many forecasters keep the interest rate outlook as flat as they do is more indecision over which way the Fed will have to move rather than a declaration of no need to do anything. My current bias is that the Fed will have to raise rates to quell inflation from the wage side. But that and $1.50 will get you a ride on the subway.
2035. Msivorytower - June 12, 1998 - 2:53 PM PDT
Thoughtful
Ya, all good additions to my original comments. Wrt stability of interest rates, I was thinking real and long term (say over the 5-7 period Seguine mentioned), and I was thinking in terms of resale not purchasing initially.
Wrt the level of interest rates currently, for the reasons you stated, I said that I thought we were just about peaked out, in the near term, and *I* wouldn't bet on them going lower, if indeed the current interest rate is a factor in the initial purchase decision. I don't see a lot of room for rates to come down within the next 6-8 months, so I was commenting that *if* she's going to buy this year, now is as good a time as any (unless there are specific conditions to consider in the local market).
And I really shouldn't have downplayed the regional economic effects on recovery in a real estate market, as you pointed out, they can override national conditions, as they did in Houston during much of the 80's.
2036. Seguine - June 12, 1998 - 4:30 PM PDT
Hey folks, I really appreciate the commentary.
I'm planning a move to a quaint NJ town on the train line 1/2 hour out of Manhattan and ~25% less expensive than Park Slope in Brooklyn, with excellent township services, high municipal taxes, low crime, good schools, and large, old houses. I figure this is as safe a bet as any property-value-wise...
2037. Seguine - June 12, 1998 - 4:32 PM PDT
Oh, and Thoughtful, thanks for that link.
2038. MrSocko - June 15, 1998 - 4:15 AM PDT
Might anyone have a link or two to biographical information on Jeffrey Sachs. (I can't find any using my search engines) Thnx.
2039. thoughtful - June 15, 1998 - 6:19 AM PDT
Sure 'nuff Socko:
Jeff Sach's bio.
2040. thoughtful - June 15, 1998 - 6:22 AM PDT
Seguine, if NJ is the area, be aware. The areas surrounding NYC are subject to ripple effects based on the stock market. When the market is booming like it is now, so much money flows out that real estate sales start to rocket, taking prices with them. Of course, when the market collapses, so do the real estate prices. For those of us who think the market is in need of a correction, I expect real estate prices to react accordingly with the market. Of course, I've been thinking the market's been in need of a correction for a couple of years now.
So much for predicting the market!
2041. Msivorytower - June 15, 1998 - 2:03 PM PDT
Thoughtful
Me, too. I swear to God that if we don't have a major correction sometime this coming year, again, that has more of a dampening effect that the last one, I'm going to throw my crystal ball away.
Of course, I don't know about anyone else, but I've seen a decline in my portfolio values recently (the last 3 months to be precise). I think it's the beginning effects of the Asian crisis hitting our markets.
2042. FreetoChoose - June 15, 1998 - 3:01 PM PDT
Msivorytower
You may also have seen a decline in your portfolio in the last three hours. (g)
Seriously, I think you are right. I don't really have a portfolio to track, but I've read that quite a number of stocks are 20% or more off their highs. My guess is that the market is a bit inflated, and there has been a movement into the Dow stocks as a move to quality, so the level of the Dow is masking some weakness. If there is anything to this, then the Dow stocks will probably follow suit eventually. Who knows, maybe this week. (Either that, or the Dow will gain 500 tomorrow and hit new highs.)
2043. Seguine - June 16, 1998 - 6:12 AM PDT
"if NJ is the area, be aware. The areas surrounding NYC are subject to ripple effects based on the stock market."
Aha. It hadn't occurred to me that there could be a local effect caused by events on Wall St., but now that you point it out it's perfectly obvious. Well, it makes intuitive sense anyway.
2044. ptboya - June 16, 1998 - 7:44 AM PDT
Thoughtful is absolutely correct on the NYC specifics of real estate. The crash in '87 was seen as a huge influence on the NYC region RE market, especially in Manhattan, but with a ripple throughout. I think it's caveat emptor time again. If there is a serious correction in the Stock Market...but what am I saying if? one is underway now according to most indicators below the Dow and the S & P....and if it becomes an extended correction à la '74 then those million dollar bonuses won't be circulating through the NYC regions coffers.
2045. thoughtful - June 16, 1998 - 9:28 AM PDT
This must be what waiting for the California earthquake is like. We get a shudder in the market, like yesterday, and we say, "Is this the big one?" Last year, when the market dropped 500 pts, we thought it was, but no -- it closed even higher than it started the year and proceeded to gain another 15-20% between Jan & May. So was yesterday the big one? I doubt it. But it's out there, somewhere, we know.
2046. ptboya - June 16, 1998 - 9:39 AM PDT
Well the broad market looks a lot weaker on this dip than it did last October. The A/D line has retraced the year's Dow advance and , as I'm sure you know is a better proxy than the 30 stock Dow. Personally I went to 65 % cash about 6 weeks ago. I bought after the 500 point drop you cited. So obviously I'm betting this is it. Or at least more "it" than we've seen for a long while.
2047. Slackjaw - June 17, 1998 - 7:31 PM PDT
most of my fray friends read in here, so...
Had my second exam today. Game theory. I think it went fairly well, but it was long and hard--6 hours, no breaks, and I still didn't finish. I saw one of my professors afterwards and checked a few things over with him, and he said they looked good, but there are a couple other things I'm iffy about. We shall see about the rest.
Next up: micro theory, Friday. Last one, at least in this iteration.
2048. Msivorytower - June 17, 1998 - 8:09 PM PDT
Jaysus Slack
This is bringing back nightmares. Have a well deserved drink (wine, beer, coke, sprite, juice, whatever), and try to keep the momentum up.
Glad to hear this one is over and done with, and that it went reasonably well.
2049. PseudoErasmus - June 18, 1998 - 1:10 AM PDT
OK, econ thread data mavens, I have a little puzzle I request your help on:
A little while ago, I came across this page at a leftist rag periodical. Scroll down to the last graph, at the bottom of the page. It charts the growth in nonfarm business sector output per man-hour, along with the growth in real hourly compensation in the nonfarm business sector. Between 1960 and 1997, labour productivity rose nearly 90% but hourly compensation by less than 50%.
Now, at first I was a little skeptical, because the compensation (or labour) share in national income stayed pretty much the same, at 70%, as is well known. When I checked the compensation share of nonfarm business sector income, it turned out also to be around 70% both in 1960 and 1996. (The compensation share in the total business sector grew from 64% to 66%.) I've checked other sectoral decompositions of income, like total corporate sector, where there are more variations in the compensation share. But the fluctuations aren't large enough to account for this gap depicted in the graph.
Then I decided to redo the calculation behind this graph -- and it checks out. So, what on earth happened to wages? Why is compensation growth lagging productivity growth so much?
My guess is that it must have something to do with the total man-hours supplied of labour. It seems, on preliminary inspection, this figure rose by approximately 75% in the 1960-96 time period. Could this be the answer?
2050. PseudoErasmus - June 18, 1998 - 1:13 AM PDT
By the way, here are the links to the data in question:
Major Sector Productivity & Costs at the Bureau of Labour Statistics, but this only gives you indices and % changes. The Fed provides BEA data on sectoral decomposition of gross product and income" for the nonfarm business sector. Note that columns 6 (domestic income) and 7 (compensation) represent nominal figures, and the numbers in column 12 (hours of persons) are billions of man-hours.
Note to those who might miscontrue my words:
• "National income" and "gross domestic product" are not the same thing.
• Compensation = wage income + benefits
• Lagging compensation growth is not quite the same issue as what is popularly referred to "growing income inequality"; in the latter case, the inequality is in the distribution of personal or household income, not in national income;
• personal income = basically, all income accruing to households
2051. MrSocko - June 18, 1998 - 1:38 AM PDT
Speaking as a non-economist type, I would suggest that manufacturing and information technologies, the changing gender make-up of the workforce and employment levels might have something to do with it. Also, it surprises me to learn that total man-hours supplied of labor have risen 75 percent. Did everybody hold part-time jobs in the Fifties?
2052. Slackjaw - June 18, 1998 - 1:52 AM PDT
if it's total man hours supplied, then it's not a rate and is sensitive to the number of people supplying labor.
2053. DaveCook - June 18, 1998 - 2:42 AM PDT
A = Labor Share of income.
A = (W*H)/Y where H is hours worked and W is defined as compensation per hour. Y is GNP.
A = W/(Y/H) = the ratio of hourly compensation to average productivity.
dW = Average continuous growth of hourly compensation.
dY/H = "" " of labor productivity.
dW = dY/H +dA
If dA is 0 (constant labor share), then
dW = dY/H regardless of growth in work force.
2054. DaveCook - June 18, 1998 - 2:52 AM PDT
The above is definitionally true and applies to real or nominal figures as long as the deflator used on real compensation and output are the same. Possible explanations for Raz' anomaly:
1. Long term Growth in Business sector output is much higher than long term Growth in national income (might explain small part of anomaly).
2. (More likely) Different deflators were used for wages and output. What is true is that consumer goods inflation has been much higher than capital goods inflation.
W* = Wage Deflated by CPI.
Y* = Output Deflated by PPI.
dW* = dY*/H + dA+(dPPI-dCPI)
Thus if the producer price index lagged the CPI, this would explain the anomaly. The relative price of machinery is shrinking. Further, there may have been some growth in indirect taxes.
2055. Davecook - June 18, 1998 - 5:39 AM PDT
Over the period 1960-1997, yearly CPI inflation was about .82% per year faster than yearly PPI inflation. This explains the vast majority of the 1% per year faster productivity growth than real wage growth cited by Raz. How the changing relative price of capital goods affects the class struggle is beyond me.
2056. Msivorytower - June 18, 1998 - 5:54 AM PDT
Dave
While I find your answer intuitively appealing, differences in sectoral price deflators, how does this explain why the labor share of NI remained the same over the period? Doesn't the firm reap the returns to the decline in capital prices relative to their productivity?
Wouldn't the share of labor income fall in NI then?
2057. Davecook - June 18, 1998 - 6:25 AM PDT
MsIT: The effect of a change in factor prices on shares of income paid to factors really depends on the elasticity of substitution between the factors. For example, its well known that if factors are hired in competitive markets and factors are unit elastic substitutes (i.e. a 1% increase in the relative price of labor leads to a 1% increase in the capital-labor ratio)then factor shares will be constant. Since factor shares for capital and labor have been constant in the US for a long,long time, many people think this must be the case.
2058. Msivorytower - June 18, 1998 - 6:47 AM PDT
Dave
But when you put all these things together, the anomaly PE raised remains, why would productivity be rising significantly faster than compensation while at the same time factor shares remain constant?
Something isn't fitting for me.
2059. Msivorytower - June 18, 1998 - 6:56 AM PDT
Dave
The more I think on it, the more it has to be related to more labor hours.
During this period two major things were happening, 1) a significant increase in the total labor hours supplied by women and 2) a deterioration in real average hourly wages, particularly among the low and semi-skilled work force.
2060. FreetoChoose - June 18, 1998 - 7:01 AM PDT
Slackjaw
Congrats on the completion of the first exam, and good luck on Friday.
2061. ScottLoar - June 18, 1998 - 7:45 AM PDT
re Message #2057:"(I)t's well known that if factors are hired in competitive markets and factors are unit elastic substitutes... then factor shares will be constant."
I have a good education, broad interests, a wife and daughter, a mortgage and have experienced bungee jumping so you could say a know quite a bit about life and love but, no, I just didn't know.
2062. Davecook - June 18, 1998 - 8:15 AM PDT
MsIT - I have already shown mathematically that it is the definition of a constant labor share of output that nominal wage growth is the same as nominal productivity growth. It therefore follows, mathematically and inarguably, that disparities between "real" wage growth and "real" productivity growth can occur only if the series are deflated with different price indexes. The relative prices of goods change all of the time. It is perfectly plausible that changes in relative prices could have no effect on the labor share of output in any industry or in the economy as a whole (given the right substitutibility of the factors of production).
Workers are buying those goods which are produced in industries which have shown the least gains in productivity and efficiency. Why haven't the productivity gains in capital goods manufacturing translated into productivity and efficiency gains in consumer goods industries. Good question. Maybe your 1) and 2) may help answer that question or they may be further symptoms of the slow consumer industry productivity gains.
2063. PseudoErasmus - June 18, 1998 - 8:50 AM PDT
Shit, yes, I forgot about different deflators. There's always some little thing like that, rather than the grand explanation of the sort Socko offered in Message #2051. Thanks, DaveCook.
Despite Dave's unassailable mathematical proof, the empiricist in me just did a quick calculation: the different deflators fully explain the anomaly. When the numbers are readjusted by the same price index, whether PPI or CPI, compensation and productivity grew in lock-step. So I agree with Dave and disagree with Msit.
Of course, Msit could still challenge the constant elasticity of substitution assumption, but without further anomalous evidence, Ockham's Razor rules.
2064. Msivorytower - June 18, 1998 - 8:55 AM PDT
Whaaa
I'm losing it. This still confuses me. I get the math at a theoretical level, but this feels wrong. I'm trying to conceptualize it in real time. What are the implications? How long can it continue? Why the disparity in price deflators?
What happens if you make a significant re-adjustment in the CPI and come up with different values?
2065. Msivorytower - June 18, 1998 - 8:05 PM PDT
Okay,
I chewed on this all afternoon, working it out in my head. I am happy with the results because I now see it.
I'm still interested in what would happen if a different CPI were used to deflate nominal wages over the time period. Wasn't it Boskin and friends that proposed a drop in the CPI? Wouldn't this then reduce the gap between productivity growth and wage growth over the said period since the deflators would be more similar?
And why have consumer goods producers not realized the productivity gains evident in the capital goods market? Don't consumer goods producers use capital too?
2066. HCaulfield - June 18, 1998 - 8:10 PM PDT
Hey, if you think that's tough, try the Monty Hall Paradox.
(psst ... pick the *other* door)
2067. wexxford1 - June 19, 1998 - 4:30 AM PDT
Good olf bubble economy always needs fresh players . In comes one of the world's savviest investors to help . Who he ? Why its Saudi Prince Alwaleed bin Talal.is he bothered by the yen flap? No!the prince is coasting around the world's business news pages, check book in hyand, buying, buying, buying .Dontcha love those PR guys fraygrants ? Giving us fresh talking points when price elasticity and game theory have been flogged to death.Who is this Price fella , anyhow,pseudo,who's flush as an insurance company when oil drops ?
2068. wexxford1 - June 22, 1998 - 4:17 AM PDT
More bubbles ! Shut down all those Japanese banks with rotten loans and presto ...the US stock markets will roar ahead .Now there's your talking point for the good old bubble economy.
2069. Slackjaw - June 26, 1998 - 3:04 PM PDT
To whom...
I passed my exams no problem. I was kind of surprised, really. Thanks to those who offered support here & privately.
I'm kind of disgusted with the turn this forum has taken, and anyway, my dial in access from home is on the fritz, so I might not be around much.
2070. ScottLoar - June 26, 1998 - 3:24 PM PDT
Slackjaw: I don't think we've ever addressed one another but still, I won't allow your success at passing go unheralded. You did good, and I'm sure it was no mean thing.
2071. chloel - June 26, 1998 - 3:42 PM PDT
Dang, Slackjaw, I'd be sorry to see you go too.
I was hoping, especially in light of the turn this forum is taking, to have your educated view of social engagement and social capital.
Congratulations on your exams.
2072. Davecook - June 27, 1998 - 12:29 PM PDT
Slackjaw - Congrats on the prelims. When I was a 1st-2nd year, there was a general presumption that prelims (which, incidentally, are a binding constraint in graduate economics; major economics programs require that you pass a series of exams in your first two years of study and they will and do throw you out if you don't pass; many people do not and it can be devastating) were analogous to an IQ test: only the "smartest" survive. In retrospect, it seems to me that they are really endurance contests. Only those people who can spend 70 hours a week with their asses on a hard piece of wood considering Bayesian equilibrium and ENJOY it will survive (thus, its no surprise that Slackjaw passed). Because that in fact is the reward for passing: now, you GET to spend 70 hours a week considering Bayesian equilibrium for the rest of your life. Enjoy.
2073. Slackjaw - June 27, 1998 - 2:18 PM PDT
Thanks, folks. My cup runneth over.
It's true, Dave, and now that the dust is clearing we have a good view of the carnage strewn about. 40% of my class failed the exam, which is about the historical average here, and I suspect our ranks will thin a bit in the near future.
2074. Slackjaw - June 27, 1998 - 2:18 PM PDT
Chloe,
Thanks for the link. Does a nice job in highlighting the perfectly rational character of the failure to achieve cooperation sometimes. What it doesn't make clear, and of course it cannot because we don't really know very well, is how to grow a social capital stock. I mean prescriptions beyond "reinvigorating community organizations," etc. It's a diabolical little problem, because social capital is essential in overcoming collective action problems, but one thing we do know about social capital is that its very creation is subject to collective action problems!
The literature on social capital and its formation is not terribly formal, and I doubt whether there is really strong agreement about important definitions. If you are interested in finding out more, though, I suggest reading _Governing the Commons_ by Elinor Ostrom and _Beyond the Miracle of the Market_ by Robert Bates. Neither book is a hard read.
2075. chloel - June 27, 1998 - 3:59 PM PDT
Aww, Slack. I was feeling interested until you told me they weren't hard.
I did have the impression that no-one had nailed the subject down; that's why I thought it would be a good cub for the Fray to lick.
2076. FreeToChoose - June 28, 1998 - 11:42 AM PDT
chloel
interesting article; thanks for the link
2077. FreeToChoose - June 28, 1998 - 11:51 AM PDT
Slackjaw - congrats on the results. in line with Davecook's comments, you can determine how valuable the reward is (g)
2078. Msivorytower - June 28, 1998 - 7:15 PM PDT
Slack, Chloel
Putnam's article on social capital is interesting but highlights the difficulty with such concepts. Unlike human capital, which we measure by skill acquision, education and training, social capital is difficult to pin down, capture empirically, and measure consistently.
Slack, your comment captures the problem, we can't easily identify it, can't measure it, can't model it, and so don't know what it takes to create it. The concept is destined, IMO, to remain outside formal economics because of this, unless we can model it more precisely. This also suggests it will be limited in its usefulness, as well.
Putnam calls for cost benefit analyses that take social capital into account, but frankly, I don't see how this is possible given the current state of looseness surrounding the concept itself. It reminds me more of a utility outcome rather than a measureable benefit outcome. So any cost analysis would probably have to use utility as it's outcome measure, limiting both its empirical analysis and applicablility across a range of communities.
I think the concept is very important, however, I just don't know how it can be empirically captured.
2079. bubbaette - June 28, 1998 - 7:22 PM PDT
Dear Economists
I'm interested in hearing your views on cost-benefit analysis as pertains to regulations. I've been watching Virginia's foray into producing cost benefit analyses to be published with proposed regulations and am interested in whether these types of analyses have had much of an effect on public policy development in other states or arenas.
2080. Msivorytower - June 28, 1998 - 7:23 PM PDT
Bubbaette
Re: the cucumber case.
I confess it has me in a pickle. Perhaps the ice storm ended up giving the plants a hearty massage, stimulating them rather than destroying them.
In any case, please send one jar when ready to consume via airmail. My fees are cheap these days.
2081. Msivorytower - June 28, 1998 - 7:25 PM PDT
Jeez, wrong thread for the above post, but since the cuke conversation originally WAS economic, I suppose it's okay here.
2082. bubbaette - June 28, 1998 - 7:34 PM PDT
Ms IT
Consider it done. Send me your mailing address via e-mail. I think you need to sample the data to get a true feeling for the phenomenon.
2083. arkymalarky - June 28, 1998 - 8:02 PM PDT
Oh, Bubba--Y'all allow me one brief off-the-subject remark--if you know how to can, I need some pointers *bad*! I'll post on it tomorrow in FC.
2084. chloel - June 29, 1998 - 12:12 PM PDT
Economists
Tsk; surely the glory is in quantifying the previously unquantified? The joy, in rendering tractable the previously ill-defined? Tenure, in formalizing what had been merely common knowledge?
Here's one measurable possible effect & reinforcer of social capital; the associations it generally requires - burial clubs, local government, street-watches, whatever - can be a small-world network in which each link is not only knowledge, but a smidgen of fellow-feeling and mutual interest.
It should be possible to test whether people are more likely to help strangers, people they know slightly, people they have done work with, people who have helped their neighbor, people who have helped them; and then to model a network of mild mutual aid and see what habitual small-investment associations generate.
2085. Msivorytower - June 29, 1998 - 1:45 PM PDT
Chloel
The basic problem I see with the concept of social capital is that it is first it has a socio-political focus, and secondarily, an economic one. That is, as a result of a political capacity (social capital) there are indirect, second-order economic effects.
Even your concept measures social/political association first, and then some economic side-benefit second.
Actually, I'm not sure the term social capital is appropriate, given it's inherently political science basis. This is unlike the concept human capital, which even when we couldn't easily capture it, we knew was directly related to the quality of labor in an economy.
There are hard-to-capture benefits to society from investment in human capital as well, that remind me of the way social capital is being discussed, and are linked to economic growth in some tenuous way. But, the distinguishing factor to human capital as a concept is that we can narrow it to some consistent, observable, and reproducable actions people take.
I agree with you that the hunt for greater certainty wrt to what social capital is, how we can trace it's impact on economic growth and development, and finally how we can foster it is important and interesting. However, I'm not sure the concept is specifically economic enough to be developed by this field. I think it awaits further development by other social sciences before being formalized within economic models.
Others may feel differently.
2086. Slackjaw - June 29, 1998 - 2:10 PM PDT
re. cost benefit analysis:
often this technique is heralded as the key to "better" and/or more "scientific" decision making in the public sector, which is pretty bogus. In addition to the fragility of the technique--it's too easy to do it wrong, e.g., by neglecting general equilibrium effects, or just plain fudging it--it does not necessarily lead to coherent recommendations, and it's either impractical or impossible to tell when it does.
CBA amounts to implementing what's called a social choice correspondence, which is just a ranking of each element of a menu of alternatives, based on the preferences (or effects of each alternative on) individuals in the society. The most common decision criterion is the Kaldor-Hicks rule, whereby basically the benefits and costs are summed in present value terms and the decision with the highest net present value is selected (i.e., it's ranked first).
The trouble is that this decision rule is not transitive. Project A can defeat project B, B can defeat C, but it's still possible for C to defeat A in pairwise evaluation. Thus it is not clear that this tool has uncovered an option that is in any sense "in the public interest." But then the ostensible purpose of the analysis is gone.
There are ways around this intransitivity, but they are not much more palatable because one must use a very "flat" decision rule to guarantee transitivity--that is, one under which many options simply cannot be compared against each other. The (obscure) Scitovsky criterion is an example.
2087. Slackjaw - June 29, 1998 - 2:10 PM PDT
The moral of the story is not that CBA is useless or familiar rules are alywas incoherent--I can only guarantee that the most common admits the possibility of intransitivity, and this is even when it is done "correctly." The question is whether CBA is good when measured against the available alternatives, and frankly it's probably just as good a method as deciding based on whatever is going to make the most money for your brother in law.
The real moral is that possibility/existence results of the type theorists worry about are not useless arcana.
But of course this wasn't really Bubba's question.
2088. Slackjaw - June 29, 1998 - 2:22 PM PDT
I have no objection to this social capital based on disciplinary lines. Frankly, one of the best things about economics in my opinion is that one can use its formalism to pillage other disciplines and coopt their questions.
I have been thinking about this for the past few minutes, and what stands out in my mind as an obstacle to formalization is that this begs for a game theoretic model with some sort of generalized prisoners' dilemma, but there are going to be multiple equilibria. The trouble is with our technology: we don't really have a way of saying, formally, which equilibria are more likely to emerge as the actual outcome. Mutual defection will always be an equilibrium, no matter how long the Rotary club has been around.
This is for purely theoretical investigation. I am sure it's not insurmountable, but I'd have to think about it for while. Maybe a computer simulation would be interesting. For empirical work, we do have a crude idea of what's important--quasi-manuals, if you will. I am not sure that couting the membership of the Kiwanis club will add to the understanding.
2089. Msivorytower - June 29, 1998 - 2:50 PM PDT
Slack
What are you going to simulate? The number of organizations? Some threshold of how many are necessary before some economic benefits emerge? Or is it the type of organizations rather than the number of them? Would one critical organization substitute for 10 marginal organizations?
What would be defined as a critical organization? One that consistently and immediately leads to greater economic cooperation? And how would one rank the characteristics associated with various organizations and then isolate which are more important to building social capital than others?
Now, I admit I haven't read that much in this area, and I have noted the resources you gave above, so I'm speaking from a lack of expertise wrt how the concept has been developed to date. Any thoughts on my questions would be welcome.
2090. bubbaette - June 30, 1998 - 12:16 PM PDT
Slack
When the idea surfaced, I wondered who would actually use the CBA in decision making -- what it's practical use is. In Va. the CBA is produced to be published along with a proposed regulation. But by that time in the decision-making process, hasn't the agency pretty much made up its mind what policy direction they intend to take?
The second question I had is what's the point. By the time the CBA becomes public the regulation has been reviewed by cabinet secretaries and the governor's office, which almost never request a change in the agency's chosen direction. While I have not had the chance to compare public comments with points addressed in CBA's, my agency contacts assure me that they haven't found any examples of public comments addressing points raised in CBA's. So what's the point.
Finally, I wonder if it's a waste of money and resources. Many state programs are actually administeringing federally-funded initiatives and the state has little flexibility in how they structure their administation of such programs. I've seen CBA's of federally-required emissions standards that obviously took quite a while to produce and the promulgating agency took quite a while to develop a response when, in the final analysis, neither mattered -- the state was required to comply with federal instructions. What's the point?
2091. thoughtful - June 30, 1998 - 2:55 PM PDT
Sigh. As always, short and late.
Re PPI and CPI calculation for compensation and productivity, some of you referred to the PPI as "capital prices." Just wanted to clarify that the PPI includes consumer goods as well as capital goods. Key differences between the PPI and CPI are the PPI largely excludes services whereas the CPI has a significant service component, especially for "housing services". The CPI includes high-inflation sectors such as medical care services and tuitions which the PPI does not. So you can't just think of PPI as input costs and CPI as selling prices and expect profits to reflect the difference. Many producers sell to producers, so a lower PPI means lower selling prices too which may translate to no profit growth at all. Also, PPI surveys only domestic producers thus excludes import prices whereas the CPI includes both. PPI -- unless looked at by stage of processing -- includes double counting as goods flow from one stage to the next. So the weighting between the two series is significantly different.
A mystery is why the PPI for consumer finished food differs so much from the CPI food consumed at home -- some have pointed to this as a symptom of the CPI's mismeasurement.
However, I'm in the camp that the CPI is not so mismeasured -- certainly not as much as the Boskin Comm. suggested. So far, the cpi-x series has not differed significantly from the old one.
2092. Msivorytower - June 30, 1998 - 3:18 PM PDT
Bubbaette
While I note all of Slack's qualifications wrt the CBA technique, I'm actually an advocate for more of its use in public policy, at least when it comes to educational policies and decision making. It's hardly EVER used in the public education sector to compare the value of one alternative program over another. Actually in educational evaluation, Cost-Effectiveness is a better tool than Cost-Benefit, since most educational outcomes are measured by tests.
Cost-benefit in education is primarily reserved for rate of return studies, ie, measuring the economic payoff to investing in higher levels of education, or certain fields. There are also a *few* CB studies on Headstart, vocational educational programs, drop out prevention programs, etc. I consider them very informative, and helpful in clarifying just why we provide such programs in public schools.
In the public policy arena, I hold out hope for CBA's, because even if they don't affect the ultimate decision, they make it harder for politicians and political interest groups to rationalize bad choices, and can come back to haunt decision units (and their directors) at a later date. Ultimately, I'd like to see more use of CBA's in public decision making, and think they can play a large role at the local and, to some extent, the state level. The higher up the political hierarchy, however, the more likely they are to not be a deciding factor in decisions made.
Thoughtful,
Maybe late, but very clear and helpful.
2093. bubbaette - July 1, 1998 - 5:04 AM PDT
Ms IT
I agree for most intents and purposes, Cost Effectiveness is a more appropriate measure than CBA, mostly because the legislature has already mandated a certain activity or outcome and the only question remaining is how to get the desired result with the least cost and greatest effectiveness. I fear that when the legislature picks out certain buzz words, they are effectively limiting analysis to one measure, and the measure chosen may not be the best for the task at hand. Sort of like telling your mechanic, "yes this motor needs to be overhauled -- here, use this adjustable wrench."
2094. Slackjaw - July 2, 1998 - 2:06 PM PDT
Msit,
nooooo, the state of simulations in the "agent based modeling" approach is much more primitive. You could grow an entire artificial society, albeit an exceptionally stylized one, though none of us should find that terribly upsetting. You could create a landscape and distribute resources across it, populate it with agents that "eat" the resources, give them varying metabolisms, endow them with vision and movemet rules, and gradually relax constraints on their interaction. Things like conflict over resources emerge, and this gives a place to investigate cooperation. You can endow different subpopulations with different cultural rules, trading rules, average metabolisms, etc., etc., and see how this impacts cooperation.
An introduction to this style of thought can be found in _Growing Artificial Societies_ by Axtell and Epstein, published maybe last year. Frankly, I am sort of skeptical about the incremental addition this sort of modeling technique adds to social science beyond equilibrium models in game theory. I will say that it makes interdisciplinary investigations much easier and more natural. It also has the potential to make heterogeneity across agents easier to model in some respects. On the other hand, I find it hard to take seriously any policy implications gleaned from watching colored objects dart around a computer screen eating things. The emergent behavior--like cooperation--is often heavily dependent on the particular algorithms by which agents can move and trade, how the resource grows back, etc. The complexity of real societies and the unmodeled but important features make me wonder how sensitive computer models can give much insight beyond Ostrom-style investigations rich in intuition but light on formalism.
2095. Slackjaw - July 2, 1998 - 2:06 PM PDT
Anyway, even if it did, the agent based simulation route is far from a substitute for formalism.
Actually, though, this sort of investigation into cooperation has probably already been done, or something like it. Robert Axelrod has gotten more into agent based modeling and he's probably done some stuff in this vein.
2096. Raskolnikov - July 2, 1998 - 3:22 PM PDT
Slackjaw: "The trouble is that this decision rule is not transitive. Project A can defeat project B, B can defeat C, but it's still possible for C to defeat A in pairwise evaluation. Thus it is not clear that this tool has uncovered an option that is in any sense "in the public interest." But then the ostensible purpose of the analysis is gone. "
I don't quite understand this. I do have some schooling in CBA, and I really can't see how three different Kaldor-Hick's outcomes can be intransitive, since they all end up being a Dollar value.
In regards to the rest of the CBA discussion, I also prefer Cost Effective Analysis, since you can also avoid some of the morally iffy parts of CBA, such as putting a cost on a human life.
My issue with most CBAs in practice is that they spend tons of research nailing down the details of tiny costs, forgetting that many of their results stem from very debatable assumptions. This sort of false specifity pisses me off. I recently helped the Minnesota Pollution Control Agency get its feet wet in CBA in order to meet a legislative mandate that they hire the University of Minnesota to do a CBA on three water pollution standards. The U of M quoted a 7 digit figure for what in the end will really be not much more accurate than a back of the envelope guesstimate.
For all its flaws, I think CBA is definitely a better means for public policy than letting the lobbyists duke it out.
2097. Msivorytower - July 2, 1998 - 4:51 PM PDT
Rask
Nice to see you back. How's the babe?
With that, I say yes, I agree with your above comments. However, for the iffy moral value questions Cost-Utility is the way to go. Really, I think CU studies are becoming more promenent in the medical care area because it allows one to rank multiple outcomes by some community consensus (limited in that regard, I know).
On the costs, the method is pretty simple, and I don't sweat the details to much, market and shadow prices are my tools of choice. Those who spend too much time sweating the small stuff must be accountants at heart. In the end, the costs are projected anyway, and we know subject to gross error. I think the process, however, of having to identify all costs, regardless of who bears them, is very useful in itself, and forces people to come to terms with the real resources required.
I'm all for tearing down illusions when it comes to public policies.
2098. Msivorytower - July 2, 1998 - 4:54 PM PDT
Slack
I see we aren't to the level I was thinking about with regard to the type of simulations that can be done modeling cooperative behaviors.
God forbid we start making policy based on such simulated conditions.
2099. Raskolnikov - July 2, 1998 - 7:39 PM PDT
MsIT, the baby is wonderful, thanks for asking. I'm not familiar with Cost Utility as such, but I haven't done much work in the health care area. I'll have to check it out.
2100. chloel - July 2, 1998 - 7:40 PM PDT
Hari Seldon recedes further into the improbable...
My species vanity would be disappointed if a few years' work on screen critters replicated so much of us, so I suppose I can live with not being able to model artifical social capital. Yet.
Slackjaw, how do you model investments in insurance and prevention? Much of the behavior of collaborative associations has that effect for their members, or even the whole society; some of the rest of it is allocating work to those best able to do it; and some of it, related to the second, involves the happiness most people get from being useful. All of those seem describable, even when not quantifiable. Indeed, the strength of a good social net seems to me measurable by how sure members are that bread cast on the waters will return; which makes economic sense, in that favor-doers are not really risking their future security, and emotional sense in that anyone can expect to be both get and give favors.
I am sidling up to the prisoner's dilemma again; but it still seems applicable to how actual people behave.