Pick yer indicator and yer misleading metaphor

You got yer GDPThen metric telling you how the largely meaningless GDP was growing on  roughly Jan. 1, if you had to pick a single day.  People really love to “forecast” Jan. 1, even today. *

Screen Shot 2017-03-24 at 3.05.19 PM

Or you can look at Goldman’s Current Activity Indicator which is actually current and is shooting the lights out. I am not sure I can show their indicator without permission and I don’t want to wreck my access. So you can either take my word for it or contact your friendly Goldman sales representative.

I don’t follow this stuff closely enough to know if the US economy is actually shooting the lights out. I am going to go with the economy continuing to grow at its “stall” speed for another three months, just as it has precisely for the past eight years.

The less said about the meaning of a “stall” speed that you stay at for eight years the better.  Maybe one day we will reach “escape velocity”, a metaphor with roughly the same helpfulness as “stall speed.”

* One of the truly embarrassing things about being a business economist on Wall Street is that you have as colleagues people who give every impression of believing that if the government has not yet reported it then it has not yet happened.  Half these people simultaneously think themselves quite heroic libertarians, which is quite a feat. Now imagine that you are no longer even talented enough to be among their ranks. Jesus.

Stopped-clock bull Thomas Lee apparently has a glitch


Business Insider reports that Thomas Lee of Fundstrat has turned cautious on equities after having caught basically the whole rally to date.  They claim that a “steadfast bull” is changing his tune, in part because the market multiple “is now higher than it was in 2000 and 2007, just before the last two big crashes.”

I don’t have much of a market view here, but I would like to offer a few thoughts on this story anyway, not all of which are that serious.

First, I like how Business Insider gets a candid of Thomas Lee looking sad, to signify that he is no longer bullish.  I am guessing that this guy will be happy or sad based on whether or not he stays right on his market call. I doubt he is congenitally programmed to smile when he thinks equities are about to rise.  That all the bulls are just mindless cheerleaders is one of the conceits of the bears, which keeps them warm at night when they have been wrong again.

Screen Shot 2017-03-24 at 10.56.22 AM

Second, and closely related, the evidence is still out on whether Thomas Lee is a “steadfast bull.” The story says he is changing his outlook. So maybe he just follows the evidence as he sees it?  He is not necessarily prescient, but we might leave open the possibility that he tries to be objective. The idea that only bears can be objective reminds me of Mets fans for some reason.

Third, I don’t know where that reference to the market multiple comes from.  Re 2007, the disaster that followed was not mostly about equity overvaluation, I think people would broadly concede. The world almost ended, which made stocks go down.

As for 2000, the claim seems just to be wrong.  There are many measures of the multiple and the one I use is obscure.  It is the price relative to Shillerized earnings, where the earnings series is operating earnings for the period over which that is available, but discounted by 10% so that it is directly comparable to GAAP earnings which have a much longer history.  I am mostly riffing on Jesse Livermore of Philosophical Economics when doing this calculation, although any incremental stupidity in it is my own.

Screen Shot 2017-03-24 at 11.19.57 AM

My measure of the equity premium is even more obscure. I compare the Shillerized earnings yield with the real Treasury yield adjusted for my current estimate of the potential growth rate measured relative to its full-sample average.  This definitely involves comparing non-commensurate concepts, so I don’t pound the table over it.

But the idea that the earnings yield is the expected return to equities strikes me as a tautology requiring that the earnings yield be defined to generate that result, with the definition allowing no direct measure. And at the other end of the spectrum, the idea that earnings growth and the bond yield should move one for one (a la Euler) is also seemingly wrong.

And I would rather be awkward than to rely elegantly on false priors.  Hence my Frankenvaluation metric, which leaves me not saying much.

Other people’s stuff — Mar 24

Noah Smith has a blog post eviscerating the idea of EconoFacts, both a blog and the idea that academic economists should present their theory-laden opinions as facts. The authors of EconoFacts want to lean into the current wave of lies and distortions, but are doing it the wrong way, according to Noah, who seems convincing on this.  I sit half way between lay and academic and have definitely noticed that the academics are often very condescending while being very wrong. Probably my favorite example of this is on h money, where Adair Turner says the debate is solely a matter of political will and Willem Buiter says any “minimally competent” policy maker could easily pull off the initiative successfully. Such comments do not cover academics in glory.  Smith’s post is short, readable and seemingly deadly. I would add only that this relates to the idea — discussed three blurbs below — that the practical effect of assessing lies may be mostly to give them more currency. Tim Harford was truthy on that. I am not competent to judge if he is right, but I am going to go ahead and assume he is.

Paul Krugman has a very nice op-ed laying part of the blame for the current mess of lies at the feet of fake-balance centrists in the media. I could not agree more, probably because I got my own high-conviction take on this from him.  I would add just two points, neither of which are in opposition. First, I think fake-balance centrism if often more about the fake-balance centrist than about the external world.  Look at me, the sort of person who would say this sort of thing.  When they offer a pox on both houses, they are offering a pox on neither house because nobody is held to account.  The purpose is to bless their own house, and what they do is the opposite of what they present themselves doing.  It is so nauseatingly weak. Second, if you think for some reason that you must come across as non-partisan overall, then you can limit the damage of that at least by considering things on a case by case basis. Slag the Dems when they eff up on issue A and then slag the GOP on B. This is a little less stupid than saying Dems and GOP are all just the same on every issue. If a lot of fake-balance centrists in the lamestream media took this approach, it might create an incentive for better behavior on both sides. It would still be very misleading of the broader reality, that the GOP has become a party of terrorists, but it would at least have that marginally favorable incentive effect.

Most importantly, here is some coverage of my beloved daughter, Sarah MacDonell. She is a poet and does know it, which is rare. (Dad humour.)

When I first read this piece from Tim Harford on agnotology, the study of the propogation of ignorance, I was miffed that he presumed that academics and journalists (i.e. himself) were particularly interested in “truth.”  I don’t know about academics, who seem sometimes to be a bit tribal, but I am pretty sure that journalists – to generalize – don’t care much about truth. Did anybody notice what happened in November? Questions were raised.  But questions were not answered.  I stunk up Economist’s View’s comments section making this observation. But on reflection, I think this is a really great article.  It explains how Big Oil and now Trump have learned from Hill and Knowlton’s attack on science on behalf of Big Tobacco beginning in the 1950s. The indisputable facts were disputed. The unquestionable sources were questioned. Facts, it turns out, are important, but facts are not enough to win this kind of argument. I am not sure if he proves his case, but it sure is an interesting read. I believe it straight away, which might not be best practice by me. My only quibble now is that he  tries to conclude on an optimistic point, that scientific competence is not enough but that scientific curiosity is an antidote to what I would call the fake-balance indifference to reality.  The problem with that optimism is that encouraging scientific curiosity is no easy task, especially when there are very powerful forces opposing it. Religion, the MSM, national bigotry, respect for tradition…. The usual conservative shit.

Michael Bloomberg (FBC) advises Democrats not to play to win on SCOTUS but to lay back and think of America.  Taking advice from fake-balance centrists has worked so well for the Dems that I think this voice really needs to be heard. (Full disclosure: I bought the pragmatic case for Hillary and was seemingly wrong.) Billionaire Bloomberg’s important opinion was posted on Bloomberg, which is obviously part of the liberal media bias that we all believe exists. Thankfully he has an eponymous outlet for his views, which is lucky because in America views such as his are typically suppressed. This is why his ilk invariably speaks out, whereas the riff raff merely speak. Have you ever noticed that?

Tim Day says that the Fed has given us a “monetary policy safety net.” By this he means, I think, that the economy is moving away from liquidity trap, which means the Fed has some room to ease or tighten less than expected if required.  I think he also might have meant that the Fed can go slowly if he wants, which is a different sort of safety net. I am not sure. If it is mostly the former point, then I would say that the economy, not the Fed, has given us that net. The economy is why the Fed is raising rates.  The economy, not the Fed, is moving out of liquidity trap.  That is a minor quibble, though. FWIW, I agree with his take on that big point.  One implication is that fiscal stimulus per se here is pointless. It would operate on the fed funds rate, not the rate of economic growth over the medium term.  A sensible infrastructure spending program would have its own separate merits. Is that on offer?  (Keep in mind that a fiscal stimulus per se is inherently transitory.  It would not durably raise r*, most likely. And yes, this take presumes a model of the economy, just like yours.)

In this video, Bloomberg reports that self-described pro bono banking patriot, Jamie Dimon, will be pushing for deregulation and tax cuts as head of the Business Roundtable.  In this role, Dimon needs to suck up big time, which puts into context his earlier — laughably off-base — claim that Donald Trump would “govern differently from how he campaigned.”  Our extremely liberal, anti-corporate media fawned all over Dimon’s earlier Deep Thoughts, but oddly have not followed up.   We remain mesmerized and focused on the profound political wisdom of Jamie Dimon, who has done well in business.

Bloomberg reports that Russian hackers are shaking down liberal activists for hush money. In some cases, the liberal activists were doing some naughties, like using grant money as bus fare to anti-Trump events. The hackers really deserve style points for demanding the hush money be paid in Bitcoin. But Yuri may be confusing liberal with libertarian. I pity the liberal scurrying around Brooklyn in a panic looking for a Gadsden flag and tech support.

Slate reports that dreamboat Roger Stone, whose dyed plugs really shine, is quite concerned that some of Trump’s critics are not very good looking and could be both stupid and ignorant. Centrists, these are your peeps.  Roger Stone and Van Jones are both bad, and probably equally so.


Talking Points Memo reports that the Keystone pipeline is not going to use US steel, despite Trompe’s claims.  IMV, Trompe’s lies should be pointed out to demonstrate that he is a lying liar. But on the substance, the purpose of a pipeline is to carry fluid to market, not to create demand for US steel.  Not to be too neoliberal globalist about it, but that’s how I see it.

In a paper presented to the US Monetary Policy Forum in New York on Friday, Cecchetti, Feroli, Hooper, Kahyap and Schoenholtz argue that the single best predictor of where inflation will be in the future is where it has been in the recent past.  Predictions of how inflation will change tend not to be that reliable.

We find that the level of inflation fluctuates around a slowly changing trend that we call the local mean of inflation. Few variables add extra explanatory power for inflation once the local mean is taken into account. This local mean is itself well characterized by a random walk. Labor market slack has a statistically significant, but quantitatively small, effect on the local mean and inflation expectations have no effect. 

This is ammo for the enemies of the natural rate. For me, it underscores the importance of situational awareness over forecasts. Start with where you’re at.

Krugman’s claim that coal jobs are not really about coal jobs rhymes with my own argument that manufacturing jobs are not really about manufacturing.  Krugman’s take is a bit darker, as is coal itself. But in both cases, people seem to think they are talking about reality when they are in fact talking about symbolism, I think.

I like the self awareness Josh Marshall shows here. Occam’s Razor and his own instinct not to overstate the reliability of his own imagination says Trump’s relationship with Russia is just a simple, typical case of sucking up to money. But the information he gets, the pilot’s instrument panel, keeps insisting otherwise. Ed note: guy’s who rely on instinct over instruments go into an ever-tightening spiral and stall/crash. That is a behavioral paradigm. Separately, Josh Marshall invented this silly construct called “Trump’s Razor” which involved Trump doing the dumbest most self-destructive thing during the election.  But as a correspondent told me about Kevin Hassett, you don’t have to judge a guy by his dumbest move.

Via Economist’s View, as is more often the case than I mention, here is Uneasy Money joining the debate about how policy should react to the apparent approach of what the conventional take calls full employment. UM points out that Richard Lipsey, fine Canadian, was all over this several decades ago.  I was struck by the very last sentence, which gets straight to the issue of making policy with uncertainty around this issue. I like the idea of pressing down on the unemployment rate, particularly because inflation has been too low, rather than worrying about inflation temporarily going above target. To me inflation above target late cycle would be a feature, not a flaw, as I have gone over a few times.  But my view on this is not well informed enough to matter.  This is a fun debate, which was not relevant before, because the case for easy money was so obvious, but has recently become relevant.  UM provides nice context on this debate from a history-of-thought angle.

Krugman often seems extreme, especially when not going for fake balance centrism is most important.  He goes with earth roundish, not shaped like football which would be the centrist view. Lying to Congress under oath is a thing.

David Andolfatto makes the case for the Fed maintaining a large balance sheet because it shortens the effective maturity of the federal debt and thereby saves the US government money, given that there is typically a positive premium in the term structure.  I have no argument there and congratulate Andolfatto for knowing what QE did. I would add three points. First, Andolfatto’s argument has nothing to do with providing “stimulus.” Yay.  Second, for the extremely-strong form of this same argument, check out Larry Summers urging the us to take out the middle man and just have the Treasury finance entirely with bills. Also, watch the Treasury official squirm when he says that.  Fun. Finally, there is a government in the sunshine issue here.  Whatever the optimal term structure is, should it be the Fed or Treasury acting on their judgment of it?  I am a bit old fashioned on republicanism, so I say Treasury. But I would not get all pearl clutchy about it.

Bloomberg has an article claiming the S&P could reach about 4,000 by the end of Trump’s second (yikes!) term, although pointedly not because of Trump, they say.  I don’t actually recommend reading the article, which is quite literally just extrapolation of the fact that US stocks have really done well since the depth of the Great Depression.  But it is fun because if the S&P goes to 4,000 then it might be Dow 36,000 finally. That would fit because Kevin Hassett is going to be the chair of the (demoted) Council of Economic Advisers.

John Cochrane moots the case, without being too cocky, for a monetary policy that would deliver an equilibrium nominal interest rate of zero and an inflation rate of perhaps -1%.  He suggests that a mild deflation might not be too damaging because, in new Keynesian models at least, economies don’t actually “spiral” downward when prices fall. Moreover, to the extent that the deflation would be delivered in large part by new product prices implicitly falling, the issue of sticky prices would not even be relevant.  It is well worn stuff for those who have followed Cochrane and he is careful not to overstate his point.  He is raising issues, not “adjudicating” them. I particularly noticed this aside re Yellen’s recent talk:

She also talked a lot about Taylor Rules, seeming to move much closer to John Taylor’s view of how to implement monetary policy. See interesting coverage on John Taylor’s blog. On r*, see Measuring the Natural Rate of Interest Redux by Thomas Laubach and John C. Williams for a central paper on r*. Henrike Michaelis and Volker Wieland have an interesting post on r* and Taylor rules, also commenting on Ms. Yellen’s speech.

This fits my view that the Fed is the main cause of the confusion it – and hangers on — often attribute to other people’s stupidity or unwillingness to listen carefully.  In that talk, Yellen was not endorsing the Taylor Rule. She was protecting the Fed from it!  But she spoke intentionally obliquely and in so doing confused John Cochrane while flattering John Taylor.  Later, when the Fed again does not follow the logic of the Taylor Rule (thank God), some hanger on will blame the public for having expected it to. Or Stan Fischer will insist more directly how people just refuse to listen.

Simon Wren-Lewis has a “response to crtics”, in which he defends the concept of the NAIRU against something he calls “heterodox economics”, by which he means people who do not accept the highly non-predictive consensus approach to macro favored by Wren-Lewis (and often me too).  For an example of one of these heterodox, see two entries down in this timeline. SWL insists that in debates like these it is important to be practical.  Those words are music to my ears, but the sense in which he wants people to be practical is not.  Without the concept of a NAIRU, he says, it is hard to link real-economy developments to inflation or even to talk to macroeconomists.  Ok, perhaps you are not supposed to do either of those two things, then. If you don’t believe in Jesus, you may also have trouble sleeping at night or talking to televangelists.  But that is not evidence for Jesus. FWIW, I am pretty conventional on this issue, using NAIRU casually and insisting these days the decline of the unemployment rate is probably mostly over. An economic boom from here seems unlikely: it would be stopped by the Fed acting on behalf of supply constraints.  But reading Simon Wren-Lewis reminds me of the need to be humble about all this stuff.

John Williamson has written an FRBSF letter arguing that the recent decline of r* is global and enduring.  It affects risky assets as well as riskless. I share his view that returns will be lower going forward and have regrettably had that view for a couple years now. I would not guess that r* is a very useful guide for monetary policy. Confidence in the concept seems to be lowest when most relevant.  Somewhat related, the dispersion of various estimates of r* is not remotely a measure of the uncertainty around the level of the variable. For one thing there is selection bias among those who would bother to calculate it. Somewhat related, if your “range” is based on five estimates, you probably should not have yourself in there twice.

Brian Romanchuk of Bond Economics joins a fight with Simon Wren Lewis over the practical usefulness or even meaning/existence of the Non-Accelerating-Inflation-Rate-of-Unemployment (NAIRU). Brian points out that after decades of effort, NAIRU-inclusive inflation models have not been made to work, so the concept does not have much use.  He also gets into some of the metaphysics (I don’t mean that sneakily) around what the NAIRU might even be.  I share Brian’s skepticism but lack his confidence, probably because I have not studied this at the depth he has.  I remember once Vince Reinhart said to me while he was at the Fed, “something beats nothing.” That stuck. I learned about the concept of emergence from Sean Carroll just within the past year and now everything I see seems to relate to it. This I concede is a flaw. But I am guessing NAIRU is emergent. It probably is not a primary force, but that does not necessarily mean it would improve things to just toss the concept.  Anyhow, nice debate. It is good to be humble about these things, I think.

Josh Marshall has a meditation on the anti-Trump leaks coming out of the US security services. He claims that we are on “extremely dangerous ground” in two opposing — from a partisan perspective — regards. First, the security services should not be leaking for political purposes. It was wrong when Comey tolerated it and it is wrong now.  Such leaks undermine the authority of the president and are undemocratic. Second, the content of what the services are leaking is itself very “troubling” and needs to be investigated.  One can be politically objective without wimping out into fake-balance centrism, and I think Marshall finds the mark. (It helps that I generally share his politics, in fairness.)  My own view is that the leakers are probably in many cases patriotic and should be punished anyway, on rule-of-law grounds. We don’t get to choose which lawbreakers to like. Somewhat related, the deep state fighting back at what it judges presidential behavior going over the line strikes me as a bit British or Tory. The constitution is what the constitution does, and the deep state is a central part of the state. Needless to say, Americans are not necessarily comfortable with that idea (me neither) and may not recognize its relevance. Separately, Josh Marshall does not seem to like neocons or Eli Lake very much.

Hannah Arendt has a book out called Eichmann in Jerusalem, A Report on the Banality of Evil. Actually, it has been out for 54 years now and I have just not gotten around to reading it. But I was reminded of it when I saw this harmless looking little fellow endorsing Trompe’s claim that the media are the enemy of the people, which directly opposes the spirit of First Amendment. If Trompe acts on that impulse, then he will have opposed the letter. Not all real bad dudes need to look the part or even to be aware of what they are doing. Lack of moral center is enough, according to Arendt. Larry Summers pointed that out about Davos Man, without invoking Arendt, although he did obliquely allude to Nazism, by mentioning “the 1930s.” As the pro bono banking patriot Jamie Dimon said to wild applause from the fake-balance centrist media, Trompe will not govern as he campaigned. Phew!


Thanks to Dario Perkins, I see that Stephen Williamson of New Monetarist Economics has a new post assessing the efficacy of QE and the likely effects of the Fed’s plan to unwind it.  He makes roughly the points I have, although with greater rigor and in the context of formal models, and concludes as follows: So, in conclusion, I think Bernanke’s arguments are weak. It’s hard to make a case that QE is a big deal, or that stopping the Fed’s reinvestment policy is risky or harmful – indeed it might improve economic welfare. Further, if one thinks that QE is accommodative, and that we can measure accommodation by the average maturity of the Fed’s asset portfolio, or by the ratio of interest-bearing Fed liabilities to GDP, then withdrawal of accommodation has been underway for some time. I am not inclined to argue, obviously. I would put more emphasis on the idea that it does nothing than that it might “gum up” the financial system. But it is a pretty minor point relative to the ballyhoo that has been made over this largely benign/pointless policy effort.  As you know, I think a big part of the emphasis the Fed placed on QE had to do with being unwilling to concede that the zero bound binds. I am guessing Williamson might disagree with me on the actual role of the zero bound, but that is separate, I guess.

Paul Krugman has no problem with fake-balance centrism and its accompanying false equivalence. Here he describes the facts around Putin’s interference in the US election, Trump Administration complicity in that, and the failure of GOP members of Congress to defend the interests of their own country. He will be accused of being shrill by those whose main interest is self-regard. Whatevs. The pice is quite informative. Recently, consensus seems to have been creeping toward we the shrill. So unfair to The Man in the Low Castle.

Bless you, Barry RithholtzMy heart sank when I read the open of this article because it had the usual pointless whine about “partisan politics.” If you don’t name names or parties, then what is the point? It is like complaining about the weather or democracy or free will. But then Ritholtz names names and gets specific. He does it in a bipartisan way, but he specifically mentions who to blame for what.  In my view, it is only by holding the parties to account for specific failures, without false equivalence, that the media can exert some actual oversight. This was such a breath of fresh air compared to the lazy, self-serving above-it-all nothing we usually get from fake-balance centrists. Bravo!

Via Economist’s View, Uneasy Money has a nice piece explaining how difficult it is to identify currency manipulation with protection.  He goes over some of the economic conditions that need be in place for the mapping to be valid.  I have no quibble with the piece, and I assume he is doing the world a service by unmasking the “monetary policy entrepreneur” into whom he laces.  (That concept, I think from Krugman, is very fun.)  I would add, though, that this whole discussion is arguably beside the point from a welfare perspective. The welfare gains associated with importing low-priced stuff do not rise and fall based on the source of the low pricing.  I suspect people have forgotten about this, again (pet peeve warning) because they fall for the essence in this case, as is others.  Is Germany currency manipulating or not? Wrong question.

Talking Points Memo reports that the Tea Party is re-engaging to stiffen the spines of conservatives in Congress, particularly their Freedom Caucus within the GOP. They plan to hold a rally in support of the repeal of Obamacare.  Please do this! Please be very clear that you own it. The more specific you can be about your intentions and the quicker you carry them out, the better. Perhaps that is an odd thing to say. Shouldn’t a nice liberal want to protect his programs more than to punish his political opponents? Yeah, probably. But I am not a nice liberal, and I think the stakes are higher here than Obamacare. Get thyself uninsured! Do it now!!

Via Economist’s View, Brad Setser highlights that the prospect of a big dollar rally in response to the border adjustment tax has sparked a debate about whether that might lead to global financial instability. One source of this, for example, might be currency mismatch in EMG balance sheets. The optimists point out that the dollar makes large moves all the time. But Setser retorts that there is a difference between a mean-reversion of the dollar, which partly explains its recent move off the low, and a surge to a record new high. I am not competent to weigh in on this debate, or on what seems to be a widely accepted premise within it: that the border adjustment tax is indeed protectionist and that the protection will not actually be delivered but will be vented through the exchange markets, which will deliver up to a 25% dollar appreciation. Huge if true.

Feldstein, Halstead and Mankiw make the case for a carbon tax with revenues paid back to citizens in the form of “dividends.”  The tax increase is offset by a social credit, not a reduction of marginal tax rates. Unemployed and liberal, I love it.  Send money soon. They claim this can win support across the political spectrum, including from “populists” who want income redistribution in line with Trump’s stated objective.  I am glad they said stated.  They claim it could justify repealing the Clean Air Act outright. I wonder if the Clean Air Act regulates anything but carbon. It would be hard to argue with less and more effective regulation.

Mark Thoma claims that Trump may radically change and politicize the Fed to the point where it is not recognizable, as an independent technocracy. That seems like a big deal if true, and it strikes me as the sort of thing the American political process is not likely to focus on. By the time we do, it may be too late.  Governors add up over time.

Fact free speculation on weaker business credit growth

I see some analysts worrying about weaker credit growth in the business sector.

Earlier this cycle, I would have given that a big Pfffff, because in the early cycle credit growth should systematically lag nominal spending growth, as well explained by Jason Benderly’s automatic deleveraging thesis or the the DB credit pulse perspective, which is very closely linked. I will leave it to my many readers to track that down.

But once the pace of credit-sensitive spending has recovered to normal or above-normal / late-cycle levels (roughly relative to GDP), credit should systematically outpace GDP. I convinced Jason, one day, to call this automatic REleveraging, which he did. So point to the worriers.

HOWEVER, those insights apply mostly ex-ante. By that, I mean that early cycle you should expect weak credit growth even with recovery, and view that prospect as bullish the recovery itself because it means that the economy can do well without credit, relaxing what might otherwise be a constraint.

And conversely, later in the cycle you should expect stronger credit growth and worry a bit more about credit constraints.

It does not follow from this, though, that the observation of recently weak credit growth is itself negative looking forward. I know this sounds convoluted.  Not my fault that the ex-ante / ex-post distinction usually knocks 90% of economists and 100% of journalists off the plot.

Sorry if that sounds arrogant, but fuck it. Don’t care.

I suspect that weak business credit growth reflects a stock adjustment in inventories and the energy patch that has already happened. So unless the credit availability metrics turn south, I would make nothing of this.

And I offer all of this without presenting a shred of evidence.  I don’t get paid you know. You should be grateful I do even this.

My two cents on academic freedom


With a link to Larry Summers’ epiphany thrown in for good measure.

I tweeted somewhat randomly on this subject, because it kind of irritates me and I am not quite sure why.  I would like to follow up with a brief post, that is still mostly half-baked thoughts, which many of you (assuming there are many of you) may wish to skip. If you thought my others stuff was opinionated and conclusory, ….

I have noticed some academic economists getting all pearl clutchy and morally absolutist about academic freedom.  I believe that *  freedom of expression is a good thing worth protecting, although I am not sure why professors or their firms should be uniquely protected these days. So I was trying to figure out why the academics’ pose bugged me. As I have mentioned before, the definition of a liberal is somebody who likes to argue, even with those he agrees with.

Having given this some thought, I have come up with four possibilities. First, I guess it is jarring to see an economist go morally absolutist on anything. Rather, than saying academic freedom is a sacred and ancient right, like catching fish from the commons, I would have thought they would say something along the lines of the following:

In a classical economy, with atomistic agents, the optimal amount of academic freedom emerging out of competitive equilibrium would be a function of tastes, technology, intellectual endowment, and communication costs and externalities, with the latter pair being a motivation for knowledge providers to form firms called “universities.”

I can’t help thinking that the absolutism around academic freedom, then, is either a tribal signaling device or evidence of overestimating one’s own worth.

Second, leaving aside the source, I just don’t believe in moral absolutes. And I have never met anybody whose actual behavior suggested they really did either.

Third, this seems like a rather odd thing to get up on the high horse about, given what is going on in the rest of the world. Sure, violent obstruction of people offering opinions you do not want on campus should be condemned, as violence.  But the fact that Charles Murray can’t rant on about how unfair the world is to white people — or that I don’t have the opportunity to top up my daughter’s tuition to pay her college to host Milo Yiannopoulos — just does not get onto my radar screen.

Fourth, and this is the big one, it ticks me off that there seems to be a tendency to favor unilateral disarmament by liberals on issues such as this.  There is a culture war – at least – going on right now in the United States, you know.  And it is fairly important for the forces of light to win it.

It is so typically liberal and self-defeating to get all virginal about process, when the other side is in it to win it and biting off the heads of babies. How about worrying about Colin Kaepernick and letting Milos or Chuck take care of themselves?

An analogy can be drawn to what conservatives sometimes say in the presence of an external threat, although I admit to being irritated when they do.  You know, it would be good to keep the country whose constitution you claim to want to defend.

There are grey areas involved here. And I think this relates to the epiphany that Larry Summers recently had about “political correctness”, which is meant to be a threat to “academic freedom.”

Sure the academic freedom guys have a good point. But there are other good points out there too.  I remember when I was a kid, and Catholic, I instinctively thought that the universe could not force us to choose between two “goods.” Clashing values, then, were a logical inconsistency.  Yeah, that was wrong. And it took a while for me to get over it.  Maybe there are others similarly stuck.

Or maybe this is all bullshit.  Just blue skyin here.

* Post-Catholic, I am trying these days to confine my believing to that, rather than in.

Question for Richard Thaler

Update on March 22:

Here are the pictures of the data Thaler mentioned.  Not a great combo on Thaler’s logic.  I have a non-view of the market: subpar returns, which has so far been “premature.”  Up irritatingly and then down sharply would add up to that, I guess. But the second part has not happened. Do with this as you will. Better still, test it empirically, first. I am worried about the collapse of civilization more than the stock market.

One fun fact, re valuation: the ML survey’s turn was more abrupt, but is today similar to what Shiller finds. People think they are expensive.

Screen Shot 2017-03-22 at 10.01.07 AM

Richard Thaler responds:

What you probably saw me do is ask the following pair of questions about a portfolio of internet stocks: what is their intrinsic value? and what will prices do over the next 6 months. Most said overvalued and going up. The same is true today.

I’ll take it. I got like 22 followers on Twitter. I would not have elaborated much further if I were him responding to me. But I wish he had.  I am sure he gets a lot of mail and is a busy guy. If he were to write about this issue in depth, then I for one would read it.

Without an indication of magnitude, I can’t make much of this.

Follow up:

There is some good data on Bob Shiller’s web page, like this:



I will try to figure out a way to get this in front of him and then report back if he reacts. I am obscure, so no guarantees.

Dr. Thaler,

I saw you give a talk at the Chicago Booth Business School very near the top of the tech bubble.  I can’t recall exactly but I am pretty confident it was after begin-1999 and before the top.

What I loved in real time about your call was that you had a very nice objectively-discernible definition of a “bubble.” A bubble does not exist when you or I think the price is too high, based on the Shiller CAPE, Tobin’s Q or whatever.  Rather, a bubble exists when the price is being set by investors relying on the greater fool theory, perceiving stocks to be overvalued for whatever reason but expecting them to become more overvalued.

As I recall, your test for the presence of greater-fool price setting was the observation of a gap between fund managers’ perception of “value” and their forecasts for short-term returns, which presumably influenced their investing behavior.

You reported that people viewed the S&P as heavily overvalued and yet likely to rise further. And you mentioned that this same phenomenon could be found in the NASDAQ and particularly in the tech index.  I think maybe there was even a pattern where the more subjectively overvalued indexes were expected to rise most in the short-term.

I loved the talk, even though I was not sure you were right. What was great was that you had defined the murky concept of a “bubble” such that it could be objectively measured, leaving aside whether your definition was correct.  I like when words mean something.  In financial market commentary, that hurdle is not always cleared.

Screen Shot 2017-03-21 at 2.02.50 PMI love how the sell side circle the last observation, as if we might not read left to right.

So my question for you, good Doctor, is whether we are back there again. I see that Merrill Lynch reports that a large plurality of investors see stocks as overvalued, although their time series falls two years short of going back to your presentation.  (Perhaps your take inspired this measure?)   And on your logic, we are not actually meant to take that contrarily.  Rather, that particular observation is meant to be go with – i.e. to favor bearishness — if fund managers are meanwhile still bullish on short-run returns.  You may correct me if I mistake you.

I ask this question in the form of a blog post, so that if I don’t get an answer then I have at least shared your framework, as I understand it.  But if you do answer, please be aware that I plan to share.

Thank you for reading this, if you have. 😉

PS: I enjoyed the story Michael Lewis tells of your not enjoying the mathematical approach but wanting to get involved anyway! It looks like you managed to scratch out a path.

The quiet bear market in bonds



Student of Bond Market

Students of the bond market are familiar with the “expectations theory,” which says that forward rates are essentially the sum short-term spot rates over some period of time. With the Fed intending to hike short-term rates more sequentially, longer maturity spot rates may match the level of forward rates, resulting in zero or even negative expected bond returns

I am still mini jet lagged from the minor time zone change after ski, so I just woke up, and I may be missing something, but this makes my head hurt, Bloomberg guy.

He is discussing the “quiet bear market in bonds”, by the way.  I will leave the hard math to smarter guys, but there seems to be something wrong with the passage above.

For some reason

For some reason, Twitter today was speculating about Gretzky and Orr on the same line. It might have been a metaphor for something else. Not sure. They used to speak that way of Yellen and Fischer, til the latter kept getting shit wrong, and it was kind of sexist anyway.  First chick Chair did not have be part of a “dream team.”

Imagine Gretzky and Lemieux (and Hawerchuk) on the same line, with Messier and Coffey just thrown in for good measure. That would be like unbelievable, with the images after 2:20 faked like the moon landing.  This was back in the day when we agreed on the Rooskies, 1987.

Alan Eagleson had some flaws. He supported Mulroney, who one fine day said let’s rile up the Quebec nationalists just for shits and giggles.  That was tedious — for ten years. But you never heard Eagleson say, “wouldn’t it be great if we could get along with Russia?”

Later, Sid Crosby went to the NHL so young his mommy said he would have to spend the first bit living with Mr. Lemieux so he would not get in trouble. I am guessing Mr. Lemieux must have said, leave the drinking and whoring til later; for now, just focus on winning Stanley Cups and Olympic gold medals.

As they say in Cole Harbor, buddy was pretty good in loco parentis.

To paraphrase Jon Stewart, I am not an Originalist but…


What James Madison did while president, and clearly an interested party, has no bearing on the validity of Originalism, Bloomberg guy.

Just because Madison led the crafting Constitution does not mean he gets retroactively to determine what it meant or what importance to attribute to that original meaning.

Really, dude, that is kind of entry-level logic. For Originalists, the authority resides in the words, not the author.*  Geeze.  In fairness to Bloomberg guy, Americans may be disadvantaged here by their reverence of the Founders.  Sometimes you Yanks remind me of how Tom Paine described the Brits and local tories. Zing! That must really sting.

Also, no text contains within itself instructions on how to interpret it.  The Constitution is not unique in that regard.  For a text to say how to interpret itself would involve an infinite regress.  I am not an Originalist, and who cares if I were. But Bloomberg guy is mischaracterizing their position.

Harvard Law should be able to do better than this. Hell, Bloomberg guy has almost talked me into being an Originalist.  Please, please, please, stop arguing for my novice conclusion. You remind me of how I used to be Pro-Life, til I met guys who agreed.

Um, I was kind of going with the morally safer course, but you freaks are clutching the bible, talking in tongues, shoving pictures of fetuses in my face, screaming and fainting. See ya.

The title of this post relates to one of my favorite Jon Stewart segments, where he said of Paul Krugman’s platinum coin, “I am not an economist, but if we are going to just make shit up….”  I agreed with Krugman on the substance, but Stewart so clearly won that exchange in front of the public.  Sometimes I wish guys with whom I agree would just stop talking.  I suppose there are others who might agree with me on stuff, and wince.

I am sorry about the link, which is to coverage of Stewart, rather than to Stewart directly.  Some of the videos out there on the internets are pretty creepy, so I take no responsibility for context.  Just go straight to 1:25 for Stewart himself.

In my searches of the platinum issue, I came across many clips of CNBC airhead Sarah Eisen worrying about hyperinflation, utterly untroubled by any understanding at all of the issues involved, but practicing the affinity fraud very effectively and predictably. According to Google, what she had to “say” on this issue was apparently paramount. Next up was the Bloomberg airhead, the guy with the bow tie and oversized glasses.

* I guess one version of Originalism goes to intent, rather than understanding. But it is intent at the time of the writing and ratification, not conveniently in retrospect. I am not a legal theorist, but…

Give it a rest, Whigs


I don’t know much about Michael Gove, beyond him being evidence that sometimes looks don’t deceive. But apparently he fancies himself a Whig.  Apparently, he feels a need to mention that too.

I guess a Tory can be a Whig just like a Republican can be a raging racist.  But as an Irish-Canadian lapsed Catholic, I have had it up to here (imagine normal-sized hand giving flattened salute) with this resurgent Whig propaganda.  Where the hell did that come from?

Please spare me Luther’s theses, Gloriana, John Locke, the Glorious Revolution, the Act of Settlement and the Intolerable Acts, one of which was placing stinking Catholics into the Ohio.  Really, it is getting to the point of being bigotry.

I get that reading for oneself is a good idea and that, yeah, capitalism was probably on balance desirable.  But you Protestants seem these days to be having trouble getting beyond that one book and you just elected a knob who may well destroy capitalism.

Luther, a Catholic, was cool, but he was the first step along a road that ended up giving us Joel Osteen, Jerry Falwell, Liberty University and Donald Trump.  The trick in life, you know, is to finish strong. And you guys ain’t doing that.


Sure, the Catholic church must be destroyed, just like all religion. Admittedly James II and Tony Blair were kind of dickish.  But the biggest Christian threat to human progress these days is dissenting Protestantism*, not the Catholic church. So give it a rest for a while, guys. You are starting to get tedious.

Screen Shot 2017-03-20 at 4.35.10 PM

* My favorite form of dissenting Protestantism is the guy who claims to be religious but does not believe in “organized” religion.  Admittedly, some lame Catholics fall into this same camp.He wants to be able to make up the bullshit from whole cloth. This is presented invariably as some sort of “advanced” form of spirituality.