Review: New York Tech Meetup

Posted on by David Wright

I went to another NYTM last night and, again, really enjoyed it. Every time I go, I meet a few really interesting people (batting 1.000 so far) and have some stimulating conversations about the presentations.

This month we were treated to another bland lineup of social media webapps, which don’t really excite my interest. Social media webapps seem to have two goals: letting you keep in touch with people you already know (facebook) or suggesting new people for you to meet (no paradigm here, yet, but linkedin is in the ballpark). I saw several variations on both, none of which were particularly gripping. I have a pretty low tolerance for this kind of thing, though.

The enterprise software was a bit more interesting. Big data is a persistent theme. If you can get your hands on a big, novel dataset, you have found yourself at the cutting edge of technology. Better get some crunchers on that, pronto, before someone nicks your lunch. I’m available.

There were two hardware offerings, which I always find the most exciting. One was a 3d printing service, which is one of the most extraordinary recent technological developments.

The other is an almost moving story, to an econo-geek. From the ashes of the Rochester photography industry rises Kogeto, a maker of 1. a 360 degree video camera add-on for the iphone; 2. hardware (woops!) software for editing such video and, 3. a video player that lets you click and drag such video in your browser (or wherever). Impressive.

Once again the presentations are polished, often funny, and almost always flawless. Bravo to all.

Can’t wait for next month!

Uplifting Quote Of The Day

Posted on by David Wright

AMR was the last of the major legacy airline companies in the United States to file for Chapter 11. Analysts said that its reluctance to do so earlier had left it less nimble than many of its competitors.

More here.

Deregulation created an industry that looks very little like the one that preceded it. This can only happen through the destruction of the previous regime.

It works.

Selected Questions From Tyler Cowen’s 2005 Macro Final

Posted on by David Wright

Note: I’m working through Tyler’s 2005 Macro final. 

3. How will the aging baby boom generation affect the following and why? Savings rates, interest rates (real, nominal, short and long term), Fed policy, inflation, and investment.

We’re going to become (ARE!) a savings-driven society. That means zero tolerance for inflation with all the painful adjustments implicit in changing inflation regimes. And don’t expect the fed to push extra-hard against this political force to keep its 2% implicit target. Ouch.

Increasing dependency ratios are going to drag the economy a bit, which means a lower demand for loans to complement the increased supply.  I’m sure that the elderly will limit consumption to conserve savings even further than we might expect them to.

Demand is a big problem in an old society.  Nice little throwaway comment there, but what does it mean? It means that the marginal consumer wants to spend less than last year but also does not want to invest the savings of others in novel or innovative productive activities. Leisure is good for your own kids, but not for every one else’s kids. Steve Jobs’ kids knew their old man less than he would have liked but we’re all better off for it.

More downward pressure on inflation. Who wants to invest in this environment? Trick question: more people than ever (savings are up and S = I!). But they want to keep their savings at home, not spread them around the world looking for opportunities!

Selected Questions From Tyler Cowen’s 2005 Macro Final

Posted on by David Wright

Note: I’m working through Tyler’s 2005 Macro final. You’d be out of your mind to take a formal economics class in this blogosphere.

2. What is the difference between covered and uncovered interest parity? Which are assumed by the traditional Dornbusch model of exchange rate overshooting? None, just one, or both? How do the observed failures of the expectations theory of the term structure affect the Dornbusch model?

Covered parity means you have a forward contract guaranteeing you your money back. Uncovered parity means you’re exposed to exchange rate fluctuations not offset by interest rate changes.

I had to look up Dornbusch, but I remember his ideas from the CFA exams. The point here is that the economy adjusts to shocks in a lumpy way as information is processed by affected sectors and knock-on effects are realized.

Anyway, the point is that interest rates change based on local equilibria which themselves might be based on asset prices that adjust only slowly to shocks. Think about how long it takes house prices to adjust to changes in interest rates. The full expression of the shock might take a longer and more meandering path than we expect.

Not sure what failures in the term structure Tyler’s talking about here but a wonky term structure would mean that different rates within asset classes will react in different ways.  This just seems to make rates even less predictable. I wouldn’t want to be in charge of that model.

And when the changes, when they come, come fast. Consider how this affects the information transmission of price systems. Tyler himself recently quoted James Hamilton that the market will change its view quickly (on Italian debt, for instance) when perception switches to ruin.

Okaaaay, But

Posted on by David Wright

This was an interesting take:

The WSJ has a very interesting table of the unemployment and wage distributions for various majors. There’s lots to talk about, particularly the STEM/humanities/social/vocational divide, but one thing that struck me was that the highest and lowest unemployment rates were dominated by tiny majors. In general, small populations tend to have more widely varying outcomes just as a function of standard error, which is why you should always ignore headlines about big jumps in the crime rate for small towns. Anyway, I downloaded the data, generated some plots, and yup, it’s your classic funnel.

He then throws in some graphs:

By Rank Order
The Funnel!

His conclusion

Moral of the story, don’t change your major from clinical psych to actuarial science just yet. On the other hand, nursing, elementary education, and general education really do appear to be real deal outliers of low unemployment.

Putting aside how impressed I was with this analysis and how jealous I was that I didn’t think of it first, my gut said this wasn’t the last word.

I took the data and changed the y axis from employment to median income:

And 75h percentile income:

I’ve circled two very different kind of outliers in my analysis. My little circle surrounds three majors in both images. They are:

  • Elementary Education
  • General Education
  • Psychology

Low unemployment isn’t everything.

But They Teach, Too

Posted on by David Wright

I’m not here to comment on Krugman’s main point in this post, which is that there isn’t any substance to the idea that high income earners contribute something called “job creation” to the economy. But I do take issue with this:

Yet textbook economics says that in a competitive economy, the contribution any individual (or for that matter any factor of production) makes to the economy at the margin is what that individual earns — period.

As someone who often works with extremely productive people I have to respectfully disagree. They teach me when they work with me. They might make me more productive directly and so earn their higher wages, but they make me more productive IN THE FUTURE, whether they stick around or not.

And the longer they stick around, the more productive I will ultimately become.

Model that!

Great Quotes

Posted on by David Wright

Robin Hanson:

Like democracy fans who insist the only acceptable solution to democracy’s failings is more democracy, for many school fans the only acceptable solution to school failings is more school.

A variant on this is Arnold Kling‘s:

The other camp argues, “Markets fail, and that’s why we need government.” The idea is that markets are prone to excesses and imbalances and need the thoughtful, steadying hand of government to protect consumers and investors from flaws and uncertainties of the market. This camp believes that wise technocrats can and will bring order to the markets.

Markets fail; but they learn from their failures. That’s why we need markets.

 

Irony

Posted on by David Wright

I briefly overheard an impassioned case for increasing the minimum wage on some morning news program today. The reason? “Rent is too high to pay on $7.25 an hour”

Indeed, rent is high in this city. I can’t imagine earning the min and making ends meet, certainly not in Manhattan, and certainly not in a nice neighborhood without a bunch of roommates.

But read Ryan Avent’s minibook (or listen to an interview with him) and think about this a bit.

High house prices are much a product of regulation designed to limit urban development. Incumbent house-owners lobby to enhance zoning laws and other regulations that stifle development to constrict supply. Now why would you want to constrict supply of something you own?

So the price goes up.

It’s policies that favor the rich that supply the strongest case for increasing the minimum wage.

Selected Questions From Tyler Cowen’s 2005 Macro Final

Posted on by David Wright

Note: I’m blogging through Tyler’s 2005 Macro final. I’m not really imagining that these answers are ‘right’ in the exam sense, but rather just an excuse to think about 2005 questions in 2011.

1. The pessimists commonly argue that the large U.S. trade and budget deficits eventually will require a big fall in the dollar, higher real interest rates, and a general loss of confidence in dollar-denominated assets. We all know that g > r would stop this problem in its tracks. But let us say that g is not big enough relative to r. What other non-pessimistic scenarios can you outline? How valid are they?

I think that g and r are growth interest rates.

I’ll take the question generally as asking for non-pessimistic scenarios on trade and budget deficits in the future.

Not sure if its non-pessimistic, but the twin deficits persist to this day, mostly because investors are terrified of any investment other than treasuries. Flight to safety preserves the purchasing power of the currency of account.

Less pessimistically, of course, trade deficits due to investment can persist for as long as there are investment booms elsewhere.

And let’s not forget that those trade deficits are nice while we have them. I like the way Russ Roberts thinks of the extremis scenario of exchange rate ‘over/under-valuation. He says that if some foreign country wants to give us a bunch of free cars (be it from exchange rate ‘misalignment’ or enormous foreign productivity matters not), they’re going to of course undermine our domestic auto industry. But (now think carefully about this for a sec) we’re getting free friggen cars!

But to the degree that these foreign investment booms prove illusory, we get a debt overhang and disinflationary recession. But there I go being pessimistic again. Michael Pettis has convinced me that the end-game in China is going to be an abrupt and far-too-late end to their government sponsored investment boom. Ew.

There are also some insights in Tyler’s question, which actually isn’t so pessimistic. What we wouldn’t give for a bit of inflation, depreciation and the ensuing loss of confidence today!