Economists Do It With Models

This is cute because it makes the process seem kind of badass…

Economics Conference Tests Job Seekers’ Mettle Grad students face grueling rounds of interviews in NFL-combine-style recruiting event by Shayndi Raice CHICAGO—In one corner of the U.S. job market, the first weekend in January is the most important of the year. At the annual meeting of the American Economic Association this weekend, thousands of economics graduate students were interviewed by universities, private firms and institutions like the Federal Reserve and International Monetary Fund hunting new talent.

Source: WSJ

Ok, here’s the thing- the WSJ has to be, well, the WSJ, so this description is both accurate and completely misleading. As such, allow me to provide my less sanitized but more representative account:

Yes, there is a big economics conference- the annual meeting of the “Allied Social Sciences Association,” which is the parent organization of the American Economic Association- held the first weekend in January each year, approximately speaking. It rotates among among a number of different cities- Atlanta, Boston, Chicago, Denver, Philadelphia, San Diego, San Francisco, if my recent memory is correct- and is held at this time both because most universities aren’t in session and because it’s usually an otherwise dead weekend so everything is cheap. (I’m old enough to remember when I got a room at the Chicago Hyatt for $109. Also, it’s no real secret that economists are cheap- for example, I was a party to more than one conversation about free food strategy during this event.)

At this conference, there are many paper presentations/lectures/panel discussions- you can see this year’s program here, and you can get a feel for the action via the #ASSA2017 Twitter hashtag- but many professors don’t get to attend any of this because their time is taken up by the interview process. Economists like efficiency, so it’s not surprising that they’ve figured out to hold their first-round interviews in a centralized location rather than have graduating Ph.D. students flying all over the place to talk to prospective employers.

This is where the reality starts to differ from what is presented in the article, however. While it is true that there is a big room with tables where some employers hold interviews, most interviews are held in rooms in one of the many hotels reserved for the conference. Yes, you read that right, and it gets better- either due to availability constraints or funding constraints, we’re often talking regular hotel rooms rather than suites. Now, I am apparently more resourceful than many economists because I would at least use my Amazon Prime to get some folding chairs sent to the hotel rather than have people sit on the beds when necessary, but apparently that is too much to ask.

It gets even better in a number of ways- for one thing, there is theoretically a shuttle that goes around to the hotels, but it’s notoriously unreliable and job candidates often have interviews pretty much one right after the other in different locations. Also, there are sometimes multiple hotels of the same brand, and interviewers are not always great at pointing this out or specifying which location they are at. Fun, right? Now do all this while wearing an awkwardly fitting suit (the article was right on that front but left out the part about the “spot the job-market candidate” game that we all play), new shoes, plus coat, scarf, gloves, hat, since did I mention it was 4 degrees out? (As I was typing this, Rachel Maddow pointed out that it was negative 11 with wind chill in Chicago on Saturday.) Now walk your anxious job interview self through the lobby of the main hotel where seemingly everyone else is drinking and meeting up with friends, as a conference should be IMHO.

Thankfully, I don’t have to deal with most of this directly, but I do get the follow-on awkwardness of seeing the benches next to the elevator bank being used as makeshift waiting areas and running around to meet up with friends for a 30-minute break they get in a 12-hour day of interviews. (I honestly don’t know whether the process is more exhausting for the candidates or the interviewers.)

Even given all this, the process is probably still more efficient than the alternatives for a number of reasons. At the very least, it enables universities to cast a wider net in deciding who to talk to in the first round, which gives more people the opportunity to prove themselves rather than have to rely on how fancy their CVs look. On the other hand…

We talk a lot about the gender disparity in many STEM fields, and economics is no exception. While there are a number of identifiable trends, it seems in some ways that the drivers of this disparity are field-specific and fairly nuanced, which makes them hard to identify without visibility into the specific logistics of various industries. (Claudia Goldin has gained a lot of insight by looking into the logistics of lawyers, pharmacists, and so on, for example.) In the case of economics, I’d have to imagine that part of the disparity comes back to the aforementioned hotel room situation- I heard a number of (male) interviewers say that they shouldn’t be expected to be in a hotel room alone with a female interviewee without an HR rep present, so I find it hard to believe that they are managing the same comfort and concentration level with female and male candidates, even if they’re trying to be fair (which I do believe they generally are).

Personally, I feel pretty strongly that we need to get over our own shit rather than fake solve the problem with HR babysitting, forcing the door to stay open, only talking to members of the opposite gender while walking around, or whatever other strategies to maintain “appropriateness” that I’ve heard thrown around. (Meanwhile, male faculty members have been known to hang out in the sauna with their male grad students, so the awkwardness is not universal.) As an interviewee, I would not want to be reminded that you need a babysitter, nor would I want to be reminded that my interviewer thinks I need a babysitter. (I get the impression that the male interviewers want the babysitting so they can’t get accused of anything, which implies that they think female candidates will cry harassment if they don’t get what they want. This is obviously insulting.) My initial suggestion: have sex in more places so that a bed has less of a salient connotation for you. 🙂

I contributed to a thing. It’s pretty interesting!

Bad With Money With Gaby Dunn – Get Rich or Die Vlogging by Gaby Dunn/Panoply You know those money podcasts where financial experts teach you practical steps for maximizing your income? “Bad With Money” is the opposite of that. Gaby Dunn is anything but a financial expert. A self-described “bridge-burning livewire,” she’s always viewed money as an endless existential crisis – and she has a sneaking suspicion you do, too. So much of our identity and self-worth is caught up in how much money we have (or don’t have), how hard it is to get it, and even harder to keep it. Money makes us freak out, cry, and do wildly inappropriate things. So how come nobody ever talks about it? Join Gaby for conversations with comedians, artists, musicians, actors, her parents, a financial psychologist, her boyfriend, and many others about the ways that money makes us feel confused, hopeless, and terrified. This is a safe space to admit that you have no idea what you’re doing either.

Source: iTunes

Apologies for the break in posting videos- I got distracted and kind of forgot I hadn’t finished with them! Anyway, this one looks at some more detail in the disposition effect data and discusses whether investors in the sample seem to be learning to be rational as time goes on.

As usual, you can see the whole behavioral economics playlist here in case you want to catch up or need a review.

Trying out a new platform here…so far so good I think? At least it’s more productive than screaming into my poop emoji pillow, which is the other thing I’ve been doing lately.

Maybe Working-Class Trump Voters Aren’t Racist, But They Are Comcast by Jodi Beggs It’s only been a week since the country was rocked by a seemingly improbable election result, and we are seeing an unprecedented level of protest and anger at both Donald Trump and those who voted for Trump. Much of the protesting appears focused on social and civil rights issues, which have been discussed fairly extensively in the media. (Personally, I think this guy has got my feelings covered.) In addition, there are many think pieces expressing frustration over how Trump voters either aren’t going to get what they voted for or won’t actually be helped by it. I certainly concur with these sentiments, but I also have my own economist-y reasons for being irritated with at least a particular subset of Trump voters. Allow me to explain via an analogy…

Source: Medium

Hope you enjoy my rage. =P

I can’t resist appropriating a good meme…

It occurred to me earlier that some people didn’t get the joke, so allow me to ruin it by explaining. Donald Trump, staying in theme with the fake news that made him look good during his campaign (and after I guess), has on numerous occasions claimed that the “real” unemployment rate is around 40 percent rather than the 5 or so percent that the government reports. His general idea appears to be that the 5 percent doesn’t include nearly enough people who should be working but aren’t, but to get to Trump’s number you’d basically have to count every student, grandma, stay-at-home-mom-married-to-i-banker, etc. as unemployed. While it is true that convincing them to work would increase output (i.e. GDP), I tend to recall that history suggests that people don’t like being forced to work, so the 40 percent calculation isn’t really helpful from a policy perspective as an indicator of economic health. Besides, the government already publishes a number of “alternative measures of labor force underutilization,” which try to capture discouraged and underemployed workers that the main unemployment number doesn’t account for. (The government is clearly better at numbers than coming up with sexy names for said numbers.) To be fair, however, labor force participation has been declining since about 2007, which does give a bit economists a bit of pause, though it’s important to understand a bit more about the drivers of this decline (hi, retiring baby boomers!) before deciding what, if anything, to do about it.

I’m sure Ivanka’s going to explain this to him any day now.

I am not a macro person (by nature at least- I don’t deal well with severe empirical limitations and unanswered questions I guess). That said, I enjoy this profusely:

What I think I don’t like about basic macroeconomics is that I feel like we (I mean instructors) don’t always do a great job explaining why things work the way that they do. For example, we introduce the concept of gross domestic product, or GDP (but even then are kind of murky on how goods with imported components get counted), and we give the “real” version of GDP a variable, namely Y. We then say that Y can represent aggregate production, expenditure, or income. Ok great- I guess it has to be true that the amount people spend on our stuff has to equal our income, but it would be nice to point that out explicitly. What is less obvious is why it must be true that the amount of stuff we produce has to equal the amount that people spend on the stuff we make- sure, that should be true in equilibrium, but what is stopping an economy from producing a whole bunch of stuff that goes into inventory? As it turns out, the extra output is counted as purchased by the company that made it, so we’re sort of forcing that part of the equality by redefining expenditure a bit. Sure, why not.

Then we get to the “expenditure categories of GDP”– you know, the thing in the bed:

Y = C + I + G + NX = C + I + G + (X – IM)

You see this all the time in macro, and what it means is that the spending on an economy’s output can be broken down into

• Consumption spending (C) – spending by households in an economy
• Investment spending (I) – spending by (mostly) businesses in an economy on stuff that makes more stuff
• Government purchases (G) – spending by the government
• Net Exports (NX, or X – IM) – the difference between foreign spending on domestic goods (exports, X) and domestic spending on foreign goods (imports, IM)

If you’re anything like me, this all makes perfect sense until you get to the net exports part, and then you’re like wait, what? Allow me to summarize a discussion that I think should happen in the classroom much more…

If we think about the different ways that stuff can be produced and consumed, we get something like this:

Since GDP, by definition, represents domestic production (regardless of where stuff is consumed), the area that should count in GDP looks like this:

But let’s think about the other GDP categories for a second- consumption, for example. Consumption represents the purchases by domestic households (other than newly constructed houses, technically speaking), and, if you’re anything like me, some of what you consume is produced in the U.S. and some of it is imported. As a result, the consumption area looks like this:

Therefore, the GDP identity needs to have a correction factor to turn the domestic consumption area (and, by similar logic to some degree, investment and government spending) into the domestic production area. Looking at the picture, it becomes pretty clear that we can do so by adding in exports and subtracting out imports. Funny thing- this is exactly what the net exports category of expenditure does!

Hopefully that helps the expenditure identity actually make sense as opposed to something you just memorize and try not to think too hard about. But it also highlights an important point- taking away imports, in and of itself, doesn’t increase GDP. Now, I get why people might think that, since looking at the basic Y = C + I + G + (X – IM), it certainly seems like Y goes up if you take away the thing that is subtracted out. The problem with this logic, as the pictures above illustrate, is that the IM part is just a correction factor, and you can’t take away a correction factor without also taking away the thing that you’re correcting! In other words, if you’re going to take away IM, you have to reduce, well, mainly C, and maybe some I and G, by a corresponding amount, at least in an accounting sense.

As a result, whenever anyone tells you that limiting or eliminating imports will increase GDP, they are making hidden assumptions about consumption (mainly along the lines that people will just buy domestic stuff instead and nothing else will change) that generally fall under the heading of assuming the conclusion. They are also potentially ignoring the fact that such an increase may not actually increase households’ standard of living if it makes their consumption decrease. (Taking away $100 of my imported stuff isn’t going to magically generate $100 of just as cool stuff for me to purchase from domestic producers- if this were true, I probably wouldn’t have been buying imported stuff in the first place.)

With me so far? Great, you’re farther along than Trump’s economic advisers in an important way. In reality, there are interconnections between the expenditure components that are not shown in the basic Y = C + I + G + NX identity, and these interconnections make it so that you can’t just look at this simple equation to analyze cause and effect.

Here, Greg Mankiw explains it a bit better, after mentioning that he agrees with Paul Krugman on the matter:

But of course you can’t model an economy just using the national income accounts identity. Even a freshman at the end of ec 10 knows that trade deficits go hand in hand with capital inflows. So an end to the trade deficit means an end to the capital inflow, which would affect interest rates, which in turn influence consumption and investment.

I suppose that their calculations might make sense in the simplest Keynesian Cross model, in which investment is exogenously fixed and consumption only depends on income. But that is surely not the right model for analyzing the impact of trade policy over the course of a decade.

(Mankiw provides more detail, but you have to acknowledge that Krugman wins the headline game.) I find it funny that people make it such a big deal when Mankiw and Krugman agree on anything…I mean, they agree on lots of stuff, namely basically everything in their respective textbooks. (Related: I know people who won’t use one of said textbooks bc of bias or whatever, and I find it hilarious since they are functionally identical for the most part.)