The Nuclear Option

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From an article in Scientific American.

“If we are serious about tackling emissions and climate change, no climate-neutral source should be ignored,” argues Staffan Qvist, a physicist at Uppsala University, who led the effort to develop this nuclear plan. “The mantra ‘nuclear can’t be done quickly enough to tackle climate change’ is one of the most pervasive in the debate today and mostly just taken as true, while the data prove the exact opposite.”

The report claims that nuclear power could replace all fossil-fuel electricity generation within thirty years.

I personally would rather see how some newer designs work, both in terms of safety and cost, before advocating a lot of nuclear power plant construction.

Olivier Blanchard Profiled

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By Steven Pearlstein. The profile says a lot of good things about Blanchard, most of which are true. But it also includes this:

But for Blanchard, who had spent the better part of his career helping to build the new consensus, the crisis had not only revealed the inadequacies of what had been done so far but raised questions about whether it was possible to come up with one all-purpose economic model.

…“We ignored the financial plumbing,” Blanchard said. “We thought we could model it with a few simple equations,” he explained, based on what turned out to be false assumptions about the ready availability of buyers and sellers and the easy substitution of one financial instrument for another.

I would say that Pearlstein’s article suffers a bit from an excessive reliance on MIT insider economists as sources. And as Larry Summers put it, “But insiders also understand one unbreakable rule: They don’t criticize other insiders.”

The insiders created the artificial consensus around representative-agent, rational-expectations models with no institutional or historical perspective on finance. And they have not really moved very far from that consensus. For better or worse, macroeconomics is where it is today because of MIT’s insider economists, exemplified by Blanchard.

Some Non-Brookings Courage

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The Hill reports,

Five top Democratic economists are criticizing Sen. Elizabeth Warren (D-Mass.) and the left-leaning Brookings Institution for forcing one of its nonresident economic fellows to resign.

Read the whole thing. I don’t see how Brookings can say it is defending its integrity by caving into bullying. As I said earlier, you can either defend the research or you cannot. If Brookings had focused on the issue of whether or not the study is valid, they would have been fine. Instead, they let Senator Warren discredit the researcher, regardless of whether the study is valid.

You may remember that I did not like it when Congress beat up on Jonathan Gruber, either.

This Brookings incident has made me angry with many people on many levels.

Perspectives on U.S. Infant Mortality

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New genius-grant winner Heidi Williams and colleagues write,

Effectively, either across countries or across regions within the US, we see that the observed geographic variation in postneontal mortality is heavily driven by variation in health gradients across socioeconomic groups. Notably, when we look at neonatal mortality we do not draw the same conclusions, suggesting that the inequalities we observe emerge especially strongly during the postneonatal period

Pointer from Joshua Gans. Read the paper before commenting. You will note that she deals with reporting differences.

Sanders, Warren, and Power

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Two pieces from the Washington Post. First David A. Farenthold writes,

The biggest pieces of Sanders’s domestic agenda — making college, health care and child care more affordable — seek to capture these industries and convert them to run chiefly on federal money.

Sanders obviously understands that health care and education are the New Commanding Heights.

Second, Dana Milbank writes,

It’s a sign of some clout that Warren has Litan’s hide, and Weiss’s, and Summers’s. But if her party answered to the people rather than its donors, she’d have many more.

If you combine Sanders and Warren, what you get is socialism combined with demonization and intimidation of anyone who does not support left-wing views. This is the country that the Democratic left wants to live in?

Noah Smith on Natural Experiments

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He writes,

With lab experiments you can retest and retest a hypothesis over a wide set of different conditions. This allows you to effectively test whole theories. Of course, at some point your ability to build ever bigger particle colliders will fail, so you can never verify that you have The Final Theory of Everything. But you can get a really good sense of whether a theory is reliable for any practical application.

Not so in econ. You have to take natural experiments as they come. You can test hypotheses locally, but you usually can’t test whole theories. There are exceptions, especially in micro, where for example you can test out auction theories over a huge range of auction situations. But in terms of policy-relevant theories, you’re usually stuck with only a small epsilon-sized ball of knowledge, and no one tells you how large epsilon is.

Pointer from Mark Thoma. Read the whole post.

Blame the DA’s

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John Pfaff says,

Though we have a smaller pool of people being arrested, we’re sending a larger and larger number of them to prison.

the probability that a district attorney files a felony charge against an arrestee goes from about 1 in 3, to 2 in 3. So over the course of the ’90s and 2000s, district attorneys just got much more aggressive in how they filed charges. Defendants who they would not have filed felony charges against before, they now are charging with felonies.

He argues that this, rather than other people’s favorite reasons, accounts for the high incarceration rate. Pointer from Tyler Cowen.

I still have many questions. For example, has the number of mentally unstable, violent individuals gone way up? Or has the proportion of mentally unstable, violent individuals gone way up? Do other countries, with lower prison populations, have fewer mentally unstable, violent individuals? Do they have an alternative way for dealing with such individuals that works better? etc.

Hypocrisy and Cowardice at Brookings

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The WaPo reports,

Sen. Elizabeth Warren, stepping up her crusade against the power of wealthy interests, accused a Brookings Institution scholar of writing a research paper to benefit his corporate patrons.

Warren’s charge prompted a swift response, with Brookings seeking and receiving the resignation of the economist, Robert Litan, whose report criticized a Warren-backed consumer protection rule targeting the financial services industry.

My remarks:

1. Robert Litan is one of the most decent individuals in the whole economics profession.

2. Giving Litan’s scalp (sorry for the pun) to Elizabeth Warren does nothing to bolster the integrity of Brookings. It amounts to speaking cowardice to power.

3. Go back and read this post. If Bob Litan crossed a line, then Martin Baily crossed it at least as far. The only charitable explanation for the differential treatment of Litan and Baily is that Brookings changed its policies in the interim (something suggested in the WaPo piece, but I do not know any specifics).

4. If I were in the administration at Brookings, I would not give in to political intimidation. I would obtain peer reviews of Litan’s study and either stand by the study or repudiate it, depending on those reviews.

Matthew Kahn Asks the Tough Question

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He writes,

Is Professor Summers saying that the subset of scholars who were studying macro have been collectively wasting their lives?

Pointer from Mark Thoma. I believe that they have been wasting their lives. I believe it even more strongly after reading Randall Wray’s Why Minsky Matters. The time-wasters treat the history and institutional characteristics of financial intermediaries as irrelevant. Minsky, correctly, thought that these things were important.

Minsky Revisited

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Olivier Blanchard says,

mainstream macroeconomics had taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage equations, under the assumption that we did not need to look at who was doing what on Wall Street. That turned out to be badly wrong. . .

…As a result of the crisis, a hundred intellectual flowers are blooming. Some are very old flowers: Hyman Minsky’s financial instability hypothesis. . .

Pointer from Mark Thoma.

I have just finished a first reading of a review copy of L. Randall Wray’s forthcoming Why Minsky Matters. It is certain to be on my list of best books of the year. In my opinion, Wray succeeds in clarifying Minsky and in making his views more interesting and persuasive to me than they were previously (I still have my quarrels).

If I think about the economy in terms of patterns of specialization and trade, then Minsky thought of it in terms of financial intermediation. For Minsky, all of us are intermediaries. Because we do not barter, we trade either by issuing IOU’s or by passing along the IOU’s of others (fiat currency being an IOU of the government, if you will).

I am working on a review, which probably will not be out before the book.