Markus Epp

Ich fühle mich mal angesprochen und schreibe einen kleinen 🧵 In der Makro gibt es keinen allgemeinen Theorie-immanenten Prior wie fiskalischer Spielraum genutzt wird. Dennoch können wir aus der Makro-Perspektive einiges über das neue WUMMS und dessen Gewichtungen sagen: 👇 1/14

I find it hard not to have as a central scenario where oil prices will remain very high for a long time, higher than the market current prices. I am no expert on geo-politics and defense technology, but this is what I think I have learned: Fully protecting ships in the strait of Hormuz is basically impossible. Not enough time to stop missiles or drones. There is no reason, whether or not Trump declares that war is over, to think that Iran will not continue for some time to threaten to destroy the ships that try. Why should they stop? The risk will thus remain sufficiently high that most non Iranian ships will not take the risk. Thus, the shortfall of 20 million barrels a day is likely to last for long. The scope for increased supply from elsewhere is very limited in the short run. Perhaps 2 million barrels at the most. The 400 million barrels reserve release can only add 3-4 million barrels or so daily. The short run elasticity of demand for oil is very low, at most -0.1, and probably less. This suggests to me prices closer to 150-200 dollars per barrel (or more, but I hesitate to give higher numbers…) than to the current market price. To repeat. I am no expert (As an economist, I have a bit more sense about the next step, namely what such a price would to the world economy). I would be more than happy to be proven wrong.

It is perfectly possible to formulate MMT using the language of temporary equilibrium theory. One reason, perhaps, why that exercise has not yet been attempted is that it forces the modeler to make internally consistent statements about concepts they take for granted. For example, Randall Wray in his treatise on MMT acknowledges that if the economy is at ‘full employment’ a government that consistently finances additional expenditure by money creation, will cause inflation. But he does not define full employment. Where I agree with Randall Wray, is that under some circumstances money financed expenditure will increase employment. Where I disagree with Wray, is that increasing employment is always a social good. Unlike Randall, I have a fully articulated theory of what it means for an economy to be at full employment. static1.squarespace.com/static/573b5f2… MMT economists assert that the government does not need to balance its budget and that — under some circumstances — deficits can, and should be, financed by money creation. I agree. But how large should the deficit be? Is there an optimal size fo government debt? MMT has no answer to that question. Neoclassical economics does. Peter Diamond in his 1965 paper, “National Debt in a Neoclassical Growth Model”, showed that government debt can, under some circumstances, increase social welfare. The reason is that, even at full employment, the interest rate in a competitive economy can be less than the growth rate. And in that case, money or debt financed expenditure is costless. @wbmosler Warren Mosler, in his seminal article on MMT, uses the analogy of a family whose parent issues tokens. If he had pushed that analogy further to recognize that generations overlap and trade with each other, he might have rediscovered Diamond’s work. Importantly, Peter’s work does not imply that government can or should increase the value of its liabilities without limit. My reading of MMT critiques of neoclassical economics suggests that most of the critics, perhaps not all, have a very limited view of what is taught in graduate economics programs. I have my own speculations about the nature of the quantum universe. But I do not share those thoughts on X because I have a very limited knowledge of what is taught in graduate physics programs. I am a consumer of works by theoretical and experimental physicists, not a producer. If I were to wade into debates on the nature of the universe, I would try to do it with a degree of humility and without the use of expletives and insults that have been displayed by some of those on this forum who feel compelled to attack mainstream economics without apparently understanding what they are attacking.@albertobisin @RelearningEcon @ProfHall1955 @GeorgeSelgin @JesusFerna7026 @ProfSteveKeen @sndurlauf @StephanieKelton

This extremely Hayekian passage by Ken Arrow on the economic calculation problem is quite interesting: "Production and consumption decisions are based on the present and the future. Information about future goods includes their prices. But not all future markets exist. One must confront the absence of such markets. What does this imply for the rest of the system, and what are the reasons for their nonexistence? The information required by the optimizer is not provided by the existing market; therefore, the optimizer must replace the market-based agreements to buy and sell under certain conditions with expectations. But the optimizer does not know the future, so the absence of future markets means that the optimizer faces a problem of uncertainty. It is necessary to examine more carefully the fact that inference about the future is necessarily uncertain, and that most decision-makers dislike risk. Since information is a product that does not satisfy all neoclassical standards, it is not surprising that the government plays a fundamental role in the process. In a world of uncertainty, the efficiency of firms includes not only technological efficiency but also efficiency in forecasting. The predominant role of internal financing and the particular importance of the entrepreneurial aspect in corporate decision-making are clearly connected to the different levels of access to information about the firm" SOURCE: ARROW, Kenneth. Limited Knowledge and Economic Analysis. AER, 1974. Link: jstor.org/stable/1814877 #Economía #Economics #Econtwitter

Didn’t expect Ben Affleck to have the most articulate and realistic explanation where video models and Hollywood is going

@florianederer There's one story involving scale effects: everyone wants to become market leader but winner-takes-all implies that the amount of investment to be written off once the dust settles is 100% minus the investment share of the winner. Rational to invest in advance & not in hindsight.

Why do industries keep falling into "overbuilding bubbles"? Telcos digging fibre in the late 90s, railroads in the 19th century, AI today. Why do firms overinvest in capacity they will later struggle to scale back? Surely somebody has written a model for this?

@BachmannRudi @wrint_de Wobei gegeben die heroische Annahme gleicher/globaler TFP Entwicklung das Level des pro-Kopf Konsums ja schon durch eine bestimmte Sparquote maximiert wird, die sich eindeutig bestimmen lässt (unter den typischen weiteren Annahmen wie Cobb-Douglas etc.).

Makro am Mikro 20: Holgi von @wrint_de und ich reden heute über die Analysen, die man mit dem Solow-Modell anstellen kann. Wichtigste Erkenntnis: Sparen ist overrated. Reiche Länder sind nicht reich, weil sie mehr sparen als arme Länder (quantitative Aussage).

@micheleboldrin If it's the young economists in or shortly after finishing their studies, it will rather be the sorry state of theoretical education that is to blame. When it comes to research it's journals' editors and experienced referees who will have the task to correct this costly failure.

That so many young economists (mostly applied) are spending so much time arguing over a mediocre newspaper article, where someone who, evidently, does not know either what economic theorists have been doing for the last 80 years, nor the mathematics they use, complains about things he does not understands, speaks volumes about the sorry state of theoretical economic research. The most elementary knowledge of actual research in economic theory seems missing.

@LandmannOliver Appears now that this has become a to-do list.

Powerful 👇

Let me talk today about 🧽 sponge cities. When I discuss fertility decline, I often get the following comment: “As the population falls, housing prices will also fall, which will help with fertility and the system will self-correct.” Perhaps not. As the population falls, we are observing a phenomenon called sponge cities (see the map from Japan: do you know which city is the green spot?). There are even more incentives for the population to concentrate in large cities (e.g., Tokyo or Seoul) for three reasons: 1️⃣ Jobs. As the population shrinks in many regions, jobs disappear with it. Yes, you can telecommute for some jobs, but there are fewer of those than you’d think. A plumber cannot telecommute. 2️⃣ Services. As the population shrinks in many regions, services like grocery stores, hospitals, schools, etc., also disappear. I’ve seen this in many villages in Europe: population falls below a threshold, and the local supermarket closes. This creates a negative spiral that’s hard to break. 3️⃣ Amenities. As the population shrinks, amenities like bars, theaters, and restaurants vanish too. And it turns out people, especially younger cohorts, care more about amenities than about jobs. You might be telecommuting, but you cannot telebar. So it might well be the case that housing prices won’t fall in sponge cities, and that this won’t help fertility. Self-correcting mechanisms often don’t work.

@ph_kaestli Es ist Bekenntnis ohne Geständnis.

ich frage mich, ob die beim FSB das lustig finden, oder ob es ihnen einfach an Fantasie fehlt.

If the reason Iran must not have nuclear weapons is its hostility towards Israel, then military action might solve a problem for today in exchange for a bigger problem further down the road. A smarter approach must be taken to have Iran come to peaceful terms with Israel.

Reminds me of the trade-offs involved with climate policy, although with flipped long-term vs short-run gains. You want to address a pressing issue that benefits all at the expense of redistribution, disadvantaging some. There's no doing it "optimally" without welfare weights...

@MilanBrahmbha11 @maxgoedl @heimbergecon @IrvingSwisher Yes and no. Agents in the RBC have rational expectations and their behavior is informed by prices and returns. If the expected growth translates into higher predicted returns (= low asset prices today) agents build that capital. IRL financial markets do that.

@pp_Markus @maxgoedl @heimbergecon @IrvingSwisher Doesn't that presume an unrealistic level of foresight over basically random future productivity shocks?

Productivity grows faster when aggregate demand and employment are strong, as predicted by Keynesian theory. via @IrvingSwisher

@doxa_ty @maxgoedl @heimbergecon @IrvingSwisher Sure, how do you control for reverse causality in the variables on the x and y-axis?

@pp_Markus @maxgoedl @heimbergecon @IrvingSwisher Many methods, like instrumental variables, control for reverse causality

@doxa_ty @maxgoedl @heimbergecon @IrvingSwisher The way they try to rule it (as far as this graph can tell us) seems to be by looking at subsequent y-o-y productivity growth... this is a pure correlational diagram, I can't see how you would control for more than that.

@maxgoedl @heimbergecon @IrvingSwisher Any study with decent methodology would eliminate reverse causality, which I assume they do

@MilanBrahmbha11 @maxgoedl @heimbergecon @IrvingSwisher Yes, because you'd build up capital with the help of labor today. Consumption may rise/decline, based on strength of substitution and income effects.

@maxgoedl @heimbergecon @IrvingSwisher Employment rises because of expectations of high productivity in the following year?

Thread 🧵1/4 The terrorizing and expulsion of foreign students from U.S. universities may prove the most disastrous policy blunder in American economic history—and unlike a silly tariffs on penguins and others, it will be extremely hard to reverse.1/8

Interesting point. The willingness of everyone to buy your assets should be both reason to celebrate and to be very cautious not to overload yourself for the case someone like Trump takes office and you-the government and the people-being stuck with promises hard to keep.

Hard to understand the logic of those who argue it makes sense to worry about debt and deficits now, but there was no reason to worry last year or two years ago. Debt is a slow-moving, persistent state variable. Bond yields are anything but. And we've had two large price-insensitive buyers (the rest of the world and the Fed) in the US bond market snapping up most of issuance over the past two decades.

@BachmannRudi @ojblanchard1 Auch dieses Mal fühlt es sich so an, als dass "the state of macro is good" nur eine Abbiegung vom nächsten Methodenstreit weg ist. Ist gut, dass der Fokus eher auf Konvergenz der Methodik und "Reifheit" der Disziplin und nicht deren Bewertung liegt. Deskriptiv schlägt normativ.

Der arme @ojblanchard1 - jetzt hat man ihn nach dem letzten, fuer ihn nicht so guenstig verlaufenen Mal (was er aber mit Humor nimmt) wieder um einen "State of Macroeconomics"-Beitrag gebeten.