Increasing Marginal Utility

A blog so good it violates the law of diminishing marginal utility.

Browsing Catharsis – 07.04.14


“We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce ‘modest movements’ in short rates that lead to ‘large’ movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.”

-Mark Gertler and Peter Karadi, “Monetary Policy Surprises, Credit Costs and Economic Activity.”


“How one understands dog ownership from this perspective is a mystery to me. If you own a dog and take the trouble to keep it alive, healthy, and happy, you have to sacrifice a great deal. There are the simple financial realities of feeding a dog and vet visits and medication or treatment when necessary, and often dog walkers as well. Then there is the sacrificed freedom—it is much harder to be spontaneous after work in terms of going out or seeing people; someone has to make sure to dog goes out, gets fed, and so on. And, for many people, there’s the added anxiety of having a life that depends on you—you invest emotions in your dog in a way that makes you vulnerable. It’s hard to imagine a world of commensurable values where this arrangement makes sense. If you get $10,000 of value from owning a dog, wouldn’t it be easier to just seek out $10,000 of value through going out to restaurants, or watching more movies, or any number of other ways that is less expensive financially and emotionally? Commensurability is fundamentally about interchangeability; the high cost value of dog ownership should, in this world, have available substitutes.”

-Adam Gurri, “Can Utilitarianism Explain Dog Ownership?


“This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. Monetary policy, fiscal policy, and regulatory policy became more discretionary, more interventionist, and less predictable in comparison with the previous two decades of better economic performance. At best these policies led to growth spurts, but were followed by retrenchments, averaging to poor performance. The paper also considers alternative views-that the equilibrium interest rate declined during the decade and that the seriousness of financial crisis caused the slow recovery.”

-John Taylor, “The Role of Policy in the Great Recession and the Weak Recovery.”

Browsing Catharsis – 07.03.014

“Evidently, Mr. Grant’s enchantment with gold has led him into incoherence. Is gold money or isn’t it? Obviously not — at least not if you believe that definitions ought to correspond to reality rather than to Platonic ideal forms.”

-David Glasner, “The Enchanted James Grant Expounds Eloquently on the Esthetics of the Gold Standard.” Oh Rothbardian essentialism, I have not missed you.


“Monetary policy affects the real economy in part through its effects on financial institutions. High frequency event studies show the introduction of unconventional monetary policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies. I interpret the positive effects on life insurers as expansionary policy recapitalizing the sector by raising the value of legacy assets. Expansionary policy had small positive or neutral effects on banks and life insurers through 2013. The interaction of low nominal interest rates and administrative costs forced money market funds to waive fees, producing a possible incentive to reach for yield to reduce waivers. I show money market funds with higher costs reached for higher returns in 2009-11, but not thereafter. Some private defined benefit pension funds increased their risk taking beginning in 2009, but again such behavior largely dissipated by 2012. In sum, unconventional monetary policy helped to stabilize some sectors and provoked modest additional risk taking in others. I do not find evidence that the financial institutions studied formented a tradeoff between expansionary policy and financial stability at the end of 2013.”

-Gabriel Chodorow-Reich, “Effects of Unconventional Monetary Policy on Financial Institutions.”



“I HAVE PARTICIPATED IN not one but three separate, and increasingly disillusioning, international health brigades, short-term visits to developing countries that involve bringing health care to struggling populations. Such trips—critically called voluntourism—are a booming business, even though they do very little advertising and charge people thousands of dollars to participate. How do they attract so many paying volunteers? Photography is a big part of the answer. Voluntourism organizations don’t have to advertise, because they can crowdsource. Photography—particularly the habit of taking and posting selfies with local children—is a central component of the voluntourism experience. Hashtags like #InstagrammingAfrica are popular with students on international health brigades, as are #medicalbrigades, #globalhealth, and of course the nostalgic-for-the-good-days hashtag #takemeback.”

-Lauren Kascak and Sayantani Dasgupta, “#InstagrammingAfrica: The Narcissism of Global Voluntourism.”And here I spent all this time thinking the Paul Farmer types weren’t narcissistic assholes.

Browsing Catharsis – 06.27.14

“The Botswana metalheads (complete with amazing nicknames like Bone Machine, Apothecary Dethrok, and Venerated Villain) are a small, 1,500-strong subculture devoted to music normally associated with white American kids from the suburbs whose parents totally don’t understand them. But they don’t just look the part of insane Roadie Warriors; they’re pretty damn metal in practice, too. They carry around knives and drink from hollow cow horns. Shake their hands, and they’ll shake your entire body…But despite their scene, wardrobe, and general behavior centering entirely on power and aggression, they insist they’re not thugs or bullies. They see themselves as role models and do all they can to help both their communities and their ‘brothers in metal.'”

-Antonio Arrieta and JM McNab, “5 Real Subcultures Way Crazier Than Anything from Japan.” Well I already heard that Botswana has really good informal institutions.




“Noting that it has had thousands of years to develop a more agreeable option, humankind expressed bewilderment this week that it has yet to devise a better alternative to governing itself than always letting power-hungry assholes run everything, sources worldwide reported. Individuals in every country on earth voiced their frustration that, in spite of generations of mistreatment, neglect, and abuse they have suffered at the hands of those in positions of authority, they continue to allow control over the world’s governments, businesses, and virtually every other type of organization and social group to fall to the most megalomaniacal pricks among them.”

-The Onion, “Humanity Surprised It Still Hasn’t Figured Out Better Alternative To Letting Power-Hungry Assholes Decide Everything.”

Browsing Catharsis – 06.24.14

“I would put it this way: climate change is like neither the financial crisis nor the Obama health care plan, but above all it is an international problem requiring an international solution.  And it’s not like banning land mines, where most countries have little reason to continue with the practice.  It is also not like ozone, where a coordinated solution is relatively low cost, more or less invisible to voters, threatens few jobs, and involves few incentives for defection.  A climate change solution requires a lot of countries to turn their back on coal-generated pollution long before we did (as measured in per capita income terms) and long before the Kuznets curve suggests they otherwise are going to.  A climate change solution, if done the wrong way, will look to China like a major attempt to unfairly deindustrialize them and, if it is backed by trade sanctions, it will look like an act of war.  Trade agreements do best when most or all of the countries already wish to act cooperatively toward much lower tariffs.  For a green energy solution, China (among others) in fact has to want to solve the problem, as do we.  And the already-installed or in-process coal base in China is…forbidding.”

-Tyler Cowen, “How good a climate change solution do we need?



“The Chicago Sun-Times got it from the Clinton Library. In it he gives the president all kinds of advice about how to score big political points out of triangulating the issue of crime and drugs. And it is ALL political points, of course. He doesn’t seem to care too much about the issue. He cares everything about the politics of the issue. Which I assume is pretty common among people like him. The baseball part is his advice about how the Clinton White House should nose itself into baseball and drugs. Not steroids — no one cared about that yet — but about players abusing recreational drugs. Specifically, Daryl Strawberry… Pro tip: if George Steinbrenner comes off as the most reasonable guy in your interaction, you got some serious problems.”

-Craig Calcaterra, “As a Clinton staffer, Rahm Emanuel wanted to go after Daryl Strawberry for drugs.”


“1. Take your savings and start stockpiling the steel that foreigners are producing below cost. Get a home equity line of credit or something and borrow money if you have to. 2. Once the foreigners decide to jack up the price, undercut them by selling your steel stockpiles. Pocket a handsome profit from the difference between the below-cost price you paid and the just-below-what-the-evil-foreigners-are-charging price at which you sell the steel. 3. If you have enough money to do it, keep buying steel until you drive the evil foreigners out of business. After all, they won’t be able to sell steel at a loss forever. If they have to start raising prices, then you can match them or undercut them and make a pile of money. You might not be able to do it individually, but I’m sure US Steel or the steelworkers’ union can mobilize the resources to make an impact.”

-Art Carden, “How To Protect Yourself From ‘Dumping’ and Profit in the Process.”

Caplan on the Fragility of Western Civilization

Bryan Caplan has a post on his position on the strength of Western Civilization in the context of a debate on immigration. In contrast to social conservatives who see Western Civilization always on the verge of collapsing, he characterizes it as a “hardy weed.” The culture of the West is winning, not the cultures of Asia or the Middle East. Caplan even claims that if Western Civilization was as fragile as the social conservatives make it out to be, that is actually evidence against the position that Western Civilization is really that great.

There are three significant problems with what he is saying, to the point that I think he is failing an ideological Turing test.

  1. People who are freaking out about the fragility of Western Civilization are not people who, like me, think it’s super awesome that McDonald’s are everywhere in the world. They are people who are worried about the collapse in church attendance or annoyed that no one takes liberal education seriously anymore. And if those types of things are what you mean, then yeah allowing more immigrants might mean more Latin music and Indian restaurants in the neighborhood you grew up in, at the expense of WASP institutions. Listen to what the social conservatives say in, for example, Michigan, regarding the significant Muslim immigrant population. Pointing out that those immigrants wanted to join Western Civilization, and therefore we have more Western Civilization with them here, completely misses the point. I 90%-99% discount this point of view, which should be obvious given what I’ve said in the past.
  2. On the other hand, it is not completely ridiculous to connect what we call “Western Civilization” and culture with something like social trust. And if that’s the case, the most “Western” cultures would be the Nordic countries, and it is not entirely outlandish to say that they get such good outcomes by combining other things we have going for us with a very high degree of social trust. And it’s not completely outlandish to say that increasing fractionalization – which immigration is certain to do – would erode social trust, thereby eroding Western Civilization. I don’t think that all of these linkages are that firm empirically, but they are not clearly wrong, and it would imply we need to be careful about preserving Western Civilization.
  3. We need to be the most cautious about dismissing another point of view, I think, when we are clearly arguing from differing Haidtian moral foundations. The social conservatives Caplan is arguing against have an extreme genetic concern with “barbians at the gates,” while Caplan has an extreme genetic concern with coercion. By and large, our “logical” arguments directly relating to differing moral foundations are “backwards” reasoning – i.e., we start with what we want to believe, and come up with a rationalization. And our readings of the empirical evidence are endlessly tainted with confirmation bias. So whenever one of these situations arise, it is wise to assume a more moderate position than your brain tells you is correct.

On the one hand, Caplan is completely misunderstanding what his opponents mean by “Western Civilization.” On the other, he isn’t addressing the most intellectually sound version of this argument by framing it as he does here.

Browsing Catharsis – 06.19.14

“Some unions say they will sue to block the reform. Even if the bill survives, Mr Emanuel’s hardest tasks lie ahead. He still has to complete a deal with Chicago’s teachers. (The boss of the teachers’ union, Karen Lewis, has called his reforms ‘theft’.) Most difficult of all, he must deal with the police and firefighters. He will have to move quickly. He faces an election in February 2015; and in a recent poll only 29% of voters said they would support him. It’s enough to make a man curse—something Mr Emanuel does often. He once said ‘Fuck you’ to Ms Lewis. The two best-known mayors in America, Mr Emanuel and New York’s Bill de Blasio, are both Democrats and both face long-term fiscal ills (though Chicago’s are far graver). Mr de Blasio’s approach is to give city workers huge backdated pay hikes and hope that Wall Street, which pays the bills, never has a bad year. Mr Emanuel’s approach is to try to make government leaner and more effective, while spreading the pain between public workers and taxpayers. It will be interesting to see which approach works better.”

The Economist, “Rahmbo’s toughest mission.” Is Rahm Emanuel actually Frank Underwood?


“Patent trolls are stifling innovation. Using overbroad patents based on dated technology, trolls threaten litigation and bring infringement suits against inventors. Trolls, also known as Non-Practicing Entities (“NPEs”), typically do not produce products or services, but are in the business of litigation. They lie in wait for someone to create a process or product that has some relationship to the patent held by the troll, and then they pounce with threats and lawsuits. The cost to the economy is staggering. Watkins calls attention to this problem and the challenges it poses to maintaining a robust rate of technologically progress. He also examines a more fundamental problem: an outmoded patent system that is fundamentally ill suited for the modern economy. Finally, he examines proposals for reforming the patent system.”

This is the summary of the new book “Patent Trolls Predatory Litigation and the Smothering of Innovation” by William Watkins, due out this August.



“Triggering a range of emotional responses that had lain dormant in his psyche for decades, approximately 35 different chemical processes were reportedly activated in the brain of local man Rob Northcutt upon hearing the phrase “pigs in a blanket” Tuesday. According to accounts, within nanoseconds of recognizing the words and calling to mind the dough-wrapped cocktail wieners, the man’s limbic system simultaneously summoned feelings of hunger, joy, envy, desire, and even, somehow, a deep sense of loss.”

-The Onion, “3 Dozen Chemical, Emotional Responses Activated By Phrase ‘Pigs In A Blanket.’

Browsing Catharsis – 06.17.14


“We in the U.S., of course, would disagree. And now we have a clearer understanding of why. In May, Stefan Szymanski, a sports economist at the University of Michigan, published a paper debunking the notion that ‘soccer’ is a semantically bizarre American invention. In fact, it’s a British import. And the Brits used it often—until, that is, it became too much of an Americanism for British English to bear.”

-Uri Friedman, “How Americans wound up calling football ‘soccer.’” Surprise, surprise – the soccer/football distinction looks suspiciously like status signaling.


“A student whose worldview clings to that of university administrators and professors has the advantage of accessing university resources, money, and time to drive his cause. These instruments are far more powerful in granting benefits to politically preferred groups in higher education than subconscious biases in favor of particular races or classes.”

-Greg Collins, “People Who Say ‘Check Your Privilege’ Should Do It.”


Browsing Catharsis – 06.15.14

“Duke and Georgia Tech played next. The Blue Devils don’t traditionally provide many players for the draft, and the Yellow Jackets endured a bit of a down year. Dozens of scouts left the stadium, maybe catching a break before Miami played Clemson in a sexier matchup at night. Kline grabbed a cheeseburger from the concession stand (a ’30’ of a burger on the scouting scale, he said) and he and Gonzales took seats behind the plate. Who knew what they might see? ‘Rizz is always on us,’ Kline said. ‘There are big leaguers out there. You can find a big leaguer in the 30th round. Go do it.’ ”

-Barry Svrluga, “The Scout.”



“Researchers at Northwestern University have found evidence for a massive reservoir of water deep within the Earth’s mantle. The reservoir, which is said to be three times the volume of the oceans on the surface, is contained within highly-pressurized rock known as ringwoodite. The scientists hope that their findings, recently published in the journal Science, can shed light on where Earth’s oceans came from.”

-Kwame Opam, “Scientists discover massive ocean of water 400 miles underground.” PEAK WATER.


“Can infrastructure investment win ‘hearts and minds’? We analyze a famous case in the early stages of dictatorship – the building of the motorway network in Nazi Germany. The Autobahn was one of the most important projects of the Hitler government. It was intended to reduce unemployment, and was widely used for propaganda purposes. We examine its role in increasing support for the NS regime by analyzing new data on motorway construction and the 1934 plebiscite, which gave Hitler greater powers as head of state. Our results suggest that road building was highly effective, reducing opposition to the nascent Nazi regime.”

-Nico Voigtlaender and Hans-Joachim Voth, “Highway to Hitler.”

Browsing Catharsis – 06.14.14

“An instrumental variables (IV) identification strategy that exploits statutory class size caps shows significant achievement gains in smaller classes in Italian primary schools. Gains from small classes are driven mainly by schools in Southern Italy, suggesting a substantial return to class size reductions for residents of the Mezzogiorno. In addition to high unemployment and other social problems, however, the Mezzogiorno is distinguished by pervasive manipulation of standardized test scores, a finding revealed in a natural experiment that randomly assigned school monitors. IV estimates also show that small classes increase score manipulation. Estimates of a causal model for achievement with two endogenous variables, class size and score manipulation, suggest that the effects of class size on measured achievement are driven entirely by the relationship between class size and manipulation. Dishonest scoring appears to be a consequence of teacher shirking more than teacher cheating. These findings show how consequential score manipulation can arise even in assessment systems with few NCLB-style accountability concerns.”

-Joshua Angrist, Erich Battistin, and Daniela Vuri, “In a Small Moment: Class Size and Moral Hazard in the Mezzogiorno.” So good.



“When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.”

-Isabel Correia, Emmanuel Fahri, Juan Pablo Nicolini, and Pedro Teles, “Unconventional Fiscal Policy at the Zero Bound.”

This is such a confusing constellation of views. And yes that appeared in AER last year.


“Impulse responses to government spending shocks in Standard Vector Autoregressions (SVARs) typically display ‘expansionary’ features. However, SVARs can be subject to a ‘non-fundamentalness’ problem. ‘Expectations – Augmented’ VARs (EVARs), which use direct measures of forecasts of defense spending, typically display ‘contractionary’ responses to a defense news shock. I show that, when properly specified, SVARs and EVARs give virtually identical results. The reason for the widespread, opposite view is that defense shocks have ‘contractionary’ effects while civilian government spending shocks have ‘expansionary’ effects. Existing EVARs and SVARs, however, include only total government spending. In addition, the former are typically estimated on samples that include WWII and the Korean war, when defense shocks prevailed, while the latter are estimated mostly on post-1953 samples, when civilian shocks prevailed.”

-Roberto Perotti, “Defense Government Spending Is Contractionary, Civilian Government Spending Is Expansionary.” This is the most important paper of the year for the government spending multipliers debate. I don’t quite believe it from my sorta dilettante understanding of modern empirical macro, but that might just be the confirmation bias talking. I may post on it in the future.

Browsing Catharsis – 06.11.14



“Economics sometimes has surprising applications. One example is the Alchian-Allen theorem, an observation that came from a footnote in an economics textbook in the 1960s about how quality demand is affected by transport costs. You may think this has nothing to do with you, but it does, because it explains why you consume so much internet animal hilarity and so little Shakespearean seriousness. It comes down to economics. Seriously. Smart people make these choices and it is fascinating to understand why.”

-Jason Potts, “The internet is made of cats – and you can blame economists.” HT Tyler Cowen.


“I think that the ability to think beyond the intention heuristic is very important in social and political philosophy. However, there are many people who are heavily invested in the intention heuristic, and it is my hypothesis that such people are anxious to discredit economics.”

-Arnold Kling, “Timothy Taylor on Economics and Morality.”


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