Refuting Picketty by Mike Hudack

A new IMF working paper refutes Picketty:

Thomas Piketty’s Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

From the conclusion:

On inequality, the evidence against Piketty’s predictions is even stronger: for at least 75% of the countries, the response of inequality to increases in r − g has the opposite sign to that postulated by Piketty.

This finding makes sense to me since Picketty doesn’t make sense to me. I find it much more likely that power is shifting  away from financial capital than that financial capital is accumulating unchallengable power. 

What I mean by this is that capital is no longer scarce — it’s productive applications of capital that are scarce. If this is true I think it means that Picketty is wrong. 

Rate cuts and fiscal policy by Mike Hudack

The Bank of England cut rates by 25 bps this week. Their action was a response to a torrent of terrible economic data in the aftermath of the Brexit vote.

I think that for most people the promise of a marginally cheaper mortgage probably isn’t enough to get them buying a new house when they’re unsure about their job.

Similarly there doesn’t seem much point in taking out debt to buy new factory equipment — even if the debt is really, really cheap — if profits are falling and your long-term sales outlook is emphatically cloudy.

The British economy doesn’t seem like it needs more asset bubbles spurred by cheap money. It needs customers, jobs, markets to expand into (and maintain access to), quality infrastructure and a friendly regulatory environment.

Brexit is a political problem and needs political solutions. It’s time for fiscal stimulus and clear statements of future government commercial and trade policy.

The government must speak with one voice, clearly and loudly. And best of all, money is historically cheap! There’s never been a better time than now for government to borrow to fund some new infrastructure.

One could maybe start with supporting a nationwide fiber upgrade since BT doesn’t seem to be doing it. Committing to an accelerated Crossrail 2 would be nice too. We live just down the block from the station, and such a commitment would do wonders for our post-Brexit property values. Thank you in advance, Mrs. May.

The biggest problem with Alexa by Mike Hudack

We have three Echoes in our house. The one in the kitchen gets the most use. We use it to listen to the radio in the morning, to play music, set timers and do kitchen conversions.

We don’t use it for anything complicated. We’ve tried, but gotten frustrated quickly and given up. The reason is that Echo is bad at keeping state. It can’t have a conversation. I think part of this is a simple UI problem: it’s hard to have a conversation with a black cylinder. Humans offer lots of non-verbal feedback during conversations, and Alexa offers virtually none. Even if her software were capable of maintaining state during a complicated conversation as a human does a person talking with her would likely lose track because there’s no feedback mechanism other than words. She doesn’t even have different tones of voice.

Changes in intonation, posture, raised eyebrows, glances and shifting weight all help us keep track of where we are in a conversation. Absent these cues we use conversational pauses and tone. Absent these rougher cues — in messenger platforms or e-mail — we use written history to keep track of our conversation.

Alexa offers none of these affordances, and so she’s hard to have a conversation with. It strikes me that until she offers some kind of feedback other than words spoken in a monotone we won’t find it easy to do much with her other than ask for Radio 4 or an alarm when the boiled eggs are ready.

The rise and fall of American productivity by Mike Hudack

The review (and summary) of The Rise and Fall of American Productivity in the New York Review of Books is excellent, although pessimistic.

It argues that economic progress is generally terrible and that 1870 – 1970 was wonderfully exceptional… and that the party is now over. The author’s somewhat counter-intuitive explanation is that the pace of technological advancement has slowed since 1970. 

I prefer to think that modern economics is as bad at measuring today’s progress as the author suggests it was in his 1870-1970 “special century.” 

Just as electricity wasn’t properly accounted for in records of progress over that special century, access to all the worlds information isn’t today. And so on and so forth. 

Still, the review is well worth reading.