Saturday Sanity Break, 30 June 2018 – Henry at Hog Heaven

2000 economists, 345 sessions, each with 3 or 4 papers. Hog heaven for economists. In Vancouver, a mere 13 hours flying hours from Rome, with an hour sitting in the plane, ‘awaiting clearance’ and several hours in the ‘Maple Leaf’ lounge in Montreal. The first leg of the flight was in an old plane in which ‘Premium Economy’ seemed a poor joke, while the leg from Montreal was in a newer plane with an extra few cms of room. Never again will I travel PE, not even to mingle with 2000 economists. Or Alitalia for that matter, for a reason to be disclosed.

I had an unpromising start to the trip. No Maple Leaf lounge in Rome, but since we’d paid for a ‘Maple Leaf lounge going and returning’ I hunted with determination. Various Italian ‘Information officers’ sent me hither and yon, lying or more likely just guessing. Finally, ten minutes to boarding time, a nice lady at the BA lounge told me the Alitalia lounge accepted Air Canada customers. I resolved to find what I believed we’d paid for. There they said ‘Are you flying business class, you may enter’. ‘No, premium economy’. ‘Can you prove you paid for Maple Leaf privilege?’ She asked. ‘It’s written on the airline agenda I already showed you’, I said, getting increasingly testy. ‘’Go and get receipt’, asserted the dragon guarding the glass of water or even, if I was lucky, a glass of (gasp) wine’.

Finally I gave up and headed for the relevant boarding gate. Arrived in reasonable state in Vancouver, where it was raining. Learning that the station nearest to hotel of the airport train was 10 blocks, I grabbed a cab. Driver no English, or merely grumpy, and got grumpier when I offered no tip when we arrived at Vancouver Wall Sheraton. Quickly checked in, showered, went for a walk. The hotel is not cheap but service is fine and staff are pleasant and helpful.

Next day the economist’s hog heaven was upon us. Registration provided a pair of elegant chopsticks, a cloth in a plastic folder, possibly to clean ones glasses, a small but beautifully formed carry bag and a massive booklet with an agenda and a list of participants with their emails. Speakers had been instructed to provide their papers to discussants a few weeks earlier but there was no system for distribution of papers. I resolved to email authors of papers I liked and request a copy of their papers.

Trouble was, many emails bounced. I take notes, so perhaps I have the essence of most papers I attended. In the rest of this report I shall provide snippets of information about a few papers I especially liked, just to give a feel for the richness of the whole show.

The deepest frustration, compounding the problem of not being able to contact speakers by email, was that every time slot, starting at 8.15 am, usually had 10 or more streams. This made it difficult to attend sessions outside ones specialisation if one was trying to catch up with one’s field. Also if there were two sessions on similar topics, which happened frequently in my area. My field is monetary economics, which meant I frequently attended sessions populated by people from the US Fed. Certainly an impressive group and I was dazzled by the variety of topic and, the many slightly different econometric methods (there was little or no pure theory).

I must immediately award the prize for the most different methodology to Iikka Kornhonen from the Bank of Finland. Iikka adopted a method often used in Medicine or Engineering, Meta-analysis of the available literature. He reported the results of ‘Business Cycle Synchronisation in a currency union’. If I took the right notes his study covered almost 3000 papers, starting with the ‘seminal ‘ study by Boyoumi and Eichengreen. The same session included a fine paper by Enrique Martinez-Garcia of the Dallas Fed. Called 'Has globalisation Changed the Business Cycle and the Monetary Policy Trade-offs'. Clever analysis suggests that globalisation may be responsible for ‘flattening the Phillips curve’ (by adding a term for trade inflation). And after careful discussion of changes to the ‘Taylor Rule’ relationship, ‘globalisation seems to be a headwind to the conduct of monetary policy’.

In this session two other papers with aspects of the globalisation effect were presented by young scholars, including one nice paper by two young women from the Queensland University of Technology. All studies showed evidence of clear changes to various parameters, indicating a positive answer to the questions at issue. Yesterday the Wall Street Journal carried an article on the end of globalisation, so all these scholars in ten years may have the chance to see their parameters retreating, with slower economic growth and greater conflict between nations. No-one made this point.

I asked a bearded ‘mad professor’ (his description) at lunch what he thought of President Trump but he was reluctant to state an opinion straight off the bat. We tried to cheer each other up by telling stories. In response to his comment that Trump had failed several times as a businessman, I was able to offer my prediction that when American debt gets too large the president will invoke bankruptcy and tell China if they complain he will meet them in the South China Sea with four battle groups. We agreed that the President was giving the system a good shake, and I read somewhere that his popularity rating was now over 50 %.

The keynote speech at a fine lunch was by Orley Ashenfelter. He is obviously a great man and gave a lovely talk about his signature work of using wages and the prices of Big Macs to devise real wages for different countries over time, and comparing them. In 1700 (he was quoting another author) an earlier study showed that real wages in London and China were virtually identical when comparing nominal wages divided by an index of goods used by workers. From 1900-1914 wages in most places were 'bare bone subsistence', with the main exceptions the USA and UK.

Orley then turned up the heat. He showed his BMPH (number of Big Macs per an hour's wage) for various places within the USA. Low numbers were 'the places that voted for President Trump' while high ratios were where the anti-Trump self-styled "elites" live. He then switched to comparing ratios for (I think) 64 countries. China, Brazil, other less developed nations had very low ratios, in some cases .25 of a Big Mac per hour of work, while highly developed nations had ratios over 2. From 2002 to 2007, real wages declined in the USA and Canada while in Russia, China and India there were solid gains. 'I got quite excited' Orley asserted. But from 2000 to 2011 only China and Russia were still increasing while other countries showed no rise or fell.

Professor Ashenfelter finished with wise words on migration and welfare. He pointed out that immigration had been a great boon to America but 'now we are trying to shoot ourselves in the foot'.

Another very nice session went beyond normal economic discourse. Called A New View of Economics: Beyond the Myth, its contributors discussed globalisation, inequality, the Internet and Thomas Piketty. James Allman from University of Colorado, Boulder provided a wonderful rant about the evils of the internet (Facebook, Google, etc) and proposed ways to defang the players. Jonathan Liebenau of the London School of Economics argued that new technology promotes globalisation, increases inequality and was quite keen on the writings of Thomas Pikkety as a modern Marxist.

The star of that show, however, was R. Bruce Williamson from the Maine Public Utilities Commission. He had some great lines: eg ‘Marx thought the proletariat was so dumb they needed a bandaid’. He made two powerful arguments. The first is that people prefer fairness to equity, which he said was a feature of primate behaviour. The second was that Facebook got its data from its members, which was most of us, and when we think about regulation we should realise we do not have to provide our private data. The fundamental of politics is propaganda. He quoted a long ago book by Lester Taylor called Capital Accumulation and Money (second printing available) which dealt with Stalin and Goebbels as masters of propaganda. USA, Williamson argued is today ‘full of propaganda’, which is a big threat to democracy.

My final session before leaving involved three papers on interesting issues for Economic History. The one that caught my attention most closely was about the American Dustbowl of the 1930s. The young presenter started by saying his ultimate aim was to compare the Dustbowl to the Rustbelt, what a clever idea. I did not catch his name as I was slightly late and missed his introduction. The project involves dividing electoral areas in the Dustbowls of the 1930s with subsequent political shifts. President Roosevelt won the following 4 elections, which represented a massive swing to the Democrats. The author then looked at 'mitigating factors', Migration, New Deal spending and Access to credit. When added to the equation including degrees of dustbowl damage ('moderate' for areas between 25 % and 75 %, 'severe' 75 % or over) they added no significant explanation. A smart lady, Director of the Melbourne Institute, incidentally, pointed out that a better test would be to leave out the degree of dustbowl variables to see if there was a better explanation of the political swing from just those 'mitigating' variables.

The young presenter took some persuasion of the point but afterwards we made sure he understood it. My point was understood I think but with a couple of mildly disapproving looks. I reverted to the Dustbowl/Rustbelt comparison. 'You say the Dustbowl (or the 'mitigating' policy changes) swung American politics to the Democrats for 16 years. What if the modern Rustbelt is swinging it the other way? It's early days, but President Trump's popularity is said to be rising.' The authors of this paper are sitting on a potentially sizzling political prediction, if only they are brave enough to tell it.

My own paper, written with Clifford Wymer, features a way to measure 'Animal Spirits’, and its principal effects, copy available on request.

It was received well by a small but elite audience and it will shortly be sent off for publication. Estimation is largely complete and the approach is to embed the hypotheses about Animal Spirits in a long run (1855 – 2014) model of the UK economy. Now the fun begins, drawing out the overall properties of the model and illustrating the contribution of Animal Spirits to business investment (the Keynes effect), bank lending (a partial Minsky effect) and share prices. Share prices respond well to things like the marginal product of capital, US share prices, and excess or shortage of money relative to money demand (we call it monetary disequilibrium) as well as Animal Spirits. We already know that the model forms a chaotic system with aperiodic dynamics, which sure looks more like a real economy than the usual sine curve illustration of so-called ‘trade cycles’.

Image of the week - Animal Spirits