Brad DeLong: Consistently my most repostable commenter. More on Krugman and scatter plots.

Brad leaves some thoughts, on which I'll just add a few of my own:

"Could it be that the time series covers a long era in which for the most part the Federal Reserve is trying to manage aggregate demand and so offsetting any effects of fiscal policy on aggregate demand, while the cross section covers just an unusual short period during which central banks have lost their traction and their ability to engage in monetary offset?"

Yes definitely! In fact I'd be even more optimistic than that. Fiscal policy is endogenous to macroeconomic conditions so in addition to the particularly weak monetary offset these days I'd imagine periods in the Davies et al. series - if properly identified - would show better results for fiscal policy too. Certainly I'm not saying that scatterplots are just a mess that we can't make sense of (more on this below). He continues...

"I don't think it is that you have to believe Krugman's scatterplot or Davies's--I think that both are true, valid, important, and pose tests that any theory that we are not going to reject must pass."

Yes to true, valid, and important. It's the tests that I'm concerned about. Let me put it this way, for most of the applications we deal with for a theory to pass a scatterplot test you can't have just a theory. You have to have a theory plus a set of other ideas about what's going on in a world that's very complex, endogenous, etc. Now if you wanted to you could call your theory plus all these other ideas (e.g.., that for the Davies time span the monetary offset was operating normally, etc.) the "theory" but this very quickly degenerates into either cobbling on assumptions to make it work or a wide range of different theories consistent with the same data. And that gets us right to the problem I pointed out - where some people will be siding with Krugman and some with Davies. Instead I'm just suggesting we consider it true, valid, and important, but not a good test of theory.

"And I don't understand the aversion to scatterplots: in the end it is all scatterplots--albeit with an argument for paying attention to some pieces of the identifying variance underlying the scatter plot and not others..."

This is another great chance to re-emphasize my point. I do not have an aversion to scatterplots. I just put one together today for a DHHS project. I have an aversion to treating scatterplots as if they present a prima facie case for most economic theories.

Don't jump on the scatterplot bandwagon! Krugman and austerity

Recently Paul Krugman presented a scatterplot with change in real GDP on the y axis and change in real government purchases on the x axis, with each observation being a country. The point was to make a prima facie case for Keynesianism amidst all the noise that's out there today. Here's the graph:

 

The commentary he provides here is actually better than similar commentary he's provided for similar scatterplots in the past. Several times in the post he mentions the prospect that the relationship is spurious, for example. And his claim is relatively limited - only that this shows that Keynesian arguments are not crazy. That's all good. But I still want to emphasize the perils of jumping on the scatterplot-as-prima-facie-case-for-theory bandwagon, particularly when the causality is so mucky.

 

The problem with this approach is that then you have to figure out what to do when Antony Davies, of the Mercatus Center (co-authoring with failed Virginia gubernatorial candidate Robert Sarvis) shows you this graph and presents it as a prima facie case against Keynesianism in 2012:

 

 

The axes are fundamentally the same with some minor tweaking (growth in real GDP per capita instead of real GDP, and federal spending share rather than federal spending). We can quibble about those tweaks (Krugmans are the more natural test of Keynesianism), but the big difference between the two graphs is that Davies's looks at the U.S. throughout it's history and Krugman's looks at a very short panel (so a little more than a cross section) of countries.

 

Now the difference between the two is interesting in its own right. Why is the (essentially) cross section Keynesian and the time series austerian? We can think up lots of reasonable stories for why, but if you put them together it also suggests that Krugman's scatterplot may be suffering from a case of Simpson's paradox, with most of the relationship he's interested in determined by variation between countries rather than within countries. That opens a big can of worms because then you have to ask, independent of any short-run policy decisions, why countries show so much variation and how much that variation can really tell us about short-run policy.

 

Antony Davies's graph of course has the same sorts of problems. The point is obviously not to defend his interpretation - I come down squarely on Krugman's side of all this in the end. The point is that using simple plots as prima facie cases for a scientific claim is bad practice, and opens you up to other people doing precisely the same thing and coming to precisely the opposite conclusion. How could you deconstruct Davies's argument without simultaneously deconstructing Krugman's? At the end of the day people will shake out into two groups: (1.) the people who know the problems these scatterplots pose are going to be unconvinced by both of them, and (2.) the people who don't know the problems and are going to be convinced perhaps by Krugman, but maybe by Davies - most likely whoever they agreed with in the first place.

 

I do think there's a role for graphs like this, and it's something that Krugman pointed out at the beginning of his post - simply informing people about the performance of different countries. I am not especially clued in to what's going on in Europe, for example. This sort of thing gives me a sense of one aspect of what's going on over there. But it shouldn't be used to defend Keynesianism.

 

Simon-Wren Lewis has a nice post up that does defend Keynesianism/ZLB problems from Sachs that does not rely on this stuff. He actually constructs a counterfactual to think about, which is precisely what's missing from the descriptive statistics Krugman and Davies have presented.

Two conferences straddling the holidays

In case anyone is interested, I'll be presenting at an Infometrics Institute workshop today (here). The topic is information theoretic/maximum entropy econometrics and I'll be presenting my work on a generalized maximum entropy version of propensity score matching. It's still a work in progress (it's received some major changes since the Southerns), but I have high hopes for it.

At the end of January I'll be presenting at an INET-YSI workshop on economic history (here). If you click through the link you'll notice something funny. There's a list of a few "senior participants" that includes many actual economic historians (and historians of the economy) whose names you might even recognize and do seem to merit being called "senior participant". Then there's me. I think this is because the organizer had been asking my about my interest and got a commitment early. Very strange/intimidating. Anyway I'm going to be presenting some work on gross job flows in postbellum manufacturing. I was tempted to add a subtitle "a VERY rough estimate" because the imperfections in the data sources worry me, but I suppose this is par for the course for a lot of economic history.

1920-21 and reasoning from a price change: two recent posts

Two recent posts on monetary policy and 1920-21 by Tom Woods and George Selgin. The thrust of it is some of us (myself included) are, as Scott Sumner would put it, reasoning from a price change. I don't have a strong view of the argument because I haven't had a chance to look at the data. I find Woods's post a little odd - he seems to switch from arguing from a price change to arguing from a quantity change. The other problem here is that even if money were still tight through the recovery, the break in the extremely tight policy still matters. A lot of people think that Bernanke has been tight throughout the recovery, but that is not the same thing as saying that the stark policy changes at the beginning of the crisis didn't prevent a much worse situation. I'm not a monetary economist and I haven't had time to digest all of this, but those are my initial reactions.

I really have to add that Selgin's glib reference to my article (RAE) and note (CJE) on 1920-21* doesn't demonstrate a good grasp of what I've claimed. My point has always been that 1920-21 doesn't disprove Keynesian arguments. I am no critic of the idea that markets can recover on their own, nor am I a critic of the idea that monetary policy can be instrumental in a recovery without fiscal policy.

Anyway - links:
George Selgin
Tom Woods

* - He says I've made "something of a specialty" of this work, which is also odd because most of my research has nothing to do with 1920-21 - it's hardly a specialty of mine.

EJMR post win

As an economist at that transition from PhD to work with an interest in economics of the household and labor economics, and who is also sort of a stay at home dad (much more so last year - though still fairly frequently this year since my schedule is more flexible than Kates'), this EJMR discussion made me smile - particularly the fourth comment down.

If you don't know what EJMR is, don't worry about it. You might be better off.

Cute Caroline pictures from New Mexico

Dissertation proposal and life in the immediate future

Sorry for not updating - a couple people have kindly asked how the proposal went and I fell off the radar a little. It went great - they signed off on it. Somewhat unusually they asked questions as if it were a seminar (i.e., during my presentation rather than afterwards), which threw me at first but it all turned out fine. It felt like a lot of questions and comments, but none of them fundamentally undercut anything I was doing or my approach. Lots of work ahead still of course.

This weekend I'm going to be presenting some work on a generalized maximum entropy version of propensity score matching at the Southern Economic Association conference. I'm chairing a panel on GME. This is work I started last fall and have gotten back to intermittently. I'm still trying to figure out what I think of the simulation results - they're a little mixed (but at least they don't come out completely against the GME set up). It might be worth finishing off as a methods note somewhere. Several of the policy analysis journals have a regular methods note section that I think it could work well for. We'll see.

The week after that I'm presenting work at a National Academy of Engineering workshop on the engineering technician and technologist workforce. I'll be presenting a paper on work-based education and training (internships, apprenticeship, and on-the-job training) to a closed session and a broader paper on the workforce to an open session. Then the following week I'll be presenting my GME work to a methods group seminar here at the Urban Institute.

After those go through I think I'll feel a little less stressed. Of course the Sloan project on the STEM workforce continues, as does the project work I'm picking up at the Urban Institute. The plan is to defend this summer, Sloan will wrap up around then, and then I'm going to be transitioning to full time work at the Urban Institute and hopefully raising some money for projects of my own in short order.

Defending my dissertation proposal today

"Three Essays on Connecting to Work"

Essay 1: The employment and earnings effects of Georgia's job creation tax credit: a regression discontinuity approach.

Essay 2: Educational mismatch and occupational sorting by science and engineering graduates.

Essay 3: Registered apprenticeships and the Great Recession.

Chair: Robert Lerman
Members: Robert Feinberg and Mary Hansen

Essays 1 and 2 are in pretty decent draft form, although some more work to do. Essay 3 is still a little loose. My chair and I have been going through lots of options with it (apprenticeships are his area of expertise). There's simply not a lot of work on apprenticeship in the U.S. - the most important papers, even by American economists, are on European apprenticeship. I have a database of all registered apprentices in the U.S. from 1999 to 2014, so in that sense practically anything I do with it is going to be a contribution. I was at first concerned about thinking of something more methodologically innovative and thinking along those lines, but my chair is really pushing me to do something simple but highly informative. The idea has grown on me. Apprenticeship in the U.S. is heavily concentrated in the construction sector so looking at apprenticeships over the business cycle is particularly interesting right now. I have a job I love - I'm not going on the academic market. My first two essays are methodologically sophisticated (I'm not a superstar, but you know what I mean - thoughtful non-basic methods appropriate to the question that fill a hole in the literature). So I'm digging this approach to the third essay if my chair does.

Some thoughts on Gene Callahan and Francis Fukuyama on job training programs

Gene wanders into some education and training program and federal/local governance tensions stuff in a recent post, and as I'm interested in both issues I thought I'd comment and disagree a little. He writes:

"In a discussion of how the American system of checks-and-balances and federalism produces wildly inefficient legislation, Fukuyama notes that: "Congress created fifty-one separate programs for worker retraining, and eighty-two projects to improve teacher quality." (p. 497)

I have been making this point even before reading this latest work of Fukuyama's. But he has an interesting perspective on why this occurs.

[...]

My own preference would be for worker-retraining and teacher-improvement programs to be implemented at a much more local level (the importance of local knowledge: see Hayek, as well as Catholic social thought on subsidiarity). The federal government should intervene in these issues only to the extent that it redistributes some tax revenues from the richer to the poorest states, to allow the poorer states the resources to implement these goals. But if these things are going to be handled at the federal level, I would much prefer Congress authorized a single agency to deal with each, and empowered that agency to do so.

Fukuyama contends that these legislative Rube Goldberg devices we create arise primarily from the way our system of checks-and-balances and federalism have worked out in practice: multiple branches, agencies, and levels of government are involved with almost every political issue in the United States. Rather than working to limit government, as the founders had intended, this multiplicity of authorities has served to create a byzantine government."

I think federal job training reflect these priorities more than Gene might expect, and the multiplicity of programs is not as pernicious as you might think either (I can't speak for programs to improve teacher quality). There are always things to disagree with, and this has been a process of improvement over time as well, but both of those are only natural.

First, much of the job training that goes on is in fact locally designed and controlled. This happens for at least two reasons. First, the "federal job training programs" we talk about are often better thought of as funding streams rather than programs per se. They'll often be targeted to specific populations (workers displaced by imports, TANF recipients, youth, the unemployed, etc.) and sometimes there may even be restrictions on the spending that goes on (you'll often see requirements that the money be spent on capacity building for the trainer but not tuition, for example). But these are generally existing or newly started training programs at community colleges or other workforce development organizations that are designed locally to meet local needs that then compete for appropriate funding streams from the federal government.

The other major mechanism for local design and control of training programs is good old fashioned devolution. The Workforce Investment Act (WIA) and the new Workforce Investment Opportunity Act (WIOA), which provides a lot of the funding for federal job training are both administered by local Workforce Investment Boards (WIBs), which are composed of employers, educators, and other local stakeholders. WIA/WIOA and many other federal job training efforts have also been pushing sectoral partnerships where employers in important local industry clusters partner with education and training providers to design curricula and programs.

Certainly some training programs are structured at a higher level. I imagine Job Corps is one such program (although I'm not as familiar with its design). But many aren't either by virtue of the funding stream or the structure of the program itself. And the trend is certainly in the direction of decentralization of program design.

The other element of Gene's post is that there are so many different training programs. I think this is a little odd, given his emphasis on local knowledge and local programs. The reason why we have a lot of programs is that workers in different situations have very different needs. Disadvantaged youth need very different training and support services than experienced workers displaced by import competition. I am at a conference right now and I just spoke with a colleague who wants to include me on a proposal to evaluate a training program for older workers, who are going to have different needs and obstacles as well. Needs also vary by industry. Registered apprenticeships are heavily concentrated in construction and to a certain extent manufacturing because those training models work in those fields in a way that might be more difficult for other occupations or industries. The labor market is remarkably diverse, and if you are going to get into the business of job training, as the federal government has, you probably don't want a one-size-fits-all policy. This can lead to headaches too of course, but if we're concerned about Hayek and local knowledge (and if we leave aside Hayek-style libertarianism for a second), there are good reasons to have the sort of system we have.

Caroline's first election

We sat out of the governor's race last year because needless to say things were pretty crazy back then.

She did not get a ballot but she did get a sticker and a stylized explanation of what daddy was doing. Here we're admiring each other's stickers and posing for the camera.