TEXT  

                                                                      

Left to Right: Allan Meltzer* (Truman Prize, Economic  Policy), Ed Prescott* (Nobel Laureate, Economics), Visitor, Len Rapping, Bob Lucas* (Nobel Laureate, Economics)

*My thesis committee, Allan Meltzer Chair. 

Graduate School of Industrial Administration, Carnegie Mellon University



     RECENT POSTINGS


4/12/17 An amateurish take on Mosul and Syria (and beyond?)  [preliminary, comments appreciated]  


FIRST A BIT OF HISTORY

“The first full-scale deployment of deadly chemical warfare agents, [which was] during World War I, was at the Second Battle of Ypres, on April 22, 1915, when the Germans attacked French, Canadian and Algerian troops with chlorine gas.” (Google)


- As something of an aside, and taken as an example for the law of unintended consequences, this immediately raises an observation of broader significance, not to mention irony.  In that area the winds are predominately from the west, so that poison gas was more of a problem for the German forces than for their intended targets.


- Indeed I rather suspect that the success in achieving an agreement not to use chemical warfare agents was at least in part due to the fact that these agents, on the whole, make rather poor weapons all told.


Starting back even before Peter The Great, apparently there has been a tendency for some Russians to worry that they are inferior to their Western European neighbors, perhaps even somewhat brutish.  (I most certainly do not share this concern however.)  

 

MOSUL

Recent events in the struggle over Mosul illustrate the importance for us, in particular, to continue to emphasize and advance technics of minimizing civilian casualties.


SYRIA

Our attack on a Syrian airstrip seems to have been tightly directed and to have met the criterion of minimizing civilian casualties.  At the same time it may have put President Putin in somewhat of a delicate position.  He may have concerns over appearing to support chemical warfare, concerns possibly in part due to the Peter The Great syndrome mentioned above.  His response, of suggesting that we were duped into believing that the Syrian government is responsible for chemical attacks, is very clever, if the appearance of supporting chemical warfare is indeed a concern of his that is. 


3/3/17 Catherine the Great

“Yet together with her formidable virtues, Catherine the Great had certain weaknesses.  Indeed the two were intrinsically combined.  Determination easily became ruthlessness, ambition fed vanity just as vanity fed ambition, skill in propaganda would not stop short of asserting lies.  Above all, the empress was a supreme egoist.  As with most true egoists, she had few beliefs or standards of value outside of herself and her own overpowering wishes. … Similarly, in spite of Catherine’s enormous display of enlightened views and sentiments and of her adherence to the principles of the Age of Reason, it remains extremely difficult to tell what the empress actually believed, or whether she believed anything.” (p. 256) 

(Riasanovsky, Nicholas V., A History of Russia, fourth edition, Oxford, Oxford University Press, 1984)


2/24/17 President Trump: Conservative?

 Comments, Corrections and Suggestions most Appreciated!

By one interpretation of "Conservatism," directly based on the word "conserve," President Trump is not a conservative but rather inconsistently a free market radical.  Of course when you reduce characteristics of people to a single dimension, conservative to radical, say, such projections onto a single dimension are inherently distorted.  For a simpler example, consider the projection of a, three dimensional, globe onto a flat, two dimensional, surface, thereby yielding a distorted map of the world.  If you projected the globe onto one dimension it would yield a, one dimensional, line segment.  So is it possible that President Trump’s apparent inconsistencies are an artifact of our conceptualization being insufficiently rich?  

Consider also the discussion of Conservatism immediately below.  

6/29/16 Brexit (lightly edited 2/24/17)

The economic and geo-political aspects of Brexit have been rightly emphasized, although they are not truly independent, and neither are these aspects comprehensive, for example there likely will be significant social impacts as well.  Moreover these aspects seem likely very complicated, and with complicated dynamics.  

One approach to evaluating the Brexit Exit is provided by Conservatism, Conservatism in a sense that justifies the root “conserve.”  In a given setting, individuals adapt in complicated ways to that environment, and to each other’s adaptions to that environment.  If there is a significant change in setting all those adjustments are lost, and there is a costly adaption to the new setting.  This is taken to be the dominating effect of the change, and the original setting is rather to be “conserved.”  In the case that the original setting must be changed, this Conservatism can be extended to advocating a series of small alterations under the assumption that the many small adjustments taken together are less costly than those generated by a single large change.  A related version of Conservatism is that people are risk averse, and that maintaining the status quo often is less risky than significant change.  Notice that these seem different concerns than what one typically hears today in reaction to Brexit.

However, these conservative approaches are likely better thought of as loose rules of thumb than as logical or scientific inferences: rather as Occam’s Razor is now, in the philosophy of science, typically thought of as a rule of thumb rather than a principle of modeling. But whether we can do better today by other means seems an open question.

(More postings further below, after  presentations of financial economics and of the related issue of coordination games)


FINANCIAL ECONOMICS: BRIEF OVERVIEW


Allen, Franklin, Dimitri Vayanos and Xavier Vives, “Introduction to financial economics,” Journal of Economic Theory, Volume 149, January 2014, “Financial Economics,” pp. 1–14.

1. Introduction

Financial economics is a broad field covering corporate finance, asset pricing, and financial intermediation. The foundations of modern corporate finance date back to the celebrated papers of Modigliani and Miller [1958] and [1961] and the development of agency theory starting with Jensen and Meckling [1976]. Asset pricing was revolutionized by the development of mean-variance analysis by Markowitz [1952] and the Capital Asset Pricing Model by Lintner [1965] and Sharpe [1964]. The theory of efficient markets by Samuelson [1965], the option pricing model of Black and Scholes [1973] and Merton [1973], and the role of asymmetric information in Grossman and Stiglitz [1980] followed.  Financial intermediation theory lagged behind with the modern literature dating back to Bryant [1980], Diamond and Dybvig [1983] and Diamond [1984].” (p. 1)  

[end of overview]


A COORDINATION GAME

Faithfulness and Trust

are important, and in some situations critical:

“To focus the analysis consider the following tacit coordination game, which is a strategic form representation of John Bryant's (1983) [‘Stag Hunt’] coordination game paper.” (VHBB p. 235)1,2   

U(i) = A {minimum [e(1),...,e(N)] } - B {e(i)},

                                             i = 1, ...,N; A > B> 0; 0 ≤ e(i) ≤ E.


                          1. The seminal paper of Van Huyck, John B., Raymond C. Battalio and Richard O. Beil, "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review 80, #1 (March 1990).

                      2. To my knowledge, Vincent Crawford first noted the relationship to Rousseau's fundamental Stag Hunt parable.

                  ["BANK RUN IN A BOTTLE" - John Bryant to Art RolnickFederal Reserve Bank of Minneapolis, 1990 (oral)]


MORE POSTINGS

2/15/17  China or Chinese: Rough Draft

I was planning to go into School early this morning, but unfortunately I looked at today’s Financial Times, p. 4 in particular.  For example, there is an article therein, by Ben Bland in Hong Kong, Foreign passports fail to deter China’s security services.  The article includes a stand alone paragraph “One western diplomat described this ‘deliberate blurring of ethnicity and nationality’ by the Chinese authorities as deeply troubling’.”  Why deeply troubling?  Now the somewhat obscure, presumably purposefully so, wording leaves it unclear as to exactly what the western diplomat might be referring to.  For one example, there is a long abiding and widely known concern among some historians and analysts as to whether, when the time is right, China might use the presence of “discriminated against” ethnic Chinese in other countries as an excuse for interference therein: a concern that might possibly look back to German behavior at the commencement of World War II even.  Of course, such a concern might well be completely overblown or misguided.  Western European history may be a poor guide to the Far East.


2/7/17 [Rough Draft] Early on I thought that President Putin, to a degree anyway, correctly perceived the great returns that could accrue to both Russia and the U.S., and our populations, from a positive relationship.  (And accrue to the rest of the world as well for that matter.)  I did not believe that his seeming warmth toward the "West" was necessarily only a subterfuge to buy time while Russia built up its military and economy.  Subsequent developments seem to add more, much more, credence to the latter, subterfuge, view however.  He now may be too much vested and "invested" in the atavistic "zero sum game" perspective to change.

Still we shouldn't completely rule out the possibility that with the greater experience and wisdom of age he will be able to return to the positive approach that he couldn't sustain while younger.



2/3/17 [President] “Trump Moves to Undo Dodd-Frank”

[Or the Siren’s Song?] 

The Wall Street Journal, 2/3/17, pp. A1, A3.

It is always possible that the Financial System, and/or components thereof, are, indeed, systems.  If a member of a system takes an action that reduces the efficiency of the whole that member does not bear all the costs.  Similarly, if a member of a system takes an action that increases the efficiency of the whole that member does not receive all the benefit.  Hence, if acting independently, the incentives that the members face are distorting.  In particular, financial institutions, or financial agents, complaining about Dodd-Frank does not imply that its restrictions are inappropriate.  If you doubt the existence of such financial systems, then consider the payments mechanism.

This brief discussion does not address the important special issue of financial instability and regulation.

[2/5/17 P.S.  A good place to start on this special issue is provided by Allen, Franklin and Douglas Gale, Understanding Financial Crises, Clarendon Lectures in Finance, Oxford, Oxford University Press, 2007.]


1/28/17 Legal Immigration

Legal immigration, as and when structured appropriately to the circumstances, and enforced appropriately, and without outlandishly large associated costs, and so on, likely is preferable to illegal immigration.

My experience in Houston, Texas, one of the most diverse of the large cities in the US, if not the most diverse, likely colors my attitude.  It is my impression that here Hispanic immigrants typically are honest, hardworking, and motivated, and enter the middle classes relatively quickly.  And those who aren’t citizens now would make fine citizens in the future.  Finally, there can be little doubt that our immigrants play a significant role in the vitality of the Houston economy and culture. 


1/26/17 Immigration: edited 1/30/17

Speaking of foundations, a foundation of the anti-immigrant position is questionable.  In the first place, demographics indicate that a continued high level of immigration is critical to the U.S. retaining its stature, economically and otherwise.  

Further, castigating and stigmatizing illegal immigrants is, under the existing conditions, also questionable.  We knew they were entering, and we went "wink wink" at them, educated their children, facilitated their position as farm workers, say, and so on.  So who do we blame, the immigrants trying to escape desperate circumstances at home for a much more productive environment here, or us for going "wink wink" at our own laws?  Who is it who is really showing lack of respect for the rule of law - our own law!!!


1/21/17 When? Rough Draft

When, to what effect, for what purposes, under what circumstances, by what criteria, for what economic activities, …*, should political boundaries, of what form, also be economic boundaries?  In what sense,  of what form, by what entities and means, where, determined by whom, …*, and so on.

More to come.

*[Fill in your own questions or answers.]


9/22/15 (revised 9/24/15)

(Brought forward)

There once was a college football1 player, Billy Cannon, who,when he was running the ball, his legs, torso, head and arms were all over the place, but his stomach was going straight towards the goal line.

Just considering their military and related moves in isolation one might guess that China and Russia could be following a coordinated, choreographed program for domination.  …

1. [American football]

 

1/4/17 Bad Precedent?  Rough Draft  


Peter Campbell – London, Shawn Donnan, Financial Times p. 1, “Ford scraps plan for Mexico plant to put assembly line in Michigan.”

According to some standard economic analysis this is a bad precedent.  If one is concerned about the plight of un- or under- employed American auto workers, or coal miners, say, the government should not constrain private sector firms in these businesses to adopt, or reward them for adopting, strategies to employ more of these workers, or refrain from laying them off.  This distorts incentives, and, hence, production and consumption generally.  The correct strategy would be for the government to give these workers a lump sum, fixed amount, of money that they can keep whether or not they find another job.  Moreover, perhaps, if, for example, it is believed that these workers systematically under value training and/or education, the government might subsidize those activities.  And even so one would have to be on alert for people gaming this restructured system.


12/29/16 Fiscal Policy

Financial Times 12/28/16, p.1, "[Argentina President] Macri taps fiscal hawk for treasury" 

For a "free market" exposition of fiscal policy consider "Government Irrelevance Results: A Simple Exposition," American Economic Review.

One way to react to these results is that insofar as FISCAL POLICY matters it does so for reasons left out of such models.  Another is that fiscal policy [at best] does not matter.  The theory of coordination games suggests one avenue for fiscal policy to stimulate the economy:

“After the prisoner’s dilemma the coordination game is perhaps the most widely discussed paradigm in game theory.  Interest in coordination games stems from the presence of multiple Nash equilibria that can be Pareto ranked, which raises the possibility of ‘getting stuck’ in an outcome that is undesirable for all players.  For this reason, this class of games is of interest to macroeconomists (Bryant, 1983; Cooper and John, 1988; Romer, 1996)," in Goeree, Jacob K. and Charles A. Holt, “An Experimental Study of Costly Coordination,” Games and Economic Behavior, (special issue in honor of Richard McKelvey) (2005 #2), pp. 349-364.  

For more exposition of coordination games see further below.

The Federal Reserve Bank of Dallas Economic Review published a yet simpler, diagram based, exposition, "How Fiscal Policy Matters," that also covers some additional material.  It is reprinted in T. Havrilesky (ed.) Modern Concepts in Macroeconomics.  The staff of the FRB Dallas made major contributions to this article.  



12/21/2016

BY THE WAY:

APPARENTLY, WITH NEW TECHNIQUES OF DOCUMENT IMAGING, AND PHYSICAL ARCHAEOLOGICAL DEVELOPMENTS, IT IS NOW KNOWN THAT IN THE TIME OF THE PROPHET OF ISLAM HIS ARMIES WERE LESS BRUTAL THAN TYPICAL FOR HIS TIME.  THE BRUTAL AND SAVAGE MYTH EMERGED LATER, TO SERVE THE INTERESTS OF OTHERS APPARENTLY.  

AS AN EXAMPLE, BETTER TECHNIQUES FOR TAKING CORE SAMPLES BECAME AVAILABLE.  TYPICALLY WHEN ARCHAEOLOGISTS TOOK THESE NEW CORES AT SITES OF ANCIENT CITIES, THAT WERE IN DOCUMENTS REPORTED TO HAVE BEEN BURNED TO THE GROUND IN WAR, THEY WOULD INDEED FIND A LAYER OF ASHES.  BUT TYPICALLY NOT WHEN THE ATTACKERS WERE THE PROPHET'S ARMIES.

(ADMITTEDLY I HAVE NOT READ OF THIS NEW LITERATURE IN A NUMBER OF MONTHS)


Note also:

From Photo Captions page

Rumi

"...Sadruddin Qonawi, stepson and greatest interpreter of Ibn 'Arabi (d. 1240), whose mystical system was to pervade the entire Islamic world and largely colored all later commentaries on Rumi's work.  Sadruddin and Maulana [Rumi] were of nearly equal age, and the great philosopher died shortly before the enraptured poet.  Their approaches to Sufism and the Divine Reality differed: the one followed the way of Knowledge, or gnosis, the other the way of Love; yet they were friends and respected each other, for both recognized that there are as many ways to God as there are human beings." * 

(Annemarie Schimmel, Rumi's World: The Life and Work of the Great Sufi Poet, 2003, p. 7.) 

[*Almost certainly inherently correct given the structure of thought, the structure of the brain, and the variety of experience?]}


11/7/16 

(Brought forward)

In retrospect I still rather like this: 

"An Example of a Dominance Approach to Rational Expectations," 

Economics Letters 16, 1984, pp. 249-255

(at least as an alternative starting point.  In part this explains my reticence in accepting Nash equilibrium as solution to the fundamental problem posed by game theory.)1


12/15/16 Financial Times

“[Admiral Harris] We will co-operate where we can and be ready to confront where we must.”2

If this sensible and critical policy prescription were being widely followed, world-wide, then our world would likely be a much more productive and safer place indeed.


“Fed raises rates …”3

While I remain unsure of the fundamentals behind the analysis of monetary policy and its effects, I take the liberty of recommending three papers on this, by Neil Wallace and myself, which have aged rather well I think:


"The Inefficiency of Interest-Bearing National Debt," in K. Hoover (ed.), The New Classical Macroeconomics, The International Library of Critical Writings in Economics, London, Edward Elgar (1992), reprinted from the Journal of Political Economy 87 (April 1979).


"Open Market Operations in a Model of Regulated, Insured Intermediaries," Journal of Political Economy 88 (February 1980).4


"A Price Discrimination Analysis of Monetary Policy," in K. Hoover (ed.), The New Classical Macroeconomics, The International Library of Critical Writings in Economics, London, Edward Elgar (1992), reprinted from The Review of Economic Studies 51 (April 1984).


And by myself: 

"A Model of Reserves, Bank Runs, and Deposit Insurance," in F. Allen and D. Gale (eds.), Financial Crises, The International Library of Critical Writings in Economics, London, Edward Elgar, (2008), reprinted from the Journal of Banking and Finance 4, IV (1980).

{for futher studies in this vein see, for example, Bhattacharya, S., P. Fulghieri and R. Rovelli, "Financial Intermediation Versus Stock Markets in a Dynamic Intertemporal Model," in The New Institutional Economics, Financial Institutions in Transition: Banks and Financial Markets (J. Eichberger, ed.), reprinted from Journal of Institutional and Theoretical Economics 154 (March 1998).

"1. Introduction and Summary 

Models of intertemporal liquidity risks, or “preference shocks” - developed in BRYANT [1980] and further examined in the works of DIAMOND and DYBVIG [1983], BHATTACHARYA and GALE [1987], and JACKLIN [1987] among others - have recently been extended to the realm of ongoing dynamic overlapping generations (OLG)  economies (see BENCIVENGA and SMITH [1991], QI [1994], FULGHIERI and ROVELLI [1993], and DUTTA and KAPUR [1994]).  These models may be used to evaluate the essential tradeoffs which arise in two distinct areas of current debate [namely arrangements for the monetary system, banking versus stock markets say, and the viability and desirability of differing social security (pension) systems, pay-as-you-go versus funded, say."]} 


and:

 

 Faithfulness and Trust

are important, and in some situations critical:

“To focus the analysis consider the following tacit coordination game, which is a strategic form representation of John Bryant's (1983) [‘Stag Hunt’] coordination game paper.” (VHBB p. 235)5  

U(i) = A {minimum [e(1),...,e(N)] } - B {e(i)},

                                             i = 1, ...,N; A > B> 0; 0 ≤ e(i) ≤ E.


FOOTNOTES TO ABOVE

1.  Game Theory starts with a conundrum.  As it models strategic interaction between rational, maximizing players Game Theory immediately presents a fundamental conceptual problem, how to extend maximization from simple choice to strategic interaction, as emphasized by Von Neumann and Morgenstern themselves (c. 1944, Chapter I, 2. -2.2.4).

“Thus each participant [in a “social exchange economy”] attempts to  maximize a function … of which he does not control all the variables.  This is certainly no maximum problem, but a peculiar and disconcerting mixture of several conflicting maximum problems.  

… the conceptual differences between the original ([Robinson] Crusoe’s) maximum problem and the more complex problem [of a “social exchange economy”]. … we face here and now a really conceptual -- and not merely technical -- difficulty.  And it is this problem which the theory of games of strategy is mainly devised to meet”  (Von Neumann and Morgenstern, 1967 ed., pp. 11, 12).

2. Jamie Smyth-Sydney, “US military assures Asia-Pacific allies of support after Obama,” Financial Times12/15/16, p. 2.

3. Sam Fleming-Washington, “Fed raises rates…,” Financial Times12/15/16, p. 1.

4. Recommended by Narayana Kocherlakota, President, Federal Reserve Bank of Minneapolis, Modern Macroeconomic Models as Tools for Economic Policy2009 Annual Report Essay, "it is my conviction that the Federal Reserve Bank of Minneapolis can serve as a crucial nexus between scientific advances within the academe and the needed changes in macroeconomic policymaking. Indeed, this bank has a long history of doing just that. It was here that John Bryant and Neil Wallace ... illustrated the ticking time bomb embedded in deposit insurance." 

5. The seminal paper of  Van Huyck, John B., Raymond C. Battalio and Richard O. Beil, "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review 80, #1 (March 1990).


MORE POSTINGS BELOW

11/29/16 Who is your favorite Autocrat? 

"… Wilhelm  forced Bismarck from office in 1890 and assumed autocratic powers.  Absent the calming influence of the Iron Chancellor, and surrounding himself with palace sycophants and the Prussian military elite, Wilhelm nursed himself - and his subjects - on a particularly toxic nationalist mythology  rooted in both a sense of victimization and superiority: that throughout  history, Germany had been denied its rightful "place in the sun" through the treachery of others, that this colossal injustice was now to be remedied, through force of arms if necessary." (Scott Anderson, Lawrence in Arabia, [yes "in"], p. 29.)


11/28/16   Russia and China [edited]

If we take the game of golf as a simile, in my view authoritarianism is a sand trap.  Moreover, as time goes on, the greater the economic hindrance, their retrogression towards greater authoritarianism, may prove to be.  The simple, gross approximations to efficiency, that authoritarianism might, at best, induce, are a step backwards from the efficient frontier.


11/25/16 Cut Throat Competition, War and the Zero Sum Game

Considering the above, it is worth noting that there is a tendency for people to think of destructive competitiveness, all the way up to war, as a “zero sum game.”   My gain is your loss, and your gain is my loss.  Indeed war seems to be taken as the “pure” zero sum game.  But, as to destructive competitiveness and war, of themselves, this likely could not be further from the truth.  Consider the outcome of a war.  Then identify the “basic” outcome therein, for example, Mr. Putin takes Alaska back from us through war, say.  Then compare this to Mr. Putin getting Alaska back, but without the killing and maiming and dislocation of people, and without the destruction of property and the allocation of resources to war, that war entails on both sides.  In other words, this is likely a "positive sum game."  The analogous observation works for other destructive competitiveness as well.  (But note that this Alaska example is merely a device for making a logical point, not an advocacy of giving up Alaska, [or NATO allies!] without a fight!  Indeed, use of this far-fetched Alaska example should help avoid the calling up to mind of issues extraneous to the matter at hand.)


11/9/16

Martin Wolf, "An economic in-tray full of problems," The Financial Times, p. 11:

"Halting immigrants and imports would be an act of self-harm." 

11/7/16 A Brief Observation on the

Presidency and Mr. Trump 

It seems to me that Mr. Trump sometimes does not adequately distinguish major issues of which he does not have substantial knowledge from those of which he does, at least from what I have gleaned from the media.  This is problematic as it would seem that a president faces many more major issues than any single human mind can adequately grasp.  As possible examples consider Lyndon Johnson and the Viet Nam war, or, seemingly, Vladimir Putin and advanced Economics.


10/10/16 EMPIRE

Unfortunately I’m way behind in my reading, and the following is not biased by any significant cargo of relevant knowledge.  Yet, looking around the world, I wonder if some are taking a page out of the “How To Book” of Empire building, perhaps as modeled on the British Empire.  When you take over an area turn the power over to a minority group.  That way they will remain dependent upon you.  Of course, on the negative side, if such a structure does collapse, things can get very dicey.


7/20/16 China: Sovereign or Imperialist?

China’s best case for sovereignty over the disputed islands seems to be the historical case.  However, as I describe below, this historical case is, on consideration, a flawed case.  However, it does not seem to have been further observed that, with regard to the “man made islands” themselves, the historical case attains the absurd.   Having been under the sea those “islands” were not historically existent. 


7/14/16 Historic Parallels?

Rana Mitter, A BITTER REVOLUTION: China’s Struggle with the Modern World, p. 162, “The world had become a more hostile place in the 1930s.  The world depression had triggered a series of protectionist measures around the world, as the United States and the British Empire retreated into closed trade blocks.  The Japanese, whose economy had been hit particularly hard, started to develop their zone of economic influence into the ‘yen bloc’ which would eventually turn into a vast wartime empire.  Meanwhile, democracy and liberalism seemed to be in eclipse as the most glamorous and seemingly successful forms in global politics appeared to be dictatorships, in particular the fascist states of Germany and Italy, which spoke of the need for expansion in Europe and elsewhere on the globe. … Now military ultranationalists, inspired by philosophers who glorified the idea of Japan’s unique race and culture, encouraged the country towards expansion...” 


6/29/16 Brexit

The economic and geo-political aspects of Brexit have been rightly emphasized, although they are not truly independent, and neither are these aspects comprehensive, for example there likely will be significant social impacts as well.  Moreover these aspects seem likely very complicated, and with complicated dynamics.  

One approach to evaluating the Exit is provided by Conservatism, Conservatism in a sense that justifies the root “conserve.”  In a given setting, individuals adapt in complicated ways to that environment, and to each other’s adaptions to that environment.  If there is a significant change in setting all those adjustments are lost, and there is a costly adaption to the new setting.  This is taken to be the dominating effect of the change, and the original setting is rather to be “conserved.”  In the case that the original setting must be changed, this Conservatism can be extended to advocating a series of small alternations under the assumption that the many small adjustments taken together are less costly than those generated by a single large change.  A related version of Conservatism is that people are risk averse, and that maintaining the status quo often is less risky than significant change.  Notice that these seem different concerns than what one typically hears today in reaction to Brexit.

However, these conservative approaches are likely better thought of as loose rules of thumb than as logical or scientific inferences: rather as Occam’s Razor is now, in the philosophy of science, typically thought of as a rule of thumb rather than a principle of modeling. But whether we can do better today by other means seems an open question.

Just a loose thought, and which provides broad scope for comments, corrections and suggestions.

6/18/2016

Kathrin Hille, Jack Farchy and Max Seddon, “Forum expects a bridging of UE-Russia differences” Financial Times Weekend, p. 4.

“[Italian Prime Minister] Mr. Renzi’s speech was infused with praise for Russian Culture. … [Vladimir Yakumin added] ‘If something goes wrong in Europe, it is not in Russia’s favour.’ … But repairing Russia’s ties with Europe and reinvigorating its economy will take a lot more than pleasantries.”

Prime Minister Renzi’s appreciation for Russian Culture, while most certainly well deserved, likely was intended as a pleasantry, and taken as such.  However, mutual appreciation of cultures may well play a role in developing the level of trust that enables the parties to take advantage of their mutual complementarities, complementarities that Mr. Yakumin’s observation suggests.  

However, from a broader view, the picture is more problematic.  A Russian perspective is presented in which the “blame” for economic sanctions are laid at the feet of the U.S., the EU having been pressured to go along.  This may be an attempt to drive a wedge between the U.S. and the EU.   And it completely ignores the fact that the sanctions were actually precipitated by Russian invasion of a sovereign state.

The article also provides other trenchant observations on the possible rapprochement.   


6/10/16

"Senkaku stand-off," Financial Times, USA Edition, 6/10/16, p. 3.

"China's defense ministry said … that the People's Liberation  Army navy had every right to operate there, and other countries had no right to criticize."

This I take it is an echo of China's creation myth that the Chinese are the natural rulers of the world and all must lie rightless and supine before them.

6/9/16

Are the leaders in China embracing a new mercantilism?


Re: James Shotter, Claire Jones, Leo Lewis, “Negative rates stir mutiny with bank threat to put cash in vaults,” Financial Times, USA Edition, 6/9/16, p. 1.

Couldn’t, ignoring frictions, holding cash in the face of negative interest rates be the efficient way to sell goods “today” for goods “tomorrow?”  Might a simple version of Samuelson’s Overlapping Generations Model suggest this?   

6/2/16   Strange Bedfellows: Marx and Mr. Xi

Yuan Yang - Beijing, “China scholars call for more Marx and less of the west in economics teaching,” Financial Times, US edition, 6/2/16, p. 1.

“He Ganquiang, a retired economics professor, [said] ‘the westernisation of economics was one of the reasons for the Soviet Union’s collapse.’  ... 

Last month President Xi Jinping gave a speech in which he called on academics to modernise Marxism to advance China’s development."

There doubtless is much one might say about this, but I will restrain myself, at least until I have bolstered my poor memory of rather superficial study of Marxism circa 1968.

Certainly, however, I agree that the 1990’s in Russia constitute a most important, and telling, economic event.  And the “west” was pretty free in providing advice.  But, from my perspective, the preponderance of advice was not conservative western economics, but rather a radical, precipitous switch to a “free market.”  The classical analysis used as a model for such a “free market” is Walrasian equilibrium.  However Walrasian equilibrium might be better thought of as a model of the outcomes of a free market, not of the mechanism of a free market itself.  As a consequence, the possibility that the transition to a free market might involve the development of critical institutions, or societal values and expectations of behavior, is ignored.  In contrast, conservative advice would have been not to alter the environment if one could avoid it, and, if alteration is necessary, only do so gradually.  People make complex and interdependent adjustments to a given situation, and if there is substantial change those links are broken, causing very substantial losses over a significant period of time.  At least in a gross sense, this might provide a start on a part of a study of the tragic period of the Russian 1990’s.

As an aside, I might mention that, from an intuitive point of view, Mr. Xi seems more to be in the mold of a Confucian emperor than a "Marxist-Leninist" despot, to me anyway.


5/27/16  G7, G20 and China

“Territorial disputes: China fires maritime warning,” Tom Mitchell and Yuan Yang, Financial Times, US edition, 5/27/16, p. 2.

“China’s foreign minister fired a preemptive shot at G7 leaders yesterday, warning them not to “escalate tensions” over territorial disputes in the South and East China Seas. [emphasis theirs]… ‘The G20’s central task is to promote growth’ he [Mr. Wang] said.  ‘If some members want to discuss issues not related to the international economy in an attempt to raise tensions, we will not allow this to happen.’”

Speaking only for myself of course, I cannot imagine a more brazen, direct, and, yes, imperialistic, threat to the growth of the international economy than an attempted closing of major sea-lanes.  And that this should come from a country itself with staggeringly massive abject rural poverty is simply mind-boggling.

             

5/21/2016  CHINA and/or RUSSIA                           While I have much background reading to get caught up on, very tentatively I am concerned that China and/or Russia may have wandered off the path a bit.  China’s experience with North Korea and Russia’s with, for example, Eastern Europe, should suggest to them that subject states can prove a drain, not a benefit.  Indeed to benefit from them one might do better to trade with them as independent countries. 


Naturally enough, the 2007-2008 financial crash has raised doubts about the efficacy of our American approaches.  However, in my reading, such doubts are premature.  Financial crises have been going on for centuries and in all sorts of economic systems.  They are nearly pervasive in economic history.  And I do believe that we reacted too slowly and too timidly and in too unfocused a manner to the warning signs.  But we did avoid another Great Depression all the same, and we are clearly coming out of the Great Recession more quickly than some others.  In my view this relatively speedy recovery is not primarily a consequence of free trade however.  Rather a financial system inherently has public good attributes, and demands appropriate regulation and oversight.                                                     


As to “real side” headwinds to the economic growth, and to more equal distribution of income and wealth, one such headwind may be the fact that we are going through a major technological revolution in the information technology field.  Technological revolution, in general, may have the short run effect of, disproportionately, increasing the income and wealth of the innovators, possibly at the expense of the others.  However, the time likely will come when the new technology will be turned to taking better advantage of the skills of those others.  The initial spurt in inequality may be particularly true for our IT revolution, as these innovators may have very specialized and very rare capabilities.  However, Herbert Simon’s views on artificial intelligence not withstanding, it seems to me, for example, that electrical impulses moving at the speed of light and the electrical-chemical impulses of the human brain moving at a much slower speed, but being much more complicated, these two types of impulses likely have very different attributes, both being of value in various circumstances?                                                 


Finally let us consider China’s seemingly patently absurd claims in the “South China” Sea.  If every “country” demanded ownership over all their current and past holdings this would require many worlds to fulfill.  But we have but one.  On the other hand, if China’s real concern is the ability to import energy, say, well we, the U.S., with a maritime heritage, have a very strong allegiance to the principle of open sea lanes.  Thus China and the U.S. would have a strong common interest indeed.


We can't have a bigger world, but it can be a whole lot more productive, and thus better for most, if not, indeed, for all.                                                                                                                                                   


Admittedly the above is a bit of a mélange of inadequately supported odd thoughts however.  As always this material needs to be vetted, but even more so now.   


"Thank you for  your always insightful and provocative comments."   Peter [referrring to earlier comments]     


5/19/2016 KOREA -  A brief speculation on KOREA, but which conceivably may warrant further study and exploration.  Specifically I wonder whether it would not be in KOREA’s interest not to have anywhere, and to make it clear and verifiable that it does not have anywhere, nuclear tipped missiles that can reach, for example, the United States of America, particularly given the lack of information and mutual trust that pervades this matter, and given what is publicly known about arsenals, and so forth.   Just an untutored thought.         

For more comment in (dated) diary format see further below.

BACK UP (AS IN FUNCTIONING AGAIN) AFTER BRIEF, DEFINITIVE, HIATUS DURING D.C. ATTACK) 

 

DO THESE PEOPLE KNOW THAT WITH MODERN TECHNICS OF DOCUMENT IMAGING AND PHYSICAL ARCHAEOLOGICAL DEVELOPMENTS IT IS NOW KNOWN THAT IN THE TIME OF THE PROPHET OF ISLAM HIS ARMIES WERE MUCH LESS BRUTAL THAN TYPICAL FOR HIS TIME?  THE BRUTAL AND SAVAGE MYTH EMERGED LATER TO SERVE THE PERSONAL INTERESTS OF APOSTATES.


 

I'm stilling having issues as to the best way to configure our computer system given the security measures now undertaken by the Computer Industry and Universities.

Now completely separated from i Cloud.  That may well have helped somewhat.

…………………………………………………………………

BRIEF OBSERVATIONS: 

BY THE WAY, I HAVE STARTED READING "RED FORTRESS, HISTORY AND ILLUSION IN THE KREMLIN," BY HISTORIAN CATHERINE MERRIDALEE.  IT TAKES A BROAD VIEW AND I FIND IT VERY INTERESTING SO FAR.  IS THERE A BOOK(S) WRITEN BY A CONTEMPORARY RUSSIAN HISTORIAN WHICH PROVIDES AN ALTERNATIVE PERSPECTIVE FOR COMPARISON?


BY THE WAY, TWO OF MY FAVORITE "POINTY-HEADED ACADEMICS" are [context adjusted] ROBERT E. LEE and "STONEWALL" JACKSON, and in my youth I FORDED WATERS of the SHENANDOAH RIVER and hiked GAPS in THE BLUE RIDGE MOUNTAINS of JACKSON'S RENOWNED VALLEY CAMPAIGN.  My father loved the mountains and the river.  But did I mention the funny looking rocks he used to bring back from the desolation of the western deserts?


ATAVISM: a sense of History is one thing, being atavistic another.    


“Indisputable Sovereignty,” Could not be further from the truth.  This an atavistic throwback to a thousands of years old “creation myth” of China as the center of the world, and owed deference and obedience from all the others, as innately inferiors, that is, mentally and culturally inferior.  This ATAVISM simply has no place whatever in the modern world and must be resisted with all means necessary.  Or are they simply borrowing a page of the WWII Japanese “playbook?”


As to Nagorno-Karabakh see 4/7/16 in the Diary section well below.


…………………………………………………………………

 


PROFESSOR DOCTOR JOHN VAN HUYCK

Friend, Colleague, Inspired Intellect, and “Good People”


© 2016


STRATEGIC UNCERTAINTY:

Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure [VHBB] 

Author(s): John B. Van Huyck, Raymond C. Battalio, and Richard O. Beil

Source: The American Economic Review, Vol. 80, No. 1 (Mar., 1990), pp. 234-248 Published by: American Economic Association

Stable URL: http://www.jstor.org/stable/2006745 

["BANK RUN IN A BOTTLE" - John Bryant to Art Rolnick, Federal Reserve Bank of Minneapolis, 1990 (oral)

[But does, for example, NUCLEAR PROLIFERATION have elements of a coordination game and strategic uncertainty?]

"This [Van Huyck, Battalio and Beil, 1990, VHBB, coordination game] experiment is important since previously it had been a common practice in theoretical analysis to assume that individuals could coordinate on the best Nash equilibrium when there was general agreement about which one is best, ... The coordination failures for large groups [in VHBB] captured the attention of macroeconomists, who had long speculated about the possibility that whole economies could become mired in low-productivity states, where people do not engage in high levels of market activity because no one else does.  The macroeconomic implications of coordination games are discussed in Bryant (1983)*, Cooper and John (1988)*, and Romer (2012), for example." [emphasis mine] 

Charles A. Holt, Markets, Games & Strategic Behavior, Boston, Pearson Addison Wesley, c. 2007,  pp. 328-329.

Cooper, Russell and Andrew John, “Coordinating Coordination Failures in Keynesian Models, The Quarterly Journal of Economics, Vol. 103, No. 3. (Aug., 1988), pp. 441-463

Romer, David, Advanced Macroeconomics, 2012.

*Reprinted in N. Mankiw and D. Romer (eds.), Coordination Failures and Real Rigidities, New Keynesian Economics Vol. II, MIT Press Readings in Economics (B. Friedman and L. Summers, eds.), Cambridge, Mass., M.I.T. Press (1991), from The Quarterly Journal of Economics, 1983, 1988 respectively.

Van Huyck, Battalio and Beil's [experimental] results [VHBB] suggest that predictions from deductive theories of behavior should be treated with caution: even though Bryant's game is fairly simple, actual behavior does not correspond well with the predictions of any standard theory.  The results also suggest that coordination-failure models can give rise to complicated behavior and dynamics.

Romer, David, Advanced Macroeconomics, 2012.

…………………………………………………………………


image


              HIGHER  and HIGHER  DIMENSIONS

 Faithfulness and Trust

are important, and in some situations critical:

“To focus the analysis consider the following tacit coordination game, which is a strategic form representation of John Bryant's (1983) Keynesian coordination game.” (VHBB, p. 235) 


U(i) = A { minimum [e(1), ...,e(N)] } - B {e(i)},

 i = 1, ...,N; A > B> 0; 0 ≤ e(i) ≤ E.

[Symmetric, Summary Statistic]


This, VHBB’s specification, is of a multiple player multiple strategy team game.  Numerous individual’s “efforts” are complements.  In the strategic form representation there are N>1 individuals, labeled as individual 1 through N, and individual i is one particular one of those N individuals.  Each individual i chooses an effort level e(i) that is between 0 and E, E>0.  The payoff to individual i is called U(i) and is increasing in the minimum effort level chosen in the whole group of N individuals, and decreasing, but less strongly, in the individual's own effort.  Intuitively, then, this can be thought of as similar to a simple model of the individual payoffs to members of a "team."

…………………………………………………………………

Narayana Kocherlakota, President, Federal Reserve Bank of Minneapolis, Modern Macroeconomic Models as Tools for Economic Policy, 

In other words, it is my conviction that the Federal Reserve Bank of Minneapolis can serve as a crucial nexus between scientific advances within
the academe and the needed changes in macroeconomic policymaking. Indeed, this bank has a long history of doing just that.
It was here that John Bryant and Neil Wallace (1978) illustrated the ticking time bomb embedded in deposit insurance.  [Published version "Open Market Operations in a Model of Regulated, Insured Intermediaries," Journal of Political Economy 88 (February 1980), (with Neil Wallace)]. [emphasis mine]

Allen, Franklin, Dimitri Vayanos and Xavier Vives, “Introduction to financial economics,” Journal of Economic Theory, Volume 149, January 2014, “Financial Economics,” pp. 1–14.

1. Introduction

Financial economics is a broad field covering corporate finance, asset pricing, and financial intermediation. The foundations of modern corporate finance date back to the celebrated papers of Modigliani and Miller [1958] and [1961] and the development of agency theory starting with Jensen and Meckling [1976]. Asset pricing was revolutionized by the development of mean-variance analysis by Markowitz [1952] and the Capital Asset Pricing Model by Lintner [1965] and Sharpe [1964]. The theory of efficient markets by Samuelson [1965], the option pricing model of Black and Scholes [1973] and Merton [1973], and the role of asymmetric information in Grossman and Stiglitz [1980] followed. Financial intermediation theory lagged behind with the modern literature dating back to Bryant [1980], Diamond and Dybvig [1983] and Diamond [1984].” (p. 1)

Allen, Franklin and Douglas Gale, Understanding  Financial Crises, Oxford, Oxford University Press, 2007, p. 58.

With the exception of the Bretton Woods period from 1945 to 1971, banking crises have occurred fairly frequently in the past 150 years ...  Although the economic theory of banking goes back over 200 years, it was not until recently that a model of banking, in the contemporary sense, was provided in the seminal papers of Bryant (Journal of Banking and Finance, 1980) and Diamond and Dybvig (1983).  The publication of these papers marked an important advance in the theory of banking.  Although the objective of the papers was to provide an explanation of bank runs, an equally important contribution was to provide a microeconomic account of banking activity that was distinct from other financial institutions.  In fact, the papers contributed four separate elements to the theory of banking:

 a maturity structure of bank assets, in which less liquid assets earn higher returns;

 a theory of liquidity preference, modeled as uncertainty 
about the timing of consumption;

 the representation of a bank as an intermediary that 
provides insurance to depositors against liquidity 
(preference) shocks;

 an explanation of bank runs by depositors.  In the case of  Diamond and Dybvig (1983), the runs are modeled 
as the result of self-fulfilling prophecies or panics; in the 
case of Bryant (1980)*, they are modeled as the result of 
fundamentals. 
[emphasis mine]

*This was before the VHBB research, and I thought it might take a bad shock to jolt people out of the Pareto Dominant -  keep your deposits - outcome.  Indeed, as it well might, as depositors face complementarities, but not the rigors of the min rule.

See here, from above,   HIGHER  and  HIGHER* DIMENSIONS

*In addition, in Bryant (1983), marginal utility approaches zero as the players together approach the optimal output, while with 

U(i) = A { minimum [e(1), ...,e(N)] } - B {e(i)} that marginal utility is positive and constant. 

 WHILE SEEMING A BIT OF A DETAIL THIS MAY YET HAVE SIGNIFICANT IMPLICATIONS FOR DYNAMICS, INCLUDING FOR FINANCIAL FRAGILITY PARTICULARLY?  [UNFORTUNATELY I FORGET THE CITATION]  

………………………………………………………………

MORE POSTINGS

4/19/16 Ecuador 


ARE WE COORDINATING WITH CUBA, AND THEIR FINE DOCTORS, TO GET MEDICAL SERVICES TO ECUADOR ASAP?

4/7/16 

In recognition of the week's events in Nagorno-Karabakh, and the history behind them, I am returning to reading Franz Werfel's Great Classic The Forty Days of Musa Dagh, based on the Translation of Geoffrey Dunlop.


New material, ascribed to those other than myself, only appears if the author so desires and is ascribed by name or by “Correspondent” as the author wishes. 

Allan Meltzer <am05@andrew.cmu.edu>   2/14/16 10:09 AM

Last night on CBS we had another showing of the way the press sees the political debates.  Substance?  Not important.  Fights, that's how we judge the outcome.  So ask contentious questions and see who lands the best blows. Declare him the winner.

On Feb 14, 2016, at 1:38 AM, "Preston & Judy Miller" wrote:

In a similar vein, I believe that the horrible presidential campaign in part reflects a failure of the economic profession. Candidates on both sides of the aisle, and their followers, show embarrassing ignorance in discussions of issues such as, trade, Wall Street, minimum wage, entitlements, etc. I thought that a  primary objective of economists was to educate the public.

From: John Bryant

Sent: February 13, 2016 4:45 PM

"2/12/16 A Story for Politicians and Pundits.  {A reaction to comments by politicians running for Republican candidate for president}

So I heard, but cannot guarantee the accuracy of, this little tale (condensed).  There were two very prominent economists, the more senior economist A and the younger economist B, at a very prominent University, with offices next to each other.  This was in an old building with thin walls, and one couldn’t help overhearing conversations next door.  B heard A on the phone with a reporter.  He noticed that A would repeat the same sentence, word for word, in every paragraph, as it were, whether it fit with the rest of the sentences or not.   It was not until the next day when he read the newspaper that B realized what A was doing.  The sentence A had repeated was prominently and exactly replicated in the article, word for word, the rest being well written economic gobbledygook [nonsense.]" …

B 2/12/16 2:55 PM

This is an accurate description of my memory of one way A dealt with reporters in 1976. It puzzled me at first.  Later on, when I got experience of my own dealing with journalists, I learned that they often have their own view of what they would like me to say and would keep repeating a question in different ways so as to induce me to say what they wanted to print as “my” view.  A’s method guaranteed that he was in full control of what got printed.

[In an unrelated comment 2/12/16] I (John Bryant) think I have at times sensed an animus towards myself and my little paper "A Simple Rational Expectations Keynes-Type Model" which I didn't label "Keynesian Model" because I didn't, and don't, think it was Keynesian.  It was motivated by Robert Lucas's* truly seminal paper "Expectations and the Neutrality of Money," prominently involving both micro foundations and the modeling of the possibly crucial role of incomplete information in the so-called business cycle**.  As I was well aware at the time, it could as well have been titled an "Austrian Model" (of the role of the entrepreneur), but that, in my view, and experience, of the time, would have nearly guaranteed that it would not be published.  In any case, my providing the model was not ideologically biased, as, to my way of thinking, the first step in proving Keynes correct, if he is correct, is trying to formalize his point, and the first step in proving Keynes wrong, if he is wrong, is trying to formalize his point.  And, in my own attempt to be a traditional "purist," the model should be at least conceivably testable, and the structuring and analysis in testing unbiased. While at the same time recognizing that in actual science this is more an aspiration than a reality, and possibly in reality a counter-productive violation of human nature.  "Simple" in deference to Occam's Razor as a useful rule of thumb, if no longer viewed as a fundamental binding principle by philosophers of science.

*While not his proudest moment, he was my professor, and on my thesis committee, along with Allan Meltzer (Chair) and Edward Prescott at Carnegie-Mellon University.

**In my own reading of classical economists, many really had in mind occasional precipitous falls, followed at first by rapid recovery, and then relatively smoothly falling rates of recovery, converging to a long run relatively smooth path.  

2/10/16* More on:

Dear Mr. Putin,

Russia has the right to exist.  She has done so for centuries, and, G_d willing, will do so for centuries more.

*2/11/16 The original date I lost or misplaced, possibly due to computer glitch.  It was very shortly after Mr. Putin gave a speech suggesting that some people might not even recognize Russia's right to exist.  Such kinds of thoughts should be anathema to anyone, particularly in our nuclear age.  I have no way of knowing, and want no way of knowing, whether or not he received, or his advisors received, the message, or the gist of it. This all, here and below, may be just me talking to myself (except as noted).

2/4/16 Libya. Democracy.

WSJ today, pp. 1,10, “ISLAMIC STATE EXPLOITS A DIVIDED LIBYA

On page 10 there is a nice little map of Libya that with more than a cursory examination is quite revealing, both for current and historical events.  One might also note that while the distance from Manhattan to New Jersey is not the same as the distance from New Jersey to Manhattan, the (physical) distance between Libya and Europe and between Europe and Libya is the same.

I would speculate that there is an unavoidable incompatibility between the IDEAL of DEMOCRACY and the necessity of financing campaigns.  Absent the ideal of costless dissemination of full information, in reality the provision and financing of information is inherently distorting and gratuitously discriminating.*  Which is not to say that the "compromised" ideal is not the best of the real alternatives on some treasured measures.

2/9/16 P.S. Clarification of 2/4/16 above

*"… the provision and financing of information [for voters, whether by government or private sectors,] is inherently distorting and gratuitously discriminating."

2/1/16 noon, full text

Traditional Economics and Finance have a hard time predicting “turning points.”  A few decades ago, when I was more up on this sort of thing, I wondered whether this was in part because at their hearts many of our statistical estimation procedures had statistical smoothing devices.  I did not pursue this notion however.  It may be obsolete or just plain wrong, but does there remain any chance it could generate some insight?

Speaking of turning points, I am shocked particularly that until recently the notion that the economic and financial problems in the rest of the world represented a threat to the US economy was not taken seriously, particularly given the experiences [abroad as well as here] of 2007-2008, and the seemingly cosmetic "fixes" that followed, without getting to the heart of that matter, in my view anyway.  In that regard I am put out by the financial juggernaut preaching deregulation and free markets.  Legally renounce all right to bailouts, and legally bind yourselves to use private, appropriately priced, deposit insurance, not underpriced government deposit insurance.  Then we can start talking about free markets and the payments mechanism.

1/31/16 

If my arithmetic is correct, admittedly questionable,

Vermont makes up .2% of the U.S. population, 

New Hampshire makes up .4% of the U.S. population, 

The rest of the U.S. makes up 99.4% of the U.S. population, based on Census Bureau data, and they are highly unrepresentative populations on many treasured dimensions in addition to caucusing rather than voting.

1/30/16 [Re: 1/28/16 below]

Memory, History, Imaginations of a boy?

1/28/16

A word of caution.  Some years ago, my grandfather had in his possession, not impossibly shot by himself,  two aerial photos of a German port, one before the start, as we in the U.S. tend to conceive of it, of the Second World War, a second after camouflage by the Germans; at least seemingly aerial photos of that vintage with the exact same coverage.  The first showed a large, active port with some outlying countryside.  The second showed what appeared as a small, quaint, sleepy fishing village, perhaps, on a small inlet, closely surrounded by countryside.  One might, not totally unreasonably, speculate that, at least at the time of the second photo, it remained a large, active port. 

1/26/16 [bracketed material added 2/1/16]

 It would seem to me that perhaps the, surely unattainable, best that HISTORY conceivably could be is to contain an element of the "projection" [*] of an accurate (whatever that might mean) characterization of "something" in the past into the present, as a history's "ultimate" expression (for now) is in the mind of a current reader or listener or watcher of images.  

Or something like that maybe.  [I'm not suggesting that this contains original thought, just I don't remember it being expressed quite like this**].

[*I am thinking here of "projection" that inherently distorts, sort of like a flat map of the entire, more or less spherical, world, as in the world's globe projected onto a flat surface] 

[As an example of my thinking, 1/26/16 PM, directly below, may reflect the biases from my being a contemporary economist!]

On 1/26/16 PM Dr. Yossi Chajes, Director - Centre for the Study of Jewish Culture, University of Haifa, M.A. History Michigan, Ph.D. Religious Studies Yale, ...  reacts to a very slightly different version of 1/26/16 above:

Thanks for your [e-] mail and the insightful comment. I think you’re quite right from an epistemological standpoint. This kind of perspective also undermines the divide between history and memory, at least to some extent. 


**2/12/16 pm, P.S. on 1/26/16 above [bracketed material above added 2/1/16]

From Photo Captions, this site:

(1) Perspective -- College Station Texas

"The perspectivism of the modern era that is associated with the name of Nietzsche [1844-1900] originated as philosophical criticism of the claim that only one perspective could represent truth." (Belting, p. 18) 

Belting, Hans, Florence & Baghdad: Renaissance Art and Arab Science, Cambridge, Mass., Belknap Press of Harvard University, 2011.

"… the illusion of the artistic rendering of a nerve stimulus into images is, if not the mother, then at least the grandmother of every concept." (Nietzsche, p. 32)

Nietzsche, Friedrich, "On Truth and Lie in a NonMoral Sense" (1873), in Taylor Carman (ed., trans.), On Truth and Untruth: Selected Writings Friedrich Nietzsche, New York, HarperCollins, c. 2010, pp. 15-49

1/26/16

 It would seem to me that perhaps the, surely unattainable, best that HISTORY conceivably could be is to contain an element of the "projection" of an accurate (whatever that might mean) characterization of "something" in the past into the present, as a history's "ultimate" expression (for now) is in the mind of a current reader or listener or watcher of images.  

Or something like that maybe.

12/10/15

Now I’m no expert in politics or political philosophy, but everyone has the right to his or her own opinion, that is absolutely fundamental.

Speaking of an absolutely fundamental cornerstone of our society consider FREEDOM OF RELIGION.  Not allowing Moslems to immigrate into our country violates freedom of religion.  In doing so we would just be handing ISIL a great, and very symbolic, victory. In truth we should, if necessary, be willing to make great sacrifices to defend that bastion of freedom, and yet we would have enabled ISIL to broach it with the sacrifice of a handful of lives!

More "pragmatically," how many people would arrive with documentation identifying them as Moslem?  Certainly not ISIL members.

11/23/15

Would it, or would it not, make sense to engage in heavy, intense, coordinated air campaigns, of substantial duration, especially targeting for example their supply lines, pipelines, transportation, ammo depots and so on, before introducing boots on the ground in mass as needed?  

10/21/15

Based just on intuition, and not on demonstrable fact known to me, it seems to me, nonetheless, that the behavior in Washington is damaging specifically our reputation abroad, and more generally that of democracy and of free market economics as well.

With respect to Secretary Ashton Carter’s “Opinion” on p.  A13 of today’s The Wall Street Journal, and with full recognition that my knowledge of such matters is orders of magnitude more limited than his, it seems to me that unless the U.S. military does not stay at the cutting edge of technology, but without falling for the aesthetic attraction of the outlandishly expensive of little practical use, and with the best trained and equipped warriors, we will not maintain our position as a leading country.  And, of course, the military must be supported by a dynamic economy.

10/8/15

Caspian Sea?  Might Central Asian countries consider this as a message for them as well?  And China, with Russia and China having competing interests in Central Asia?

Just a thought.

9/29/15

"…China, for all its denials of any global ambition that could be likened to hegemony, is clearly competing with someone and for something -- global preeminence." 

 Howard W. French, China's Second Continent …, Vintage edition, 2015, p. 261.

9/22/15 (revised 9/24/15)

There once was a college football player, Billy Cannon, who,when he was running the ball, his legs, torso, head and arms were all over the place, but his stomach was going straight towards the goal line.

Just considering their military and related moves in isolation one might guess that China and Russia could be following a coordinated, choreographed program for domination.

Moreover, if we are following a 1 1/2 war paradigm, facing us with the possibility of two wars, widely separated and far from us, and close to them, would make sense.  Perhaps if Europe chooses to shoulder more of the burden, that might help.

Which is not to say that a rational person could not disagree with this.  

Just a thought.

9/17/15 David Pilling, "China's economic facts and fakes can be hard to tell apart," Financial Times, p. 9.

8/24/15 China’s Current Economic Data?

A few years ago I had my only visit to China, a short and very circumscribed trip, just Beijing and Shanghai.  But very interesting all the same.  One thing I noticed, and I imagine everyone else did too, was new empty skyscrapers, with more building of skyscrapers going on.  Now I imagine that all such building in China entered the accounts as investment and a portion of GDP.  But if it was the wrong things being built in the wrong places then it wasn’t investment at all, but a waste of resources.  Does this have anything to do with the data coming out of China now?

Just a thought.  I’m no longer expert in National Income and Product Accounts.

7/23/15 (Tentative)

I don’t have the knowledge or information to judge the “deal” with Iran of itself.  But it seems to me that, unless you feel the sanctions are sustainable and more likely to hobble Iran’s nuclear ambitions, or a better “deal” for us is in the offing, you likely should go with the “deal.”

Just a thought.

7/9/15 Odessa

Without having been there, except through light reading, I wonder whether Odessa might not be an attractive destination for tourists, both those seeking relaxation and those interested in culture and history.  Likely even more so if the issue of poverty were dealt with.  Doubtless this is a bit of a tall order, but these two aspects are mutually reinforcing.  (Putting politics aside, this is likely true for the Crimea as well, and Crimea’s and Odessa’s development likely mutually reinforcing also).  With respect to politics, putting aside fighting might make a lot of sense.

 

GREECE AND GAME THEORY BELOW 

6/30/15 A portion of "Greece" 6/17/15 below is illegible.  My apologies.  Here is a transcription of that portion: 

(With relatively minor adjustment the below excerpt might apply.)

International Finance [transcribed]

The distorting inflation tax view of deficit finance has important implications for international finance.  Governments’ fiscal policies can involve an inefficient beggar-my-neighbor “game.”

Suppose, for example that governments peg constant exchange rates, in effect, there is a single world currency.  However, no one government is a monopolist in the provision of this currency.  Rather, the currency is provided by the oligopoly comprising the various governments.  As a consequence, the governments face the standard enforcement problem of cartels.  Suppose the governments finance transfer payments by issuing currency.  This action, as analyzed in the section on fiscal policy, amounts to imposing a distorting inflation tax on the world currency.

However, if one country uses deficit finance while the others balance their budgets, this deficit country is levying an inflation tax on the entire world currency.  This amounts to an inefficient transfer of wealth from the fiscally conservative countries to the deficit country.  The deficit country is handing increments of the world currency to its citizens, while the other countries are not doing so.  Although the entire world might be better off with balanced budgets than with universal deficits and inflation, each country is best off being the only deficit country in an otherwise fiscally conservative world.  In other words, a stable international monetary system requires coordinated fiscal policies.

This discussion draws on John Kareken and Neil Wallace, “On the Indeterminacy of Equilibrium Exchange Rates,” Quarterly Journal of Economics 96 (May 1981): 207-22, and “International Monetary Reform: The Feasible Alternatives,” Federal Reserve Bank of Minneapolis Quarterly Review, Summer 1978, 2-7,

and draws on the expositional piece John Bryant, “Analyzing Deficit Finance in a Regime of Unbacked Government Paper,” Economic Review, Federal Reserve Bank of Dallas, January 1985, pp. 17-27, p. 22.

This paper had the benefit of very helpful comments and suggestions from members of the Federal Reserve Bank of Dallas Research Department.

3/25/15 

THE LOGIC OF GAME THEORY

-slight revisions.  For Vincent Crawford's, 3/26/15, reaction see below.

1. Game Theorists should eliminate “solution” from their vocabulary.

Corollary:  Game Theorists should really eliminate “solution concept” from their vocabulary.

2. Rather Game Theorists should think in terms of assumptions and the logical implications thereof.

3. There seems to have been a view that rational maximizing players, strategy sets and payoffs constitute a complete description of the relevant environment (hence, perhaps, the drive for “solution,” given a presumption that a complete description should imply the outcome. )

Yet Von Neumann and Morgenstern had immediately recognized that this assumption of complete description was not valid ... [!]: 

“Thus each participant [in a “social exchange economy”] attempts to  maximize a function … of which he does not control all the variables.  This is certainly no maximum problem, but a peculiar and disconcerting mixture of several conflicting maximum problems.  

… the conceptual differences between the original ([Robinson] Crusoe’s) maximum problem and the more complex problem [of a “social exchange economy”]. … we face here and now a really conceptual -- and not merely technical -- difficulty.  And it is this problem which the theory of games of strategy is mainly devised to meet”  (Von Neumann and Morgenstern, 1967 ed., pp. 11, 12).

[VINCENT CRAWFORD, 3/26/15, observes "In my view your vN-M quote isn't them saying that 'assumption of complete description was not valid' in the sense of context, but merely that people's strategic problems interact.  I think I agree with the rest of what you say here."*]

I would think that an agent completely described as a maximizer would, dominance relations aside perhaps, observe that the game is not a maximization problem, which observation is insufficient to predict his decision!

Some may have wanted to replace “relevant environment” with “strategic structure” (above). Either way, though, one faces the issue that such descriptions do not necessarily logically imply outcomes or probability measures over outcomes.  At times the best one might be able to logically infer from a game structure of a situation is only some of what players do not do. Perhaps this might be worth pursuing systematically?  For a simple example, observed sequencing of decisions can often yield a determinate outcome.

4. Game Theory largely has been a cutting of Von Neumann’s and Morgenstern’s original Gordian knot (#3 above), using such approaches as seen in some Nash equilibrium analyses for example, when untying the knot might have been the more revealing?

5. In summary, then, to me, the first, immediate, foremost and most fundamental implication of Game Theory is indeed that the strategic structure of a social situation as represented in a game does not typically logically determine the outcome (or probability measures over outcomes).

*  See also Crawford, Vincent P., “Thomas Schelling and the Analysis of Strategic Behavior,” in Richard Zeckhauser (ed.) Strategy and Choice, Cambridge, Mass., M.I.T. Press, c. 1991, Chpt. 11, pp. 265-296.


Minimalist But Lopsided Bibliography

Bryant, John, “A Model of Reserves, Bank Runs, and Deposit Insurance," Journal of Banking and Finance 4 (1980) 335-344.

_______, "Perfection, The Infinite Horizon and Dominance," Economics Letters 10 (1982)

________, “A Simple Rational Expectations Keynes-Type Model,” The Quarterly Journal of Economics, 98 (1983), 525-528, reprinted in Coordination Failures and Real Rigidities, New Keynesian Economics Vol. II, N. Mankiw and D. Romer, eds., MIT Press Readings in Economics, B. Friedman and L. Summers, eds. (Cambridge, MA: M.I.T. Press, 1991).

_______, "An Example of a Dominance Approach to Rational Expectations," Economics Letters 16 (1984).

________, "The Paradox of Thrift, Liquidity Preference and Animal Spirits," Econometrica 55 (September 1987).

Van Huyck, John B., Raymond C. Battalio, and Richard O. Beil, "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," The American Economic Review 80, No. 1 (Mar., 1990). 

Von Neumann, John and Oskar Morgenstern, Theory of Games and Economic Behavior, (New York, NY: John Wiley & Sons, Science Edition 3rd printing, 1967, c. 1944). 


COORDINATION GAMES

Faithfulness and Trust

are important, and in some situations critical: 

consider Bryant's "Stag Hunt" Coordination Game 

image

           or

           U(i) = A { minimum [e(1), ...,e(N)] } - B {e(i)},

                      i = 1, ...,N;  A > B> 0;  0 ≤ e(i) ≤ E.

In this second, strategic form, representation there are N>1 individuals.  Each individual i chooses an "effort level" e(i) that is between 0 and E, E>0.  The payoff to individual i is U(i) and is increasing in the minimum effort level chosen in the whole group of N individuals, and decreasing, but less strongly, in the individual's own effort.  This is a simple model of strategic complementarity, of a "team," as Russell Cooper emphasized.  Vincent Crawford noted the parallels with Rousseau's Stag Hunt parable.  Van Huyck, Battalio and Beil provided elegant experimental results using their strategic form representation of Bryant's game (immediately above).  Carlsson and Ganslandt and Asheim and Yoo, among others, have provided global games analyses.

“Van Huyck, Battalio and Beil's [experimental] results [VHBB] suggest that predictions from deductive theories of behavior should be treated with caution: even though Bryant's game [Bryant 1983] is fairly simple, actual behavior does not correspond well with the predictions of any standard theory.  The results also suggest that coordination-failure models can give rise to complicated behavior and dynamics.” [emphasis mine] (Romer, David, Advanced Macroeconomics, 2012)


"This [Van Huyck, Battalio and Beil, 1990, VHBB, coordination game] experiment is important since previously it had been a common practice in theoretical analysis to assume that individuals could coordinate on the best Nash equilibrium when there was general agreement about which one is best, ... The coordination failures for large groups [in VHBB] captured the attention of macroeconomists, who had long speculated about the possibility that whole economies could become mired in low-productivity states, where people do not engage in high levels of market activity because no one else does.  The macroeconomic implications of coordination games are discussed in Bryant (1983)*, Cooper and John (1998)*, and Romer (1996), for example [emphasis mine]." (Charles A. Holt, Markets, Games & Strategic Behavior, Boston, Pearson Addison Wesley, c. 2007,  pp. 328-329.)

*Reprinted in N. Mankiw and D. Romer (eds.), Coordination Failures and Real Rigidities, New Keynesian Economics Vol. II, MIT Press Readings in Economics (B. Friedman and L. Summers, eds.), Cambridge, Mass., M.I.T. Press (1991)

“By perturbing symmetric coordination games a la Bryant [1983] … we derive unique solutions, the noise-proof equilibria.” (Abstract, p. 23)

Carlsson, Hans and Mattias Ganslandt, “Noisy Equilibrium Selection in Coordination Games,” Economics Letters, 60 (1998), 23-34.

 “Introduction:  In a minimum effort game (Bryant, 1983; van Huyck et al., 1990; Legros and Matthews, 1993; Vislie, 1994; Hvide, 2001) Introducing incomplete information without trembles in the action choices does not reduce the set of equilibrium profiles.” 

Asheim, Geir B. and Seung Han Yoo, “Coordinating under incomplete information," Sept. 29, 2007, Universities of Oslo and Cornell. 

“At a more abstract level, many production activities contain elements of a coordination problem… . ...we … use minimum effort  games, as popularized by Van Huyck et. al. (1990), as a stylized model of such coordination problems, especially of the production type. … minimum-effort games provide an intuitive worst-case benchmark where inefficient outcomes might be particularly resilient.  … David Hume, … writing in the 18th century, provided [an] observation which captures the dilemma faced by individuals confronted with a minimum effort game. ... The strategic structure of a minimum effort game is encountered in a wide range of both social and economics interactions.  … Hirshleifer (1983) and Cornes (1993) studied the private provision of public goods when agents face a weakest link structure … Bryant (1983) and Cooper and John (1988) argue that coordination failures in minimum effort production technologies might be the source of underemployment in rational expectations models.” 

Alos-Ferrer, Carlos and Simon Weidenholzer, “Imitation and the role of information in overcoming coordination failures,” Games and Economic Behavior 87 (September 2014), 397-411, pp. 397-398.

6/17/15  Greece

Now I’m no student of European politics or economics, but I wonder if, that as currently structured, the Monetary Union does not present a mammoth moral hazard problem.  If so, if the structural issues are not addressed, problems will persist, with or without Greece remaining in the Monetary Union, but the Monetary Union could end up better off without Greece.  The remaining countries may not be as susceptible to the siren’s song of this moral hazard.  This analysis does not, however, rule out the possibility of substantial short run adjustment costs.

(With relatively minor adjustment the below excerpt might apply: a beggar thy neighbor "game")


International Finance [transcribed]

[See "Analyzing DEFICIT FINANCE in a Regime of Unbacked Government Paper"]

The distorting inflation tax view of deficit finance has important implications for international finance.  Governments’ fiscal policies can involve an inefficient beggar-my-neighbor “game.”

Suppose, for example that governments peg constant exchange rates, in effect, there is a single world currency.  However, no one government is a monopolist in the provision of this currency.  Rather, the currency is provided by the oligopoly comprising the various governments.  As a consequence, the governments face the standard enforcement problem of cartels.  Suppose the governments finance transfer payments by issuing currency.  This action, as analyzed in the section on fiscal policy, amounts to imposing a distorting inflation tax on the world currency.

   However, if one country uses deficit finance while the others balance their budgets, this deficit country is levying an inflation tax on the entire world currency.  This amounts to an inefficient transfer of wealth from the fiscally conservative countries to the deficit country.  The deficit country is handing increments of the world currency to its citizens, while the other countries are not doing so.  Although the entire world might be better off with balanced budgets than with universal deficits and inflation, each country is best off being the only deficit country in an otherwise fiscally conservative world.  In other words, as stable international monetary system requires coordinated fiscal policies.

This discussion draws on John Kareken and Neil Wallace, “On the Indeterminacy of Equilibrium Exchange Rates,” Quarterly Journal of Economics 96 (May 1981): 207-22, and “International Monetary Reform: The Feasible Alternatives,” Federal Reserve Bank of Minneapolis Quarterly Review, Summer 1978, 2-7.

And draws on the expositional piece john Bryant, "Analyzing Deficit Finance in a Regime of Unbacked Government Paper" Economic Review, Federal Reserve Bank of Dallas, January 1985, pp. 17-27, p. 22.

This paper had the benefit of very helpful comments and suggestions from members of the Federal Reserve Bank of Dallas Research Department.


5/9/15

“Russian relationship with west laid bare,” FT Weekend, p. 1.

With sadness I note  attendance at the Victory Day celebrations seemingly revealing the lineup for a new Cold (let’s hope cold!) War, according to FT Weekend anyway.  I pray otherwise.  Our experience with the previous Cold War was that it felt dangerous, wasteful and unproductive.

Also I note the high irony of this purported situation as, critically, the Soviet Union and the U.S. were allies in the war against the Nazis, celebrated on Victory Day, and now perhaps 3/4 of  Russians live in European, that is “western,” Russia.

5/5/15

By the way, my personal opinion is that Russia is perfectly right to honor and celebrate those Russians who made the ultimate sacrifice in Russia’s massive contribution to the defeat of the Nazis.  Indeed, as I’ve mentioned before, according to the [US] National WWII Museum the largest number of WWII war deaths were those of the Soviet Union, estimated at 24,000,000, followed distantly by Germany at between 6,600,000 and 8,800,000, and with a “grand” total estimated to be in the neighborhood of 60,000,000 or more.  Still, while I don’t have any statistics, I would bet that many Americans underestimate Russia’s contribution to the war.  It likely is natural for people to overestimate their own country’s contribution, and we may have been further biased by the grotesque sacrifices Stalin imposed on his own people, and by the Cold (thankfully) War which followed WWII.

As to the Russian leadership having an ulterior motive in this ceremony, it sounds suspiciously like politics. 

4/15/15 A little bit of data

You might not know it but “European Russia - Wikipedia, the free encyclopedia

en.wikipedia.org/wiki/European_Russia

This part of Russia contains about 77% of the country's population (110,000,000 people out of a circa 143,000,000)” 


4/13/15 Pakistan, Iran, Yemen: a Query

I don’t have the knowledge, understanding or information to make a statement, but I do have a couple of, very possibly ridiculous, questions.  Could Pakistan’s position reflect some movement in the direction of separating sectarian matters from the political, a move that could even conceivably spread and, in general, benefit, perhaps greatly benefit, the region eventually?  Secondly, I do wonder whether Pakistan does have a point that its plate is plenty full already, and might get a pass on this one?

Just a thought.  Don’t take it too seriously!


4/10/15 Is THIS the sense in which Ukrainians and Russians are one?  

Is not Joseph Stalin the Russian leadership’s favorite historical figure?

Holodomor

Excerpts from Wikipedia, the free encyclopedia

Soviet famine of 1932–33. Areas of most disastrous famine marked with black.


The Holodomor (Ukrainian Голодомор, "Extermination by hunger" or "Hunger-extermination"; derived from морити голодом, "to kill by starvation") was a man-made famine in the Ukrainian Soviet Socialist Republic in 1932 and 1933 that killed an estimated 2.5–7.5 million Ukrainians, with millions more counted in demographic estimates. It was part of the wider disaster, the Soviet famine of 1932–33, which affected the major grain-producing areas of the country.

…Scholars disagree on the relative importance of natural factors and bad economic policies as causes of the famine but believe it was a long term plan of Joseph Stalin, an attempt to eliminate the Ukrainian independence movement.


4/3/15 The Nuclear Deal and President Obama’s Legacy

For us, and him, it seems to me that the President’s legacy should not be a factor, but rather U.S. security and regional stability.  Previous foreign policy successes or failures per se should not enter calculations.


1/29/14

Re: Ken Parks, “Argentina Blasts ‘Speculative Attacks,’” The Wall Street Journal, p. A12.  See

I do not think that speculative attacks on emerging-market currencies require orchestration, big business or media groups.  Indeed, espousing that position may be dangerous if it inhibits pursuing solutions.

See the first three sections of this TEXT PAGE, the sections before the diary, and the DIARY, date 3/25/15.


10/11/11

It seems to me that Mr. Lukashenko [President of Belarus] might consider a staged, that is careful, deliberate, and in several stages, denationalization of firms, coupled with a carefully regulated enhancement of the banking and financial community.  Mr. Putin might observe, advise, and, like the rest of us, learn from process.

While one could say more about China, let me speculate that the concerns of investors are about factors that have been in play for a long time, and, in my view, seem likely to be more of an impediment when China gets closer to its potential.  For what my speculation is worth.


10/11/10

Tom Braithwaite in Washington, "NY Fed chief dismisses capital plan critics," Financial Times, World News, 10/11/10, p. 2.

There was "no doubt that reforms will produce a drag on economic recovery and this means that jobs that should be created and that need to be created may not be created" [said Josef Ackermann chief executive of Deutsche Bank].

Now this quote out of context may overstate Mr. Ackermann's position, but I must strongly reject this unsubstantiated and unsubstantiable assertion, which, of itself, in the broader economic debate, seems to border on demagoguery.  Why demagoguery?  Many luminaries, including Jack Kareken, Neil Wallace and Thomas Sargent, as well as Allan Meltzer and Alan Greenspan (see below), among others, have correctly pointed out the moral hazard dangers of bank bailouts; notwithstanding the fact that, from my perspective, anyway, in this case for TARP, and other bailouts internationally, the "game was worth candle," under the dangerous financial circumstances regulators, and we all, faced (see, e.g., Boyd, Kwak and Smith below).  The statement by Mr. Ackermann could be taken as an example of this moral hazard at work.  Moreover, many of the luminaries have emphasized that uncertainties have inhibited private investment and the recovery.  Well, surely uncertainty as to whether we have successfully "roped in" the grave risks of future financial collapses, or exacerbated them, has to rank high amongst the economic uncertainties we face (if not as high as nuclear war, say!)

Speaking of rankings, the possibility of a currency war, and controversy over the recent Nobel Peace Prize award, and over the South China Sea, and similar frictions that will inevitably occur, do not, separately or jointly, warrant restrictions on China-USA military consultation and cooperation.  If anything, the reverse.  We don't want to get into the position, jointly, of "biting off our nose to spite our face," as it were.