Brad DeLong asks:

When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?

The immediate question is whether Ireland had a choice in the first place.  When it comes to total external debt, private plus public, Ireland is in one of the most desperate situations.  (Be careful, though, some published figures include financial institutions to which the Irish government has no real liability and thus overstate Irish external debt by quite a bit).  Ireland doesn't have the same flexibility as do Germany and the United States, nothing close to that.  Read this article for an estimate of the change in primary fiscal balance required for Ireland; it's scary and doesn't indicate a lot of flexibility, which supports the conventional wisdom on Ireland, from the OECD, the European Commission, from Ireland itself, and arguably you add the IMF to that list as well. 

Furthermore, Ireland as a small, open economy experiences a relatively high degree of fiscal leakage.

By the way, you shouldn't simply assume that the initial fifteen plunge in gdp was due to fiscal caution; Ireland was after Iceland perhaps the most overextended country in the crisis.

Here's a Morgan Stanley analysis of Ireland, which basically suggests "it's complicated."  It also suggests a reasonable chance the current strategy will work out OK.  It is complicated, and the mere fact that spending is a component of national income accounts doesn't mean that more spending is always a good thing. 

Ireland in fact has done a negative fiscal stimulus.  Earlier, Ireland made the mistake of joining the Eurozone.  See also this study of Ireland, 1987-89, an earlier decisive and successful fiscal adjustment, in the days of the Irish Punt.  The Euro today makes matters harder for Ireland, yet that doesn't imply they have greater license to spend today, in fact it can imply the contrary.

Paul Krugman pointed out that the fiscally tighter Ireland did not have a better CDS price than the more wishy-washy Spain.  Yet Ireland has a bigger external debt problem, may be less protected by "too big to fail," is a smaller nation, and has less control over its destiny; the (roughly) equal price may reflect what is a superior Irish effort.  In any case, Spain is hardly a walking advertisement for not going the Irish route.

The Irish also hope that whatever output they "leave on the table" today, they can make up with Solow catch-up growth.

If you would like to read a brief on behalf of Irish stimulus, try this.  The author admits that Ireland would have to significantly raise corporate taxes, a former linchpin of its growth (whether you think that efficiency-enhancing or international rent-seeking, it is still true).  Is it worth it?  How much would such a policy damage Irish growth and credibility?

Kevin O'Rourke also has good but scattered writings on the topic of Irish stimulus.  His first preference is greater fiscal federalism within the EU.  Last month he also wrote that, lacking such a reform, Ireland had no choice.

This June, Irish consumer confidence hit a three-year high.  Here's one estimate that wages have been falling four to five percent a year, and will continue to fall, plus the Euro has been falling.  You could argue there has already been an adjustment in the twenty-five percent range.  None of that is proof of recovery, but there are some green shoots.  Here is the very latest report, indicating that economic growth may be resuming; admittedly it's just a forecast from the government.  Exports are showing growth and retail sales are rising slightly.

The Irish Times reports today: "For the first time in three years, there are now more reasons for hope than for despair.  This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place."

Do interpret that with extreme caution.  For various debates, follow The Irish Economy blog, including in the comments.

On these critical questions, in the pro-stimulus for Ireland posts, I don't see a level of detail which would rebut these quite mainstream, not-emanating-from-the-gamma-quadrant opinions -- that the Irish did more or less the right thing in a very unpleasant situation. 

The Irish experiment remains an open book.  In the meantime, it's simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice.  Three years out from now, let's compare Ireland to the other PIIGS.

1. Barry Eichengreen is on Twitter.

2. Germany's "literature houses."

3. Is some art simply too complicated?

4. Just give money to the poor.

5. Human evolution in Tibet.

6. Oezil the German.

He writes to me:

While dogmatism seemingly requires balance so do most of life’s activities mental or otherwise. Show me the adventurous eater or traveler and I will show you a stick in the mud reader, investor, dresser. Show me the wide-eyed dreamer in one area and the odds are she or he has an anchor to windward somewhere else, if only what they wear to work or play. Human beings who are wildly adventurous in one area, say sports, tend to dine on hamburgers, but think they are adventurous in all things.  he same applies to free thinkers who are downright sodden when it comes to design. The chance takers forget they also have their safe sides. We tend to huddle with like chance takers, somehow our security blankets are seldom shared.  

I am likely to bring up such points, especially to some of my colleagues who think of themselves as non-conformists.  

I don't agree with everything in this paper, but it's the best case against a VAT that I have seen to date.

...the tax is not a good fit for the United States. It taxes a base that has traditionally belonged to state governments, its introduction would bring with it intergenerational inequities, it has a cumbersome administrative structure that would impose large compliance and administrative costs, and it would slow economic growth. Because of slower economic growth, tax revenues from existing tax bases will fall if a VAT is introduced. 

If you're wondering, as an alternative he favors a mix of spending cuts and, if needed, increases in the income tax.

The very excellent Sandor writes to me:

From a maximum utility point of view, who's the right team to root for in the 2010 FIFA World Cup (TM)?

The off-the-top-of-head first order model seems something like

num_native_fans * (joy_of_native_fans_upon_winning -
misery_upon_losing) + num_foreign_fans * (joy - misery),

where the second term is probably negligible compared to the first,
except maybe for Uruguay and Paraguay.  The "joy" term probably is larger the longer it's been since the team won?  But maybe the misery is less for teams that have never gotten far---wouldn't Ghanaians be
pretty thrilled with a loss in the semifinal?

What are the second order and higher effects?  Germany's lost productivity from a long tournament run is worth more in absolute terms but maybe less in utility terms?  Do we need terms for foreign anti-fans?---I've heard a surprising number of people express extreme anti-Germany and anti-Brazil feelings, the former for past crimes, the latter for general arrogance.

I'm attracted to the Netherlands and the two 'Guays, which are probably the lowest three in utility terms.  Maybe I'm just a misanthrope.

Does Derek Parfit like football?

My view is that a Brazilian victory does the most to maximize happiness, although I worry about the effects on second-order violence.

If you wish to rationalize the victory of a small country team, try the argument that too many young people invest career time in becoming athletes.  By having a small nation grab the glory, this wasteful effect is minimized.

Take this one with a grain of salt, but here is the latest:

Kennedy's breakthrough, published in the journal Apeiron this week, is based on stichometry: the measure of ancient texts by standard line lengths. Kennedy used a computer to restore the most accurate contemporary versions of Plato's manuscripts to their original form, which would consist of lines of 35 characters, with no spaces or punctuation. What he found was that within a margin of error of just one or two percent, many of Plato's dialogues had line lengths based on round multiples of twelve hundred.

The Apology has 1,200 lines; the Protagoras, Cratylus, Philebus and Symposium each have 2,400 lines; the Gorgias 3,600; the Republic 12,200; and the Laws 14,400.

Kennedy argues that this is no accident. "We know that scribes were paid by the number of lines, library catalogues had the total number of lines, so everyone was counting lines," he said. He believes that Plato was organising his texts according to a 12-note musical scale, attributed to Pythagoras, which he certainly knew about.

Do note this:

Kennedy believes his findings restore what was the standard, mainstream view which held for 2,000 years "from the first generation of Plato's followers, up through the renaissance". This held that "he wrote symbolically and that if you worked hard and became wise you could understand the symbols and penetrate his text to his underlying philosophy." Only in the last few hundred years has an emphasis on the literal meanings of texts led to a neglect of their figurative meanings.

It also explains why it is that Aristotle, Plato's pupil, emphatically claimed that Plato was a follower of Pythagoras, to the bafflement of most contemporary scholars.

I used to consider allegiance to this idea (Montaigne, also, for symbolic codes) as one of my absurd beliefs, but maybe now it is looking better.  I will have to look elsewhere.

1. Al Roth on the Iran kidney exchange program.

2. Gaming insurance mandates, further evidence.

3. David Henderson reviews Thomas Sowell.

4. Marketing to the bottom of the pyramid.

5. The most important buildings since 1980?  Photos of the winners are here.

Bitte...I'll be there for a few days.  Danke.

The most obvious way in which sticky wages impede employment is by keeping the cost of hiring workers above the equilibrium wage. The standard story explains that sticky wages increase unemployment. The standard story, however, is not the only and perhaps not the most important transmission mechanism.

Wages are the largest component of costs thus sticky wages keep costs high and profits low.  The point is obvious once stated but it has implications for how we look at sticky wages.  Tyler, for example, writes:

[Consider] illegal immigrant Mexican construction workers, a group which lost jobs in large numbers following the crash. Are they -- who often came from $1 a day environments -- also supposed to have sticky wages? They are out of work in massive numbers.

The focus here is on the unemployed workers with the argument implicit that it's the stickiness of their wages which counts (which makes sense given the standard story).  But suppose that the problem is that firms can't get capital to expand--perhaps because the banking system is not working well--then what matters for firm expansion is free cash flow.  But sticky wages keep firm costs high, reducing free cash flow and inhibiting expansion. In this argument, the stickiness that matters is the sticky wages of the employed workers.

A story which focuses on employed workers has several advantages.  First, the wages of employed workers are clearly more sticky than the wages of unemployed workers--in fact, if you are employed real wages are up slightly. Moreover, since more than 90% of workers are employed this type of argument has leverage.  

If there are fixed costs, new firms do not arise instantly so infra-marginal sticky wages can be important for a number of "balance-sheet" reasons in addition but related to the free cash flow story such as debt constraints or various coordination and risk reasons.  

People who live in countries where disease is rife may have lower IQs because they have to divert energy away from brain development to fight infections, scientists in the US claim.

The controversial idea might help explain why national IQ scores differ around the world, and are lower in some warmer countries where debilitating parasites such as malaria are widespread, they say.

Researchers behind the theory claim the impact of disease on IQ scores has been under-appreciated, and believe it ranks alongside education and wealth as a major factor that influences cognitive ability.

The full story is here.  The original research paper is here.  I'm not sure the authors have a very good test against alternative hypotheses, but still a correlation remains after making some appropriate adjustments.

Ireland climbed out of recession on Wednesday with the economy returning to growth in the first quarter [2.7 percent], after suffering one of the deepest downturns of any advanced industrialised economy.

Don't get too giddy with optimism: the Irish economy had declined fifteen percent.  Still, it's far too early to judge the Irish experiment in pre-emptive fiscal austerity to be a failure.  The full story is here.

I am unsure of the generality of the sources here, but the author -- Jay Bahadur -- is writing a book on the topic and at the very least his investigation sounds serious:

The figures debunk the myth that piracy turns the average Somali teenager into a millionaire overnight. Those at the bottom of the pyramid barely made what is considered a living wage in the western world. Each holder would have spent roughly two-thirds of his time, or 1,150 hours, on board the Victoria during its 72 days at Eyl, earning an hourly wage of $10.43. The head chef and sous-chef would have earned $11.57 and $5.21 an hour, respectively.

Even the higher payout earned by the attackers seems much less appealing when one considers the risks involved: the moment he stepped into a pirate skiff, an attacker accepted a 1-2 per cent chance of being killed, a 0.5-1 per cent chance of being wounded and a 5-6 per cent chance of being captured and jailed abroad. By comparison, the deadliest civilian occupation in the US, that of the king-crab fisherman, has an on-the-job fatality rate of about 400 per 100,000, or 0.4 per cent.

As in any pyramid scheme, the clear winner was the man on the top. Computer [a man's name] was responsible for supplying start-up capital worth roughly $40,000, which went towards the attack boat, outboard motors, weapons, food and fuel. For this investment he received half of the total ransom, or $900,000. After subtracting the operating expenses of $230,000 that the group incurred during the Victoria’s captivity in Eyl, Computer’s return on investment would have been an enviable 1,600 per cent.

There is a very good chart on the right-hand side bar of the article.

You may recall that the immediate aftermath of the earthquake brought relatively high levels of order and even a decline in crime.  Yet norms are evolving to meet the new and desperate environment which most Haitians face.

The Haitians are now figuring out how to rob and murder visiting Americans; the body count is suddenly at four.  The level of rape is escalating.

The Haitian Presidential election is now set for November 28, and that is likely to bring a good amount of violence.  And since so many voting records have been destroyed, it will be difficult to limit fraud, accusations of fraud, and the winner may not be seen as legitimate.

One simple hypothesis is that people behave fairly calmly, and even passively, during shocking experiences and in their immediate aftermath.  The medium-term response can be quite different.

Most people are ignoring the Haitian situation, as they have mistakenly concluded it has stabilized.  It has not.  You still have a milion and a half people, in a basically untenable situation, more or less homeless, with the heart of the country destroyed and not much ongoing reconstruction or reform.

1. Nabokov in Berlin.

2. Diane Coyle picks some favorite books.

3. William James writes to Henry James.

4. She doesn't look Scandinavian to me (click through photo gallery), but I guess people from New Jersey will believe anything.

5. Very bad sentences.

Paul, a loyal MR reader, writes to me and queries:

...would or should knowing that someone is deeply religious affect your assessment of the reliability of their economic judgments? I used to think not, but in the last couple of years have been gradually changing my mind. The financial crisis has brought out how many serious macro and micro misjudgments were due in part to the unwillingness of economists to re-examine cherished foundational beliefs. I now view with even greater suspicion than before any adherence to the idea that faith provides a justification for ignoring logic and evidence. But the paradox is that I have no actual evidence that religious economists were more likely than secular ones to cling to foundational economic hypotheses in the face of considerations that should have led them to change their minds. It is even imaginable that they were less likely to do so, since secular economists might have exercised similar failures of reasoning about non-theological issues. That is, antipathy to metaphysical reason might be a substitute for antipathy to economic reason, instead of being a complement as I have been presuming. Can anyone provide anecdotal or statistical evidence on this?

I don't know of any systematic evidence, but often I favor portfolio models of dogmatism (by the way, don't argue in the comments about whether religion is necessarily dogmatism; that's not the relevant point here and I'll delete discussion of that.  If you wish just treat this as a discussion of dogmatism).

That is, most people have an internal psychological need to fulfill a "quota of dogmatism."  If you're very dogmatic in one area, you may be less dogmatic in others.  I've also met people -- I won't name names -- who are extremely dogmatic on ethical issues but quite open-minded on empirics.  The ethical dogmatism frees them up to follow the evidence on the empirics, as they don't feel their overall beliefs are threatened by the empirical results.

Some people, if they feel they must always follow the evidence, respond by skewing their interpretation of that evidence.

There's a lesson here.  If you wish to be a more open-minded thinker, adhere to some extreme and perhaps unreasonable fandoms, the more firmly believed the better and the more obscure the area the better.  This will help fulfill your dogmatism quota, yet without much skewing your more important beliefs.

An alternative view is that people become addicted to dogmatism and the dogmatic habits spread to many more realms of their thought.  I believe this alternative model is true above some margin of dogmatism and also if the dogmatism infects the "wrong areas of thought."

I would like to know more about what the dogmatism portfolio looks like and what are the relevant coefficients of substitution and complementarity.

I believe in portfolio models of dogmatism very very strongly. 

... 10 percent of the electricity Americans use comes from Russian missiles and bombs.

From Stewart Brand's excellent and highly quotable Whole Earth Discipline: An Ecopragmatist Manifesto.

There are many commentaries on David Leonhardt's article today on whether we should be raising taxes and cutting government spending, as was done in 1937.  Yet I don't see anyone -- at least not today -- talking about monetary policy during 1936-7.  A bit earlier, David Beckworth stepped up to the plate:

Is the Federal Reserve (Fed) making a similar mistake to the one it made in 1936-1937? If you recall, the Fed during this time doubled the required reserve ratio under the mistaken belief that it would reign in what appeared to be an inordinate buildup of excess reserves. The Fed was concerned these funds could lead to excessive credit growth in the future and decided to act preemptively. What the Fed failed to consider was that the unusually large buildup of excess reserves was the result of banks insuring themselves against a replay of the 1930-1933 banking panics. So when the Fed increased the reserve requirements, the banks responded by cutting down on loans to maintain their precautionary level of excess reserves. As a result, the money multiplier dropped and the money supply growth stalled...

The second link in this post offers the critical figure.  If monetary policy is sufficiently accommodative, I do not see that we are risking a 1937-8 repeat.  In 1936-7, monetary policy was not just insufficiently expansionary, it was absolutely draconian.  Read this paper too.  Here is Scott Sumner.

As the stimulus is pulled away, there is a reasonable chance that the Fed will be more accommodative.  Remember, the monetary authority moves last.

I do not see why we are discussing this issue without placing monetary policy at the center of the analysis.

In the whole discussion about whether the U.S. should borrow more now when the interest rates are low, I miss one crucial thing - what happens when the debt comes due?

Risk-free debt is really risk-free only when the maturity also coincides with terminal repayment. But assume that the U.S. borrows an extra trillion of dollars now, due in 10 years (the average debt duration of the U.S. debt is something like 4 years?). Sure, the interest rate is low, but the borrowing is cheap only as long as we assume that during the 10 years the U.S. repays this whole extra debt, compared to what would have happened in the baseline world.

If not, the U.S. will need to refinance this debt in 10 years, and potentially at much higher interest rates. There is a potentially very large risk looming. Greece has experienced this the hard way - it collapsed not because it necessarily needed new borrowing but because it had to roll over the old borrowing at impossibly high rates.

And I have not heard the advocates of more borrowing to suggest any credible offsetting mechanism that would lead to repayment (not replacement with other borrowing) of this extra debt at or before maturity. But then the idea "let's borrow now because it's cheap" becomes seriously flawed.

I would compare those who advocate such outright borrowing without committing to credibly repay at maturity to people who fall for teaser mortgage rates and are rather negatively surprised to see the rate adjust later. It is interesting though that there seems to be a large positive correlation between people who advocate government borrowing because rates are low NOW, and those who call for protecting consumers against reckless lenders who tease them with a low temporary rate. To quote a famous Canadian singer, Isn't it ironic?

Airports in Germany have come up with an unusual approach to monitoring air quality. The Düsseldorf International Airport and seven other airports are using bees as “biodetectives,” their honey regularly tested for toxins.

...Beekeepers from the local neighborhood club keep the bees. The honey, “Düsseldorf Natural,” is bottled and given away as gifts.

The article is here and I thank David Wessel for the pointer.

1. Chuck Close and face blindness.

2. C'mon on, pick a number!

3. Economics of medical marijuana.

4. Free trade vs. protection, Gaza again.

5. Do human rights abuses spur liberalization?

6. More on Nazi fiscal policy.