That which is not dead doth sleeping lie (RBC edition)

The other day I had dinner with two prominent New Keynesian macroeconomists (whose names shall not herein be revealed). Both of them told me that the idea of technology shocks as the main driver of business cycles is effectively dead. At the same time, a number of Twitter people (Josh Hendrickson, Tony Yates, Ryan Decker, and Pedro Serodio) asserted that NK is the dominant school of macro. Other macroeconomists, like Chris House, have made the same claim.

I just don't think this is true at all.

Now, it is true - to my knowledge, anyway - that central banks use NK-style models (like Smets-Wouters), and don't use models where tech shocks are the main driver.

Also, I've recently seen people like Patrick Kehoe, Mark Bils and Peter Klenow - who had been known for their skepticism of the sticky-price mechanism - writing some papers giving more credence to the idea of sticky prices.

But in terms of academic publishing, the hot areas in macro seem to be A) labor search models, and B) financial-friction models. In both of those, you often see tech shocks as being the main driver.

The Diamond-Mortensen-Pissarides model, when it includes business cycles, includes them by adding TFP shocks. In other words, once you leave the steady state, DMP is just RBC with a matching friction. By my count, that makes two Nobel Prizes for RBC models and zero for NK. Actually, the vast majority of labor-search models I've seen, if they try to match business cycle facts, use the RBC mechanism to produce the cycles. The big exception I've seen is Christiano, Eichenbaum and Trabandt.

For financial-friction macro it's more even, as you definitely do have models that augment New Keynesian models with financial frictions - e.g. this one by Christiano et al., or this one by Curdia and Woodford. And of course there is Bernanke-Gertler, one of the original financial-friction models. But Kiyotaki-Moore, the other canonical financial-friction macro model I know of, uses RBC-style tech shocks as the single shock. And Brunnermeier-Sannikov uses what is basically a TFP-news-shock model. So here, the literature is pretty split, but RBC is alive and well.

But there are other macro-ish areas of research besides macro! There's international finance, where the models I've seen are all RBC-type models (caveat: my teacher for the international finance field class in grad school did her PhD at Minnesota). And when macro-finance asset pricing models bother to model production, they usually - though not always - use RBC-style tech shocks to make dividends and consumption move around.

So it seems pretty clear to me that RBC - defined loosely as "models where fluctuating TFP is the main driver of the business cycle" - ain't dead by any means. What's more, it seems unlikely that it will die for a good long while. Why? At least two reasons - A) ease of use, and B) familiarity.

First of all, productivity fluctuations are just plain easy to use. You can have constant returns to scale. You don't have to think about money or the aggregate price level. If you want to focus on other hard stuff, like labor search or banks, the easiest thing to do is just to use the simplest possible mechanism for the aggregate shock.

Second of all, everyone is really familiar with RBC, because everyone learns it before they learn any other type of shock mechanism (like NK). This is because RBC came first historically, because it's relatively easy to learn and understand, and maybe because of the enormous respect still given to the original RBC guys. So everyone knows how to use tech shocks, so they're the first go-to mechanism for many people.

So I think that all the people who pronounce RBC dead should think again. And NK's dominance is far from complete. If you don't believe me, just ask the Nobel committee!

Who Said It? (safe asset shortages edition)

OK, econ blogomaniacs, time for a quick little pop quiz. Here are two quotes from prominent economics bloggers. See if you can guess which blogger said which quote. No cheating!


Quote 1

"Though there are things that central banks can do in the face of safe asset shortages...a safe asset shortage is basically a fiscal problem. The safe asset shortage is reflected in binding financial constraints that imply the economy is non-Ricardian. Government debt matters, and an expansion in the stock of government debt can be welfare improving. Presumably this also implies a lower net cost of financing government projects, meaning that a safe asset shortage provides an opportunity for the government to finance education and infrastructure on the cheap."


Quote 2

"When the excess demand is for longer-term assets – bonds to serve as vehicles for savings that move purchasing power from the present into the future – the natural response is… induce businesses to borrow more and build more capacity, and encourage the government to borrow and spend…When excess demand is for high-quality assets – places where you can park your wealth and be assured that it will still be there when you come back – the natural response is to have credit-worthy governments guarantee some private assets and buy up others, swapping them out for their own liabilities and thus diminishing the supply of risky assets and increasing the supply of safe assets."


...If you got both right without Googling, then you're way too addicted to econ blogs.

The Omega Man

Time to write about a very uncomfortable subject that is also not anywhere close to my own area of expertise. A lot of people will be inclined to give this post an un-charitable reading, which is inevitable, so before you explode with rage, realize that A) I know I'm not any kind of an expert, and B) I might be saying something more nuanced than you think I'm saying. You'll probably explode in rage anyway, and I preemptively apologize for raising your blood pressure. I also apologize for the blatant heteronormativity of this post.

Anyway.

It seems to me that a big problem in the world consists of angry young men doing aggressive things. One example of this is terrorism. Another is online intimidation and harassment of women, like we've seen with #GamerGate. Another is random outbursts of violent crime. I don't know why young men are so much more prone to aggression than other groups - most people just wave their hands and say "testosterone", while I tend to just shrug and say "whatever". But anyway, it's a fact, and pretty much everyone knows it.

One thing I have sort of noticed, however - and here we leave the realm of well-established fact and enter the realm of Noah Talking Out of His Digestive Tract - is that when young men feel like they can't get sex, they tend to feel angry and resentful toward the world. Actually, I've noticed that women, when they feel like they can't get sex, also seem to feel unhappy and grumpy. But since young men tend to be more aggressive than their female counterparts (see previous paragraph), the frustration that comes from feeling like one isn't able to get sex seems often to translate into aggression in men, but far more rarely in women.

Note that I say "feel like they can't get sex" instead of "can't get sex", because from what I've seen, nearly anyone is able to get sex if they want. They may not be able to easily get sex with a partner whose quality - attractiveness, purity, status, hair color, whatever - they deem acceptable. But pretty much anyone can get sex. (As a half-crazed drug-addled hippie once told me in a Stanford co-op, "There's all this sex out there, and we don't even realize it!")

But basically, there are a whole lot of young guys out there who feel like they just can't get laid. They're wrong - totally, ludicrously wrong. But they really do feel that way. In current internet slang, these people are called "incels", which is short for "involuntary celibates." Whether this is an apt descriptor depends heavily on your definition of "voluntary," since incorrect beliefs still have power.

Why do these young men feel like they're incapable of getting laid? I have a conjecture - and here we wander dangerously into the realm of pseudoscience, but still, I have a conjecture. My guess is that these men feel that they have low social status, and that this makes them either 1) not attractive, or 2) not deserving of sex. In fact, this could be unconscious - some men seem to tacitly think of themselves as low-status men, and this gives them a general pessimism about their ability to succeed in any social interaction, be it friendship, sex, or business. These beliefs might have been solidified by being bullied as kids - I don't know.

Anyway, these men seem to fit into a social niche that is well-observed in some primate societies - the omega male. Of course, this term has already been incorporated into internet slang (sometimes confused with "beta male"), but like any scientific concept, it has been mutated, misapplied, overapplied, etc. Still, I think the concept is a useful one. In a college course (HAHAHAHAHA...OK now that we've got that out of our system), I learned that in some primate societies, gangs of omega males engage in violence toward females, while the big tough alpha males and their beta male lieutenants try to protect the females and chase off the attacking omegas. I don't know about you, but that image sort of reminds me of #GamerGate.

One interesting question is whether the angry young omega-males are angry because they are sexually frustrated, or whether their lack of sex is simply a signal that seems to remind them that they are low-status. I'm not sure about this - probably both.

So to sum up: There seem to be a lot of young men out there who are angry because they think they can't get laid, and who think they can't get laid because they think of themselves as low-status. And because of this, these men sometimes do aggressive things, alone or in groups, toward women.

Next question: What do we, as a society, do about this problem?

One idea I've seen some of these angry young men suggest - including in long, unsolicited emails to Yours Truly - is to turn women back into pieces of property, and then distribute them evenly to men via a restored norm of traditional patriarchy, possibly enforced by church-state cooperation and mass shaming. Needless to say, I think this idea is total and utter shit, and would be total and utter shit even if it had a hope in Hell of working, which incidentally it would not. In fact, when I hear this idea, I sort of have the urge to take whoever suggested it and pitch him off a cliff into a tar pit, but I guess that just shows that I, myself, still have traces of angry-young-man-itude.

A better solution, I think, is the elephant seal solution.

When I discussed the issue of omega males with Brad DeLong on Twitter the other day, he pointed out that "ω-bull elephant seals hang out at edge of beach & try 2 look attractive—don’t hate on elephant seal cows & chase them off". I don't know if elephant seals actually do this, but I also don't care that much, because everything I've seen in life tells me that this is a good solution for human omegas.

In other words, the resentful, angry, frustrated young men simply need to realize that they are plenty attractive, and that getting sex is really not that much of a problem once you actually go out and try to do it.

In theory, this is what PUA culture is supposed to do - turn "incels" into ladies' men. At first blush, this seems like the perfect solution - teach men how to be attractive to women! Just imagine a world in which all the lonely, under-confident dorky guys suddenly become confident, socially adept men who knew how to be the object of women's desires!

Unfortunately, the PUA movement doesn't seem to have accomplished this societal transformation. Why? Well, one reason is that although many PUA movement leaders, like Erik von Markovik, try to spread the (good) message that any man can be attractive if he just tries - an example of what Carol Dweck would call a "growth mindset" - other members of the subculture propagate the idea that only natural "alpha" males can ever succeed at the attraction game. In other words, these people (no, I'm not going to name names) have reinforced the omegas' insecurity about their own social status and sexual prospects, instead of alleviating it.

Other reasons include A) the fact that practicing being attractive goes against many people's religious and/or traditional values, and B) the fact that even well-intentioned PUA gurus like von Markovik are speaking mainly from their own experience, which - though impressive in scope - simply doesn't work for everyone. As a result of all these factors, many of the omegas resent the PUA subculture just as much as they resent women.

So basically, what I think we need is some new way of getting omegas to stop worrying about their supposedly low social status and learn how to go out and attract women instead of harassing and attacking them. We should teach the angry young human males to take a page from the book of the (alleged) sexy young elephant seal males. The goal is not just for them to get laid (though that's an important human activity), but for them to feel more confident, more worthwhile as mates, and less obsessed with social status.

Of course, I don't know how to accomplish that. But I think this is where our society needs to go. Angry young have to learn how to be attractive, but more than that, they have to learn that they're worthy of being attractive - that their low social status is a self-inflicted figment of their imagination.

Because the alternative method of dealing with the angry omegas is to keep having the alphas - i.e., the cops - continue throwing them off cliffs into tar pits when they get too violent. That solution works, but I wish there were a better way.

Anyway, once again, let me remind you that I don't claim to have any sort of expertise or special insight on this matter.