Thursday, January 1, 2015

IW in 2014 (and a little from 2013)

Here are some of the IW posts that were most popular over the past year (and a little of 2013):


I have arrived at a contrarian position in housing.  I don't think homes were significantly overpriced in the 2000's and I think further increases in home prices are an important signal of continued recovery.  I don't care what home prices are.  I just think they have been held well below their intrinsic value during the crisis.  I don't have a well-organized list of posts for this topic.  The most popular posts are below.  Click on the "Housing" tag for others:

Real Interest Rates and the Housing Boom
Housing policy - please do the opposite.  (And the follow-up)

Posts on Finance

Rant about risk and recovery (Follow-up rant) (Compensation and risk premiums)
You should invest passively because markets are Inefficient (Follow-up)
Reshorings aren't happening - and that's a good thing
P/E Ratios, Equity Returns, and Interest Rates
Na├»ve Market Maker Strategy in Forward Interest Rates
Austerity in Recessions (Follow up)
Required Returns, P/E Ratios, and Wealth Illusion
Risk Premiums, Reputation, and Actively Managed Mutual Funds
The Yield Curve is a Call Option

Posts on Anti-Finance Cognitive Bias and General Nonsense

Policies are for Identifying Outsiders
Regulatory Predestination and the Right to Exit
The Allure of Design (Follow-up)
Extremely positive news on economic mobility
Villains have incredible power to make us stupid.
If we are the 100%, then who will be the scapegoat?
Median Incomes (also: Skewness in Lifecycle Incomes) (More)
Evidence is Optional with Finance Cynicism
Family Structure and Income
Abundance Requires Real-Time Knowledge of Scarcity

Distortions in the Labor Force

I have many posts on the relationships between unemployment insurance, demographics ,and employment.  Like with housing, I don't have a well-organized set of posts.  Here are the most popular:

Minimum Wage

I've written a lot about minimum wage.  This post has been, by far, the most read on my site:

I received a lot of feedback, and I spent several posts tweaking it.  Federal MW hikes tend to come in groups.  So, instead of treating each hike as a separate event, I treated each group as an event.  In the last post, I found what seems to be a systematic disemployment effect from minimum wage hikes, adjusted for the beginning level of RGDP growth.:

Here are a couple other of the more popular MW posts:
Menzie Chinn included the "Bad Luck" post on his year-end list of "Fantastical Pseudo-Economics".  Those last two posts were probably a bit too snarky.  But I find this whole thing pretty funny.  There were a lot of reactions to the first post.  One of them, which I thought was a bit ironic, was to say that (1) this one graph was way too simple to be able to come to any conclusions without doing some $600 statistical analysis, and also (2) you could tell just by eyeballing it that what was happening was that recessions just coincidentally had come on the heals of the MW hikes.  Looking more closely (in the three middle posts above), I found that the timing of recessions wasn't that regular, relative to the MW hikes, but I ended up trying to control for RGDP growth to account for any changes in economic trends.  As a kind of joke, I posted about what bad luck the MW had, because, time after time, there was either a recession, or for some other reason, workers kept dropping out of the labor force.  Menzie Chinn saw that post, and to show that MW hikes don't lead to labor crises, Dr. Chinn actually did a Granger causality test to show that recessions don't reliably come after MW hikes.  But, it was the critics of the original post, who were trying to minimize the finding, who were claiming that all of the minimum wage hikes were followed by recessions.  Maybe Dr. Chinn can let  Arindrajit Dube and Kevin Drum know what he found.

In the end, while I realize that my analysis isn't that sophisticated, I think it is clear that these episodes of serial MW hikes need to be treated as single events.  Employment demand is forward-looking.  Employment behavior has a pattern over the entire series, with job losses starting before the first hike and then recovering after the last hike.  Analysis that treats each hike as an individual event will treat the job recovery that begins after the last hike as if it is a result of the MW hike, when it is more likely to be the result of MW hikes coming to an end.


  1. Lots of thoughtful blogging.
    One nitpit on "at will" employment.
    In real life, employers who want to make sure an employee does not quit "puts him on contract." A one- or two-year contract, usually as a condition of employment. I suspect most employees would be delighted to have contracts, but know they will denied.
    Leverage, in real life , lies with employers and people who have money. That reality, however, does not necessarily necessitate state remedies.

    1. Thanks Benjamin. I'm sure you have a good point. I'm not sure the leverage comes from the strength of the employer, though. Larger, more powerful employers tend to pay more, if anything. Organizational inefficiencies are a pretty big mitigating factor to the relationship. I think the importance of the income to the worker is probably more important. So, it doesn't matter so much whether the employer is well-funded or large. The power position of the employee is weakened because they are so dependent on the contract.
      When we shop at, say, a Wal-Mart, we are also facing an overwhelming power imbalance. But, a store like Wal-Mart, bends over backwards to pretty much give customers whatever they ask for.
      The difference is that a roll of paper towels isn't that important to us one way or another. But, job security is.

  2. TravisV here.

    Thanks, Kevin, Happy New Year!!!

    1. Same to you Travis. I'm looking forward to hearing from you, Benjamin, and the other IW commenters in the coming year.

  3. Chin is a reliable source of quackery, in my humble opinion. To wind up critically regarded by him is a fine accolade, indeed.

    These old MW posts of yours were a pleasure to read and you did well to highlight them, fwiw.