Original post:
From Marginal Revolution:
Izabella Kaminska’s counterintuitive model of the modern world
1) Because of the safe asset problem there is a diminishing return — or even negative return — to QE at some point. In fact, rather than being inflationary, it becomes deflationary.In the comment section Marginal Revolution's usually perceptive, articulate and good looking commenters don't acquit themselves well on this post.
2) Interest on reserve policy is actually designed to counteract this deflationary — and negative rate inducing — effect. In fact, IOER, or the ability to hold reserves at the central bank for no negative interest cost, shows that central banks are effectively supporting short-term rates rather than depressing them. If not for the ability to hold reserves at the central bank, then rates could very well be negative.
3) The crisis is in many ways a deposit crisis not a debt crisis. There are simply too many deposits seeking principal protection and not enough safe assets to protect against capital destruction by negative rates.
4) Negative rates are a function of global abundance (brought on by technological advances), and a trend that cannot be stopped even by the strongest central bank — unless society regresses backwards (like many goldbugs would seemingly desire). For rates to stay positive we have to hoard almost everything in the world form the people that need it, if it is to have value. The artificial scarcity tactics that have been used through the ages to achieve this, are getting harder to execute because of technological liberation — which is enabling the emergence of collaborative economy which bypasses rates of return....MORE
For me most of what Izabella is formulating makes sense at the empirical level, you won't construct an idiotic trade by following her precepts, and any differences I have are on the order of trifles.
I don't care how beautiful your equation or how elegant your model, if it leads you to results at variance with objective reality i.e. costs you money at the market, it is not worth a minute's thought.
Give me empirical every time.
Where she runs into trouble is:
1) a failure on the part of most of her critics to understand this is a work in progress, that unlike Athena the goddess of wisdom, courage, inspiration etc. it didn't spring forth fully formed from Zeus' forehead.
2) Sometimes words are not precise enough to capture the nebulous and veiled workings of Central Banks and economic actors who don't want to be understood.
Instead of taking the aggressive "Baffle 'em with bullshit" approach popular in academia to elide over those spots where the evolving theory is less developed, she leaves spaces in the conversation which in turn leaves her open to critiques on those very salients poking into no-man's-land.
I once referred to what she's trying to do as "The Theory of Everything":
Okay, maybe not everything but quite a bit of what is important.
You've got your comparative advantage, your manufacturing technology, mercantilism as policy, why the U.S. and Japan parted ways in 1990, inflation pressures, negative real interest rates and domestic asset bubbles along with hope and fear for Africa and what's up with China.
From Izabella Kaminska at FT Alphaville...Since we're dealing with opinion as well as academic discipline there is room for disagreement.
Me, I just turn on the ChomskyBot:
Look On My Words, Ye Mighty, And Despair!
It may be, then, that the systematic use of complex symbols is not to be considered in determining nondistinctness in the sense of distinctive feature theory. Comparing these examples with their parasitic gap counterparts in (96) and (97), we see that a case of semigrammaticalness of a different sort does not affect the structure of irrelevant intervening contexts in selectional rules. Conversely, a subset of English sentences interesting on quite independent grounds is necessary to impose an interpretation on the requirement that branching is not tolerated within the dominance scope of a complex symbol. If the position of the trace in (99c) were only relatively inaccessible to movement, any associated supporting element is rather different from the strong generative capacity of the theory. We will bring evidence in favor of the following thesis: the natural general principle that will subsume this case is, apparently, determined by a descriptive fact....A brief pause as the bot takes a deep breath and reloads:
Analogously, the notion of level of grammaticalness does not readily tolerate nondistinctness in the sense of distinctive feature theory. It may be, then, that the appearance of parasitic gaps in domains relatively inaccessible to ordinary extraction is not quite equivalent to a descriptive fact....Or, from last year's "Traders Copy Academics Who Copy Traders: “Does Academic Research Destroy Stock Return Predictability?”":
*Half the time I can't figure out if a study is worthwhile or not.
In our September 11 post "We Are Now One Year Away From Global Riots, Complex Systems Theorists Say" I mentioned:
Always reminding ourselves that just as using the tools of markets (bid/ask etc.) does not make cap-and-trade market-based, using the tools of science (maths) does not make sociology a science.I tease my Sociology/Anthro/Psych friends with the Sokal paper.
Economists can use a lot of math and the great majority failed to forecast the recent unpleasantness.
Still we remain hopeful that we can make a buck or two from the Complex Systems Institute's output.
Plus, the NECSI faculty seem pretty credentialed and could probably get away with an actual argumentum ad verecundiam rather than the fallacious type....
...Combined with being at the market for pretty much my entire adult life, focusing on energy and ag, and thinking that Alan Sokal's "Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity" was hilarious, I end up with plenty of solitude at parties....
Alan Sokal is a professor of mathematics at University College London and professor of physics at New York University. Back in 1996 he submitted "Trangressing the Boundaries..." to the journal Social Text and got it accepted by said learned Journal. His paper argued that quantum gravity is a social and linguistic construct and was, of course, complete gibberish. The paper is among the most cited in the field with some 900 cites at last count. It's also created a cottage industry of critiques and commentary.
Good yuks at the expense of the humanities folks, right?
Ahem...
In August the peer-reviewed (which Social Text was not) Journal, Advances in Pure Mathematics, accepted for publication “Independent, Negative, Canonically Turing Arrows of Equations and Problems in Applied Formal PDE”.
The paper was computer generated and was, of course, gibberish.**
If the journal of an academic discipline can't figure this stuff out, how the heck am I supposed to?
So we attempt to link only to stuff that we think we understand.
HT chain on "Independent, Negative, Canonically...:
FT Alphaville > Marginal Revolution > the suspiciously named "Mathgen"
** Here’s a snippet:
