Monday, May 12, 2014

What caught my eye

1. Recessions according to Hayek and Keynes;
2. Network neutrality;
3. Vaccines and autism;
4. Spain issues inflation-linked bonds;
5. The Fed was way off.

1. Reconciling Hayek's and Keynes' views on recessions (NBER working paper). I can't find an ungated version. Please email me if you do.
Abstract: Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions mainly reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. We show why and how liquidations can produce periods where the economy functions particularly inefficiently, with many socially desirable trades between individuals remaining unexploited when the economy inherits too many capital goods. In this sense, our model illustrates how liquidations can cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes' and Hayek's views of recessions may be much more closely linked than previously recognized. In our framework, interventions aimed at stimulating aggregate demand face the trade-off emphasized by Hayek whereby current stimulus mainly postpones the adjustment process and therefore prolongs the recessions. However, when examining this trade-off, we find that some stimulative policies may nevertheless remain desirable even if they postpone a recovery.
2. Everything you need to know about network neutrality, applied to the internet, in 17 easy-to-read cards, from

3. Clear, eight-minute review of the evidence (or lack thereof) on the link between autism and vaccines. Thanks to and

4. Spain is issuing bonds linked to eurozone inflation, for the first time ever (link to El País article in Spanish, article in English from Bloomberg). A couple of years ago PIMCO published a viewpoint on the eurozone inflation-linked bond market. Market conditions have changed dramatically since then, but it's worth keeping some of PIMCO's concerns in the backs of our minds.

5. John Cochrane re-posts a chart of the Fed's forecasts vs actual growth, by Torsten Slok at Deutsche Bank. If the Fed, employing a flock of highly qualified economists, gets the forecasts so wrong, what's the hope for any individual, somewhat-less-qualified private forecaster?

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