Weekend Papers: Parts I and II (skittish bond markets and phone records)

June 8th, 2013 at 3:01 pm

Family’s away, can’t do yard work given the rain (well, could do some, but don’t want to), so better to sit on the back porch with an intravenous coffee feed and blog the weekend papers…right?

More on Skittish Markets: Check out the figures in this piece on another dimension of skittish markets as per my commentary earlier in the week: tanking bond prices.  As bond yields begin to rise—because the must, they should, and they will—their price moves inversely.  But it’s striking how sharply they’ve turned.

The broader economic lesson here is one of my favorites because it’s one of the most interesting aspects of relationships between economic variables: non-stable elasticities.

Economists often cite elasticities–how one variable moves relative to another–as if they’re etched in stone: an A% increase in unemployment leads to a B% decrease in inflation; an X% increase in the minimum wage leads to a Y% change in employment (with “Y” tiny, but that’s another story); a R% increase in bond yields triggers an S% decline in bond prices.  But B, Y, and S are not fixed!  The change with underlying conditions, demographics, policy, and more.

The large elasticity documented in the article—the movement in bond prices with respect their yields—is especially large at turning points, and is even further amped up by the length of time that bond rates have been so historically low.

So I humbly submit that you keep this lesson in mind: if a price or an interest rate or some other important economic variable has been where it is for a long time—and in financial markets a long time isn’t necessarily that long—and it starts to change course, or even people think it’s about to change course, be prepared for a much larger response in related variables than you were expecting.

We (really don’t) welcome this debate!: I don’t like to stray too far from my econo-lane here at OTE and I’m still trying to sort out the NSA phone-record issues that have dominated the press in recent days.  As the President stressed yesterday, there’s a privacy/safety tradeoff here, but they can’t say much about it because it’s all secret–that may be true but it’s inherently confusing.  In  a similar vein, the growing magnitude of the NSA’s capacity in this space could lead you to feel safer re terror or more worried about its impact.  One thing you can be certain of is that size in these matters is inversely correlated with ability to manage and control the mission.

But there’s one piece of hypocrisy that unequivocally pissed me off yesterday and I see Gail Collins has it today:

“I welcome this debate,” Obama said Friday. “I think it’s healthy for our democracy.” Under further questioning, he said that he definitely didn’t welcome the leaks. Without which, of course, there would be no debate.

I get the spin, but come on. I’m not saying it’s easy or even possible to engage the “American people”—all 310 million of us, in a national debate about this privacy/safety tradeoff.  But that is the way to proceed in a democracy.  If you can even get a partial buy-in from the majority before you undertake stuff like this, you can avoid the bad headlines and more importantly, loss of trust.

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4 comments in reply to "Weekend Papers: Parts I and II (skittish bond markets and phone records)"

  1. Kevin Rica says:

    I disagree when you say:

    “Economists often cite elasticities–how one variable moves relative to another–as if they’re etched in stone:”

    You mean econometricians — not economists. Anyone who is a real economist knows the difference between a point elasticity (what econometricians estimate) and arc elasticities. They also know that even as you move along a straight line supply or demand curve that the elasticities are changing. The elasticities are higher at the top of the curve than the bottom.

    Econometricians don’t know that because they have taken a different fork in the road and no longer think like economists regardless of their undergraduate major.

    • Jared Bernstein says:

      Fair point. And even econometricians are getting better–eg, they now estimate the TV-Nairu…not the one on television–time-varying.

  2. Tom in MN says:

    Senator Graham (as R) says he does not see the problem with NSA keeping track of who he calls. Doesn’t he get the connection that if the IRS can target groups based on names, think what they could do if they connected all the R’s that phoned each other. These guys really don’t get freedom in the general sense, just freedom in the sense of what they want.

    It just like if they want to try to impeach the President, they could go after drone killings of citizens with no due process. But R’s like that, so no mention of it.

  3. Rima Regas says:

    I comment in the NYT daily. I commented on Gail Collins’ piece. It was not one of my most popular comments, as you will see from people’s replies to me, but it is how I feel.


    I blame Congress far more than I blame the president.

    Maureen Dowd is continuing her rage-filled vendetta in her op-ed entitled Peeping Barry.

    More of my views there, particularly about the position Obama is in and what might have happened if he’d done what he originally said he’d do.


    On the topic of engaging the public, Charles Blow had some interesting current and past polling data that shows the public’s feelings on the tradeoff. They’re not interested in giving up privacy. http://www.nytimes.com/2013/06/08/opinion/blow-of-slippery-slopes.html