OCTOBER 16 2015

Phil Bunn, Lizzie Drapper, Alice Pugh, Jeremy Rowe, BoE: How important are households’ expectations for spending? If the car you’re thinking of buying may be £500 cheaper in six months’ time, why not wait until then to buy it? This kind of thinking is one reason why falling prices trouble central bankers. The spectre of deflation is especially dangerous when households keep delaying their spending in expectation of further price falls. With the economy experiencing close to zero inflation, households may have adjusted their expectations of future prices. But how important are these expectations in influencing household spending? Using a rich household survey dataset we find that while there is some evidence that lower inflation expectations lead to lower spending, income expectations (reassuringly) also play an important role, and they have picked up recently.

Kaarlo Reipas and Mikko Sankala, Finnish Centre for Pensions: Retirement age will rise as planned. According to the projects the Government bill on the 2017 pension reform will lead to retirement at a later age and a higher employment rate. As working lives are extended, the pressure to increase the earnings-related pension contributions will be alleviated and the average pensions will rise.  The Finnish Centre for Pensions projects that with the proposed amendments, the targeted average retirement age of 62.4 years (62 yrs and 5 mos) would be achieved in the mid-2020s.  Based on the projection, the average effective retirement age by the year 2040 will be 63 years and 7 months. In the long run, raising the old-age retirement age will raise the employment rate by approximately two percentage points. By 2040, the number of employed will grow by approximately 50,000 people, although the unemployment rate at the brink of retirement will also rise.

Tim Harford, The Undercover Economist: Peer-to-peer pressure. Are these new players providing a valuable new service or are they merely an arbitrage play? It was exciting, for a while, to realise that you could actually get a car home on a Saturday night in San Francisco, or make money renting out your attic, but the backlash has been simmering for some time. That backlash mixes two complaints, elegantly exemplified when a group of taxicab owners and drivers sued Uber in Atlanta a year ago. “Uber has been operating in Atlanta with little concern about the safety of their passengers and zero concern for the laws that protect them,” said one of the plaintiffs in a statement to The Atlanta Journal-Constitution. “Our incomes have steadily dropped since Uber started and legally licensed drivers are leaving the business.”

Ariana Eunjung Cha, Washington Post: Thought process: Building an artificial brain. Now 62 and worth an estimated $17.7 billion, the Microsoft co-founder is using his wealth to back two separate philanthropic research efforts at the intersection of neuroscience and artificial intelligence that he hopes will hasten that future. The first project is to build an artificial brain from scratch that can pass a high school science test. It sounds simple enough, but trying to teach a machine not only to respond but also to reason is one of the hardest software-engineering endeavors attempted — far more complex than building his former company’s breakthrough Windows operating system, said to have 50 million lines of code. The second project aims to understand intelligence by coming at it from the opposite direction — by starting with nature and deconstructing and analyzing the pieces. It’s an attempt to reverse-engineer the human brain by slicing it up — literally — modeling it and running simulations.

Cass R. Sunstein, The New York Review of Books: Why Free Markets Make Fools of Us.  Akerlof and Shiller believe that once we understand human psychology, we will be a lot less enthusiastic about free markets and a lot more worried about the harmful effects of competition. In their view, companies exploit human weaknesses not necessarily because they are malicious or venal, but because the market makes them do it. Those who fail to exploit people will lose out to those who do. In making that argument, Akerlof and Shiller object that the existing work of behavioral economists and psychologists offers a mere list of human errors, when what is required is a broader account of how and why markets produce systemic harm.