Should I read Casey Mulligan's book?

Casey Mulligan has a new book out, called The Redistribution Recession, advancing his unorthodox ideas about the cause of the Great Recession. Tyler Cowen is a big fan, writing:

To get to the point, [Mulligan's book] is quite good...there are only a few readable books which integrate actual empirical research with a look at the Great Recession.  This is by no means the whole story, but this is a book which anyone seriously interested in the topic should read.

Should I read this book? Well, it does seem interesting, and it comes highly recommended. I'm sure I'd have lots to say about it. On the other hand, I do have limited time; I can't read every pop econ book that comes across my computer screen.

I already know some of what the book will say, since it appears to incorporate many of the ideas that Casey Mulligan writes about on his blog. His central thesis - that unemployment insurance, food stamps, and other government benefits caused the Great Recession - has always seemed highly implausible to me, for three reasons:

1. There was no big policy change preceding the recession, and hence any effect of government policy would have had to be forward-looking; in other words, Mulligan's thesis requires that workers stopped working because they expected Obama to be elected president in 2008 and increase govt. benefits. That seems quite implausible to me.

2. Real wages fell in the crash of late 2008 and early 2009. Later they partially rebounded, but overall their  growth in and after the crash was quite sluggish. Lower wage growth means there is no shortage of labor; if there were a shortage, we'd see wage growth increase. So negative shocks to labor supply, of the kind postulated by Mulligan, can't be the whole story.

3. The recession was global in nature; in many countries, it was worse than in the U.S. Given the wide diversity of policies, pre-recession policy changes, and post-recession policy responses, it seems logically impossible that policy could explain the global phenomenon. Perhaps a policy shock in the U.S. caused contagion that spread to other countries? If so, their recessions should look much different than ours.

I am not the first to make these points; John Quiggin (see also here) and Paul Krugman have already noted these things.

If Mulligan's book explicitly addressed the three critiques, I'd read it. But so far, I have heard nothing to indicate that it does so. On Point 1, Mulligan is silent, pointing only to the levels of benefits after the recession was already well underway. Point 2 has been made before, but Mulligan hasn't really responded to it. And on Point 3, Mulligan simply waves his hand and says "If you think other countries are important, you go study them and tell me what you find."

So without directly addressing these three points, Mulligan's thesis does not pass the smell test. And I don't have time to read books whose theses don't pass the smell test.

Which is a shame, because I suspect that Mulligan has actually uncovered some important and interesting facts about the labor market. The seasonal behavior of employment is weird. The growth of wages over the 2008-12 period, even though it was too sluggish to indicate a labor supply shortage, is interesting. Is the labor market segmented? Is real wage growth sticky? Those are important questions! And after having studied the subject, I'm not at all convinced that we really understand how labor markets work (I'm sure Robert Shimer, for example, who is one of the best and most serious labor-macro economists, would agree with that statement).

But Mulligan seems less interested in pointing out weird facts about labor markets - which would tend to invalidate mainstream theses about how those markets work - and more interested in pushing an alternative grand overarching thesis that doesn't really make sense. Instead of saying "Hey, here are some facts that throw a wrench into the Aggregate-Demand-and-Sticky-Wages theory of unemployment!", he instead says "Unemployment is caused by government benefits encouraging people to take vacations."

Why does he try for the more ambitious goal of explaining the world, instead of the more intellectually defensible but limited goal of disrupting existing theories? It's pretty obvious that politics is involved. Most conservatives naturally want to believe - they desire to believe - that we live in a world in which economic problems are caused by the laziness of the poor and the misguided redistributive instincts of liberal Robin Hoods. Mulligan purports to give them a reason to believe this. The title of the book - "The Redistribution Recession" - should leave no doubt as to the book's target audience.

When I have a strong reason to believe that a book's thesis is overstated for political appeal, I naturally view the author's evidence with more suspicion. That doesn't mean I discount the evidence, or the arguments. But it raises the hurdle for whether or not I decide to commit the time and effort to read a book.

So Casey Mulligan may be right about some things, or have some good points. But unless I hear a lot more of the details, I am going to overlook and ignore those good points, because A) the thesis doesn't yet pass the smell test, and B) the book has a bit too much political appeal for my taste. My apologies.

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New Atlantic column: Who will be better for the economy, Obama or Romney?

I have a new column up in the Atlantic, which tries to answer the question of "Which candidate will be better for the economy?". The short answer: We don't really know, since there are so many things we don't know about candidates, politics, and how the economy really works. But there are a few issues on which Democrats have consistently proven themselves to be more responsible and sensible than Republicans over the past thirty years, and there is no reason to think these patters will change soon. From the column:

1. The National Debt...Since the national debt began climbing in 1981, a clear partisan pattern has emerged: Republican presidents have tended to expand the deficit more than Democratic ones...Has the pattern been broken [under Obama]?...[There is] a hugely important difference between Obama and his debt-ballooning Republican counterparts - Obama's deficits have come during a historic recession, while Reagan and Bush borrowed money while the economy was expanding...So Obama's deficits at least might be a temporary phenomenon, while the Reagan and Bush deficits were clear indicators of a short-sighted, unsustainable policy...This suggests that if we care about reversing the deficit once the economy recovers (as it now seems to be doing), we should go with Obama over Romney, despite Obama's large deficits... 

2. The Full Faith and Credit of the U.S....In 2011, Congress' near-failure to raise the debt ceiling nearly precipitated a default on a portion of America's national debt....Four days after the debt ceiling deal, Standard & Poor's downgraded their rating of U.S. government debt...Why should we blame Republicans for the debt ceiling debacle, rather than President Obama?...First, congressional Republicans repeatedly rejected Obama's attempts at compromise... Second, Republicans themselves expressed a blasé lack of concern about the prospect of default...Romney's membership in a party that reduced the value of the full faith and credit of the U.S. government is a reason to vote for Obama. The off chance that the GOP would actually tolerate a sovereign default is enough to tip the scales strongly in favor of the Democrat... 

3. Public Goods...Our crumbling infrastructure received a "D" grade from the American Society of Civil Engineers in 2009. Obama's 2009 "stimulus" bill plugged some of the gap, but a more sustained effort is needed. However, Romney's budget plan includes large cuts in the part of the budget that pays for public goods, and Republicans in general have shown very little inclination to repair our aging roads, bridges, electrical grids, and ports... 

I say we focus on the areas where we have good evidence. On the issues of fiscal responsibility, debt default brinksmanship, and infrastructure spending, Democrats have come out looking better than Republicans again and again since 1980. There is no reason to think that Mitt Romney would change the Republican side of that pattern. Barack Obama is the safest bet.

Now, note that I am trying to be objective here, and wear only my economist hat. I personally have a lot more reasons to vote for Obama - social issues in particular. But even when we just talk about the economics, I think Obama comes out looking like the more rational choice.

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How not to criticize Japan

I will be the first to tell you that Japan has serious problems. Chief among these, in my estimation, are A) a dysfunctional labor market, B) institutional support for unproductive companies and company divisions, C) poor corporate governance, D) a dysfunctional political system, E) underemployment of women, and F) the large national debt. Obviously these tend to reinforce each other, leading to a bad equilibrium.

But the way to untie this Gordion Knot is not to simply start wringing our hands and flailing about in every direction, blaming any trend or story upon which we happen to lay our eyes. Unfortunately, this approach to Japan analysis is relatively common in the Western business press. For example, consider this article in MarketWatch. "Once a powerhouse, [Japan is] withdrawing from the world stage," the subheading laments. Here are some excerpts:

“That’s about right,” [a friend living in Tokyo] said, “battered by deflation and a overly strong currency, the Japanese have concluded that they can’t compete with a rising China and are withdrawing into themselves.”... 

Japan’s 27-year long dominance in machine-tool production came to an end two years ago. China, where production costs are 40% lower, has seized the top spot even though the Japanese emphasize that they continue to lead in quality. 

Pummeled by a strong currency and two decades of deflation, Japanese companies are shifting production to China and elsewhere. Japan’s industrial core is eroding and threatened with being hollowed out... 

What went wrong? How did a nation with world-class companies, a highly educated work force, and a well-deserved reputation for efficiency and discipline descend into protracted decline? 

Since Japan’s asset bubbles burst over 20 years ago, policy makers have persistently fiddled with the levers of monetary and fiscal policy but their efforts have spectacularly failed... 

Meanwhile, the exchange rate of the yen, regarded as a reflection of the nation’s economic health, has steadily appreciated from the 227 to the dollar that prevailed in 1983 to a mere 78 yen today...At any rate, the currency’s rise has done little to reduce Japan’s chronic balance of payments surplus... 

Meanwhile, the brutal deflation that accompanied the bust persists. Falling prices have translated into massive wealth destruction... 

Japanese officials counter that they’ve tried monetary stimulus, including zero interest rates and quantitative easing, but had meager results... 

The most troubling aspect of Japan’s malaise may be psychological...Japan seems to have its lost its self-confidence along with its drive for economic leadership.

A few points.

1. Why do people think Japan ought to "compete" with China? Just because they are both East Asian countries? Why does the growth of China's economy threaten the health of Japan's economy?

And what does "compete" even mean in this case? Does it mean - as the author hints when he talks about machine-tool manufacturing market share - that Japan ought to try to make sure its companies hold dominant global market share positions over China in every conceivable industry? That would go directly against the strategy advocated by Michael Porter, Hirotaka Takeuchi, and Mariko Sakakibara in their book Can Japan Compete?, in which they identify lack of specialization and blind pursuit of market share as flaws in the Japanese corporate model.

2. Machine tools? Why machine tools? Is a country's economy on the wrong track if it doesn't have the #1 global market share in machine tool manufacturing? Can there only be one successful economy in the world at a given time, defined by who is manufacturing the most machine tools? If so, the U.S. and Germany and Canada and Singapore are all out of luck.

Or is it just because Japan used to be the #1 machine tool manufacturer? Does loss of marketshare leadership in one industry indicate general economic decline? Should be worried that Japan is no longer the world's leading manufacturer of paper doilies?

I just don't get it.

3. Why is a "strong" yen bad? OK, it hurts exporters. But it helps importers and consumers. Don't we always hear people saying that a "strong dollar" is an indicator of America's economic strength? Why should Japan be exactly the opposite?

(Note: although this author cites a study claiming that the yen is overvalued, most studies say that it is fairly valued.)

And if Japan's balance-of-payments surplus is a problem, why should the yen weaken? That makes no sense, since a weaker yen would tend to increase the balance-of-payments surplus.

4. Monetary policy did nothing? Well, maybe. But from where I'm sitting, it sure looks as if Japan's quantitative easing in the early 2000s was quickly followed by a burst of good economic performance (the "Koizumi boom" in 2004-7). Now, correlation does not equal causation, but to conclude that monetary policy is ineffective seems a bit ridiculous to me, especially when sustained low real interest rates will be necessary to erode Japan's mountain of debt.

5. Deflation causes wealth destruction? Well, maybe it does, by restricting economic activity. But I don't think that's what this author is talking about. I think what he's doing is identifying consumer price deflation with asset price deflation. In fact, the two are completely different things. The U.S. experienced low inflation in the 1990s, but asset prices soared. Deflation may cause wealth destruction via macroeconomic effects, but it does not equate to wealth destruction.

6. And now we get to the part at the end when the author finally answers his own question of "What went wrong?". "The most troubling aspect of Japan’s malaise," he declares, "may be psychological."

That would play well in a 1980-vintage Ronald Reagan stump speech. But how the heck does this author (who lives in Washington and works for a Hong Kong newspaper, by the way) have any idea that this is the case? How does he know that Japan's psychological pessimism is a cause of poor economic performance rather than an effect? I'd be pretty bummed if my economy was stagnating! (Actually, that is not exactly an "if" at this point.)

The idea of persistent psychological malaise - a lack of "animal spirits" - is an old one, and a tempting one. Wouldn't it be neat if macroeconomics were all about national will? If all we had to do to bring back robust growth was to turn that frown upside down, chin in, chest out, nose to the grindstone, when the goin' gets tough the tough get goin', get busy livin' or get busy dyin'? Maybe if Japan had a Ronald Reagan to stand in front of a flag and tell them that everything was going to be OK, then their dysfunctional labor markets, corporate governance, and politics would vanish like so much smoke on the breeze?

OK, obviously I kid. But explaining Japan's problems in terms of the "national mood" doesn't seem very helpful to me. (And in fact, some of my own research indicates that happiness probably doesn't exert much of a pull on the economy at all!)

Basically, writers like this analyst are speaking to a very particular audience: foreign investors looking for a simple story to tell them whether to pull their money out of Japan. The dominant narrative coming out of Japan is one of general doom and gloom, and people like to read things that reinforce the dominant narrative, because people like to feel sure about things. So articles like this thrive because they pick out random facts - machine-tool market share! - and buzzwords - psychological malaise! - that seem to support the narrative. The problem is, this sort of reporting doesn't help anyone think carefully about what Japan's problems really are, or how to fix them. All this hand-wringing does is to encourage the very malaise that it decries.

Not that I think that articles like this are taken seriously by members of the policymaking elite, of course. But they still annoy me.

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Why predict percentages?

"I'll bet you $20 that there's a 70% chance that Obama will win the election."

That's a bet nobody will ever collect on, because it's impossible to verify a percentage chance of something. So why do forecasters like Nate Silver - and any bookie or oddsmaker - say that there's a 70% chance of Obama winning? Why don't they just make an up-or-down prediction?

The answer is: Those percentages give you information to the extent that you believe in the forecaster. If you believe that Nate Silver's model is the best available forecast of the election results, then you believe that the odds he gives are the "fair" odds. Knowing the fair odds will help you hedge properly against the chance that Obama or Romney will be elected president, say for example if you have a business whose livelihood depends on policy. It might also help you make a buck on InTrade, especially if you believe that things like market manipulation can make those prediction markets temporarily inefficient.

But will those odds tell you whether to believe in a forecaster? Surprisingly, the answer is "maybe". The main way to ascertain how good a forecaster is is to observe a repeated sample - just watch the forecaster make 100 forecasts (of who will win, not of what the odds are!), and observe how often (s)he is wrong. This is the main way that you tell how good a forecaster is. But it isn't the only way. If you look at the forecaster's odds and find that they move in predictable ways, then you know that the forecaster could have done a better job. After all, why predict a 70% chance today when you have good information telling you that it will change to a 78% chance tomorrow? Just predict a 78% chance today!

So the odds can be useful in evaluating forecasters, as well as in making use of forecasts.

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Does the "Entrepreneurship Subculture" prevent big ideas?

Try this: Think of an animal that isn't an elephant.

What was the first animal you thought of? For a hefty fraction of you, it was probably an elephant. But if I had just said "Think of an animal", only a few of you would have thought of an elephant. The moral of this story is that when you try to fixate on "thinking different," often you just fixate on the same-old, same-old.

This is a colloquial description of a line of research by Steven M. Smith, a cognitive psychologist at Texas A&M University (disclosure: Steven M. Smith is my father). In this book chapter, Smith describes how "initial ideas" can constrain creativity. The results are best summed up by this abstract (omitted from the final draft):

The first ideas to be considered during creative idea generation can have profoundly constraining effects on the scope of the ideas that are subsequently generated. Even if initial ideas are intended to serve as helpful examples, or they are given simply to get the creative process going, the constraints of initial ideas may be inescapable. Such constraints can impede successful problem solving and inhibit creative invention. Overcoming these constraints can be enhanced by reconsidering initially failed problems in new contexts.

Here is another paper by Smith, along with Nick Kohn, detailing how group brainstorming can lead to "collaborative fixation", in which everyone in the group starts fixating on whatever ideas get suggested first.

Why am I bringing this up? Well, in the past few years, I've been reading - and hearing - a lot about the Entrepreneurship Subculture. You all know what this is. It's mostly young people, mostly in urban areas (especially SF and NYC). It's mostly (but not exclusively) made up of entrepreneurs in the fields of technology and media. It includes media outlets like TechCrunch, books like The Lean Startup, "incubators" like YCombinator, forums like Quora, and other outlets like the TED and TEDx talks. I myself have come in contact with this subculture just by dint of being friends with a lot of engineers, and with Peter Chang, whose own venture-funded media startup covers a lot of entrepreneurship-related events out in the Bay Area.

At this point, given the often combative nature of this blog, as well as the title, you might expect me to reveal that I am a detractor of the Entrepreneurship Subculture - a hater, so to speak. But that is not the case. I love the Entrepreneurship Subculture. The sheer intellectual energy of the movement is intoxicating. The people are, by and large, wonderful human beings. And the work being done by those involved in the Subculture is some of the most valuable stuff being done anywhere. In an age when much of highly-educated white-collar America spends its time performing unnecessary medical tests, trying to trick suckers into buying overvalued financial assets, or lobbying government for pork, the crowd at your local TechCrunch Disrupt conference are the real heroes of the economy.

But - as you may expect - I wonder if the Entrepreneurship Subculture isn't creating some unwarranted adverse effects. By putting entrepreneurs in such close and constant contact with each other, does the Subculture ferment creativity and cross-collaboration? Probably. But it also may inadvertently stifle creativity, by exactly the process that Steven Smith's research describes. Working in incubators, attending entrepreneur conferences, reading entrepreneurship publications, and talking constantly to other entrepreneurs may cause "collaborative fixation". Everyone will end up thinking of the same stuff, even if they try to think of something new and differentiated. Especially if they try. 

If that happens, what we'll see is a lot of "me too" products. A social network for miniature terriers. Yet another mobile social local photo sharing app (that line is plagiarized from somewhere, but I can't remember where). Not the kind of big conceptual breakthroughs that really disrupt the industrial structure. Not the kind of big ideas that build really huge and successful companies.

This is important because America needs good entrepreneurship - and especially good tech entrepreneurship - more than ever. Rates of new business formation are falling. The venture capital sector is not making good returns (though much of their profit may have simply been taken by angel investors). And then there is that Great Stagnation. 

So what is the solution? How can we make sure that a Subculture designed to ferment entrepreneurship doesn't end up accidentally encouraging groupthink? Smith's research suggests a way out: a change of context. Give entrepreneurs a break. Send them out into the wilderness - to other countries, or to small towns away from the beating heart of innovation. Or just encourage them to spend periods of time away from the Subculture, avoiding conferences, not talking to other entrepreneurs, not reading TechCruch. Have them live life, read some science fiction, visit factories and farms and retail outlets and non-tech office parks. Have them talk to friends (or just make friends) who work in other areas of the economy. Get them out of the bubble. Have them write down ideas, keep diaries, etc. I strongly suspect that when they come back, many of them will have new, weird, different ideas that they would not otherwise have had.

A famous Japanese artist once told me "It's impossible to think of anything new in a city." I countered "Yes, but it's hard to collaborate out in the country." We agreed that one needs to alternate. In the same way, I think that the Entrepreneurship Subculture should emphasize the importance of changes in context. Disrupt your own ideas.

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Apple and Sony: an eerie parallel?

(Note: This post is a break from "serious" econ blogging...)

OK, Don't go and make any financial trades based on this (or anything you read in any one blog post), but check this out:

Charts courtesy of Yahoo Finance, idea courtesy of my friend Dayv Wachell.

It's well known that Steve Jobs idolized Sony, especially its founder Akio Morita. Morita was a Jobs-like figure, maniacally focused on design and on pleasing the consumer (while his partner, Masaru Ibuki, the Wozniak of Sony, handled the initial technical wizardry), and loved by the public. Sony even inspired Jobs' wardrobe.

There are other parallels. Sony's big break was a portable music device; so was Apple's. Like Apple today, Sony in the 90s was known for having cult-like fans in its domestic market; these "Sony-heads" would essentially buy anything that Sony put out, even as the company's image slipped internationally. I've even heard people allege that those fans provided the company with a profit cushion that allowed it to ignore problems on the horizon.

In any case, when Sony's charismatic founder died, the firm was at the top of its game, and on top of the world. After Morita's death in October of 1999, Sony's stock price rose dramatically, only to crater a few months later.

Since Steve Jobs' death a year ago, Apple's stock has soared. But is there a parallel here? Is Apple's recent downtick the start of the kind of epic fall suffered by Sony in 2000? If so, that'll be kind of neat.

As I wrote at the top of this post, the point here is not to say "Apple = Sony! Sell!" Don't do that. (If you're interested in trading Apple stock, go be an Apple analyst; otherwise, keep your money in a nice diversified portfolio and trade only once per year.) The point is to wonder about the effects of iconic founders. Do celebrity founders who reach the iconic status of a Jobs or a Morita endow their companies with fat profit margins, by creating a group of super-fans who would pay $600 for a brick as long as it sported the company logo? Does a diehard core of super-fans lead a company to become complacent after the death of the iconic founder?

And does the death of an iconic founder lead to a predictable rise in a firm's stock price? Do investors implicitly believe - for a little while, anyway - that the "spirit" of an iconic founder lives on in the company he founded, causing them to overestimate the company's prospects, leading to a predictable crash in price? And can the timing of that price crash be predicted?

It's an interesting question, and one that's hard to evaluate econometrically, since iconic founders seem like they should be pretty rare. But maybe they're not as rare as I think, and someone out there will find a way to investigate this empirically and write a paper on it. In which case, any market-beating investment opportunity based on iconic founder deaths will promptly disappear...

Update: Apple has fallen to $550 since the writing of this post...

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Strategies for Querying Literary Agents

A friend of mine recently asked for advice on different ways to approach the task of querying large number of agents. She asked things like: Should I query them all at once? Or should I query them in groups? Or should I query them serially, one at a time, and wait for responses? If I query them serially or in groups, should I go with my favorite agents first (and then second-tier agents next, then third-tier and so forth)? Or should I query third-tier first, second-tier next, and first-tier last?

Let me kill the suspense by skipping to the bottom line. I told her to query in batches, backwards (third-tier first, then second-tier, and finally first-tier).

Now let's look at the reasons why.

Querying 100 agents all-at-once is the worst strategy ever, IMHO. First, I believe that a pitch should always be considered a work-in-progress. You should always be open to the idea that your query can be improved. Say you write a query this month (without sending it to anyone), then go on vacation, then come back to the query. There's a substantial chance that when you look at the query through new eyes, you'll see ways it can be improved. Or you might see mistakes in the original query, as written. Either way, think how disastrous it would be to copy-paste the original query and send it to everyone under the sun. Any imperfections in it will be propagated to all agents, and then you've blown it. Arguably, at least.

Also consider the possibility that your original pitch is simply taking the wrong approach. That's something you can discover by sending it to 20 or 30 or 40 agents. If you really believe the query is the absolute best it can be and you've selected agents carefully (to match what they're looking for), you should get at least one positive response out of 40 agents queried. If you don't, chances are good your query is fundamentally flawed in some way. You should consider whether a total rewrite is called for.

I've queried magazine editors, book publishers, and others in the past, and I've found from experience that a pitch can nearly always be improved. A direct-marketing pitch (which is exactly what you're writing) is something you hone and sharpen incrementally and continuously, preferably on the basis of testing. Sometimes you decide that an entirely different approach would be better. Don't foreclose that possibility by spamming out your first-generation query to everybody at once.That would be unwise.

Sending out queries serially and waiting for a response from each agent before moving on to the next one is simply impractical. Let's say agents take two weeks to respond, on average. (Which is ridiculous, because the true answer is closer to four weeks.) If you're planning on writing to 40 agents, it'll take you 80 weeks to get to all of them. I don't know about you, but for me, that would be impractical.

The reason I used 40 agents in the above example is that in the real world, agents respond positively to only two or three percent of cold queries. If you think you're in that category, you need to reach out to 40 agents, because a one-in-forty success rate is a two-and-a-half percent success rate.

Sending out queries in groups is the way to go, IMHO. But even if you adopt that strategy, you should still not blindly use copy-paste, because (again) if there are imperfections in the pitch, you need to find them early on, not when you've already spammed everybody. That means you should read each query before sending it out. Believe me, after 20 or 30 or 40 re-readings of something, you'll find flaws. Unless of course you're undeniably the all-time best writer in the universe and can reliably turn out perfection on the first go.

Here's why you should send batches to third-tier agents first, then second-tier, then first-tier last. (Unless of course you have a recommendation from someone significant, like a bestselling author who already works with the agency in question. If you have that, contact that agency first.) Usually your first tier will contain a lot of top-flight agencies (in addition to containing the occasional boutique agency that just happens to be a special fit for your particular project). Top-flight agencies get phenomenal quantities of queries. They have more good material to choose from than bottom-tier agencies. Thus, your level of competition is very great when you go to a top agency.

The way to beat the competition (if you don't come with a recommendation that really counts) is to come at the first-tier agency with an offer already in hand. This usually gets the agency's attention.

So the strategy I would use is this: Send out your first batch of queries to bottom-tier agencies. If you get an offer of representation from one of those, tell the first-tier agency that you've already got an offer in hand but you want to consider the top-tier agency in question first, because you strongly prefer that agency and don't want to go with the other one unless you really have to. But don't reveal the name of the agency that you got an offer from, because the top-flight agency will likely assume that (since you're writing to top-flight agencies) you got an offer from another top-flight agency. And you do want them to assume this. You certainly don't want them to know that your offer came from some little-known one-person agency.

It's totally Kosher to pit one agency against another like this. I can tell you for a fact that this sort of thing is done all the time when agencies pitch books to publishers. They love to get an auction going. I did this myself once, many years ago. I had a firm offer (contract in hand) from Doubleday. Instead of signing the contract immediately (as most people would have done), I wrote to four other top-flight publishers, and in my pitch I told them I already had an offer from Doubleday. All four publishers sent me contracts immediately and begged me to sign. I had an auction going. (I finally went with McGraw-Hill.)

I hope this discussion has been useful for you. It was for my friend.

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