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July 2013

Alan Greenspan (June 18 , 2010): The U.S. Is too Greece!: Wednesday Hoisted from the Archives from Three Years Ago

Really very, very, very sad, along many, many, many dimensions…

Alan Greenspan: U.S. Debt and the Greece Analogy:

Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity: An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading. Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences….

Continue reading "Alan Greenspan (June 18 , 2010): The U.S. Is too Greece!: Wednesday Hoisted from the Archives from Three Years Ago" »


Noted for july 17, 2013

  • Evan Soltas: Corporate Debt and the Crisis: "Investors do not become especially averse to the riskiest bonds during a crisis, or at any time, which is something you might expect…. The slope parameter and intercept are important in their own respects. I think of the former as the market price of risk and the latter as the nominal 'riskless' interest rate…. The time series [of the slope] looks much like the CBOE volatility index, or 'VIX', a measure of expected volatility from options prices, or indexes of financial stress. Which is not surprising, as this is a measure of stress or risk in corporate bond markets…. The important conclusion here is that risk is, in a sense, homogeneous in corporate-bond markets. There is a 'single price' for that risk, after adjusting for concavity." Screenshot 7 16 13 6 47 AM

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Liveblogging World War II: July 16, 1943

Screenshot 7 16 13 4 41 PM

Erich von Manstein, Lost Victories:

The commander of Central Army Group, Field-Marshal von Kluge, reported that Ninth Army was making no further headway and that he was having to deprive it of all its mobile forces to check the enemy’s deep incursions into the Orel salient. There could be no question of continuing with ‘Citadel’ or of resuming the operation at a later date.

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Neera Tanden for Democracy Journal: Burying Supply-Side Once and for All

Neera Tanden for Democracy Journal: Burying Supply-Side Once and for All:
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Issue #29, Summer 2013 Burying Supply-Side Once and for All Neera Tanden To read the other essays in “The Middle-Out Moment” symposium, click here. If you are going to base all your efforts to win political power on a single economic theory, as conservatism has over the last 30 years, you might want to make sure it works. But that’s what’s so surprising about supply-side economics: Despite the fact that its central claim has been belied by decades of economic experience, it persists. Supply-side economics assumes that lower tax rates boost economic growth by giving people incentives to work, save, and invest more. A critical tenet of this theory is that giving tax cuts to high-income people produces greater economic benefits than giving tax cuts to lower-income folks. Essentially, the more money the rich are able to keep, the more the whole economy will grow. But the evidence reveals two fundamental problems with this story. First, its primary prediction is wrong—giving tax cuts to the rich does not increase economic output or create new jobs. Instead, tax cuts for middle- and low-income taxpayers are much more effective at boosting macroeconomic activity. Second, supply-side theory misunderstands the actual mechanism by which tax rates influence macroeconomic activity. While supply-siders maintain that lower rates at the top incentivize people to earn more money, the evidence shows that tax cuts boost output mostly by putting money in people’s pockets and thereby stimulating demand. These empirical findings carry an important lesson for our tax policy: Rather than increasing inequality by throwing away revenue on tax cuts for the rich, we should ensure that middle- and lower-income Americans have enough after-tax income to maintain strong consumption levels, especially during economic downturns. Moreover, by perpetually fetishizing tax cuts for the top rates, conservatives have disregarded other policies that are more effective at spurring economic growth. Given the mounting evidence against supply-side economics, it’s time for conservatives to go back to the drawing board and come up with a reality-based economic agenda. The Theory Behind Supply-Side Economics Supply-side economics starts with a reasonable intuition: If you let people keep more of the income they earn, they will have an incentive to earn more income. Based on this intuition, supply-siders predict that lowering tax rates will encourage people to work, save, and invest more by increasing the after-tax returns from these activities. And they conclude that all this additional working, saving, and investing will generate faster economic and job growth. Based on this story, supply-siders believe tax cuts will provide a bigger economic boost if they’re directed at rich people, as opposed to middle- and lower-income people. One reason is that rich people can afford to work less when tax rates are high, whereas lower-income people need to work enough to make ends meet regardless of the tax rate. Giving tax cuts to the rich therefore should generate a bigger uptick in work. A second reason is that economists typically think that people’s incomes correspond to the economic value of their labor. According to that logic, incentivizing a CEO to work a few more hours a week is thought to be more economically beneficial than incentivizing a janitor to work the same number of extra hours. A third reason is that rich people can afford to save most of their tax cuts, which in turn will increase investment. In contrast, lower-income people often need to spend the extra dollars. But the real question for policy-makers is whether modest shifts in the top marginal rates make much of a difference. Sure, taxing wealthy people’s marginal income at 95 percent may create a disincentive to make more money. But are rich Americans really going to work and save a lot less just because income above $400,000 is now taxed at 39.6 percent rather than 35 percent? Given the centrality of supply-side theory to conservative economic arguments, one might imagine we’d have plenty of historical evidence that rich people do in fact respond to such changes in tax rates. But the evidence is in, and it shows no such thing. History Proves the Supply-Siders Wrong The best place to start this empirical inquiry is to look at what actually happens when top tax rates change. Do growth and employment shoot up when high earners get a tax cut? Does the economy tumble when their taxes rise? At first glance, the historical record seems to offer little to support the supply-side story. Consider the last decade. In 2001, President Bush cut the top rate on capital gains and dividend income down to 15 percent from 20 percent—a rate that had already been reduced from 28 percent by President Clinton four years earlier—and cut the top rate on normal income down to 35 percent from 39.6 percent. And yet in the decade that followed we witnessed the worst economic performance since the Great Depression. From 2001 to 2008, before the crisis, economic growth was anemic at best, averaging 2.5 percent. By contrast, although the top tax rate was above 90 percent throughout the Eisenhower years, the economy grew at an incredible pace during the 1950s, with annual growth averaging more than 4 percent. And the jobs picture is even more stark: Under George W. Bush, total jobs grew only 0.8 percent during his term, while under Bill Clinton they grew by 20.7 percent, and under Dwight Eisenhower, 7.1 percent. Supply-siders often credit President Reagan’s huge 1981 tax cut with spurring robust growth in the ensuing years. But while growth was strong during the 1980s, it was stronger still in the years following President Clinton’s 1993 tax increase on top earners. Whereas GDP grew at an average annual rate of 3.5 percent during the seven years following the 1981 cut, it grew at 3.9 percent per year over the seven-year period following the 1993 tax increase. In addition, nonresidential fixed investment also grew at an annual rate of over 10 percent during those seven years, compared to a rate of less than 3 percent in the years following both the 1981 and 2001 cuts. At the same time, median household income and real hourly earnings both grew faster after the 1993 tax increase than after the 1981 tax cut. A recent paper by the nonpartisan Congressional Research Service also found no correlation during the postwar years between economic growth and the top tax rates on normal income and capital gains. Moreover, it found no discernible relationship between top tax rates and either investment or private savings, stating that the “reduction in the top statutory tax rates appears to be uncorrelated with saving, investment, and productivity growth.” Obviously, there are many factors that contribute to growth, but economic history clearly shows that there is no correlation between low taxes on the wealthy and high growth rates for the country. Of course, this economic history alone does not settle the question of whether there are causal links between top tax rates and economic growth. But economists have used a variety of techniques to answer this question. And it turns out that contrary to supply-side’s central thesis, the wealthy are precisely the wrong people to whom to give tax cuts. A recent paper by Owen Zidar, formerly a staff economist at the Council of Economic Advisers, finds overwhelming evidence that tax changes for lower-income people have a far bigger impact on output and employment than tax changes for higher-income people. The paper finds that whereas a “one percent of GDP tax cut for the bottom 90% [of earners] results in roughly 3 percentage points of GDP growth over a two year period,” tax changes for the top 10 percent (those earning incomes above roughly $112,000) turn out to have a negligible and statistically insignificant effect on GDP growth and job creation. Indeed, these impacts grow exponentially larger the lower you travel on the income spectrum. A growing body of scholarship also suggests that supply-siders are fundamentally mistaken about why tax cuts generate economic activity. Supply-siders believe that tax cuts promote growth primarily by encouraging people to earn more money, which is why they predict that lowering top rates will have an especially big impact. But in showing that this prediction is wrong, Zidar also finds that tax changes for low- and middle-income taxpayers produce big changes in consumption, whereas tax changes for high-income taxpayers do not. The fact that consumption and economic output tend to move in tandem suggests that tax cuts primarily influence output not by incentivizing people to earn more, but by enabling low- and middle-income taxpayers to spend more. Or in other words, tax changes appear to be influencing the economy not through the supply side, but through the demand side. Recent work by economists like Austan Goolsbee, Emmanuel Saez, and David and Christina Romer backs up this idea by showing that tax changes actually have surprisingly small effects on people’s pretax incomes. For example, a new paper by the Romers finds that large increases in top marginal rates during the interwar years had a minimal effect on rich people’s incomes. And although tax changes sometimes appear to produce large year-to-year variations in income, work by Goolsbee and others has shown that these variations mostly just reflect shifts in how income is reported. These findings directly undercut the supply-side argument that tax rates dramatically influence individuals’ behavior, causing them to earn more income when rates go down and earn less when rates go up. Instead, they suggest that people are fairly unresponsive to tax rates when it comes to how much income they earn. The Persistent Attraction of Supply-Side Theory If the supply-side theory isn’t backed up by the evidence, why has it dominated conservative thinking and Republican Party platforms for over three decades? It’s probably not a coincidence that the biggest beneficiaries of supply-side policies happen to be the same wealthy Americans who bankroll the Republican Party, along with the conservative media and think-tank infrastructure. But I don’t think this is simply a story of bad-faith arguments driven by cynical self-interest. The fact is that there’s something quite seductive about the idea that the best way to stimulate growth is to give yourself a tax cut. And if you happen to be an affluent conservative, there’s also something very appealing about a theory that says that your work and your savings are principally responsible for driving the economy forward. In other words, policy arguments in favor of tax cuts for the rich to induce more wealth generation neatly coincide with and reinforce a world view that holds that individuals become rich only through their own prowess, not because of the investments of others, or heaven forbid, the luck of the draw. Conservatives also seized on supply-side economics as a tool to shrink the size of government. As anti-government activists like Grover Norquist realized long ago, Americans usually aren’t so keen to slash public programs. But tax cuts offered a way to attack spending indirectly by starving the government of revenue, driving up deficits, and then forcing politicians to cut spending in response. The supply-side story synced up nicely with conservatives’ anti-government ideology—if, like President Reagan, you already believe that “government is the problem,” helping it survive with sufficient revenues is probably not going to be appealing. Beyond Supply-Side All this empirical work carries at least three important lessons for policy-makers. First, giving new tax cuts to rich people is a very bad idea unless your goal is simply to make rich people richer. Unfortunately, supply-siders’ decades-long fixation on cutting top tax rates has done just that, thereby exacerbating economic inequality. We know that America’s hyperinequality is deeply unfair and that it is reducing upward economic mobility, corroding our democracy, and eroding social cohesion. But as the other contributors to this symposium make clear, widening inequality also poses a serious threat to America’s future economic growth. Second, we could raise top marginal tax rates quite a bit without reducing future growth or job creation. Such a policy would have the dual benefits of raising badly needed revenue while also mitigating inequality. Third, targeted tax cuts for lower-income Americans, especially refundable tax credits like the earned-income tax credit, can be a powerful way to boost the overall economy. This is especially true during recessions when aggregate demand falls and people are unemployed for extended periods of time. Under these circumstances, as Larry Summers and Brad DeLong have recently argued, fiscal stimulus can significantly improve long-term growth by getting the economy moving again and thus preventing lasting damage to the productivity of workers and physical capital. But in addition to distorting American tax policy, perhaps the most troubling legacy of supply-side theory is that it has led generations of conservative politicians and policy-makers to obsessively focus on tax cuts as the tool to promote growth, to the exclusion of many others. This myopia has been especially harmful because tax cuts have significant opportunity costs. For instance, by reducing government revenue, they can crowd out high-return public investments in areas like education, scientific research, and infrastructure. These investments are critical to America’s long-term growth and we shortchange them at our peril. Supply-side theory also fails to address the most pressing challenge the American economy has faced since 2008: namely, insufficient demand to foster economic growth. In a world where people don’t have enough money to buy things and thereby create more demand for goods, a policy that focuses attention on tax cuts for people who are not going to spend them is ineffective at best. While progressives may not have all the answers to achieve equitable growth, conservatives have the wrong answers. If conservatives are serious about promoting economic growth and prosperity, they need to stop fetishizing tax cuts and start proposing policy ideas that are based on actual facts. Indeed, history would tell us that investing in the middle class and those who want to rise into it is the best long-term economic growth strategy. TAGS: Middle Class ISSUE #29, SUMMER 2013  

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  Neera Tanden is president and CEO of the Center for American Progress. She served on President Obama's health-reform team to pass the Affordable Care Act and was the policy director for Hillary Clinton's presidential campaign. Advertise on Democracy  

Events Democracy, Brennan Center Co-Host Money-in-Politics Event Democracy: A Journal of Ideas: On May 7, the Brennan Center for Justice, a New York City-based public policy institute, hosted a panel discussion co-sponsored by Democracy and Demos on money in politics, the subject of Democracy’s centerpiece symposium in the Winter 2013 issue. News Washington Post Interviews Kleiman on Crime Policy The Washington Post: In a March 28 post in The Washington Post’s Wonkblog, Dylan Matthews interviewed UCLA professor Mark Kleiman about his essay, “Smart on Crime,” in the current issue of Democracy. News Klein Cites Democracy Essay on Defense Spending Bloomberg: In his Bloomberg View column on February 13, Ezra Klein discussed the politics of military spending and highlighted a number of quotes from former Representative Barney Frank’s feature contribution to Democracy’s Winter 2013 issue.  

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The American Enterprise Institute's Political Masters and Their Demands: Hoisted from the Internet from Three Years Ago

As David Frum reports AEI President Arthur Brooks explaining to him over lunch:

Arthur Brooks explained that AEI was facing a new kind of donor environment, in which donors were becoming much more specific about where they wanted their money to go. Arthur expressed extreme personal distress at having to terminate me…

That has to exercise a chilling effect over every AEI scholar save possibly for Norm Ornstein: they all have to wonder if they will still have their jobs if their thoughts lead them in a direction that Arthur Brooks decides might alienate the donors, and if they then say what they think.

And we read this in conjunction with the fact that only now--four and a half years too late for it to make a difference for policy, when the donors are focused on other things--is the AEI's Kevin Hassett arguing that the Recovery Act should take the form of direct hiring by the government--of people to do blood tests and hand out statins at street corners, to paint schools, and so forth--in order to maximize the employment win:

I started thinking I’d be willing to… support direct hiring when we were thinking about the jobs claims of Obama’s stimulus…. Giving someone a job by building a bridge is a pretty indirect way to create jobs. I’ve had this argument with [Council of Economic Advisors chair] Jason Furman and other Obama supporters, but you know, when the government is buying stuff, that the people who can produce it are employed!… When you look at the negative effects of long-term unemployment, they just get disconnected, and we have a hard time reconnecting them. These are folks who are going to be a serious spending challenge for government throughout their lives…. Direct hiring, or a direct subsidy for hiring, could save taxpayers a fortune. And it could save a life… […] The biggest thing to get people to understand is that it’s still a national emergency. Unemployment is down, and job creation is better, but that doesn’t necessarily mean that the folks we’re talking about are going to see significant improvements in what’s going on. It’s still an emergency, and it’s a really important one.

David Frum vs. Charles Murray. I score this for David Frum, 6-0, 6-0, 6-0:

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The Editors for Democracy Journal: The Middle-Out Moment

The Editors for Democracy Journal: The Middle-Out Moment: The Middle-Out Moment The Editors At first blush, the claim that politicians need to take the needs of the middle class more seriously might seem like pushing on an open door. After all, every stump speech has lines about “saving the middle class” or “helping Main Street, not Wall Street.” But the actions of elected officials have seldom matched the rhetoric. Vice President Biden is fond of saying, “Show me your budget, and I’ll tell you what you value.” By those terms, not to mention the tax code, we have for decades valued corporations and the wealthy as the engines of growth, as job creators, and as most worthy of assistance. The results are familiar: moribund income growth for low- and middle-income Americans and soaring income inequality. The point of this symposium is not merely to say that we need economic policies that help the middle class. That’s boring and obvious. The point is to make what we call “middle-out” economics the operating progressive theory of economic growth: That is, we must promote middle-out economics not just as a nice-sounding idea, but as the direct alternative to trickle-down economics. Where conservatives say investing in the top 1 percent drives growth, we say that investing in the broad middle does it. And then, having established the theory, we spell out some specific policies that put flesh on the bone. The symposium opens with three pieces that provide the theoretical framework. First, Eric Liu and Nick Hanauer, co-authors of The Gardens of Democracy and The True Patriot, explain why trickle-down economics is still the average citizen’s idea of how the economy works, and they show how a new picture of an economy driven by a robust middle class should be presented. Neera Tanden, president and CEO of the Center for American Progress (CAP), lays out the data on trickle-down’s failure over the past 40 years. Eric Beinhocker, the executive director of the Institute for New Economic Thinking at the Oxford Martin School, argues that an economy that’s driven from the middle out represents a truer form of capitalism than one that relies on wealth trickling from the top down. To start off the second half of the symposium, which focuses on specific policy prescriptions, Heather Boushey, the chief economist at CAP, argues that family and child care policy is central to the middle-out vision. Bruce Bartlett, former adviser to Ronald Reagan and a frequent contributor to The New York Times’s Economix blog, identifies the recent diversion of income from labor to capital as one cause of our economy’s troubles and identifies steps to reverse this trend. John Schmitt of the Center for Economic and Policy Research explains how a large minimum-wage increase would help not just the poor but also the middle class. Mona Sutphen, former adviser to President Obama, sees middle-skill jobs as the key to a balanced economy. David Rolf of SEIU looks at what the ongoing transformation of labor and the workforce has done to the middle class, and what innovative worker organizations might look like. Ethan Pollack of the Economic Policy Institute calls for a renewed commitment to a clean economy as essential to a middle-out future. Finally, Third Way’s Ed Gerwin takes on trade policy, arguing that a combination of exports to China’s middle class plus more rigorous enforcement can yield benefits to America’s middle class. Reversing more than three decades of top-down economic thinking won’t happen just by nominating the right candidate or winning the next election cycle. The false assumptions of trickle-down economics have burrowed too deeply into the collective consciousness for that quick a fix. But this process is absolutely necessary if America is going to return to stable, middle-out growth. Winning the Voting Wars The True Origins of Prosperity by Eric Liu & Nick Hanauer Burying Supply-Side Once and for All by Neera Tanden A Truer Form of Capitalism by Eric Beinhocker Family Policy: The Foundation of a Middle-Out Agenda by Heather Boushey National Income: Paying Work, Not Capital by Bruce Bartlett Minimum Wage: Catching up to Productivity by John Schmitt Job Training: Cultivating the Middle-Skill Workforce by Mona Sutphen Labor: Building a New Future by David Rolf Environment and Energy: Revitalizing the Green Jobs Agenda by Ethan Pollack Trade: Boosting Exports to China by Ed Gerwin


How Much Is That in Today's Money? : The Colonial Williamsburg Official History & Citizenship Site

How Much Is That in Today's Money? : The Colonial Williamsburg Official History & Citizenship Site: Jon Boucher, a schoolmaster in Caroline County, Virginia, earned an annual salary of £60 in 1759. McCusker’s system tells us that Boucher’s earnings would be roughly equal to $4,000 in 2000. But he also got his room and board, and was at liberty to take on other students. At that, Boucher probably wouldn’t buy a pair of pistols at £3 15s. 3d., about $340 in 2000; a saddle at £2, almost $180 in 2000; or a wig at £1 12s. 6d., about $145 in 2000. More likely purchases and their 2000 approximations include: a pound of butter, 4d., or $1.50; a yard of flannel cloth, 1s. 3d., or $5.60; a grubbing hoe, 5s. 6d., or $25; a prayer book, 3s., or $13.40; and a bushel of salt, 4s., or $18. All consumer goods above reflect 1755 prices in Virginia, and modern figures are rounded for ease of understanding.


Matthew O'Brien: You too Can Be as Consistently Wrong as John Taylor!

Matthew O'Brien:

How to Fearmonger About the Fed (In 2 Easy Steps): These are dark days for inflation hawks…. They have been wrong. Not just wrong; historically wrong. Indeed, core PCE inflation, the Fed's preferred measure, just hit an all-time low going back 50 years. That's a lot of years….

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Joe Gagnon: Yes, Quantitative Easing is Self Financing

No, the U.S. government as a whole is not running any fiscal risks when the Federal Reserve engages in Quantitative Easing.

The extremely smart and thoughtful Joe Gagnon:

QE’s Fiscal Benefits Outweigh Any Fiscal Costs: QE unambiguously reduces our national debt burden…. Fed profits are likely to decline below normal for a few years in the future, especially if the Fed is forced to raise interest rates sharply to fight a surge in inflation. The IMF’s “tail risk” scenario is the most pessimistic of the scenarios… short-term interest rates would rise 600 basis points and long-term rates would rise nearly 400 basis points abruptly… the market value of Fed assets would decline by about 4.25 percent of GDP.

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Menzie Chinn: Inflationistas: What Were They Thinking?

Menzie Chinn:

Econbrowser: What Were They Thinking?: As the Fed sets in place the road map to withdrawing monetary stimulus, I wonder how it is that so many believed the Fed’s implementation of unconventional monetary policy would lead to surging high inflation. Examples include House Budget Committee Chair Paul Ryan, who stated in November 2008:

I think it's going to give us a big inflation problem down the road.

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Wage-Price Flexibility in a Liquidity Trap

Paul Krugman:

Wage-Price Flexibility in a Liquidity Trap, Again Again Again: Noah Smith… finds Japan’s persistent shortfall puzzling, because — he claims — this isn’t supposed to happen in New Keynesian models… "[even] if the central bank does nothing, prices will eventually adjust, and unemployment will go away."…

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Noted for July 16, 2013

  • Daniel Kuehn: Facts & other stubborn things: What models predict the hockey stick? Only one that I am aware of (although I am new to the field - so please suggest others): "The only growth model that I know of that explains the whole hockey stick, and the demographic transition to boot is the Galor-Weil model with endogenous fertility and a trade-off between quality and quantity of children that eventually results in a demographic transition. I'm not sure if Friedman is familiar with it, but it contains some of the features that he discusses (most notably a relationship between population density and productivity growth). It also adds human capital, which you need more of as productivity growth gets higher. This is the mechanism that causes the demographic transition to set in. 'Unified growth theory', as it's called, is one of the most exciting things I've ever studied in economics. Unfortunately I'm not sure I'm smart enough to push the frontiers of this cutting edge work, but hopefully I'll get opportunities to play around with it. And it's nice precisely because it takes insights like this from classical economics seriously. I am not sure McCloskey has the answer on growth theory - I prefer to take her thesis as an extension of her rhetoric in economics research agenda, and an important contribution to the way discourse shapes the evolution of market economies. I am not sure it's the key to understanding growth."

Margaret Thatcher Against Friedrich von Hayek's Pleas for a Lykourgan Dictatorship

Corey Robin:

It now turns out, according to Hayek scholar Bruce Caldwell, that there is no preceding letter from Hayek to Thatcher, as many of us had assumed. So we don’t know what exactly it was that Hayek said that elicited this response from Thatcher. Caldwell speculates, in an email to John Quiggin that I was copied on, that Thatcher may have been remarking here upon comments that Hayek might have made—about the need for Thatcher to abolish the “special privileges” of trade unions in Britain (as Pinochet had done in Chile)—at a dinner on February 2.

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Noted for July 15, 2013

  • Rand Ghayad: Decomposition of Shifts of the Beveridge Curve: "The apparent outward shift of the Beveridge curve—the empirical relationship between job openings and unemployment—has received much attention among economists and policymakers in the recent years with many analyses pointing to extended unemployment benefits as a reason behind the shift. However, other explanations have also been proposed for this shift, including worsening structural unemployment. If the increased availability of unemployment insurance (UI) benefits to the long-term unemployed is responsible for the shift in the Beveridge curve, then allowing these benefits to expire should move many of the long-term unemployed back to work (or out of the labor force). Evidence from decomposing the job openings and unemployment relationship using data on unemployed persons by reason of unemployment shows that a significant portion of the outward shift in the Beveridge curve is concentrated among new entrants and unemployed re-entrants—those generally not eligible to collect regular or extended benefits. The decomposition reveals that at most half of the shift in the aggregate Beveridge curve is attributable to the disincentive effects of unemployment benefit programs."

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Dasgupta vs. Stern on the Applied Utilitarianism of Dealing with Climate Change: Hoisted from the Archives

Dasgupta vs. Stern on the Applied Utilitarianism of Dealing with Climate Change:


Elizabeth Anderson: Friedrich von Hayek Says: Those Who Have Thought It Through Understand They Do Not "Deserve" Their Wealth. Full Stop

No. You Don't "Deserve" Your Wealth (March 2005):

The keen-witted Elizabeth Anderson drops the Hayek Bomb on those who believe that they "deserve" their wealth:

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Quantitative Easing and the Running-of-the-Waldmanns: Monday Hoisted from Comments Weblogging

Robert Waldmann: Noted for May 30, 2013:

"QE" = red flag. Robert Waldmann = bull.

I like the quoted post by Morski, but I'm not convinced it has anything to do with QE. Loose conventional monetary policy means low interest rates and potentiala FoBOR. I's say he is noting the effect of expansionary conventional monetary policy.

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Jeebus! Alexander Hamilton Used "Thorn" in Official Documents!

Alexander Hamilton’s Final Version of the Report on the Subject of Manufactures:

Philadelphia, December 5, 1791

To the Speaker of the House of Representatives:

The Secretary of the Treasury in obedience to the order of þe House of Representatives, of the 15th day of January 1790, has applied his attention, at as early a period as his other duties would permit, to the subject of Manufactures; and particularly to the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies. And he thereupon respectfully submits the following Report…


Robert Waldmann: Policy-Relevant Macro Is All in Samuelson and Solow (1960)

Robert Waldmann's Stochastic thoughts:

The rational expectations revolution was based on fraudulent intellectual history…. Their claim to have improved on the thought of Samuelson and Solow (1960) is based entirely on critiquing the legend of one figure quoted out of context… figure 2 which shows a stylized Phillips curve…. I quote the immediately following three paragraphs, as published in May 1960 before I was born:

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Cord Jefferson: The Zimmerman Jury Told Young Black Men What We Already Knew

Cord Jefferson: The Zimmerman Jury Told Young Black Men What We Already Knew:

Tonight a Florida man’s acquittal for hunting and killing a black teenager who was armed with only a bag of candy serves as a Rorschach test for the American public…. When I was junior in college in Virginia, my then-girlfriend and I decided one night to meet up for a quick snack while studying for midterms. We bought some sandwiches at a 24-hour deli and, rather than waste time going to either of our homes, which were in opposite directions, we decided to eat in her car in a parking lot near a fancy hotel off-campus. We were listening to music and laughing about something when I saw a security guard’s headlights in the rear view mirror, and I stopped laughing as I watched him—a white man in his mid-40s—walk up to my girlfriend’s door and ask her to step out of the car. “Uh, OK,” she said, clearly as confused as I was about what we’d done to warrant his attention.

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Elizabeth Anderson: Tom Paine and Social Insurance: Bastille Day Weblogging

Elizabeth Anderson on Gracchus Babeuf:

Suppose one grants all these claims. Nevertheless, if one person, through sheer hard work, produces as much as four others performing identical labor, would he not deserve four times the pay? At this point, where a claim to unequal desert is virtually impossible to deny, Babeuf resorted to a pure egalitarian claim. Such people disturb the social equilibrium in claiming more than others. “Even a man who shows that he can do the work of four, and who consequently demands the wages of four, will still be an enemy of society . . . . we should curb a man of this type and drive him out as if he had the plague.” Alternatively, society should “reduce him to a state whereby he can do the work of only one man, so that he will be able to demand the recompense of only one man.”

This is the only case I know in the history of egalitarianism in which an egalitarian embraced the nightmare Harrison Bergeron scenario, in which equality is enforced by handicapping those with higher motivation or natural endowments.24 Such a policy makes no sense from a social contract perspective. No rational person would consent to a regime that barred them from exercising their superior talents. Nor would the less talented consent to such a regime, given the superior possibility of arranging social institutions so that people’s exercise of productive talents and efforts redound to everyone’s advantage.25 Babeuf drew his monstrous conclusion from a commitment to luck egalitarianism, the view that no one should be worse off than anyone else due to bad luck. “It is necessary to bind together everyone’s lot; to render the lot of each member of the association independent of chance, and of happy or unfavorable circumstance.” To my knowledge, this is the first assertion of luck egalitarianism in the history of politics. For Babeuf, the only way to ensure that risks of bad luck were equally shared was to share all goods and labor under a central administration, and to endure a radical leveling down of talents and motivations.

Continue reading "Elizabeth Anderson: Tom Paine and Social Insurance: Bastille Day Weblogging" »


Noted for July 14, 2013

  • Charles Stross: Crib Sheet: Saturn's Children: "Causality violation [is] an unavoidable side-effect of faster than light travel. A side effect of causality violation is that you quite possibly end up with time loop logic, which has some really alarming implications if you can figure out a way to map this onto a human-equivalent or faster AI. The easiest way out of the trap is to adopt the Novikov self-consistency principle and throw FTL under a train. This doesn't totally rule out AI. We have an existence proof for human intelligence as an apparently computational process: it's called the human neural connectome. But it's fiendishly complex, not terribly hackable, and tends to function best when coupled up to an i/o device called 'a human body'."

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Ender's Game: The Movie

Chuck Wendig:

Tolerance For Intolerance: Boycotting Ender’s Game: Ender’s Game is one of my favorite books from high school. The movie looks pretty rad. I love Harrison Ford. I like shiny things and smart science-fiction.

And yet, I’m not going to go see Ender’s Game.

Orson Scott Card has toxic politics shot through with not merely a thread but a full-on threaded steel cable of bigotry and ignorance. And so, I’m gonna boycott the film. Now, to clarify, I’m not saying you should or have to do the same. You do as you like. No harm, no foul.

But I thought I’d highlight why I’m gonna boycott. First, I don’t want to reward bigotry. Particularly financially. Second, it is safe to assume OSC spends his money on supporting this ignorance and bigotry given that he serves the National Organization for Marriage (which, benevolent as it sounds, is more about defining and limiting marriage than it is about Yay Marriage For Everybody). This is a pretty good sum-up of his toxic politics — and it’s worth noting that he equates homosexuality with genetic error and the “end of democracy,” though at the same time seems to believe that homosexuality’s, erm, origin story is one tied in with rape and molestation at a young age. This is venomous shit, and I don’t want to pay him to sling it.

Me? Art is art. Entertainment is entertainment. To say that one's dislike of Orson Scott Card's poisonous politics should keep you from having an experience you would otherwise enjoy is to give him a power over you he doesn't deserve: your seeing Ender's Game does not put yourself in any sort of reciprocal gift-exchange relationship with him.

And he isn't going to spend more than $0.01 of your ticket price on poisonous propaganda. So go to the movie, enjoy it--and then match what you paid for the ticket, spend it supporting some worthy political cause, and tell everybody you are doing so.

In fact, were I Lionsgate Pictures, right now I would announce that I would contribute 5% of the first-weekend gross to the marriage equality cause…

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Paul Krugman: Rick Santelli Needs to Make His Full Apologies to the Emperor

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Paul Krugman:

Fish in a Barrel, Rick Santelli Edition: The tale of Monetary Hawks Down continues to get ever more interesting, although it makes one ever less sanguine about human nature. The story so far: back in 2009-2010, as the Fed greatly expanded its balance sheet, there was a real debate over consequences--with each side making falsifiable predictions. One side said that the Fed’s moves would be hugely inflationary; the other said that expanding the monetary base in a depressed economy that was, furthermore, in a liquidity trap wouldn’t be inflationary at all. Years have now passed, and reality has closely tracked the liquidity-trap view. Argument settled,right?

Continue reading "Paul Krugman: Rick Santelli Needs to Make His Full Apologies to the Emperor" »


Noted for July 13, 2013

  • Bill Black: Two Sentences that Explain the Crisis and How Easy it Was to Avoid: "Everyone should read and understand the implications of these two sentences from the 2011 report of the Financial Crisis Inquiry Commission (FCIC). 'From 2000 to 2007, [appraisers] ultimately delivered to Washington officials a petition; signed by 11,000 appraisers…it charged that lenders were pressuring appraisers to place artificially high prices on properties. According to the petition, lenders were "blacklisting honest appraisers" and instead assigning business only to appraisers who would hit the desired price targets' (FCIC 2011: 18). Those two sentences tell us more about the crisis’ cause, and how easy it was to prevent, than all the books published about the crisis – combined.  Here are ten key implications: 1. The lenders are extorting the appraisers…. 2. No honest lender would inflate an appraisal…. 3. The lenders were overwhelmingly the source of mortgage fraud. 4. The lenders were not only fraudulent, but following the 'recipe' for 'accounting control fraud'…. 5. This had to be done with the knowledge of the bank CEOs…. 6. The Gresham’s dynamic and the fraud 'recipe' cause an enormous expansion in bad loans… a financial bubble.  As a bubble grows the fraud recipe becomes even more wealth-maximizing for unethical senior officers…. 8. Once fraudulent loans are fraudulently originated they cannot be cured. There is no loan exorcist. All subsequent sales of the mortgage (or cash flows from the mortgage) in the secondary market will require additional fraud…. 9. The Gresham’s dynamic that causes us the most wrenching pain as regulators is the one that the officers controlling the fraudulent lenders deliberately created among appraisers. They created the blacklist to extort the most honest appraisers…. 10. The U.S. government did nothing in response to the appraisers’ petition…. The appraisers put the anti-regulators on notice about the fraud epidemic for seven years beginning in 2000."

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John Taylor Asks: "You Disapprove of My Methods?" But I See No Method at All Here...

John Taylor writes, apropos of his demand that the Federal Reserve get on track to reduce its balance sheet to normal as soon as practicable:

I warned… in September 2010 about the dangers of "another large dose of quantitative easing" that would raise "more uncertainty about how it will ever be unwound"…

And writes:

My concerns have been about a two-sided risk, with downside effects on the economy due to the uncertainty about the exit, the distortions of financial markets (including the Fed replacing several large markets with itself), the international repercussions which feed back on the U.S. economy, and other unintended consequences. Unfortunately, those downside risks have panned out with a terrible economic recovery to show for it.

Is Taylor really saying that real GDP growth would have been faster over the past 2.5 years with no QE and higher long-term interest rates? How? Through what channels?

What is his model of the economy?

I really see no method at all here…

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Paul Krugman on How Tight Money Deserves Better Advocates

Paul Krugman:

The Monetary Debate: Enter Chewbacca: The debate over monetary policy has grown increasingly surreal…. Initially, it was… straightforward… [as] monetary hawks like Allan Meltzer and Martin Feldstein that quantitative easing would lead to a major acceleration of inflation. If that inflation had happened, I like to imagine that doves like me would have conceded that we got it wrong, and reconsidered our position. But the inflationary explosion didn’t happen. So, did the hawks reconsider? No, they just came up with new reasons for the same policy position… it’s about financial stability. Yeah, that’s the ticket!

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The University of California Succession

I have two quotes to offer:

1) Jeebus! Now I won't be able to carry my swiss army knife to the office either!!

​-Or-

2) Mark Yudof was hired as University of California president to repair the damage that previous presidents have done in the hypertrophied excessive growth of the Oakland office of the president. He succeeded, and all of us at UC are very grateful to him.

​He also landed, unexpectedly, in the middle of the mess that was UC trying to cope with the consequences of the Lesser Depression's impact on California's state finances. At that he did much better than I feared if somewhat worse than I had hoped, and I am grateful to him for trying.

​Janet Napolitano comes to the UC president job with awesome administrative, bureaucratic, and coordinator chops. But the job right now requires more: it requires a commitment to the proper values for a 21st-century university, and it requires a strategic cast of thought able to seize the initiative and make other stakeholders react and respond.

It is asking too much to ask for a job candidate who possesses all five of these. Nevertheless, the next UC president needs to possess all five in order to be a success…


Niall Ferguson Is 90% Correct: Europe's Problems Cannot Be Solved by Deflation on the Periphery

Niall Ferguson says something very true and important:

Ludwig Erhard Prize Acceptance Speech: The crisis of the eurozone did not happen because the southern states failed to enact German-style labour market reforms. The crisis was a transatlantic banking crisis from which the German banks were in no way exempt. Labour market reforms would also have done almost nothing to address the underlying institutional problems that are to blame for diverging competitiveness within the eurozone.

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Liveblogging World War II: July 12, 1943

The 850 Russian tanks of Rotmistrov's 5th Guards Tank Army (reinforced) meet the 135 tanks of II SS Panzer Corps's Liebstandarte and Das Reich divisions at Prochorovka, while its Totenkopf division tries to extend its bridgehead north of the Psel River.

By the end of the day the two SS divisions will have lost 60 tanks out of action, and the Russians will have lost 500 or more, leaving the Nazi's III, II SS, XXXXVIII, and XXIV Panzer Corps with more operational tanks in the southern sector of the Kursk battlefield than the Russians…

George Nipe: Decision in the Ukraine:

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Noted for July 12, 2013

  • Owen Zidar: Heterogeneity in the MPC: Evidence from the Crisis: "'We find evidence supportive of heterogeneity in the MPC by household income and leverage. For example, the MPC for households living in zip codes with an average annual income of less than $35 thousand is three times as large as the MPC for households living in zip codes with more than $200 thousand in average income. Similarly, zip codes that entered the Great Recession with a housing loan-to-value (LTV) ratio of 90% had an MPC out of housing wealth that was three times as large as the MPC of households living in zip codes with only a 30% housing LTV ratio. Taken together, these results show that the distribution of wealth losses matters, not just the level.' From Mian, Rao, & Sufi. There are many other interesting aspects of the paper."

  • Paul Krugman: Fields of Expertise: "There are, I think, things I might want to hear David Petraeus talk about. But 'recommendations for America’s leadership role in the emerging global economy' definitely don’t fit."

Continue reading "Noted for July 12, 2013" »


Why Christina Romer Should Be the Next Fed Chair

Janet Yellen would be the best possible Fed Chair if we do not want a monetary policy regime shift. But we do want a monetary policy regime shift:

Matthew O'Brien:

Why Christina Romer Should Be the Next Fed Chair: The Fed hasn't really tried a regime shift this time. Instead, it's been a series of what Romer calls "incremental changes." First, it was QE1 to prevent the end of the financial world as we knew it; then it was QE2 to prevent deflation; then it was Operation Twist to push down longer-term interest rates; then it was QE3 to push down unemployment faster. Now, QE3, with its open-ended bond-buying, is the closest the Fed has come to shifting regimes, but it's only been a half-step. A real regime shift would mean targeting higher inflation or nominal GDP -- but the Fed hasn't increased its inflation projections above 2 percent even with QE3. That's not a new day. That's pretty much the same-old day, just with bond-buying.

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The U.S.: We Are Number 27 in Health!

Christopher J. L. Murray et al.: The State of US Health, 1990-2010: Burden of Diseases, Injuries, and Risk Factors.

Austin Frakt writes:

The state of US health ain’t so good: There’s a ridiculously fantastic manuscript over at JAMA that you should go read right now…. This study specifically looked at the burden of disease, injuries, and risk factors in the US versus other countries. The methods are amazingly detailed. So how did we do compared to other countries? Not well. Between 1990 and 2010, among the 34 countries in the OECD, the US dropped from 18th to 27th in age-standardized death rate…. Things don’t look so good for the US. There’s an awful lot of red there. A little bit of yellow. One green. Best in the world, my ass.

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If Saying That America Must Remain 51% White Does Not Make You a White Supremacist, What Does?

Eric Lach: Sen. Paul Defends Aide With History Of Racist, Secessionist Comments:

Rand Paul aide Jack Hunter:

A non-white majority America would simply cease to be America for reasons that are as numerous as they are obvious--whether we are supposed to mention them or not.

Rand Paul (R-KY):

People are calling [Hunter] a white supremacist. If I thought he was a white supremacist, he would be fired immediately. If I thought he would treat anybody on the color of their skin different that others, I’d fire him immediately.

All the people who have been making excuses for Rand Paul over the past half decade have a lot of explaining to do…


How Long Can an Economist Fail to Mark His Theories to Market?

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Noah Smith reminds me of Stephen Williamson from March 16, 2012:

Serious inflation is coming, maybe sooner than later. The Fed thinks it can control this with reverse repos and term deposits at the Fed. No way. When will the inflation happen?… Look out for increases in house prices. The higher house prices will support more credit, both at the consumer level, and in higher-level financial arrangements. The "bubble" will grow, and support the creation of more private liquid assets, which will in turn substitute for publicly-issued liquid assets, causing the price level to rise.

The last sixteen months have not been at all kind to Mr. Williamson, have they?

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Yes, Barry Goldwater and Rand Paul--Like Stephen Douglas and Roger Taney--Don't Think African-American People Are Fully Fellow Americans. Why Do You Ask?: Thursday Whiskey-Tango-Foxtrot-Bang-Query-Bang-Query Weblogging

Jeff Weintraub sends us to Matt Yglesias:

I've been in a long and winding multi-front Twitter exchange over… my assertion that Paul's opinion that democracy "gave us Jim Crow" relates to his white supremacist inclinations… evidenced by, for example, his previous stated opposition to key provisions of the Civil Rights Act…. Charles C.W. Cook taking the view that Paul is right and the Civil Rights Act is bad while David Freddoso thinks that the Civil Rights Act is good but associating Civil Rights Act opponents with racism is slander. So to return to the beginning, there's no plausible meaning of "democracy" in which democracy gave us Jim Crow.

Continue reading "Yes, Barry Goldwater and Rand Paul--Like Stephen Douglas and Roger Taney--Don't Think African-American People Are Fully Fellow Americans. Why Do You Ask?: Thursday Whiskey-Tango-Foxtrot-Bang-Query-Bang-Query Weblogging" »


Noted for July 11, 2013

  • Nicholas Barberis, Robin Greenwood, Lawrence Jin, and Andrei Shleifer: X-CAPM: An Extrapolative Capital Asset Pricing Model: "Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to understanding the stock market; on the contrary, it is consistent with the facts about prices and returns, and may be the key to understanding them."

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Federal Reserve Communications: Self-Denying Monetary Policy?

It looks as though Bernanke's announcement that the Fed was thinking about tapering relatively soon has raised interest rates enough to make the labor market improvement required for tapering to become a reality unlikely this year or next year--if the FOMC sticks to its expressed positions…

Cardiff Garcia: FOMC minutes for meeting of June 18-19, 2013 | FT Alphaville:

A few points:

  • The key line in the minutes is that “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases”, while “Some added that they would, as well, need to see more evidence that the projected acceleration in economic activity would occur, before reducing the pace of asset purchases.” As our colleague Robin Harding explains: "In the jargon of Fedspeak, 'several' is likely to mean three out of the 12 voting members of the FOMC, while 'many' would cover most of the other nine. That suggests a clear majority on the committee who want more data before tapering."

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