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December 2013

Musings by James Kwak on Some Cognitive Biases of ThirdWayism...

A nice, smart, thoughtful reflection on some not-very-conscious presuppositions that should not be presuppositions...

James Kwak: Free Market Reflexes:

I’ve been reading a lot about education recently, for reasons that are not worth going into here. I don’t know that much about the area, so I’ve been reading some background stuff and review articles, including a Hamilton Project white paper by Michael Greenstone, Adam Looney, and Paige Shevlin. It’s pretty mainstream, self-professed “third way” stuff, with a heavy dose of measurement and performance evaluation.... There are a fairly strong tilt toward market mechanisms and some idealistic naivete about practical problems.... The white paper, however, betrays a certain conceptual bias that I find disturbing, even in topical areas where it seems otherwise reasonable.

Continue reading "Musings by James Kwak on Some Cognitive Biases of ThirdWayism..." »


Mark Thoma: The EITC and the Minimum Wage Are Not Substitutes But Complements

Mark Thoma says something very smart:

Mark Thoma: Economist's View: The EITC versus The Minimum Wage: They are complements, not substitutes.

And he quotes Arin Dube in 2013:

7) The best evidence suggests that minimum wage increases lead to moderate reductions in the poverty rate, especially together with the Earned Income Tax Credit. There are strong theoretical rationales—and empirical confirmation—that minimum wages and EITC are complementary policies when it comes to helping low-income families. A high minimum wage prevents wage reductions that can result from an EITC. Since the EITC is indexed to the CPI, minimum wage indexation will prevent erosion of EITC benefits for minimum wage workers.

Continue reading "Mark Thoma: The EITC and the Minimum Wage Are Not Substitutes But Complements" »


The United States in the Latin American Mirror: Wednesday Focus (December 11, 2013)

Let me turn the microphone over to young Berkeley academic Patrick Iber--who I think of as a younger Tony Judt, only for Latin America rather than Europe--to tell us what us Nortamericanos should learn from the experience of our neighbors to the south.

I do think that there are important historical lessons--two of them. The first is that if you did not believe that high inequality hobbled growth, look at Latin America (in the past). The second is that if you did not believe that healthy growth is possible in an environment that is also focused on reducing inequality, look at Latin America (in the present):


Patrick Iber: What Can the United States Learn about Equitable Growth from Latin America?

Continue reading "The United States in the Latin American Mirror: Wednesday Focus (December 11, 2013)" »


Things to Read on the Morning of December 10, 2013

Must-Reads:

  1. Dave Reifschneider, William Wascher, and David Wilcox: Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy: "We estimate that potential GDP is currently about 7 percent below the trajectory it appeared to be on prior to 2007... argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand.... Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity..."

  2. NewImageGavyn Davies: Low inflation is becoming a major headache: "In recent months, inflation has again reared its head as a problem in the developed economies. But this is not because it is too high. In most countries, headline CPI inflation has been falling significantly since the end of 2011, and it has now dropped to less than 1 per cent in both the US and the euro area. Furthermore, the pervasive decline in headline inflation has been accompanied by a similar decline in core inflation rates..."

  3. Ramesh Ponnuru: Republican Inflation Paranoia Is Political Suicide: "In the years since the financial crisis, Republican politicians have increasingly embraced a 'hard money' critique of the Federal Reserve. They’ve warned that its policies are too loose and dangerously inflationary, even as inflation has stayed well below historical levels. Now some conservatives are arguing that criticizing loose money should be a more prominent part of their case to voters. It’s a winning issue, they say, and Republicans should make the most of it. They’re wrong on both counts.... Republicans do need to rethink their approach to economics. Intensifying their already excessive focus on inflation isn’t the way to do it..."

Continue reading "Things to Read on the Morning of December 10, 2013" »


Graph of the Week: Jared Bernstein and Kathy Ruffing on Disability Insurance Roll Growth: Makers, Takers, and Fakers Weblogging: Hoisted from Other People's Archives from Last January

My submission to the Atlantic Monthly series for the most important graph of 2013:

Preview of Untitled 2

Jared Bernstein: Disability Rolls and the Makers/Takers/Fakers Nonsense:

Kathy Ruffing [has facts] about the factors actually responsible for most of the increase in the DI rolls.... Population... aging... more women... working and thus eligible for the program... half of the increase since 1990 is due to those factors.... The increase in the eligibility age for Social Security from 65 to 66 over this period has also played a role over these years, as once DI recipients hit the retirement eligibility age, they transfer onto the retirement program.

I’ve always thought the key test of the Jimmy P et al. claim--that lots of people were abusing the DI rolls when they could be working--is the extent to which the DI rolls are countercyclical, meaning they go up when the economy goes down.... What Kathy finds... is... applications... [do line] up roughly with... unemployment.... But awards... less so... [unless you] squint.... Some growth in the DI rolls that may reflect folks getting DI who ought not to, much of the increase appears to be explainable by known, legitimate factors.... More than 90% of entitlement dollars go to people who are either elderly, disabled, or working.... The makers/takers frame is factually wrong not to mention mean-spirited and divisive... [and] that frame just sounds really nasty to me... I’d urge them and others to give it up.


The Debate Over the Volcker Rule

File Sanzio 01 jpg Wikipedia the free encyclopedia

Mike Konczal: There are six big arguments against the Volcker Rule. Here’s why they’re wrong:

Matt Levine: If We're Lucky Volcker Rule Will Make Banks Less Transparent

Tyler Cowen: Is the Volcker rule a good idea?

Today is the day we finally get to see the Volcker Rule... that aims to prevent banks from engaging in speculative trading.... A lot of commentators have been writing posts arguing that the Volcker Rule is either unnecessary or perhaps even counterproductive....

There are usually six different complaints about the Volcker Rule. By addressing them, we can lay out the case for why this rule is important and worth strengthening. I’ll take the complaints in order from least to most important:

Bank lobbyists think that the Volcker rule is too strict and will sue to weaken it, while anti-bank lobbyists think that it's too lenient and will lobby to strengthen it.... Opinions, and lawsuits, on whether it's too strict or not strict enough do not turn on what it actually says.

We still seem unwilling to take actions which would transparently raise the price of credit to homeowners.  We instead prefer actions which appear to raise no one’s price of credit and which are extremely non-transparent in their final effects.  You can think of the Volcker rule as another entry in this sequence of ongoing choices.  That should serve as a warning sign of sorts, and arguably that is a more important truth than the case either for or against the rule.

1. The Volcker rule isn’t a fix-all... and it might not even be... necessary.... Why are we bothering to do this complicated thing?....

The ultimate goal is to build a financial system that helps the real economy while also both preventing... and having the correct tools to deal with crises.... Regulators are creating various tools....

First, the financial sector will have to internalize some of the costs of crises and insurance. Second, there’s more supervision of banks through things like capital requirements. Third, there are limits on the sorts of activities the banks can do.

The Volcker Rule mainly focuses on the third component.... Banks need to be boring again and focus on their core business lines....That’s all just to say that there’s no one single “fix-all” reform here. All three components of financial regulation need to hang together. That involves a well-capitalized banking sector with high leverage, liquidity, and risk-adjusted capital. It also involves a sane over-the-counter derivatives market. And it requires a credible mechanism to force losses on to investors at firms that were previously "Too Big To Fail." Those components have to work together.

Is there a way to justify the Volcker rule that is less conceptually terrible than, "well I mean prop trading is less risky than lending but more risky than gardening so we might as well do something"?

2. That’s fine, but seriously, this rule would have done nothing useful in solving the last financial crisis. It’s a solution in search of a problem.

Perhaps. But “solving the last financial crisis” is only one of many goals here. There are other problems.... First, take resolution authority.... By preventing banks from engaging in proprietary trading, the Volcker Rule actually makes this task easier. Proprietary trading is notorious for creating quick, large losses, which makes it harder for regulators to deal with failing institutions....

The Volcker Rule also works in concert with other reforms, providing a backstop if those rules don’t work out. If derivatives regulations turn out to be insufficient, for instance, then the Volcker Rule still prevents large banks from carrying out huge bets on tail risk....

The Volcker Rule would have also helped make the last financial crisis less extreme. “Certainly proprietary positioning played a role in the crisis,” says Caitlin Kline.... “Banks amassed inventories of high-yielding highly-rated products with largely overnight funding, and this street-wide carry trade helped cause a massive liquidity crisis and then solvency issues, which was a major factor. The Volcker rule will absolutely affect most front-office desk's ability to warehouse huge positions like that.”

The biggest conceptual objection to the Volcker rule is that its central premise makes no sense. Proprietary trading had basically nothing to do with the financial crisis, and banking is about taking "proprietary" risk with depositor money. This is mostly called "lending," but calling it "lending" doesn't make it safer than calling it "prop trading." The reverse is mostly true.

There is no strong connection between proprietary trading and our recent financial crises. Today the bugaboo is “big banks” but once it was “small banks” and for a while “insufficiently diversified banks.”  Maybe it really is big banks, looking forward, or maybe we just don’t know.  Small banks have their problems too.

3. Sure proprietary trading might be dangerous, but so is lending money. In fact, lending money is even more dangerous, given the losses in the crisis, so why don’t you ban banks from doing that too!

The problem there is that lending to households and businesses is the core function of banking. And there are good reasons why banks provide this service.... Other firms can’t easily do what banks do when it comes to lending. But other firms can definitely engage in proprietary trading.... So if proprietary trading does have any benefits to society at large, there’s nothing to worry about. It will still take place. On the other hand, if banks are prohibited from lending, it’s not clear that other institutions could pick up the slack.

If you're in favor of a strong Volcker rule, cutting down on prop trading risk is a good thing even if that risk isn't, objectively, especially risky. If you're against a strong Volcker rule, you've been saying "prop trading is less risky than lending" forever and no one has listened to you and they won't start now or even tomorrow. Unless you sue them, I don't know.

It is not clear that banning bank proprietary trading will lower the chance of such a financial crack-up. The overall recent record of real estate lending is not a good one, and as Edward Conard pointed out, restricting banks to the long side of transactions is not obviously a good idea. I do see the moral hazard issue with allowing banks to engage in the potentially risky activity of proprietary trading.

Still, so far the data are suggesting that the banks which cracked up during the crisis did so because of overconfidence and hubris, not because of moral hazard problems (i.e., they still were holding lots of the assets they otherwise might have been trying to “game”)....

There is some chance that proprietary trading will be pushed to a more dangerous, harder to regulate corner of our financial institutions.

4. Allowing banks to have more business lines allows them to diversify their income streams, which will, all things being equal, make the financial system more stable.

Neither theory nor evidence backs up this complaint.... An economic crisis is the result of market-wide risks, and there’s good reason to believe that market-wide risk will go up as banks increase their business lines. That’s why the Volcker Rule is useful.... As Alexis Goldstein notes, “all the gains made by stand-alone prop trading desks from 2006–10 were entirely wiped out by prop trading losses” during the financial crisis. If diversification was a good thing, we would have seen these profits soar during the crisis. Instead, the desks all lost money at the same time, further exacerbating the crisis.

It is impossible to conceptually distinguish "prop trading" from "hedging," so the Volcker rule will make banks less hedged and more risky.

If restricting activity X makes large banks smaller, that will ease the resolution process, following a financial crack-up.  That is a definite plus, although we do not know how much easier resolution will be.

5. The Volcker Rule will decrease liquidity and available financial services, making the financial sector more vulnerable and less able to meet the needs of the real economy.

This is a concern, but the status quo wasn’t ideal on this front, either. During the last financial crisis, liquidity in the markets disappeared, which shows how vulnerable we are if liquidity is concentrated in a few large banks who have access to the safety net (see Richardson).

The Volcker Rule is designed to allow banks to continue core functions like “market-making” — that is, matching buyers with sellers or acting as an intermediary by using financial instruments. Even so, some liquidity will move to other firms that don’t depend on the banking safety net, creating more competition. This is a perfectly appropriate response.

It is impossible to conceptually distinguish "prop trading" from "market-making," so the Volcker rule will make market making more difficult and expensive and reduce market liquidity.

I do not myself shed too many tears over the “these markets will become less liquid without banks’ participation” critique, but I would note this is a personal judgment and the scientific status of such a claim remains unclear.

6. It is impossible to distinguish between prop trading and the legitimate functions that firms are supposed to be able to still engage in, like market-making and hedging.

This is the correct debate to be having. There are certainly some activities that are clearly considered “proprietary trading,” and banks will be barred from doing these. But there are real questions and gray areas surrounding activities that want to keep banks doing, such as market-making or hedging against risks. As discussed here, we’ll want to keep a close eye on how banks change after the rule is implemented. But the regulators see this as their job and are moving on the task.

Is that a realistic prospect? Will banks revise the documentation and wording of a trade to achieve roughly the economic goal of proprietary trading without calling it "proprietary trading"? Are they banks?...

Well, if banks shift the same activity from "prop trading" to "lending" then, at the margin, they're shifting from a purely mark-to-market world to one with more scope for avoiding mark-to-market losses. At the margin, they become a bit more opaque. They can hide volatility in lending and available-for-sale activities...

There is some danger that loopholes in the regulation itself — especially as concerns permissible client activities — may undercut the original intent of the regulation. This will depend on exactly how well the regulation is written, but past regulatory history does not make me especially confident here.  And the distinction between “speculation” and “hedging” cannot be clearly defined. 

Should we be writing rules whose central distinctions may be arbitrary?  And yet CEOs will have to sign off on compliance (with 950 pp. of regulations) personally. Is that a good use of CEO attention?  Here is a good FT piece about how hard (and ambiguous) it will be to enforce the rule globally.

So, rebuilding the core banking sector to be boring and focused on their core business lines, while mitigating systemic risks and enforcing other parts of reform. What’s not to like?

I guess I'll sidle over to the anti-Volcker-rule side of the mood affiliation. I mostly think the Volcker rule -- which will prohibit U.S. banks from engaging in "proprietary trading" but with exemptions for "market-making" and "hedging" -- is dumb for all the obvious reasons....

Everybody always wants banks to provide cheap and plentiful credit without taking any risks. If the Volcker rule is another attempt to achieve that fantasy, maybe it's not all bad.

When I add up all of these factors, I come closer to a “don’t do the Volcker rule” stance in my mind.... It does not fit the textbook model of good regulation.  I probably have a more negative opinion of “an extreme willingness to experiment with arbitrary regulatory stabs” than do most of the rule’s supporters, and that difference of opinion is perhaps what divides us, rather than any argument about financial regulation per se....

Many people, even seasoned commentators, approach the Volcker rule with mood affiliation, starting with how much we should resent our banks or our regulators or how we should join virtually any fight against either “big banks” or regulators.  I see many analyses of this issue which spend most of their time on “mood affiliation wind-up,” as I call it, and not so much time on the actual evidence, which is inconclusive to say the least.


Afternoon Must-Read: Adrian Hon: A History of the Future in 100 Objects

Via Jason Kottke, Adrian Hon: A History of the Future in 100 Objects:

Every century is extraordinary, of course. Some may be the bloodiest or the darkest; others encompass momentous social revolutions, or scientific advances, or religious and philosophical movements. The 21st century is different: it represents the first time in our history that we have truly had to question what it means to be human. It is the stories of our collective humanity that I hope to tell... how we became more connected than ever before, with objects like Babel, Silent Messaging, the Nautilus-3, and the Brain Bubble--and how we became fragmented, both physically and culturally, with the Fourth Great Awakening, and the Biomes. With the Braid Collective, the Loop, the Steward Medal, and the Rechartered Cities, we made tremendous steps forward on our long pursuit of greater equality and enlightenment--but the Locked Simulation Interrogations, the Sudan-Shanghai Letter, the Collingwood Meteor, and the Downvoted all showed how easy it was for us to lapse back into horror and atrocity.

We automated our economy with the UCS Deliverbots, the Mimic Scripts, the Negotiation Agents, and the Old Drones, destroying the entire notion of work and employment in the process; and we transformed our politics with Jorge Alvarez's Presidential Campaign, and the Constitutional Blueprints...


Top Clinton Aide John Podesta To Return To White House As Senior Counselor To Obama

Cap john podesta Google Search

Jim Kuhnhenn: Top Clinton Aide John Podesta To Return To White House As Senior Counselor To Obama:

John Podesta, a former chief of staff to President Bill Clinton and a trusted Democratic operative, will join the White House staff as a senior counselor to President Barack Obama, two persons familiar with the move said late Monday.... Podesta is the founder and former president of the Center for American Progress, a Democratic think tank with close ties to the White House.... The two persons familiar with the development confirmed it to The Associated Press on the condition they weren't named because the announcement was not official.

Podesta, 64, is well respected in political circles both as a strategist and a policy thinker. He would likely step into the role played by Pete Rouse at the White House, who is expected to leave...

Everybody I know who was watched John Podesta operate has been extremely impressed. He has punched well, well above his weight at least twice in his recent career. First, he managed to bring order and unity of purpose to the seven-ring circus that was the Clinton White House--an achievement that leads nearly everyone to have a very high opinion of him, with the highest held by his predecessors as Clinton White House chiefs of staff. Second, he managed to make the Center for American Progress into an organization that has the technocratic policy, the public relations media, and the political savvy and influence of Cato, AEI, Heritage, CEI, AAF, and a few more all by itself--in spite of having at most 1/10 the budget of its dark-side sisters.

That is an astonishingly good record of accomplishment in Washington, where most of what is built costs a lot of money and immediately sinks into the swamp...


Evening Must-Read: John Podesta on Income Inequality's Ripple Effect

John Podesta: Income Inequality’s Ripple Effect:

Last week, Barack Obama, delivering the clearest and most powerful economic policy speech of his presidency at an event sponsored by the Center for American Progress, identified “the combined trends of increased inequality and decreasing mobility” as “the defining challenge of our time.” The week before, in his first papal exhortation, Pope Francis robustly criticized “trickle-down theories” of economic growth as having “never been confirmed by the facts”.... Soon after being awarded the Nobel Prize in Economics, Robert Shiller told the Associated Press that inequality was “the most important problem that we are facing now today.”...

Continue reading "Evening Must-Read: John Podesta on Income Inequality's Ripple Effect" »


Evening Must-Read: Joe Romm: Warming Drives More Extreme Summer Heat Waves, Droughts And Deluges, Study Finds

Joe Romm: Arctic Warming Drives More Extreme Summer Heat Waves, Droughts And Deluges, Study Finds:

A new study links the past decade’s “exceptional number of unprecedented summer extreme weather events” in the U.S. and Europe with the “record declines in both summer Arctic sea ice and snow cover on high-latitude land.” Researchers at the Chinese Academy of Sciences, along with Rutgers Prof. Jennifer Francis, make the case in a Nature Climate Change study, “Extreme summer weather in northern mid-latitudes linked to a vanishing cryosphere”. Scientists predicted a decade ago that Arctic ice loss would shift storm tracks and bring on worse western droughts of the kind we are now seeing. Recent studies find that Arctic sea ice loss may well usher changes in the jet stream that lead to more U.S. extreme weather events.... Global warming melts highly reflective white ice and snow, which is replaced by the dark blue sea or dark land, both of which absorb far more sunlight and hence far more solar energy. That is one of the many sources of “polar amplification,” whereby the Arctic warms much faster than other parts of the globe. Now it seems increasingly clear that the amplified Arctic warming in turn amplifies extreme weather by shifting and weakening the jetstream...


Implications of Reifschneider, Wascher, and Wilcox's Estimates on the Immediate Need for Lots of Expansionary Policy: Tuesday Focus

FRED Graph St Louis Fed

As Reifschneider et al. politely put it:

Endogeneity of [long-run potential aggregate] supply with respect to [short-run] demand [shortfalls] provides a strong motivation for a vigorous policy response to a weakening in aggregate demand...

And, boy, do they find a very strong endogeneity of long-run potential aggregate supply--roughly three times as strong as the numbers I have been using for finger exercises over the past two years. And, boy, does the arithmetic then tell us that this then calls for a "vigorous" policy response...

Let me give the mike to Ryan McCarthy to explain the issues:

Continue reading "Implications of Reifschneider, Wascher, and Wilcox's Estimates on the Immediate Need for Lots of Expansionary Policy: Tuesday Focus" »


Robert Waldmann: Facts (About AFDC, TANF, etc.) Are Stubborn Things...

Barack Obama should be glad that Robert Waldmann was over in Italy rather than in the audience during his "inequality" speech last week. Just saying:

Robert Waldmann: Obama, AFDC, TANF, EITC, and facts which are stubborn things:

I want to stress that I do no mean to criticize Obama’s speech or even suggest that it could possibly have been better. However, I do wish to note the facts that it contains a gross contradiction....

some programs in the past, like welfare before it was reformed… poorly designed, created disincentives to work, but… every citizen of this country deserved a basic measure of security, a floor through which they could not fall, we helped millions of Americans live in dignity...

The reform of welfare was changing it from a program which established a floor through which families with dependent children could not fall, to a program in which some families with dependent children have zero cash income.

Continue reading "Robert Waldmann: Facts (About AFDC, TANF, etc.) Are Stubborn Things..." »


I Am Pleased to See Martin Feldstein Wisely Calling for Large, Immediate Fiscal Stimulus to Boost Employment!

But the rest of his column leaves me puzzled...

Martin Feldstein calls for the U.S. to fight deficient aggregate demand by spending an extra trillion dollars on infrastructure over the next five years--and then to keep that program from worsening the government debt-to-GDP ratio by also enacting tax increases and spending cuts that would bring the debt down to its baseline level between, say, years five and fifteen, by, say, 2028.

Continue reading "I Am Pleased to See Martin Feldstein Wisely Calling for Large, Immediate Fiscal Stimulus to Boost Employment!" »


Why I Am More Optimistic About Money-Financed Expansionary Fiscal Policy than About Quantative Easing

What David Beckworth misses is that if quantitative easing is used to fund expansionary fiscal policy--if the government buys not long-term Treasury bonds but, rather, bridges and NIH research and the human capital of twelve-year olds--then those asset purchases are going to be permanent: you cannot unwind those transactions. Hence, by Beckworth's logic, that policy will be effective.

Or, at least, it might be:

Continue reading "Why I Am More Optimistic About Money-Financed Expansionary Fiscal Policy than About Quantative Easing" »


Things to Read on the Afternoon of December 9, 2013

Must-Reads:

  1. Mark Thoma: sends us to John Cassidy: By George, Britain's Austerity Experiment Didn't Work! :"George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again.... For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news.... It’s a clever political line... it appears to be having an impact... caught by surprise most forecasters.... But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally.... It produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden.... The problem... is that the 'hard work' hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse..."

  2. Paul Krugman: Robert Gordon vs. the Androids: I think I have a new way to explain why my gut feeling is that Bob [Gordon], while making a persuasive case (pdf), is probably wrong. Bob’s key point... is that the digital revolution really just doesn’t match up to the major innovations of the Second Industrial Revolution of the late 19th century.... But... suppose that we learned to build true androids... that would be transformative... end diminishing returns to capital accumulation... raising GDP per capita would simply be a matter of multiplying the androids. So how are things going on the android front? A decade ago I would have said “very badly”.... But something has happened—things that were widely regarded as jokes not long ago, like speech recognition, machine translation, self-driving cars, and so on, have suddenly become more-or-less working reality.... They’re using big data and correlations and so on to implement algorithms--mindless algorithms, you might say. But if they can take people’s place, does it matter?

    "The anti-Gordon case, then, would be that something like my android revolution is underway. If you buy that case, you can become a technological optimist.... You might also be a pessimist in the sense that you wonder what happens to wages once androids can do most human work. Also, Skynet will kill us all. But that, anyway, is where I would place the issue."

  3. Noah Smith: Noahpinion: Seven principles for arguing with economists: "1: Credentials are not an argument.... Suggested Retort: Loud, barking laughter. 2: 'All theories are wrong' is false.... Suggested Retort: Empty an entire can of Silly String onto anyone who says this.... 3: 'We have theories for that' is not good enough.... Suggested Retort: 'Then how come no one was paying attention to those theories before Phenomenon X emerged and slapped us upside the head?'.... 4: Argument by accounting identity almost never works.... Suggested Retort: 'If my theory violates an accounting identity, wouldn't people have noticed that before? Wouldn't this fact be common knowledge?'... 5: The Efficient Markets Hypothesis does not automatically render all models useless.... Suggested Retort: 'By your logic, astrophysics can never predict when an asteroid is going to hit the Earth.'... 6: Models that only fit one piece of the data are not very good models.... Suggested Retort: 'Nope!'... 7: The message is not the messenger.... Suggested Retort: 'Well, now it's me making the argument! So what are you going to say about me?'..."

Continue reading "Things to Read on the Afternoon of December 9, 2013" »


Does America's Future Contain Elite Public Universities?

Musings on the Three Tasks Required of New Berkeley Chancellor Nicholas Dirks...

So how is new UC Berkeley Chancellor Nicholas Dirks doing, anyway?

As you may or may not remember, I think that the historic tasks of a UC Berkeley Chancellor today are three: two financial (with concomitant implications for the deployment of Berkeley's resources) and the third technological.

The financial tasks are:

  • to rebalance Berkeley's finances in this post-Clark Kerr era by (partially) transforming it into a finishing school for the superrich of Asia.
  • to rebalance Berkeley's enrollment by creating a system and which nobody who should be going to Berkeley feels that they cannot afford it or cannot risk it, and yet in which it is rich Berkeley graduates rather than the poorer median taxpayers of California who bear the financial burden of supporting the public university.

The technological task is:

  • to figure out how to use, rather than to misuse, abuse, or not use the new educational technologies made feasible by our ongoing revolutions in information and telecommunications.

And, of course, the chancellor must make progress via the Sisyphean process of bureaucratic persuasion and marginal budget reallocation...

Continue reading "Does America's Future Contain Elite Public Universities?" »


Ashok Rao on Has Rising Inequality Really Been a Problem Over the Past Generation?: The Honest Broker for the Week of December 8, 2013

Attention Conservation Notice: 2700 words mostly by Ashok Rao reviewing--and dismissing--the arguments against worrying that rising inequality has been a major problem over the past generation.


The near-consensus view over here at Equitable Growth and at the Equitablog is that U.S. economic growth over the past generation has been very disappointing. Too-much of our economic growth has been wasted producing the wrong stuff and delivering it to the wrong people, and we have failed to properly and productively invest at the rate we could in people, machines and buildings, ideas and organizations, and institutions. The hunch around here is that these two are tightly coupled: that the rapid rise in inequality as a result of the derangement of incentives has both decoupled the links between higher measured real GDP and human economic welfare and material well-being, and has also slowed the growth of our potential to produce real GDP.

But we could be wrong. And many argue that we are. What do we think of their arguments at their best?

Overwhelmed with work, I asked the smart, thoughtful, and enthusiastic Ashok Rao--along with Evan Soltas one of the leading lights in the next generation of webloggers--to take a look at the arguments of Scott Winship (formerly of Brookings and now of the Manhattan Institute) and others. He was not persuaded: cherry-picking and tendentious shifting of the burden of proof was his assessment.

So let me turn the microphone over to Ashok Rao:

Continue reading "Ashok Rao on Has Rising Inequality Really Been a Problem Over the Past Generation?: The Honest Broker for the Week of December 8, 2013" »


"The Honest Broker"

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Over at Equitable Growth's Equitablog I am starting a hopefully-weekly feature I am going to call: "The Honest Broker". The point of it is to, once a week, give people a 3000-or-so-word introduction and assessment that will bring them up to speed on some particular issue of importance to equitable growth.

This will be in large part the point of the Equitablog weblogging exercise: we want to play our position, and help focus the attention of the public sphere on the issues that are truly important, rather than joining the webloggy equivalent of the 20 six-year-olds in a mass around the soccer ball who have forgotten which goal is there's and are kicking randomly.

And putting out, once a week or so, an introduction-and-assessment of an issue area seems a good way to do that.

In a year we will have 52 slots. That should be enough to cover great deal of the issues relevant to equitable growth--to the seamless web of advancing material well-being, in its components of accumulation and investment (of factors, ideas, and institutions), production (providing incentives to use accumulated and invested resources to produce stuff, producing stuff in the right proportions, and ensuring demand is there to get the produced stuff bought), distribution (plus its feedbacks onto production and accumulation and investment), and implementation.

Plus dialogue: this will work only if we get the dialogue going...

So: Suggestions? Examples? Pitches? Requests?


The first three are:


Sunday-Morning Must Read: Paul Krugman on the Arithmetic of "Secular Stagnation"

Paul Krugman: Secular Stagnation Arithmetic:

The key point is NOT to focus on events since crisis struck; this is not a case of taking a business-cycle slump and imagining that it will last forever. Instead, the argument is that the sources of demand during the good years-the Great Moderation from 1985-2007--are not going to be available even when the aftereffects of crisis have faded away.... Underneath the apparent stability of the Great Moderation... debt... rising by around 2 percent of GDP annually; that’s not going to happen in future... a reduction in demand... of around 2 percent of GDP....

Slowdown in the rate of growth of potential output, mainly... demography... perhaps... slowing productivity.... CBO thinks... 1 percentage point.... The [investment] 'accelerator'... is somewhat above 2[:]... a 1 percentage point drop in potential growth would reduce investment spending by 2 percent of GDP.... We seem to be depressing aggregate demand by 4 percentage points....

Now, this effect can be offset to some degree by reducing interest rates. But can this be enough?... The average real rate during the GM years was 1.9 percent... hard to avoid the conclusion that the average real rate looking forward will have to be negative. If inflation stays relatively low, e.g. 2 percent, this would mean an economy that often, perhaps usually, finds itself in a liquidity trap...


Sunday Morning Must-Read: Sherry Glied and Stephanie Ma on States That Reject Medicaid Expansion Shooting Their Economies and Their Budgets in the A---

Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion:

The Supreme Court ruled to allow states to choose whether to participate in the expansion. Many of the states declining to participate have pointed to a potential negative impact on their budgets.... We compare the expected flow of Medicaid expansion-related federal funds in 2022... to payments to state governments through federal highway subsidies and payments to state businesses through defense procurement... to taxes raised by the federal government to fund the program... the state’s share of the cost of the Medicaid expansion in 2022—the match needed to draw these federal funds—to state expenditures that aim to draw private investments to states.

We find that the Medicaid expansion will be a relatively large source of federal revenue... 2.35 times as great as expected federal highway funds... over one-quarter as large as expected defense procurement... No state would experience a positive flow of funds by choosing to reject the Medicaid expansion... taxpayers in non-participating states will nonetheless bear a significant share of the overall cost of the expansion... and not enjoy any of the benefits. Most states’ budget costs of expanding Medicaid each year will be, on average, less than one-sixth the amount they pay to attract private businesses..."


Things to Read on the Afternoon of December 8, 2013

Must-Reads:

  1. Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion: "The Supreme Court ruled to allow states to choose whether to participate in the expansion. Many of the states declining to participate have pointed to a potential negative impact on their budgets.... We compare the expected flow of Medicaid expansion-related federal funds in 2022... to payments to state governments through federal highway subsidies and payments to state businesses through defense procurement... to taxes raised by the federal government to fund the program... the state’s share of the cost of the Medicaid expansion in 2022—the match needed to draw these federal funds—to state expenditures that aim to draw private investments to states. We find that the Medicaid expansion will be a relatively large source of federal revenue... 2.35 times as great as expected federal highway funds... over one-quarter as large as expected defense procurement... No state would experience a positive flow of funds by choosing to reject the Medicaid expansion... taxpayers in non-participating states will nonetheless bear a significant share of the overall cost of the expansion... and not enjoy any of the benefits. Most states’ budget costs of expanding Medicaid each year will be, on average, less than one-sixth the amount they pay to attract private businesses..."

  2. Paul Krugman: Secular Stagnation Arithmetic: "The key point is NOT to focus on events since crisis struck; this is not a case of taking a business-cycle slump and imagining that it will last forever. Instead, the argument is that the sources of demand during the good years-the Great Moderation from 1985-2007--are not going to be available even when the aftereffects of crisis have faded away.... Underneath the apparent stability of the Great Moderation... debt... rising by around 2 percent of GDP annually; that’s not going to happen in future... a reduction in demand... of around 2 percent of GDP.... Slowdown in the rate of growth of potential output, mainly... demography... perhaps... slowing productivity.... CBO thinks... 1 percentage point.... The [investment] 'accelerator'... is somewhat above 2[:]... a 1 percentage point drop in potential growth would reduce investment spending by 2 percent of GDP.... We seem to be depressing aggregate demand by 4 percentage points.... Now, this effect can be offset to some degree by reducing interest rates. But can this be enough?... The average real rate during the GM years was 1.9 percent... hard to avoid the conclusion that the average real rate looking forward will have to be negative. If inflation stays relatively low, e.g. 2 percent, this would mean an economy that often, perhaps usually, finds itself in a liquidity trap..."

  3. Ezra Klein: Should the FDA stop you from scaring yourself with 23andMe’s DNA test?: "Let’s agree that 23andMe Inc., the Google-backed company marketing a $99 genetics test that assesses your risk for more than 240 health conditions, didn’t manage its relationship with the Food and Drug Administration well.... The public humiliation of 23andMe shows how dangerous it is for any company to cross regulators. But there’s a benefit derived from upstarts such as 23andMe bristling at creaky, old rules: They force a re-examination.... The FDA, in its letter to 23andMe, cites potential harms from genetic testing; all are bank shots. After all, swabbing your saliva carries very little risk. So the FDA focuses instead on the possibility that a test will lead consumers to do something else that actually harms them.... Don Taylor, a health researcher at Duke University, delivers the obvious rebuttal.... Is preventing patients from making bad decisions the FDA’s mandate?... Investors in 23andMe should be furious that the company handled its relationship with the FDA so badly. But for the rest of us, there’s upside to seeing this spat play out in public."

Continue reading "Things to Read on the Afternoon of December 8, 2013" »


Must-Read for the Evening of December 8, 2013: John Cassidy: By George, Britain's Austerity Experiment Didn't Work!

Mark Thoma: sends us to John Cassidy: By George, Britain's Austerity Experiment Didn't Work!

George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again.... For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news.... It’s a clever political line... it appears to be having an impact... caught by surprise most forecasters....

But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally.... It produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden....

The problem... is that the 'hard work' hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse..."


Sunday Evening Must Read: Paul Krugman: Robert Gordon vs. the Androids

Paul Krugman: Robert Gordon vs. the Androids:

I think I have a new way to explain why my gut feeling is that Bob [Gordon], while making a persuasive case (pdf), is probably wrong. Bob’s key point... is that the digital revolution really just doesn’t match up to the major innovations of the Second Industrial Revolution of the late 19th century, which he contends drove growth well into the 20th century.. indoor plumbing beats iPads.

But... what would a digital revolution that lived up to the past look like?... Suppose that we learned to build true androids... that would be transformative... end diminishing returns to capital accumulation... raising GDP per capita would simply be a matter of multiplying the androids. So how are things going on the android front? A decade ago I would have said “very badly”.... But something has happened—things that were widely regarded as jokes not long ago, like speech recognition, machine translation, self-driving cars, and so on, have suddenly become more-or-less working reality.... They’re using big data and correlations and so on to implement algorithms--mindless algorithms, you might say. But if they can take people’s place, does it matter?

The anti-Gordon case, then, would be that something like my android revolution is underway. If you buy that case, you can become a technological optimist....

You might also be a pessimist in the sense that you wonder what happens to wages once androids can do most human work.

Also, Skynet will kill us all.

But that, anyway, is where I would place the issue.


The Hamilton Project on SNAP--the Program Formerly Known as "Food Stamps"--and Confiscatory Marginal Tax Rates on Two-Earner Working Poor Families: What Other Equitable Growth Think Tanks Are Doing Weblogging

From Benjamin Harris and Melissa Kearney of the WCEG's older cousin, the Hamilton Project:

Via Mark Thoma: A Dozen Facts about America’s Struggling Lower-Middle-Class :

  • More than half of families in the United States earn $60,000 or less per year.
  • Nearly half of families in the United States live below 250 percent of the federal poverty level.
  • Struggling lower-middle-class families are almost equally headed by single parents and married couples....
  • Roughly 40 percent of children in the struggling lower-middle class experience food insecurity or obesity, or both....
  • Nearly 90 percent of Supplemental Nutritional Assistance Program (SNAP) recipients live in a household with at least one child, one disabled individual, or one elderly individual. America’s tax and transfer system expands the middle class....
  • A low-income, single parent can face a marginal tax rate as high as 95 percent.
  • The highest marginal tax rates tend to fall on the struggling lower-middle class.

Continue reading "The Hamilton Project on SNAP--the Program Formerly Known as "Food Stamps"--and Confiscatory Marginal Tax Rates on Two-Earner Working Poor Families: What Other Equitable Growth Think Tanks Are Doing Weblogging" »


Our Coming Chronic Discouraged-Worker Epidemic: Friday Focus

This morning the BLS tells us that we had in November a civilian adult employment-to-population ratio at 58.6%, no better than in October 2009...

FRED Graph St Louis Fed 2

The civilian unemployment rate down to 7.0%, more than halfway back to its business-cycle peak value from the Lesser Depression nadir...

FRED Graph St Louis Fed 6

The labor force participation rate down to 63.0%--when demography tells us it would be 65.5% in a healthy economy...

FRED Graph St Louis Fed 2

The nightmare: that we will never get those 2.5% of adults who are the missing members of the labor force back into looking for jobs, and then into employment.

Can we get them back into the labor force? What would we have to do to get them back into the labor force?


Lunchtime Must-Read: Sherry Glied and Stephanie Ma: What States Not Expanding Medicaid Are Losing...

Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion:

Following the Supreme Court’s decision in 2012, state officials are now deciding whether to expand their Medicaid programs under the Affordable Care Act. While the states’ costs of participating in the Medicaid expansion have been at the forefront of this discussion, the expansion has much larger implications for the flow of federal funds going to the states. This issue brief examines how participating in the Medicaid expansion will affect the movement of federal funds to each state. States that choose to participate in the expansion will experience a more positive net flow of federal funds than will states that choose not to participate. In addition to providing valuable health insurance benefits to low-income state residents, and steady sources of financing to state health care providers, the Medicaid expansion will be an important source of new federal funds for states.

Continue reading "Lunchtime Must-Read: Sherry Glied and Stephanie Ma: What States Not Expanding Medicaid Are Losing..." »


Things to Read on the Evening of December 6, 2013

Must-Reads:

  1. Rick Santorum: Africanist: "Nelson Mandela…was fighting against a great injustice. I would make the argument that we have a great injustice going on right now in this country with an ever increasing size of government that is taking over and controlling people’s lives, and Obamacare is front and center in that..."

  2. Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion: "Following the Supreme Court’s decision... state officials are now deciding whether to expand their Medicaid programs under the Affordable Care Act.... States that choose to participate in the expansion will experience a more positive net flow of federal funds than will states that choose not to participate. In addition to providing valuable health insurance benefits to low-income state residents, and steady sources of financing to state health care providers, the Medicaid expansion will be an important source of new federal funds for states:"

Should-Reads:

  1. Matthew Klein: Fixing What's Wrong With Economics 101: "My colleague James Greiff tells me that his introductory course in economics had a heavy emphasis on the history of ideas, with The Worldly Philosophers as his textbook. But things have changed since then. In my ideal world, introductory economics students would start as I did, by studying Richard Radford’s account of his experience in a German prisoner of war camp during World War II. It’s less than 14 pages.... Joan and Richard Sweeney’s account of their baby-sitting cooperative’s troubles with inflation and deflation during the 1970s is another classic text.... Longer readings could include Charles Kindleberger’s Manias, Panics, and Crashes and Liaquat Ahamed’s Lords of Finance..."

  2. NewImageSteve Goldstein: What bubble? Corporate profits reach new record as share of GDP: "One can make an argument about the stock market being overvalued, but the corporate profits that should underlie valuations are certainly in pretty good shape.... There are a number of profit measures in the report, but the one shown in this graph, adjusted after-tax profits.... As a percentage of GDP, corporate profits reached a record of 10.8%..."

  3. Paul Krugman: PREs, VSPs, and the ECB: "Via Mark Thoma, ECB Watchers reports on what it calls a 'confusing' speech by Peter Praet, the chief economist of the European Central Bank. But actually there’s nothing at all confusing.... Praet, we learn from the speech, is a PRE; so, probably, are many of his colleagues at the ECB, including, one suspects, Mario Draghi himself. But they have to operate in an environment where Europe’s VSPs, who are both doctrinaire and in important ways anti-intellectual, still hold enormous power.... Praet... shows himself to be a Perfectly Reasonable Economist, aware of the... the zero lower bound on interest rates and the great difficulty in engineering downward movements in nominal wages.... You do have to wonder what calculation leads to the notion that a[n inflation] target of “close to but less than 2%” is appropriate, as opposed to, say, 3 or 4 percent. But actually you don’t... he and his boss have to deal with Europe’s Very Serious People... who believe in austerity regardless of circumstances....

    "The sad and remarkable thing that we’ve learned over the past year or so is how little intellectual debate matters. On both fiscal austerity and monetary policy, the PREs have completely blow the VSPs out of the water — the inflationistas, the expansionary austerians, the 90-percent threshold of doom people have all seen their claims collapse in the face of evidence. Yet policy barely changes, and the VSPs continue to talk as if they are in possession of The Truth. Still, I guess it’s good to know that there are PREs at the ECB, even if what they know doesn’t seem to matter very much."

Should Be Aware of:

  1. J.F.: Republican policy: Think of something: "AT A lunch given by a Republican women's club outside Augusta, Georgia last month, Ralph Hudgens, Georgia's Insurance Commissioner, shared his thoughts on the Affordable Care Act (ACA). The subject of his ire, curiously, was the requirement that insurers cover pre-existing conditions—-a provision of the ACA that even his fellow Republicans have little problem with. To Mr Hudgens, however, having a pre-existing condition and expecting insurers to cover you anyway is no different than getting into a car wreck that's "your fault". It's callous, cruel and, of course, wrong: the human body breaks down, and it breaks down in ways that are neither predictable nor fair.... Now, the ACA isn't perfect, but it is at least a good faith effort to make sure that nobody dies or goes bankrupt from lack of insurance. One would expect the Insurance Commissioner of Georgia to at least mention, if only for appearance's sake, his concern for the hundreds of thousands of Georgians that might suffer those fates. But no.

    "I was thinking of Mr Hudgens as I read this month's cover story in Commentary. It's a plea from John Podhoretz and Michael Medved to Republicans: stop the infighting, the primary challenges, the insistence on ideological purity, because 'the truest beneficiary of the intra-Republican civil war will be the Democratic Party'. In that assessment, they are, of course, correct.... Messrs Podhoretz and Medved are also correct in identifying a second batch of beneficiaries of Republican infighting: 'a new class of political activists' who rely on 'emotion—often negative emotion'.... Politics is easy. Anyone can yell at the TV. Anyone can get outraged at an email accusing someone of perfidy, treason, dishonesty or failing to honour campaign promises. Anyone can fork over money to someone who promises that they and they alone can save America. I am still on the email lists for various failed Republican presidential candidates from 2012, and they still send me emails: Biblical secrets to investing! The weird trick about retirement income the government doesn't want you to know! It's the same marketing strategy, just with grifts rather than candidates.

    "Where I think Messrs Podhoretz and Medved err--and how this connects to Mr Hudgens--is their assumption that if Republicans would just stop the infighting, they'd win. In their entire article they have not one policy idea, just an exhortation to 'attract votes and voters'. The unstated assumption... is that Barack Obama won through some combination of chicanery, anti-white racism and his 'cool' factor.... One candidate favoured universal health care, higher taxes on the rich and a relatively non-bellicose foreign policy; the others opposed all three.... As I said above, the ACA is far from perfect. But it's better than telling cancer patients and diabetics that it's all their fault."

  2. Ed Kilgore: The Lost Constituency For Fighting Inequality: "A crucial factor in the success or failure of conservative backlash against efforts to extend the social safety net is whether they can be depicted as morally offensive to people who really have little or nothing in common with the wealthy and powerful Americans being asked to pay the freight. And that’s why racial appeals are so important in mobilizing downscale white folks to view themselves as victims or rivals of those people benefiting from our barebones version of the European welfare state.... It’s no longer considered dangerously self-destructive for representatives of our economic ruling classes to talk about getting rid of the New Deal and Great Society programs and making America an experiment in unregulated capitalism."

Zack Beauchamp: How President Obama's Speech Today Explains His Presidency | Alan Pyke: Obama: Forget Fiscal Deficits, Focus On 'Relentlessly Growing Deficit Of Opportunity' | Kevin Drum: We Are Deliberately Destroying Our Medical Future | Aaron Carroll: Media madness, ACA edition |


Austin Frakt Marvels at the Slowing Growth Trajectory of National Health Expenditures

Austin Frakt: Chart: Growth trajectory of national health expenditures | The Incidental Economist:

Aaron noted a recent JAMA study titled “The Anatomy of Health Care in the United States.” It turns out it’s chock full of great charts. We like charts! So, I’ll share some over the next few weeks. Here’s one that you’ve no doubt seen before, or part thereof. Still, it’s too nice a chart not to share. It certainly puts the recent slowdown (bottom time series) in perspective, doesn’t it? Unprecedented.

NewImage

Continue reading "Austin Frakt Marvels at the Slowing Growth Trajectory of National Health Expenditures" »


Morning Must-Read: Ken Rogoff on the Need for More Expansionary Fiscal Policy--of a Form That Pays for Itself via Higher Tax Revenue in the Long Run

Ken Rogoff: Kenneth Rogoff asks whether we need to know what's ailing the advanced economies in order to boost growth. - Project Syndicate:

Summers is certainly right that productive infrastructure investment is the low-hanging fruit.... Productive infrastructure investment that generates long-term growth pays for itself, so there need not be any conflict between short-term stabilization and risks to long-term debt sustainability. With today’s ultra-low interest rates and high unemployment, public investment is cheap and plenty of projects offer high returns: fixing bridges and roads, updating badly outmoded electricity grids, and improving mass-transportation systems, to take just a few notable examples.... Those... [with] faith that Keynesian multipliers are much bigger than one... [think] even wasteful government spending is productive. But... with so many options for the productive use of resources, this seems like a titanic ideological distraction.... Barack Obama suggested the creation of an infrastructure bank to help promote public-private partnerships. It is still a good idea, particularly if the bank maintained a professional staff to help guide public choice.... Even if Keynesian multipliers are truly at the upper end of consensus, mobilizing private capital for investment has most of the advantages of issuing public debt.... The case for expanding productive infrastructure investment does not rest on one narrow ideological viewpoint or economic theory.... it is time to break the political gridlock and restore growth.


Morning Must-Read: Mark Thoma: Models Are Tools: Use the Right Tool for the Curren Job

Mark Thoma: Is There One Economic Model to Rule Them All?:

Models are built to answer specific questions. We don’t have one grand model that can explain everything.... The best map to use to drive from Seattle to Los Angeles is a lot different from the best map to find out if it is safe to dig a deep hole in someone’s yard.... And if we try to stuff even more information onto the map so that it can answer all of our questions, telephone poles, roads, elevation, every side road, every house and every store, all the bus routes, rainfall, the types of vegetation, etc. etc. the map becomes too complicated to be useful. Economic models are no different. The trick in modeling is to pare away all the inessential features so that there can be a sharp focus on the question of interest. The best maps are very specialized and highlight only what we need to know. The best economic models do the same....

Where I disagree with many of my colleagues is in the assertion that we should limit ourselves to a single class of models, e.g. variations on the New Keynesian model... built to explain a world of moderate fluctuations in GDP... featur[ing] temporary price rigidities... [with] aggregates... consistent with the optimizing behavior of individual consumers and producers. For certain types of questions – how should policymakers behave to stabilize an economy with mild fluctuations induced by price rigidities--it is the best model to use.... When a different world emerged, a large financial shock and the ensuing Great Recession, the model was of little use.... The IS-LM model, on the other hand, was built in the aftermath of the Great Depression to examine precisely the kinds of questions we faced throughout the Great Recession, issues such as a liquidity trap, the paradox of thrift, and how policymakers should react in such an environment. Why is it surprising that a model built to explain a particular set of questions does better than a model built to explain other things?


"Microfoundations": I Do Not Think That Word Means What You Think It Means: Wednesday Focus

Ash nazg durbatalik!--no, that is wrong: "nazg" is the Orcish word for "ring". What is the Orcish word for "economic model" anyway?

I find this morning that the intelligent, thoughtful, and extremely hard-working Mark Thoma is pleading for appropriate model-using: use the right tool for the job, rather than simply building the biggest hammer you can under the assumption that everything is a nail:

Mark Thoma: One Model to Rule Them All?:

Continue reading ""Microfoundations": I Do Not Think That Word Means What You Think It Means: Wednesday Focus" »


Afternoon Must-Read: David Cutler: Lessons From the ACA Crash

David Cutler: JAMA Forum: Lessons From the ACA Crash « news@JAMA:

The Affordable Care Act (ACA) had a rough October and November... the federal health insurance exchange website http://www.healthcare.gov did not work... a number of people received insurance cancellation notices that they were not expecting. Insurance cancellation is common this time of year, but these notices were particularly troubling because people were told to look for replacements on the (nonfunctioning) exchange website.... The failure of the ACA rollout has many ramifications.... Two are particularly central to physicians and their patients: the future of the insurance exchanges and the lessons for running complex enterprises. The immediate danger from the rollout fiasco is to the health insurance exchanges....

The potential problem with the president allowing insurers to opt out of the ACA rules is that it creates a 2-tiered system for individuals getting insurance outside of an employer’s plan. One tier includes young and healthy individuals who can buy outside the exchanges; the second includes people who are older and those with preexisting conditions, for whom the exchange is the only option. Such an outcome could be very damaging. One immediate concern about the 2-tiered option is that insurers who have chosen to enter the exchanges will lose money.... It will be incumbent on the administration to watch out for these vulnerable plans. Having some of the most innovative plans fail in the first year would not be a good way to start reform.... The administration needs to develop a plan to merge the exchange and nonexchange populations in short order. In this case, “in short order” means a deadline of late spring 2014, when insurers will set premiums for 2015....

The second lesson from the rollout debacle is about the importance of good management.... All of the most admired health care systems—the Mayo Clinic, the Cleveland Clinic, Geisinger Health System, Virginia Mason Medical Center, Kaiser Permanente, and so on—have first-rate IT systems. Outside health care, Walmart became the largest company in the world in large part because of its good IT system.... Good companies promote those who do well and let go or counsel those who do not.... People in charge are familiar with the problems and able to focus effort, and operational employees are empowered to identify and solve problems. The Obama Administration failed in this last task.... Fixing the administration’s implementation efforts will require more than just fixing the website. It will mean changing the entire organization of the government’s ACA efforts...


Things to Read on the Evening of December 4, 2013

Must-Reads:

  1. Ken Rogoff: Kenneth Rogoff Calls for Expansionary Fiscal Policy via Infrastructure Investment: "Summers is certainly right that productive infrastructure investment is the low-hanging fruit.... Productive infrastructure investment that generates long-term growth pays for itself, so there need not be any conflict between short-term stabilization and risks to long-term debt sustainability. With today’s ultra-low interest rates and high unemployment, public investment is cheap and plenty of projects offer high returns: fixing bridges and roads, updating badly outmoded electricity grids, and improving mass-transportation systems, to take just a few notable examples.... Those... [with] faith that Keynesian multipliers are much bigger than one... [think] even wasteful government spending is productive. But... with so many options for the productive use of resources, this seems like a titanic ideological distraction.... Barack Obama suggested the creation of an infrastructure bank to help promote public-private partnerships. It is still a good idea, particularly if the bank maintained a professional staff to help guide public choice.... Even if Keynesian multipliers are truly at the upper end of consensus, mobilizing private capital for investment has most of the advantages of issuing public debt.... The case for expanding productive infrastructure investment does not rest on one narrow ideological viewpoint or economic theory.... it is time to break the political gridlock and restore growth."

  2. Ashok Rao: Inflation as Insurance: "A liquidity trap is not perfectly analogous, but it’s not hard to see its similarity with a heart attack.... We get risky and untested asset purchase programs as well as forward guidance which suffers from time inconsistency and relies heavily on the credibility of a decentralized institution. We get political dysfunction and immobility. The Tea Party and Occupy Movements are at least second cousins of the liquidity trap.... My point here is that including political and social costs of mass unemployment, it is not enough to say the [economic] costs of inflation outweigh the benefits. The Fed understands this, to some extent, considering its heroic effort.... I don’t think the costs of inflation outweigh the benefits, but I can’t construct a fancy model to prove that. It is worth asking why we target a lowly 2% to begin with. Because New Zealand did it?"

  3. David Cutler: JAMA Forum: Lessons From the ACA Crash « news@JAMA: "The Affordable Care Act (ACA) had a rough October and November... the federal health insurance exchange website http://www.healthcare.gov did not work... a number of people received insurance cancellation notices that they were not expecting. Insurance cancellation is common this time of year, but these notices were particularly troubling because people were told to look for replacements on the (nonfunctioning) exchange website.... The failure of the ACA rollout has many ramifications.... Two are particularly central to physicians and their patients: the future of the insurance exchanges and the lessons for running complex enterprises. The immediate danger from the rollout fiasco is to the health insurance exchanges....

    "The potential problem with the president allowing insurers to opt out of the ACA rules is that it creates a 2-tiered system for individuals getting insurance outside of an employer’s plan. One tier includes young and healthy individuals who can buy outside the exchanges; the second includes people who are older and those with preexisting conditions, for whom the exchange is the only option. Such an outcome could be very damaging. One immediate concern about the 2-tiered option is that insurers who have chosen to enter the exchanges will lose money.... It will be incumbent on the administration to watch out for these vulnerable plans. Having some of the most innovative plans fail in the first year would not be a good way to start reform.... The administration needs to develop a plan to merge the exchange and nonexchange populations in short order. In this case, “in short order” means a deadline of late spring 2014, when insurers will set premiums for 2015....

    "The second lesson from the rollout debacle is about the importance of good management.... All of the most admired health care systems—the Mayo Clinic, the Cleveland Clinic, Geisinger Health System, Virginia Mason Medical Center, Kaiser Permanente, and so on—have first-rate IT systems. Outside health care, Walmart became the largest company in the world in large part because of its good IT system.... Good companies promote those who do well and let go or counsel those who do not.... People in charge are familiar with the problems and able to focus effort, and operational employees are empowered to identify and solve problems. The Obama Administration failed in this last task.... Fixing the administration’s implementation efforts will require more than just fixing the website. It will mean changing the entire organization of the government’s ACA efforts..."

  4. Mark Thoma: Is There One Economic Model to Rule Them All?: "Models are built to answer specific questions. We don’t have one grand model that can explain everything.... The best map to use to drive from Seattle to Los Angeles is a lot different from the best map to find out if it is safe to dig a deep hole in someone’s yard.... And if we try to stuff even more information onto the map so that it can answer all of our questions, telephone poles, roads, elevation, every side road, every house and every store, all the bus routes, rainfall, the types of vegetation, etc. etc. the map becomes too complicated to be useful. Economic models are no different. The trick in modeling is to pare away all the inessential features so that there can be a sharp focus on the question of interest. The best maps are very specialized and highlight only what we need to know. The best economic models do the same.... Where I disagree with many of my colleagues is in the assertion that we should limit ourselves to a single class of models, e.g. variations on the New Keynesian model... built to explain a world of moderate fluctuations in GDP... featur[ing] temporary price rigidities... [with] aggregates... consistent with the optimizing behavior of individual consumers and producers. For certain types of questions – how should policymakers behave to stabilize an economy with mild fluctuations induced by price rigidities--it is the best model to use.... When a different world emerged, a large financial shock and the ensuing Great Recession, the model was of little use.... The IS-LM model, on the other hand, was built in the aftermath of the Great Depression to examine precisely the kinds of questions we faced throughout the Great Recession, issues such as a liquidity trap, the paradox of thrift, and how policymakers should react in such an environment. Why is it surprising that a model built to explain a particular set of questions does better than a model built to explain other things?"

Should-Reads

  1. Martin Wolf: Wincott Lecture: "The economics establishment failed. It failed to understand how the economy worked, at the macroeconomic level, because it failed to understand financial risk, and it failed to understand financial risk partly because it failed to understand how the economy worked at the macroeconomic level. The work of economists who did understand these sources of fragility was ignored because it did not fit into the imagined world of rational agents, efficient markets and general equilibrium these professors Pangloss had made up.... I focus on just five transformations... economic performance, the fiscal situation, monetary conditions, the financial system, and economic ideas.... The crisis has lowered economic output vastly below the pre-crisis trend.... The crisis has had dramatically adverse fiscal consequences.... Third, the crisis has also had a dramatically adverse impact on the operation of the monetary system.... Fourth, the crisis has revealed the extreme fragility of the contemporary financial system and so of the economy with which it is intimately intertwined.... Finally, the crisis puts into question the pre-crisis conventional wisdom, particularly on monetary policy. The notion of a “great moderation” stands revealed as vainglorious. This has--or should--lead to a ferment of new (and recovered old) ideas. The idea that monetary policy should ignore what is happening in the financial sector has had to be (or at least should be) abandoned. The least that is required is a new concept of 'macro-prudential policy', buttressed by far higher capital requirements. But more radical ideas are also being advanced, as they should be. The case for a radical transformation of the banking sector is strong..."

  2. Robert Skidelsky: Comment on the Wincott Lecture: "[Martin Wolf's] argument ignores the loss of productive capacity through hysteresis.... [And] I’m not sure there wasn’t after all, something illusory, or unsustainable, about GDP growth in the pre-recession years. Four features need to be noticed: 1. Growth (and employment) seems to have been driven disproportionately by the financial services and the public sector.... 2. Relative to other countries, UK productivity growth pre-recession was unimpressive.... 3. Not enough attention has been given to the fact that a sizeable proportion of British jobs depend on ‘in work’ benefits.... 4. One should not ignore the increasing difficulty of the British economy in creating ‘good jobs’, by which I mean jobs which pay a decent wage; or more precisely, reverse the growing gap between mean and median incomes..."

Things You Should Be Aware of:

  1. Harold Meyerson: The 40-Year Slump: "If Volcker’s and Carter’s attacks on unions were indirect, Reagan’s was altogether frontal. In the 1980 election, the union of air-traffic controllers was one of a handful of labor organizations that endorsed Reagan’s candidacy. Nevertheless, they could not reach an accord with the government, and when they opted to strike in violation of federal law, Reagan fired them all..."

  2. Daniel Little: Understanding Society: Who made economics?: "The discipline of economics has a high level of intellectual status, even hegemony, in today’s social sciences — especially in universities in the United States. It also has a very specific set of defining models and theories that distinguish between “good” and “bad” economics. This situation suggests two topics for research: how did political economy and its successors ascend to this position of prestige in the social sciences? And how did this particular mix of techniques, problems, mathematical methods, and exemplar theoretical papers come to define the mainstream discipline? How did this governing disciplinary matrix develop and win the field? One of the most interesting people taking on questions like these is Marion Fourcade. Her Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s.... Since the middle of the nineteenth century, the study of the economy has evolved... into a fully 'professionalized' enterprise, relying on both a coherent and formalized framework, and extensive practical claims in administrative, business, and mass media institutions. And she argues that this process was contingent, path-dependent, and only loosely guided by a compass of 'better' science... 'considerable cross-national variation in (1) the and nature of the institutionalization of an economic knowledge field, (2) the forms of professional action of economists, and (3) intellectual traditions in the of economics... the entrenchment of the economics profession was profoundly shaped by the relationship of its practitioners to the larger political institutions and culture of their country'..."

  3. Jonathan Chait:: Politico Stonewalls Mike Allen Payola Scandal: "VandeHei begins by calling the report 'nonsense' without explicitly denying it. He asserts that a reporter 'could find any pattern he wants to' in Allen's prodigious output. Really? Any pattern? A pattern of support for Russian strongmen? A pattern of furtive endorsements of anarcho-syndicalism?.... The only pattern that really matters is a pattern of giving favorable coverage to interests that are paying him. VandeiHei does not deny that Allen has done that.... VandeHei's final defense verges on parody: Allen, he argues, has 'no business interest' in giving favorable treatment to advertisers. There is the fact that advertisers pay him $35,000 a week, or up to $1.8 million a year. If those clients realize that their paid advertisements also buy them favorable coverage in Playbook, that would make them dramatically more interested in paying Allen's exorbitant rates."

  4. Yichuan Wang: Synthenomics: Why Dynamic Stories are Important: "Steve Williamson... helicopter drops in liquidity traps reduce the inflation rate.... 'What happens if there is an increase in the aggregate stock of liquid assets, say because the Treasury issues more debt? This will in general reduce liquidity premia on all assets, including money and short term debt. But we're in a liquidity trap, and the rates of return on money and short-term government debt are both minus the rate of inflation. Since the liquidity payoffs on money and short-term government debt have gone down, in order to induce asset-holders to hold the money and the short-term government debt, the rates of return on money and short-term government debt must go up. That is, the inflation rate must go down. Going in the other direction, a reduction in the aggregate stock of liquid assets makes the inflation rate go up.'... Steve's story is as follows: 1. The central bank prints more money. 2. People don't want to hold onto that money. 3. To make sure people hold onto that money, the inflation rate must fall (to make holding money more attractive). 4. Hence, printing money lowers the inflation rate. Any cursory scholar of monetary economics should find that counterintuitive. I would suggest that it's counterintuitive because it's, well, wrong.... A much more realistic view would be a 'monetary disequilibrium'... David Hume.... At the moment that people get more money, the inflation rate is fixed. Hence the rate of return isn't high enough to hold money, and so people spend that money. This causes prices to rise and generates inflation. Here's the fundamental problem with Steve's model: he acts as if equilibrium conditions are enough to explain causality. Sure, in equilibrium it must be that the inflation rate must equal the liquidity value of holding onto money. But that can happen in two ways. Either the inflation rate could fall (Steve's story), or people could hold less cash, thereby raising the marginal value of their liquidity holdings. Dynamic stories matter, and if you can't explain how you get to equilibrium, you may end up on the wrong side of truth."

Olivier Blanchard: Monetary policy will never be the same | David Callahan: The Single Best Argument Against Inequality | Scott Lemieux: Green Lanternism Yet Again: Post-Political Critiques of “Post-Political Politics” | Simon Wren-Lewis: Bertrand Russell’s chicken (and why it was not an economist) | Paul Krugman: Bubbles, Regulation, and Secular Stagnation | Dylan Scott: At Least 1.5 Million People Enrolled In Medicaid Since Obamacare Launch | Rachel Goldfarb: Youth Unemployment Is Leading to Tragedy |


Bitcoin, the South Sea Bubble, and Chartalism: Thursday Focus

The unfunded British national debt in 1715, at the end of the War of the Spanish Succession, was roughly £30 million. The individual securities that made up this unfunded debt were not standardized, hence not very liquid. Hence the arbitrage opportunity call the South Sea Company. The South Sea Company would buy up the debt from the government, collect the interest, and pay out the interest as dividends on its own standardized shares. Because the debt would be consolidated into one single security--South Sea Company equities--the debt would become liquid and easily traceable, hence more valuable. The government would still further sweeten the deal by offering the company the monopoly over trade to the South Sea, and the resulting profits would also go to those who had purchased shares. A small amount of the extra value created could be skimmed off to the benefit of the projectors, Including that powerful politician the Earl of Oxford. A win for projectors who got cash, a win for the government that found itself with extra debt capacity, a win for old debtholders who found themselves with more liquid and hence more valuable securities. What could possibly go wrong?

Continue reading "Bitcoin, the South Sea Bubble, and Chartalism: Thursday Focus" »


Things to Read on the Evening of December 5, 2013

Must-Reads:

  1. Alan Blinder (1994): Overview: Reducing Unemployment: Current Issues and Policy Options: "The answer to the question is no. There is no correlation... between how much inflation fell [over 1980-93] and the legal charge of the central bank. The lower panel shows that there was some correlation... between the rise in unemployment and the central bank's objective... unemployment rose in every one of these countries, essentially; and it rose more in the countries whose central banks were more single-minded.... But the difference is not tremendously significant. The message, I think, may be that the significance of the central banks' charge may be more apparent than real. But I wouldn't dismiss it entirely. Now, there is a two-handed answer for you!"

  2. Menzie Chinn: Some Observations on the Efficacy of Monetary and Fiscal Policy: "Based on these observations, a reasonable conclusion is that expansionary monetary and fiscal policy work, even in a highly indebted country such as Japan. Whether these policies ultimately lead to a durable recovery depends on a number of factors, not the least is the strength of the world economy. (Deployment of the "third arrow", structural reform, isn't seen as critical by Roubini, for instance.) Further monetary stimulus is being considered; additional action is likely if next year's sales tax hike noticeably slows growth..."

Should-Reads:

  1. Mark Thoma: God Didn’t Make Little Green Arrows: "The issue is the stability of the deflation[ary] steady state [in which expanding the supply of liquid assets generates deflation]. This is precisely the issue George [Evans] studied... with E. Guse and S. Honkapohja... for inflation and consumption expectations under adaptive learning (in the New Keynesian model both consumption or output expectations and inflation expectations are central). The... deflation steady state... is not locally stable and there are nearby divergent paths with falling inflation and falling output.... The full EER reference is Evans, George; Guse, Eran and Honkapohja, Seppo, 'Liquidity Traps, Learning and Stagnation', European Economic Review, Vol. 52, 2008, 1438 – 1463."

  2. Paul Krugman: The Trouble With Economics Is Economists: "That’s in large part what Simon Wren-Lewis is saying in this post defending mainstream economics. And I largely agree. It is deeply unfair to blame textbook economics either for the crisis or for the poor response.... The mania for financial deregulation... flew in the face of the canonical model of banking crises, Diamond-Dybvig.... Efficient markets theory arguably deserves more blame for the failure of too many economists to recognize the housing bubble, but textbook economics always presented EMT as a baseline, not a revealed truth. As for the crisis response, the remarkable thing has been the determination of policy makers to do the opposite of what textbook macroeconomics said they should have been doing..... The problem, of course, is that this wasn’t just a case of ignorant or bull-headed political appointees ignoring economic wisdom: many prestigious economists were all too eager to turn their backs on standard macro, even when it was working very well, on behalf of their political leanings. And that, I think, says that there is something wrong with the structure of the economics profession. We don’t seem to need different economics as much as we need different economists..."

  3. Matthew Yglesias: Elizabeth Warren vs Third Way: Legislative subtweeting at its finest: "Elizabeth Warren sent a letter today asking major banks to disclose what money they're giving to D.C. think tanks.... The context... Jon Cowan and Jim Kessler of Third Way... banal and contentless op-ed in the Wall Street Journal... arguing... Elizabeth Warren... is bad.... They offered a made-up criticism of 'the populists' staunch refusal to address the coming Medicare crisis'. That one's particularly odd since one of the two populists they're critiquing was Bill de Blasio, who, as mayor of New York City, has nothing whatsoever to do with Medicare. As for Warren, it is simply false—as in, ignorant or dishonest—to say that Democrats have done nothing to reduce Medicare costs or that they have no further proposals to do so.... Third Way's board is jam-packed with finance guys.... So the general suspicion... is that... the 'think tank' is just acting as a kind of hatchet operation for the financial sector.... Warren wants to smoke them out.... So good for Warren."

Should Be Aware of:

  1. Jonathan Chait: 12 Years a Slave and the Obama Era: "To identify 12 Years a Slave as merely a story about slavery is to miss what makes race the furious and often pathological subtext of American politics in the Obama era.... To make a person a slave requires making them complicit in their own subservience, through rituals of degradation.... It was precisely Northup’s calm, dignified competence in the scene that so enraged his oppressor.... That context was fresh in my mind when I read this column in National Review by Quin Hillyer... [who] unleashes this: 'Every time decent people think the scandals and embarrassments circling Barack Obama will sink this presidency, we look up and see Obama still there.... The man has no shame, no self-doubt, not a shred of humility, no sense that anybody else has legitimate reason to question him or hold any other point of view.'... Why would Hillyer believe such a factually bizarre thing?

    "One answer is that, by the evidence of this column, Hillyer believes all sorts of factually bizarre things. But most African-Americans, and many liberal whites, would read Hillyer’s rant as the cultural heir to Northup’s overseer: a southern white reactionary enraged that a calm, dignified, educated black man has failed to prostrate himself.... Conservatives see racism as a series of discrete acts of overt oppression. After slavery had disappeared, but before legal segregation had, conservatives considered it preposterous to claim that blacks suffered any systematic disadvantage in American life. (For an lengthy but fascinating expression of the conservative view, watch William F. Buckley in 1965 sneering his way through a debate over race relations with James Baldwin.)

    "Today, conservatives retroactively agree that legal segregation may have been unfair, but now things run on an even footing. Republicans, by a 60-40 margin, now believe discrimination against whites has grown to be a larger problem than discrimination against minorities.... Conservatives have made endless jokes based on the strange premise that Obama is unable to express coherent thoughts unless reading from a teleprompter, defined health-care reform as 'reparations', imagined a Reagan-era program to subsidize telephone use for the indigent is actually 'Obamaphones', or complained when black entertainers or athletes socialize with the First Family..."

  2. Joe Conason: Why Republicans Can’t Address Rising Inequality: "Congress could begin to address the income gap.... Raising the minimum wage.... Rebuilding the nation’s infrastructure and school systems.... Removing obstacles to unionization would begin to level the gross disparities in economic power between the 1 percent and the rest of us. Now the president has vowed to fight inequality for the rest of his days in office. He is taking that fight directly to the Republicans who have frustrated so many of his initiatives. He will have to cast aside the last illusions of bipartisanship. No matter what he does or says, he may not be able to win a higher minimum wage or a serious jobs program or universal pre-school with the other party controlling Congress. But if he consistently challenges us--and his adversaries--to restore an American dream that includes everyone, he may yet fashion a legacy worthy of his transformative ambitions."

  3. Erick, Son of Erick: The Fix Is in: "John Boehner has hired Rebecca Tallent... [who] worked for the left-of-center “Bipartisan Policy Center,” and is a serious amnesty advocate... helped John McCain and Ted Kennedy.... Boehner will wait until 2014... [then] get all these Republicans talking out of both sides of their mouths and the Democrats together for a bipartisan immigration reform push. The threat of primary challenges well passed, they’ll get their amnesty deal done. The only way conservatives can stop this from happening now is to line up primary challenges early.... If conservatives do not find credible, quality challengers ASAP, we’ll see amnesty steam roll through once the threat of the primaries is passed. The Republicans are so convinced you will turn out and vote for them in 2014 to spite Obama, they are perfectly happy to screw you over in this fight knowing how cheap a date the conservative movement has become. BOHICA kids, BOHICA."

Austin Frakt: Erosion of confidence in the confident market solution | Richard Floria: Where 'Eds and Meds' Industries Could Become a Liability | Top 10 film noir | Brad Plumer: For the last 400,000 years, CO2 in the atmosphere never topped 300 ppm. Now it's near 400 ppm | Consumer Reports gives thumbs up to Healthcare.gov | Jonathan Bernstein: Nobody Cared About George HW Bush’s Tax Pledge |


Nelson Mandela (April 20, 1964): I have cherished the ideal of a democratic and free society.... It is an ideal which I hope to live for and to achieve. But if needs be, it is an ideal for which I am prepared to die.

Nelson Mandela: 1918-2013:

I am the first accused. I hold a bachelor's degree in arts and practised as an attorney in Johannesburg for a number of years in partnership with Oliver Tambo. I am a convicted prisoner serving five years for leaving the country without a permit and for inciting people to go on strike at the end of May 1961.

Continue reading "Nelson Mandela (April 20, 1964): I have cherished the ideal of a democratic and free society.... It is an ideal which I hope to live for and to achieve. But if needs be, it is an ideal for which I am prepared to die." »


Barack Obama: "The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream"

Barack Obama:

The premise that we’re all created equal is the opening line in the American story.  And while we don’t promise equal outcomes, we have strived to deliver equal opportunity--the idea that success doesn’t depend on being born into wealth or privilege, it depends on effort and merit. And with every chapter we’ve added to that story, we’ve worked hard to put those words into practice....

Continue reading "Barack Obama: "The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream"" »


Wilhelmine China and the ECSADIZ

A decade or so ago I had a line about how there were three big potential storm clouds on the horizon--clouds that would probably dissipate, but that we should all fear. They were the (then distant, and now thankfully still distant) possibilities of:

  • Weimar Russia (ex-superpower that thought it had been snookered by the west at the end of a struggle),
  • National Hinduist India (casting Muslims in the historical role traditionally reserved for the Jews), and
  • Wilhelmine China--a rising economic superpower, ruled by a class that had lost its social role, and that contemplated busying giddy minds with foreign quarrels as a way to distract popular attention from internal problems and debates.

Now I find Martin Wolf is also worrying about Wilhelmine China:

Continue reading "Wilhelmine China and the ECSADIZ" »


Yes, Obama Got the Most He Could Possibly Have Gotten as Far as Health Care Reform Is Concerned with ObamaCare. Why Do You Ask?

Richard Mayhew reminds us of a very important piece of reality. ObamaCare may not work--or may not work well--but it was the very best he could do if he was going to do anything at all:

Richard Mayhew: Extinguishing the Green Lantern again (or what John and Scott said) » Balloon Juice:

The key thing to remember is 217-60-1-5  in the universe as it is was in 2009-2010. (would be 218 but there were vacancies in the House) Those are the numbers of the minimal viable coalition.  PPACA passed at 219-60-1-5.


Evening Must-Read: The All-Time Record Corporate Profits Share

Steve Goldstein: What bubble? Corporate profits reach new record as share of GDP:

One can make an argument about the stock market being overvalued, but the corporate profits that should underlie valuations are certainly in pretty good shape.... There are a number of profit measures in the report, but the one shown in this graph, adjusted after-tax profits.... As a percentage of GDP, corporate profits reached a record of 10.8%.

NewImage


Things You Should Read on the Morning of December 1, 2013

Must-Reads:

  1. Tony Yates: Price level targeting: "In a nice post on the New York Fed’s blog, Liberty Street Economics, Marc Giannoni and Hannah Herman write on price level targeting.  In a nutshell, they observe that, whatever the FRB said it was doing ex ante, ex post it has brought about a trend-stationary price level, which is what you would get if you were ‘price level targeting’.  The question is begged:  so why not consolidate this into a formal Price Level Target to lock in the benefits?..."

  2. Ricardo Hausmann: "It is often difficult to understand how countries that are dealt a pretty good economic hand can end up making a major mess...as if they were trying to commit suicide by jumping from the basement. Two of the most extreme cases... Argentina and Venezuela.... The puzzling thing is that this is not the first time either country has veered into an economic cul-de-sac.... It is certainly possible to describe how the road to hell is paved.... Overall inflation or some key price... come[s] under upward pressure. The government then uses its coercive power to keep a lid on price growth.... Things become really nasty when the government opts for foreign-exchange controls.... [which] give the government the sense that it can have its cake... and eat low inflation.... The dual-exchange-rate system ends up distorting production incentives... a combination of inflation and shortages... fiscal accounts worsen automatically.... Such a system can generate a self-reinforcing set of popular beliefs, which may explain why countries like Argentina and Venezuela repeatedly drive down dead-end streets. Because so many businesses make money from the rents created by the rationing of foreign exchange, rather than by creating value, it is easy to believe that markets do not work, that entrepreneurs are speculators, and that governments need to control them and impose 'fair' prices. All too often, this allows governments to blame the car, and even the passengers, for getting lost."

Should-Reads:

  1. Wendy Carlin: Teaching what matters in economics: The INET CORE Project: "We missed the boat in 2008.... Nor did we later provide convincing explanations.... Some... advocated policies that contributed to the onset... exacerbated the resulting unemployment... complacency... that a largely unregulated market economy would take care of itself.... Our students are... embarrassed when they are no more able to explain the eurozone crisis or persistent unemployment than their fellow students in engineering or archaeology.... Experimental methods have shown that people are more fair-minded and moral, and less calculating than the so called Economic Man... greatly expands the set of politically viable and economically effective policies.... Improved techniques for computer modelling of complex interactions... can help design policies.... For our students, though... this is all a well-kept secret. We impose a curriculum... remote from what economists now know, and more distant still from the pressing problems.... The curriculum project... is creating open access materials for a new curriculum... history, experiments and other data sources to test competing explanations and policies. This is a great time to be an economist. It is time we made it a golden age for students of economics..."

  2. Andrés Rodríguez-Pose, Roberto Ezcurra: Government and spatial inequality: "Using regional data for 46 countries with different degrees of economic development over the period 1996-2006... there is a strong negative association between quality of government and within-country disparities. Countries with better quality of government register lower levels of spatial inequality"

  3. Matthew Yglesias (May 28, 2013): Fast and Furious economics: "It would be comforting to simply dismiss the Fast and Furious franchise as an ethically unfortunate series of movies about illegal street racing... the low-trust ethics it embodies are... typical of societies featuring a high and growing level of income inequality.... generally take economically sound risks. In a world where the system increasingly seems to be rigged, it's natural to turn to the Dominic Torettos of the world as heroes. Yet Dom, for all his hard work, ingenuity, and undeniable skill doesn't really do anything useful or productive.... He lives by a code... ultimately destructive of the social institutions needed to generate prosperity. And yet at a time when elites long ago stopped caring whether the gains of economic growth would be widely shared, and in recent years seem to have turned their backs on the unemployed altogether, then these are the heroes we'll turn to."

Should Be Aware of:

  1. John Holbo: Laugh if you like, but death on the tracks is funnyr: "Mirth is an emotion that may affect our moral thinking. Specifically, it makes us more utilitarian... trolley scenarios are, or may be, used as intuition pumps for utilitarian purposes. (They may be used for other things, of course.) But it is an underdiscussed fact that they may inherently do so, in part, because trolley tragedies can’t help being a bit funny..."

Duncan Black: "Every Villager pundit hitting a certain age decides that what the country really needs is mandatory military service for people younger than them" | Jo Wolff: "At its worst, philosophy is something you do against an opponent. Your job is to take the most mean-minded interpretation you can of the other person’s view and show its absurdity. And repeat until submission" | Glenn Fleishman: "The newsstand isn’t dead, but [Apple is] hiding it in a way that makes it less useful for publishers of any scale" | John Aziz: Why the post-antibiotic world is the real-life version of the zombie apocalypse | Chris Blattman: Where do warlords come from? (My favorite political economy paper of the year) | Kathleen Geier: "Last week, Michelle Goldberg wrote a smart and provocative blog post that... argues conservatives may be... abandoning the pseudo-populist brand of conservatism that, for decades, has been their mainstay, in favor of a more open elitism..." |


Things to Go Watch This Week: Supporting America’s Lower-Middle-Class Families: The Hamilton Project

Supporting America’s Lower-Middle-Class Families : The Hamilton Project:

When: Wednesday, December 4, 2013 • 9:00 am - 12:00 pm

Where: The Liaison Capitol Hill Hotel

Media Inquiries: Karen Anderson • 202-797-6023 • KAnderson@brookings.edu

General Inquiries: Laura Howell • 202-797-6484 • LHowell@Brookings.edu

More than half of American families earn $60,000 or less a year -- outside of poverty but with limited economic security. Indeed, many of these families rely on government programs for support and one major setback could throw their lives into chaos. On December 4th, The Hamilton Project at Brookings will host a forum to highlight two new proposals for aiding America’s lower-middle class.... Strengthen[ing] the food stamp (SNAP) program... a secondary earner tax deduction to help “make work pay” for both spouses in low income families....

The forum will conclude with a discussion between Jason Furman, Chairman of the President’s Council of Economic Advisers, and David Leonhardt, Washington Bureau Chief for the New York Times, on the challenges facing America’s lower-middle-class families.

Continue reading "Things to Go Watch This Week: Supporting America’s Lower-Middle-Class Families: The Hamilton Project" »


The Short Run and the Long Run: Savings Gluts, Investment Shortfalls, too-Low Inflation Targets, Reduced Risk-Bearing Capacity, and the Failures of Our Public Sphere...: Monday Focus

And we are live over at Project Syndicate:

Back in 2007 and before I taught my students that the United States was a flexible economy. It had employers who would be willing to gamble and hire when they saw workers who would be productive without work. It had workers who would be willing to move to opportunity, or to try something new in order to get a job. And as these processes took place--as entrepreneurial workers and bosses took a chance--supply would indeed create its own demand. Adverse shocks to spending could indeed create mass unemployment and idle capacity, but their effects would be limited it to one, two, or at most three years. The way to bet, I told my students back in 2007 and before, was that the United States economy would recover roughly 40% of the ground between its current situation and its full employment potential and each year after the initial downturn had come to an end. 022 years, I said, was the domain of the Keynesian (and monetarist) short run. When analyzing events at a 3-7 year horizon, I taught, you were safe assuming a "classical" model--one in which the economy would return to full employment, and in which changes in economic policy and in the economic environment would change the distribution but not the level of spending, production, and employment. And beyond seven years was the domain of economic growth and economic institutions.

Continue reading "The Short Run and the Long Run: Savings Gluts, Investment Shortfalls, too-Low Inflation Targets, Reduced Risk-Bearing Capacity, and the Failures of Our Public Sphere...: Monday Focus" »


Morning Must-Read: Ryan Avent on the Social Gospel and Its Critics

Ryan Avent: Economic growth: On the inevitability of justice:

The Pope... offered a lengthy statement on economic justice.... 'Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world...This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.'

On Saturday Greg Mankiw... weighed in.... 'It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.Third, as far as I know, the pope did not address the tax-exempt status of the church. I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.'

This is just the sort of response that leads non-economists to detest economists: condescending, callous, and, worst of all, intellectually lazy. It is also an example of some truly epic point-missing.... The Pope does not appear to be attacking growth. Rather, he is attacking the view that 'economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world'.... Mankiw... certainly seems to be displaying precisely the viewpoint that the Pope is warning about: don't worry about the outcomes of growth (and for heaven's sake don't do anything about them), because growth is pretty rad.

But let's be clear. Historically it has taken quite a lot of hard work to ensure that economic growth does bring about greater justice and inclusiveness.... Mankiw might argue that growth enabled the generosity the led to social pressure for change.... If you want to praise growth as justice-enhancing because growth improves our moral intuition, then you also have to praise those who act on their moral intuition in an effort to create institutions that deliver greater justice. Mr Mankiw would rather be snide and complain that the Pope is name-calling...


Things to Read on the Morning of December 3, 2013

Must-Reads:

  1. Guillermo Calvo et al.: Jobless Recoveries During Financial Crises: Is Inflation the Way Out?: "Three policy tools [could] mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages.... Interestingly, neither the change in the real exchange rate nor the change in output composition... displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill."

  2. Norm Ornstein: "I've not seen anything like this before. It is just such an interesting phenomenon--call it anthropological or sociological or pathological. An obsessive hatred with all things Obamacare that has infected everybody on the Republican side. They can't say anything positive about any element of a law that is based on their own fundamental ideas. It means that when anybody says something that could in any way be construed as positive regarding Obamacare it becomes fodder for attacks.... Conservatives are eating their own..."

Should-Reads:

  1. Paul Krugman: Doing Macro First: "Mike Konczal... suggests that we should go back to the way Samuelson did it in 1948--macroeconomics first, then micro. This, he suggests, would give students a better perspective on reality, even though all the same material would eventually be covered. I would add that the motives behind Samuelson’s ordering apply just as well today as they did then. He was writing with the memory of the Great Depression still fresh; students wanted to know how such things could happen. Furthermore, how could you get anyone to take all that stuff about the perfection of markets seriously after what had just happened? By first teaching them that monetary and fiscal policy could be used to ensure full employment.... But there are some serious problems with Konczal’s vision--ways in which what Samuelson did in 1948 can’t be replicated now. What Samuelson brought was actually a double dose of innovation to economics--Keynesian macro plus a new orientation toward mathematical models. At the time these went hand in hand.... Also, back then Keynes was new and innovative. Today, you have generations of economists brought up in the belief that it’s wrong--they don’t know what’s in it, actually, but that’s what they were taught. Finally, if microeconomics is to be justified with the claim that government policy will ensure more or less full employment, what, exactly, in today’s world would inspire you to believe that?"

  2. Harold Meyerson: The 40-Year Slump: "If Volcker’s and Carter’s attacks on unions were indirect, Reagan’s was altogether frontal. In the 1980 election, the union of air-traffic controllers was one of a handful of labor organizations that endorsed Reagan’s candidacy. Nevertheless, they could not reach an accord with the government, and when they opted to strike in violation of federal law, Reagan fired them all..."

Should Be Aware of:

  1. Conor Friedersdorf: How Surveillance-State Insiders Try to Discredit NSA Critics: "Officials have actively stymied journalistic efforts to determine the whole truth. They've lied under oath to Congress and held back relevant information prior to important votes. They've long over-classified material on a wide range of subjects. And they still insist that many aspects of NSA surveillance ought to remain secret, unknown even to many members of Congress. National-security-state 'insiders' are entitled to the belief that classified mass-surveillance programs are legitimate and that obfuscation by officials is understandable. They are not entitled to falsely claim that journalists are not interested in gathering context, even as many labor mightily to do so and gradually make gains, to the consternation of insiders and their allies..."

  2. karoli: CA Assembly GOP Puts Up Fake California Health Exchange Site: "California Republicans are desperate and shameless. In the past two weeks, GOP Assembly members have sent mailings out on what appears to be the state's dime to their constituents about health insurance. Only, they don't direct those people to CoveredCA.com to sign up. Instead, they send them to their own astroturf version at the URL http://CoveringHealthCareCA.com... links to negative articles and twisted messages.... If you click on the 'Don't have health insurance' tab on the front page, you're taken to a page that puts all the focus on the penalty and none on the benefits. In fact, they have a 'penalty calculator' on that page, rather than a premium calculator. And of course, they also manage to twist what is actually available on the exchange.... What we have here are elected officials intentionally trying to make California's health exchange fail, and using taxpayer dollars to misinform taxpayers, using the standard fear and loathing tactics as their linchpin. While I expect nothing less from Republicans in general, it does gall me that they're using 'official mailings' to misdirect constituents and Assembly resources to register and build the website. Just more proof Republicans don't give a damn about anything but their own bad selves."

Scott Lemieux: The Affordable Care Act v. Supreme Court, Round 2 | James Surowiecki: Is Health Care Spending Finally Falling? | Daniel Little: Making Institutions | Mark Thoma: Explainer: How does the Fed influence the economy? | Christopher Flavelle: Does Medicaid Breed Dependency? | Austin Frakt: Medicaid and access: Not what you think |


Things to Read at Lunchtime on December 2, 2013

Must-Reads:

  1. Henry Aaron and Harold Pollack: Now's Now Is Not the Time for Liberals to Say "I Told You So" About Obamacare: "It has been a rough two months for the Affordable Care Act and its defenders.... The performance failures in the rollout of healthcare.gov have triggered cries of 'I told you so!' from some liberals. This wouldn’t have happened, they say, if only Obama had supported some form of single-payer plan, such as Medicare for all. The anger over the botched rollout is understandable, but these recriminations are poorly timed--and just plain wrong. For starters, the ACA is working reasonably well in some places--California, Connecticut, Kentucky, Washington, and the District of Columbia, for example. These under-reported success stories show that insurance exchanges can work, if properly administered.... The human benefits are real, from California to Breathitt County in rural Kentucky. These successes make the federal government’s dismal rollout even more embarrassing.... The real beef of those who seek a more radical rewiring of our healthcare system is not with the president. It is with the coalition of labor, healthcare, disability, and anti-poverty groups that coalesced during 2007 and 2008 around a health reform model that later became the ACA.... We wish ACA had gone farther. It could have provided more generous premium assistance and cost-sharing for working families. It could have allowed people near retirement to buy into Medicare. Alas, senators such as Joe Lieberman--not Obama--scuttled these possibilities. The ACA is only the first step in a long journey of needed health reforms.... There was and is no alternative to the messy incremental politics that produced Obamacare. Liberals such as then–House Majority Speaker Nancy Pelosi didn’t make unpalatable compromises because they held pallid aspirations for health reform. They compromised because they knew that they could not impose their will on querulous colleagues, because they needed 60 Senate votes, because millions of Americans needed help, and because it is better to win messily than to lose gloriously..."

  2. Ryan Avent: Economic growth: On the inevitability of justice: "The Pope... offered a lengthy statement on economic justice.... 'Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world...This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.' On Saturday Greg Mankiw... weighed in.... 'It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.Third, as far as I know, the pope did not address the tax-exempt status of the church. I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.' This is just the sort of response that leads non-economists to detest economists: condescending, callous, and, worst of all, intellectually lazy. It is also an example of some truly epic point-missing.... The Pope does not appear to be attacking growth. Rather, he is attacking the view that 'economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world'.... Mankiw... certainly seems to be displaying precisely the viewpoint that the Pope is warning about: don't worry about the outcomes of growth (and for heaven's sake don't do anything about them), because growth is pretty rad. But let's be clear. Historically it has taken quite a lot of hard work to ensure that economic growth does bring about greater justice and inclusiveness.... Mankiw might argue that growth enabled the generosity the led to social pressure for change.... If you want to praise growth as justice-enhancing because growth improves our moral intuition, then you also have to praise those who act on their moral intuition in an effort to create institutions that deliver greater justice. Mr Mankiw would rather be snide and complain that the Pope is name-calling..."

Should-Reads:

  1. George W. Evans, Eran Guse, and Seppo Honkapohja (2007): Liquidity Traps, Learning and Stagnation: "We examine global economic dynamics under learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output. To avoid this outcome we recommend augmenting normal poli- cies with aggressive monetary and fiscal policy that guarantee a lower bound on inflation. In contrast, policies geared toward ensuring an output lower bound are insufficient for avoiding deflationary spirals."

  2. Scott Sumner: TheMoneyIllusion » Nick Rowe explains how to avoid reasoning from a price change: "If I was told by Nostradamus that the Fed kept the interest rate on reserves at 0.25%/year for the next 20 years, I’d certainly revise downward my inflation forecast.  But that’s because I would assume the causation runs from a lower rate of inflation to a lower policy rate.  And that’s because I assume the Fed has a model in its head where raising the policy rate is contractionary.... I had thought it was widely understood that QE has been modestly expansionary for nominal spending and inflation.  Recall that markets have responded to QE announcements by changing asset prices in a way that implied higher inflation expectations. So what is the 'data' that Andolfatto refers to when he says that Williamson’s post is motivated by 'data'? It’s a simple time series graph showing that the inflation rate has been fairly low since 2009--rising after QE1, and then falling after QE3. But why would that graph have any bearing on the inflationary impact of QE? Surely you’d want to look at market responses to QE announcements, not the actual path of inflation. As far as I know everyone who seriously follows QE knows that the program is inflationary.  The only serious debate is whether it has only a tiny inflationary effect, or whether it has a modest inflationary effect. I can’t imagine anyone claiming it’s been deflationary.For God’s sake the dollar fell by 6 cents against the euro on the day QE1 was announced! Does anyone seriously think a 6 cent depreciation in the dollar is deflationary? So why develop models to explain empirical results that don’t exist? I don’t get it."

Should Be Aware of:

  1. Karl Smith (December 2011): Bitter Medicine: "Before anything else, the banks must be saved, most likely through an open-ended lending facility like the Federal Reserve's Term Auction Facility (TAF). They must come before taxpayers, before pensioners, before the reforms that might transform southern Europe into a dynamic player in the global economy. Not because it is fair or just or right. It is none of these things. It must happen because we have constructed a global economy that has massive international banks at its heart. Money, banking, and credit lubricate the billions of transactions that happen around the world every day. If the global financial system collapses, so will trade. Stopping that collapse will involve central banks around the world loaning enormous sums of money to their private banks at very low interest rates. It will also mean that they do this as the private banks constrict their lending to businesses and families. Cash will pile up in global banks as a war chest in case things take a turn for the worse. As with the U.S. bailout, it will seem awful and it will be awful. But it will be necessary..."

  2. Ta-Nehisi Coates: In Defense of a Loaded Word: "MY father’s name is William Paul Coates.... I have never called my father Billy. I understand, like most people, that words take on meaning within a context.... But as with so much of what we take as human, we seem to be in need of an African-American exception.... A fairly regular ritual debate over who gets to say 'nigger' and who does not.... 'If you call yourself the n-word', said the Rev. Al Sharpton, 'you can’t get mad when someone treats you like that'. This is the politics of respectability--an attempt to raise black people to a superhuman standard. In this case it means exempting black people from a basic rule of communication--that words take on meaning from context and relationship. But as in all cases of respectability politics, what we are really saying to black people is, 'Be less human'. This is not a fight over civil rights; it’s an attempt to raise a double standard.... To prevent enabling oppression, we demand that black people be twice as good. To prevent verifying stereotypes, we pledge to never eat a slice a watermelon in front of white people. But white racism needs no verification from black people. And a scientific poll of right-thinking humans will always conclude that watermelon is awesome.... A separate and unequal standard for black people is always wrong. And the desire to ban the word “nigger” is not anti-racism, it is finishing school. When Matt Barnes used the word “niggas” he was being inappropriate. When Richie Incognito and Riley Cooper used “nigger,” they were being violent and offensive. That we have trouble distinguishing the two evidences our discomfort with the great chasm between black and white America..."

Nick Rowe: The effect of nominal interest rates on inflation | Kathleen Geier: ≠ Inequality Matters |


Is Growth Getting Harder? If so, Why, and What Can We Do About It?: The Honest Broker for the Week of December 1, 2013

Attention Conservation Notice: tl;dr. 9000 words trying to work my way through and in the process provide a reader's guide to the techno-growth stagnation arguments of Robert Gordon, Tyler Cowen, and Brink Lindsey. The arguments are powerful. The authors are very serious economists. I wind up skeptical, and optimistic--partly because I am a techno-optimist by nature, partly because I am a politico-optimist and I think the literature confuses the past generation's failures in distribution and demand-management due to political dysfunction with failures in accumulation and innovation, and partly because I have a different more micro-incremental conception of the process of economic growth than does Robert Gordon.


I. Once and Future Ages of Diminished Expectations

Back in 1990 Paul Krugman wrote a little book--a very nice little book--called The Age of Diminished Expectations. The central point was that the long era of more than a century during which Americans could expect 2%/year growth on average in their real per capita incomes and standards of living was over. This era stretched back to the immediate aftermath of the Civil War. This era saw each generation attain a level of material wealth and well-being twice that of its predecessors: 2%/year growth for 35 years is a doubling. And, Krugman wrote, the slow growth from 1973-1990--during which real GDP per worker had been a mere 1%/year--was a harbinger of a new, more pessimistic future: an age in which Americans' formerly-great expectations of the future would have to be diminished.

FRED Graph St Louis Fed 4

Continue reading "Is Growth Getting Harder? If so, Why, and What Can We Do About It?: The Honest Broker for the Week of December 1, 2013" »


On the Possibility and Implications of an Economy Burdened by a Long-Lasting Negative Natural Nominal Rate of Interest, and Other Topics: Tuesday Focus

As John Podesta, the Fearless Over-Leader of the Washington Center for Equitable Growth, says: the hope is that the Center will coordinate and assemble the work to provide support for better equitable growth-advancing policies when the politics to support such policies once again becomes possible. For this to work, we need to have a dialogue--and not just a dialogue among the usual suspects who would show up at our sibling institution that is the Democratic administration either in exile or farm team that is the Center for American Progress. We need people who think differently and are willing to step up their game to be smart.

So I would like to direct your attention right now to this piece by James Pethokoukis of the American Enterprise Institute: his note on Larry Summers's November 8 IMF speech:

Continue reading "On the Possibility and Implications of an Economy Burdened by a Long-Lasting Negative Natural Nominal Rate of Interest, and Other Topics: Tuesday Focus" »


Yet More Evidence That It Is Going to Be Very Difficult Indeed to Figure Out How to Hold a Dialogue with These People...

Jonathan Chait: Today in Hackery: Douglas Holtz-Eakin's American Action Forum Edition:

Last year the American Action Forum... decr[ied] Obamacare for discouraging high-deductible health insurance plans. High-deductible plans, wrote the AAF, are wonderful in every way. They

make a lot of sense for many health care consumers and they make a lot of sense for the healthcare system, as they encourage the use of lower cost care settings, more transparent pricing from providers, and serve as an affordable insurance product that still protects against catastrophic expenses.

Sadly, the post predicted, they would likely disappear under the boot of Obamacare, and then we will all be sorry:

It will shock no one when aggregate healthcare spending increases as a result of HDHP’s going nearly, if not entirely, extinct.

But it turns out that high-deductible insurance has not disappeared under Obamacare. The law actually gives insurers a lot of flexibility, and most of them have determined that consumers would rather have low insurance premiums and high deductibles. So the flip side of the much lower-than-expected premiums available in the Obamacare exchanges is that the plans often charge high deductibles. But since this is exactly what conservatives have always wanted, they should be happy!

Yet somehow the AAF is not cheering.... Today the American Action Forum explains that the availability of high-deductible plans under Obamacare is more evidence of how terrible the law is:

Under the ACA, however, enrollees will pay exponentially more for their coverage, only to receive plans carrying unaffordable deductibles.  Significantly increased out-of-pocket costs, combined with hospitals’ fears over uncompensated services, will force some to finance the costs of their care, a financially risky choice.

Having a reasonably coherent view of policy questions seems like an important part of the job of being a think tank.