Joe Gagnon Responds to Michael Woodford, Ben Bernanke, and Others on the Risks and Power of Quantitative Easing: Friday Focus (December 20, 2013)
Morning Must-Read: Lane Kenworthy: America’s Social Democratic Future

Things to Read on the Morning of December 19, 2013


  1. Lane Kenworthy: America’s social democratic future: "The controversy surrounding the ACA shows no sign of ending.... The ACA represents another step on a long, slow, but steady journey away from the classical liberal capitalist state and toward a peculiarly American version of social democracy.... Powerful forces will continue to fight.. the resulting social insurance policies will emerge more gradually and be less universal, less efficient, and less effective.... But the opponents are fighting a losing battle and can only slow down and distort the final outcome.... Thanks to a combination of popular demand, technocratic supply, and gradually increasing national wealth, social democracy is the future of the United States."

  2. Nick Rowe: Worthwhile Canadian Initiative: Microfoundations we like vs microfoundations we can solve: "Take just one example... Calvo pricing.... Make one very small change.... Assume she visits... each firm once every n periods.... That's a different model... a nightmare to solve. Both those models are equally microfounded. Or equally not microfounded, because the fairy herself is, well, just... an ad hoc fairy... a metaphor for our ignorance about why the price of money (the reciprocal of the price level) doesn't behave like the prices of other financial assets.... The non-random fairy generates inflation-inertia and the random fairy doesn't. You get a sticky inflation rate, and not just a sticky price level, with the non-random fairy.... I can solve the first model, but I can't solve the second model.... I have three options... assume microfoundations I don't like... assume microfoundations I like... and wave my hands... write down an equation for an ad hoc Phillips Curve with inflation inertia, wave my hands..."

  3. Even from Maui, Mark Thoma * continues to direct me to very interesting things--in this case: *Simon Wren Lewis: More on the illusion of superiority: "An ad hoc but data-inspired modification to a microfounded model (what I call an eclectic model) can produce a better model than a fully microfounded model.... A misspecified model can produce bad policy. These misspecification errors may far outweigh any errors due to the Lucas critique.... Tony’s position is that policymakers in a hurry can do this eclectic stuff, but we academics should just focus on building better microfoundations.... First, building better microfoundations can take a very long time. Second, there is a great deal that academics can say using... useful models.... Go back to the 1970s.... [If] policymakers in the 1970s... wanted to devalue their currency because they felt it had become overvalued after a temporary burst of domestic inflation... microfounded models would have said there was no point.... Those using eclectic models with ad hoc price rigidities would have known better.... Should academic macroeconomists in the 1970s have left these policymakers to their own devices?..."

  4. Dean Baker: Assessing Neil Irwin's Assessment of Ben Bernanke: "Irwin... downplays... [how] Bernanke failed to appreciate the disaster... as it was unfolding.... failed to recognize that the loss of more than $1 trillion in annual demand from the collapse of the housing bubble could not be easily replaced... missed the depth of the financial crisis. For example, after Bear Stearns collapsed in March of 2008, he testified to Congress that he didn't see another Bear Stearns out there. Of course there were plenty more Bear Stearns out there with names like Lehman, AIG, Fannie Mae, Freddie Mac, Goldman Sachs etc. The whole gang would have gone belly up by the end of the year were it not for massive intervention by the government.... The claim that Bernanke could not have rescued Lehman because they lacked the legal authority is also dubious. Bernanke did many things in the crisis with questionable legal authority. Suppose that the Fed and Treasury had rescued Lehman, who would have taken them to court? This one might fool little kids and Washington Post reporters, it is not the sort of thing that adults need to take seriously."


  1. Tara Culp-Ressler: 'Texas Left Me Out': How The Millions Of People Being Denied Medicaid Coverage Are Fighting Back: "Obama urged Perry to reconsider his stance. If Texas agreed to expand Medicaid, the state could collect up to $100 billion in federal funds over the next decade to help finance it. But Texas officials, who have dug in their heels on every aspect of reform, haven’t relented.... The number of people in Texas who fall into the coverage gap certainly represent enough voters to sway an election. The National Memo points out that Perry won re-election by 631,178 votes in 2010."

  2. Elizabeth Warren and Chris Hayes:

  3. Bill Black: The Kansas Regents (Casually) End Academic Freedom: "Wednesday, December 18, 2013, the Kansas Board of Regents drastically curtailed tenure and academic freedom... when university faculty use... 'social media' they no longer have... protections.... 'The chief executive officer of a state university has the authority to suspend, dismiss or terminate from employment any faculty or staff member who makes improper use of social media. “Social media” means any facility for online publication and commentary.'... The Regent’s policy then allows the CEO to fire any faculty remember, regardless of tenure, who makes any comment that the CEO decides... 'when made pursuant to... the employee’s official duties, is contrary to the best interests of the University... or... impairs discipline by superiors or harmony among co-workers, has a detrimental impact on close working relationships for which personal loyalty and confidence are necessary, impedes the performance of the speaker’s official duties, interferes with the regular operation of the university, or otherwise adversely affects the university’s ability to efficiently provide services.'... Kansas is trashing the only remaining jewel in the state, its superb university system..."


Tim Duy: The Beginning of the End for Quantitative Easing | Zachary R. Mider: Accidental Tax Break Saves Wealthiest Americans $100 Billion | J. Bradford DeLong: Why Oh Why Can't We Have Better Nobel Laureates in Economics (Robert Lucas Suddenly BFF with Ben Bernanke Edition) |

Should Be Aware of:

Matt Bruenig: Toward a New Liberalism | Sy Mukherjee: The American Public May Be Increasingly Pessimistic About Obamacare, But Hospital Leaders Aren't | Ian Traynor and Paul Lewis: Merkel compared NSA to Stasi in heated encounter with Obama | Sarah Posner: The Legal Theory that Could Make Hobby Lobby's Case Disappear | Fred Vogelstein: The Day Google Had to 'Start Over' on Android | Ian Buruma: ast Asia’s Sins of the Fathers | Brendan Nyhan: Political centrism is not objectivity |