Evening Must-Read: Mark Thoma: Mobility Roundup
Morning Must-Read: How to Assess the Policies of Britain's Conservative-Social Democratic Coalition: Larry Summers vs. George Osborne in Davos

Things to Read on the Evening of January 23, 2014

Must-Reads:

  1. Jared Bernstein: Mark Schmitt on Inequality: "Mark Schmitt...[:] '…it’s not that [inequality is] anything less than “the defining challenge of our time”.... Rather, it’s too defining, too large.... too sweeping and cluttered to lead to useful solutions.... 'Also... it’s not the case that any level of economic inequality is problematic. Every economic system distributes.... When someone raises the issue as problematic these days, they’re really saying something about historically high levels... [and] the impact of these levels on something else..."

  2. Justin Wolfers: Twitter / JustinWolfers: Explaining the big new Chetty...: "Explaining the big new Chetty mobility study: 1. No change in odds of moving higher or lower on the economic ladder than your parents. 2. But higher income inequality today means that the rungs of the income ladder are now much further apart than in the past. 3. Consequences of the “birth lottery” are larger now, because low mobility has bigger consequences. 4. Bottom line of mobility study: Kids, more than ever, be careful to choose the right parents."

  3. Menzie Chinn: Econbrowser: Euro and Non-Euro Countries and Fiscal Policy: "Contractionary fiscal policy is... contractionary. There has been some dispute over the robustness of the findin... over the proper time horizon.... Here is the entire sample of advanced countries... cumulative growth rates 2009-13 plotted against cumulative change in the cyclically-adjusted budget balances.... The more contractionary the policy stance, the slower the growth.... It's clear that eurozone countries are a special case, where monetary policy is out of the control of the individual countries; a question is whether countries with their own monetary policy could actually experience an expansionary fiscal contraction.... For the non-euro area group, the regression coefficient is less negative, and is only significant at the 17% marginal significance level.... See this New Palgrave Encyclopedia of Economics chapter for an examination of why one would expect to see relatively large multipliers in the current economic conditions of ZLB and excess capacity."

  4. Paul Krugman: Everything New Is Old Again: "There have been two big revolutions in macro.... The Keynesian revolution... tied to the Great Depression; then the new classical counterrevolution... loosely tied to stagflation in the 1970s.... Keynes offered a way to understand what was happening, and a solution.... Stagflation was predicted by Friedman and Phelps, using models that attempted to derive wage and price-setting behavior from rational choice... the effect... was to give a big boost to 'microfoundations' as a modeling strategy..."

  5. Mark Thoma: Economist's View: Income Mobility: "The topic of the day seems to be the [Chetty et al.] new study on income mobility: [David Leonhardt:] Upward Mobility Has Not Declined; Jared Bernstein: Stable Income Mobility: Not a Muddle At All; Dean Baker: [Did We Need a Landmark Study to Tell Us Mobility Didn't Decrease Between 1990 and 2007?]9http://www.cepr.net/index.php/blogs/beat-the-press/did-we-need-a-landmark-study-to-tell-us-mobility-didnt-decrease-for-people-entering-the-labor-market-between-1990-and-2007); Tyler Cowen: Upward mobility in the United States is not declining as many citizens think; Matthew Yglesias: What If Social Mobility Is Never High Anywhere?; Kevin Drum: Income Mobility in the US is Terrible, But at Least It's Not Getting Worse; Heather Boushey: Here’s to wishing you the best of luck in the birth lottery—you’re going to need it.... My take is similar to Kevin Drum's, who manages to separate the level of mobility (very low) to the rate of change (one study, the latest, says mobility is unchanged).... [And Heather's] response emphasizes the geographic variation--where you are born appears to matter quite a bit."

Should-Reads:

  1. Dean Baker: Theo Francis of the WSJ Can't Figure Out Why Hiring Lags When Factories Are Not Humming: "The headline... 'why hiring lags behind even as factories hum'. It then presents accounts of several companies putting off hiring and expansion plans.... Several factory owners or managers report increasing the length of the workweek or investing in new technology as an alternative to new hiring.... The reality... manufacturing is not humming. Capacity utilization rates are up from the recession troughs but at 77.8 percent are still below pre-recession levels, and far below the 82 percent plus range reached in the mid-1990s before a rising dollar led to a surge in the trade deficit and falling manufacturing employment. The WSJ could have also discovered that its story that firms are turning to longer hours and capital investment as alternatives to hiring does not make sense by looking at data on hours and productivity growth in manufacturing..."

  2. Mark Thoma: Economist's View: 'The Political Economy of Populism': "Capitalism is the best... for producing economic growth, but it also concentrates risk and... hardship.... The solution to this is for either the private sector or the government to provide insurance against these risks--and market failures mean it is generally the government that must step in. Yes, that means transfers from the winners.... But the risks... must be attenuated through government provided insurance. Unemployment insurance is a good example of this, but more social insurance is needed..."

  3. Daniel Altman: The Inefficiency of Inequality: "Economists Edward Glaeser and Erzo Luttmer made this point in a 2003 paper about rent control. 'The standard analysis of price controls assumes that goods are efficiently allocated, even when there are shortages', they wrote. 'But if shortages mean that goods are randomly allocated across the consumers that want them, the welfare costs from misallocation may be greater than the undersupply costs'.... The fact that money affects access to these opportunities, even in part, implies some seats in Congress and Ivy League lecture halls would have been used more productively by poorer people of greater gifts.... If you believe that poor people are poor because they are stupid or lazy--and that their children probably will be as well--then the issue of inefficient allocation disappears. But if you think that a smart and hardworking child could be born into a poor household, then inefficient allocation is a serious problem. Solving it would enhance economic growth and boost the value of American assets."

  4. Melissa Kearney: Testimony: "The economic growth experienced since 1975 has not translated into shared prosperity.... Between 1975 and 2010, income gains were vastly different across families at different points in the income distribution.... The phenomenon of growing inequality is indeed real.... There are three main points I want to make about the high level of inequality we are experiencing today: 1. First, the trends in inequality we have witnessed over recent decades are largely the result of structural changes in the labor market that have favored the very highly skilled.... 2. Second, the growing levels of income inequality have translated into sizable gaps in educational achievement between the children of the rich and the poor.... 3. Third, income inequality has the potential to interact with poverty in ways that perpetuate disadvantage and exacerbate intergenerational transmission of poverty."

Brian Buetler: GOP’s apocalyptic new debt limit strategy: One enormous lie | John Quiggin: New Old Keynesianism | Daniel Kuehn: Facts & other stubborn things: If you prefer analysis of the minimum wage that doesn't try to address identification problems to analysis that does, this is the post for you... | Gloria Goodale: Historic California drought called a red flag for future of US | Sy Mukherjee: Federal Judge Temporarily Blocks Missouri's Restrictions On Obamacare Navigators |

Should Be Aware of:

  1. Matthew Yglesias: Gregory Clark on social mobility in Sweden: "There's a lot of news coverage today of new research from Raj Chetty and Emmanuel Saez indicating that social mobility in the United States is not falling, offering the not-so-reassuring news that the reason it isn't falling is that it's been low for a long time.... Recall the old old conventional wisdom on this was that the United States might be a society of high income inequality, but at least it had a lot of mobility.... I'd like to put on the table a different research program, associated with UC–Davis economic historian Gregory Clark, which argues that economic mobility is low almost everywhere.... If you have a noble surname in Sweden today, we know that your father's father's father's father's father's father's father (or whatever) was a member of the Swedish elite more than 300 years ago. By contrast, if you have the last name "Andersson" then that means that your great-great-great-great-great-great-great-great-great-grandfather wasn't a nobleman and probably didn't practice a skilled trade either.... There's quite a bit of persistence. And it's all the more striking precisely because this identification strategy is rather crude."

  2. Jonathan Bernstein: Will Obamacare's Medicaid Expansion Continue?: "What are Republican gubernatorial candidates saying about Medicaid expansion in states where Democratic governors have implemented it?... And the answer? Nada. Zip. Nothing. None of these Republicans is pledging to repeal the Medicaid expansion put in place by a Democratic governor."

  3. Shawn Fremstad: Brookings EITC Proposal Mostly Moves in the Wrong Direction: "Isabel Sawhill and Quentin Karpilow... proposed what they call a 'no-cost' way to reduce poverty and inequality... an increase in the minimum wage with... changes to the Earned Income Tax Credit.... Although Sawhill and Karpilow aren’t as explicit as they should be about the extent of EITC cuts in their plan, they do acknowledge that it: 'prioritizes full-time work over part-time employment, young children over big families, and young single adults over older ones'. It would be helpful for them to be even more transparent and explicitly quantify the distributional effects of their redesign.... It makes little sense to penalize the many part-time workers who are working part-time for reasons that are quite sound and have positive externalities (caring for a family member with a disability or a child, going to school part-time, etc.) or for reasons beyond their control, such as a disability, illness, lack of available full-time work, etc.... Sawhill/Karpilow would also change age eligibility for the childless worker EITC (currently ages 25-64) by extending eligibility to workers age 21-24, but eliminating it for those age 40-64. They don’t provide any rationale for this cut..."

And:

Will Wilkinson: The Fly Bottle |

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