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July 2014

Morning Must-Read: Nicholas Bagley: John Boehner Sues Barack Obama

Nicholas Bagley: Can the House sue over the employer mandate?: "The legality of delaying the employer mandate is questionable....

...[But] the lawsuit isn’t going anywhere.... The House of Representatives as an institution hasn’t suffered the sort of concrete, particularized injury that the courts are constitutionally empowered to review.... The only arguments I’ve seen in favor of standing--they’re sketched out in a memo from Boehner--don’t withstand even cursory scrutiny. The primary claim seems to be that '[t]here is no one else....' But so what? The Supreme Court has been unusually emphatic in holding that 'the assumption that if [the challengers] have no standing to sue, that no one would have standing to sue, is not a reason to find standing'. Not every fight can or should see the inside of a courtroom.... Congress could... enact a statute withdrawing the President’s claimed enforcement discretion.... Congress isn’t willing to use its power, not that it lacks the power. Finally, the memo suggests that 'explicit House authorization for the lawsuit' may confer standing on Congress. But why? In Chadha v. INS, the Supreme Court flatly dismissed the idea that the House or Senate, acting alone, could constitutionally wield legislative power. Boehner’s resolution has as much legal effect as an open letter signed by members of his caucus.... This lawsuit looks like a waste of time and taxpayer money."

Morning Must-Read: John Bogle: Achieving Greater Long-Term Wealth Through Index Funds

John Bogle: Achieving Greater Long-Term Wealth Through Index Funds: "Let’s start off with the obvious...

...Imagine a circle representing 100% of the U.S. stock market, with each stock in there by its market weight. Then take out 30% of that circle. Those stocks are owned by people who index directly through index funds. The remaining 70% are owned by people who index collectively. By definition, they own the exact same portfolio as the indexers do in aggregate, so they will capture the same gross return as the direct indexers. But by trading back and forth, trying to beat one another, they will inevitably lose by the amount of their transaction costs, the amount of the advisory fees they pay, and the amount of all those mutual fund management costs they incur: marketing costs, processing, technology investments, everything. When we look at the big picture of the costs of investing, including sales loads as well as expense ratios and cash drag, it is a foregone conclusion that active investors, in aggregate, will underperform index investors.... It’s the relentless rules of humble arithmetic.... In a 7% return market, indexing should deliver approximately 6.95% to investors. (A typical Vanguard all-market index fund charges 0.05%.) The remainder—those who are trading back and forth, hiring managers, and all that kind of thing—will incur costs, in round numbers, of about 2% per year. So, the indexers are going to capture pretty close to a 7% return in a 7% market, while the active investors, who also collectively own the index, are getting the same 7% gross return minus about 2% for all those fees and costs, a net return of 5%. It is definitional tautology that the indexers win and the traders lose.

Morning Must-Read: Richard Mayhew: Any Publicity Is Good Publicity

Richard Mayhew: Any publicity is good publicity: "'After controlling for other state characteristics...

...I observe a positive association between the anti-ACA spending and ACA enrollment... anti-ACA ads may unintentionally increase the public awareness about the existence of a governmentally subsidized service and its benefits for the uninsured.

I think this is a case of trying not to think about the elephant after being told about the elephant.  People in states that were getting Koch bombed, knew about the Exchanges, knew they existed and could do something about that, while people in states where the Kochs weren’t trying to block access to affordable, subsidized private market health insurance (doesn’t that sound absurd when it is put that way), awareness was lower as they were never told to not think about the elephant.

Liveblogging World War II: July 11, 1944: Divvying Up the Balkans

NewImageWinston S. Churchill: Triumph and Tragedy:

Prime Minister to Marshal Stalin 11 July 44

Some weeks ago it was suggested by Eden to your Ambassador that the Soviet Government should take the lead in Roumania, and the British should do the same in Greece. This was only a working arrangement to avoid as much as possible the awful business of triangular telegrams, which paralyses action. Molotov then suggested very properly that I should tell the United States, which I did, and always meant to, and after some discussion the President agreed to a three months’ trial being made. These may be three very important months, Marshal Stalin, July, August, and September. Now however I see that you find some difficulty in this. I would ask whether you should not tell us that the plan may be allowed to have its chance for three months.

No one can say it affects the future of Europe or divides it into spheres; but we can get a clear-headed policy in each theatre, and we will all report to the others what we are doing. However, if you tell me it is hopeless I shall not take it amiss.

There is another matter I should like to put to you. Turkey is willing to break relations immediately with the Axis Powers. I agree with you that she ought to declare war, but I fear that if we tell her to do so she will defend herself by asking both for aircraft to protect her towns, which we shall find it hard to spare or put there at the present moment, and also for joint military operations in Bulgaria and the Ægean, for which we have not at present the means. And in addition to all this she will demand once again all sorts of munitions, which we cannot spare because the stocks we had ready for her at the beginning of the year have been drawn off in other directions.

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What’s wrong with the Hobby Lobby Decision: Across the Wide Missouri CCXVI: July 11, 2014

Pictures Photos from Across the Wide Missouri 1951 IMDbDavid Post: What’s wrong with the Hobby Lobby decision: "The Court’s recent Hobby Lobby decision... a pretty ghastly bit of legal reasoning, and it will have pretty ghastly consequences. Justice Ginsburg’s dissenting opinion gets it spot on--part III. C in particular demonstrates quite persuasively how the Court takes the wrong turn on each of the statutory requirements. I won’t be offended if you click through and read what she wrote and skip what I’ve written below.

Let’s review the basics: RFRA prohibits the government from imposing a “substantial burden” on “a person’s exercise of religion” unless it can demonstrate that “application of the burden to the person (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.” So Hobby Lobby (and each of the other plaintiffs) has to show that it is a “person,” and that its “exercise of religion” has been “substantially burdened,” at which point the burden switches to the government to demonstrate that the statute is “the least restrictive means” of furthering a “compelling interest.”

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Noted for Your Afternoon Procrastination for July 10, 2014

Over at Equitable Growth--The Equitablog



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John Quiggin Searches for a Use for and Explanation of Labor-Market Search Theory

John Quiggin thinks about search models, and points out that they--Diamond, Mortenson, and Pissarides and company--are not a good and promising path for modeling cyclical unemployment. Moreover, he questions whether they are a good and promising path for modeling frictional unemployment. Where is the decline in frictional unemployment that ought to have accompanied the rise of the internet, after all. Margins and search costs and inventories have tightened elsewhere in the economy. So why not in the labor market?

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Lunchtime Must-Read: Bill Davidow: The Invisible Virtual Economy

Bill Davidow: The Invisible Economy: "Our techniques for measuring economic performance are obsolete. So we reach improper conclusions about the state of the economy. The economic recovery is probably more robust than we realize.... Many economists, policy makers, and politicians think otherwise, because they are using 20th-century methods to analyze our 21st-century economy.... Almost everything we do in the physical economy is paid for with money. We use dollars to measure most of the activity. If more dollars are spent or earned, we conclude that the economy is growing. The virtual economy is robust... and growing at staggering rates, everywhere.

A lot of the services provided to us in the virtual economy are free. If we paid dollars for those services, they would be counted as part of the GDP and would add to economic growth. But we don’t, so they are not counted.... Consumers can substitute Google News for their newspaper. The cost of a USA Today subscription is $275. His earnings will look the same, but he has more money at his disposal and more or less the same consumption. Essentially, he is earning more, but neither his income nor GDP will show it.... The virtual economy... has become very large and is having a broad impact.... The current measurement systems ignore our virtual salaries. We earn these salaries by selling our privacy and attention for zero and spending hours deleting targeted emails. Using those salaries, we purchase services that are worth billions....

If advertisers paid us directly for the sale of our privacy and attention and we turned around and spent the money to purchase Google searches, music, and phone calls, the government would count both our pay as income and the sale of the services as part of the GDP.... The annual cost of a Honda Civic used for, say, 7,500 miles per year, is around $6,500 per year, or 85 cents per mile. Using a Zipcar for 500 hours a year, approximately the same amount of driving, would cost only $4,250.... It is important to realize the effects of the virtual economy do not fall evenly across the economic spectrum. The lower your income, the more likely it is that you are paying a greater portion of your salary for essentials such as food and healthcare in the physical economy...

Lunchtime Must-Read: Sarah Kliff: For millions Who Signed Up, Obamacare Is Working

Sarah Kliff: For millions who signed up, Obamacare is working: "The people who bought Obamacare during the law's first open enrollment period...

...are largely pretty satisfied customers, a big new study from the Commonwealth Fund shows. Most adults with new coverage have used it to go to the doctor; and about 80 percent say they're satisfied with their purchase. That Obamacare's new enrollees would be happy with their new coverage wasn't necessarily a given. Many enrolled in plans with narrow networks, which limit which doctors and hospitals patients can see, restrictions that can frustrate subscribers. Others gained coverage through Medicaid, which pays doctors less than most private insurance plans--and has fewer providers to see patients as a result...

But about six months into the insurance expansion, Obamacare's buyers seem to be, on balance, not as much frustrated with these types of challenges as they are happy with having insurance coverage to begin with...."

Over at Equitable Growth: What Is the Macroeconomic Cost of Not Expanding Medicaid?: Thursday Focus

Over at Equitable Growth: Let us focus on the macroeconomic costs of not expanding Medicaid. That is, let us leave to one side the question of exactly how much good getting people on Medicaid does for them. We know that it makes safety-net hospitals Financial stress level lower--there is less uncompensated care, and that flows through to corners that do not need to be cut. We know that it increases incomes of nurses and doctors somewhat. We know that patients on Medicaid go to the doctor more than the uninsured, and that by American standards at least the uninsured do not go to the doctor enough and do not take enough medicine. We know that the ex-uninsured are much happier, less stressed, and non-bankrupt. READ MOAR

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Morning Must-Read: Robert Waldmann: Flows From Unemployment to Employment & Extended Unemployment Insurance

NewImageRobert Waldmann: Flows From Unemployment to Employment & Extended Unemployment Insurance: "I have long thought that the best guess of the matching function... that hires of the unemployed are proportional to vacancies to the 0.7 times number unemployed to the 0.3. To be kind to the conservatives, I calculate the ratio of monthly flows from unemployed to employed to the square root of the product of vacancies and number unemployed. There isn’t any sign of a shift in January. One might claim that the increase in December was due to anticipation of the end of extended unemployment but I think that is nonsense (the failure to extend was a surprise). By the way, this shows I was wrong to be skeptical of claims that matching had worsened (based on the Beveridge curve) and that Krugman was right (I know you are shocked).... There is little support for the conservative’s story. The data are noisy and I am looking at all of the unemployed not specifically those affected by the change, so Vinik is right it is hard to tell. But really, the conservatives don’t seem to have a case.

Morning Must-Read: Tim Duy: QEInfinity Not

Tim Duy: QEInfinity Not: "My own view is:

...1. The existing mix of data and forecasts suggest the first rate hike in the second quarter of 2015 with a gradual increase in rates thereafter. This is my baseline. 2. If unemployment continues to drop at the same rate as recent months, bring forward the rate hike to the first quarter but continue to assume a gradual increase. 3. If core-PCE inflation exceeds 2.25% and wage growth is accelerating , expect first quarter liftoff and a steeper path of rate hikes. Obviously, the data could suggest a delay in the first rate hike, but I do not believe the risks are weighted in that direction. I think the risks are weighted toward tighter than expected policy. Bottom Line: Fairly straightforward minutes. Policy is data dependent. The Fed, like all of us, are simply waiting to see how that data evolves.

I Think Paul Krugman Is Wrong on "Class and Monetary Policy"

I think Paul Krugman is wrong here. It is true that the rich do have more nominal assets than liabilities (not all of those Treasury bonds are held by the PBoC, after all). But it is also true that America's rich have a lot of real assets whose value depends on a strong and growing economy.

I find it implausible to claim that the net gain is positive when we net out the (slight) real gain to the rich from lower inflation with the (large) real loss to rich from lower capital utilization.

It's not a material interest in low inflation that we are dealing with here...

Paul Krugman: Class and Monetary Polic: "If we only look at interest-bearing assets...

...even the top group [of those with more than $500,000] has more liabilities than assets.... But the S[urvey of ]I[ncome and ]P[rogram ]P[articipation] top [starting at $500,000] isn’t very high; in 2007 you needed a net worth of more than $8 million just to be in the top 1 percent [of wealth]. And since the ratio of interest-bearing assets to debt is clearly rising with wealth, we can be sure that the truly wealthy are indeed in the category where they have more to lose than to gain by a rise in the price level.... It’s also clearly true that the elderly rich are especially likely to own lots of bonds and not have much debt....

Struggling middle-class retirees living on the interest on their CDs?... There aren’t many of them and they’re less middle-class than you think.vBasically, inflation redistributes wealth down the scale of both wealth and age, while deflation does the reverse. And therein lies the deep explanation for inflation hysteria. The Fed’s efforts to boost the economy haven’t had the disastrous effects the usual suspects predicted, but it’s nonetheless true that this is no policy for rich old men (ROMs?). And playing to the paranoia of the ROMs is basically what the WSJ editorial page, Fox News, etc. is all about.

Where Has John Boehner's Power Gone? Long Time Passing...: CCXV: July 10, 2014

One of the long-term constants of Republican legislative politics as we used to know them was that it was relatively easy to get Republican legislators to fall into line. An authoritative leadership figure--like Ronald Reagan--could, when the chips were down, simply get however many votes he needed from the crazy right to lineup in support of the current bipartisan deal. And an authoritative leadership figure--like Mitch McConnell--could come up with the chips were down, get Republican moderates to abandon their long-term policy priorities simply for short-term political-tactical reasons.

This still seems to hold for Republican moderates. But it does not hold for the Republican right. And Balloon Juice meditates on where Republican leadership power has gone...

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History and Moral Philosophy: Preliminary Warm-Up Exercise, July 10, 2114: Hoisted from the Future

NewImageI have decided that "Thursday Idiocy" adds too much negativity to this blog. Besides: it depresses me. So I want to fold the negativity into the Monday Smackdowns, and use Thursday to blog from the future...

Here is something from 2114:

Consider twentieth-century American science fiction writer Robert A. Heinlein.

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Over at Equitable Growth: Nick Bunker: The Beveridge Curve and the U.S. Labor Market

NewImageOver at Equitable Growth: Nick Bunker: What the Beveridge Curve may tell us about the U.S. labor market: "[Murat Tasci and John Lindner] at the Federal Reserve Bank of Cleveland used historical data...

...on printed job advertisements to create a jobs opening rate for years prior to 2000. And if you look at their Beveridge Curve for economic recoveries going back over 60 years, you see the current shift is actually quite typical. The curve appears to shift quite a bit (up and over to the right) after large recessions and shifts back (down and over to the left) after the labor market recovers from the large shock...

Liveblogging the American Revolution: July 10, 1776

NewImageJohn Adams to Abigail Adams:

You will see by the Newspapers, which I from time to time inclose, with what Rapidity, the Colonies proceed in their political Maneuvres. How many Calamities might have been avoided if these Measures had been taken twelve Months ago, or even no longer ago than last december?

The Colonies to the South, are pursuing the same Maxims, which have heretofore governed those to the North. In constituting their new Governments, their Plans are remarkably popular, more so than I could ever have imagined, even more popular than the "Thoughts on Government." And in the Choice of their Rulers, Capacity, Spirit and Zeal in the Cause, supply the Place of Fortune, Family, and every other Consideration, which used to have Weight with Mankind. My Friend Archibald Bullock Esq. is Governor of Georgia. John Rutledge Esq. is Governor of South Carolina. Patrick Henry Esq. is Governor of Virginia &c. Dr. Franklin will be Governor of Pensilvania. The new Members of this City, are all in this Taste, chosen because of their inflexible Zeal for Independence. All the old Members left out, because they opposed Independence, or at least were lukewarm about it. Dickinson, Morris, Allen, all fallen, like Grass before the Scythe notwithstanding all their vast Advantages in Point of Fortune, Family and Abilities.

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Noted for Your Morning Procrastination for July 9, 2014

Over at Equitable Growth--The Equitablog



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Morning Must-Read: Max Speak: Who Cares About Inequality?

Max Speak: Who cares about inequality?: "A lot of people are enjoying cheap dates with expressions of concern....

...Take President Barack Obama.... He pairs up inequality with upward mobility, notwithstanding their utterly different meanings.... The alternative to mobility-meritocracy is... economic security for those with no assets but their own labor... [and] the non-proliferation of extreme levels of wealth, levels having no conceivable relationship to contribution, levels that render democratic institutions impotent. Levels like we have now.... My jaundiced interpretation of [Obama's] ‘that bargain’ is that inequality is fine as long as the rising tide is lifting all boats. You may think it’s fine, so you’re a liberal and God love you. I love you. But I suggest that the search for that rising, beneficent tide, constrained by meritocratic, market-loving rhetoric, is doomed.... If you follow the president’s closing paragraphs--his proposals for action--you will find they are focused on economic growth (how well is a different question), with a generous serving of opportunity, and scant regard for compression of the income and wealth distribution, or the expansion of social insurance. (Beware vague calls to “strengthen Social Security.”) So who really cares about inequality?

Morning Must-Read: Kenneth Rogoff: Economic recovery will require some form of debt restructuring

Kenneth Rogoff: Economic Recovery Require Debt Restructuring or Rescheduling: "Eurozone leaders continue to debate... best to reinvigorate economic growth, with French and Italian leaders now arguing that the eurozone’s rigid “fiscal compact” should be loosened. Meanwhile, the leaders of the eurozone’s northern member countries continue to push for more serious implementation of structural reform. Ideally, both sides will get their way, but it is difficult to see an endgame that does not involve significant debt restructuring or rescheduling.... In general, neither pure austerity nor crude Keynesian stimulus can help countries escape high-debt traps.... debt rescheduling, inflation, and various forms of wealth taxation (such as financial repression), have typically played a significant role. It is hard to see how European countries can indefinitely avoid recourse to the full debt toolkit.... It is high time for a conversation on debt relief for the entire eurozone periphery...

Adam Smith as Malthusian: "The Surplus Population": Wednesday Focus for July 9, 2014

Over at Equitable Growth: Note that when Adam Smith says "seems at first sight", he is not signaling that he is about engaging in pointless contrarianism and about to reverse field and explain that a prosperous working class is an inconvenience rather than an advantage to society. It was an age of lower irony in which often things are as they seem: he is saying, rather, that you do not need to take more than a first glance for the answer to be "abundantly clear":

Adam Smith: Smith: Wealth of Nations, Book I, Chapter 8: "Is this improvement in the circumstances of the lower ranks of the people... be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged. READ MOAR

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Equitable Growth: What is the Real "Keynesianism"?: Morning Comment

Thomas Palley: Milton Friedman’s Economics and Political Economy: An Old Keynesian Critique: "Milton Friedman’s influence on the economics profession has been enormous...

...In part, his success was due to political forces that have made neoliberalism the dominant global ideology, but Friedman also rode those forces and contributed to them. Friedman’s professional triumph is testament to the weak intellectual foundations of the economics profession which accepted ideas that are conceptually and empirically flawed. His success has taken economics back in a pre-Keynesian direction and squeezed Keynesianism out of the academy. Friedman’s thinking also frames so-called new Keynesian economics which is simply new classical macroeconomics with the addition of imperfect competition and nominal rigidities. By enabling the claim that macroeconomics is fully characterized by a divide between new Keynesian and new classical macroeconomics, new Keynesianism closes the pincer that excludes old Keynesianism. As long as that pincer holds, economics will remain under Friedman’s shadow...

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Across the Wide Missouri: How Did We Get Here?: Live from the Roasterie CCXIV: July 9, 2014

Steve M.: You've Got to Be Taught to Hate and Fear: "I lost a lot of time I can never get back...

...reading Sam Tanenhaus's New York Times Magazine cover story on the reform conservative movement. (Title: "Can the G.O.P. Be a Party of Ideas?" I'll answer that: No.)....

I'd just like to note one anecdote involving John Murray, Eric Cantor's deputy chief of staff.... 'Self-identified Tea Party supporters... [and] moderate swing voters... aside from a few hot-button ideological issues, the two groups sounded alike. Their paramount concerns were nagging "kitchen-table-centric" issues. In Murray's paraphrase: "Fuel prices are up. Grocery bills are up. The kids are home now, but who's going to help us get them to college?" The respondents were not Obama fans, but they also felt as if the Republicans weren't helping them, either."...

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Liveblogging World War II: July 9, 1944: Battle of Saipan

Battle of Saipan - Wikipedia:

The U.S. erected a civilian prisoner encampment on 23 June 1944 that soon had more than 1,000 inmates. Electric lights at the camp were conspicuously left on overnight to attract other civilians with the promise of three warm meals and no risk of accidentally being shot in combat. Weapons and the tactics of close quarter fighting... resulted in high civilian casualties. Civilian shelters were located virtually everywhere on the island, with very little difference noticeable to attacking marines. The standard method of clearing suspected bunkers was with high-explosive and/or high-explosives augmented with petroleum (e.g., gelignite, napalm, diesel fuel). In such conditions, high civilian casualties were inevitable....

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Noted for Your Morning Procrastination for July 8, 2014

Over at Equitable Growth--The Equitablog



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Morning Must-Read: Paul Krugman: Knutty Asset Prices

Paul Krugman: Knutty Asset Prices: "Although I hear the phrase 'artificially low' all the time...

...I don’t think many people who use it have thought through what they mean. What would a non-artificial interest rate be?... Wicksell... [said] an unnatural [interest] rate... would be... an interest... [at which] the economy overheats... [with] accelerating inflation. But that hasn’t been happening.... So what are the people complaining about artificially low rates talking about?... They are low by historical standards--but there are enough changes... from deleveraging to demography that this isn’t a convincing argument.... Once you accept the possibility that rates belong where they are, or even a bit lower, to correspond to the Wicksellian natural rate, you also conclude that asset prices might make sense; and once you concede that asset prices might make sense, you lose the supposed evidence that rates are all wrong.... Where is the wild exuberance that we associate with dangerous bubbles? I don’t see popular TV shows about house-flipping, and CNBC viewership is plumbing new lows...

Social Security Disability Insurance: Morning Comment

This morning:

Center for American Progress Action Fund: Social Security Disability Insurance: What Does It Mean to American Workers and Their Families?: "Social Security Disability Insurance, or SSDI...

...protects nearly all American workers and their families in case of a life-changing disability or illness. About 8.9 million disabled workers, as well as 2 million spouses and children, currently receive modest but vital benefits.... Neera Tanden... Sherrod Brown... Melissa Boteach... Stephen C. Goss... T.J. Sutcliffe... Eva Dominguez... Rebecca Vallas...

I tend to find myself confused on the current state of SSDI. Of those in my web of trust as far as empirical studies of public finance are concerned, David Autor and Mark Duggan seem definitely on the side of thinking that SSDI gets us relatively little value for our public money--or at least that a streamlined and somewhat less-easy to get onto program would have a greater benefit-cost ratio. But nearly everybody else starting with John Bound writes things that make me think that our current SSDI screen is, if anything, too tight and not too loose...

Morning Must-Read: German Lopez: Colorado Offered Free Birth Control--and Teen Births Fell by 40 Percent

German Lopez: Colorado offered free birth control — and teen births fell by 40 percent: "A program that provides contraceptives to low-income women...

...contributed to a 40-percent drop in Colorado's teen birth rate over five years, according to state officials. The... Colorado Family Planning Initiative, provides intrauterine devices (IUDs) or implants at little to no cost for low-income women at 68 family planning clinics.... The teen abortion rate dropped by 35 percent from 2009 to 2012 in counties served by the program.... Young women served by the family planning clinics also accounted for about three-fourths of the overall decline in Colorado's teen birth rate during the same time period. And the infant caseload for Colorado WIC, a nutrition program for low-income women and their babies, fell by 23 percent from 2008 to 2013...

Morning Must-Read: David Wessel: Central Bankers Line Up their Defenses

David Wessel: Central Bankers Line Up their Defense: "At the beginning of the week, the... Bank for International Settlements...

...warned loudly of the risks of moving 'too slowly and too late' to raise interest rates back toward normal. As it did before the global financial crisis, the BIS emphasized the need to act early to avoid the booms-and-busts in financial markets and offered all sorts of reasons why today's very low inflation shouldn't be the primary concern of central bankers. Central bankers appear to have agreed on a common response... have used the same phrases to say: Fuggedaboutit! With price and wage inflation not a concern right now, we aren't going to raise interest rates and throw at lot of people out of work to avoid excesses in financial markets or to head off possible asset bubbles, they said. There may come a day when our worries about financial stability will prompt us to hike interest rates, but rates are 'the last line of defense'. Not now. The 'first line of defense' is making the financial system more resilient so it can better withstand shocks and using our supervisory and regulatory "macroprudential tools" to rein in excesses, as we are doing now...

Morning Must-Read: Paul de Grauwe: Revisiting the Pain in Spain

Paul de Grauwe:: Revisiting the pain in Spain | vox: "There has been a stark contrast between the experiences...

...of Spain and the UK since the Global Crisis....The ECB’s Outright Monetary Transactions policy has been instrumental in reducing Spanish government bond yields, [but] it has not made the Spanish fiscal position sustainable. Although the UK has implemented less austerity than Spain since the start of the crisis, a large currency depreciation has helped to reduce its debt-to-GDP ratio...

Mark Twain and the Personal Memoirs of Ulysses S. Grant: Live from La Farine CCXIII: July 8, 2014

NewImageJohn L. Davidson sends us to Wikipedia: Personal Memoirs of Ulysses S. Grant - Wikipedia: "The Personal Memoirs of Ulysses S. Grant is an autobiography...

...of Ulysses S. Grant, the 18th President of the United States, focused mainly on his military career during the Mexican-American War and the American Civil War. Written as Grant was dying of cancer in 1885, the two-volume set was published by Mark Twain shortly after Grant's death. Twain created a unique marketing system designed to reach millions of veterans with a patriotic appeal just as Grant's death was being mourned. Ten thousand agents canvassed the North, following a script Twain had devised; many were themselves veterans who dressed in their old uniforms. They sold 350,000 two-volume sets at prices from $3.50 to $12 (depending on the binding). Each copy contained what looked like a handwritten note from Grant himself. In the end, Grant's widow Julia received about $450,000, suggesting a gross royalty before expenses of about 30%.

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The Usefulness of Edmund Burke: Tuesday Hoisted from Comments

In the comments to A Question About What I Do Not Get About Michael Oakeshott...: invhand asks:

There is a lot of energy in these posts!

Conservatives have a problem. They are arguing tradition has a value which resists rational analysis. Hard to analyze what resists analysis! They are making a heuristic argument for slowing change down on the grounds that more is thrown away when we abandon traditional practice than we understand. But as many of the posters above have pointed out, this is also a way of telling the excluded and oppressed, "Be patient."

So there is no analytical work to compete with Rawls and Nozick. Is there anyone who tells good stories about what was lost?

And I reply:

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Liveblogging World War I: July 8, 1914: The Russian Counter-Narrative

NewImageFrom Christopher Clark: The Sleepwalkers: How Europe Went to War in 1914:

On 8 July, Count Benckendorff, the Russian ambassador in London, remarked to Edward Grey that he ‘did not see on what a démarche against Servia could be founded’.

The foreign secretary’s reply was characteristically tentative: I said that I did not know what was contemplated. I could only suppose that some discovery made during the trial of those implicated in the murder of the Archduke – for instance, that the bombs had been obtained in Belgrade – might, in the eyes of the Austrian Government, be foundation for a charge of negligence against the Servian Government. But this was only imagination and guess on my part. Count Benckendorff said that he hoped that Germany would restrain Austria. He could not think that Germany would wish a quarrel to be precipitated.

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I Keep Thinking That There Is Something Very Powerful and True in This Critique: But I Cannot Figure Out What It Is...: Morning Comment

Lars Syll: Krugman on the relevance of the history of economic thought: "Being myself the author of seven books...

...on the history of economic thought I can’t but applaud Krugman’s plaidoyer.... The financial crisis of 2007-08 and its aftermath definitely shows that something has gone terribly wrong with our macroeconomic models, since they obviously did not foresee the collapse or even make it conceivable.... Modern mainstream macroeconomics obviously did not anticipate the enormity of the problems that unregulated 'efficient' financial markets created. Why? Because it builds on the myth of us knowing the 'data-generating process'.... Mainstream macroeconomists... want to be able to use their hammer. They decide to pretend that the world looks like a nail and that uncertainty can be reduced to risk. So they construct their mathematical models on that assumption--and the ensuing results are financial crises and economic havoc..."


Suppose we decide that we are no longer going to:

  1. Pretend that agents--or economists--know the data-generating process...
  2. Recognize that people are not terribly committed to Bayesianism--that they do not model probabilities as if they have well-defined priors and all there is is risk...

What do we then do--what kind of economic arguments do we make--once we have made those decisions?

The Alpha Generators: Morning Comment

Attention Conservation:

  • 1/2 An enormous amount of negative #alpha is realized by individual investors and active mutual funds which trade frequently
  • 2/2 Who reaps that #alpha? Renaissance, Bridgewater, and who else?

My greatuncles in the 1960s and 1970s used to spend an enormous amount of time pouring over the Wall Street Journal's stock price pages and talking about their stocks. It was never clear to me whether this was their hobby in retirement, or whether they had simply changed jobs from promoting people bureaucracy and managing operations to asset allocation.

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People and Machines: A Look at The Evolving Relationship Between Capital and Skill In Manufacturing 1850-1940: Tuesday Focus for July 8, 2014

Owen Zidar sends us to Jeanne Lafortune, José Tessada, and Ethan Lewis: People and Machines: A Look at The Evolving Relationship Between Capital and Skill In Manufacturing 1850-1940 Using Immigration Shocks: "[Did the] Second Industrial Revolution...

...change the way inputs were used in the manufacturing sector[?]... We estimate the impact of immigration-induced changes in skill mix in local areas in the United States between 1860 and 1940 on input ratios within manufacturing.... Production functions were strongly altered over the period under study: capital began our period as a q-substitute for high skill workers and a strong complement of low-skill workers. This changed around the turn of the twentieth century when capital became a complement of skilled workers and decreased its complementary with low-skilled workers.... Within-industry changes in production technique were the dominant manner in which areas adapted to immigration driven skill shocks.... We nevertheless fail to find significant impact of changes in skill mix on wages...

LaFortune and company have carried out a very nice piece of work indeed. My only problem with it is that I find myself as I age becoming less and less satisfied with the "skilled-unskilled" frame for understanding what workers do. "Skilled" workers are those who are relatively highly pay, and who have invested in formal education or in craft apprenticeship in order to fit into a highly valued slot in the social division of labor. Out on the prairie connected via railroad to New York in a time like the early 1880s of very strong European demand for American grain, a farmer who knows the weather patterns, the microclimates, and the properties of crops is a very skilled worker indeed. 30 years later with the Ukraine, Argentina, and Australia now online, the same farmer moved to the city is an unskilled worker. In an analogous fashion, those who could stand the noise, chaos, and pace of a mid-20th century assembly-line and still function were at one point skilled, or at least semiskilled workers. Nowadays that skill or semiskill has nearly vanished, save for the garment industry and a few others. And those with the formal education to push the white-collar paper correctly and reliably found themselves guaranteed a good living relative to the average in the first several post-World War II decades. But I would not bet on the same being true for those leaving high school today.

Aside from fully using our brains to think of better ways and more useful ways to do things, humans have added value in the economy through four different modes:

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Jared Bernstein Thinks About Larry Ball on the Damage Done by Hysteresis: Monday Focus for July 7, 2014

Jared Bernstein: The Great Recession, Hysteresis, Tolstoy, and Unhappy Economies: "All happy macro-economies are alike...

...all unhappy macro-economies are unhappy in their own way. This post, based on... Larry Ball... present[s] a typology of those unhappy economies.... [F]irst... “hysteresis”... when a cyclical shortfall morphs into a structural one.... Key inputs like capital investment or the labor force fall in recession... [and] keep falling or fail to recovery much in the upturn... slow[s] the economy’s potential growth rate even when it’s fully back on its feet... a patient whose long illness has reduced their baseline health, even upon full recovery....

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Noted for Your Morning Procrastination for July 7, 2014

Over at Equitable Growth--The Equitablog



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Liveblogging World War II: July 7, 1944: Attrition in Normandy

Richard Atkinson: The Guns at Last Light:

ONE million Allied soldiers had come ashore at Normandy by early July, yet the invasion increasingly resembled the deadlock at Anzio or, worse, the static trench warfare of World War I. Tentage vanished, replaced by labyrinthine burrows roofed with double layers of pine logs and sandbags. “They keep lobbing mortars at us,” Lieutenant Orval E. Faubus informed his diary. “It is a world no civilian can ever know.” Though Cherbourg had been taken, the beachhead on July 1 was only six miles deep in places. Caen and St.-Lô remained in German custody, and daily casualties in Normandy exceeded those of the 1917 British force in Flanders during the third battle of Ypres, which included the hellish struggle at Passchendaele.

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The Law of Moses: Abortion in the Case of Female Adultery: Live from The Roasterie CXII: July 7, 2014

Yes, according to the law of Moses a husband has the right to force his wife to abort if he suspects adultery. Why do you ask?

Numbers 5: New Internatonal Version:

Then the Lord said to Moses:

Speak to the Israelites and say to them:

If a man’s wife goes astray and is unfaithful to him so that another man has sexual relations with her, and this is hidden from her husband and her impurity is undetected (since there is no witness against her and she has not been caught in the act), and if feelings of jealousy come over her husband and he suspects his wife and she is impure—-or if he is jealous and suspects her even though she is not impure—-then he is to take his wife to the priest....

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Chapter 11 of David Graeber's "Debt" Is in Chapter 11, If Not in Chapter 7 Smackdown Part III: July 7, 2014

Attention Conservation:

  • 1/4 Continuing, for amusement, our reading of chapter 11 of David Graeber's "Debt: The First 5000 Years" #graebererrors #debtch11inch11 @davidgraeber
  • 2/4 Once again, @davidgraeber appears to misdate the Bubonic Plague by a century #graebererrors #debtch11inch11
  • 3/4 And @davidgraeber appears to have no clue what territories were ruled by the Ottoman Empire when #graebererrors #debtch11inch11
  • 4/4 Also, @davidgraeber appears to have no clue that what he calls "Christendom" was expanding on other frontiers #graebererrors #debtch11inch11

In the absence of worthwhile DeLong smackdowns, continuing my reading of chapter 11 of David Graeber's Debt to see if it is in as bad shape from the viewpoint of simple accuracy of fact and coherence of argument as his chapter 12 was. The answer is "yes": chapter 11 is definitely in Chapter 11, if not Chapter 7:

James s Kindle for Mac 3 Debt The First 5 000 Years

I just have time to make two points today about this kindle screen:

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Lunchtime Must-Read: John Stuart Mill: War and Commerce

Corey Robin sends us to John Stuart Mill: War and Commerce: "But the economical advantages of commerce...

are surpassed in importance by those of its effects which are intellectual and moral. It is hardly possible to overrate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar. Commerce is now what war once was, the principal source of this contact.

Morning Must-Read: Daniel Kuehn: Quick Thoughts on "How to Pay for the War"

Daniel Kuehn: Facts & other stubborn things: Quick thoughts on "How to Pay for the War": "I've recently been leafing through a first edition...

of Keynes's How to Pay for the War.... It's a really fascinating read.... I like it a lot for a couple reasons: 1. First it highlights quite explicitly the mission that is animating Keynes pretty much from the beginning, which is how a free society works in the modern economy. He sees one group of people who embrace a free society that pretend there is nothing really different about a modern economy (what he refers to elsewhere as 'laissez faire', and then he sees another group that understands there is something different but addresses it by abandoning the free society (communists and fascists). He thinks that neither are a viable option. This understanding of his role is there throughout his life, but it comes out very clearly in How to Pay for the War. 2. The General Theory is detailed on investment theory but not as detailed on consumption.... [Here] Keynes seems to really deal a lot more with micro consumption behavior, which is understandable since he's talking about intertemporal public finance and tax issues. 3. He is talking about slowing growth and fighting inflation. A lot of people act like Kenyes forgot to address this, sometimes based on nothing more than a well circulated Hayek Youtube video.... 4. He talks about expectations for post-war slumps, and as anyone that knows about his exchange at the Fed in '43 I believe (maybe '42) he is not pessimistic about it like Samuelson was at the time. 5. He carries over critiques of price controls and rationing that echo insights into consumer theory that he was making as far back as Economic Consequences of the Peace.

Liveblogging World War II: July 6, 1944: Battle of Saipan

NewImageBattle of Saipan - Wikipedia, the free encyclopedia:

Without resupply, the battle on Saipan was hopeless for the defenders, but the Japanese were determined to fight to the last man. Saito organized his troops into a line anchored on Mount Tapotchau in the defensible mountainous terrain of central Saipan. The nicknames given by the Americans to the features of the battle — "Hell's Pocket", "Purple Heart Ridge" and "Death Valley" — indicate the severity of the fighting. The Japanese used the many caves in the volcanic landscape to delay the attackers, by hiding during the day and making sorties at night. The Americans gradually developed tactics for clearing the caves by using flamethrower teams supported by artillery and machine guns....

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The Inflation Bear Case for @TheStalwart (Joseph Weisenthal): Over at Equitable Growth: Twitterstorm

Over at Equitable Growth: Over at Twitter, @TheStalwart dares me to make the #inflationbear case. I do so in 17 tweets:

Graph Real Gross Domestic Product FRED St Louis FedREAD MOAR

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Noted for Your Evening Procrastination for July 5, 2014

Over at Equitable Growth--The Equitablog



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Over at Grasping Reality: Weekend Reading: Janet Yellen and Christine LaGarde (Brad DeLong's Grasping Reality...)

Weekend Reading: US Federal Reserve Chair Janet Yellen and Managing Director of the International Monetary Fund (IMF) Christine Lagarde: Inaugural Michel Camdessus Central Banking Lecture on Financial Stability’, at the IMF

CHRISTINE LAGARDE: Oh, my goodness. Madam Chairman, you have impressed us enormously with a rich, dense, very informative and very candid read — your read of the current situation and how monetary and macroprudential — monetary policy and macroprudential tools could be used in sequence, in parallel, in different circumstances. And I would like to, maybe following the Stradivarius analogy of Michel, to stay loyal to (our man ?) today, what would you say? Would you say that macroprudential tools are second fiddle to the main Stradivarius of monetary policy? Or would you say that, depending on circumstances, macroprudential tools become the first violin and have to deal with the issues as a first line of defense?...

Evening Must-Read: Robert Shiller: "[Eugene Fama] Is a Careful Researcher...

Robert Shiller: "[Eugene Fama] Is a Careful Researcher, an inspired researcher....

...I don't know if Fama ever states his theory really clearly, if he did it might sound a little odd.... I shouldn't try to psychoanalyse Eugene Fama but I know that he is committed... to a libertarian philosophy, teaching at the University of Chicago where Milton Friedman once lived. It must affect your thinking somehow that they really believe in markets. I think that maybe he has a cognitive dissonance. His research shows that markets are not efficient. So what do you do if you are living in the University of Chicago? It's like being a Catholic priest and then discovering that God doesn't exist or something, you can't deal with that, you've got to somehow rationalise it.... Some people who seem crazy turn out to be smart after all. Apparently that is what Fama thinks. I think they are just crazy," Shiller said, conceding his remarks "may be insulting" to his fellow laureate.... [He has a] fundamentally different view of the world. That's the world we live in, when it comes to economics people have emotions, it's not like chemistry or physics...

Bad Google!

Yesterday, if I typed "fred" into the search/url field looking for Federal Reserve Economic Data, it was the first search result returned.

Today things are different:

Fred Google Search

Bad Google! Bad Google!