Grasping Reality on TypePad, by Brad DeLong

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...cannot operate as a perfect storage technology as this may put a zero bound on the real interest rate... a secular stagnation equilibrium remains a possibility as the natural rate can be negative while the discount rate relevant for risky assets remains positive. The real interest rate and the possibility of a secular stagnation can also be affected by the presence of bubble assets... [such] bubbles may be efficient, but depending on the stability of the bubble, interesting tradeoffs may emerge between the level and volatility of employment...

...at this stage and call this the end of Bitcoin... the positive-feedback loop forces which drove Bitcoin to $1124.76 have now become the same very same which will drive it down... the fact that the mechanism that ensures coins cannot be overproduced to benefit from high prices also prevents supply from being contracted when prices/demand collapses... in a race to the bottom it doesn’t pay to switch off your mining machine if you’re the most efficient miner. So how did we find ourselves on this delusional joy ride to begin with?... It’s the same old story of frivolity, irrational exuberance, hysteria and of course the mistaken belief that something like a free lunch is truly possible... the sort of irrationality and bad allocation of capital that the Fed is trying to shake-out at this stage with tightening talk. We’re sure we may still see a few deep pocketed VCs or ‘believers’ throw more money at defending the dream, but chances are we’ve now gone through the exponential break point. Time and money would probably be better spent trying to pump up Bitcoin V.2.

...in my view has collapsed. It has very little to contribute to the understanding over inequality over the last 20 years, and is not the basis for thinking about the future so much.

...Dad worked with his hands–he was an electrician–but he was anti-union and identified with the middle class rather than radical labor. Our family had middle-class values, read slick magazines rather than pulps, and voted Republican.... A lot of people raised the way I was think that Something Should Be Done about this or that world problem... Boko Haram’s kidnapping... the Lord’s Resistance Army... the Islamic State.... All of these organizations do horrific things by the standards of any civilized human being, myself included... [and] are demonstrably beyond the capacity of local governments to deal with.... If I hadn’t ridden a tank in SE Asia, I probably would have been on one or all of those bandwagons and on many others over the years. The thing is, I know what Doing Something means at the sharp end. I’ve helped to burn a village, I’ve watched a gutshot girl die (she’d been transporting rice for the NVA), and I was involved with a variety of other things that make me doubt the value to the ordinary people of Viet Nam and Cambodia of what we did there. Would it be different in Africa or the Middle East? Maybe, but I find wars have a logic of their own for the people in the mud and the dust and the insects. I think it would be good for folks who say, ‘We have to do something!’ to at least talk to some of us who’ve Done Something ourselves. Talk to us–or keep their mouths shut.

...even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations."

...no mincing of words as to what has happened: ‘It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.’ I appreciate both the straightforward description of the rise of both income and wealth inequality, and the explicit connection between these growing inequalities and the threat this poses to future generations’ upward mobility and opportunity.... Conservatives seem to only be concerned with facilitating opportunity or social mobility, and consider income inequality itself not a worthy focus.... Various reporters have noted the Obama administration backing away from making ’income inequality’ a key issue and shifting to a focus on opportunity or mobility. Is this tenable, deciding to focus on the upward mobility of today’s poor children without any focus on the incomes and wealth of their parents and the circumstances of their lives—where they live, in what housing, with what safety, and so on?

...as a result of Napoleon’s military campaign – to examine the effects of copyrights on creativity. To measure variation in the quantity and quality of creative output, we have collected detailed data on 2,598 operas that premiered across eight states within Italy between 1770 and 1900. These data indicate that the adoption of copyrights led to a significant increase in the number of new operas premiered per state and year. Moreover, we find that the number of high-quality operas also increased – measured both by their contemporary popularity and by the longevity of operas. By comparison, evidence for a significant effect of copyright extensions is substantially more limited. Data on composers’ places of birth indicate that the adoption of copyrights triggered a shift in patterns of composers’ migration, and helped attract a large number of new composers to states that offered copyrights...

...announced that mortgage-finance companies Fannie Mae and Freddie Mac would start backing loans with down payments as low as 3%. And on Tuesday, three federal agencies approved a loosened set of mortgage-lending rules, removing a requirement for a 20% down payment for a class of high-quality loan known as a 'qualified residential mortgage'.... In addition, veterans can apply for 100% financing on loans insured by the Veterans Administration, and the U.S. Department of Agriculture has several loan programs.... Borrowers with low down payments do default in higher numbers than similar borrowers with higher down payments, said Mark Zandi.... However, Mr. Zandi still believes that low-down-payment lending can be done in a responsible way, by making sure borrowers have solid credit, have low ratios of debt compared with their income and are taking on standard loans...

The seas rolled calmly, stirred by a gentle easterly wind, when the early risers of the morning watch rose for breakfast at three A.M. to relieve the midwatch at four. Aboard the destroyer Johnston, washrooms filled with boisterous morning energy, lockers slammed, and the galley came alive with the hissing of steam, the banter of cooks, the sizzle of eggs and bacon. Quartermaster striker Robert Billie went to the mess, poured himself a cup of coffee, and decided to forget going back to bed. There were only two hours until morning general quarters would be called at six. Any teasing hints of sleep he might get would only deepen his fatigue. Until he could sleep in earnest, he might as well fill the remaining time with useful work. He went to the chart room to update his charts. In previous campaigns, from the Marshalls to the Solomons to the Carolines, the Johnston’s crew had long ago proven their ability to function on a fractured sleep pattern.

...or is it headed for a prolonged slowdown lasting many years?... Both are probably true. Cyclical fluctuations are occurring around a clearly slowing long-term trend.... Until 2011, mainstream economic forecasters... believed that the trend growth rate in China would remain in the 9-10 per cent region for as far ahead as the eye could see. Now almost no one thinks that.... The Conference Board forecast this week that trend growth after 2020 would be only 4 per cent a year...

Nevertheless, Jeremy Siegel and Jeremy Schwartz think that we are in a bond bubble:

...be constructed are very well-stated (actually making it more of a social science, and less model-juggling. However, it also would change the sort of person going into the field and change the field's criteria for success. Not easy!). One thing... is the optimizing behavior of economic policy analysts. Fiscal policy seems off the table, so macroeconomists dive into unconventional monetary policy, which, one trusts, all know is extremely dicey. Why not more emphasis on yelling from the rooftops that the usual economic fears of expansionary fiscal policy (debt accumulation, waste)are simply off target, and less time worrying about the fine points of 'tapering'? Your Brookings work with Larry shows the analytics of fiscal policy at this juncture very well. Criticizing the critics of expansionary fiscal policy as evil 0.01% oligarchs or mindless racist Tories might make one feel good and righteous but doesn't get anybody anywhere; basic analysis held by what seems everybody but a few denizens of the Booth School shows the economic sense of the policy. The notion of criticizing Christie Romer as in thrall to Milton Friedman is indeed droll in the extreme. I guess to have to see the book to see what his problem is with Olivier.

...but the Kaiser twist on it is very wierd and as far as I know, no one else does it quite like Kaiser... a fully integrated payer provider with exclusive usage.... Almost all other non-governmental payer-providers are not exclusive walled gardens that systematically seek to minimize interaction with the entire US healthcare delivery ecosystem.... So what does this difference mean?... I think the Kaiser model allows it to capture and internalize significantly higher percentage of preventive and care coordination benefits than most other integrated payer provider models and far more benefits are captured than segregated payer/provider models. It allows for a common focus and a shared focus on quality and risk minimization as aligning incentives to pay docs to not order a needless test actually makes sense in all scenarios. Other integrated payer providers that are not exclusive walled gardens have the incentive to perform high quality and efficient care on their insured members but wasteful care on patients who are insured by someone else. A Sutter doc who orders an MRI on a non-best practice basis for a Sutter member is costing the company money, but ordering that MRI for an Anthem or United Health insured patient is a a revenue gain. Most providers don’t change their patterns of practice on a patient by patient basis, that means aggregate performance on minimizing needless tests, minimizing preventable care incidents is conflicted with revenue maximization.... The revenue risk is the biggest risk that will stop non-exclusive mostly open payer providers from converting to a Kaiser walled-garden approach.... At least a few payer-providers will install significant gatekeepers and low walls for their network to keep most of their members in and other people out, but the walls won’t be high nor hard to hop over. Kaiser is weird in the American context, and I anticipate it will continue to be an unusual but highly successful implementation of a fairly unique non-governmental model."

...when reporters brought up the topic on June 18. Kasich suggested anyone who opposes Medicaid expansion will have to answer for their opposition when they die. Gov. Kasich said he recently told a state legislator:

I respect the fact that you believe in small government. I do too. I also happen to know that you’re a person of faith. Now, when you die and get to the, get to the, uh, to the meeting with St. Peter, he’s probably not gonna ask you much about what you did about keeping government small, but he’s going to ask you what you did for the poor. Better have a good answer....

...about the future of the global economy.... 1) The Summers/Gordon Question.... What if the elevated rates of economic growth that started with the Industrial Revolution are now petering out in the developed world? What if all the low-hanging fruit that have kept growth high for the last two centuries have been exhausted? 2) The Eichengreen/Rodrik Question. The default assumption that most economists make is that the developing world in general, and the BRICS in particular, will converge towards the affluence level of the developed world. This might not be the case... there is a very real ‘middle income trap’ that can lead to a serious growth slowdown in the advanced developing countries. Even more disturbing is Dani Rodrik’s contention that while globalization has led to a true convergence in manufacturing productivity, it hasn’t caused any convergence in the rest.... 3) The Angell/Gartzke Question.... What if geopolitical tensions force a re-ordering of economic ties? This could erode the pacifying effects of commercial liberalism that scholars from Norman Angell to Erik Gartzke have observed.... 4) The Fukuyama/Kirshner Question.... Jonathan Kirshner’s new book... argu[es] that China and others are now rejecting the U.S. financial model. If Kirshner is right, what will this mean for the future of economic growth? More radically, what if other countries reject the capitalist model wholesale?.... 5) The Piketty/Freeland... argument... that, left to its own devices, capitalism will produce a dystopia where elites will grab an ever-growing share of the economic pie. What happens to the global economy if he’s right?  What kind of political backlash will it produce?.... Enjoy the week!

...by the Fed and is taken up by the European Central Bank (ECB), let’s compare the behavior of nominal domestic demand in each central bank’s economy and venture a reason for any differences. Plotted in Chart 1 are index values of the nominal Gross Domestic Purchases in the U.S. and the eurozone, respectively.... Now, let’s examine the behavior of credit created by the central banks and depository institutions in each of these economies. This is credit that is created figuratively out of thin air. When central banks purchase securities in the open market, such as they do when they engage in quantitative easing (QE), they create credit out of thin air. When the depository institution system expands its loan and securities portfolios, it creates credit out of thin air. Credit created out of thin air enables the borrower to increase his/her current nominal spending while not requiring any other entity to reduce its current spending...

...published in American Political Science Review and written by MIT political scientists Chris Tausanovitch and Christopher Warshaw. (via Bruce Sterling):

...that a lot of banks will fail on the front cover, but pass at the back of the book--this would happen, for example, if a bank was made aware early in the year that it was at risk, and decided to do something about it. I think I can see the thinking behind this way of presenting the results. The Euroland supervisors are hoping that the headline news will be made by the front pages of the reports, so they will be able to have it both ways--a big headline in the Financial Times and the Wall Street Journal saying that their test was credible because it failed so many big names, while at the same time tipping the wink to market analysts that most of the ‘failures’ were not really failures at all, and that nearly all of the required recapitalisations have already happened. To be honest, I find this communication strategy rather clever...

Why oh why can't we have a better press corps?

This is really embarrassing, New York Times: really, really embarrassing:

1. The first joke comes in Casey Mulligan's first paragraph: the Fed does not lend money to banks on an overnight basis at the Federal Funds Rate. The Fed lends money to banks at an interest rate called the Discount Rate. The Federal Funds rate is the rate at which banks lend their Federal Funds--the deposits they have at the Federal Reserve--to each other. That's why it is called the Federal Funds rate.

2. The second joke comes in the second paragraph. Hansen and Singleton (1983) is 'new research'?

3. The third joke is the entire third paragraph: since the long government bond rate is made up of the sum of (a) an average of present and future short-term rates and (b) term and risk premia, if Federal Reserve policy affects short rates then--unless you want to throw every single vestige of efficient markets overboard and argue that there are huge profit opportunities left on the table by financiers in the bond market--Federal Reserve policy affects long rates as well. Note the use of the weasel word 'largely'.

The New York Times badly needs to clean house here.

There are lots of economists who would love to write for the New York Times for free, and who know the difference between the Federal Funds Rate and the Discount Rate:

Strategically located along the roads leading to the Channel ports in Belgian Flanders, the Belgian city of Ypres had been the scene of numerous battles since the sixteenth century.  With the German failure at the Battle of the Marne in September 1914 and the subsequent Allied counter attacks, the 'Race to the Sea' began.

...and simple enough to lend itself to pencil-and-paper analysis.... Michaillat and Saez (2014)... retains the architecture of the Barro-Grossman model but replaces the disequilibrium framework on the product and labour markets with an equilibrium matching framework.... Both meal prices and product market tightness can adjust to equilibrate supply and demand for meals.... Both wages and labour market tightness adjust to equilibrate labour supply and demand.... If product and labour market tightness remain constant, the equilibrium is reached by price adjustment.... If prices are rigid, the equilibrium is reached by adjustment of product and labour market tightness.... A negative labour demand shock leads to falls in both employment and labour market tightness.... A negative labour supply shock leads to a fall in employment but an increase in labour market tightness.... Output and product market tightness move in the same direction with demand shocks.... Output and product market tightness move in opposite direction with technology shocks.... Through the lens of our simple model, the empirical evidence suggests that price and real wage are somewhat rigid, and that unemployment fluctuations are mainly driven by aggregate demand shocks...

The following is the Opinion of the Naval Court of Inquiry which examined whether Rear Admiral Husband E. Kimmel and General Walter C. Short were in dereliction of duty on (and before) December 7, 1941. The court took testimony, examined exhibits and allowed both officers to have counsel.  No dereliction of duty was found.

Report of Navy Court of Inquiry [October 19, 1944]: OPINION:

....For sixty years, he was one of my closest friends. My debt to him, both personal and professional, is beyond measure. Despite deep sadness at his death, I cannot recall him without a smile rising to my lips. He was as quick of wit as of mind. His wit always had a point, and was never mean or nasty — though some of the objects of his wit no doubt felt its sting. His occasional humorous articles — such as “The History of Truth in Teaching” — have become classics and demonstrate that had he chosen to become a professional humorist rather than a professional economist, he would have achieved no less fame in the one field than he did in the other. His death has left the world a far less joyful place for Rose and me, as for so many others.

using a technique known as edge sorting, at Genting’s Crockfords casino in London, according to his lawyers. Genting refused to pay up, saying the practice is unfair. A casino ‘is a cat and mouse environment, it is an adversarial environment,’ Richard Spearman, Ivey’s lawyer said in court. ‘It doesn’t mean you have to be dishonest.’ Ivey, who sued Genting last year, argues that edge sorting isn’t dishonest and he should be paid the money.... Both sides agree that Ivey was in the casino in August 2012 and that he won the money.... Edge sorting is a way a card player can gain an advantage by working out the value of a card by spotting flaws or particular patterns on the back of certain cards.... It’s agreed ‘in the present case that there are legitimate strategies that may used by skilled players which have the purpose and effect of providing the player, rather than the casino, with the advantage on particular bets,’ Spearman said in court documents...

...and thank you all for joining us here today. This is a special day for us at the Federal Reserve Bank of Minneapolis, especially at the Helena Branch. Dave Solberg, a member of the Branch’s board of directors, will complete his service at the end of this year. I would like to extend my personal thanks to Dave for his service to the Helena Branch and, more broadly, to the Federal Reserve. The time that our directors, and members of our advisory councils, devote to their work is truly valuable. Dave and his colleagues bring important insights about the economy from people on Main Street and on farms and ranches across the region. As I have said many times, we have no end of data at the Federal Reserve, but data are backward-looking, and we need all the information we can get to make judgments about the future course of the economy. So thanks again to Dave and to his colleagues on the board, as well as anyone else in the room who has served on a Federal Reserve board or council. We appreciate your service.

...I've been working on a new study on the importance of diversity in game content to game players, and whether or not the game industry is able to predict this desire. Game developers can be hard to reach.... By September 25th, I basically had all the data I needed. And then I got this email: 'Hey diddle-doodle, Ms. Allaway! A heads-up: your project has been targeted for extensive "vote brigading" (possibly ranging into the tens of thousands of entries). Use that knowledge however you will. Cheers'.... I went into 8chan—the movement's current and primary forum for coordinating their efforts—and found a discussion on a 'secret developer survey,' referring to my questions.... In under four hours, the developer survey jumped from around 700 responses, which had been collected over the course of a month, to over 1100 responses. The responses were not... subtle.... It appeared that less than 5 percent of the new responses had actually come from developers.... Responses like this.... I set about locking down accounts, emailing professors, contacting campus safety, and calling family. It was an exhausting process, but I considered it necessary. The attack could get out of hand.... If you're even asking about equality or diversity in games, being shouted down in a traumatizing manner is now a mandatory step that you have to sit back and endure. But I don't hate #Gamergate for what they've done to me. I'm a researcher; my goal is to analyze and to understand. And after two weeks of backtracking through the way they've carried out their operations, this is the conclusion I've reached: #Gamergate, as we know it now, is a hate group...

On October 18, [Howe] landed 4,000 men at Pelham, 3 miles (4.8 km) north of Throgs Neck. Inland were 750 men of a brigade under the command of Col. John Glover. Glover positioned his troops behind a series of stone walls, and attacked the British advance units. As the British overran each position, the American troops fell back and reorganized behind the next wall. After several such attacks, the British broke off and the Americans retreated. The battle delayed British movements long enough for Washington to move the main army to White Plains, avoiding being surrounded on Manhattan. After losing to the British in a battle at White Plains, and losing Fort Washington, Washington retreated across New Jersey to Pennsylvania.