Grasping Reality on TypePad, by Brad DeLong

Must-Read: Bloomberg View: Congress Should Care About the IMF: "Since 2010, Washington's paralysis has blocked badly needed changes at the International Monetary Fund...

Live from La Farine: Peter Beinart: America Is Becoming More Liberal: "Bush also destroyed centrist Democrats intellectually...

Picks of the litter are:

1. My views on inflation and on the government budget from 2010
2. Frances Coppola, Noah Smith, and Paul Krugman on the Zero-Hinged John Cochrane

Live from Elmwood Cafe: Duncan Black: It's A Grift: "I don't know if Rubio is the grifter...

...or if it's just the people he has hired, but a presidential campaign focused on teevee advertising and exciting new 'digital outreach' is just about lazy consultants pocketing all the moneys without actually having to do any work. I've never understood the 'ZOMG RUBIO IS THE GUY TO BEAT' sentiment, but in addition to that, a campaign requires a... campaign. People are going to get rich off of Rubio, but he isn't going to win anything if that's 'his' strategy.

Must-Read: Matthew Yglesias: Seattle Shows San Francisco and New York How to Fix the Housing Crisis: "As California's Legislative Analysis Office wrote...

Over at Equitable Growth--The Equitablog:

• Nick Bunker: What explains the rise in college tuition in the United States?
• The Six Major Adverse Shocks that Have Hit the U.S. Macroeconomy since 2005
• The Melting-Away of North Atlantic Social Democracy* Ria Misra: You Can Barely Even See Yosemite's Largest Glacier Anymore
• Kevin Quealy and Margot Sanger-Katz: The Experts Were Wrong About the Best Places for Better and Cheaper Health Care: "These [Medicare and private insurance cost] maps look nothing alike..." :: What risks does the departure of David Leonhardt from The Upshot create for it?
• Jonathan Chait: Sorry, Conservatives, Obamacare Is Still Working: "Ross Douthat’s Sunday column, as it so often does, offers the least unreasonable iteration of the deranged state of conservative thinking..." :: Ross Douthat not understand that the "Cadillac Tax" is an essential part of every single Republican ObamaCare replacement plan?

Must-Read: Ria Misra: You Can Barely Even See Yosemite's Largest Glacier Anymore: "Lyell Glacier was Yosemite's National Park’s largest glacier...

Must-Read: This excellent piece reminds me to worry: What risks does the departure of David Leonhardt from The Upshot create for it?

Kevin Quealy and Margot Sanger-Katz: The Experts Were Wrong About the Best Places for Better and Cheaper Health Care: "These [Medicare and private insurance cost] maps look nothing alike...

George Washington: To Continental Congress, December 23, 1777:

Valley Forge, December 23, 1777.

Sir: Full as I was in my representation of matters in the Commys. departmt. yesterday, fresh, and more powerful reasons oblige me to add, that I am now convinced, beyond a doubt that unless some great and capital change suddenly takes place in that line, this Army must inevitably be reduced to one or other of these three things. Starve, dissolve, or disperse, in order to obtain subsistence in the best manner they can; rest assured Sir this is not an exaggerated picture, but [and] that I have abundant reason to support what I say.

Must-Read: Does Ross Douthat not understand that the "Cadillac Tax" is an essential part of every single Republican ObamaCare replacement plan? That while it is an important part of ObamaCare, it is not an essential part of ObamaCare? Or does he understand that element of the situation, but hope that his readers do not? Jonathan Chait reports. You decide!

Jonathan Chait: Sorry, Conservatives, Obamacare Is Still Working: "Ross Douthat’s Sunday column, as it so often does, offers the least unreasonable iteration...

Over at Equitable Growth: Talk to people at the Federal Reserve these days about how they feel about the institution's performance during the seven very lean years from late 2008 to late 2015, and they tend to be relatively proud of how the institution performed. Almost smug.

Why? Well, let me pull out my old workhorse-graph of the four salient components of U.S. aggregate demand since 1999: READ MOAR

Over at Talking Points Memo: The Melting Away of North Atlantic Social Democracy: Hotshot French economist Thomas Piketty, of the Paris School of Economics, looked at the major democracies with North Atlantic coastlines over the past couple of centuries. He saw five striking facts:

• First, ownership of private wealth—with its power to command resources, dictate where and how people would work, and shape politics—was always highly concentrated.
• Second, 150 years—six generations—ago, the ratio of a country’s total private wealth to its total annual income was about six.
• Third, 50 years—two generations—ago, that capital-income ratio was about three.
• Fourth, over the past two generations that capital-income ratio has been rising rapidly.
• Fifth, the flow of income to the owner of the dollar capital did not rise when capital was relatively scarce, but plodded along at a typical net rate of profit of about 5% per year generation after generation.

He wondered what these facts predicted for the shape of the major North Atlantic economies in the 21st century. And so he wrote a big book, Capital in the Twenty-First Century **READ MOAR at Talking Points Memo

I am still amazed that Karen Hube of the Fiscal Times could publish an article headlined "Down and Out on $250,000 a Year", and say in it: "[H]ow flush is a family of four with a $250,000 income?... It’s not exactly easy street.... They end up in the red..."

From Five Years Ago: Department of Awful Statistics: Down and Out on $250,000 a Year (Why Oh Why Can't We Have a Better Press Corps?)

From Ten Years Ago: A Hard Walnut to Crack: Why Do Reporters Still Go to Scott McClellan's Briefings?

George Washington: To Congress: There Was Choice of Difficulties...:

Headquarters, Valley Forge, December 22, 1777

It is with infinite pain and concern, that I transmit Congress the Inclosed Copies of Sundry Letters respecting the State of the Commissary's department. If these matters are not exaggerated, I do not know from what cause, this alarming deficiency or rather total failure of Supplies arises; But unless more Vigorous exertions and better regulations take place in that line, and immediately, this Army must dissolve. I have done all in my power, by remonstrating, by writing to, by ordering the Commissaries on this Head, from time to time; but without any good effect, or obtaining more than a present scanty relief.

Over at Equitable Growth--The Equitablog:

• Jesse Rothstein: The Earned Income Tax Credit* Jeffrey Sparshott: Where the Jobless Rate Is 2.3%, Here’s What Happened to Wages
• Danny Yagan: Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
• Paul Krugman (2014): The Limits of Purely Monetary Policies
• Paul Krugman (2014): The Simple Analytics of Monetary Impotence

Must-Read: Jeffrey Sparshott: Where the Jobless Rate Is 2.3%, Here’s What Happened to Wages: "In Lincoln, Neb., average hourly earnings were stagnant until the unemployment rate crossed below 2.5% in the fall of 2014...

Must-Read: Danny Yagan: Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut: "This paper tests whether the 2003 dividend tax cut...

Must-Read: The arguments for quantitative-easing-as-stimulus were always twofold: (1) Taking duration risk off of private-sector balance sheets is a thing, even if a small thing. (2) It is unreasonable for markets to believe and for liquidity injections this large to be completely unwound at the end of the day when the long-run comes and the sea is calm and flat again. (1) appears to be small. And (2) appears to be false. But is (2) false because markets expect quantitative easing to be totally unwound? Or is it because markets don't have "expectations" of anything the way we economists think they do? Moreover, I had an argument (3)--that the liquidity trap only emerged because financial disruption destroyed the risk-bearing capacity of the market, and that quantitative easing would (a) provide some of that risk-bearing capacity directly via the government, and (b) lure private-sector risk-bearing back into the marketplace. Why is it wrong?

Paul Krugman (2014): The Limits of Purely Monetary Policies: "But, asks Evans-Pritchard, what if the central bank simply gives households money?...

...Well, that is, as he notes, really fiscal policy.... [And] central banks aren’t in the business of just giving money away... [but] of asset swap[s].... Still, isn’t this just theory? Well, no. Huge increases in the monetary base in previous liquidity trap episodes had no visible effect.... I have supported QE in both Britain and the US, on the grounds that (a) central bank purchases of longer-term and riskier assets may help and can’t hurt, and (b) given political paralysis in the US and the dominance of bad macroeconomic thinking in the UK, it’s all we’ve got. But the view I used to hold before 1998--that central banks can always cause inflation if they really want to--just doesn’t hold up, theoretically or empirically.

http://krugman.blogs.nytimes.com/2014/12/16/the-limits-of-purely-monetary-policies/

Paul Krugman (2014): The Simple Analytics of Monetary Impotence: "If we have rational expectations and frictionless capital markets...

Richard Mayhew: Technically true bullshit: "One of the leading lights of the conservative ‘health wonk’ community[, Scott Gotlieb,]...

...is peddling bulls--- that is technically true, if you parse it correctly, but designed to mislead anyone but a hyper technical reader. Last year open enrollment started on November 15th. The 6th week of open enrollment would have been the first week of January. This year, open enrollment started on November 1st. The 6th week of open enrollment just wrapped up.

From three years ago: Antonio Fatas: On the Global Economy: Ignorance as an excuse: "Via Greg Mankiw I read a response [by Aparna Mathur, Sita Slavov, and Michael R. Strain] to the argument by Peter Diamond and Emmanuel Saez...

...that the top marginal tax rate in the US should be raised to about 73%.... I... want to... discuss the logic used by the criticism of Diamond and Saez work. The authors... contrast... the willingness of Peter Diamond to offer a concrete policy recommendation with the answers that... Tom Sargent and Chris Sims... gave.... Sims answered....

Over at Equitable Growth--The Equitablog:

• Nick Bunker: Weekend Reading
• Nick Bunker: What Are the Factors Behind High Economic Rents?* Simon Wren-Lewis: The Knowledge Transmission Mechanism and Austerity: "Central banks therefore played a crucial role in the failure of the K[nowledge ]T[ransmission ]M[echanism in 2010." :: A good wrestle with a very tough intellectual problem by the truly excellent Simon Wren-Lewis
• William McChesney Martin (1958): Discussion: "That would indeed be a great feather in its cap and ultimately its success would be great..." :: And if the Federal Reserve System were to adopt bad policies in the hope of preserving its political independence, its political independence is already lost...
• Joshua M Brown: The Woes of the Asset Managers: "Goldman is going slash-and-burn for factor investing market share with a pricing structure that rivals what State Street, Schwab, Vanguard and BlackRock are charging for plain vanilla index exposure..." :: Passive diversified portfolios with an eye toward overweighting factors that have historically offered high returns is what nearly all investors should be doing.
• Dean Baker: The Upward Redistribution of Income: Are Rents the Story?: "[My] argument on rents is important because... it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality..." :: I think Piketty would say that Baker is wrong here...

Must-Read: A good wrestle with a very tough intellectual problem by the truly excellent Simon Wren-Lewis:

Simon Wren-Lewis: The Knowledge Transmission Mechanism and Austerity: "How do economic policy mistakes happen?...

Eleanor Roosevelt: My Day:

NEW YORK, Thursday—It looks as though there was going to be a very determined effort to tie the increase in wages to the price of manufactured goods. Apparently nobody has the slightest objection to raising wages if they can cover the full amount of the price increase by charging the public more.

Two picks of the litter today:

1. From ten years go: We all need to remember how truly and execrably mendacious even the so-called "responsible" members of the George W. Bush administration were...

2. From one year ago: Paul Krugman smacks me down: "What I hear... are... word games... reason[ing] in... concepts like 'monetary neutrality' that aren’t... well-defined... [people] fooling themselves into believing that they’ve demonstrated things they haven’t.... One good exception is Brad DeLong’s argument: that money does too work in a liquidity trap because such traps are always the result of disrupted financial markets. What I’d say is that they are sometimes caused by financial disruption. But is this one of those times?..."

Most-Recent Must-Reads:

• William McChesney Martin (1958): Discussion: "That would indeed be a great feather in its cap and ultimately its success would be great..." :: And if the Federal Reserve System were to adopt bad policies in the hope of preserving its political independence, its political independence is already lost...
• Joshua M Brown: The Woes of the Asset Managers: "Goldman is going slash-and-burn for factor investing market share with a pricing structure that rivals what State Street, Schwab, Vanguard and BlackRock are charging for plain vanilla index exposure..." :: Passive diversified portfolios with an eye toward overweighting factors that have historically offered high returns is what nearly all investors should be doing.
• Dean Baker: The Upward Redistribution of Income: Are Rents the Story?: "[My] argument on rents is important because... it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality..." :: I think Piketty would say that Baker is wrong here...

Most-Recent Links:

• Jeet Heer: "Benedict Anderson... suffers from what Ernest Gellner once cruelly but aptly described as the ‘Wrong Address’ theory... under which History was supposed to confer group consciousness and solidarity upon Class, yet somehow ended up delivering it to Nationality instead..."
• M. G. Siegler: "Metacritic instead of the wisdom of the masses, it’s the wisdom of the well-informed..."
• David Atkins: "The majority[of] GOP [primary] voters aren’t simply enamored with the idea of change and a non-politician. They’re furious at the establishment.... The GOP protest vote isn’t against government officials--it’s directly against the GOP establishment and its backers..."
• Daniel W. Drezner: "A politically incorrect take on the GOP foreign policy debate: When it comes to foreign policy, the GOP's candidates for president in 2016 are either ignorant or insane..."
• Andrew Cunningham: "I have a soft spot in my blackened, hollowed-out heart for all of this bad Star Trek..."
• Benedict Evans: 16 Mobile Theses
• Andrew Gelman: A Replication in Economics: Does “Genetic Distance” to the US Predict Development?
• McKay Coppins: The Wilderness: Deep Inside the Republican Party's Combative, Contentious, Chaotic Quest to Take Back the White House
• Inequality Media
• Elis Kiss and Christian Sturmey: Ancient Greek dishes recreated in pop-up fashion

Must-Read: And if the Federal Reserve System were to adopt bad policies in the hope of preserving its political independence, its political independence is already lost...

William McChesney Martin (1958): Discussion: "If the System should lose its independence in the process of fighting for sound money...

Must-Read: Passive diversified portfolios with an eye toward overweighting factors that have historically offered high returns is what nearly all investors should be doing.

Joshua M Brown: The Woes of the Asset Managers: "I would say that the pressure on fees and the transparency around what you pay vs what you get makes most of the sector uninvestable...

Delong Smackdown Watch: Health Care/Jason Kuznicki Edition: Me? I find my great-great uncle Abbott's argument in the 1931 American Economic Review that classical liberalism and laissez faire as we know it did not emerge and does not predate Nassau Senior and the anti-Corn Law League of the 1820s to be conclusive...

Benjamin H. Newcomb: Washington’s Generals and the Decision to Quarter at Valley Forge:

Sometime between December 8 and December 11, when the army left Whitemarsh to cross to the west side of the Schuylkill, Washington decided not to quarter in either Lancaster-Reading or Wilmington. He had been compelled to delay his decision when Howe, on December 4, advanced on Whitemarsh. Howe failed to surprise Washington, and he could not penetrate the strong American position nor get around the flank. Four days later, after some skirmishing, the British withdrew to Philadelphia. One ironic consequence of this maneuver was the capture of General Irvine in a Chestnut Hill skirmish. He, therefore, failed to see the army march off toward the encampment area that he had advocated.

Buffer: 27 Questions to Ask Instead of “What Do You Do?”:

John Scalzi: Off with Their Comments: "This is a polite and deflect-y way of saying...

...‘Our comments are a raging cesspool filled with the worst that humanity has to offer and you all make us look bad by smearing your feculent mindpoops on our property, so do it somewhere else and we’ll pick the ones we like to highlight.’

Noah Smith has a nice post this morning [i.e., back in December 2013]:

Noah Smith: Risk premia or behavioral craziness?:

John Cochrane is quite critical of Robert Shiller.... He... thinks that Shiller is trying to make finance less quantitative and more literary (I somehow doubt this, given that Shiller is first and foremost an econometrician, and not that literary of a guy).

Picks of the litter are two:

1. Noise Trading, Bubbles, and Excess Volatility in the Aggregate Stock Market: as I said: "The curvature of any individual's utility function--how close any individual is to material satiation given current technological possibilities--is a deep psychological parameter that would require a radical rewiring of the brain to accomplish. Yet Fama, Cochrane, and company propose that such rewirings took place between 1996 and 2000, and that the rewirings were then unrewired between 2000 and 2002?..."

2. George Orwell to the White Courtesy Phone, Please!: But-That's-Not-What-Niall-Ferguson-Said! Absolutely the Ultimate Thursday Idiocy Weblogging: The difference between what Niall Ferguson said and what the NYRB reported he said is truly remarkable for something that purports to be not an edited discussion but rather excerpts from a transcript. Highlights well below the fold

History.com: Haig becomes commander-in-chief of the British army in France:

In the wake of the British defeat at the Battle of Loos in September 1915, Sir Douglas Haig replaces Sir John French as commander-in-chief of all British forces on the Western Front.

: Star Wars Holiday Special 1978 Intro:

Live from Crow's Coffee: James Fallows (2013): Separated at Birth: "Ted Cruz can't help it that his voice, his intonation, his posture at the microphone...

Over at Equitable Growth--The Equitablog:

• Nick Bunker: Weekend reading* Sutirtha Bagchi and Jan Svejnar: Does wealth inequality matter for growth?: "The relationship between politically connected wealth inequality and economic growth is negative, while politically unconnected wealth inequality... [has] no significant relationship."
• Josh Barro: Sorry, but Your Favorite Company Can’t Be Your Friend: "Companies try to blur the lines, insinuating themselves into your friend zone..." :: It's not companies that are trying to blur the lines, so much as pro-market ideologues (and I mean that of the extremely-smart Josh Barro in the nicest possible way) trying to draw lines that cannot be sharply drawn...
• Henry Farrell: Piketty, in Three Parts: "Piketty['s]... data... confound[s]... previous... wisdom that we didn’t need to worry about inequality. This makes a vast and important social phenomenon... visible, salient and socially undeniable..." :: the best precis of Piketty as both sociological phenomenon and political actor I have yet seen...
• Paul Krugman (1999): Thinking About the Liquidity Trap: "fiscal stimulus... [is only] a way of buying time... [absent] assumptions that are at the very least rather speculative..." :: How very closely Krugman's fiscal-policy analysis then tracks Rogoff's analysis today...

Must-Read: Sutirtha Bagchi and Jan Svejnar: Does wealth inequality matter for growth?: "We derive a global measure of wealth inequality from Forbes magazine's listing of billionaires...

Must-Read: Second to Miriam Ronzoni in the Crooked Timber Piketty symposium is Henry Farrell--who provides the best precis of Piketty as both sociological phenomenon and political actor I have yet seen:

Henry Farrell: Piketty, in Three Parts: "Piketty['s]... contribution is better understood in sociological terms...

Three things most worth noting:

1. Alan Blinder and Jeff Madrick disagree about what is the "mainstream" in economics...
2. My first Piketty review...
3. The von Mises Institute grifts. But what did you expect?...

Must-Read: It's not companies that are trying to blur the lines, so much as pro-market ideologues (and I mean that of the extremely-smart Josh Barro in the nicest possible way) trying to draw lines that cannot be sharply drawn.

Look: Back in the environment of evolutionary adaptation we evolved as gift-exchange animals. Monkeys create and reinforce social bonds by grooming each other. Canids create and reinforce social bonds by... I'm not going there. We create and reinforce social bonds by giving each other presents. We like to give. We like to receive. We don't like being too much on the downside of the gift exchange: to have received much more than we have given in return makes us feel very small. We don't like being too much on the upside of the gift exchange either: to give and give and give and never receive makes us feel like suckers. We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation.

And on top of this evopsych propensity to be gift-exchange animals--what Adam Smith called our "natural propensity to truck, barter, and exchange"--we have built our complex economic division of labor.

But we face a problem: How do we enter into a gift-exchange relationship with somebody we will never see again. And we have a solution: a cash-on-the-barrelhead exchange. But as soon as we enter into a gift exchange relationship with someone or something we will see again--perhaps often--it will automatically shade over into the friend zone. This is just who we are...

Josh Barro: Sorry, but Your Favorite Company Can’t Be Your Friend: "‘It seems crazy, doesn’t it?’ said Ann McGill...

Eleanor Roosevelt: My Day:

NEW YORK, Monday—According to the newspapers yesterday the Emergency Appropriation Bill of $2,400,000,000, which carried $750,000,000 as a contribution for the United States to the work of the United Nations Relief and Rehabilitation Administration, was passed on December 15th.

Live from Aixois: I learned this morning that:

1. "California" means "Land of the Caliph"...
2. The titles of the Ottoman Sultan included not just "Caliph", but "Kaysar-i-Rum"--that is "Caesar of Rome", that is Emperor of the Roman Empire...

Must-Read: One thing that I find very interesting about Paul Krugman's analysis of the liquidity trap and fiscal policy back in 1999 is... how very closely it tracks Ken Rogoff's analysis of the liquidity trap and fiscal policy today:

Paul Krugman (1999): Thinking About the Liquidity Trap: "Fiscal policy: "The story... [of] self-fulfilling pessimism is... a multiple equilibrium story...

Over at Equitable Growth--The Equitablog:

• Nick Bunker: What the Fed’s method of raising interest rates reveals about the state of the global economy - Equitable Growth
• Paul Krugman and Larry Summers Are Such Amazing F#@$*%$ Geniuses! Department - Equitable Growth
• What Is the Eccles Building Thinking Today? III: The Mysterious Absence of Paul Krugman Thought - Equitable Growth
• What Is the Eccles Building Thinking Today? II: The Reasonable People Are Very Unreasonable Indeed - Equitable Growth
• What Is the Eccles Building Thinking Today? I: The Failure to Think Through the Consequences of "Secular Stagnation" - Equitable Growth* Robert P. Brenner (2001): The Low Countries in the Transition to Capitalism: "The medieval and early modern Northern and Southern Netherlands... [were] the most highly urbanized and commercialized regions in Europe..."
• Duncan Weldon: Are the Robots Taking Enough Jobs?: "[Without] big increases in... labour-saving technology... slower growth and... greater share[s] of... incomes... to support the retired..." :: I find myself, more and more, wanting substantive integrated studies of...productivity...
• Rachel Lukasz and Thomas D Smith: Secular Drivers of the Global Real Interest Rate: "Slowing global growth... demographic forces, higher inequality and to a lesser extent the glut of precautionary saving... falling relative price of capital, lower public investment, and... an increase in the spread between risk-free and actual interest rates..." :: What the weights should be on these five possible cures... is not clear to me.

Must-Read: Robert P. Brenner (2001): The Low Countries in the Transition to Capitalism: "The medieval and early modern Northern and Southern Netherlands...

Must-Read: I find myself, more and more, wanting substantive integrated studies of the combination of market-firm, nonprofit and government, and within-household productivity. And I find myself less and less satisfied with current conventional GDP accounts as providing a good enough guide to what is really going on. So I am not satisfied with blanket declarations that productivity growth properly accounted-for is relatively slow:

Duncan Weldon: Are the Robots Taking Enough Jobs?: "We are transitioning to a world in which the global supply of labour...

Nazi Nuremberg Major War Crimes Trial 12/17/45 - Defendants During Recess, Jackson Addresses Court:

William T. Trego: The March to Valley Forge, December 16, 1777, 1883:

Especially worth noting:

1. "Secular stagnation" is overwhelmingly about the equity premium, not about slower growth or higher savings rates...
2. Naming Thomas, Hennessy, Holtz-Eakin, and Wallison to the Financial Crisis Inquiry Commission was a major mistake: we needed economists, and all four of them were Republicans and lobbyists first, economists second--if at all.
3. My pre-Piketty take on Piketty issues
4. The collapse in male labor-force participation has the expected geographic skew...