Things to Read on the Afternoon of July 2, 2014

Should-Reads:

1. Robert Johnson: Growing Up in the Cauldron of 1960’s Detroit:

2. Danielle Kurtzleben: Americans’ delayed retirement expectations

3. Mark Thoma sends us to Janet Yellen: Monetary Policy and Financial Stability: “Accommodative monetary policy has contributed to low interest rates, a flat yield curve, improved financial conditions more broadly, and a stronger labor market. These effects have contributed to balance sheet repair among households, improved financial conditions among businesses, and hence a strengthening in the health of the financial sector… [and] increased safety of the financial sector…. I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns…. The policy approach to promoting financial stability has changed dramatically in the wake of the global financial crisis. We have made considerable progress in implementing a macroprudential approach…. The IMF plays an important role in this evolving process as a forum for representatives from the world’s economies and as an institution charged with promoting financial and economic stability globally. I expect to both contribute to and learn from ongoing discussions on these issues…”

4. Robert Waldmann: A Comment on Kling on Remembering the 1970s: “Friedman did not believe in rational expectations and had no trouble explaining and more or less, predicting the stagflation…. It was obvious to prominent Keynesians (I am thinking of Solow and Tobin) that the one-lag autoregressive expectations model wasn’t the truth…. There was a debate which can be translated into contemporary econospeak as “in around 1970, Solow believed that US inflation expectations (unlike Latin American inflation expectations) were anchored.” This doesn’t mean that he predicted that they would remain anchored…. Solow’s position was very explicitly that inflation expectations are sometimes anchored and sometimes not… the view currently expressed by, among others, Ben Bernanke, Janet Yellen and Narayana Kocherlakota… the standard view among monetary policy makers…. I think the key event was the spread of the strange belief that Samuelson, Solow et al believed in an expectations-unaugmented Phillips curve…. The take-home lesson was that you better not trust data without formal theory…. I don’t know exactly when or how the strange delusion about old Keynesians began. It is certainly expressed in Friedman’s Nobel lecture (in which he doesn’t name his straw Keynesians)…”

5. Austin Frakt Two things we learned from the Hobby Lobby decision: “Thing 1: The majority of the Supreme Court doesn’t get science. Thing 2: The majority of the Supreme Court doesn’t get economics. On the merits, I’m not in agreement with the decision, but I’m actually more favorable to it than this bit of snark would suggest. There certainly must be some limits…. I’m just not convinced that this is where the line is, particularly given the evidence. But, back to my main point: It’s deeply troubling when any branch of government (or anyone at all) makes policy decisions that turn on arguments in contradiction with evidence. That doesn’t make such decisions wrong, but it makes them improperly justified. Find a less obviously incorrect argument or rethink your position. This, perhaps, is too much to ask in America or of people in general. And if so (either one), it’s sad. Deeply sad.”

Should Be Aware of:

• Mark Thoma: Are Calls for Income Redistribution Based on Envy or Justice?
• Lawrence Wilkerson: “Dick Cheney: He Isn’t Immoral, He’s Amoral”
• Unlearning Economics: “I… consider 5 of the most widespread [criticims] and show, using direct quotes from Piketty himself, why they are off the mark. The first 3 are simple errors of interpretation… the latter 2 are problems with how people have responded…. Although the latter 2 are inevitably more subjective, they are still important for trying to understand and reframe the debate between Piketty and his critics…”

And:

1. Paul Krugman: Trick or Tweak: “Sam Tanenhaus asks, ‘Can the G.O.P. Be a Party of Ideas?’ Why, no. This is another edition of simple answers to simple questions…. ‘Reform conservatives’ seem mainly to be offering supposedly new ideas for the sake of being seen to offer new ideas. And there isn’t much there there; can you find anything in the Tanenhaus piece that sounds like an important new idea rather than a minor tweak on the current conservative catechism? I can’t…. The central policy debate in US politics hasn’t changed in decades, nor should it. Liberals want a strong social safety net, financed with relatively high taxes, especially on high incomes. Conservatives want much less of a safety net, and much lower taxes on the affluent. Thirty-five years ago conservatives did produce a new argument–the claim that high taxes and generous benefits were producing such a drag on the economy that even lower-income Americans would be better off if we slashed all of that. And they got most of what they wanted…. But growth failed to take off while inequality soared…”

2. Stefan Nagel: The Liquidity Premium of Near-Money Assets: “Treasury bills and other near-money assets provide owners with liquidity service benefits that are reflected in prices in the form of a liquidity premium. I relate time variation in this liquidity premium to changes in the opportunity cost of money: The liquidity service benefits of near-money assets are more valuable when short-term interest rates are high and hence the opportunity cost of holding money is high. Consistent with this prediction, the liquidity premium of T-bills and other near-money assets is strongly positively correlated with the level of short-term interest rates. Once short-term interest rates are controlled for, Treasury security supply variables lose their explanatory power for the liquidity premium. I argue that an analysis of scarcity and price of near-money assets is incomplete without taking into account the substitution relationship with money and its supply by the central bank. Payment of interest on reserves (IOR) could potentially reduce liquidity premia because IOR reduces the opportunity cost of at least one type of money (reserves). In the UK and Canada, however, the introduction of IOR did not shrink liquidity premia. Apparently, the reduction in banks’ opportunity cost of money did not result in a broader fall in the opportunity costs of money for non-bank market participants…”

3.David Dayen: Supreme Court’s out-of-control spiral: Ideologues rewriting their own laws: “As you probably know, the court ruled in the Hobby Lobby case that closely held corporations, where the top five shareholders control more than 50 percent of the company, must be given an accommodation for providing birth control in their employer-based insurance coverage, if they say it violates their religious beliefs. The decision, written by Justice Samuel Alito, explicitly argues companies like Hobby Lobby could be granted the same accommodation as churches and religious nonprofits…. Alito… drew a completely arbitrary line…writes, ‘our decision in these cases is solely concerned with the contraception mandate’…. As Kevin Drum notes, this is a very ‘Bush v. Gore’ type of effort, where the majority, as they’re writing the ruling, warn everyone to never use it as precedent. Not only is this not how the law works, the randomness of the distinction makes no sense: Indeed, contraception plays a major role in stopping the spread of infectious diseases! Justice Alito boiled down all religious sentiment into caring about whether women have too much unauthorized sex. He actually picks and chooses among religions, essentially saying that only beliefs about abortion matter in the religious liberty context. Furthermore, the ruling ignores science, by associating contraception with abortifacients…”

Already-Noted Must-Reads:

1. Betsey Stevenson et al.: The Council of Economic Advisers: Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid: “24 States have not yet expanded Medicaid including many of the States that would benefit most…. The Urban Institute estimate[s] that… 5.7 million people will be deprived of health insurance coverage in 2016. Meanwhile, these States will forgo billions in Federal dollars that could boost their economies…. If the States that have not yet expanded Medicaid did so: 1.4 million more people would have a usual source of clinic care…. States that have already expanded Medicaid… 1.0 million…. 651,000 more people would receive all care they feel they need in a typical year….. States that have already expanded Medicaid will achieve this outcome for 494,000 people…. 829,000 people would receive cholesterol‐level screenings once expanded coverage was fully in effect. States that have already expanded… 630,000…. 214,000 women between the ages of 50 and 64 would receive mammograms…. States that have already expanded… 161,000 women…. 345,000 women would receive pap smears…. States that have already expanded… for 261,000 women…. 15.4 million physician office visits…. States that have already expanded… 11.7 million….255,000 fewer people will face catastrophic out‐of‐pocket medical costs in a typical year…. States that have already expanded… 194,000…. 810,000 fewer people will have trouble paying other bills due to the burden of medical…. States that have already expanded… 348,000…. 757,000 additional people would report being in excellent, very good, or good health… States that have already expanded… 575,000 people….
    
   “$88 billion in Federal support through calendar year 2016. States that have already expanded… $84 billion…. Boosted employment by 85,000 jobs in 2014, 184,000 jobs in 2015, and a total of 379,000 job‐years through 2017. States that have already expanded… 356,000 job‐years…. $66 billion in total economic activity through 2017. States that have already expanded… $62 billion…”

2. Danny Quah: It Is Not Easy Being Leader Of The World: “In Rajan’s view sensible policy-makers ought to believe: ‘We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, broadly, rather than what is just right given the circumstances of that country.’ The industrial countries, led by the US, would not play by these implicit rules of the game. Rajan’s statements… elicited a US response with four distinct lines of reasoning. The US central bank could not, by law, take into account the well-being of any party except the US economy… the world economy was not really as inter-connected as Rajan and others might think… if any foreign economy was adversely affected by US monetary policy, it was only because… [of] ‘the challenge is brought on by their own domestic policies’… hat is good for the US is, ultimately, good for the world. It must be tough to be global hegemon…”

3. Pierre-Cyrille Hautcoeur, Angelo Riva, and Eugene N. White: Banque de France’s 1889 ‘lifeboat’ bank rescue : “The key challenge for lenders of last resort is to ameliorate financial crises without encouraging excessive risk-taking…. The lessons from the Banque de France’s successful handling of the crisis of 1889. Recognising its systemic importance, the Banque provided an emergency loan to the insolvent Comptoir d’Escompte. Banks that shared responsibility for the crisis were forced to guarantee the losses, which were ultimately recouped by large fines–notably on the Comptoir’s board of directors. This appears to have reduced moral hazard–there were no financial crises in France for 25 years…”