Things to Read at Lunchtime on September 26, 2014

Must- and Shall-Reads:

• Rhys R. Mendes: The Neutral Rate of Interest in Canada
• Bull Market
• Zeynep Tufecki: “Hah. Slate’s higher-ed columnist says of course she exaggrates, skips on research, simplifies to bring on vitriol” https://t.co/PARzQ6mmEp
• Philippe Legrain: Germany’s Economic Mirage
• George Magnus: Xi Jinping’s Pure Party
  Joseph E. Stiglitz: Europe’s Austerity Zombies
• Laura Tyson: Paying for Productivity

1. David Card and Laura Giuliano: Study by UC Berkeley professor, colleague questions effects of gifted education: “Students with high standardized test scores but relatively lower IQs than their “gifted” counterparts experience the most improvement in their test scores–particularly those from disadvantaged backgrounds who are commonly excluded from gifted and talented programs…. David Card and… Laura Giuliano… one of the only two studies evaluating the effects of gifted education. “Unfortunately, there’s not enough scientific knowledge on how any of these programs work,” Card said… a large, urban district in Florida. Students within the district are admitted to gifted programs, determined by a high IQ score. To fill out empty seats in the gifted class, the district would admit students who scored at the top of their third-grade class in standardized tests. Researchers found that these students improved more in their standardized test scores as a result of enrolling in the gifted class…”

2. Peter Thiel: [Robots Are Our Saviours, Not the Enemy:][1] “Americans today dream less often of feats that computers will help us to accomplish…[and] more and more we have nightmares about computers taking away our jobs…. Fear of replacement is not new…. But… unlike fellow humans of different nationalities, computers are not substitutes for American labour. Men and machines are good at different things. People form plans and make decisions…. Computers… excel at efficient data processing but struggle to make basic judgments that would be simple for any human…. [At] PayPal… we were losing upwards of $10m a month to credit card fraud…. We tried to solve the problem by writing software…. But… after an hour or two, the thieves would catch on and change their tactics to fool our algorithms. Human analysts, however, were not easily fooled…. So we rewrote the software… the computer would flag the most suspicious trans­actions, and human operators would make the final judgment. This kind of man-machine symbiosis enabled PayPal to stay in business…. Computers do not eat…. The alternative to working with computers… is [a world] in which wages decline and prices rise as the whole world competes both to work and to spend. We are our own greatest enemies. Our most important allies are the machines that enable us to do new things…”

3. Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy: “At the end of the second quarter of 2014, the labor force participation rate was between 1/2 and 1-1/4 percentage points below trend… as much as 3/4 of a percentage point below predictions based on its historical relationship with the unemployment rate…. Virtually all the gap during this cycle has been due to withdrawal from the labor market of workers without a college degree…. If skills mismatch were an ongoing problem, we’d expect to see wages rising for those with the skills in demand…. Pools of potential workers other than the short-term unemployed, notably the medium-term unemployed and the involuntary part-time work force, substantially influence wage growth at the state or metropolitan statistical area level…. Current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation…. The biggest risk we face today is prematurely engineering restrictive monetary conditions…. If we were to… reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position of falling back into the ZLB environment…. There are great risks to premature liftoff…. And the costs of being mired in the zero lower bound are simply very large…”

4. Michael Lewis: Occupational Hazards of Working on Wall Street: “Technology entrepreneurship will never have the power to displace big Wall Street banks in the central nervous system of America’s youth, in part because tech entrepreneurship requires the practitioner to have an original idea, or at least to know something about computers, but also because entrepreneurship doesn’t offer the sort of people who wind up at elite universities what a lot of them obviously crave: status certainty…. The question I’ve always had about this army of young people with seemingly endless career options who wind up in finance is: What happens next to them? People like to think they have a ‘character’, and that this character of theirs will endure…. It’s not really so…. The best a person can do… is to choose carefully the environment that will go to work on their characters. One moment this herd of graduates of the nation’s best universities are young people…. The next they are essentially old people… gaming ratings companies… designing securities to fail… [to] make a killing off the… dupe[s]… rigging various markets at the expense of… society… encouraging… people to do stuff with their capital… they never should do…. All occupations have hazards. An occupational hazard of the Internet columnist… is that he becomes the sort of person who says whatever he thinks will get him the most attention rather than what he thinks is true, so often that he forgets the difference. The occupational hazards of Wall Street are… the pressure to pretend to know more than he does… hard to form deep attachments to anything much greater than himself… enormous pressure to not challenge or question existing arrangements…. So watch yourself, because no one else will.”

5. Rhys R. Mendes: The Neutral Rate of Interest in Canada: “A measure of the neutral policy interest rate can be used to gauge the stance of monetary policy. We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to target after the effects of all cyclical shocks have dissipated. This is a medium- to longer-run concept of the neutral rate. Under this definition, the neutral rate in Canada is determined by the longer-run forces that influence savings and investment in both the Canadian and global economies. Structural forces have likely reduced the neutral rate by more than a percentage point since the mid-2000s. The Bank’s estimates of the real neutral policy rate currently stand in the 1 to 2 per cent range, or 3 to 4 per cent in nominal terms. The current gap between the policy rate and the neutral rate reflects policy stimulus in response to significant excess supply and in the face of continuing headwinds. As long as these headwinds persist, a policy rate below neutral will be required to maintain inflation sustainably at target.”

Should Be Aware of:

• Austin Frakt: Do falsification tests. (Day of week as an instrument for length of stay

1. Jim Sleeper: For Yale in Singapore, It’s Deja-vu All Over Again: “Once again, the liberal-arts college in Singapore to which Yale has given its name, prestige, energy, and talent finds itself dancing awkwardly with the government over a right that liberal education depends on and should foster: the right to show Pan Tin Tin’s documentary film, “To Singapore With Love,” which criticizes Singapore’s way of turning political and artistic citizens into exiles.”

2. Melissa Bell: Vox’s New Homepage, Explained: “Vox.com has a fancy new homepage…. We’ve built a homepage that’s designed to link together the stories we’ve done over time. If the slots look unusually tall to you, that’s because they are: they’re designed not for one headline, but for many headlines. That way, if something happens in, say, Ukraine, we’re able to offer both our newest story on the topic, but also the stories leading up to today. I’ll be honest: I have no idea if this is going to work. It’ll require a different type of curation and we need to build a robust taxonomy behind the scenes. And even if we get that right, there’s no guarantee that readers will want to consume our stories this way. But if it doesn’t work, we’ll change it…”

3. Ilya Shapiro: Eric Holder: Worst Attorney General Ever :: Cato @ Liberty: “With Eric Holder’s departure, the nation can begin to heal. His was the most divisive tenure of any attorney general I can recall, tearing the country apart on racial and partisan lines. From politicizing Justice Department hiring beyond the wildest accusations against the Bush administration, to running a bizarre guns-to-gangs operation that even Alberto Gonzales couldn’t have concocted, to advocating a racial spoils system at all levels of government, Holder has tarnished the nation’s highest law enforcement office more even than Nixon’s AG John Mitchell. Indeed, the main difference between Holder and Mitchell is that Holder hasn’t gone to jail (yet; the DOJ Inspector General better lock down computer systems lest Holder’s electronic files “disappear”). Of course, Holder has been cited for contempt by the House and referred to a federal prosecutor for his involvement in Fast & Furious – which referral went nowhere due to invocations of executive privilege (sound familiar?). And who knows what role he may have played in the IRS’s targeting of the administration’s political enemies (and even those who merely educate about the Constitution)? Just as bad Holder’s legal violations and contempt for the separation of powers, however, is his racialist view of the world. Like a modern-day George Wallace, Holder has called for racial preference now, racial preferences tomorrow, racial preferences forever. According to our outgoing attorney general, and the 14th Amendment, Civil Rights Act, and Voting Rights Act only protect some citizens (members of the right kinds of racial minority groups) – and should be used to extract political and financial concessions for them. Still, it must be said that Holder was a “uniter not a divider” on one front: under his reign, the Justice Department has suffered a record number of unanimous losses at the Supreme Court. In the last three terms alone, the government has suffered 13 such defeats – a rate double President Clinton’s and triple President Bush’s – in areas of law ranging from criminal procedure to property rights to securities regulation to religious freedom. By not just pushing but breaking through the envelope of plausible legal argument, Attorney General Holder has done his all to expand federal (especially executive) power and contract individual liberty beyond any constitutional recognition. Eric Holder will not be missed by those who support the rule of law.”