Things to Read on the Morning of May 15, 2014

Should-Reads:

1. Jason Millman: Another Conservative Governor Mike Pence of Indiana Finds a Way to Expand Medicaid: “Pence last year insisted that he would only expand coverage if he could do it through the Healthy Indiana Plan…. The Obama administration maintained that Indiana couldn’t expand Medicaid through HIP because the program had an enrollment cap, and… cost-sharing… [that was] problematic. HIP’s design has been praised by conservatives for requiring Medicaid beneficiaries to be more conscious consumers because they take more financial responsibility for their care…. Pence will lift HIP enrollment caps, opening up the program to working-age adults earning less than 138 percent of the federal poverty level…. Under the expanded program, there will be two levels of coverage…. The lower coverage level requires co-payments for services, instead of monthly premiums. There are no co-pays, though, for preventive care and family planning services…. The HIP deductible is increasing from $1,100 to $2,500, but Indiana is covering those extra costs…. While [Republican] Obamacare opponents have criticized high-deductible individual plans under the health-care law, Pence says the HIP high-deductible plans are an intentional design feature…. Starting in 2016, Indiana will offer a new employer-based option. Those eligible for HIP can choose to enroll in the state program, or they can opt for a state contribution to help with the cost of employer-sponsored insurance. The choice is theirs…”

2. Duncan Black: Mark Rubio’s Pension Plan: “Raise the [Social Security] retirement age. Cut [Social Security] benefits for people on the upper end (the only way this saves money is if you cut the benefits of people who don’t make all that much money). And this: ‘Rubio wants to open up the federal Thrift Savings Plan–which is available to members of Congress and their staff–to people who don’t have access to a retirement plan through their employers. Similar to a 401(k), the thrift plan lets workers contribute up to $17,500 of their pay annually before taxes in a retirement account. The thrift savings plan also comes with lower fees than what most consumers are charged through private defined-contribution plans, Rubio said. “The twisted irony is that members of Congress–who are employees of the citizens of the United States–have access to a superior savings plan, while many of their employers–the American people–are often left with access to no plan at all,” Rubio said during the speech.’ Oh the twisted irony that a government plan is superior to private sector plans. Such twisted irony. Anyway, opening up the TSP is fine, but it isn’t going to help low income people because the problem for low income people is that they have low incomes…”

3. Nicholas Barberis, Robin Greenwood, Lawrence Jin, and Andrei Shleifer: X-CAPM: An Extrapolative Capital Asset Pricing Model: “More interesting is rational traders’ response to this development. We find that the rational traders do not aggressively counteract the overvaluation caused by the extrapolators. This is because they reason as follows. The rise in the stock market caused by the good cash-flow news–and by extrapolators’ reaction to it–means that, in the near future, extrapolators will continue to have bullish expectations for the stock market: after all, their expectations are based on past price changes, which, in our example, are high. As a consequence, they will continue to exhibit strong demand for the stock market in the near term. This means that, even though the stock market is overvalued at time t, its returns in the near future will not be particularly low–they will be bolstered by the ongoing demand from extrapolators. Recognizing this, the rational traders do not sharply decrease their demand at time t; they only mildly reduce their demand. Put differently, they only partially counteract the overpricing caused by the extrapolators…”

Should Be Aware of:

1. Doug J.:Was he a heavy doper or was he just a loser?: “I was disappointed by that Matt Bai fluff piece on W that mistermix linked to yesterday. I don’t care much for soft rock concern trolling, you know ‘yes Bush was a bad president but I’m concerned that the hippies’ hatred of him blah blah’. I liked the Ron Fournier original better: ‘Handwritten in the tight script of President George W. Bush, both notes said essentially the same thing: “Thank you for the respect you showed for the office of the President, and, therefore, the respect you showed for our country.” [….] The same sense of dignity compelled Bush to forbid his staff to wear blue jeans in the White House. Male aides were required to wear jackets and ties in the Oval Office.’ Handwritten notes and no jeans. America, fuck yeah! Fournier turns it up to 11, while Bai sounds like the Luna cover of ‘Sweet Child Of Mine’. All this idiocy obscures an important question: was Bush just in over his head or was there something genuinely wrong with him? The dry drunk/cokehead stuff always sounded a bit silly to me, but perhaps the day after Bush’s brain accused Hillary of having brain damage…. Bai’s and Fournier’s attempt to restore Bush as a goodhearted man–and therefore, by logic I don’t understand, not such a terrible president–goes to show how far out of touch the Village (maybe they’re only part of the Cyber Village but whatever) is with contemporary political trends. Bush seems to have killed the dim-witted, back-slapping, good ole boy brand at the presidential level. Just ask Rick Perry. Jeb Bush and Paul Ryan are presented as ‘wonks’, Rand Paul and Ted Cruz are self-styled constitutional scholars, and Chris Christie is a former federal prosecutor. ‘Libtards are too intellectual’ has become ‘libtards haven’t read the Constitution’ (or their Hayek, if you’re really hard-core). Don’t get me wrong, this may be a positive development. But I don’t know what Bai and Fournier think they’re accomplishing.”

2. Adrianna Macintyre: Medicaid will grow whether states want it to or not: “States refusing to expand Medicaid are still seeing enrollment numbers increase–and Obamacare is likely responsible…. Individuals who had previously been eligible for Medicaid, but not enrolled, seek health coverage. They essentially come out of the ‘woodwork’, after outreach efforts and media controversy around Obamacare increased awareness. There’s evidence of this woodwork effect in at least 16 states, according to a new Avalere Health report, which estimates that 550,000 of the new enrollees were eligible for Medicaid prior to reform…. Montana observed a 10.1 percent increase in enrollment while Texas and South Dakota only saw enrollment climb a fraction of one percent. These previously eligible enrollees can be costly for states… for people who were already eligible prior to health reform, states have to split the costs with the feds. The amount that the federal government contributes toward woodwork enrollees varies by state, but averages about 57%…. States are obligated to enroll eligible individuals who seek Medicaid coverage, so the woodwork population matters…”

3. Jeff Gerth: ‘I Should Have Paid More Attention’ to Citigroup’s Woes: “The question to Timothy Geithner could not have been more blunt: Why, asked… Ron Wyden, had Geithner failed to adequately regulate the banking giant Citigroup during his tenure as president of the Federal Reserve Bank of New York?… That was five years ago…. One of his key mistakes, Geithner writes in the book, was failing to realize that Citi’s equity… was weak…. ‘I should have paid more attention to Citi’s lack of common equity while I was at the Fed’, Geithner writes…. Curiously, at another point in his book, Geithner writes about how focused he was, in general, on the issue of bank capital. ‘I spent most of my time trying to understand whether banks under our supervision had enough capital’, the book says…. ‘Bob Rubin’s presence at Citi surely tempered my skepticism… probably gave Citi an undeserved aura of competence in my mind.’… In the book, Geithner notes that ‘our supervisors’ viewed the bank as ‘a laggard in risk management’…”

4. Robin Greenwood and Andrei Shleifer: Expectations of Returns and Expected Returns: “We analyze time-series of investor expectations of future stock market returns from five data sources between 1963 and 2011. All five measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient…”

5. Erick Gerding: What the Economist Forgets in its History of Five Financial Crises: “Economist… terrific essay… “A History of Finance in Five Crises.” The conclusion… resonates. However, the Economist makes a few surprising errors of omission…. Many financial crises occurred without much of a state bailouts or safety net…. Each… 19th Century British cris[i]s… was preceded by a liberalization of corporate law or an expansion of limited liability for corporate shareholders…. This… has several important implications…. Booming markets and bubbles create strong incentives for interest groups to lobby for, and policymakers to provide, legal changes that further stimulate markets… ‘deregulation’… government subsidies… legal preferences… active government investments…. The corporate form provides ideal for lobbying for regulatory favors: corporations solve collective action problems by centralizing decision-making and allow managers to lobby with ‘other people’s money’…. Limited liability can generate moral hazard, which becomes particularly vicious if risk-taking can be externalized onto financial markets and taxpayers. The Economist’s third omission…. Years of calm… the Bank of England finally assuming the mantle of lender of last resort…. The intellectual godfather of this was none other than Walter Bagehot…. Perhaps … some intellectual Oedipal issues at the journal? The fourth omission… the most unforgivable… talks about the Great Crash of 1929 without mentioning the critique that the Federal Reserve failed to serve as lender-of-last-resort and pursued a destructive monetary policy…. Rather than focusing on unravelling government safety nets for markets, we should be thinking about how to regulate financial firms given their inevitability…”

And:

• New CEPR Website
• “Recent US satellite images contradict Moscow’s assertion that troops have been withdrawn with Nato also suggesting there has been no retreat of Russia’s 40,000 troops at the frontier…”
• Simon Wren-Lewis: Humility and Chameleons
• Dani Rodrik: Piketty and the Zeitgeist
• Owen Zidar: The economic effects of territorial taxation, with remarks by Jason Furman
• Sabrina Siddiqui and Ryan Grim: Scott Brown Urged GOP Senators To Kill Jeanne Shaheen’s Energy Efficiency Bill
• David Denby: The Half-Century Anniversary of ‘Dr. Strangelove’
• The Stratagem of the Empty Fortress
• Michael Mitchell et al.: States Are Still Funding Higher Education Below Pre-Recession Levels
• James Narron and David Skeie: Central Bank Crisis Management during Wall Street’s First Crash (1792)

Already-Noted Must-Reads:

1. Michael Lewis: ‘Stress Test,’ by Timothy F. Geithner – NYTimes.com: “The story Geithner goes on to tell blames everyone and no one. The crisis he describes might just as well have been an act of God. Basically no one noticed what was happening inside the financial system until after it happened. A few of the important people with a privileged view expressed concerns about the risks being taken, but most said nothing. Geithner counts himself in the minority. ‘I began asking questions about capital: Do our banks really have enough?’ he writes, adding, ‘I was more worried than many of my colleagues, but I was not nearly worried enough’. His role in the run-up to the crisis was a bit like that of first mate on the Titanic, after the ship has been put on irreversible autopilot, and the captain has gone off to drink with the rich guys in first class…. He is immediately faced with an appearance problem: Before he can save any women and children, he has to rescue the drunks in first class who owned all the lifeboats…”

2. Cardiff Garcia: One reason the US auto market has bounced back faster than housing: “It’s only one of several reasons, of course, as housing is a much bigger source of wealth and collateral for households and was obviously devastated in the crisis (hurting the middle class and poorest Americans the hardest). But the simple point here is that both of these markets have had some favourable underlying demand-side pressures building in the last few years…. Access to car loans has been relatively less constrained than access to single-family mortgages, which is part of the explanation… for why auto sales have recovered like this… while single-family home sales have looked like this…”

3. Gabriel Sherman: Arthur Sulzberger, Jr., and Jill Abramson: “Sulzberger’s vague suggestion of ‘management’ issues only intensified the vortex of speculation and a search for a single smoking gun–a conflict or breach so serious it would explain Sulzberger’s dismissal of his historic hire [Jill Abramson]…. ‘The unbelievable thing is that there actually is no ‘cause’ for this–no single thing, nothing’, a colleague said…. As in many matters involving the executive editor of the New York Times, the story is as much about Arthur Sulzberger Jr. as his employee…. Abramson’s appointment in June 2011 triggered a flurry of positive profiles–which seemed to bother Sulzberger. ‘He does not like people who promote themselves,” a person close to Sulzberger said. “There was a threshold that was crossed… an interview she did with Alec Baldwin.’…

4. Mark Thoma sends us to Lawrence H. Summers: The Inequality Puzzle: “Piketty’s treatment of inequality is perfectly matched to its moment…. His work richly deserves all the attention…. Painstaking empirical research… transformed political discourse… a Nobel Prize-worthy contribution… elegant framework for making sense of a complex reality… theorizing is bold and simple and hugely important if correct…. I have serious reservations about Piketty’s theorizing as a guide to understanding the evolution of American inequality…. Piketty makes a major contribution by putting forth a theory of natural economic evolution under capitalism…. Books that represent the last word on a topic are important. Books that represent one of the first words are even more important. By focusing attention on what has happened to a fortunate few among us, and by opening up for debate issues around the long-run functioning of our market system, Capital in the Twenty-First Century has made a profoundly important contribution.”