Things to Read on the Afternoon on March 20, 2014

Must-Reads:

1. Paul Krugman: Notes on Piketty: “Piketty’s big idea is that we are in the early stages of returning to a society dominated by great dynastic fortunes, by inherited wealth. And he has an analytic argument to back up that idea…. Imagine a wealthy family that has managed, somehow or other, to guarantee that a large fraction of its income is used to accumulate more wealth. Can this family thereby acquire a dominant position in society?The answer depends on the relationship between (the risk) r, the (risky) rate of return on assets, and g, the overall rate of economic growth. If r is less than g, dynasties are doomed to erode…. So what determines r-g? Piketty stresses the effects of changes in economic growth…. Piketty tells us something remarkable: historically, r has almost always exceeded g–but there was an exceptional period in the 20th century, a period of rapid labor force growth and technological progress, when r was less than g. And he asserts that the kind of society we consider normal, in which high incomes reflect personal achievement rather than inherited wealth, is in fact an aberration driven by this exceptional period. It’s a remarkable, sweeping vision. A couple of questions: 1. How much of the decline in r relative to g in the 20th century reflected fast growth, and how much reflected policies? 2. How relevant is this story to what has happened so far? In the United States, as Piketty himself stresses, soaring inequality has to date been largely been driven by labor income – by ‘supermanagers'”

2. Austin Frakt: Job lock: Introduction: “Ask an economist about employer-sponsored health insurance (ESI) and it won’t be long until s/he tells you it distorts the labor market. To most health economists, ‘job lock’, the idea that workers work more or face constraints in job mobility due to provision of work-related health insurance, is a real and important phenomenon. It’s one reason why many advocate limiting or ending the exclusion of ESI from taxation, among other reforms. But why, you might ask, do some so firmly believe in job lock? What’s the conceptual or theoretical explanation? Where’s the evidence that it exists and is substantial? If it exists, what laws and regulations help keep it in place? Finally, how does the Affordable Care Act (ACA) begin to address it, if at all?… I will tackle these questions…. I will rely most heavily on the literature reviews contained in Gruber and Madrian (2002), Fairlie, Kapur, and Gates (2011), Bradley, Neumark, and Barkowski (2013), and GAO (2011). Nick’s forthcoming post will cover the legal landscape. He has also provided helpful feedback on early drafts of my posts.”

3. Tim Mulaney: “Here’s what I thought the biggest difference [between Bernanke and Yellen] was: Yellen’s invocation of the continuing struggles of people involuntarily working part-time, and the ongoing struggle of workers around the middle of the income strata to get a raise of much more than 2% a year. Delivered with what passes for passion among economists, it was a sharp contrast with Bernanke’s last press conference in December, where he mentioned wages only in passing and didn’t mention the part-timers at all…. Her argument was that inflation can’t be close if wage gains are lousy and 5% of U.S. workers are stuck in part-time jobs…. A Fed that worries as much about part-timers as plutocrats? Is that a gaffe? Maybe on K Street. Probably, on parts of Wall Street. On Main Street, it’s a breath of fresh air.”

4. Quoctrung Bui: Who Had Richer Parents, Doctors Or Artists?: “A few weeks ago, we were sitting around the office arguing over this simple question: Who had richer parents, journalists or people working in finance? Doctors or artists? More generally: What’s the link between household income during childhood and job choice during adulthood?… A government survey has tracked more than 12,000 people for decades. It allowed us to look at the same group of people in 1979 and 2010 — from a time when most were teenagers to the time when they were middle-aged and, for the most part, gainfully employed.”

Should-Reads:

• Joshua K. Hausman and Johannes F. Wieland: Abenomics: Preliminary Analysis and Outlook “Abenomics ended deflation… raised long-run inflation expectations… raised 2013 output growth by 0.9 to 1.7 percentage points. Monetary policy alone accounted for up to a percentage point of growth, largely through positive effects on consumption. In the medium and long-run, Abenomics will likely continue to be stimulative. But the size of this effect, while highly uncertain, thus far appears likely to fall short of Japan’s large output gap. In part this is because the Bank of Japan’s two percent inflation target is not yet fully credible…”
• Gabriel Chodorow-Reich: Effects of Unconventional Monetary Policy on Financial Institutions
• Kevin D. Sheedy: Debt and Incomplete Financial Markets: A Case for Nominal GDP Targeting
• Christopher Boone, Arindraji Dube, and Ethan Kaplan: The Political Economy of Discretionary Spending: Evidence from the American Recovery and Reinvestment Act
• Alan B. Krueger, Judd Cramer, and David Cho: Are the Long-Term Unemployed on the Margins of the Labor Market?
• Greg Kaplan, Giovanni L. Violante, and Justin Weidner: The Wealthy Hand-to-Mouth* Mike Konczal: The Voluntarism Fantasy

• Binyamin Applebaum: On Narayana Kocherlakota: A Fed Policy Maker, Changing His Mind, Urges More Stimulus

• Tim Duy: Unintentionally Hawkish: “The outcome of the FOMC meeting was pretty much as I anticipated. Asset purchases were cut by $10 billion. The Evans rule was dumped.  And forward guidance was enhanced to emphasize that rates would be low for a long, long time.  All seems pretty much in-line with the general consensus. Yet financial market participants took a hawkish view..This despite what was a reasonably dovish inaugural press conference by Federal Reserve Chair Janet Yellen… make[ing it] clear that low rates may persist after the unemployment rate hovers closer to 5.5%.  In other words, in the absence of clearly higher inflation or a reasonable forecast of higher inflation, the Fed is in no rush to push rates to a more normalish 4%…. There is no longer any reasonable expectation that the Fed has any interest in accelerating the pace of the recovery to more quickly alleviate poor labor market conditions. Barring a sharp change in economic conditions, the Fed is headed in only one direction.”

• Tim Harford: UK Budget 2014: Economic quackery and political humbug: “Has there ever been a chancellor of the exchequer more entranced by the game of politics? Most of George Osborne’s Budget speech was trivial. Some of it was imponderable. The final flurry of punches was substantial. Every word was political. Consider the substantial first: in abolishing the obligation for pensioners to buy annuities, Mr Osborne has snuck up behind an unpopular part of the financial services industry and slugged it with a sock full of coins. (No doubt he will tell us that the coins were minted in memory of the threepenny bit and in honour of Her Majesty the Queen.) This is a vigorous but carefully calibrated tummy rub for sexagenarians with substantial private-sector pensions…. The benefit to retirees is immediate and real. The cost comes later, but Mr Osborne will be long gone by the time the media begin to wring their hands about some poor pensioner who blew his retirement savings on a boiler-room scam. His other significant Budget moves were equally calculated…. So let us applaud George Osborne for playing his own game well – a game in which economic logic is an irritation, the national interest is a distraction, and party politics is everything.”

Alan Pyke: A Third Of Americans Have Almost Nothing Saved For Retirement | Real Climate (2009): An open letter to Steve Levitt |

Should Be Aware of:

1. Reihan Salam: Globalized Production Networks and the American Asset-Owning Class | National Review Online: “Center-left egalitarians generally favor taxing American asset-owners to finance human capital investments and transfer programs to better the lives of those Americans who haven’t gained in relative terms from the advent of globalized production networks. Some critics… fret that… U.S. multinationals might choose to leave the U.S. for greener pastures if the tax and regulatory climate continues to deteriorate…. My general view is that the problem facing the public sector is not a lack of resources, but rather institutional sclerosis and barriers to entry that prevent the emergence of innovative service delivery models…. And to the extent that we should rely on tax-financed redistribution, the case for emphasizing wage subsidies and work supports over in-kind transfers may well prove more politically attractive, leaving normative questions aside, than the alternative.”

2. CBPP: Just the Facts on Disability Insurance: “Some 8.9 million people received disabled-worker benefits from Social Security in December 2013, averaging $1,146 a month. The typical beneficiary is in his or her late 50s or early 60s, with limited education and poor health.  Recipients’ death rates are at least three times as high as the general population’s…. DI rolls have risen steeply over the last few decades, chiefly because of demographic factors…”

3. Aaron Carroll: A blow against “tort reform” in Florida: “I’ve long argued that, while the malpractice system in this country needs real fixing, it’s not a ‘crisis’ and that it’s not the fix to our spending problem…. For those of you who continue to believe that tort reform will reduce health care spending, I will once again cite my explanation of how this is ‘supposed’ to work: The argument goes that doctors, afraid of being sued, order lots of extra tests and procedures to protect themselves. This is known as defensive medicine. Tort reform assumes that if we put a cap on the damages plaintiffs can win, then filing cases will be less attractive, fewer claims will be made, insurance companies will save money, malpractice premiums will come down, doctors will feel safer and will practice less defensive medicine, and health-care spending will go way down. Of course, if one of these steps fails, the whole thing falls apart.In this case, the failure fell (predictably) in the ‘malpractice premiums will come down’ stage…. I continue to agree that the malpractice system needs fixing. I continue to hold that tort reform, meaning capping damages, is a particularly ineffective way to do it.”

And:

Ken Houghton: Middle Class Political Economist: Real Wages Rise Slightly but Remain below Peak for 41st Straight Year | James Hamblin: The Toxins That Threaten Our Brains | James Fallows: Why Doctors Still Use Pen and Paper |

Olesya Vartanyan and Ellen Barrymarch: If History Is a Guide, Crimeans’ Enthusiasm May Be Short-Lived | Thomas E. Ricks: Brig. Gen. Sinclair’s light sentence is likely to be a disaster for the military |