Things to Read on the Morning of December 10, 2013

Must-Reads:

1. Dave Reifschneider, William Wascher, and David Wilcox: Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy: “We estimate that potential GDP is currently about 7 percent below the trajectory it appeared to be on prior to 2007… argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand…. Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity…”

2. Gavyn Davies: Low inflation is becoming a major headache: “In recent months, inflation has again reared its head as a problem in the developed economies. But this is not because it is too high. In most countries, headline CPI inflation has been falling significantly since the end of 2011, and it has now dropped to less than 1 per cent in both the US and the euro area. Furthermore, the pervasive decline in headline inflation has been accompanied by a similar decline in core inflation rates…”

3. Ramesh Ponnuru: Republican Inflation Paranoia Is Political Suicide: “In the years since the financial crisis, Republican politicians have increasingly embraced a ‘hard money’ critique of the Federal Reserve. They’ve warned that its policies are too loose and dangerously inflationary, even as inflation has stayed well below historical levels. Now some conservatives are arguing that criticizing loose money should be a more prominent part of their case to voters. It’s a winning issue, they say, and Republicans should make the most of it. They’re wrong on both counts…. Republicans do need to rethink their approach to economics. Intensifying their already excessive focus on inflation isn’t the way to do it…”

Should-Reads:

1. Rough Type: The Hierarchy of Innovation: “If progress is shaped by human needs, then general shifts in needs would also bring shifts in the nature of technological innovation. The tools we invent would move through the hierarchy of needs, from tools that help safeguard our bodies on up to tools that allow us to modify our internal states, from tools of survival to tools of the self…”

2. George Akerlof, Andrew Rose, and Janet Yellen (1988):
   Job Switching and Job Satisfaction in the U.S. Labor Market: “In addition to generating positive predictions consistent with observed patterns of labor turnover, models with involuntary unemployment have interesting normative implications… a reduction in unemployment raises welfare by more than the output gain captured in Okun’s Law…”

3. Joanna Foster: Australia Well On Its Way To Hottest Year Ever: “Mean temperatures for Australia’s spring… were 1.57°C above the 1961-1990 average. September was especially hot, with an average temperature of 2.75°C or nearly 5°F above normal…. Australia’s record-breaking spring follows a generally wet winter and a summer that was also the country’s hottest on record. Temperatures soared so high in January that the Australian Bureau of Meteorology added new colors to its temperature maps. Deep purple now represents temperatures in excess of 50°C, or 122°F. The new high end of the scale tops out at 129 °F…. Bushfire season in Australia has already gotten off to an early start as four major fires ravaged western Sydney and the surrounding Blue Mountains area of New South Wales in September. The newest record broken in Australia comes just as the Australian Senate is debating the repeal of its carbon tax…”

Should Be Aware of:

1. Joan McCarter: Daily Kos: Social Security expansion now very real. Thanks, Third Way!: “Rep. Allyson Schwartz (D-PA.), honorary co-chair of Third Way and gubenatorial candidate, is now a cosponsor of a bill to expand Social Security. That’s after Third Way president Jon Cowan, Jim Kessler, the group’s senior vice president for policy called the legislation ‘exhibit A of this populist political and economic fantasy’…. Interesting that Schwartz isn’t running on… her pro-austerity, cut Social Security record, but is instead essentially repudiating it. Not just that, she’s now embracing that ‘populist political and economic fantasy’ that Third Way swears is political ruin for any Democrat. Go figure. When Sen. Sherrod Brown signed on to the bill to expand Social Security, it made news. It gave the movement real momentum. When Sen. Elizabeth Warren joined the team it catapulted the issue into what could be a centerpiece…. And that’s what put Third Way and the whole world of Wall Street ‘Democrats’ into panic mode, coordinating a full-frontal assault against her and this issue. That assault has fallen completely flat. Nothing proves that more than Allyson Schwartz’s name on the Strengthening Social Security Act. So thanks, Third Way! Now we’ve got ourselves a real rallying point for real Democrats.”

2. David Beckworth: Macro and Other Market Musings: The Wrong Debate: Helicopter Drops vs. Quantative Easing: “We should not be surprised that the Fed’s QE programs have not packed more of a punch. U.S. monetary authorities have clearly indicated the programs are temporary. (QE3, though, has added some permanency with its data-dependent nature and appears to have offset much of the 2013 fiscal drag.) We should also, then, not be surprised that Abenomics–which has signaled a permanent expansion of the monetary base–is doing so much better than the original Bank of Japan QE program of 2001-2006. Finally, we should also not be surprised as to why FDR’s 1933 decision to go off the gold packed such a punch. It permanently raised the monetary base. All of these experiences paint a picture of the relationship between the expected permanency of monetary base injections and aggregate demand growth…”

3. Martin Longman: History Palinized: “If you could turn stupid into a fuel, you could use Sarah Palin to leave the Solar System. Her appearance at Liberty University set a new standard for idiocy in a public figure. Before I quote her, I want to remind you that Thomas Jefferson was so dissatisfied with the New Testament that he cut out all the references to miracles and the resurrection, creating a new book we call The Life and Morals of Jesus of Nazareth… [because:] ‘Among the sayings and discourses… I find many passages of fine imagination, correct morality, and of the most lovely benevolence; and others again of so much ignorance, so much absurdity, so much untruth, charlatanism, and imposture, as to pronounce it impossible that such contradictions should have proceeded from the same being…’. I give you Palin at Liberty University: ‘She told the audience of students that the U.S. Constitution was written by and for moral and religious people, and that nonreligious people probably were incapable of appreciating its principles…. ‘Thomas Jefferson and his thinking, I believe that much of it fundamentally came from this area, having spent his summers here, having spent influential years here, two miles away from Liberty University,. Man, there’s something in the water, perhaps, around here–again you are fortunate you get to taste it…'”

Austan Goolsbee: Pre-K Education Is a Long-Term Winner | Nicholas Shaxson: “Who really lives at One Hyde Park, called the world’s most expensive residential building? Its mostly absentee owners, hiding behind offshore corporations based in tax havens, provide a portrait of the new global super-wealthy” | Noah Smith: Wage Subsidies | Menzie Chinn: Econbrowser: Compensation, Productivity and Labor Share | Jérémie Cohen-Setton: Blogs review: Updating the Phillips curve |