Things to Read on the Morning of February 28, 2014

Must-Reads:

1. Jon Hilsenrath: Geithner Among Fed Losers in 2008, Dudley Among Winners: “The story on Chairman Ben Bernanke has been written many times: He was slow to respond… but moved with command and authority… once he recognized what was at stake…. How about everyone else?…. WINNERS: William Dudley…. He got it…. Eric Rosengren: At almost every point in the crisis, he put his fingers on real problems…. Janet Yellen: We’ve already reported that transcripts from 2008 and earlier Fed policy meetings showed Ms. Yellen had pretty good judgment about risks brewing in housing, the financial markets and the broader economy…. LOSERS: New York Fed President Timothy Geithner…. Fed Vice Chairman Donald Kohn felt the need to gently push back in that case in January: ‘The repair process that President Geithner referenced among financial institutions strikes me as very fragile and quite incomplete’. Bear Stearns collapsed several weeks later…. Frederic Mishkin… produced a regular stream of cringe-inducing personal commentary…. Mr. Mishkin deserves some credit for usually being alert to the risks…. Thomas Hoenig… and Richard Fisher: It turns out they were focused on the wrong problem for much of 2008. While they worried about inflation, the foundations of the financial system and the broader economy were cracking…. Others in the hawk camp were Dallas Fed President Richard Fisher, Philadelphia Fed president Charles Plosser and Richmond Fed President Jeffrey Lacker.”

2. Over at the Washington Center for Equitable Growth: My excerpts of Matthew O’Brien: How the Fed Let the World Blow Up in 2008: “It was the day after Lehman failed, and the Federal Reserve was trying to decide what to do…. The Fed was blinded. It had been all summer. That’s when high oil prices started distracting it from the slow-burning financial crisis. They kept distracting it in September, even though oil had fallen far below its July highs. And they’re the reason that the Fed decided to do nothing on September 16th… and said that “the downside risks to growth and the upside risks to inflation are both significant concerns.” In other words, the Fed was just as worried about an inflation scare that was already passing as it was about a once-in-three-generations crisis…. The world changed on August 9, 2007. That’s when French bank BNP Paribas announced that it wouldn’t let investors withdraw money…. You can see this credit crunch in the chart… [that] shows the TED spread… during a financial crisis, it blows up: banks charge each other punitively high interest rates, and pile into government bonds they know are safe…. We might [have] muddle[d] through with something like the 1990 recession…. This is the three-chapter story of why that didn’t happen, the story of the three Fed meetings that took place during the summer of 2008…”

3. Austin Frakt: Obamacare’s labor market tax relief: “In addition to the new taxes it imposes, Obamacare includes the relief of a significant labor market tax. Surprised?… [P]rior to January 1, 2014… [people with] job[s] with employer-sponsored health insurance… enjoyed (1) tax-free health benefits (the big ESI tax subsidy), (2) guaranteed issue (the group plan had to take you, pre-existing conditions and all), and (3) community rating… the “Big Three”…. [But] individual market insurers in many states could deny you coverage or charge you more based on your health…. The labor market was clearly tilted by an explicit tax provision (the ESI tax subsidy) and two implicit ones (the existence of guaranteed issue/community rating in some labor market circumstances but not others)…. [This is a] labor market tax, albeit a complicated one…. Relative to those with an ESI option, those without were taxed: (i) Retired early to spend more time with grandkids or to care for a sick spouse? Taxed. (ii) Took a job with a small, non-profit that didn’t offer coverage? Taxed. (iii) Left the big firm to start your own business? Taxed. (iv) Laid off and exhausted COBRA benefits? Taxed. (v) Company went bankrupt and you couldn’t immediately find a new job with ESI benefits? Taxed. (vi) Fresh out of school but couldn’t find work with ESI benefits. Taxed. You get the idea…. Now, let’s consider some objections, some of which came up in emails to me: When considering ACA taxes, you can’t fold in stuff that isn’t in the ACA, like the ESI tax subsidy or that ESI is guaranteed issue/community rated? This makes zero sense. If we take this objection seriously, then we can’t compare the post-ACA world to the counterfactual, pre-ACA one at all. The point isn’t that ESI features existed pre-ACA. The point is that the difference between what a potential or actual labor market participant faces across options pre- and post-ACA has changed. Some tax has been removed (per the above) as some have been added. You can’t just focus on the added taxes and not consider that which was removed. That’s cherry picking and incomplete.”

4. Matthew O’Brien: Happy Birthday, Stimulus! You Saved the World: “It really was the end of the world…. 2008 Lehman’s collapse seemed like the start of something worse than a second Great Depression… the biggest economic shock in recorded history, and the abyss beckoned. But we avoided it. We ‘only’ got a Great Recession…. That’s because, despite the quicker collapse, policymakers today didn’t make all of the mistakes of the 1930s. Instead of raising rates and trying to balance budgets as the bottom fell out, they did the opposite—at least initially. In early 2009 China launched a relatively massive $585 billion infrastructure program. The Fed started printing money and buying bonds à l’outrance. And then there was the stimulus…. $787 billion stimulus was too small for the job, and even smaller than it sounded. A full $70 billion… [wa fixing the Alternative Minimum Tax. That left far too little money to fill the economy’s hole—a hole that was far deeper than we realized at the time. Indeed, when the administration said the Recovery Act would keep unemployment below 8 percent, it thought GDP was falling 3.8 percent; subsequent revisions showed it was actually falling 8.9 percent. But even if so much of the stimulus hadn’t gone to non-stimulus, and even if we’d known exactly how bad the economy was, there was one last problem. The administration assumed this time wasn’t different. That the economy would bounce back on its own—and soon. But it didn’t, and they should have known that it wouldn’t.”

Should-Reads:

• Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides: Redistribution, Inequality, and Growth
• Robin Hardwick: Dear Presenter, Please Don’t Drive Me to Suicide During Your Presentation
• The Economist: What Has Gone Wrong with Democracy?

• Menzie Chinn: Birthers, (Stimulus) Deniers, and Economic Myths

• Spencer Ackerman and James Ball: GCHQ intercepted webcam images of millions of Yahoo users worldwide: “Optic Nerve program collected Yahoo webcam images in bulk. 1.8m users targeted by UK agency in six-month period alone. Yahoo: ‘A whole new level of violation of our users’ privacy’. Material included large quantity of sexually explicit images”

• Brandon Weber: In 21 States, Politics Was Placed Firmly Before People, And The Results Are Devastating: “The Affordable Care Act (Obamacare) allowed states to expand Medicaid to help lower-income people and the working poor gain access to medical insurance, many for the first time in their lives. 21 states have refused that money, largely because politicians are playing politics, and it’s costing human lives. Like Israel, who you’re about to meet.”

Izabella Kaminska: Remembering Nicola Tesla | Andrew Fieldhouse: Budget Deficits Shrinking at the Expense of Economic Recovery | Marc Andreesen: The Future of the News Business: A Monumental Twitter Stream All in One Place |

Should Be Aware of:

1. Jonathan Chait: GOP Health-Care Plan Is Almost Here, Again: “Eric Cantor gives a status update on the forthcoming Republican health-care plan…. Cantor’s original promise, from January 30, had the ringing certainty of Jack Kennedy vowing to reach the moon by the end of the 1960s: ‘This year, we will rally around an alternative to ObamaCare and pass it on the floor of the House.’ On February 21, Cantor was asked how the health-care plan is going. It’s going! Almost done: ‘As we continue to work to finalize our Obamacare replacement plan, we will also act to highlight and address the serious consequences of the law …’ They’re just dotting some is and crossing some ts…. Yesterday’s Roll Call…. ‘House Republican leaders will meet Friday to begin crafting an alternative to Democrats’ health care law…’ Wait, begin? Gather ideas? I thought you said it was almost done!… Cantor is no longer talking about “finalizing” the Republican plan. And he’s no longer using terms like will. Seib does not call attention to the softening of Cantor’s promise, but the retreat is noticeable…. When we get to paragraph ten, we encounter this little walk-back: ‘We may have an opportunity for an alternative to be put in place.’ May?…

   “Lots of people treat the Republican Party’s inability to unify around an alternative health-care plan… as some kind of homework assignment they keep procrastinating on. But the problem isn’t that Cantor and Boehner and Ryan would rather lay around on the sofa drinking beer… it’s that there’s no plan… both ideologically acceptable… and politically defensible. Carping from the sidelines is a great strategy for Republicans because status quo bias is extremely powerful…. [But] for this method to work, you need to pretend to have a plan…. Cathy McMorris-Rogers’s response to the State of the Union address heavily emphasized the message that Republicans were definitely, positively going to unveil their own health-care plan…. The amazing thing here is that House Republicans have managed to sustain this any-day-now stance since the outset of a health-care debate that began five years ago…”

2. Tim Arango: Turkish Leader Disowns Trials That Helped Him Tame Military: “A series of sensational trials that shook the Turkish military…. Now, though, Mr. Erdogan is acknowledging what many legal and forensics experts have long said: that, in a word, the trials were a sham. He has reversed himself… for the simple reason that the same prosecutors who targeted the military with fake evidence are now going after him. One document that was portrayed as laying out the details of a planned coup was… written with a version of Microsoft Office that did not exist at the time of the supposed plot. Some of the officers said to have been in the coup-planning meeting were in fact in Israel or England, or out at sea. A pharmaceutical company supposedly set to be taken over by the army after the coup was listed under a name it adopted years later. The same prosecutors who… help[ed] Prime Minister Recep Tayyip Erdogan end the Turkish military’s political power are now pursuing Mr. Erdogan himself…. Yet all of this — as well as plenty of other dubious evidence — was judged in recent years by a court here as sufficient to convict hundreds of military officers…. But now, as a sweeping corruption investigation focuses on Mr. Erdogan and his inner circle, a centerpiece of his strategy to survive politically is to discredit those military trials.”

3. Tim F: The Tim F rule for understanding every GOP civil war: “This bears repeating. ‘At its heart the GOP has two basic camps – business conservatives who bankroll the party and social conservatives/theocons who staff it.’ OK, the leadership has its infestation of grifters and opportunistic idiots but the above rule pretty much covers the network of voters, volunteers and money that the grifters and idiots need to keep the game afloat. You can understand every major intraparty conflict in light of this simple rule. The social cons always want to sieze every chance to push their minority, gay, immigrant etc. – hating agenda one more yard down the field. Business cons do not always oppose the social agenda…. The Chamber o’ Commerce [sometimes] takes the moderate side in GOP civil wars mostly because the GOP can’t cut taxes for the rich if they spend all their capital on suicidal vendettas. Arizona fits neatly into the this category…. If you want my opinion, and I feel pretty good about prognosticating after taking the right side of Peak Wingnut, I think that Arizona represents the last surge of a receding tide in America.”

And:

Matthew Yglesias: New York vs Tesla | Bernie Sanders: “If you can’t afford to take care of your veterans, then don’t go to war. These people are bearing the brunt of what war is about. We have a moral obligation to support them” | Marty Lederman: Symposium: How to understand Hobby Lobby |