Morning Must-Read: Anya Schiffrin on the Death of Her Father Andre Schiffrin in Paris

Anya Schiffrin: The French way of cancer treatment:

When my father, the editor and writer Andre Schiffrin, was diagnosed with stage four pancreatic cancer last spring, my family assumed we would care for him in New York. But my parents always spent part of each year in Paris…. I… didn’t know what… French healthcare… would be like. I… assumed… better access for the poor and strong primary care. Not better cancer specialists. How could a public hospital in Paris possibly improve on Sloan Kettering?… My parents flew to Paris… found an English-speaking pancreatic cancer specialist and my dad resumed his weekly gemcitabine infusions…. In New York, my father, my mother and I would go to Sloan Kettering every Tuesday around 9:30 a.m. and wind up spending the entire day. They’d take my dad’s blood…. The doctor always ran late… so we’d sit in the waiting room and, well, wait… rush across the street, get takeout and come back to the waiting room… bring books to read… use the Wi-Fi and eat the graham crackers… talk to each other and to the other patients and families… Eventually, we’d see the doctor for a few minutes and my dad would get his chemo. Then, after fighting New York crowds for a cab at rush hour, as my dad stood on the corner of Lexington Avenue feeling woozy, we’d get home by about 5:30 p.m. So imagine my surprise when my parents reported from Paris…. A nurse would come to the house two days before my dad’s treatment day to take his blood. When my dad appeared at the hospital, they were ready… often someone else in the next bed but, most important, there was no waiting. Total time at the Paris hospital each week: 90 minutes.

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Morning Must-Read: Doug Irwin: Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard

Doug Irwin: Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard:

The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following a credit-fueled investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression. Cassel not only explained how this could occur, but his explanation anticipates the way that scholars today describe how the Great Depression actually occurred. Unlike Keynes or Hayek, Cassel analyzed both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).

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Morning Must-Read: Andrea Pescatori et al.: Debt and Growth: Is There a Magic Threshold?

Andrea Pescatori, Damiano Sandri, and John Simon: Debt and Growth: Is There a Magic Threshold?:

Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.

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Things to Read on the Evening of February 13, 2014

Must Reads:

  1. Saroj Bhattarai, Gauti Eggertsson, and Raphael Schoenle: Is Increased Price Flexibility Stabilizing? Redux: “In a simple DSGE model… more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation. More flexible prices often reduce welfare, even under optimal monetary policy if full efficiency cannot be attained…. Using post-WWII U.S. data… we find that if prices and wages are fully flexible, the standard deviation of annualized output growth more than doubles.”

  2. Jeffrey Frankel: The Startling Decline of Market-Based Approaches to Regulation: “Markets can fail. But, as has been demonstrated in areas like air pollution, traffic congestion, spectrum allocation, and tobacco consumption, market mechanisms are often the best way for governments to address such failures. So why are such mechanisms now in retreat?… Today, however, politics is killing ‘cap and trade’… cap-and-trade… for sulfur-dioxide emissions has effectively vanished. In Europe, the Emissions Trading System… has become increasingly irrelevant as well…. Market-oriented environmental regulation has in effect been superseded over the last five years by older ‘command-and-control’ approaches…. There is a fascinating parallel between the evolution of American political attitudes toward market mechanisms in environmental regulation and Republican hostility to ‘Obamacare’…. This was originally a conservative approach…”

  3. Felix Salmon: News Genius: Annotated: Janet Yellen – Semiannual Monetary Policy Report to the Congress: Read the whole thing! For example: “Translation: QE isn’t just about dropping money from helicopters onto rich investors and financial institutions. It also creates jobs!” “Yellen here is going out of her way to draw a distinction between “maximum sustainable employment”, on the one hand, and the unemployment rate, on the other. You can use the latter as a tool to measure how close you are to the former, but it’s not an exact tool, and you want to look at other things too, like the long-term unemployment rate and the underemployment rate. The Fed’s full-employment mandate is not about hitting some unemployment-rate number, it’s about getting as many Americans to work as possible.” “Remember the government shutdown, and all those debt-ceiling antics? Yellen does. And, she’s saying, they hurt the economy hard — specifically, they hurt consumer spending. Which is not surprising, given the number of federal employees who had to live without any income.”

  4. Ezra Klein: Republicans Discover Evidence of Jobs Crisis: “The U.S. has been in a jobs emergency since at least 2008. The cause of the crisis… isn’t mysterious, and neither are the solutions… invest in infrastructure to create construction jobs… give tax breaks to employers who hire… restore the payroll tax cut… help state and local governments hire back some of the employees they laid off…. But in recent years, these policies have been either blocked or canceled by congressional Republicans…. That’s the proper context in which to view this week’s hysteria about Obamacare…”

  5. Gavyn Davies: A dose of humility from the central banks: “It is now quite difficult to generalise about what central bankers think. However, a few of the necessary pieces of the jigsaw puzzle slotted into place in the past week…. Ms Yellen… has declared herself… the agent of continuity…. A regime shift designed to shock the US economy back towards the pre-2008 trend line…. Why has she not done this?… She does not seem convinced that a further large dose of asset purchases would be successful anyway, in the context of a large drop in both productivity growth and the labour participation rate… supply-side pessimism… more of the post-2008 output losses are now thought to be permanent. Ms Yellen said on Tuesday that she was not sure how much of the decline in the labour participation rate could be reversed. Her uncertainty about this scarcely supports dramatic policy action either way.”

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Evening Must-Read: Gavyn Davies: Central Banks Frozen by Uncertainty and Supply-Side Pessimism

Gavyn Davies: A dose of humility from the central banks: “The leading central banks in the developed economies have, of course, been the main actors underpinning the global bull market in risk assets since 2009. For long periods their stance has been unequivocally dovish as they have deliberately tried to strengthen an anaemic global economic recovery by boosting asset prices….

It is now quite difficult to generalise about what central bankers think. However, a few of the necessary pieces of the jigsaw puzzle slotted into place in the past week…. Ms Yellen is that she has declared herself to be the agent of continuity not the harbinger of a significant regime shift at the Fed…. A regime shift designed to shock the US economy back towards the pre-2008 trend line…. Why has she not done this?… She does not seem convinced that a further large dose of asset purchases would be successful anyway, in the context of a large drop in both productivity growth and the labour participation rate. Economists at the Fed, like the Congressional Budget Office, have been moving towards supply-side pessimism, implying that more of the post-2008 output losses are now thought to be permanent. Ms Yellen said on Tuesday that she was not sure how much of the decline in the labour participation rate could be reversed. Her uncertainty about this scarcely supports dramatic policy action either way.

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How Key Was the Seventeenth-Eighteenth Century Commercial Revolution to the Eighteenth-Nineteenth Century Constitutional-Government Revolution?: Thursday Focus: February 13, 2014

I have been thinking about Mauricio Drelichman and Hans-Joachim Voth’s Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II. And I just finished ranting about all this over breakfast at Rick and Ann’s to the patient, good-humored, and extremely intelligent Joachim Voth.

So it is only fair that I inflict on the rest of the world what I inflicted on him:

The point at issue is Daron Acemoglu, Simon Johnson, and James Robinson’s “Atlantic Trade” paper [1], which is… not wrong, exactly, but rather which makes things too simple.

AJR’s central argument is that the wave of wealth from the exploitation of the Americas and from the rise of the trans-oceanic carrying trade interacted in western Europe with the state of political economy on the ground. Small differences between Britain and Iberia in the strength of representative and intermediary institutions were amplified by political-economic processes generated by this influx of wealth, and so Iberia ended up poor and absolutist while Britain ended up rich and constitutional–even though as of 1500 the differences had been small, and constitutional government had been on the ropes in both.

This is, I think, much too simple…

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Is It Time Yet for a Technocratic Domestic-Policy Debate?: Tuesday Focus: February 11, 2014

This thinktank–the Washington Center for Equitable Growth–was started on top of John Podesta’s hunch and the Sandler family’s belief that it would soon be time to restart the bipartisan technocratic debate about what would be good policies to create an America of high upward mobility, equal opportunity, and broadly shared prosperity. That bipartisan technocratic debate–to the extent that it ever existed–stopped in, I believe, April of 1993, when then-senate minority leader Robert Dole (R-KS) told my boss Treasury Secretary Lloyd Bentsen (D-TX) that he, Dole, was going all-in to whip Republicans into unanimous opposition to OBRA 93, the Clinton administration’s deficit-reduction bill, which everybody up until then had seen as a second round to the George H.W. Bush administration deficit-reduction bill, OBRA 90, which had had Dole’s enthusiastic support.

Maybe, the thinking was, it is time to start again? Republican senate minority leader Mitch McConnell, when he took over at the start of 2007, did promise his troops that, if they maintained lockstep opposition to all Democratic priorities and filibustered them to the max, the resulting governmental dysfunction would redound to the electoral benefit of the Republican Party, and in one or at most two congressional cycles they would retake the congress and then do some legislatin’. Well, it’s been three cycles so far, and McConnell himself may not survive the fourth. Perhaps with Obama no longer on the ballot their would be the chance to actually get some bipartisan agreement on policies that would be good for America.

But the past two weeks, I must confess, have made me think that the time is clearly not yet ripe. So now I am thinking not now, but maybe a six month window in early 2015, and then January 2017 as our next chance for non-dysfunctional bipartisan government in the public interest.

What happened? What happened was that three Republican senators–Burr, Coburn, and Hatch–set forth an ObamaCare replacement plan that would (a) delink employment at a large firm and health-insurance by removing the tax preference for employer-sponsored insurance benefits, and (b) allowing those who maintain continuous coverage to purchase affordable insurance and avoid penalties for pre-existing conditions–thus keeping people from feeling that they are locked into their large-firm jobs by the requirement that they keep health insurance. And Burr, Coburn, and Hatch all of a sudden ran into the buzzsaw that (a) since ObamaCare’s (slow) moves toward equal tax treatment were a large tax increase on Americans their policy was an even larger tax increase, and (b) removing job lock is in fact encouraging sloth, and moocherhood.

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Lunchtime Must-Read: Ezra Klein: Republicans Discover Evidence of Jobs Crisis

Ezra Klein: Republicans Discover Evidence of Jobs Crisis:

The U.S. has been in a jobs emergency since at least 2008. The cause of the crisis — too little demand — isn’t mysterious, and neither are the solutions… invest in infrastructure to create construction jobs… give tax breaks to employers who hire… restore the payroll tax cut… help state and local governments hire back some of the employees they laid off…. But in recent years, these policies have been either blocked or canceled by congressional Republicans…. That’s the proper context in which to view this week’s hysteria about Obamacare….

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Morning Must-Read: Jeffrey Frankel: The Startling Decline of Market-Based Approaches to Regulation

Jeffrey Frankel: The Startling Decline of Market-Based Approaches to Regulation: “Markets can fail. But, as has been demonstrated in areas like air pollution, traffic congestion, spectrum allocation, and tobacco consumption, market mechanisms are often the best way for governments to address such failures. So why are such mechanisms now in retreat?…

Today, however, politics is killing “cap and trade.” In the United States, the highly successful cap-and-trade system for sulfur-dioxide emissions has effectively vanished. In Europe, the Emissions Trading System (ETS), the world’s largest market for carbon allowances, has become increasingly irrelevant as well. On both sides of the Atlantic, market-oriented environmental regulation has in effect been superseded over the last five years by older “command-and-control” approaches, by which the government dictates who should use which technologies, in what amounts, to reduce which emissions…. There is a fascinating parallel between the evolution of American political attitudes toward market mechanisms in environmental regulation and Republican hostility to “Obamacare” (the 2010 Affordable Care Act). The core of Obamacare is an attempt to ensure that all Americans have health insurance, via the individual mandate. But it is a market-oriented program insofar as health insurers and health-care providers remain private and compete against one other. This was originally a conservative approach.

Morning Must-Read: Saroj Bhattarai, Gauti Eggertsson, and Raphael Schoenle: Is Increased Price Flexibility Stabilizing? Redux

Saroj Bhattarai, Gauti Eggertsson, and Raphael Schoenle: Is Increased Price Flexibility Stabilizing? Redux:

We study the implications of increased price flexibility on output volatility. In a simple DSGE model, we show analytically that more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation. More flexible prices often reduce welfare, even under optimal monetary policy if full efficiency cannot be attained. We estimate a medium-scale DSGE model using post-WWII U.S. data. In a counterfactual experiment we find that if prices and wages are fully flexible, the standard deviation of annualized output growth more than doubles.