Month: April 2014

If you want to do a serious study of the effects of a positive resource-driven macro productivity shock on a small open fixed exchange-rate economy, here’s your chance!

As Thomas Piketty Day at the University of California at Berkeley comes to an end, we eat Hawaiian poke and sausage-stuffed mushrooms catered from the truly excellent Assemble, and watch the sunset over the Golden Gate from the back patio of the Gourinchas/Fourcade palazzino. We muse on the extent to which Thomas Piketty’s patterns of movement for the rate of profit r minus the economy’s growth rate g are at bottom patterns of changing land valuation, with the fall of European agriculture as a source of wealth and the rise of urban location as the source of wealth.

What was supposed to be a 20-person economics departmental seminar turned into a 400-person public lecture extravaganza–we really should have made him give two talks at least…

This morning’s Daily Piketty brings two especially interesting things: a very nice interview from Matt Yglesias, and PEG pointing out that a Benjamin Disraeli-style conservative would see Piketty as an ally pointing the way to how to successfully implement a market economy that was a genuine opportunity society:

• Matthew Yglesias
• Pascal-Emmanuel Gobry

One thing that I had not fully realized before yesterday:

Continue reading “The Daily Piketty: Thursday Focus: April 24, 2014” →

Ezra Klein: What’s the liberal equivalent of climate denial?: “Kahan… argu[es]… being right is irrelevant.

It’s not whether one gets the answer right or wrong but how one reasons that counts…

A liberal who works backwards from conclusions but happens to believe in climate change is

to be congratulated for being lucky that a position they unreasoningly subscribe to happens to be true…

but nothing more. Here, Kahan makes a serious mistake. Political reasoning doesn’t take place inside our heads. It takes place inside our parties. No one can personally investigate the vast array of issues facing the country. In terms of getting the right answers, the most important decision people make is choosing whom to trust…. Majority parties bear the heavy responsibility of actually getting policy right…. That’s less true for minority parties. They have the luxury of being irresponsible…. But even minority parties have reason to calm the tribal impulses of their members. Winning elections requires winning the support of many voters who aren’t hardcore conservatives or liberals….

Continue reading “Afternoon Must-Read: Ezra Klein: What Is the Liberal Equivalent of Climate Denial?” →

Must-Reads:

1. Paul Krugman: Inequality 1992: “I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought ‘Wait–didn’t we deal with that one long ago?’ And that brought to mind the piece I wrote for the American Prospect 22 years ago, ‘The rich, the right, and the facts.’ (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility. The truth is that inequality denial is largely a crusade of cockroaches–the same bad arguments just keep coming back. Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then…” http://prospect.org/article/rich-right-and-facts-deconstructing-income-distribution-debate

2. Mary Daly et al.: Interpreting Deviations from Okun’s Law: “The traditional relationship between unemployment and output growth known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated.”

3. Richard Mayhew: ObamaCare and Medical Loss Ratios: “The Medical Loss Ratio (MLR) is… the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare… small groups and individual policies as a pool have to have an MLR of at least 80%…. This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell…. Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no…. Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered…”

4. Martin Wolf: A more equal society will not hinder growth: “Over the past half century, notes the IMF… inequality has been rising in high-income countries and falling in developing countries… the difference between market and post-intervention inequality in high-income economies is smaller than elsewhere…. Inequality reduces growth. The direct impact of redistribution is negligibly negative. But the indirect effect, via reduced inequality, is beneficial to growth…. Increasing already very high levels of redistribution will harm growth. Yet, below the policy extreme, further redistribution does not harm growth…. Not only does inequality damage growth, but efforts to remedy it are, on the whole, not harmful. These are just statistical relationships derived from data that cover a large number of heterogeneous countries. Nonetheless, the findings suggest that trade-offs between redistribution and growth need not be a big worry…”

5. Suresh Naidu: Notes from Capital in the 21st Century Panel: “There is a ‘domesticated’ version of [Piketty’s] argument… a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates…. This is story that is told to academic economists, and it is plausible, at least on the surface. There is another story… that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market…. I think the production approach is less plausible… because housing [with land] plays such a large role… average wages would have increased along with K/Y [if factors are paid marginal products]…. The (really great) sections from the book on corporate governance actually suggest something quite different… a gap between cash-flow rights and control rights…. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies…. If it is just a very high substitutability… labor market reforms are… off the table, as firms just replace workers with machines if you try to raise the wage…”

Continue reading “Things to Read on the Afternoon of April 23, 2014” →

It’s Piketty Day here at Berkeley. So let me note that Robert Solow has another good Piketty review:

Robert Solow: ‘Capital in the Twenty-First Century’ by Thomas Piketty, Reviewed: “Inequality… has been worsening…

the widening gap between the rich and the rest…. A rational and effective policy for dealing with it… will have to rest on an understanding of the causes… the erosion of the real minimum wage; the decay of labor unions and collective bargaining; globalization and intensified competition from low-wage workers in poor countries; technological changes and shifts in demand that eliminate mid-level jobs…. Each of these candidate causes seems to capture a bit of the truth. But even taken together they do not seem to provide a thoroughly satisfactory picture…. They do not speak to the really dramatic issue: the tendency for the very top incomes—the “1 percent”—to pull away from the rest of society. Second, they seem a little adventitious, accidental; whereas a forty-year trend common to the advanced economies of the United States, Europe, and Japan would be more likely to rest on some deeper forces….

Continue reading “Piketty Day Here at Berkeley: The Honest Broker for the Week of April 26, 2014” →

@Steen_Jakobsen:

Fed – Realise we have been looking for higher rates in 2 yrs time every year since 2008!

It does all hinge on how rapidly our cyclical unemployment is turning into structural unemployment. If it is–if those out the labor force are never coming back and will never downward pressure on the inflation rate–then this time is in different, and we are likely to see the Federal Reserve raising short-term safe interest rates to 2% per year by early in 2017. More likely given everything we have seen, however, is that come 2015 inflation is still showing no significant signs of persistently breaching 2% per year, and so there will be no excuse for raising short-term safe interest rates. Thus this pattern of always expecting higher interest rates in two years will continue.

You would think that at some point the Federal Reserve would start seriously thinking about me for a Volcker or Roosevelt-like regime change. But no…

Mary Daly et al.: Interpreting Deviations from Okun’s Law: “The traditional relationship between unemployment and output growth…

…known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated.