Month: December 2014

Kevin Murphy:
How Gary Becker saw the scourge of discrimination:
“The legal remedies sought by the [civil-rights] campaigners…

…played no significant role in his analysis. From an economic perspective, legal remedies have corrected some problems but exacerbated others…. Firms intent on discriminating in their hiring practices can move to locations without significant minority populations…. If people have a tendency to discriminate on the basis of race, legislation cannot eliminate that tendency. Politicians cannot merely legislate a new outcome, or legislate preferences away. They can only change the way discrimination manifests itself…. One obvious question begged by Becker’s work was, who benefits from discrimination? While he did not directly address this, he did suggest that one beneficiary might be labor unions, which have traditionally represented white workers…”

That legislation cannot do anything other than change the way that racial discrimination manifests itself and that the first big beneficiary from racial discrimination one thinks of are (or were) (white) labor unions seems to me to have much more to do with Kevin Murphy’s views than Gary Becker’s…

Must- and Shall-Reads:

• Daniel Davies and Tess Reed:
  She Short Sells Shoes On A Shopping Site
• Daniel Davies and Tess Reed:: The Secret Life of Money: Everyday Economics Explained
• Robert Reich:
  “Some believe the central political issue of our era is the size of the government. They’re wrong. The central issue is whom the government is for…”
• Sam Ro:
  How Compound Interest Affects Retirement Savings: Every 25-Year-Old In America Should See This Chart
• David Frum:
  The Real Story of How America Became an Economic Superpower: Adam Tooze’s study of the two world wars traces a new history of the 20th century
• Daniel Drezner:
  “War did not break out in the Pacific Rim…. Bilateral deals on climate… and trade… a robust Sino-American relationship…. The longest post-Westphalian streak of ‘no great power war’… continue[s]…. [No] next U.S. recession…. Even in the parts of the world where bad things happened, the worst-case scenarios did not materialize…. Ebola… did not spread into Nigeria…”
• Arun Devnath:
  Rising Oceans Force Bangladeshi Farmers Inland for New Jobs

1. David Beckworth:
   Follow-Up to: The Fed’s Dirty Little Secret:
   “Monetary regime change is hard. But why do we think that fiscal policy would work any better given the Fed’s dedication to its low inflation target?… If the U.S. Treasury Department sent $5000 checks… and… [people] began to spend… we would begin to see inflation go up…. The Fed would tighten…. For the same reason QE was limited from the beginning it also true that fiscal policy was limited from the beginning. With highly-credible inflation targeting central banks, both monetary and fiscal policy require monetary regime change to work at the ZLB. So I am puzzled as to why Krugman put his energy into drumming up support for more fiscal policy rather than drumming up support for a change in monetary regimes…”
   

2. Noah Smith:
   Ten Investing Facts of Life:
   “Morgan Housel recently came up with an impressive list of 122 investing aphorisms…. Almost all… are good advice…. There was really only one I didn’t like: ’67. Finance would be better if it was taught by the psychology and history departments…’. As someone who teaches finance, I might sound a little self-serving for saying that academic finance has valuable things…. But… [many of] Housel’s… aphorisms… come from… finance professors!… 10 of my favorites…”

3. Robert Rubin and Nicholas Turner:
   The Steep Cost of America’s High Incarceration Rate:
   “Crime itself has a terrible human cost and a serious economic cost. But appropriate punishment… shouldn’t obscure the vast deficiencies in the criminal-justice system…. The U.S. rate of incarceration, with nearly one of every 100 adults in prison or jail, is five to 10 times higher than the rates in Western Europe and other democracies…. Long sentences have had at best a marginal impact on crime reduction. This is not only a serious humanitarian and social issue, but one with profound economic and fiscal consequences…. For the more than 600,000 people who leave prison and re-enter society every year, finding employment can be a severe challenge…. Up to 60% of formerly incarcerated people are unemployed one year after release…. It’s no surprise that 43% of people released from prison end up back behind bars within three years, according to a recent Pew study on recidivism. The costs of incarceration extend across generations. Nearly three million American children have a parent in prison or jail…. There is widespread bipartisan agreement that we are using prison for too many crimes and for too long…. The time has come to make sensible reform in these four areas—sentencing, parole, rehabilitation and re-entry—a national priority…”
   

4. Martin Feldstein:
   The Fed’s Needless Flirtation With Danger:
   “The risks involved in… quantitative easing…. [which] reduced long-term interest rates and raised… equities and real estate… caused lenders and investors to reach for yield… taking greater risks through lower-quality loans… and accepting narrower spreads…. The risks… were unnecessary. Well-designed tax policies… an enlarged investment tax credit… converting the deduction for business interest to a credit… allowing deductions for dividends on common or preferred equity…. The resulting revenue loss could be balanced by a temporary rise in the corporate income-tax rate… taxing more highly the return on old capital while stimulating new investment…. A direct tax incentive to home builders…. The… deduction of mortgage interest… extended to non-itemizers… converted to an optional tax-credit…. Quantitative easing increase[s] the risk of financial instability…. Increased government spending and reduced tax revenue increase budget deficits and national debt…. Changes in the tax structure could stimulate spending… without raising… deficits.”
   

5. Paul Krugman:
   Nothing Non-Gold Can Stay:
   “David Beckworth has a good post pointing out… the Fed has been signaling… the big expansion in the monetary base is… temporary… this vitiates the effectiveness of quantitative easing…. My only small peeve…. I made this point sixteen years ago…. I’m turning into one of those crotchety old economists…. Beckworth offers as an example of how it should be: FDR’s exit from the gold standard…. Effective monetary policy in a liquidity trap requires both an actual and a perceived regime change, and that’s very hard to engineer…. I get annoyed with… ‘the Fed has pursued a tight-money policy’…. [when] reality… is ‘The Fed hasn’t been willing to commit to a permanent regime change in the face of what it considers a temporary problem.’ And even if it had… would people have believed it?… Going off the gold standard isn’t something you get to do very often…”
   

6. Paul Krugman:
   1980 and All That:
   “Robert Waldmann is shocked, shocked, to find conservative economists not doing their homework…. I’m shocked that he’s shocked…. Why, he asks, didn’t they look up the data–which takes only a few seconds on FRED–before making their claims? But this… applies… across the board…. Why this failure to do even the simplest homework?… They hear everyone around them saying stuff, repeat it, and that becomes what everyone knows; the idea of checking the facts themselves never seems to arise, indeed is almost anathema…. Mainly, I suppose, it’s the epistemic closure that comes from serving the interests of big money… think tanks that don’t want too much thinking, partisan media that don’t do fact-checking, and for that matter professional journals that erect high barriers….

Should Be Aware of:

• Neil Gaiman:
  I, Cthulhu, or, What’s A Tentacle-Faced Thing Like Me Doing In A Sunken City Like This (Latitude 47° 9’ S, Longitude 126° 43’ W)?
• David Edwards:
  American Schools Are Training Kids for a World That Doesn’t Exist
• Star Trek Continues
• • Yael T. Abouhalkah:
    Ten Gifts for the Kansas City Area’s Naughty and Nice Leaders
• The Official Mystery Science Theater 3000 Website
• ProjectImplicit
• Christopher Wanjet:
  Imagination and Reality Look Different in the Brain

1. Alex Abad-Santos:
   The Holiday:
   “Why you should see this movie: Because you’re in the mood to see the greatest holiday-inspired romantic comedy ever made. This movie was made in 2006, so it’s unlikely it will be shown in theaters. If you somehow happen upon a theater showing it, check to make sure you haven’t time traveled. What you should know: This movie has Jude Law at his peak, a Nancy Meyers kitchen scene, and Kate Winslet. Chances of a sex scene that you and your parents will want to avoid: Even if it had the most jaw-droppingly erotic scene in the history of cinema, you would have to see it, just to experience the glory of The Holiday. (This may be an oversell. But you don’t know until you’ve watched!)”
   

2. Michelle Conlin:
   Off duty, black cops in New York feel threat from fellow police:
   “Reuters interviewed 25 African American male officers on the NYPD…. All but one said that, when off duty and out of uniform, they had been victims of racial profiling, which refers to using race or ethnicity as grounds for suspecting someone of having committed a crime… being pulled over for no reason, having their heads slammed against their cars, getting guns brandished in their faces, being thrown into prison vans and experiencing stop and frisks while shopping. The majority of the officers said they had been pulled over multiple times while driving. Five had had guns pulled on them. Desmond Blaize, who retired two years ago as a sergeant in the 41st Precinct in the Bronx, said he once got stopped while taking a jog through Brooklyn’s upmarket Prospect Park. ‘I had my ID on me so it didn’t escalate,’ said Blaize, who has sued the department alleging he was racially harassed on the job. ‘But what’s suspicious about a jogger? In jogging clothes?’…”
   

Must- and Shall-Reads:

• Tim Duy:
  Fed Watch: Asked and Answered. Mostly.)
• Barry Eichengreen and Petra Geraats:
  The Bank [of England] currently provides a drip-feed of releases… replacing a drip feed with a deluge will make the information provided harder to digest… leave most observers less well informed… indeed, the Bank itself will no longer be able to identify the separate impact of the policy decision..
• Peter F. Drucker (20040:
  What Makes an Effective Executive
• Martin Wolf:
  Let us enjoy the greatest human escape of all
• Miles Kimball:
  Righting Rogoff on Japan’s Monetary Policy
• Jesse Livermore:
  A Critique of John Hussman’s Chart of Estimated Future Equity Returns
• Cullen Roche:
  “John Cochrane… ‘An Autopsy for the Keynesians’… doesn’t ever define ‘Keynesian’, and because he doesn’t he’s able to engage in a series of dishonest generalizations…. I am mad at myself for even wasting the time to respond to such an obviously misleading article.”

1. James Heckman (1995);
   Cracked Bell:
   “The same remarks apply to [Herrnstein and Murray’s Bell Curve’s] study of racial and ethnic differentials in socioeconomic outcomes…. Evidence that racial differentials weaken when ability is controlled for using regression methods does not rule out an important role for the environment…. In the presence of measurement error in the environment, the authors’ analysis will overstate the ‘true’ effect of ability on those outcomes. There are methods for addressing these problems, but Murray and Herrnstein do not use them…. By its very construction… the ‘two-standard deviation’ range in measured IQ… [covers] 95 percent of the population. A ‘two-standard deviation’ range of their family background index does not include 95 percent of the population, because that measure does not come from a bell curve…. By restricting the range of the environmental variable they understate the role of the environment in affecting outcomes relative to the role allocated to IQ…”
   

2. Paul Krugman:
   Recession, Recovery, and Gold:
   “Dave Weigel notes that when President Obama get reelected, the usual suspects told us to run for the hills, buying gold along the way. Zimbabwe! Or, actually, not…. Gold prices are down…. Why they were high in the first place[:] Gold is not, in fact, a hedge against inflation. It’s something people buy when real returns on alternative assets are low…. Gold went up as real interest rates turned negative, thanks to a depressed economy…. As recovery has gathered strength, real rates have gone up and gold has gone down…”
   

3. Matt O’Brien:
   Now that the Dow has hit 18,000, let us remember the worst op-ed in history:
   “The stock market… isn’t the best barometer…. And the Dow isn’t even the best barometer of the stock market…. But if arbitrary round numbers are your thing, the Dow… above 18,000 for the first time. And that brings us to the worst op-ed in history. On March 6, 2009, former George W. Bush adviser Michael Boskin offered whatever the opposite of a prophecy is when he said that ‘Obama’s Radicalism Is Killing the Dow.’… Boskin… didn’t think that this once-in-three-generations financial crisis was to blame for the market meltdown. Instead, he blamed it on Obama for… talking about raising taxes? ‘It’s hard not to see the continued sell-off on Wall Street and the growing fear on Main Street,’ Boskin philosophized, ‘as a product, at least in part, of the realization that our new president’s policies are designed to radically re-engineer the market-based U.S. economy.’ What followed was the usual conservative jeremiad against higher taxes on the rich, lower taxes on the poor, and deficit spending. Obama’s trying to turn us into Europe, and that’s why markets are pricing in the possibility of a Great Depression—not the dying economy he inherited. It was… extraordinarily ill-timed…. Obama’s radicalism has killed the Dow to the tune of a 171 percent return since Boskin’s op-ed.
   

4. David Weigel:
   Republicans Block Reappointment of CBO Chief Doug Elmendorf:
   “Incoming Republican leaders in Congress won’t reappoint Doug Elmendorf to another term as head of the Congressional Budget Office, according to a party aide…. Elmendorf, 52, an economist with experience at the Treasury Department and the Federal Reserve, was appointed to run the CBO in 2009 when then-director Peter Orszag was picked by President Barack Obama to run the White House Office of Management and Budget. In 2011, Elmendorf won a full four-year term, after Republicans took control of the House while Democrats retained the Senate. A CBO conclusion that Obama’s signature domestic achievement — the 2010 Affordable Care Act — was cutting costs pleased Democrats, while Republicans appreciated the office’s finding that the health-care law and a proposed minimum wage increase would cost jobs…”
   

5. Duncan Black (2004):
   Minitrue Sullivan:
   “Not to beat a dead horse which no one much cares about anyway, but I was a bit puzzled earlier when I was having some trouble hunting down a particular story with a mention of [Andrew] Sullivan’s 5th column nonsense. A reader reminds me why–Sullivan, as he tends to do, edited the article he had publishsed in the Times of London before posting it in his ‘best of’ section on his website. On his site: ‘The decadent Left in its enclaves on the coasts is not dead–and may well mount what amounts to a fifth column…’ Original quote: ‘The decadent left in its enclaves on the coasts is not dead -and may well mount a fifth column…’ The former at least has one little toe in the land of metaphor, the latter doesn’t. Sullivan literally and explicitly suggested that the ‘decadent Left’ and their soulmates, Muslims advocating theocracy, would join hand in hand.”
   

Should Be Aware of:

• Salami by Creminelli
• Paul Krugman:
  Putin, Neocons and the Great Illusion
  
• Ricardo Hausmann:
  The Productivity of Trust
• Adam Gopnik:
  “The insight that one is not obliged to enroll in a perpetual cycle of violence and reprisal is not apolitical or escapist”

1. Barkley Rosser:
   The People the Wall Street Journal Put on Its Op-Ed Page… Get Less Hinged as Time Passe[s]:
   “It has never been clear that Cochrane is even all that good at studying asset pricing. Even to this day, his famous grad textbook, called, well, Asset Pricing, does not have any of the following words in its index (or enywhere in the book, for that matter): kurtosis, leptokurtosis, fat tails. Nowhere, nada, even though supposedly financial traders all know that most financial returns exhibit those characteristics, which came home to roost big time in 2008. Of course at that time he publicly declared that… Fama would talk about them in his classes, having first heard of them in from Benoit Mandelbrot of all people. But, that has somehow still not gotten Cochrane to mention them himself anywhere in his supposedly wonderful textbook.”
   

2. Duncan Black:
   Eschaton: Innumeracy):
   “Silly [Andrew] Sully[van] is back on his Bell Curve kick because Coates wrote some hurtful things which failed to realize the overall importance of being incredibly civil in the high minded intellectual debate about whether black people are, in fact, stupid, and whether the innumerate editor of a prominent magazine might have some responsibility for catapulting racist pseudoscience he’s incapable of understanding into the discourse…. I’d often try to find an excuse to sneak a Bell Curve lecture into my courses. By the end of my teaching career none of my students had actually heard of it, which was good, but it still provided a way of teaching various lessons…. And I knew it was a zombie superhero, destined to return again and again no matter how many bullets we put into its brain.”