Month: December 2014

Must- and Shall-Reads:

• Rick Mishkin and Eugene White:
  “We find that there were precedents for all of the unusual actions taken by the Fed. When these were successful… they followed contingent and target rules that permitted pre-emptive actions… but were combined with measures to mitigate moral hazard…”
• Barry Eichengreen:
  “The best thing the ECB could do to encourage fiscal consolidation and structural reform is to banish the specter of deflation… [by] full-bore quantitative easing can do that. Those who object that such audacity would discourage fiscal consolidation and structural reform should consider what deflation would do…”
• Robert Huebscher and Jeremy Siegel:
  Fair Value for the S&P 500 is 2,300
• Joshua M Brown:
  “They said the Fed couldn’t taper without massive market dislocations… ‘trapped’ and ‘backed into the corner’…. The FOMC has now removed itself from new bond-buying operations… Employment is strong… we’re starting to see quarterly GDP releases with a 4-handle… inflationary pressures are nowhere on the horizon for the time being…”
• Adair Turner:
  Festival of Economics 2014
• Neil Irwin:
  Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel

1. Paul Krugman:
   Switzerland and the Inflation Hawks:
   “A lot of people have been predicting soaring inflation since 2009 if not earlier, and have refused to change their views…. Inflation truthers insist that the government is hiding the real numbers…. Normally sensible conservative economists… see the non-inflationary story as somehow the result of very special circumstances…. Martin Feldstein and others have claimed that it’s all about the 0.25 percent… interest rate the Fed has been paying on excess reserves. Without that… quantitative easing would indeed have produced… big inflation…. So, can we talk about Switzerland?… Never paid interest on reserves… [now] charging banks 0.25 percent…. So has the Swiss National Bank’s huge increase in the monetary base, which dwarfs what the Fed has done, produced inflation?… Monetary base up by a factor of eight. Money supply up by much less, because banks didn’t lend the funds out. And consumer prices flat, indeed flirting with deflation. This is all exactly what a basic liquidity trap model–the one I laid out in 1998–predicted…”
   

2. David Jolly:
   Swiss National Bank to Adopt a Negative Interest Rate:
   “Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand. The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22…”
   

3. Alan Blinder:
   ‘What’s the Matter with Economics?’: An Exchange:
   According to both Jeff Madrick and Arnie Packer, I claim ‘that except for some right-wingers outside the ‘mainstream’…little is the matter’ with economics…. But it’s not true. I think there is lots wrong…. My review explicitly agreed with Madrick that (a) ideological predispositions infect economists’ conclusions far too much; (b) economics has drifted to the right… and (c) some economists got carried away by the allure of the efficient markets hypothesis. I also added a few… we economists have failed to convey even the most basic economic principles to the public; and that some of our students turned Adam Smith’s invisible hand into Gordon Gekko’s ‘greed is good.’… the propensity to elevate modeling technique over substance… [and others that] (a) are not germane to policy, (b) are only slightly related to Madrick’s complaints, and (c) are very much ‘inside baseball’ stuff—and hence boring to readers of this Review…”

4. Edward Luce:
   Too big to resist: Wall Street’s comeback – FT.com:
   “It was right to let Citigroup stay in business in 2009, even though it was effectively bankrupt. But should it be so much larger than it was six years ago? Is it healthy that Citi lobbyists wrote the clause, almost word for word, that was tucked into last week’s spending bill? The question answers itself. It also points to two glaring deficiencies that will come back to haunt Washington when the next crisis strikes…. There has been no improvement in Wall Street’s culture–or in Washington’s revolving door habits. Bankers dismiss Elizabeth Warren, the Democratic senator from Massachusetts, as a populist. Perhaps they should listen to Bill Dudley, president of the New York Federal Reserve and a former Goldman Sachs partner…. At some point there will be another Wall Street crisis. It could be a decade away, or maybe next year. Markets run in psychological cycles in which fear gives way to greed and then hangover. Greed is once more in the ascendant. No law can stop the next bomb from detonating. No regulator can foresee it. But they could do much more to be ready for it when it comes. Here Mr Geithner’s moral fundamentalists have a point…”
   

5. Jim O’Neill:
   The Economic Consequences of Drug Resistance:
   “By 2020, if we allow resistance to rise by 40%, global GDP will be 0.5% smaller than it otherwise would have been. By 2030, it will be 1.4% smaller. By 2050, the economic shortfall will reach 3%. The accumulated loss of global output over the next 35 years will total $100 trillion…. Already, 60,000 people die every year from causes related to antimicrobial resistance in the United States and Europe…. By 2050, if the problem is allowed to continue to grow, antimicrobial resistance will kill more than ten million people per year…”
   

Should Be Aware of:

• Eric Alterman:
  The Truth About the New Republic: Kinsley, Krauthammer, Oliver North and a Liberal Magazine’s Demented War on Liberalism
• Ryan D Gantz: @sixfoot6 https://twitter.com/sixfoot6
• Josh Barro:
  “Cancun isn’t a symbol of free market capitalism, and American tourists didn’t make the place what it is…. An arm of the Mexican central bank did, in perhaps the largest and most successful example of central economic planning in North American history. Cuba should be so lucky as to have made its planned economy work as well as Cancun’s…”
• Leigh Bracket:
  Original Empire Strikes Back Screenplay Draft
• Otto Friedrich:
  City of Nets: A Portrait of Hollywood in the 1940s
  http://www.amazon.com/gp/product/006232604X/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=006232604X&linkCode=as2&tag=brde-20&linkId=QPGSL6EBPFWYEMB3
• Terry Adcock, as told to K.J. Dell’Antonia:
  With Three Adults, Two Jobs and One Baby, a Family Is Barely Getting By

1. Ryan Gantz:
   Bad community is worse than no community:
   “All the best conversation is happening in GroupMe, Slack, WhatsApp, private email lists, or over drinks after work. People feel comfortable analyzing, debating, and joking in these places, where they can express themselves without fear of judgment, unwanted notifications, or death threats. We can’t say the same about many discussion platforms or public comment sections…. Medium fights Godwin’s Law by rethinking comments as something closer to distributed annotations…. Reddit’s upvoting system gives its most engaged users control over what’s amplified. Metafilter reinforces community guidelines and cultural norms thanks to a highly engaged readership, 24-hour moderator coverage, and tools developed over 15 years. On most Vox Media sites, authors and moderators regularly stay engaged…. That’s the sort of work required to keep those spaces respectful, safe, and rewarding for participants, and it’s not always easy or successful. In a year when Pacific Standard and Popular Science shuttered their comments, Vox.com launched with none…. Twitter is broken and downright toxic…. By coupling a format that encourages intimacy with a network design that encourages out-of-context amplification, Twitter has evolved into something fundamentally volatile. It’s fun, fast and powerful, but remains highly risky for anything approaching honest conversation, or even satire…”

2. James Pethokoukis:
   The oil price collapse may end the ‘Texas Miracle’:
   “The energy sector gives, and the energy sector takes. The stunning drop in oil prices looks like bad news for the ‘Texas Miracle’…. Michael Feroli: ‘As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession’. So perhaps a minor key replay of what happened in the Lone Star State back in 1986…. The oil patch bust caused Texas unemployment to rise, housing prices to fall, and, eventually, a nasty banking crisis…”
   

3. Elizabeth Stoker Bruenig:
   Property Theories & the Buffered Self:
   “The ‘buffered self’ is a form of identity which is closed off from other persons…. Proprietary theories that view justice as a matter of your personal, individual rights being fulfilled play into this isolated self by remaining totally agnostic to the good of the community… do not view justice as a matter of total community outcomes, only individual ones, and only in terms of particular discrete rights…. Property theories that view property as an instrument for the communal good militate against this ‘buffered identity’ by contextualizing individual actions and procedures… in the impact on the community…. It’s pretty hard… to think to yourself, ‘doesn’t matter if I wind up with 500 million times the wealth of everyone else in my county due to this transaction, because I did it fair and square, and it’s my right.’ Instead you think, ‘so long as there are a lot of people without much who aren’t able to live good lives because I’ve got all this money to myself, I’m not actually entitled to all of it.’… [The] liber[tarian] property rights theories you hear… are not only bad because of what they produce materially (see: inequality), but also because of the ideology they factor so seamlessly into: namely, the idea that justice is merely a matter of individual procedural rights and protections, and that we have no need to factor the flourishing of our communities into the question of justice…”
   

Over at Grasping Reality:

…having arrived here late at night on a flight from Beijing. It was a pleasant shock to wake this morning to see double-decker buses driving on the left-hand side of the road so far from home.

I came to Beijing for the launch of Bloomberg’s Chinese-language service and to sit on a panel to discuss China’s role in the new world order. The throng of Chinese tourists at the Forbidden City somehow made it more real to us that China is a country of 1.3 billion people. The highlight of the trip so far was a visit to the Great Wall – something I have always wanted to do. The most comprehensive archaeological survey has recently concluded that the entire Great Wall, with all of its branches, stretches for 5,500 miles. We didn’t walk all of it… READ MOAR

Edward Luce:
Too big to resist: Wall Street’s comeback – FT.com:
“It was right to let Citigroup stay in business in 2009…

…even though it was effectively bankrupt. But should it be so much larger than it was six years ago? Is it healthy that Citi lobbyists wrote the clause, almost word for word, that was tucked into last week’s spending bill?

The question answers itself. It also points to two glaring deficiencies that will come back to haunt Washington when the next crisis strikes…. There has been no improvement in Wall Street’s culture–or in Washington’s revolving door habits. Bankers dismiss Elizabeth Warren, the Democratic senator from Massachusetts, as a populist. Perhaps they should listen to Bill Dudley, president of the New York Federal Reserve and a former Goldman Sachs partner….

At some point there will be another Wall Street crisis. It could be a decade away, or maybe next year. Markets run in psychological cycles in which fear gives way to greed and then hangover. Greed is once more in the ascendant. No law can stop the next bomb from detonating. No regulator can foresee it. But they could do much more to be ready for it when it comes. Here Mr Geithner’s moral fundamentalists have a point…

Must- and Shall-Reads:

• Jared Bernstein:
  “Why this obsession with raising at all in the near term?…. Look at the yield of the 10-year treasury… 2.05%… low inflation expectations… strong demand for a safe harbor… oil. Look at ‘Strips’… market actors are willing to bet real money that inflation will be low for years to come…”
• Stephen Cecchetti:
  “Regulators forced up capital requirements… triggering fears in the banking industry of dire effects… [but] the capital increases had little impact on anything but bank profitability….Perhaps the requirements should be raised further…”
• Greg Ip:
  The Federal Reserve Meets: The Best of All Worlds
  http://www.economist.com/blogs/freeexchange/2014/12/federal-reserve-meets
• Jim Tankersley:
  “There are two entrepreneurship problems… both are bad for the middle class. The country doesn’t have enough of the kind of entrepreneurship that creates jobs, and it has too much of the kind that boosts rich executives at the expense of everyone else…”
  http://www.washingtonpost.com/sf/business/2014/12/17/the-great-start-up-slowdown/
• Leighton Ku et al.:
  The Economic and Employment Costs of Not Expanding Medicaid in North Carolina: A County-Level Analysis
• Mike the Mad Biologist:
  How Republican Craziness Is Undermining the South’s Massive Keynesian Stimulus

1. Tim Duy:
   Quick FOMC Recap:
   “In normal times the Federal Reserve moves slowly and methodically. Policymakers were apparently concerned that removal of ‘considerable time’ by itself would prove to be disruptive. Instead, they opted to both remove it and retain it: “Based on its current assessment, the Committee judges that it can be patient…. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October….’ If you thought they would drop ‘considerable time,’ they did. If you thought they would retain ‘considerable time,’ they did. Everyone’s a winner…. The April meeting is still on the table [for a rate increase], although I still suspect that is too early. Yellen… dismissed falling market-based inflation expectations as reflecting inflation ‘compensation’ rather than expectations… dismissed the disinflationary impulse from oil… indicated that inflation did not need to return to target prior to raising rates, only that the Fed needed to be confident it would continue to trend toward target… unconcerned about the risk of contagion either via Russia or high yield energy debt…. The Federal Reserve… have their eyes set firmly on June… see the accelerating economy and combine that with, as Yellen mentioned, the long lags of monetary policy…. Believe it or not, the Fed is seriously looking at mid-2015 to begin the normalization process. And there is no guarantee that it will be a predictable series of modest rate hikes. As much as you think of the possibility that the hike is delayed, think also of the possibility of 1994.”
2. Brett Norman:
   ACA Employer Mandate: Not as Bitter in Better Economy:
   “Contrary to the once dire predictions of health law critics and the business community, employers are not dropping coverage en masse and steering workers into the federally subsidized plans on the new Obamacare exchanges. In advance of the mandate finally kicking in, many are already increasing the number of employees offered coverage to ensure compliance. ‘The economic reality has changed,’ said Paul Fronstin, a senior associate at the Employee Benefit Resource Institute. Unemployment’s below 6 percent, down from the double-digit days in which the mandate was first debated. ‘Employers are remembering why they offered benefits in the first place–to compete for workers.’ The mandate is the Affordable Care Act’s last big piece of coverage expansion to be put into place. The Obama administration twice delayed it in the face of furious lobbying by the business community and repeated votes by the House to kill it…. ‘As we’ve gone along, I think there are other factors that have come into play – employee morale, retention of managers,’ said Michelle Neblett, director of labor and workforce policy for the National Restaurant Association. ‘I don’t hear people talking about dropping coverage, I hear about people figuring out how to afford to offer coverage.’…”
3. Itzhak Gilboa et al.:
   Economic Models as Analogies:
   “Why [do] economists analyze models whose assumptions are known to be false[?]… Economists feel that they learn a great deal from such exercises…. Economists often analyze models that are ‘theoretical cases’, which help understand economic problems by drawing analogies between the model and the problem…. Models… data, experimental results, and other sources of knowledge… all provide cases to which a given problem can be compared. We offer complexity arguments that explain why case-based reasoning may sometimes be the method of choice and why economists prefer simple cases…”
4. Paul Krugman:
   The Limits of Purely Monetary Policies:
   “I understand where Evans-Pritchard is coming from, because I’ve been there…. I had my road-to-Damascus moment… in 1998…. Back in 1998 I… believed that the Bank of Japan could surely end deflation if it really tried. IS-LM said not, but I was sure that if you really worked it through carefully you could show… doubling the monetary base will always raise prices even if you’re at the zero lower bound…. (By the way, I screwed up the aside on fiscal policy. In that model, the multiplier is one.) To my own surprise, what the model actually said was that when you’re at the zero lower bound, the size of the current money supply does not matter at all…. Doubling the current money supply and all future money supplies will double prices. If the short-term interest rate is currently zero, changing the current money supply without changing future [money] supplies… matters not at all. And as a result, monetary traction is far from obvious. Central banks can change the monetary base now, but can they commit not to undo the expansion in the future, when inflation rises? Not obviously…. But, asks Evans-Pritchard, what if the central bank simply gives households money? Well, that is, as he notes, really fiscal policy…. I’m pretty sure that neither the Fed nor the Bank of England has the legal right to just give money away as opposed to lending it out; if I’m wrong about this, put me down for $10 million, OK?…”
5. Lynn Yarris:
   Back to the Future with Roman Architectural Concrete:
   “The concrete walls of Trajan’s Markets in Rome have stood the test of time and the elements for nearly 2,000 years…. A crystalline binding hydrate prevents microcracks from propagating…. The mortars that bind the concrete composites used to construct the structures of Imperial Rome are of keen scientific interest not just because of their unmatched resilience and durability, but also for the environmental advantages they offer…. Roman architectural mortar… is a mixture of about 85-percent (by volume) volcanic ash, fresh water, and lime, which is calcined at much lower temperature than Portland cement…”

Should Be Aware of:

• Liz Seccuro:
  I Was Gang Raped at a U-VA Frat 30 Years Ago, and No One Did Anything
• Michael Schiavo**: If you want a government that’s gonna intrude… force their personal views on you… Jeb Bush is your man…” http://thinkprogress.org/election/2014/12/17/3604615/michael-schiavo-jeb-bush/
• XPostFactoid:
  It’s the wages, stupid | Piketty: U.S. sold its middle class birthright for a mess of Reaganite pottage | Is the tax code the best route to attacking wage stagnation?
• Paul Lombardo (2008): Three Generations, No Imbeciles: Eugenics, the Supreme Court, and Buck v. Bell http://www.amazon.com/gp/product/0801898242/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0801898242&linkCode=as2&tag=brde-20&linkId=TJ3XP7ZYQDBJTDLH
• Alex Strick:
  Note-Taking Jujitsu, Or How I Make Sense Of What I Read–A Different Place
  http://www.alexstrick.com/a-different-place/2014/10/note-taking-jujitsu-or-how-i-make-sense-of-what-i-read
• Francis Wilkinson:
  The CIA Torture Report and George Washington’s Waterboard

1. Daniel Larison:
   Jeb Bush and Our Bankrupt Cuba Policy:
   “Jeb Bush is reconfirming that he is just as conventional and ideological as any other hawk in the GOP… not only reaffirmed his support for the U.S. trade embargo, but said America should consider strengthening it. It’s no great surprise that a Florida Republican is still committed to continuing a failed Cuba policy, but it seems worth noting because it is so completely at odds with his normal self-presentation as a pragmatist…. That tells us much more about the kind of foreign policy that Jeb Bush would conduct if he were somehow to become president than anything else he said in his speech yesterday. When faced with policy failure, he urges more of the same failed policy, and faults those that are making any attempt to change the policy for the better. We already saw where this tendency to persist in foreign policy error got the country under his brother. There is no need to risk repeating that experience.”
2. John Abraham:
   2014 will be the hottest year on record :
   “I predict the annual temperature anomaly will be 0.674°C. This beats the prior record by 0.024°C. That is a big margin in terms of global temperatures… [and] this year wasn’t supposed to be particularly warm… [it] didn’t even have an El Niño…. Among the experts, there is little fixation on the record. On the other hand, there was little fixation on the so-called ‘halt’ to global warming that the climate-science deniers have been trumpeting for the past few years…. The Earth is warming. The oceans are warming, the land is warming, the atmosphere is warming, the ice is melting, and sea level is rising…. Climate science deniers have had a bad year…. The so-called ‘halt’ to global warming was never true…. Of course, the science deniers will look for something new to try to cast doubt on the concept of global warming. Whatever they pick will be shown to be wrong. It always is. But perhaps we can use 2014 as a learning opportunity. Let’s hope no one is fooled next time when fanciful claims of the demise of climate change are made.”
3. Nick Murray:
   The First Casualty of a Bear Market:
   “$6,200,000,000. Yes, that’s right, it’s six billion two hundred million dollars. A very large sum of money, wouldn’t you say? Now what, you ask, does it represent? It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market? The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell…”
4. Kevin Drum:
   Torture Is Not a Hard Concept | Mother Jones:
   “Like all of us, I’ve had to spend the past several days listening to a procession of stony-faced men—some of them defiant, others obviously nervous—grimly trying to defend the indefensible, and I’m not sure how much more I can take. How hard is this, after all? Following 9/11, we created an extensive and cold-blooded program designed to inflict severe pain on prisoners in order to break them and get them to talk. That’s torture. It always has been, and even a ten-year-old recognizes that legalistic rationalizations about enemy combatants, ‘serious’ physical injury, and organ failure are transparent sophistry. Of course we inflicted severe pain. Moderate pain would hardly induce anyone to talk, would it? And taking care not to leave permanent marks doesn’t mean it’s not torture, it just means you’re trying to make sure you don’t get caught. Christ almighty. Either you think that state-sanctioned torture of prisoners is beyond the pale for a civilized country or you don’t. No cavils. No resorts to textual parsing. And no exceptions for ‘we were scared.’ This isn’t a gray area. You can choose to stand with history’s torturers or you can choose to stand with human decency. Pick a side.”