Month: January 2015

For an organization that is working as hard as it possibly can to become a trusted information intermediary–and, overwhelmingly, a *useful* trusted information intermediary–look at David Leonhardt’s The Upshot:

Must- and Shall-Reads:

• Mario Draghi: “There must be a statute of limitations for those who say there will be inflation…”
• Seumas Milne: The Davos oligarchs are right to fear the world they’ve made
• Russ Britt: “Roughly 6.3 million people… will drop their Obamacare coverage or face using as much as half of their income for health insurance if a Supreme Court ruling dismantles subsidies in states that haven’t established their own exchanges… nearly two-thirds of those who lose subsidies are white Southerners, and nearly half have full-time jobs…”
• Carter Price: What have we learned about the ACA over the last year?
• Rob Valetta: Higher Education, Wages, and Polarization
• Paul Krugman: “Obama wasn’t exactly able to claim morning in America… but he was able to talk about success and moving forward…. Why the difference?… On the secular stagnation front… the euro area’s working-age population peaked in 2009…. Aggregate euro-area fiscal policy has been substantially tighter than in the US…. On the monetary side Europe zagged when America zigged… behaved throughout as if debt and inflation were the overwhelming risks…. Europe’s woes are no mystery, although it’s hard to allocate the blame; policy did everything wrong, so it’s hard to tell which wrongness mattered most…”

1. Stuart Kemp: Economist Appoints Its First Female Editor: “Zanny Minton Beddoes has been appointed editor of the Economist, the first female to land the role in the publication’s 170-year history…”

2. Robert Skidelsky: The Fall of the House of Samuelson: “[Paul] Samuelson was a convinced Keynesian… in a limited sense. He dismissed most of Keynes’s attack on the orthodox economics of his day as unnecessary, writing ‘had Keynes [started] with the simple statement that he found it realistic to assume that money wages…were sticky and resistant to downward movements… most of his insights would have remained just as valid.’ For Samuelson, Keynes’s real contribution was the tools he gave governments to prevent depressions. Reading The Samuelson Sampler, it is extraordinary to realize just how confident economists of his generation were that the New Economics… had solved the problem of depression and mass unemployment. As Samuelson put it in his 1973 introduction, ‘the specter of a repetition of the depression of the 1930s has been reduced to a negligible probability.’… Because governments knew how to stop depressions, voters would insist that they use this knowledge. ‘If printing bits of green can save banks and business from ruin,’ he argued in 1966, ‘today’s electorate will ensure that either party in power will [so] act.’ This was irrespective, Samuelson thought, of the ideological preferences of those in power…”

3. Joseph Heath: Why People Hate Economics, in One Lesson: “What is wrong with this?… Tabarrok and Cowen are trying to communicate… ‘incentives matter’… a methodological point… [that] should be presented in… as platitudinous [a way] as possible…. There are many ways of doing that, since the problem with the public… is not that they think incentives don’t matter… it’s just that they underestimate the[ir] power of incentives, or they don’t see some of the unexpected ways…. The right way… is to say ‘here’s something that we can all agree upon–but have you thought through the consequences of it? Perhaps not. That’s what economists do.’ But Tabarrok and Cowen are unable to restrain themselves…”

4. Dean Baker: Betting Against Subprime Mortgages Was a Good Thing): “Billionaire Robert Burns… richly deserves to be ridiculed… [for] want[ing] people to get used to lower living standards…. People are wrongly attacking Burns when they complain about his betting against subprime mortgage backed securities…. The securities were in fact bad. Burns betting against them made that clear in the markets somewhat sooner than would have otherwise been the case, bringing down the bubble earlier and more rapidly. This is good… fewer people were caught up in it than if the bubble had continued…. It would have saved people an enormous amount of pain if there had been lots of Robert Burns betting against subprime mortgage backed securities in 2003-2004…. Burns was acting out of greed, not a desire to help the economy and society. But this is a case where greed was good…”

5. Tony Yates: ECB QE. Much too Late and Not to Be Counted on: “The slow, drawn out, reluctant, piecemeal way that the ECB has handled the crisis… and the disputes that have raged about whether and how to do QE… minimise the bang per buck…. Second, in so far as QE works by signalling intentions about future central bank rates, there is now little to be got…. Third, in so far as QE acts through lowering term, liquidity or other premia, it’s too late for that too. Something has squeezed those premia out in Northern countries. And the risk that the remaining premia in the South reflect is not going to be taken off the local sovereign balance sheet…”

Should Be Aware of:

• Emily Badger: Now we know how many drivers Uber has, and how much money they’re making
• Paul Krugman: “Hubbard is defending… the 2003 cuts in tax rates on dividends and long-term capital gains… all it did was boost payouts to shareholders…. Two-thirds of the benefits from the dividend tax cut went to the top 1 percent…”
• Justin Fox: CEO inanity, at the Davos World Economic Forum and beyond
• A Moderate House Republican: “Week one, we had a Speaker election that didn’t go as well as a lot of us would have liked. Week two, we spent a lot of time talking about deporting children, a conversation a lot of us didn’t want to have. Week three, we’re debating reportable rape and incest–again, not an issue a lot of us wanted to have a conversation about. I just can’t wait for week four…”)

1. Scott Lemieux: High Broderism, Once Influential Conservative Democrat Edition: “Bill Galston, the prescient analyst cryogenically frozen at a 1991 DLC meeting, has some Deep Thoughts about the SOTU: ‘Still, as Mr. Obama began speaking, a key uncertainty remained:  What balance would he strike between the desire to shape the political terrain for 2016 and the imperatives of governing in 2015?  The former required bold initiatives, of a kind likely to evoke sharply negative reactions from Republicans who command majorities in both the House and the Senate.  But successful legislating this year will require compromise with those very majorities.  Could he thread the needle, making the Democratic political case for next year without undermining the possibility of legislative progress this year?’ Yes, in 2015 it’s very, very hard to tell if congressional Republicans would be willing to pass sensible middle-of-the-road compromises. But either way, I think that we can agree that whether it will happen will depend on the precise wording of the State of the Union address…”

2. @lorcanrk: On ECB QE: “€60 billion a month including: Sovereign Debt; Super-national (read EIB/ESM) debt; Asset-Back Securities; Covered Bonds. It does NOT include Corporate Bonds. (or equities..) It will buy bonds with remaining maturity between 2 and 30 years. It will buy inflation linked bonds. Purchases will start in March (in six weeks, when that month’s reserve maintenance period starts) and will continue until at least September 2016. The breakdown of purchases will be by Central Bank capital key, with the ECB itself accounting for 8% of purchases. So, if you want to work out how much each national central bank will buy, get the banks capital share here (be sure to adjust to 100% total), multiply that by €60bn, then multiply that by 0.92. Interestingly, there is nothing in the guidelines stopping an NCB buying the sovereign debt of another euro-area country, although it would be doing so at its own risk. I’ve written here about why the non-risk sharing is probably a good thing. But, also, I think ECB QE buying at this level is most likely to work more to weaken the € currency than necessarily have a positive portfolio effect. Overall, this is good news. It would be churlish to ask for more, at the moment.”

3. Henry Farrell: The Peripheral: “A blogpost on the William Gibson book of the same name, with copious spoilers… his best for some time; maybe, depending on your druthers, the best novel that he’s ever written…. Gibson… wants, I think, to talk about the relationship between the 99% and the 1%, using science fiction to turn the social relationships that Piketty and Saez talk about into a kind of ontology. The farther future is one in which the 1% has won and become a global ruling class…. The nearer future timeline is set in a rural America where the real economy has collapsed, leaving illicit drugs and dead end jobs working for the homeland security…. In this timeline, we don’t see the 1%, although they’re there in the background. Instead we see the kind of people who are about to be left behind and perish in the Jackpot…”

I’ve been trying to think of an intelligent comment to make on the extremely-fast-at-the-keyboard Nick Bunker’s Taxation in the name of equity on the desirability of taxing borrowing by big banks. I strongly approve: too-big-to-fail banks are extremely bad news, I have come to believe, for three reasons:

1. They create systemic risk.
2. They are extremely powerful lobbyists–much more powerful than ten banks each one-tenth their size would be.
3. Regulation of too-big-to-fail banks too-easily steps over the line into social-network revolving-door corruption.

For all these reasons, we want to make it hard to be a too-big-to-fail bank and profitable for managers and shareholders to split such things up–internalize these externalities!

But I find myself of divided mind on the more general Admati-Heilwig-Bunker point that banking should run with a lower debt-to-equity ratio. Equity capital is scarce in this world, and it is far from clear to me that it is best-deployed backstopping banks…

The estimable Carter Price in his What have we learned about the ACA over the last year? has a nice set of links (http://www.rand.org/blog/2014/04/survey-estimates-net-gain-of-9-3-million-american-adults.html https://www.cbo.gov/publication/45231 http://kff.org/health-reform/issue-brief/analysis-of-2015-premium-changes-in-the-affordable-care-acts-health-insurance-marketplaces/ http://kff.org/uninsured/fact-sheet/key-facts-about-the-uninsured-population/ http://www.advisory.com/daily-briefing/resources/primers/medicaidmap http://www.cepr.net/index.php/blogs/cepr-blog/today-aca-boosts-voluntary-part-time-employement http://www.nber.org/papers/w19220 http://content.healthaffairs.org/content/34/1/104.abstract http://www.arktimes.com/ArkansasBlog/archives/2013/10/24/more-than-60000-arkansans-have-enrolled-in-the-private-option-for-medicaid-expansion) with commentary to assess how ObamaCare has done over its first implementation year.

I find myself, over and over again, how well ACA implementation is doing in the Blue States that have implemented it enthusiastically–I would have expected at least one more-serious state exchange blowup and something going wrong with costs and competition somewhere. But, instead, the only downward surprise has been the extent to which Red States have been able to nullify implementation–at, I must say, a remarkably large cost to their state economies and to the ability of their governors and legislatures to promote the general welfare…

We see this strikingly in the many, many right-wing economists who assign moral fault to liberals who don’t free ride, don’t pollute, don’t work hard to externalize as many costs as they can and make others bear them. A doctrine that gleefully assigns positive moral value to being a schmuck is a very odd doctrine to advocate indeed…

As Dean Baker points out, stabilizing financial speculators are an enormous asset to an economy: