Things to Read on the Evening of April 5, 2014

Must-Reads:

1. Tim Duy: One For the Doves – Tim Duy’s Fed Watch: “this [employment] report fits nicely with the view outlined by Federal Reserve Chair Janet Yellen earlier this week.  The labor market continues to improve at a moderate pace, a pace that remains insufficient to rapidly alleviate the issues of underemployment and low wage growth…. I think the real policy question should be: “why is the Fed engaged in reducing policy accommodation in the first place?” If Yellen is as concerned about the plight of labor as she purports to be, and if she and her colleagues are as committed to the 2% inflation target as they purport to be, then it seems like there is a strong argument for slowing the pace of the taper and using a rules based approach to take the risk of earlier-than-anticipated rate hikes off the table. In short, there seems to be a disconnect between the Fed’s rhetoric and the general policy direction.  They seem to have lost interest in speeding the pace of the recovery. Persistently low inflation, however, may push them into action.  St. Louis Federal Reserve President James Bullard opened up the door to slowing the taper if inflation does not prove to be bottoming.”

2. Ryan Cooper: How to talk to a climate change contrarian (if you must): “Climate trolls make the link between climate change and extreme weather seem highly complicated. It isn’t…. Roger Pielke Jr… made his career repeatedly accusing climate scientists of scientific malfeasance for exaggerating the link between climate change and extreme weather…. Now the Breakthrough Institute, which is about as troll-y as they come with regards to climate change, is out with a true-to-form defense of Pielke, claiming that a new, devastating report from the United Nations Intergovernmental Panel on Climate Change entirely vindicates his approach to weather disasters…. When it comes to climate change and extreme weather, one simple fact takes care of the vast majority of what’s really important. You ready? Here it is, drum roll… More global warming means more extreme weather. To put it another way: Why do we care about climate change? Because it could cause serious, potentially catastrophic damage to our civilization. Extreme weather is a big part of how this will happen, according to the new IPCC report, which even Breakthrough and Pielke apparently agree is a good source: ‘Impacts from recent climate-related extremes, such as heat waves, droughts, floods, cyclones, and wildfires, reveal significant vulnerability and exposure of some ecosystems and many human systems to current climate variability (very high confidence). Impacts of such climate-related extremes include alteration of ecosystems, disruption of food production and water supply, damage to infrastructure and settlements, morbidity and mortality, and consequences for mental health and human well-being. For countries at all levels of development, these impacts are consistent with a significant lack of preparedness for current climate variability in some sectors.’ It’s really that simple. Organized science is highly confident that unchecked climate change will cause more extreme weather in the future, along with a grim parade of horribles. So we should stop the carbon pollution that causes it…. Economic damage is a completely cock-eyed way of looking at any of this. Poor countries are going to be hit hardest by climate change, but since they’re poor the damage isn’t going to be very ‘expensive’. As some dude named Nate Silver showed us back in 2009, you could delete something like three billion people off the face of the Earth and it would only add up to 5 percent of world GDP. What happened to that guy?”

3. Doug Henwood: GDP etc. in a deep funk: “By the way, here’s a graph of actual real U.S. GDP and its major components relative to their long-term (1970–2007) trendlines through the end of 2013. Note how things fell off a cliff in the recession. GDP, consumption, and government spending are all about 15% below where they’d be had they continued to grow in line with their long-term trend. (The hysteria over out-of-control government spending looks ludicrous in the light of this graph.) Investment is about 25% below where it “should” be. thanks largely to the housing collapse, though it’s staging something of a recovery. The other components have yet to begin closing the gap, because the recovery’s been so weak.”

4. Simon Johnson: The Too Big To Fail Subsidy Debate Is Over: “No doubt there is still a lot of shouting to come, but this week a team at the International Monetary Fund completely nailed the issue of whether large global banks receive an implicit subsidy courtesy of the American government…. Yes, there is an implicit subsidy that lowers the funding costs for very large banks… as much as 100 basis points… and yet this large scale of implicit support is small relative to the macroeconomic damage that is likely to be caused by the high leverage and incautious risk-taking that the subsidy encourages…. Still, as I explain in my NYT.com Economix column, I’m a big fan of this work because the Fund’s report is very good on how to handle and reconcile the main alternative methodologies for getting at the issue. The Fund offers an entirely reasonable approach that sets a very high quality bar.”

5. Henry Farrell: Piketty on Capital: A Footnote: “A correction: Dean Baker, in a somewhat grumpy review [of Piketty’s Capital, says: ‘Rather than continuing in this vein, I will just take one item that provides an extraordinary example of the book’s lack of attentiveness to institutional detail. In questioning his contribution to advancing technology, Piketty asks: “Did Bill [Gates] invent the computer or just the mouse?” Of course the mouse was first popularized by Apple, Microsoft’s rival. It’s a trivial issue, but it displays the lack of interest in the specifics of the institutional structure.’… I’ve been seeing the Gates quote circulate a bit among left-leaning friends, very likely because of its structural similarity to a notorious claim by a rather different big sweeping economics book [by David Graeber]…. Dean’s use of the Piketty quote is unfortunately rather misleading. What Piketty actually says…. ‘As for Bill Gates and Ronald Reagan, each with his own cult of personality (Did Bill invent the computer or just the mouse? Did Ronnie destroy the USSR single-handedly, or with the help of the pope?), it may be useful to recall that the US economy was much more innovative in 1950-1970 than in 1990-2010, to judge by the fact that productivity growth was nearly twice as high in the former period as in the latter, and since the United States was in both periods at the world technology frontier, this difference must be related to the pace of innovation.’ In other words, Piketty isn’t claiming that Bill Gates invented the computer, or the mouse, any more that he’s claiming that Saint Ronald went in there like Rambo with his missile launcher (with or without the help of trusty sidekick JP-II) to bring the Soviet Union to its knees. He’s engaging in sarcastic hyperbole to illustrate the ludicrous way in which popular wisdom attributes vast historical changes to the intervention of singular, godlike culture heroes. This is quite unambiguous in context, especially as Piketty has talked some pages before about Gates’ actual role…. Taken out of context, as it is in Baker’s review, it wrongly suggests that Piketty is ignorant or sloppy to a quite extraordinary degree…. I don’t think that this is deliberate dishonesty on Baker’s part… this kind of mistake can happen… there but for the grace of God…. But Baker’s misattribution to Piketty of a bewilderingly stupid-sounding claim that Piketty obviously does not make is the kind of thing that could go viral (and already is going semi-hemi-quasi viral). Thus, I think, it’s worth pointing out that it’s just not so…”

Should-Reads:

1. James Annan (2008): James’ Empty Blog: The consistently wrong chronicles: “Roger Pielke has been saying some truly bizarre and nonsensical things recently…. Putting that together with the model output, we get the result that if the null hypothesis is true… the sampling distribution for the observed trend should also be N(0.19,0.21)…. OK, let’s have a look at the test statistic. For HADCRU, the least squares trend is….0.11C/decade…. So, where does 0.11 lie in the null distribution N(0.19,0.21)? Just about slap bang in the middle, that’s where. OK, it is marginally lower than the mean (by a whole 0.38 standard deviations), but actually closer to the mean than one could generally hope for, even if the null is true. In fact the probability of a sample statistic from the null distribution being worse than the observed test statistic is a whopping 70% (this value being 1 minus the integral of a Gaussian from -0.38 to +0.38 standard deviations)! So what do we conclude from this? First, that the data are obviously not inconsistent with the models at the 5% level. Second…well I leave readers to draw their own conclusions about Roger ‘I honestly don’t know what the proper test is’ Pielke.”

2. Jamelle Bouie: Republican voter suppression rationales: Why “voter integrity” is nonsense: “None of this is new. Most Americans are familiar with race-based voter suppression—the poll taxes, literacy tests, and grandfather clauses of Jim Crow—but those are part of a larger history of partisan voter suppression that stretches back to the early 19th century…. Whig lawmakers… tough new registration rules for New York City, which contained the largest concentration of Irish voters…. Missouri, Maryland, and Indiana… sought to delay voting rights for naturalized citizens…. This fear wouldn’t go away…. Today’s voter suppression is the clear echo of a familiar past.”

Should Be Aware of:

1. James Kwak: The Desperation of the Vanishing Middle Class: “I recently finished reading Pound Foolish, by Helaine Olen, which I discussed earlier (while one-third of the way through). The book is a condemnation of just almost every form of personal financial advice out there, from the personal finance gurus (Suze Orman, Dave Ramsey) to the variable annuity salespeople to the peddlers of real estate get-rich-quick schemes to Sesame Street‘s corporate-sponsored financial education programs. (Of them all, Jane Bryant Quinn is one of the few who generally come off as more good than evil.) A lot of what’s going on is just semi-sleazy entrepreneurs trying to make a buck, taking “advice” that is equal parts routine, wrong, and contradictory and packaging it into attractive-looking books, TV shows, and in-person events. A lot of the rest is marketing by the real financial industry, which either (a) wants to make a show of promoting financial education so people will think they are good or (b) wants to teach people that they need their products. (You pick.)”

2. Mike the Mad Biologist: All Right We Are Two Nations:

3. Anne Laurie: Open Thread: It’s A(nother) Start…: “Like Sisyphus, all we can do is persevere…. ‘The Senate Intelligence Committee voted Thursday to make public a long-awaited report that concludes that the CIA’s use of brutal interrogation measures did not produce valuable intelligence and that the agency repeatedly misled government officials about the severity and success of the program.’… When you can’t get Tom Coburn to deliver a stirring defence of ‘My Agency, right or wrong’ (with an optional chorus of ‘Let the Eagle Soar’) I think it is fair to assume that the CIA has thoroughly befouled its bedsheets. And I know the easy, ‘rational’ response here is to shrug and say something flip about the Church Commission, but this is the political equivalent of confronting an addict — it’ll be excruciatingly unpleasant and the odds are against it making a permanent difference, but it’s an essential first step regardless.”

4. Yuriy Gorodnichenko and Michael Weber: Are Sticky Prices Costly? Evidence From The Stock Market: “We show that after monetary policy announcements, the conditional volatility of stock market returns rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large as well as strikingly robust to a broad array of checks. These results suggest that menu costs—broadly defined to include physical costs of price adjustment, informational frictions, etc.—are an important factor for nominal price rigidity. We also show that our empirical results are qualitatively and, under plausible calibrations, quantitatively consistent with New Keynesian macroeconomic models where firms have heterogeneous price stickiness. Since our framework is valid for a wide variety of theoretical models and frictions preventing firms from price adjustment, we provide “model-free” evidence that sticky prices are indeed costly.”

And:

• Suzy Khimm: The case for another stimulus
• Crepon et al.: Do labor market policies have displacement effects? Evidence from a clustered randomized experiment
• Samuel R. Bagenstos: The Unrelenting Libertarian Challenge to Public Accommodations Law
• Ryan Avent: Money: Bitcoin’s Deflation Problem
• Arit John: Pundit Accountability: The Best and Worst Obamacare Predictions
• Luis Felipe Céspedes et al.: Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy
• Kenneth Rogoff (2001): Dornbusch’s Overshooting Model After Twenty-Five Years