Things to Read on the Morning of May 7, 2014

Should-Reads:

1. David Wessel: All You Need to Know About Fed Policy in Three Questions: “Larry Summers… boiled the Fed’s current situation down to three simple questions…. 1. How much slack remains in the U.S. economy?… Today, economists disagree…. Janet Yellen [sys]… ‘There may be more slack in labor markets than indicated by the unemployment rate’…. If she is right, then the Fed should hold off on tapping the brakes because a lot of those long-term unemployed will go back to work when there are more jobs. 2. Once the economy returns to normal, say 5.5% unemployment, where should the Fed expect short-term interest rates to be?… In their latest forecast, Fed officials foresee an inflation-adjusted interest rate of 2% when all the slack is gone. But they’re hedging…. 3. What else should the Fed take into account?… Avoiding financial crises by acting before dangerous bubbles or excesses develop… the elaborate game between the Fed’s monetary policy and the fiscal policy…. And then there’s the rest of the world…”

2. Josh Gans: A thousand cuts and the last mile problem: “At the heart of the problem with competition on the Internet… is the ‘last mile’… a single ‘pipe’ running into dwellings and premises. To have more than one is not cost effective. And that ‘pipe’ will always be owned by someone and that someone will have monopoly access to the consumer…. So what are the options?… 1. Regulated prices…. 2. Privatisation…. What if, instead, the customer owned the last mile… customers are surely the natural owners here anyway. 3. Municipal broadband…. There may be other options…. It is time for the US to start thinking beyond letting regulation in the form of Net Neutrality do all the work for what is fundamentally a structural issue…”

Should Be Aware of:

1. Dean Baker: Robert Shiller’s Data Say the Last Two Times Have Been Different: “David Leonhardt presents a somewhat confused warning about stock valuations… tells readers that it’s “time to worry about stock bubbles.”… It’s not…. In the last two decades the stock market has twice hit the 25 PE ratio according to Shiller. The first time was in 1997, when Shiller puts the year-end ratio at 27.5. The average real return over the subsequent five years was -0.7 percent. That’s not great, but not exactly a disaster either…. The next time the PE crossed the 25 threshold was in 2004 when it hit 27.0. Shiller’s data show the real rate of return in the subsequent five years was 1.1 percent. That’s not fantastic, but it’s probably better than you would have gotten in a money market fund and certainly a hell of a lot better than the negative 12 percent of which Leonhardt warns…. Since these are the only two times it has crossed this threshold in the last 80 years, we might feel some comfort in using this experience as a basis for expectations of the future…”

2. Keith Humphreys: Unlearning How White People Ask Personal Questions: “Kochman’s book taught me a new word… ‘signifying’. He gives the example… a marriage-minded black woman who is dating a man who pays for everything on their very nice dates. She wonders if he has a good job. But instead of grilling him with ‘So what do you do for a living?’, she signifies ‘Whatever oil well you own, I hope it keeps pumping!’… a sensitive, respectful method to raise the issue she wants to know about… it keeps the control under the person whose personal information is of interest. Her comment could be reasonably responded to by her date as a funny joke, a bit of flirtation, or a wish for good luck. But of course it also shows that if the man freely chooses to reveal something… he can do so and know she will be interested. Since reading Kochman’s book, I have never again directly asked anyone what they do for a living. Instead my line is ‘So how do you spend your time?’. Some… answer that question in the bog standard way by describing their job… other people… tell me about the compelling novel they are reading, what they enjoy about being a parent, the medical treatment they are getting for their bad back, whatever. Any of those answers flow just as smoothly from the signification in a way they wouldn’t from a direct question about their vocation…”

3. Max Gladstone: Full Fathom Five (Excerpt): “Kai ruminated through the afternoon, and dinner, and the night. By 1:00 a.m. her work was done: three chickens sacrificed, one each on altars of silver, iron, and stone; a stack of profit and loss statements dispatched by nightmare telegraph; a prayer litany chanted balancing on one foot; a proposal drafted, suggesting an Iskari family shift their faith from the high-risk personal resurrection market to dependable grain-focused fertility. She scrubbed down the altars, washed her hands, brushed her hair, tied it back in a ponytail, and glanced again at the clock. One twenty…”

And:

• Timothy B. Lee: Comcast is destroying the principle that makes a competitive internet possible
• Igor Volsky: Heritage’s Accidental Guide To Everything Going Well With Obamacare
• Matt Bruenig: Don’t worry: Homeownership can still be a great investment
• Joanna Foster: Missouri’s Solar Problem: Too Many People Like It
• Martin Sullivan: Piketty, Zuckerberg, and a Plan to Tax Wealth That Conservatives Can Support
• John Upton: The 12 things the Obama administration wants you to know about climate change
• Carlos Vegh et al.: Expansionary Fiscal Policy Is Very Expansionary, during Extreme Recessions

Already-Noted Must-Reads:

1. Jared Bernstein: More on the Important New Blanchflower/Posen Paper: “B&P’s finding that including labor force inactivity in their wage analysis helps explain some of the variation (in a particularly important way I’ll show below) has a very important implication. If the depressed labor force is a statistically identifiable contributor to slack, then some of the current labor force inactivity can be reversed, much the same way unemployment comes down in the face of strengthening labor demand. Or, put differently, part of the decline in the labor force is just slack that’s not measured by the unemployment rate…. Yellen… [says] as much: ‘…some “retirements” are not voluntary, and some of these workers may rejoin the labor force in a stronger economy… a significant amount of the decline in participation during the recovery is due to slack…’. P&B add their view that ‘…many individuals who are not actively searching for work under current labor slack conditions remain attached to the labor market.’  All of which leads to their key punchline: ‘A substantial portion of those American workers who became inactive should not be treated as gone forever, but should be expected to spring back into the labor market if demand rises to create jobs.’ Obviously, that has important implications for both the living standards of working-age households and macroeconomic growth…”

2. Heather Boushey: On Thomas Piketty: “Has Piketty convinced us that ‘The past tends to devour the future’… [that] we are likely to see ever-increasing inequality unless we take action?…. Piketty’s predictions hinge on a few assumptions…. Policy makers in developed-country democracies obviously have the ability to raise tax rates, but for Piketty the assumption they will not is useful, as it establishes the outer bound on the rate of return if policymakers choose to eliminate all capital taxes…. Piketty provides a convincing case that there is nothing natural about equitable growth…. I agree with Piketty that we should worry whether income inequality is calcifying into wealth inequality. I am far less concerned about whether his predictions about the rate of return on capital or the rate of growth are precisely true…. I’m living in the here and now, where the top 1 percent take home an astonishing 22 percent of total national income, leaving too many unable to tap into the benefits of economic growth. This is not a sustainable system… not good for the economy… either.”

3. John Quiggin: Wealth: earned or inherited?: “The efforts of the right to discredit Piketty’s Capital have so far ranged from unconvincing to risible…. One point raised in this four-para summary by the Economist is that ‘today’s super-rich mostly come by their wealth through work, rather than via inheritance.’… For those who haven’t… got around to reading [the book]…. >Wealth inequality is also high, though it has not increased as much as income inequality…. Rattner [says]… ‘those at the top were more likely to earn than inherit their riches’. Since I’m already noticing that point popping up in the places you might expect… let me point out that Rattner’s explanation… is wrong, and that there is every reason to expect a boom in inherited wealth. The fact that currently wealthy Americans have not, in general, inherited their wealth follows logically from the fact that, in their parents’ generation, there weren’t comparable accumulations of wealth to be bequeathed… growing inequality of income must precede growing inequality of wealth, since wealth is simply the cumulative excess of income over consumption…. So, given highly unequal incomes, and social immobility, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood than for the current recipients of high incomes…”