Things to Read on the Morning of May 28, 2014

Should-Reads:

1. Tim Duy: Policy Induced Mediocrity?: “It seems that monetary policy over the past year can be summarized as a missed opportunity to supercharge the recovery, thereby locking the US economy into a suboptimal growth path…. The Federal Reserve could have chosen to lean into this generally upbeat forecast.  Yet instead they chose to lean against it by turning to tapering and setting the stage for interest rate hikes. And the data so far suggests that once again the turn toward policy normalization was premature…. What is remarkable is that the Federal Reserve understood that their forecasts have tended toward optimism…. The Federal Reserve has set reasonably clear expectations that rates will remain low for a long time.  That path, however, seems to be a consequence of doing too little now to ensure a stronger recovery.  In other words, the Fed seems to be taking a lower-rate future as a given rather than as a result of insufficient policy.  Instead of acting to ensure a stronger forecast, they seem more interesting in acting to lock-in the lower path of activity.  And that in turn will tend to lock in a low level of long-term rates.  This, I think, is the best explanation for the inability of markets to sustain higher rates. It is simply reasonable to expect that the conditions which justify higher long rates will be met with tighter policy sufficient to contain growth to something closer to the current path of output than to current estimates of potential output…”

2. Henry Farrell: On Chris Giles of the Financial Times: Political Economy is Political: “The best explanation of the current Piketty-Financial Times brouhaha was written by Mike Konczal a few weeks before it actually happened…. ‘Understanding how the elite become what they are, and how their wealth perpetuates itself, is now a hot topic of scientific inquiry. Many have tried to figure out why the rich are freaking out…. Perhaps they are noticing that the dominant narratives about their role in society—avatars of success, job creators for the common good, innovators for social betterment, problem-solving philanthropists—are being replaced with a social science narrative in which they are a problem to be studied. They are still in control, but they are right to be worried.’ Political economy is political…. I would guess that one can explain the immediate reaction of 85% of economists and public writers to the book by looking to their priors on this question–whether they like to emphasize efficiency questions over distributional concerns, or vice versa (another 10% can be explained by whether the writer in question is miffed because he/she and his/her mates do or don’t get sufficient citations and respect). People who might have found the book interesting had it been an academic exercise, and perhaps even agreed with large parts of it, are freaking out because they worry that it has serious implications for political debate…. Even if the actual reason why people are casting around for Devastating Critiques is because they don’t like the book’s political implications, they may actually find good criticisms, and uncover real mistakes. Motivated reasoning, if properly harnessed, can be epistemologically very valuable…. Argument about politically divisive topics is only disinterested in rare and isolated instances–yet it still can have great benefits…. Plausibly, it’s the people who are least willing to acknowledge the political aspects of the debate who are most completely captured by them. Practical economists, who believe themselves to be quite exempt from any political influences, are usually slaves of some defunct political philosopher.”

3. Doug Henwood: The Top of the World: “[Piketty’s] core message… can be delivered in a few lines: Left to its own devices, wealth inevitably tends to concentrate in capitalist economies. There is no ‘natural’ mechanism… for inhibiting, much less reversing, that tendency. Only crises like war and depression, or political interventions like taxation (which, to the upper classes, would be a crisis), can do the trick…. It was once believed, during the decades immediately following the Great Depression and World War II, that vast disparities in wealth were features of youthful capitalism that had been left behind now that the thing was reaching maturity…. Economics as a discipline loves stories about equilibrium and convergence. Vast inequities should, in theory, be ‘competed away’, as neoclassical economics likes to say. But mostly they’re not. Globally, poorer countries should gain on richer ones as technology and education spread and mobile capital’s search for higher returns makes the poor less poor…. In the case of personal wealth, old fortunes should decline and be replaced by new ones…. The major frustration of the book is political…. Hs political thinking is hardly a model of complexity or effort. He mostly aspires to contribute to rational democratic deliberation about ‘the best way to organize society’…”

Should Be Aware of:

• Adrianna Macintyre: When Medicaid has premiums, enrollees drop out
• Adam Serwer: The case for reparations and the lies we tell ourselves
• Jonathan Cohn: EPA Power Plant Regulations: FAQ for a Big Step on Climate Change
• Ryan Grim: The Economists FT Relied on For Its Thomas Piketty Takedown Don’t Buy It
• Milton Friedman (1988): Immigration And The Cultural Prerequisites for Capitalism
• Taras Kuzio: Ukraine is moving overwhelmingly for Europe
• Sam Wang: The War of the Senate Models
• Jesse Eisinger: “I consider the Obama appointment of Geithner to be the single worst political mistake Obama made…”
• Frances Coppola: Categorising the poor

And:

1. Matthew Yglesias: Bloomberg’s weird definition of self-made billionaires: “With inherited wealth in the news thanks to Thomas Piketty, it’s cool that Bloomberg’s billionaires interactive lets you sort billionaires according to whether they’re self-made or inheritors. Except this turns out to be challenging, and Bloomberg seems to err systematically on the side of proclaiming people self-made. Take Charles and David Koch, who inherited a substantial oil company from their father and then built it into an even bigger business. They’re both ‘self-made’ according to Bloomberg. But how many of us are lucky enough to inherit an oil company? They also consider Alwaleed al Saud to be a self-made man. But the ‘al Saud’ here is the ruling dynasty of Saudi Arabia…”

2. Chris Giles: The Lurkers Agree with Us But Need to Remain Anonymous!: “[Chris] Giles… told Newsweek the paper did contact both Piketty… with some of the paper’s main questions, stipulating a deadline of 3 p.m. the following day. Giles received a response from Piketty just before 11 a.m. Friday. ‘He replied much quicker than the deadline’, Giles said. He added that even if the FT had presented Piketty with the totality of its questions about the book’s data (which it didn’t), ‘There was an amount of material to which Piketty did not reply’. Giles also confirmed Piketty’s contention that the FT did not seek to undertake a formal interview with Piketty about the many data points it questioned. Giles said the approach was given the green-light by the paper’s legal team. ‘After lengthy discussions internally and sending our analysis to an independent expert–who agreed with us, but wants to remain anonymous–we were comfortable with our approach’, he told Newsweek…”

3. Peter Jacobs: Harvard Class Survey Sexual Assault Results: “Harvard University’s student newspaper… published its annual senior class survey today, with nearly half of the Class of 2014 answering…. Twelve percent of women in the Class of 2014 responded that they were sexually assaulted at Harvard, but only 16% of victims reported their assault. Two percent of men said they were sexually assaulted at Harvard…”

Already-Noted Must-Reads:

1. Thomson Reuters: Reuters Insider: STREAM: Larry Summers speaks in London: http://reut.rs/1tdO1KZ

2. Carter Price: Piketty’s data deserve better analysis: “Perhaps the key claim by Giles is erroneous. Giles bases his argument that there was not an increase in wealth concentration in the United Kingdom but rather a decrease on a single data point from a 2010 wealth survey in the UK. Because that survey did not exist in 2000, it cannot be directly compared to other time series data without harmonization. The entirety of the drop Giles claims is occurring can be explained by switching from one survey to another…. Piketty had to look at disparate data sources, harmonize them (so that he could compare apples to apples), and draw conclusions. Wealth is notoriously difficult to measure, which makes working with wealth data especially tricky. Piketty has been exceptionally transparent with the data sets…. Giles uses the raw, non-harmonized wealth data to claim that wealth inequality in the United States has been flat and that it has been decreasing in the United Kingdom. Yet by combining these non-harmonized data sets, Giles is comparing apples to oranges…”

3. David Cutler and Steven Walsh: JAMA Forum: Will the Country Look to Massachusetts Again?: “The centerpiece of the current Massachusetts reform effort is a target for the growth of medical spending in the state. Spending on medical care should not increase more rapidly than the long-run growth of the state economy, a value forecast to be 3.6% annually…. There were a range of opinions about the target, ranging from the view that it was impossible to predict cost growth and so a target was not appropriate, to the view that medical costs were so high that the target ought to be set at no annual growth or even below…. If the target is breached, the entities—for example, clinicians and hospitals—found to be most responsible for the high rate increases are required to develop and implement a performance improvement plan. The plan can be negotiated over, but state government regulation of rates is prohibited under the law. The power of the target lies not in its enforcement backstop, but in the collective sense that the public and private leaders of Massachusetts have committed to it. Consistent with this, contracts between payers and those who offer health care services are being rewritten to ensure that cost increases do not exceed that goal…”

4. Carter Price: Piketty’s data deserve better analysis: “Perhaps the key claim by Giles is erroneous. Giles bases his argument that there was not an increase in wealth concentration in the United Kingdom but rather a decrease on a single data point from a 2010 wealth survey in the UK. Because that survey did not exist in 2000, it cannot be directly compared to other time series data without harmonization. The entirety of the drop Giles claims is occurring can be explained by switching from one survey to another…. Piketty had to look at disparate data sources, harmonize them (so that he could compare apples to apples), and draw conclusions. Wealth is notoriously difficult to measure, which makes working with wealth data especially tricky. Piketty has been exceptionally transparent with the data sets…. Giles uses the raw, non-harmonized wealth data to claim that wealth inequality in the United States has been flat and that it has been decreasing in the United Kingdom. Yet by combining these non-harmonized data sets, Giles is comparing apples to oranges…”

5. Christian Broda and Jonathan A. Parker: The Economic Stimulus Payments of 2008 and the Aggregate Demand for Consumption: “Using a survey of households in the Nielsen Consumer Panel and the randomized timing of disbursement of the 2008 Economic Stimulus Payments, we find that a household’s spending rose by ten percent the week it received a Payment and remained high cumulating to 1.5–3.8 percent of spending over three months. Our estimates imply partial-equilibrium increases in aggregate demand of 1.3 percent of consumption in the second quarter of 2008 and 0.6 percent in the third. Spending is concentrated among households with low wealth or low past income; a household’s spending did not increase significantly when it learned about its Payment…”

6. Jesse Rothstein: Extended unemployment insurance remains critical: “New analyses of recent data covering unemployed workers during the Great Recession and its aftermath indicate that the impact of unprecedented extensions of Unemployment Insurance on job uptake were smaller than previously thought while the benefits were extremely important to maintaining family incomes. The program helped sustain families and communities during an unusually long period of weak labor demand, helping to promote long-term labor market resiliency and higher future prosperity by helping the long-term unemployed remain out of poverty and attached to the labor market. Extended Unemployment Insurance benefits expired at the end of 2013, and Congress is now considering whether and how to reinstate them. The new data and analysis detailed in this issue brief—based on the roll-out of extended benefits in 2008-2010 and the roll-back that began in late 2011—indicate that… the downsides of UI extensions are smaller than in past economic downturns, and there are some previously unanticipated upsides…”

7. Ariel Kalil: Economic inequality and the parenting time divide: “Researchers have not until recently thought about parents’ time investments in children as a mechanism for the intergenerational transmission of economic status…. Jonathan Guryan and his colleagues used data from national time diaries to show that mothers with a college education or greater spend roughly 4.5 hours more per week directly interacting with their children than mothers with a high school degree or less…. My own national time use research, with… Rebecca Ryan and… Michael Corey, finds… [that] highly educated parents not only spend more time… they spend that time differently… shift the composition of their time as the child grows in ways that adapt to children’s development at different developmental stages… preschool… reading and problem solving… middle school… management of children’s life outside the home…. We still don’t know precisely why these patterns have emerged…”