Things to Read on the Morning of June 23, 2014

Should-Reads:

1. Paul Krugman: The Damage Done: “Look at the Spring 2008 World Economic Outlook of the IMF, which projected real GDP (pdf) for advanced countries, and compare it with the actual path…. Yet the IMF believes that the output gap is only a couple of percentage points… either… a huge coincidence– sudden, unanticipated drop off in potential… that just happened to coincide with the financial crisis–or the crisis, and the poor macroeconomic management that followed, have done incredible damage.”

2. Stephen Walt: Being a Neocon Means Never Having to Say You’re Sorry: “The zombie-like ability to maintain influence and status in the face of overwhelming evidence tells you that F. Scott Fitzgerald was wrong: There are in fact an infinite number of ‘second chances’ in American life and little or no accountability in the U.S. political system. The neocons’ staying power also reminds us that the United States can get away with irresponsible public discourse because it is very, very secure. Iraq was a disaster, and it helped pave the way to defeat in Afghanistan, but at the end of the day the United States will come home and probably be just fine. True, thousands of our fellow citizens would be alive and well today had we never listened to the neoconservatives’ fantasies, and Americans would be more popular abroad and more prosperous at home if their prescriptions from 1993 forward had been ritually ignored. Hundreds of thousands of Iraqis would be alive too, and the Middle East would probably be in somewhat better condition (it could hardly be worse)…”

3. Paul Krugman: The Big Green Test: “Henry Paulson, the former Treasury secretary and a lifelong Republican… declared that man-made climate change is ‘the challenge of our time’, and called for a national tax on carbon emissions…. Brave…. But not nearly brave enough. Emissions taxes… [are] not going to happen in the foreseeable future…. Yet there are a number of second-best things…. In policy terms, climate action… will be an awkward compromise dictated in part by the need to appease special interests… the subject of intense partisanship, relying overwhelmingly on support from just one party, and will be the subject of constant, hysterical attacks…. The question for Mr. Paulson and those of similar views is whether they’re willing to go along with that kind of imperfection. If they are, welcome aboard.”

Should Be Aware of:

• Stefano Giglio, Matteo Maggiori, and Johannes Stroebel: “This column estimates a discount rate for very long-run housing cash flows of 2.6%…. We exploit a unique feature of residential housing markets in the UK and Singapore, where property ownership takes the form of either very long-term leaseholds or freeholds…”
• Ashoka Mody and Michael Walton: “The rise in Indian inequality reflects more pernicious forces. Government contracts and relationships play a central role…. Influence and connectivity create access to land, construction and mining permits and so-called ‘public-private partnerships’…”
• Aswath Damodaran: Bubble, Bubble, Toil and Trouble: The Costs and Benefits of Market Timing
• Ryan Decker: “If you haven’t been paying attention, Amazon and book publisher Hachette are in an ongoing dispute about the distribution of surplus. I wrote about this here, but I underestimated how complicated the situation is. Cory Doctorow reports that Hachette is trapped with Amazon by the nature of its intellectual property policies…”
• Heidi Moore: Wall Street and Washington want you to believe the stock market isn’t rigged. Guess what? It still is

And:

1. Greg Ip: What secular stagnation means for interest rates: Is it secular or is it stagnation?: “Let’s assume… the normal cyclical recovery of the economy is being smothered by headwinds to demand…. The Fed keeps interest rates near zero as long as possible…. But eventually, the headwinds fade, demand springs back… the natural rate is same as it was before the crisis, i.e. a nominal rate of around 4%, and a real rate around 2%…. Suppose instead that secular, supply-side forces are the reason growth has been so disappointing…. The Fed must start to raise interest rates sooner…. But lower potential growth… reduces the natural, or Wicksellian… interest rate…”

2. Philippe Weil: Has the Great Recession harmed the long-term growth prospects of the Eurozone economy?: “The CEPR Business Cycle Dating Committee recently concluded that there is not yet enough evidence to call a business cycle trough in the Eurozone. Instead, the committee has announced a ‘prolonged pause’ in the recession…. [Perhaps] the Great Recession has harmed the Eurozone’s long-term growth prospects to the extent that meagre growth could become the ‘new normal’…”

Already-Noted Must-Reads:

1. Adrianna Macintyre: The Second Most Depressing Graph in American Health Care:

2. Hank Paulson: Lessons for Climate Change in the 2008 Recession: “The carbon dioxide we’re sending into the atmosphere remains there for centuries heating up the planet…. The decisions we’re making today — to continue along a path that’s almost entirely carbon-dependent — are locking us in for long-term consequences that we will not be able change but only adapt to, at enormous cost. To protect New York City from rising seas and storm surges is expected to cost at least $20 billion initially, and eventually far more. And that’s just one coastal city…”

3. Tim Duy: Inflation Hysteria: “It appears that a case of inflation hysteria is gripping Wall Street…. Goodness, you would think it is 1975. It is probably instructive to stop and see what all the fuss is about. Although core-CPI is about to brush up on 2%, core-PCE remains well below, and it is the latter that is most important…. Inflation is not a sustained phenomenon in the absence of participation from wage dynamics. If inflation accelerates while wage growth remains stagnant, demand will soften and so too will any incipient price pressures. Hence why Yellen sees the potential for downside risk for consumer spending in the absence of stronger wage growth. Moreover, as she notes, wage growth itself is not inflationary… inflation… [is] correlated with unit labor costs…”

4. Peter Lindert: Making the Most of Capital in the 21st Century: “Thomas Piketty… has transported us to a higher understanding of historical movements in inequality…. The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for…”