Things to Read on the Morning of July 12, 2014

July 12, 2014

Should-Reads:

  1. Lars Syll: Hendry and Mizon on the limited value of DSGE models: “David Hendry and Grayham Mizon [have] a great article, confirming much of Keynes’s critique… underlining that to understand [the] real world… stationary probability distributions are of no avail… [because] the probabilities that ruled the past are not those that will rule the future…. Advocates of econometrics want to have deductively automated answers to fundamental causal questions. But to apply ‘thin’ methods we have to have ‘thick’ background knowledge of what’s going on in the real world…”

  2. Dani Rodrik: Why the super-rich are mistaken to believe that they can dispense with government: “The American corporate elite in the postwar era had ‘an ethic of civic responsibility and enlightened self-interest’… cooperated with trade unions and favored a strong government role in regulating and stabilizing markets… understood the need for taxes to pay for important public goods such as the interstate highway and safety nets for the poor and elderly. Business elites were not any less politically powerful back then. But they used their influence to advance an agenda that was broadly in the national interest. By contrast, today’s super-rich are ‘moaning moguls’, to use James Surowiecki’s evocative term…”

  3. Kevin Drum: Who’s Afraid of an Itsy Bitsy Bit of Inflation, Anyway?: “I’d guess that it’s a few things. First, the sad truth is that virtually no one believes that high inflation helps economic growth when the economy is weak. I believe it. Krugman believes it. DeLong believes it. But among those who don’t follow the minutiae of economic research—i.e., nearly everyone—it sounds crazy. That goes for the top 0.1 percent as well as it does for everyone else. If they truly believed that higher inflation would get the economy roaring again, they might support it. (Might!) But they don’t. Second, there’s the legitimate fear of accelerating inflation once you let your foot off the brake. This fear isn’t very legitimate, since if there’s one thing the Fed knows how to do, it’s stomp on inflation if it gets out of control. Nonetheless, there are plenty of people…. There’s fear of the 70s, which apparently won’t go away until everyone who was alive during the 70s is dead. Which is going to be a while…”

  4. David Dayen: The Costs of Obama’s Housing Mistakes Keep Piling Up: “The Federal Housing Finance Agency (FHFA), which oversees mortgage giants Fannie Mae and Freddie Mac, wants to help around 676,000 homeowners it has identified as eligible for refinancing under the government’s Home Affordable Refinancing Program (HARP)…. These homeowners currently hold mortgages with interest rates that are at least 1.5 percent above the current market rate, and would save roughly $200 a month if they used HARP to refinance. They also have little or no equity…. This week, Mel Watt, the new head of the FHFA, participated in a town hall meeting in Chicago designed to encourage eligible residents to refinance…. But these remaining homeowners appear to have no interest in the program, and Watt explained why in Chicago. ‘We have written to them. We have called them, and they’re saying this is too good to be true’, he said. Why would homeowners exhibit so much skepticism in a government program that they feel inclined to turn down thousands of dollars in free money? You can track it back to all the promises made over the past five years to help homeowners, and the unfortunately sorry results…. The Home Affordable Modification Program (HAMP)… only around 900,000 hold active permanent HAMP modifications, while millions of others either re-defaulted or were rejected…. The process devolved into a horror show for homeowners. Servicers prolonged trial modifications well past the three-month period set out in HAMP guidelines so that they could rack up late fees. They deliberately lost borrower’s income documents to extend the default period, even shredding documents and purging records to do so. They pursued foreclosure while negotiating the modification, against HAMP rules. They granted modifications that folded servicer fees into the principal of the loan, increasing the unpaid principal balance–and thus their profit–while pushing the borrower further underwater.  And they trapped borrowers after denying modifications, demanding back payments, missed interest and late fees, with the threat of foreclosure as a hammer…”

Should Be Aware of:

And:

  1. Jonathan Chait: Portman Slams Hillary Clinton As ‘Mainstream’: “Wait, What?… Ohio Senator Rob Portman spoke with Bloomberg yesterday, showing a little leg on his potential 2016 presidential candidacy. Portman started explaining that Republicans should not be afraid to run against Hillary Clinton. One reason he offered is that Clinton might lose the Democratic nomination. That’s when the talking points started to go wrong: ‘I mean, the Democratic Party is more populist and more liberal than it was when she ran last time, and yet she’s more mainstream, if anything. So… it is no longer the party of Bill Clinton.’ I suppose that would be a good line to use if Hillary Clinton loses the nomination–the Democrats used to be sensible when the Clintons were in charge, but now they’ve gone crazy. However, the odds of that happening are really small. In the meantime, you just admitted that the candidate who is overwhelmingly likely to be heading the opposing ticket in 2016 is ‘mainstream’. Great message!”

  2. Clyde Hufbauer: NAFTA 20 Years Later: Setting the Record Straight – YouTube:

  3. John Holbo: Anti-Freedom Conservatives and Anti-Liberty Conservatives: “For marketing purposes, conservatives need a way to sound like they are opposed to other conservatives, for deep, principled reasons, while preserving a sense that all conservatives are, in principle, always right. You need that pivot for electoral reasons, even though it’s analytic doom. You also need a way for conservatives to come across as deep and consistent and intellectual while actually being rather… uneffortful and unreflective in the thought department–because, hey, politics ain’t political theory. Analytically, if your characterization of each group, or sub-group, doesn’t sound a bit pejorative, you aren’t doing the analysis right. Because any correct analysis is going to make any political faction sound philosophically half-baked and unlikely to appeal to most voters…”

Already-Noted Must-Reads:

  1. Nicholas Bagley: Can the House sue over the employer mandate?: “The legality of delaying the employer mandate is questionable…. [But] the lawsuit isn’t going anywhere…. The House of Representatives as an institution hasn’t suffered the sort of concrete, particularized injury that the courts are constitutionally empowered to review…. The only arguments I’ve seen in favor of standing–they’re sketched out in a memo from Boehner–don’t withstand even cursory scrutiny. The primary claim seems to be that ‘[t]here is no one else….’ But so what? The Supreme Court has been unusually emphatic in holding that ‘the assumption that if [the challengers] have no standing to sue, that no one would have standing to sue, is not a reason to find standing’. Not every fight can or should see the inside of a courtroom…. Congress could… enact a statute withdrawing the President’s claimed enforcement discretion…. Congress isn’t willing to use its power, not that it lacks the power. Finally, the memo suggests that ‘explicit House authorization for the lawsuit’ may confer standing on Congress. But why? In Chadha v. INS, the Supreme Court flatly dismissed the idea that the House or Senate, acting alone, could constitutionally wield legislative power. Boehner’s resolution has as much legal effect as an open letter signed by members of his caucus…. This lawsuit looks like a waste of time and taxpayer money.”

  2. John Bogle: Achieving Greater Long-Term Wealth Through Index Funds: “Let’s start off with the obvious. Imagine a circle representing 100% of the U.S. stock market, with each stock in there by its market weight. Then take out 30% of that circle. Those stocks are owned by people who index directly through index funds. The remaining 70% are owned by people who index collectively. By definition, they own the exact same portfolio as the indexers do in aggregate, so they will capture the same gross return as the direct indexers. But by trading back and forth, trying to beat one another, they will inevitably lose by the amount of their transaction costs, the amount of the advisory fees they pay, and the amount of all those mutual fund management costs they incur: marketing costs, processing, technology investments, everything. When we look at the big picture of the costs of investing, including sales loads as well as expense ratios and cash drag, it is a foregone conclusion that active investors, in aggregate, will underperform index investors…. It’s the relentless rules of humble arithmetic…. In a 7% return market, indexing should deliver approximately 6.95% to investors. (A typical Vanguard all-market index fund charges 0.05%.) The remainder—those who are trading back and forth, hiring managers, and all that kind of thing—will incur costs, in round numbers, of about 2% per year. So, the indexers are going to capture pretty close to a 7% return in a 7% market, while the active investors, who also collectively own the index, are getting the same 7% gross return minus about 2% for all those fees and costs, a net return of 5%. It is definitional tautology that the indexers win and the traders lose…”

  3. Richard Mayhew: Any publicity is good publicity: “‘After controlling for other state characteristics… I observe a positive association between the anti-ACA spending and ACA enrollment… anti-ACA ads may unintentionally increase the public awareness about the existence of a governmentally subsidized service and its benefits for the uninsured.’ I think this is a case of trying not to think about the elephant after being told about the elephant.  People in states that were getting Koch bombed, knew about the Exchanges, knew they existed and could do something about that, while people in states where the Kochs weren’t trying to block access to affordable, subsidized private market health insurance (doesn’t that sound absurd when it is put that way), awareness was lower as they were never told to not think about the elephant.”

  4. Katharine Bradbury: Availability of Unemployment Insurance: “Economists often expect unemployment insurance (UI) benefits to elevate unemployment rates because recipients may choose to remain unemployed in order to continue receiving benefits, instead of accepting a job or dropping out of the labor force. This paper uses individual data from the Current Population Survey for the period between 2005 and 2013—a period during which the federal government extended and then reduced the length of benefit availability to varying degrees in different states—to investigate the influence of program parameters in the UI system on monthly transition rates of unemployed individuals. The main finding is that unemployed job losers tend to remain unemployed until they exhaust UI benefits, at which point they become more likely to drop out of the labor force; transitions to a job appear to be unaffected by UI benefit extensions. These findings imply that the longer periods of benefit eligibility under the federal programs EUC08 and EB—up to 99 weeks in many states in 2011 and 2012—contributed to the elevated jobless rates observed during that period, but not via lower employment. By the same token, the sharp contraction of benefit weeks that occurred in 2012 and continued more gradually in 2013 likely contributed to declines in unemployment and participation rates beyond what one would expect based on the improving economy alone. Similarly, the December 28, 2013 sudden cutoff of federal UI payments to an estimated 1.3 million jobless Americans who had been looking for work for more than six months is adding to the pace of transitions from unemployment to dropping out of the labor force, thus reducing the unemployment rate and the labor force participation rate further in the first half of 2014, although very modestly.”

  5. Ezra Klein: Boehner is suing Obama so he doesn’t have to impeach him: “If Speaker John Boehner wins his lawsuit against President Barack Obama… Obama [will then] implement the Affordable Care Act’s employer mandate without further delay. Which… might mean the court will order Obama to do something he has already done. What’s even odder about the suit is that Boehner hates Obamacare’s employer mandate. And the business groups that back Boehner hate Obamacare’s employer mandate. So Boehner is lifting heaven and earth to get the court to demand Obama more rapidly enforce a policy Boehner hates, that Boehner’s allies hate, and that Obama says he’s going to start enforcing in a few months anyway…. Boehner’s argument is that this isn’t about the mandate at all. It’s about the Constitution… Boehner… was House Majority Leader in May 2006, when President George W. Bush chose to waive Medicare Part D’s penalties for low-income and disabled seniors who signed up late…. There is little evident difference between Obama’s unilateral delay of the employer mandate in Obamacare and Bush’s unilateral delay of the late-enrollment penalties in Medicare Part D. But Boehner sees one as a threat to the republic while the other passed like a breeze in the night….
     
    “There’s another possible reading of Boehner’s lawsuit. Under this theory, Boehner’s lawsuit isn’t so much about reversing what Obama has done as it’s about stopping what Republicans might do…. Calls for impeachment are mounting…. Boehner… has watched ideas like this move from ridiculous to inevitable in an instant (see Government Shutdown, 2013). He also watched what happened the last time Republicans tried to impeach a president who was more popular than they were: they lost the midterm election and Newt Gingrich had to resign as Speaker of the House…. Boehner can argue that attempting impeachment before the case finishes would be counterproductive: if Republicans raise impeachment as a remedy there’s no way the courts will get involved. They’ll just let Congress work it out. Boehner is letting Republicans throw as many parties as they want in the House so he can make sure they don’t drink and drive home.
     
    “Boehner’s particular legislative genius is his ability to keep House conservatives from detonating the Republican Party while maintaining just enough conservative credibility to retain his speakership. This might be his masterstroke.”

  6. QuickTake Number of Uninsured Adults Continues to Fall under the ACA Down by 8 0 Million in June 2014
    Sharon Long et al.: Number of Uninsured Adults Continues to Fall under the ACA: Down by 8.0 Million in June 2014

July 12, 2014

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