Things to Read on the Afternoon of July 21, 2014

Should-Reads: (move up to below “plus” and before “and over here”)

1. Robert Lucas (2003): Chicago Follies (IV): “Macroeconomics was born as a distinct field in the 1940s, as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades…” Via Lars P. Syll:

2. Matthew Rabin (1999): Risk Aversion and Expected-Utility Theory: A Calibration Theorem: “Within the expected-utility framework, the only explanation for risk aversion is that the utility function for wealth is concave: A person has lower marginal utility for additional wealth when she is wealthy than when she is poor. This paper provides a theorem showing that expected-utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes: Within expected-utility theory, for any concave utility function, even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes. Illustrative calibrations are provided…”

3. Matt O’Brien: Dear inflation truthers: This is how averages work: “Call it Amity[ Shlaes]’s Law. As a debate with an inflation truther grows longer, the probability of them asking how inflation could be low when some prices are rising faster than the average of all prices approaches one…. Inflation truthers will darkly note that the costs of stamps, coffee, haircuts, movie tickets, summer cottages, college tuition, and, of course, gasoline are all increasing more than the overall inflation rate. And they won’t mention anything that’s increasing less, let alone things that are falling in price…. Then they’ll triumphantly raise an eyebrow from beneath their tinfoil hats…. [but] unless every price is changing by the exact same amount, some of them will be increasing more than average and some of them will be increasing less. That’s how averages work. But in the hands of an inflation truther, this mathematical banality achieves a kind of totemic significance… the grassy knoll inside Area 51 where Janet Yellen is playing a record backwards that say hyperinflation is coming…. This isn’t an indictment of the government’s credibility. It’s an indictment of their own…”

4. Nick Bunker: The troubling trend in subprime auto loans: “The sudden subprime bubble in used car loans…. The causes of the financial crisis and the Great Recession of 2007-2009 are many and interconnected, but at the heart of the matter was the tendency of the financial system to channel debt to low-income households…. Today’s new lending bubble is similar to the subprime mortgage bubble–except that when it pops it won’t be as economically destructive… used cars aren’t as large a source of wealth as housing… there’s no evidence that securitized used car loans are a major part of the financial system today…. The problem is that the U.S. financial system still has the facility to create debt bubbles that target low-income Americans, fueled in part by high and rising levels of income inequality. Our financial system is less fragile since the housing and financial crises, but clearly there’s room for improvement.”

Should Be Aware of:

• CBO: The 2014 Long-Term Budget Outlook
• Josh Brown: Amazing Charts to Astound Your Friends! on Pinterest
• Paul Rosenberg: Debunking the right’s enduring myth: The truth about Richard Nixon and the fight to overturn the 1960 election
• Laura Tyson: The lack of corporate tax reform is putting US companies at a disadvantage
• Lawrence Summers (1991): The Scientific Illusion in Empirical Macroeconomics
• Daron Acemoglu et al.: Tim Geithner: Did well-connected bankers profit from his appointment to the Treasury?
• Miles Kimball: John Stuart Mill’s Rejection of Anarcho-Capitalism

And:

1. Paul Krugman: An Imaginary Budget and Debt Crisis: “For much of the past five years readers of the political and economic news were left in little doubt that budget deficits and rising debt were the most important issue facing America. Serious people constantly issued dire warnings that the United States risked turning into another Greece any day now. President Obama appointed a special, bipartisan commission to propose solutions to the alleged fiscal crisis, and spent much of his first term trying to negotiate a Grand Bargain on the budget with Republicans. That bargain never happened, because Republicans refused to consider any deal that raised taxes. Nonetheless, debt and deficits have faded from the news. And there’s a good reason for that disappearing act: The whole thing turns out to have been a false alarm. I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled–and the deficit scolds are, of course, still scolding…. There has been some real good news about the long-run fiscal prospect, mainly from health care. But it’s hard to escape the sense that debt panic was promoted because it served a political purpose–that many people were pushing the notion of a debt crisis as a way to attack Social Security and Medicare. And they did immense damage along the way, diverting the nation’s attention from its real problems–crippling unemployment, deteriorating infrastructure and more–for years on end…”

2. Mark Ames: Homophobia, racism and the Kochs: San Francisco’s Tech-Libertarian “Reboot” Conference is a Cesspool: “Lately, Rand Paul… has been hard-selling himself to Silicon Valley billionaires…. So now we have the ‘Reboot Lab’ conference taking place in the heart of San Francisco’s SOMA tech district. But if the purpose of the Reboot Lab conference is to merge Koch-brand libertarianism with Silicon Valley ‘libertarianism’, then the first thing you have to ask is: Why the Hell did they invite a mean homophobic hick like Cathy McMorris Rodgers to the show? Rep. McMorris Rodgers… got her higher education degree at… Pensacola Christian College (PCC)… publisher of A Beka textbooks for K-12 pupils, which teach kids that Islam is a ‘false religion’, Hindus are ‘incapable of writing history’, Catholicism is ‘a monstrous distortion of Christianity’, African religions preach ‘false religious beliefs’, liberals and Democrats are crypto-Marxists, and the United Nations is a ‘collectivist juggernaut that would crush individual freedom and force the will of an elite few on all of humanity’…. McMorris Rodgers… in the Washington state legislature… earned notoriety for blocking a bill that had already passed unanimously in Washington state’s upper house to replace the pejorative ‘Orientals’ with ‘Asians’ in official state documents. As reported in the press at the time, legislators were dumbfounded as to why McMorris Rodgers would do something as gratuitously mean-spirited…. McMorris Rodgers’ excuse, as reported in the Seattle Post-Intelligencer: ‘I’m very reluctant to continue to focus on setting up different definitions in statute related to the various minority groups. I’d really like to see us get beyond that.’… This weekend she’ll be keynoting at Reboot, sharing the stage with LeanIn.org’s Andrea Saul, whom Sheryl Sandberg hired last year to ‘help reach women–and men–so that we can all work together towards a more equal world’…”

Already-Noted Must-Reads:

1. David Cay Johnston: State’s Job Growth Defies Pessimistic Predictions After Tax Increases: “Dire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar. ‘It hurts small business and kills jobs’, warned the Sacramento Taxpayers Association, the National Federation of Independent Business/California, and Joel Fox, president of the Small Business Action Committee. So what happened?… Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs. California is home to 12 percent of Americans, but last year it accounted for 17.5 percent of new jobs, Bureau of Labor Statistics data shows…. Eleven California counties, including Sacramento, accounted for almost 1 in every 7 new jobs in the U.S. last year…. Only three California counties lost jobs…. The empirical evidence also shows that the best-paying jobs tend to be clustered in states (and countries) with high taxes. The same tends to be true of wealth creators, including the most money-motivated among scientists, and existing wealth holders not actively engaged in business…. So next time someone tries to tell you that raising income taxes will destroy jobs, tell them the evidence just does not support that claim.”

2. Paul N. van de Water: New CBO Long-Term Budget Projections Tell Familiar Story: “The Congressional Budget Office (CBO)’s new long-term budget projections show that the nation’s fiscal outlook is stable for the rest of this decade and then worsens gradually…. Beyond the first ten years, CBO has made some small revisions in assumptions that, on balance, leave the projected path of debt largely unchanged. When we released our long-term estimates in May, we said:  ‘No deficit or debt crisis looms, and the weak labor market remains the nation’s most immediate economic concern. But policymakers and the public should not ignore the long-run budget problems, which remain challenging’.  That conclusion still holds…”

3. Ray Fisman: Sweden school choice: The country’s disastrous experiment with Milton Friedman and vouchers: “Americans wring their hands over the state of our schools… The angst over U.S. student performance—and its implications for the American workforce of the near future—is inevitably accompanied by calls for education reform: greater accountability, more innovation…. Advocates for choice-based solutions should take a look at what’s happened to schools in Sweden, where parents and educators would be thrilled to trade their country’s steep drop in PISA scores over the past 10 years for America’s middling but consistent results. What’s caused the recent crisis in Swedish education? Researchers and policy analysts are increasingly pointing the finger at many of the choice-oriented reforms that are being championed as the way forward for American schools. While this doesn’t necessarily mean that adding more accountability and discipline to American schools would be a bad thing, it does hint at the many headaches that can come from trying to do so by aggressively introducing marketlike competition to education…”