Things to Read on the Afternoon of September 14, 2014

Must- and Shall-Reads:

• Richard Mayhew: Healthcare 2020
• Barry Eichengreen: Restructuring Debt Restructuring
• Kahn-Rich Productivity Model Update (August 2014)
• Bill McBride: Calculated Risk FOMC Preview

1. Dylan Matthews: Rethinking Economics Conference on Livestream:

2. **Nick Rowe: What’s special about monetary coordination failures?: “This is a response to Brad DeLong’s and David Glasner’s good posts… [that] forced me to think…. Apples and bananas are perishable, but gold lasts forever. One apple tree produces 100 apples per year, regardless. One banana tree produces 100 bananas per year, regardless. Trees cannot be produced. Gold cannot be produced. Gold is the medium of account. Apples and bananas are priced in gold. Those prices may be sticky…. There are two parallel economies… a barter economy… a monetary exchange economy…. For the second shock (a change in preferences away from apples towards bananas), we get the same reduction in the volume of trade whether we are in a barter or a monetary economy. Monetary coordination failures play no role in this sort of ‘recession’. But would we call that a ‘recession’? Well, it doesn’t look like a normal recession, because there is an excess demand for bananas. For both the first and third shocks, we get a reduction in the volume of trade in a monetary economy, and none in the barter economy. Monetary coordination failures play a decisive role in these sorts of recessions, even though the third shock that caused the recession was not a monetary shock. It was simply… because agents became more patient. And these sorts of recessions do look like recessions, because there is an excess supply of both apples and bananas…. P.S.: I think this is all in Benassy, somewhere. P.P.S.: If you said ‘this is all ISLM, only ISLM with and without barter’, you would be basically right…”

3. Dietz Vollrath: Taxes and Growth: “William Gale and Andy Samwick have a new Brookings paper out on the relationship of tax rates and economic growth…. They do not identify any change in the trend growth rate of real GDP per capita with changes in marginal income tax rates, capital gains tax rates, or any changes in federal tax rules…. Stokey and Rebelo (1995)…. You can see that the introduction of very high tax rates during WWII, which effectively became permanent features of the economy after that, did not change the trend growth rate of GDP per capita in the slightest. The only difference after 1940 in the lower panel is that the fluctuations in the economy are less severe…. Taxes as a percent of GDP don’t appear to have any relevant relationship to growth rates…. Hungerford (2012)… looks at whether the fluctuations in top marginal tax rates (on either income or capital gains) are related to growth rates. You can see in the figure that they are not. If anything, higher capital gains rates are associated with faster growth…. There is no evidence that you can change the growth rate of the economy–up or down–by changing tax rates–up or down. Their conclusion is more coherent than anything I could gin up, so here goes: ‘The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel. However, theory, evidence, and simulation studies tell a different and more complicated story. Tax cuts offer the potential to raise economic growth by improving incentives to work, save, and invest. But they also create income effects that reduce the need to engage in productive economic activity, and they may subsidize old capital, which provides windfall gains to asset holders that undermine incentives for new activity.'”

4. American Progress on Twitter: “.@EconomicPolicy sets the record straight on who would benefit if we #RaiseTheWage http://t.co/5sIQL2GXIU

Should Be Aware of:

• Richard Layard: The Importance of Mental Health

1. Chris Morran (2013): On 5-Year Anniversary Of Mortgage Meltdown, Those Responsible Are Doing Just Fine “Former Lehman CEO Richard Fuld… with several hundred million dollars in his pocket… has got homes in Connecticut, Florida, and Idaho, and he’s now running his own consulting firm, Matrix Advisors…. Former Bear Stearns CEO Jimmy Cayne isn’t working as hard as Fuld… is holed up in the Plaza Hotel with Heloise, playing in online bridge tournaments…. Merrill Lynch lost $8 billion under the leadership of Stanley O’Neal…. He took his $165 million golden parachute and traded it for aluminum, landing a seat on the board of Alcoa. Ken Lewis’s hubris… Bank of America snatching up Countrywide and Merrill Lynch… didn’t really do his due diligence… walked away with around a quarter of a billion dollars…. Countrywide… Stanford Kurland… second in command…. Kurland bailed on Countrywide in 2006… cashed in $200 million… quietly forming a Countrywide clone called PennyMac…”

2. Martin Longman: The Very Serious Rand Paul: “Sen. Rand Paul (R-Ky.) said on Thursday that if he became president he would repeal all previous executive orders. ‘I think the first executive order that I would issue would be to repeal all previous executive orders’, he said, according to Breitbart News. Isn’t that a great idea? ‘Repealing all executive orders has the potential to undo a large amount of policy. Executive orders, for example, ban assassinations by the United States and organize intelligence agencies under the Director of National Intelligence.’ Hmm. Maybe it’s not such a great idea. ‘”Senator Paul’s statement was meant to emphasize this president’s overt and unconstitutional executive orders, it was not meant to be taken literally”, Paul spokesman Sergio Gor wrote in an email.’ Alrighty then. Never mind. I take it that this falls in the same category as serial plagiarism. It doesn’t matter if you said it or pretended to write it because it wasn’t intended to be taken seriously.”