Things to Read on the Morning of September 17, 2014

Must- and Shall-Reads:

• Pew: Data Visualization: The Distribution of Select Federal Tax Deductions and Credits Across the States
• Barclays: The Rise of the Global Citizen?
• Jeff Goodell: China, the Climate and the Fate of the Planet
• David Dayen: Remember This Moment When the Next Financial Crisis Strikes. The SEC could have fixed our broken rating agencies. It whiffed
• Robin Harding: Money Supply: A “considerable” challenge

1. Jonathan Chait: Have Nerds Betrayed the Left?: “[Tom] Frank… held… a lack of familiarity with even the basic concepts of political science, which can explain how structural limits (like divided government and polarization) constrain the domestic powers of a president in a way that cannot be broken with ideological willpower or inspirational speechmaking. Now Frank has written a column (‘All these effing geniuses: Ezra Klein, expert-driven journalism, and the phony Washington consensus’) assailing the influence of political science, which he views as a kind of corrupting force draining the left of its populist fervor…. A good chunk of Frank’s polemic is taken up with generalized experts of all kinds…. He distrusts them all as corrupt handmaidens of power…. After establishing his anti-academic-populist bona fides, Frank provides his readers with an example…. So Frank’s ‘data point’ is that Democrats lost the House in 1994 because Bill Clinton was too conservative. That assumption is belied by a mountain of evidence…. At the end of his rant, Frank almost seems to concede that his problem with political science is that it leads to conclusions he finds inconvenient. ‘The fatalism here may be science-driven’, he concedes, ‘but still it boggles the mind’. Let that phrase roll around in your head for a moment. Frank has just told you everything you need to know here.”

2. Bill Janeway: Doing Capitalism in the Innovation Economy: “This entails reconstruction of the core of macroeconomics by drawing on innovative approaches to understanding behavior in the peripheral financial markets. Ricardo Caballero observes: ‘In the context of the current economic and financial crisis, the periphery gave us frameworks to understand phenomena such as speculative bubbles, leverage cycles, fire sales, flight to quality, margin- and collateral-constrained spirals, liquidity runs, and so on–phenomena that played a central role in bringing the world economy to the brink of a great depression. This literature also provided the basis for the policy framework that was used to contain the crisis.’ The challenge remains: to construct integrated models of a financial economy whose participants both are aware of the limits and fragility of their own knowledge and condition their behavior on that of others similarly aware. Whether it will prove possible to generate general equilibrium from such realistic microfoundations remains an open question. Perhaps frustration in that pursuit will encourage alternative efforts…”

3. Mark Thoma: Can New Economic Thinking Solve the Next Crisis?: “It is certainly true that mainstream, modern macroeconomic models failed us prior to and during the Great Recession…. But amid the calls for change in macroeconomics there is far too much attention on the tools and techniques that macroeconomists use… and far too little attention on… the questions that economists ask…. Why did macroeconomists adopt a representative agent framework that made financial meltdowns so difficult to incorporate into their models?…. Because macroeconomists, for the most part, did not think questions about financial meltdowns were worth asking, so why bother with those theoretical complications?… The questions that macroeconomists ask are dictated, in large part, by current macroeconomic events…. Presently, for example, questions about the international flow of financial assets and the balance of trade have all but disappeared from the economics discourse…. Does that mean such questions will never be important and research into these topics should be dismissed as uninteresting?… The problem is the sociology within the economics profession that prevents some questions from being asked. Why, for example, were the very questions we needed to ask prior to the Great Recession ridiculed by important voices within the profession? The key to a better economics is to ask better questions, and that will require a much more open mind–particularly from those in charge of what gets published in economic journals–about the kinds of questions economists are allowed to ask.”

4. Andrew Flowers: Martin Wolf’s Grand Theory Of Global Financial Disorder: “As the saying goes (sort of): They had a favorite hammer, so every problem looked like a nail. For Martin Wolf… his hammer is ‘global imbalances’…. The Shifts and the Shocks: What We’ve Learned–and Have Still to Learn–from the Financial Crisis… is a great read… will be unsettling to anyone who thinks the financial system is any more stable…. Global imbalances are the patient zero of financial crises, according to Wolf. And Wolf has swung this hammer before…. Wolf does argue smartly for other reforms, but you get the feeling that global imbalances explain everything. Might financial regulation at the domestic level, or China’s investment-heavy mercantilist model, or the skewed incentives of corporate managers, or the Federal Reserve’s monetary policy, or… any number of other factors also play a role? Perhaps.”

5. Zoe Quinn: 5 Things I Learned as the Internet’s Most Hated Person: “Hi. My name is Zoe, and I make weird video games with some degree of success (and make them playable for free, if you’re so inclined). My life is generally pretty uncomplicated, I guess, aside from the fact that a month ago the Internet decided to make me the center of a supposed global conspiracy. I made the mistake of dating a guy who would later go on to write a several-act manifesto about my alleged sex life and post it to every forum he could create a handle for. Normally, this would blow over with little more than a “whoa, check out THAT guy,” but since I work in an industry that has very strong feelings about women, it quickly mutated from a jilted ex’s revenge-porn to one of the most intense scandals in recent gaming history. Long story short, the Internet spent the last month spreading my personal information around, sending me threats, hacking anyone suspected of being friends with me, calling my dad and telling him I’m a whore, sending nude photos of me to colleagues, and basically giving me the “burn the witch” treatment. During all of this, I found that: #5. This Can Happen to Anybody (But It Helps If You’re Female)…”

6. Martin Wolf: Russia is our most dangerous neighbour: “Russia is both a tragedy and a menace… the blend of self-pity and braggadocio currently at work in Moscow… is as depressing as it is disturbing…. For Europe and, I believe, the US, there is no greater foreign policy question than how to deal with today’s Russia…. A defensive alliance defeated the Soviet Union because it offered a better way of life…. Yet President Vladimir Putin, the latest in a long line of Russian autocrats, has stated, instead: ‘The collapse of the Soviet Union was a major geopolitical disaster of the century’. It was, in fact, an opportunity, one that many in central and eastern Europe seized with both hands. The transition to a new way of life proved unavoidably difficult. The world they now inhabit is highly imperfect. But they have mostly joined the world of civilised modernity. What does this mean? It means intellectual and economic freedom. It means the right to engage freely in public life. It means governments subject to the rule of law and accountable to their people. The west has too often failed to live up to these ideals. But they remain beacons. In the early 1990s they were beacons to many Russians. As a great admirer of Russian culture and Russian courage, I hoped, fondly perhaps, that the country would find a way…. The alternative of continuing the cycle of despotism was too depressing. With the selection of Mr Putin, a former KGB colonel, as his successor, Boris Yeltsin delivered that outcome…. The west is partly responsible for this tragic outcome. It failed to offer the support Russia needed quickly enough in the early 1990s. Instead it focused, ludicrously, on who would pay the Soviet debt. It acquiesced in the larceny of Russian wealth for the benefit of a few. But more important was the refusal of Russia’s elite to address the reasons for the collapse, then to start afresh…. Today’s Russia feels it is the victim of a historic injustice and rejects core western values. It also feels strong enough to act. Today’s Russian leader also sees these potent emotions as a way to secure power. He is not the first such ruler. His Russia is a perilous neighbour. The west must shed its last post-cold war illusions.”

Should Be Aware of:

• David Glasner: Nick Rowe on Money and Coordination Failures
• David Pescovitz: “Here’s the transcript at Medium of a deeply fascinating Aspen Ideas lecture by neuroeconomist Paul Zak, author of The Moral Molecule, about the chemical reason why the vast majority of us feel good helping others. Those who don’t? Psychopaths, mostly.”
• Andrew Gelman and Guido Imbens: Why High-Order Polynomials Should Not be Used in Regression Discontinuity Designs
• Tim O’Reilly (2013): How I Failed
• New Eyewitness To Palin Family Brawl Robert Thompson: Bristol’s Actions Were ‘Quite Violent’
• Justin Lahart: Calpers Shows Masters of Hedge-Fund Universe Have No Clothes

1. Jason Furman and Betsey Stevenson: Income, Poverty, and Health Insurance in the United States in 2013: “The data also offer a clear illustration of the large amount of work that remains to strengthen the middle class in the wake of the worst recession since the Great Depression…. The overall poverty rate declined to 14.5 percent in 2013 due to the largest one-year drop in child poverty since 1966…. This official poverty rate does not reflect the full effect of anti-poverty policies because it excludes the direct effect of key measures like the Supplemental Nutrition Assistance Program (SNAP) and the Earned Income Tax Credit (EITC). Notably, the EITC was expanded in 2009, and those expansions were subsequently extended. Accounting for such policies would reduce the number of people counted as being in poverty by millions. Real median income for family households rose by $603 in 2013 but remains below pre-crisis levels…. The gender pay gap narrowed slightly in 2013…. Children and the elderly were much more likely than non-elderly adults to have health insurance coverage in 2013, reflecting the contributions of public programs like Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP)…. The data released today by the Census Bureau… do not reflect the notable improvement in the labor market seen over the first eight months of 2014…. Next year’s report is also likely to show that health insurance coverage increased sharply in 2014, reflecting an improving economy and, much more importantly, the effects of coverage expansions under the Affordable Care Act…”

2. Richard Mayhew: “[David Hogberg of] the National Center for Public Policy Research… is dripping in bad faith or crap analysis…. Unpacking this Ms. Hopmann had a pre-exisiting condition. She was uninsurable on the underwritten individual insurance market…. For nine months, she was in a high risk bridge program funded by PPACA, and then went onto the Exchange where she was able to get significantly subsidized insurance without having to pass through medical underwriting. Her Exchange plan is slightly worse than her high risk plan. And for that she is pissed off…. Now if the wingnut welfare landing pad NCPPR was interested in arguing that Exchange subsidies should be significantly richer so Platinum level benefits are the default, this story could be made in good faith. That is not the argument they are making. The NCPPR is arguing that this woman is getting screwed by Obamacare despite the fact that in a non-PPACA world, she is uninsurable…. They are offering FUD and hoping some of it splatters on bystanders in our public discourse.”

3. Emanuele Felice: “Christian Grabas and Alexander Nützenadel, eds., Industrial Policy in Europe after 1945: Wealth, Power and Economic Development in the Cold War: As stated in the Introduction (p. 2), ‘for a long time industrial policy appeared old-fashioned, something that belonged to a distant past when mercantilism ruled economic philosophy in Europe. The industrial sector seemed to fade away, marginalized by the Internet boom, the financial sector and other expanding branches of the knowledge economy.’… The neo-liberal credo of superior market efficiency is no longer a dogma, as a consequence of the crisis…. Industrial policy and industrial development are back to the fore, in all the European countries (the good as well as the bad performing ones) and throughout the world–I would add: because the rise of China is a product of industrial policy…. The book lacks a conclusive chapter…. The book makes a considerable and admirable effort in order to provide a broad comparative picture… [but] a common interpretative framework… would have helped.”

4. Carola Binder: “Since I didn’t start studying economics until the Great Recession was in full swing, I don’t have a full perspective on ‘new economic thinking’ compared to old…. I only gain second-hand perspective through reading and through studying economic history (which at Berkeley, coincidentally, is largely supported by the Institute for New Economic Thinking). Thoma’s article was prompted by the Rethinking Economics conference, but for me, I’m still learning how to think economics, much less rethink it. One course that was particularly helpful… was an elective on Empirical Macrofinance taught by Atif Mian…. He told us not to see what questions we could answer with the data we have, but rather, to start with the question, and then think about what data we needed to answer it. More often than not, we’d need microdata. Not a problem! We are not in a data-scarce environment! Mian’s work with Amir Sufi on the role of household debt in the Great Recession is a great example of both his point and Thoma’s point: start with the question, then choose your tools, techniques, and data. I realize this is easier said than done (trust me, I really do, after spending the last few years trying to implement it in my dissertation), but to me, that’s just economic thinking. Speaking of my dissertation, I’m preparing to go on the job market this year, which is why the blogging has been a bit less frequent! While the preparation is a lot of work, I am fortunate to be very enthusiastic about my research, because I did start with questions I care about, so working on it is a joy, even if it takes away blogging time. Eventually I will blog about my research, just not quite yet.”