Things to Read on the Morning of September 27, 2014

September 27, 2014

Must- and Shall-Reads:

 

  1. Justin Fox: Why the Fed Is So Wimpy: “Regulatory capture… is a phenomenon that economists, political scientists, and legal scholars have been writing about for decades…. Actually witnessing capture in the wild is different, though, and the new This American Life episode with secret recordings of bank examiners at the Federal Reserve Bank of New York going about their jobs is going to focus a lot more attention on the phenomenon. It’s really well done, and you should listen to it, read the transcript, and/or read the story by ProPublica reporter Jake Bernstein…. Segarra pushed for a tough Fed line on Goldman’s lack of a substantive conflict of interest policy, and was rebuffed by her boss. This is a big deal, and for much more than the legal/compliance reasons discussed in the piece. That’s because, for the past two decades or so, not having a substantive conflict of interest policy has been Goldman’s business model…. All this is meant not to excuse the extreme timidity apparent in the Fed tapes, but to explain why it’s been so hard for the New York Fed to adopt the more aggressive, questioning approach… Maybe if banking laws and regulations were simpler and more straightforward, the bank examiners at the Fed and elsewhere wouldn’t so often be in the position of making judgment calls that favor the banks they oversee. Then again, the people who write banking laws and regulations are not exactly immune from capture themselves. This won’t be an easy thing to fix.”

  2. Dietrich Vollrath: Productivity Pessimism from Productivity Optimists: “Byrne, Oliner, and Sichel… [ask] ‘Is the IT Revolution Over?’, and their answer is ‘No’… continued innovation in semi-conductors could make possible another IT boom, and boost labor productivity growth in the near future above the pessimistic Gordon/Fernald rate of 1.5-1.8%. I don’t think their results, though, are as optimistic as they want them to be… you have to work really hard… To get themselves to their optimistic prediction of 2.47% growth in labor productivity, they have to… assum[e]…. Total factor productivity (TFP) growth in non-IT producing non-farm businesses is 0.62% per year… roughly twice their baseline…. TFP growth in IT-producing industries is 0.46% per year… not quite double the observed rate from 2004-2012 of 0.28%. Capital deepening… adds 1.34% per year to labor productivity growth… double the observed rate from 2004-2012 of 0.74%…. Ultimately, there is nothing about recent trends in labor productivity growth that can make you seriously optimistic about future labor productivity growth. But that doesn’t mean optimism is completely wrong. That’s simply the cost of trying to do forecasting using existing data…”

  3. Josh Bivens: Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow: “Fisher… characterized this as a Phillips curve that is flat at unemployment rates higher than 6.1 percent, but which starts to have a negative slope below this rate…. Currently, nominal wage-growth is running around 2-2.5 percent. But as we’ve shown before, even the Fed’s too-conservative 2 percent inflation target is consistent with nominal wage growth of closer to 4 percent. So we have plenty of room to move ‘up’ Fisher’s Phillips Curve before hitting even conservative inflation targets…. Larry Katz and Alan Krueger wrote a long paper… between 1974 and 1988, the 10th percentile had to see unemployment below 6.2 percent to not have their real wages fall…. Fisher’s recommendations are pretty extraordinary—we have somebody who votes on monetary policy arguing that we should pull back on support for lowering unemployment even before we’ve reached levels that will keep real wages for the majority of the wage distribution from outright falling. He actually identifies improved wages as the problem we must confront. And he wasn’t alone in his last dissent…”

  4. Nick Bunker: Labor Market Slack: “There are two major reasons behind the decline in participation… the Great Recession… the aging of the Baby Boomer generation…. Obama’s Council of Economic Advisers… found that aging accounts for about half of the decrease since the last quarter of 2007… one-sixth of the decline… from [normal] cyclical factors… one-third of the decline comes from ‘other factors’…. Janet Yellen is keening aware of the lack of stark divide between cyclical and structural labor market factors…. Policymakers, while not sailing blind, are still in a considerable amount of fog.”

  5. Sahil Kapur: Why This Conservative Lawyer Thinks He Can Still Cripple Obamacare: “The top lawyer arguing a case to overturn Obamacare subsidies believes he can succeed at crippling the law even if it’s upheld in every district and appellate court…. Michael Carvin… expects the justices to view an expected D.C. Circuit ruling in favor of the law as corrupted by politics and agree to review it. ‘I don’t know that four justices, who are needed to [take the case] here, are going to give much of a damn about what a bunch of Obama appointees on the D.C. Circuit think…. This is a hugely important case…. I’m not going to lose any Republican-appointed judges’ votes on the en banc — then I think the calculus would be, well let’s take it now and get it resolved.’ And if the case reaches the Supreme Court, Carvin expects all five Republican-appointed justices to rule that the federal exchange subsidies are invalid. Asked if he believes he’d lose the votes of any of the five conservative justices, he smiled and said, ‘Oh, I don’t think so’.”

  6. Paul Krugman: Those Lazy Jobless – NYTimes.com “Last week John Boehner, the speaker of the House, explained…. People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman! It’s hardly the first time a prominent conservative has said something along these lines…. But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? First things first: I don’t know how many people realize just how successful the campaign against any kind of relief for those who can’t find jobs has been. But it’s a striking picture…. The total value of unemployment benefits is less than 0.25 percent of G.D.P., half what it was in 2003, when the unemployment rate was roughly the same as it is now…. Strange to say, this outbreak of anti-compassionate conservatism hasn’t produced a job surge…. Why is there so much animus against the unemployed, such a strong conviction that they’re getting away with something, at a time when they’re actually being treated with unprecedented harshness?… Self-righteous cruelty toward the victims of disaster, especially when the disaster goes on for an extended period, is common in history. Still, Republicans haven’t always been like this…. Is it race? That’s always a hypothesis worth considering…. It’s true that most of the unemployed are white…. But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of “takers.” My guess, however, is that it’s mainly about the closed information loop of the modern right…. Boehner was clearly saying what he and everyone around him really thinks, what they say to each other when they don’t expect others to hear…”

  7. Cassandra Does Tokyo: The Rule of Law is Vastly Under-Priced: “Those benefitting most from the secure property rights might be forgiven for conceptual ignorance – introspection being a scarce commodity amongst the wealthy – but the vociferous and cynical denial of the asymmetric benefits of securing property rights, both intra- or inter-generationally, whether due to some combination of attribution bias, feigned religious belief, or simple greed is less excusable. In a new gilded age, the idea that the rule of law is vastly underpriced by those who benefit most should be anything but contentious…. So why is it so seemingly difficult for the uber-beneficiaries of the rule of law to reconcile their (mostly fiscal) responsibilities to the entente with The People which is the very fount that allows them, and increasingly one might argue, their less-deserving progeny, to maintain a position in the stratosphere of power and control, with a recognition that the very legitimacy of their reign is conferred by The People through the rule of law?… In the absence of the entente, with its benign rule of rule, entropy typically yields either unpleasant and economically sub-optimal forms of authoritarianism or the so-called law of the jungle. We have seen many faces of authoritarianism, and rarely is anyone content outside the authoritarian himself and immediate cadre.”

Should Be Aware of:

 

  1. David Roberts: How should funders and foundations deal with polarization? “Climate is, for now and for the foreseeable future, the left’s issue. If you want something done about it, build up a passionate constituency for it on the left. The logic is difficult to escape.”

  2. Jennifer Rubin: “Rand Paul… is trying to convince groups with very different perspectives on key issues that he is with them — all of them. The result is intellectual muddle, factual errors and real doubts about his character…. Does he agree with them and Tom Steyer about the evils of fossil fuels or does he favor domestic energy development, the Keystone XL pipeline and cutting the Environmental Protection Agency back down to size? The Silicon Valley tycoons live in a state that recognizes gay marriage, and they run companies that have long-extended benefits to same sex couples. Does he agree with that perspective and would he urge the federal government to do the same, or does he intend to favor policies that follow his stated view that marriage should only be between a man and a woman?… Does he want to restrict abortion rights? Many of these execs are big donors to abortion-rights groups. Paul joined in the government shutdown, which is recognized as creating chaos and damaging the GOP. Would he tell his Silicon Valley audiences that he acted responsibly?… Maybe a skilled pol like Bill Clinton can pull off pandering to groups with conflicting agendas but so far Paul seems to have annoyed a whole lot of people with no evidence that he’s broadened the party’s appeal or his own.”

  3. David Sanger and Brian Chensept: Signaling Post-Snowden Era, New iPhone Locks Out N.S.A.: “The phone encrypts emails, photos and contacts based on a complex mathematical algorithm that uses a code created by, and unique to, the phone’s user — and that Apple says it will not possess. The result, the company is essentially saying, is that if Apple is sent a court order demanding that the contents of an iPhone 6 be provided to intelligence agencies or law enforcement, it will turn over gibberish, along with a note saying that to decode the phone’s emails, contacts and photos, investigators will have to break the code or get the code from the phone’s owner…. Already the new phone has led to an eruption from the director of the F.B.I., James B. Comey. At a news conference on Thursday devoted largely to combating terror threats from the Islamic State, Mr. Comey said, ‘What concerns me about this is companies marketing something expressly to allow people to hold themselves beyond the law’. He cited kidnapping cases, in which exploiting the contents of a seized phone could lead to finding a victim, and predicted there would be moments when parents would come to him ‘with tears in their eyes, look at me and say, “What do you mean you can’t”‘ decode the contents of a phone. ‘The notion that someone would market a closet that could never be opened — even if it involves a case involving a child kidnapper and a court order — to me does not make any sense.’… At Apple and Google, company executives say the United States government brought these changes on itself. The revelations by the former N.S.A. contractor Edward J. Snowden not only killed recent efforts to expand the law, but also made nations around the world suspicious that every piece of American hardware and software — from phones to servers made by Cisco Systems — have ‘back doors’ for American intelligence and law enforcement.”

September 27, 2014

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