Things to Read on the Morning of January 22, 2015

Must- and Shall-Reads:

• Davos DeVille (@DavosDeville) | Twitter: Socialite, charity patron and non-executive director, Dynamic Emerging Strategic Opportunities (Guam) LLP. If found, please return to @ftalpha
• Barry Eichengreen: Europeans Need to Reconsider the Lessons of the Great Depression
• Nick Bunker: Taxation in the Name of Equity
• John Schmitt (2013): The Minimum Wage: Catching up to Productivity
• Jon Faust: “The argument is made that there should be a press conference after every [FOMC] meeting, and the case for this at present is as compelling as it has ever been…”
• Cristobal Kay: Why East Asia Overtook Latin America: Agrarian Reform, Industrialisation and Development

1. Robert Waldmann: Debates: “I typed something…. ‘Name a Friedman Solow debate which, with the benefit of hindsight, we agree was won by Friedman. I do not think this is easy to do.’… My challenge was to name a Friedman-Solow debate and convince me (Robert Waldmann) that Friedman was right. Rowe interpreted ‘we’ to refer to… mainstream… macroeconomics…. For that set of people I use the pronoun ‘they’…. Take it as agreed that new Keynesian macroeconomics is basically Friedmanite macroeconomics… are very different from old Keynesian macroeconomics and [from] real business cycle theory…. This victory came in one of two ways… the victory over the straw man of the expectations-unaugmented Phillips curve…. The conventional recollection of that alleged debate is almost entirely fictional…. Samuelson and Solow 1960. Yes the profession (also over here with huge persistent unemployment) believes in the natural rate hypothesis. The profession is crazy. The permanent income hypothesis is… rejected… now the permanent income model and it is assserted that although it isn’t true it may be useful (the logic is almost that since it isn’t exactly true it must be useful)…. There is the idea that AD should be managed with monetary policy…. Recent experience doesn’t show that good monetary policy solves AD problems…”

2. Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE: “I see two reasons why the case for [Eurozone] QE is overwhelming. First, QE is merely a correction for… the last two years… [when] the ECB withdrew about €1 trillion out of the euro-zone economy…. Second, the euro-zone economy is not getting off the ground…. Since Milton Friedman we have all become monetarists. In order to raise inflation it will be necessary to increase the growth rate of the money stock. This requires that the ECB increase the money base. And to achieve the latter there is only one practical instrument, ie, an open-market purchase of government bonds…. But… QE… is necessary but not sufficient. The fact that it is not sufficient, however, should not lead to the conclusion that it can be dispensed with…. There is much misunderstanding and fear regarding QE, especially in Germany. There is the fear that… German taxpayers risk having to foot the bill…. [But] if… say the Italian government were to default… [it] would stop paying interest but at the same time (applying the ‘juste retour’) it would not get any interest refund… no fiscal transfers…. [Any] write down ]of] the Italian bonds… [would be] purely an accounting operation…. A central bank… does not need equity…. This confusion between accounting losses and real losses… has led to long hesitation to act… leads to bad ideas and wrong proposals…”

3. Paul Krugman: A Tale of Two Pegs: “By the numbers Switzerland’s monetary situation pre-collapse and Hong Kong’s now look remarkably similar…. So is the Hong Kong dollar at risk of a franc-like event? No, it isn’t. There’s not a hint of pressure to drop the currency board. Why is Hong Kong different The answer…is that the institutional setup and history… plays very differently with hard-money ideologues… even though the facts… weren’t very different…. Swiss currency intervention looked to the usual suspects like activist monetary policy, runaway expansion of the central bank’s balance sheet, ‘printing money’ to debase the currency even if the goal was to keep it from getting stronger. Meanwhile, Hong Kong has a currency board, which is the next best thing to the gold standard, so maintaining the peg… became a demonstration of stern Victorian monetary virtue…. It was the nagging from hard-money types that led to the debacle. Meanwhile, Hong Kong has managed to wrap the very same policy in libertarian clothes, and there’s no problem.”

4. Lawrence Delevingne: Manager ‘truly sorry’ for blowing up hedge fund: “A hedge fund manager told clients he is ‘truly sorry’…. Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm’s capital–down from the roughly $100 million it ran as of late March…. ‘My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse,’ he added. Li is a former trader at Raj Rajaratnam’s Galleon Group, which collapsed amid insider trading charges…. Li’s lieutenant at Canarsie is Ken deRegt, who joined in 2013 after retiring as the global head of fixed income sales and trading at Morgan Stanley…. Li and the deRegts did not immediately respond to emails seeking comment. No one picked up a phone call at Canarsie’s offices and no valid voicemail was available…. Li said in the letter that he made a series of ‘aggressive transactions’ over the last three weeks to make up for poor returns in December…”

5. David Keohane: ECB QE guesswork, cut out and keep edition: Deutsche Bank:

Should Be Aware of:

• Cheryl Addy: We Can Now Read What’s Written On Rolls Of Papyrus Buried By Vesuvius)
• Daily Bafflements: “Forbes Magazine’s tips on How to Become a Thought Leader include keeping a journal, liberally using LinkedIn, and practicing your speeches on your cat before you try them on people…”
• Alexandra Brodsky: “The criminal law-inspired alternatives… are counterproductive…. They ignore that campus assaults are addressed not to vindicate the rights of the state but as part of a civil rights regime to promote gender equity in education…”
• Paul Ford: “One of the things nerds love to do is look at other people’s stacks and say, ‘what a house of cards!’ In fact I fully expect people to link to this article and write things like, ‘sounds okay, but they should have used Jizzawatt with the Hamstring extensions and Graunt.ns for all their smexing’…”

1. Simon Wren-Lewis: Encouraging Dialogue: “Economists want (or need) to know why their approach is missing key issues or linkages which compromise their analysis, just as the doctor needs to know why they might be recommending the wrong treatment. You would not insist that your doctor needed to have studied economics before they can be a good doctor…. Let me take a real world economic problem: the response to the financial crisis…. Your economic analysis tells you that networks of many small entities can be as subject to crises as networks involving a few large banks. You are also able to devise a system of Chinese walls…. [But eventually] you realise that right from the start you made the wrong choice. You decided to focus on what you knew, which was how to design systems that worked well as long as those systems remained unchanged, but which were not robust to intervention by self-interested parties. In short, they were too open to rent-seeking. You realise that actually the best thing to have done was to break up the banks so that their political power was forever diminished. And you recall a conversation with your social science colleague when this all started, who might have been trying to tell you this if only you had understood the words he was using.”