Category: Equitablog

Must- and Shall-Reads:

• Michael Santoli: “If it takes eight pages, three charts and 25 footnotes to explain why a simple bet is going very wrong, is it effectively a concession of defeat?… The S&P 500 is a particularly ill-suited benchmark for judging the success of hedge funds…. Yet this sophisticated manager of hedge-fund portfolios willingly and confidently bet… they would do exactly that…. Seides notes that perhaps now… the time is approaching for hedgies finally to thrive…. But would you bet on it?”
• Cosma Rohilla Shalizi (2011): “Data cannot distinguish between power laws and other functional forms… size predicts relatively little of the variation between cities. The striking appearance of scaling in previous work is largely an artifact of using extensive quantities (city-wide totals) rather than intensive ones (per-capita rates). The remaining… is explained by concentration of specialist service[s]… in larger cities, in accordance with the long-standing economic notion of the ‘hierarchy of central places’…”
• Barry Eichengreen and Beatrice Weder di Mauro: “Should central banks really worry so much about balance-sheet profits and losses?… No…”

• Simon Wren-Lewis: “I did a simple exercise to show how important fiscal austerity has been…. Using the same methodology… [for the UK as the US] you get a cumulated loss of around 14% of [a year’s] GDP…. I’ve often quoted… a 5% loss… I have always been careful to describe as conservative… lower multipliers… assumes that all this lost GDP was recouped in 2013. Both differences are equally important in going from 14% to 5%…”

• John Podesta: Climate Change Progress Is Possible: “Many in today’s Congress are responding to the urgency of the climate threat not with action, but with obstruction, skepticism, and outright denial. This week, the Senate held a hearing on the EPA’s proposed Clean Power Plan rule, which would set the first-ever limits on how much carbon pollution power plants can put in our air and vastly improve public health as a result, averting up to 150,000 asthma attacks in children per year. Republicans criticized the proposal from every angle–including by claiming it doesn’t do enough. Since we in the United States cannot solve the complex, global challenge of climate change solely through actions taken within our own borders, their argument goes, we should do nothing. This is a fallacy. Failing to take steps today to curb carbon pollution and other greenhouse gas emissions in the U.S. would endanger our economy, our national security, and our children’s future…”

• Raquel Fernández and Jonathan Portes: Argentina’s Lessons for Greece: “The first lesson from Argentina is that if the economics are on your side, you can and should ignore politicians prophesying disaster. The vast majority of economists (outside of Germany) agree that Greece’s debt should be written down and its fiscal policy relaxed. There is also little doubt that this is the view of senior economists within the IMF…. The second lesson of the Argentine crisis is that a short period of political turmoil can cost surprisingly little compared to a long period of mindless pursuit of misconceived policies…. Sacrificing Greek interests in the name of European or systemic financial stability may have once been the correct path for the IMF to pursue, but the crisis there is well past the point at which these policies ceased being justifiable. Now that Greece’s ineffectual and unpopular government has been swept away (another accurate prediction), it is time for the rest of Europe to clean up the financial mess…

• Yuriy Gorodnichenko, Gérard Roland, and Edward Walker: Putin’s European Fifth Column: “There can be no doubting [Vladimir Putin’s] awareness of the role that European ideals–and the possibility of EU membership–has played in motivating the struggle in Ukraine and constraining his actions. The popular desire to join Europe’s community of democratic states was a key force behind the collapse of right-wing dictatorships in Greece, Spain, and Portugal in the 1970s. It also played a critical role in the collapse of communist regimes in Central and Eastern Europe after the fall of the Berlin Wall. And it certainly contributed to the ouster of Ukrainian President Viktor Yanukovych–a key Putin ally–in 2014. Indeed, the existence of a European model continues to guide and encourage those pursuing transparent, democratic governance in many post-communist countries…”

• Yanis Varoufakis: No Time for Games in Europe: “The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives…. In the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set…. I am convinced that we have one option only: to shun any temptation to treat this pivotal moment as an experiment in strategizing and, instead, to present honestly the facts concerning Greece’s social economy, table our proposals for regrowing Greece, explain why these are in Europe’s interest, and reveal the red lines beyond which logic and duty prevent us from going…”

• Nicholas Bagley: Cleaning up the standing mess in King: “Difficult questions about standing and the viability of the lawsuit…. The King lawyers have an ethical obligation[:]… ‘[w]hen a development after this Court grants certiorari… could have the effect of depriving the Court of jurisdiction due to the absence of a continuing case or controversy, that development should be called to the attention of the Court without delay.’… Without standing, the federal courts lack jurisdiction…. When standing problems become apparent after full briefing, the Court sometimes chooses to dismiss cases as improvidently granted–to ‘DIG’ them…. There’s a better way… call for… plaintiffs’ lawyers to explain the factual basis for their clients’ standing. Ordering such briefing wouldn’t be unprecedented: in a case decided in 2000, for example, the Court ordered supplemental briefing on standing the day after oral argument. And such briefs often address questions pertaining to mootness…. Doing nothing in the face of continued silence from the plaintiffs is no longer a tenable approach.”

• Matthew Klein: Crush the Financial Sector, End the Great Stagnation?: “Productivity growth in the rich world started slowing down around the same time that the financial sector’s share of economic activity started rising rapidly…. The interesting question, then, is whether this process can be put into reverse. Maybe there is a deeper wisdom behind financial regulations that appear to be (at best) pointless. Harassment that encourages an unproductive, resource-hoarding industry to get smaller might be exactly what’s needed in economies plagued by chronically slow growth.”

Should Be Aware of:

• Ben Thompson: “Stratechery.com is supported by subscriptions to the Daily Update… 12~15 articles a week delivered via five daily emails… covering the news… timely, but also timeless in their investigation of ‘Why’ and ‘What’s next.’ If you love Stratechery’s articles, you’ll love the Daily Update…”
• The Economist: The View from the Kremlin: Putin’s War on the West
• Paul Waldman: “Might it also be true that Boehner is just terrible at his job? Look at… two stories… today… the possibility of a shutdown of the Department of Homeland Security…. Boehner can say ‘Senate Democrats should be to blame,’ but that won’t make it so…. The second… [is] the upcoming speech to Congress by… Netanyahu… roundly condemned for politicizing the relationship between the two countries…”

• Julian Zelizer: How Medicare Was Made – The New Yorker

• Lesley @ xojane: DEAR WINTER: A Report From Snow-Buried Wine-Drunk Cookie-Eating Boston, Capital of New Hoth: “Today I watched with rapt fascination as two men fought to carve a path through waist-high snow filling a vacant lot under my office window. Their apparent goal was to reach a fence. Their tools consisted of a shovel and a snow blower that seemed to be only 50 percent functional. Shovel Guy was simply shoveling snow into the stationary snow blower, while Snow Blower Guy kept a broom wedged into the machine because I guess this is the only way it works. From the sidelines, an older man yelled instructions and gesticulated animatedly at their ineffectual struggles. I couldn’t tear myself away. I considered going downstairs to interview them about their efforts; part of me just wanted to join the battle. Occasionally the trio would pause to yell and wave their hands at each other in a beautifully choreographed display, but would then continue the work…. And then a snowplow appeared, crashed into the narrow path they’d cleared like a charging rhino, and promptly got itself stuck…. Snow is a factor in the northeast, but the past few weeks have tested even the steadfast resolve of typically stone-faced New Englanders…. Sure, Buffalo (and other places, like, ALL OF CANADA, or Alaska… often gets more snow more often, but Boston is not equally equipped to handle it…. Snow problems are not always a question of volume, but one of preparation and resources…. ‘People’s normal coping skills and strategies erode’, Green said. ‘Instead of eating a healthy diet, they eat cookies, maybe even drinking more’.” Mmm hmm. If you need me, I’m not going anywhere. I’ll be here trying to figure out what wine pairs best with Mallomars.”

• Morning Should-Read:

  Nick Bunker: Income Over the Lifetime: “How exactly does income growth vary over the lives of workers?… Guvenen… Karahan… Ozkan… and… Song…. Income growth–pretty much all of it–happens in the first decade of workers’ careers…. A worker at the median of the income spectrum will have a growth rate of about 38 percent, while a worker at the 99th percentile will see his income grow by 1,450 percent…. Variance decreases as a worker moves up the income ladder…. [until] worker starts earning over the 90th percentile… variance increases as incomes get close to the very top of the ladder…. The distribution of income growth is quite different from what is usually suspected. Instead of an anticipated smooth bell curve, the distribution has a very high peak and long tails, in addition to being negatively skewed…”

http://theincidentaleconomist.com/wordpress/cleaning-up-the-standing-mess-in-king/

The proponents of do-nothing on global warming have now fallen back to their third line of defense. The first line of defense was to claim that the science was unsettled. The second line was to claim that it would be too expensive and that future generations would be better able to fix than we are to do our share in helping to prevent and reduce. The third line of defense is that since it is a global problem the United States should sit back and let other countries deal with it and free-ride on their efforts.

And it is definitely progress that John Podesta now feels that he can take aim at line of defense number 3:

If there was one lesson that should have been learned from the 1920s and 1930s–and relearned many times since–it is that the stubborn pursuit of destructive policies in the hope that if only they gain enough credibility they will cease to be destructive is, quite frankly, mad. No policy can be less credible than the repeated claim that you will sustain unsustainable policies:

It is not just the macroeconomic health of the European Union that is at stake in the European Union’s failure to find a way to reflate and rebalance its economies. The political destiny of what Muscovy calls its “near abroad”–what happens in those former union republics of the Soviet Union with capitals different from Moscow–hinges on the European Union being a success and being seen to be a success. And perhaps the political destiny of Muscovy hinges on this as well…

Must- and Shall-Reads:

• Greg Ip: Benefit of ECB’s Bond Buying: Fiscal Breathing Room | When Is It Time for Mindful Austerity?
• Kaiser Health News: Majority of Public Says Congress Should Act to Close Gaps if the Supreme Court Bars Financial Help for Purchasing Insurance in States Relying on healthcare.gov; Most in Potentially Affected States Want Their State To Set Up Its Own Marketplace if Needed
• Kevin Drum: “What better way [for Sam Brownback] to distract the rubes than to engage in a bit of gay bashing? That’ll get everyone riled up, and maybe they won’t even notice just how much worse off they are than they used to be. It’s a time-honored strategy.”
• Nicholas Bagley: “If it weren’t for the problems with the standing of the other three plaintiffs [in the King vs. Burwell case], I might be inclined to give Luck the benefit of the doubt. But I’m beginning to wonder how thoroughly the King lawyers vetted their clients…”
• Scott Lemieux: Well, that’s funny, because I happen to have Congressman Doggett right here, so….
• Yichuan Wang: “Financial stability is apparently the new hot reason to tighten monetary policy, and in this article for Quartz I go in on some reasons for why this is a horrible idea…”

1. William K. Black: Foreshadowing the Three Fraud Epidemics that Drove the Crisis: “[Piskkorski, Seru, and Witkin] were not aware, however, of the answers to these fundamental questions [about mortgage fraud]…. ‘These misrepresentations are not instances of the classic asymmetric information problem in which the buyers know less than the seller. Rather, we contend that they are instances where, in the process of contractual disclosure by the sellers, buyers received false information on the characteristics of assets.’ The use of the word ‘classic’ indicates an important (retrograde) movement in economics. The ‘classic’ treatment of asymmetry… George Akerlof’s 1970 article on a market for ‘lemons’… all about ‘buyers receiv[ing] false information on the characteristics of assets’ in the process of ‘contractual disclosure by the sellers.’ Akerlof presented a dynamic process in which the seller makes false disclosures… to maximize the asymmetry of information…. Indeed, Akerlof emphasized the propagation of that fraudulent asymmetry through the industry as a result of what he dubbed a ‘Gresham’s’ dynamic. ‘[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence‘ (Akerlof 1970). The fact that top economists, 40 years later, claimed that fraud does not represent a ‘classic’ pathology of asymmetrical information demonstrates how far economics has fallen…”

2. Richard Mayhew: Thoughts on a post-King market: “I alternate between being sure that there are five votes on the Supreme Court to throw out a couple of generations of agreed-upon administrative law precedents in order to keep people from getting subsidized health insurance in most states, and being reasonably confident that there are only three…. I see the four liberal judges writing a fairly brief and caustic opinion…. The other two judges in the positive scenario will write a paen to the majesty of cooperative federalism where the law clearly states that subsidies only go to state run exchanges BUT the threat was not clearly communicated therefore, the subsidies have to flow to all states…. But what happens if the Supremes have five sadists?… Quite a few insurers would pull most if not all of their On-Exchange products…. The remaining individual insurance market now looks like the pre-PPACA New York State insurance market…. We get a death spiral where average premiums for a 30 year old would almost double… [and] reasonably-healthy people who otherwise would have qualified for subsidies now sit out of the market because they can’t afford the coverage…”

3. Matthew Yglesias: Why Politicians Are so Boring (and the MSM Is so Bad): “Gaffe-coverage… signif[ies] nothing and leav[es] nothing behind… distracts from more consequential, but complicated, debates…. In an internet world of limited time but unlimited newshole the ‘gaffe’ story offers easy content…. Last… the old-time division between ‘news’ and ‘opinion’ continues to saddle much mainstream political coverage with a perverse bias toward tactics and process… that a politician gaffed is a fact… while the fact that a politician’s agenda might be bad for the world is opinion…”

4. Paul Krugman: Triumph of the Chart: “The Vox interview with President Obama… reactions… not just from the right, but from centrists are remarkable. Jack Shafer compares it to a Scientology recruitment film; Rich Lowry compares it to Leni Riefenstahl…. What seems to offend the critics is the very idea of covering a politician’s policies…. Back in 2004… you could watch all the network and major cable coverage for two months, and learn literally nothing about, say, the candidates’ health care plans…. That’s the kind of thing the people at Vox are trying to fix–and the response is to accuse them of acting like cultists if not Nazis.”

Should Be Aware of:

• David McRaney: “The misremembering [Brian] Williams claims to have suffered is easy to reproduce in our own lives…”
• Lady FOHF: “The feedback… on management fees… grumble[d]… on incentive fees… vociferous and frequently inseparable from complaints about performance… broadly summarised as follows: paying 20% for ‘alpha’ is apparently fine, paying that for ‘beta’ is definitely not…”
• The Journal of Brief Ideas: “This is the Journal of Brief Ideas–citable ideas in fewer than 200 words”
• WSJ Staff: Greg Ip Returns to Wall Street Journal as Chief Economics Commentator
• Jeet Heer: “[David Carr’s] Colombo strategy… start casual, drop hints & then as the suspect (or reader) relaxes, push the inescapable conclusion…. If I was teaching a J-school class, I’d have students think about those last paragraphs Carr built towards, why they came as surprises. Of course, the type of writing Carr did depended on trust…”
• Ben Thompson: “[Ezra] Klein… has 732k Twitter followers and a history of success…. Blogs are not dead, but Klein’s is, and while I don’t begrudge him his choice, I question the degree to which he knows he made one…”
• Ben Thompson: “The entire history of social media… is a story of unbundling…. Twitter has replaced link-posts and comments, Instagram… pictures… Facebook… albums and blogrolls… [in] contrast to a blog’s ability to do anything and everything relatively poorly…. [But] the blog has not and will not die: it is the only communications tool… owned by the author; to say someone follows a blog is to say someone follows a person…”
• Daniel J. Benjamin et al.: “Most existing efforts to find associations between genetic variation and economic behavior are based on samples that are too small to ensure adequate statistical power. This has led to many false positives in the literature…”