Category: Equitablog

Must- and Shall-Reads:

• Scott Lemieux:
  “The only two presidents who can even arguably been said to have presided over a more substantial body of progressive policy-making in the last century are FDR and LBJ, and both did so in significantly more favorable contexts…”
• Simon Wren-Lewis:
  Money Impotence in context
• Miles Kimball:
  Righting Rogoff on Japan’s Monetary Policy
• The Enlightened Economist:
  Inequality, Economics and Politics: Thomas Piketty at the Bank of England
• “Christopher Eppig and his colleagues… note that the brains of newly born children require 87% of those children’s metabolic energy…. five-year-olds… 44% and even in adults… a quarter…. Any competition for this energy is likely to damage the brain’s development, and parasites and pathogens compete for it in several ways…”

1. William Davidow and Michael S. Malone:
   What Happens to Society When Robots Replace Workers?:
   “Henry Adams… estimated that power output… between 1840 and 1900 [had] a compounded rate of progress of about 7% per year…. 1848… speed… 60 miles per hour. A century later… 600… a rate of progress of only about 2% per year. By contrast, progress today comes rapidly… semiconductor technology has been progressing at a 40% rate for more than 50 years. These rates of progress are embedded in the creation of intelligent machines, from robots to automobiles to drones, that will soon dominate the global economy…. We will soon be looking at hordes of citizens of zero economic value. Figuring out how to deal with the impacts of this development will be the greatest challenge facing free market economies in this century…”
   

2. Nauro Campos:
   The Riddle of Argentina:
   “Argentina is the only country in the world that was ‘developed’ in 1900 and ‘developing’ in 2000…. Financial development and institutional change are [probably] two main factors behind the unusual growth trajectory of Argentina over the last century…. Some argue that the decline started with the Great Depression (e.g. Diaz-Alejandro 1985)… Taylor (1992) argues for 1913…. Yet by 1947 Argentina was still ranked 10th in the world in terms of per capita income and della Paolera and Taylor (2003) estimate that the ratio of Argentina’s to the OECD’s income declined to 84% in 1950, to 65% in 1973, and then to 43% in 1987. It rebounded in the 1990s but with the run-up to the 2001 crisis again reverted…. The PGARCH multivariate analysis reveals a robust positive effect of the development of domestic financial institutions (private and savings bank deposits to GDP) as well as a negative growth effect from the instability of informal institutions (chiefly general strikes and guerilla warfare). As for the indirect effects on economic growth (through growth volatility), the results support negative roles for formal political instability (constitutional changes) and trade openness…. The main lesson… is one that economic historians already knew… institutions do matter but among them, political institutions and financial institutions seem fulcral…”
   

3. Heather Boushey:
   You can’t help today’s middle class with 1930s-era policies:
   “America’s families look very different today than a generation or two ago. Too many families fear they are falling out of the middle class or will never get there due to a combination of stagnating wages, rising and high levels of income and wealth inequality, and an increase in jobs with unpredictable schedules and too few benefits. Yet, our workplaces are matched to a very different time. The foundation for labor standards in the United States are grounded in a set of policies implemented in the 1930s. They include the minimum wage, overtime provisions and unemployment insurance. This basket of social insurance programs presumes a specific kind of work and family structure that was prevalent then, but is not the norm now…”
   

4. Nick Bunker:
   Weekend reading:
   “Cardiff Garcia asks whether household formation… will pick up…. Matt O’Brien argues that the bad news [for the Russian economy] won’t end any time soon…. Paul Krugman points to the large private-sector debts that Russia ran up…. Neil Irwin… countries with large social insurance states have the highest employment rates. Danielle Kurtzleben… the stark gender divide in low-wage work…. Dietz Vollrath… [on] the difficulty of calculating productivity growth in the service sector…”
   

5. Karl Whelan:
   Thoughts on “Teaching Economics After the Crash”:
   “This is a long post on the state of economics and how it is taught to undergraduates. The world is not crying out for another such discussion, so blame Tony Yates, via whom I ended up listening to Aditya Chakrabortty’s documentary…. Like Tony, I viewed the programme as a hopelessly one-sided critique of the economics profession. Still, it was useful in the sense that it packed all the regular criticisms about economics into one short piece. I agree with most of what Tony wrote but I want to take a different approach because I think it’s worth engaging a bit more positively with the criticisms raised…”

6. Miles Kimball:
   John Stuart Mill on Being Offended at Other…:
   “In On Liberty, Chapter IV, ‘Of the Limits to the Authority of Society over the Individual’ paragraph 12, John Stuart Mill effectively downplays the problem of direct preferences over others’ conduct or opinions by arguing that preferences over others’ self-regarding conduct or others’ opinions tend to be weak compared to the strength of preferences over one’s own conduct or opinions: ‘There are many who consider as an injury to themselves any conduct which they have a distaste for, and resent it as an outrage to their feelings; as a religious bigot, when charged with disregarding the religious feelings of others, has been known to retort that they disregard his feelings, by persisting in their abominable worship or creed. But there is no parity between the feeling of a person for his own opinion, and the feeling of another who is offended at his holding it; no more than between the desire of a thief to take a purse, and the desire of the right owner to keep it…'”

Should Be Aware of:

• Joyce Miller:
  “In fact, The Invisible Backpack [of White Privilege] contains the complete works of F. Scott Fitzgerald, along with the Western Canon… It’s handy to have a rich literary tradition to provide a validation of selfhood verging on the grandiose… with a detachable Gore-Tex underdog mentality that serves to justify the backpack’s pathological egotism, it often makes me consider writing a novel of my own…”

1. Chad Orzel:
   Method and Its Discontents:
   “I have a lot of sympathy for the defenders of method… calls to scrap falsifiability are mostly in service of the multiverse variants of string theory. And I find that particular argument kind of silly and pointless…. I’m sort of at a loss as to why ‘There are an infinite number of universes out there and one of them was bound to have the parameters we observe’ is supposed to be better than ‘Well, these just happen to be the values we ended up with, whatcha gonna do?’ I mean, I guess you get to go one step further before throw up your hands and say ‘go figure,’ but it’s not a terribly useful step…. I’m probably most sympathetic with the view expressed by Sabine Hossenfelder in her post at Starts With a Bang…. ‘It is beyond me that funding agencies invest money into developing a theory of quantum gravity, but not into its experimental test. Yes, experimental tests of quantum gravity are farfetched. But if you think that you can’t test it, you shouldn’t put money into the theory either.’…I just don’t really believe we’ve exhausted all the options for testing theories, just because one particular approach has hit a bit of a dry spell. There are almost certainly other paths to getting the information we want, if people put a bit more effort into looking for them…”
   

2. Paul Krugman:
   The Dr. Oz Effect:
   “There are a lot of [Dr.] Ozzes out there, including in areas you might not consider the entertainment business…. Conference planners tried to recruit me for an event in which I would be presenting the alternative view to the main experts–Arthur Laffer… who among other things warned about soaring inflation and interest rates thanks to the rapid growth in the monetary base… and the Stephen Moore who was caught using fake numbers to promote state-level tax cuts…. These ‘experts’ appeal to the political prejudices of a business audience, but taking their advice would have cost you a lot of money. So why isn’t their popularity dented by the repeated pratfalls? Are they, also, in the entertainment business? To some extent… yes. Simon Wren-Lewis… [says] the financial sector buys into really bad macroeconomics… [because] economists working for financial institutions… earn their money by telling stories that interest and impress their clients. To do that it helps if they have the same worldview as their clients. Thinking about Dr. Oz also… helps explain… [why] the right wants alleged experts who toe the ideological line, why can’t it get guys… recruit[s] and continue[s] to employ people who can’t do basic job calculations, or read their own tables and notice that they’re making ridiculous unemployment projections…. Anyone competent enough to avoid these mistakes would also be unreliable…. I now also suspect that the personality traits you need to be an effective entertainer on inherently not-so-much-fun subjects like health or monetary policy are inherently at odds with the traits you need to be even halfway competent…. A hired-gun economist who actually knows how to download charts from FRED probably wouldn’t have the kind of blithe certainty in right-wing dogma his employers want. So how do those of us who aren’t so glib respond? With ridicule, obviously. It’s not cruelty; it’s strategy.”
   

3. Simon Wren-Lewis:
   Bond Market Fairy Tales:
   “When it comes to an issue involving financial markets, then it seems obvious who mediamacro should believe. Those close to the markets surely must know more about how those markets work than some unworldly academic. This post will suggest a more nuanced view…. Are we talking about what may happen over the next few days or weeks, or are we talking about what will happen over the next few years? In terms of very short term prediction, financial market economists beat academic economists…. Those working in the markets are not as concerned about the longer term…. Money is made in predicting short term movements, and knowledge of where things are going over the next few years is a relatively weak guide to what might happen over the next few days…. Economists working for financial institutions spend rather more time talking to their institution’s clients than to market traders. They earn their money by telling stories that interest and impress their clients. To do that it helps if they have the same worldview as their clients. Getting things right over the longer term seems less important…. It is also useful if they leave their clients with the impression that they have some unique insight…. So instead of suggesting… markets are governed by basic principles, it is better to suggest that the market is like some capricious god, and they are one of a few high priests who can detect its mood…. The incentive system for academics is very different…”
   

4. Benjamin Schwartz:
   The American Conservative’s Christmas Reading:
   “I’d read the cuboid book (848 pages) The Making of the English Working Class, by E.P. Thompson… the way that undergraduates too often read—too rapidly, for the purpose of regurgitating arguments in a seminar and to root out facts…. Revisiting it now… the book has given me the most exhilarating experience of my reading life this year…. How between 1780 and 1832 the culture, traditions, and economy of artisans, small producers, tradesmen, and the yeomanry gave way to wage labor, the factory system, and mass industrialization…. Thompson summoned up the causes, arguments, and stratagems of a nearly wholly forgotten political culture… industrial capitalism was uprooting communities, devaluing purposeful work, corroding family life, and concentrating wealth, resources, and production into… ‘but two classes of men, masters and abject dependents.’ Lost were the traditional values of liberty, independence, and individualism—and the open, confident, and generous approach to life those values engender. Won was a steely and resilient class consciousness…. This is a work, Thompson unabashedly makes clear, about history’s losers, and in its embrace of the losers, as well as in other ways, The Making of the English Working Class is a profoundly anti-progressive book…. Thompson’s historical imagination and sympathy allowed him to see the value, and the tragedy, of lost causes: ‘I am seeking to rescue the poor stockinger, the Luddite cropper, the ‘obsolete’ hand-loom weaver, the ‘utopian’ artisan… from the enormous condescension of posterity. Their crafts and traditions may have been dying. Their hostility to the new industrialism may have been backward-looking. Their communitarian ideals may have been fantasies. Their insurrectionary conspiracies may have been foolhardy. But they lived through these times of acute social disturbance, and we did not. Their aspirations were valid in terms of their own experience; and, if they were casualties of history, they remain, condemned in their own lives, as casualties. Our only criterion of judgement should not be whether or not a man’s actions are justified in the light subsequent evolution. After all, we are not at the end of social evolution ourselves. In some of the lost causes of the people of the Industrial Revolution we may discover insights into social evils which we have yet to cure.'”
   

Must- and Shall-Reads:

• Rick Mishkin and Eugene White:
  “We find that there were precedents for all of the unusual actions taken by the Fed. When these were successful… they followed contingent and target rules that permitted pre-emptive actions… but were combined with measures to mitigate moral hazard…”
• Barry Eichengreen:
  “The best thing the ECB could do to encourage fiscal consolidation and structural reform is to banish the specter of deflation… [by] full-bore quantitative easing can do that. Those who object that such audacity would discourage fiscal consolidation and structural reform should consider what deflation would do…”
• Robert Huebscher and Jeremy Siegel:
  Fair Value for the S&P 500 is 2,300
• Joshua M Brown:
  “They said the Fed couldn’t taper without massive market dislocations… ‘trapped’ and ‘backed into the corner’…. The FOMC has now removed itself from new bond-buying operations… Employment is strong… we’re starting to see quarterly GDP releases with a 4-handle… inflationary pressures are nowhere on the horizon for the time being…”
• Adair Turner:
  Festival of Economics 2014
• Neil Irwin:
  Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel

1. Paul Krugman:
   Switzerland and the Inflation Hawks:
   “A lot of people have been predicting soaring inflation since 2009 if not earlier, and have refused to change their views…. Inflation truthers insist that the government is hiding the real numbers…. Normally sensible conservative economists… see the non-inflationary story as somehow the result of very special circumstances…. Martin Feldstein and others have claimed that it’s all about the 0.25 percent… interest rate the Fed has been paying on excess reserves. Without that… quantitative easing would indeed have produced… big inflation…. So, can we talk about Switzerland?… Never paid interest on reserves… [now] charging banks 0.25 percent…. So has the Swiss National Bank’s huge increase in the monetary base, which dwarfs what the Fed has done, produced inflation?… Monetary base up by a factor of eight. Money supply up by much less, because banks didn’t lend the funds out. And consumer prices flat, indeed flirting with deflation. This is all exactly what a basic liquidity trap model–the one I laid out in 1998–predicted…”
   

2. David Jolly:
   Swiss National Bank to Adopt a Negative Interest Rate:
   “Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand. The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22…”
   

3. Alan Blinder:
   ‘What’s the Matter with Economics?’: An Exchange:
   According to both Jeff Madrick and Arnie Packer, I claim ‘that except for some right-wingers outside the ‘mainstream’…little is the matter’ with economics…. But it’s not true. I think there is lots wrong…. My review explicitly agreed with Madrick that (a) ideological predispositions infect economists’ conclusions far too much; (b) economics has drifted to the right… and (c) some economists got carried away by the allure of the efficient markets hypothesis. I also added a few… we economists have failed to convey even the most basic economic principles to the public; and that some of our students turned Adam Smith’s invisible hand into Gordon Gekko’s ‘greed is good.’… the propensity to elevate modeling technique over substance… [and others that] (a) are not germane to policy, (b) are only slightly related to Madrick’s complaints, and (c) are very much ‘inside baseball’ stuff—and hence boring to readers of this Review…”

4. Edward Luce:
   Too big to resist: Wall Street’s comeback – FT.com:
   “It was right to let Citigroup stay in business in 2009, even though it was effectively bankrupt. But should it be so much larger than it was six years ago? Is it healthy that Citi lobbyists wrote the clause, almost word for word, that was tucked into last week’s spending bill? The question answers itself. It also points to two glaring deficiencies that will come back to haunt Washington when the next crisis strikes…. There has been no improvement in Wall Street’s culture–or in Washington’s revolving door habits. Bankers dismiss Elizabeth Warren, the Democratic senator from Massachusetts, as a populist. Perhaps they should listen to Bill Dudley, president of the New York Federal Reserve and a former Goldman Sachs partner…. At some point there will be another Wall Street crisis. It could be a decade away, or maybe next year. Markets run in psychological cycles in which fear gives way to greed and then hangover. Greed is once more in the ascendant. No law can stop the next bomb from detonating. No regulator can foresee it. But they could do much more to be ready for it when it comes. Here Mr Geithner’s moral fundamentalists have a point…”
   

5. Jim O’Neill:
   The Economic Consequences of Drug Resistance:
   “By 2020, if we allow resistance to rise by 40%, global GDP will be 0.5% smaller than it otherwise would have been. By 2030, it will be 1.4% smaller. By 2050, the economic shortfall will reach 3%. The accumulated loss of global output over the next 35 years will total $100 trillion…. Already, 60,000 people die every year from causes related to antimicrobial resistance in the United States and Europe…. By 2050, if the problem is allowed to continue to grow, antimicrobial resistance will kill more than ten million people per year…”
   

Should Be Aware of:

• Eric Alterman:
  The Truth About the New Republic: Kinsley, Krauthammer, Oliver North and a Liberal Magazine’s Demented War on Liberalism
• Ryan D Gantz: @sixfoot6 https://twitter.com/sixfoot6
• Josh Barro:
  “Cancun isn’t a symbol of free market capitalism, and American tourists didn’t make the place what it is…. An arm of the Mexican central bank did, in perhaps the largest and most successful example of central economic planning in North American history. Cuba should be so lucky as to have made its planned economy work as well as Cancun’s…”
• Leigh Bracket:
  Original Empire Strikes Back Screenplay Draft
• Otto Friedrich:
  City of Nets: A Portrait of Hollywood in the 1940s
  http://www.amazon.com/gp/product/006232604X/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=006232604X&linkCode=as2&tag=brde-20&linkId=QPGSL6EBPFWYEMB3
• Terry Adcock, as told to K.J. Dell’Antonia:
  With Three Adults, Two Jobs and One Baby, a Family Is Barely Getting By

1. Ryan Gantz:
   Bad community is worse than no community:
   “All the best conversation is happening in GroupMe, Slack, WhatsApp, private email lists, or over drinks after work. People feel comfortable analyzing, debating, and joking in these places, where they can express themselves without fear of judgment, unwanted notifications, or death threats. We can’t say the same about many discussion platforms or public comment sections…. Medium fights Godwin’s Law by rethinking comments as something closer to distributed annotations…. Reddit’s upvoting system gives its most engaged users control over what’s amplified. Metafilter reinforces community guidelines and cultural norms thanks to a highly engaged readership, 24-hour moderator coverage, and tools developed over 15 years. On most Vox Media sites, authors and moderators regularly stay engaged…. That’s the sort of work required to keep those spaces respectful, safe, and rewarding for participants, and it’s not always easy or successful. In a year when Pacific Standard and Popular Science shuttered their comments, Vox.com launched with none…. Twitter is broken and downright toxic…. By coupling a format that encourages intimacy with a network design that encourages out-of-context amplification, Twitter has evolved into something fundamentally volatile. It’s fun, fast and powerful, but remains highly risky for anything approaching honest conversation, or even satire…”

2. James Pethokoukis:
   The oil price collapse may end the ‘Texas Miracle’:
   “The energy sector gives, and the energy sector takes. The stunning drop in oil prices looks like bad news for the ‘Texas Miracle’…. Michael Feroli: ‘As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession’. So perhaps a minor key replay of what happened in the Lone Star State back in 1986…. The oil patch bust caused Texas unemployment to rise, housing prices to fall, and, eventually, a nasty banking crisis…”
   

3. Elizabeth Stoker Bruenig:
   Property Theories & the Buffered Self:
   “The ‘buffered self’ is a form of identity which is closed off from other persons…. Proprietary theories that view justice as a matter of your personal, individual rights being fulfilled play into this isolated self by remaining totally agnostic to the good of the community… do not view justice as a matter of total community outcomes, only individual ones, and only in terms of particular discrete rights…. Property theories that view property as an instrument for the communal good militate against this ‘buffered identity’ by contextualizing individual actions and procedures… in the impact on the community…. It’s pretty hard… to think to yourself, ‘doesn’t matter if I wind up with 500 million times the wealth of everyone else in my county due to this transaction, because I did it fair and square, and it’s my right.’ Instead you think, ‘so long as there are a lot of people without much who aren’t able to live good lives because I’ve got all this money to myself, I’m not actually entitled to all of it.’… [The] liber[tarian] property rights theories you hear… are not only bad because of what they produce materially (see: inequality), but also because of the ideology they factor so seamlessly into: namely, the idea that justice is merely a matter of individual procedural rights and protections, and that we have no need to factor the flourishing of our communities into the question of justice…”
   

Over at Grasping Reality:

…having arrived here late at night on a flight from Beijing. It was a pleasant shock to wake this morning to see double-decker buses driving on the left-hand side of the road so far from home.

I came to Beijing for the launch of Bloomberg’s Chinese-language service and to sit on a panel to discuss China’s role in the new world order. The throng of Chinese tourists at the Forbidden City somehow made it more real to us that China is a country of 1.3 billion people. The highlight of the trip so far was a visit to the Great Wall – something I have always wanted to do. The most comprehensive archaeological survey has recently concluded that the entire Great Wall, with all of its branches, stretches for 5,500 miles. We didn’t walk all of it… READ MOAR