Must- and Shall-Reads:
- James Hamilton: What did quantitative easing accomplish?
- Brad DeLong: Noise Trading, Bubbles, and Excess Stock Market Volatility: Noah Smith and Robert Shiller and Andrei Shleifer and Jeremy Greenwood vs. John Cochrane and Gene Fama and Company: Progressive vs. Degenerative Research Programs in Finance
- Ivan Werning: Optimal Wealth Taxation: Redistribution and Political Economy
- Emmanuel Farhi and Iván Werning: “In a political economy model of bequest taxation. Higher values of r − g lead to higher wealth inequality, resulting in higher and more progressive [optimal] taxes on bequests…”
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Jared Bernstein: Chair Yellen Looks Under New Rocks, Finds Same Thing that’s Under Old Rocks: “I yield to no one in my admiration for… Janet Yellen. So I was taken aback a bit by a section in her… speech… where she gave a number of reasons why the absence of wage pressures may not, paradoxically, be signaling that considerable slack remains in the job market…. I don’t think that’s the case at all here…. Each of her three reasons look like additional reasons not to slow the economy and preempt wage growth by tightening too soon…. Nominal wage rigidity… implies that until inflation erodes real wages enough to generate more employment demand (i.e., moving down the demand curve), or until there’s enough labor demand to necessitate hiring at current real wage levels (i.e., the demand curve moves out), there’s no reason to tighten…. Structural… forces… reducing labor’s share… [are a reason to promote] very tight labor markets to rebalance ‘factor income shares’…. Depressed labor force participation… might lead to wage pressures in the near term, but as labor demand strengthened, those sideliners would get pulled back in which would then dampen those pressures…. Even more so than the other two reasons, this one especially calls for extended monetary support of the job market…”
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**Jason Furman and John Podesta: The Cost of Delaying Action to Stem Climate Change: “The report… written under the leadership of Jim Stock…. Immediate action substantially reduces the cost of achieving climate targets. Taking meaningful steps now sends a signal to the market that reduces long-run costs of meeting the target…. The least-cost mitigation path to achieve a given climate target typically starts with a relatively low price of carbon to send these signals to the market, and subsequently increases as new low-carbon technologies are developed and deployed… net mitigation costs increase, on average, by approximately 40 percent for each decade of delay…. If delayed action causes the mean global temperature increase to stabilize at 3° Celsius above preindustrial levels, instead of 2°, that delay will induce annual additional damages of 0.9 percent of global output…. The possibility of abrupt, large-scale, catastrophic changes in our climate increases the need to act…. Enacting meaningful change in climate policy is analogous to purchasing climate insurance…”
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Paul Krugman: The Rent Is too Damned High: “It’s true that Texas has had faster job growth…. So have other Sunbelt states with conservative governments…. The answer from the right is, of course, that it’s all about avoiding regulations…. But… there are big problems with this story quite aside from the habit economists pushing this line have of getting their facts wrong…. Wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities…. So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing…. Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs…. Conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply…. It would be great to see the real key–affordable housing–become a national issue. But I don’t think Democrats are willing to nominate Mayor Bill de Blasio for president just yet.”
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David Autor: Skills, education, and the rise of earnings inequality among the “other 99 percent”: “The singular focus of public debate on the ‘top 1 percent’ of households overlooks the component of earnings inequality that is arguably most consequential for the ‘other 99 percent’ of citizens: the dramatic growth in the wage premium associated with higher education and cognitive ability. This Review documents the central role of both the supply and demand for skills in shaping inequality, discusses why skill demands have persistently risen in industrialized countries, and considers the economic value of inequality alongside its potential social costs. I conclude by highlighting the constructive role for public policy in fostering skills formation and preserving economic mobility…”
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Branko Milanovic: My Take on the Acemoglu-Robinson Critique of Piketty: “My brief reaction…. 1) ‘Piketty totally neglects institutions.’ This is hard to understand since Piketty’s explanation for a large part of changes in inequality in the US, France and elsewhere are precisely institutional…. So I really fail to see any validity… the critique is fundamentally dishonest…. First, Acemoglu and Robinson establish the equation Piketty=Marx. Then then criticize Marx for ignoring institutions…. Then, since they have already decided that Piketty is really Marx, they barely give one or two examples of Piketty’s lack of concern with institutions…. 2) ‘Lots of inequality increase is due to higher inequality of labor incomes.’ This is true especially for the United States and no one disputes it; neither does Piketty. He actually mentions it repeatedly…. 3) Panel regressions… test[ing] whether r-g is correlated with increase in inequality…. They find that the sign of the coefficient is in most cases negative…. The right-hand side variable is not r-g but simply ‘g’. This approach is surely wrong…. Only the second set… makes sense. But there, the results are inconclusive. Moreover, there are no controls at all except for the country and year dummies…”
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Jérémie Cohen-Setton: Is this a European U-turn?: “Mario Draghi is recognizing that the recovery in the euro area remains uniformly weak and that the euro area fiscal stance was not helping the ECB do its job…. French leaders also reintroduced over the weekend the notion of aggregate demand, a concept they had noticeably moved away from with the ‘Pacte de responsabilite’…. Inflation, he noted, has been on a downward path from around 2.5% in the summer of 2012 to 0.4% most recently…. The big news is that Draghi does not (at least now) believe in balanced-budget fundamentalism…. Richard Portes and Philippe Weil write European citizens must hope that their policy makers will recognize that the acute, pressing problem is aggregate demand. Repairing the credit system, implementing serious reforms of state expenditure and taxation, creating more flexible labor markets, finally opening the services market to cross-border competition–all are indeed very important. But they will not liberate the eurozone from stagnation…”
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Laura Tyson: The economic and fiscal case for higher US infrastructure spending: “Investment in public infrastructure in the US has plunged to less than 2% of GDP, its lowest level since the federal government started tracking these data in 1992. The American Society of Civil Engineers (ASCE) gives a grade of D+ to infrastructure in the United States…. 42% of urban roads are congested, costing the economy an estimated $101 billion a year in wasted time and fuel consumption. Deficient and deteriorating transit systems impose another $90 billion in annual economic costs…. In lieu of raising the gas tax, Obama has proposed a four-year $302 billion plan to close the existing HTF funding gap, and boost HTF spending by $20 billion a year above current levels. His plan, which relies on using transitional corporate tax revenues raised in conjunction with corporate tax reform, has virtually no chance of becoming law…. Nor does his oft-repeated proposal for a federal infrastructure bank to attract more private funds for infrastructure projects. Confronted with implacable Republican opposition, Obama is relying on what the administration calls a “pen and phone” strategy…”
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Eric Maskin and Inequality: Learn, and Be Less Unequal: “Maskin argues that skilled workers in developing countries are coveted by multinational companies and see wage rises. Unskilled workers are ignored…. One recommendation stands out. Unskilled workers in developing countries need better education. 38% of African adults are illiterate…. Some economists (like Mr Maskin) rule out the possibility of unskilled workers paying for their own education, for the simple reason that they cannot afford it… governments and donors should take responsibility…”
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Sam Wang: In Swing States, Is Obamacare an Asset?: “Republican governors who bucked their party’s stance and accepted the policy are faring better with voters—in these races, an average of 8.5 percentage points better…. Think of the Medicaid expansion as a ‘proxy variable… predictive of stands on many other issues…. If you’re too hard-core or offensive, some of your constituents can get turned off…. Martinez… Kasich… and… Snyder… look as strong as… when they were… elected. All… accepted the Affordable Care Act…. Obamacare is not the political liability it was once thought to be…. To the extent that governors hold on to their offices in close races, it may be because they have focussed on issues that are important to the voters in their states rather than the core views of their party.”
Should Be Aware of:
- Claudia Wallis: Progress Report: The Teacher Wars by Dana Goldstein
- Scott Lemieux: The Fake Disillusionment Con: “Shorter Thomas Frank and Cornel West: I’m going to pretend to be deeply disillusioned that Obama didn’t turn out to be the Scandinavian social democrat there was absolutely no evidence he was…”
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Iván Werning: A Reappraisal of Chamley-Judd Zero Capital Taxation Results: “Judd (1985) and Chamley (1986) showed that capital should not be taxed in a steady state. I revisit these results and their interpretation. My analysis casts doubt on their applicability. For Judd’s setting, I find that the zero tax steady state is only approached in special cases and, when it is, at a very slow rate, after centuries of high capital taxa- tion. In Chamley’s setting, the zero tax result requires sufficient upfront expropriation of capital and large government wealth accumulation. In contrast to an example in Chamley, I show that taxes may remain positive forever if constrained by a sufficiently low upper bound. Finally, I show that both results are driven by an infinite elasticity in the present value response of savings with respect to an infinitely distant future changes in the interest rate.”
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David Beckworth: About the Fed Not Trying Hard Enough To Hit Its Inflation Target: “Now this is just a reduced-form relationship, but it is highly suggestive and consistent with my claim from an earlier post that there really is no 2% target. Rather, there is a 2% ceiling to an inflation target corridor. As I showed in that post, the timings of the QE programs tend to line up with this view. The above chart provides further evidence…”
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Branko Milanovic: Mr. Piketty and the Classics: “The major contribution of Piketty is, in my opinion, a (I did not say ‘the’) general theory… which combines… growth, factoral income distribution and personal income distribution…. The explicit connection from factoral to personal income distribution, substantiated with a huge amount of empirical evidence, gives to Piketty’s work a new, and unique, value…. To somebody familiar with 15 years of that literature, there is again, not much new…. But it is the combination… that gives the book its unique color and importance…”
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Steve Benen: Flubbing the details on Perry’s indictment: “The exchange was one of my favorite of any Sunday show this year: NOONAN: ‘I think, yes, it was local Democratic overreach. It’s just a dumb case. I don’t think it should have been brought. Naturally he looks like someone who is…’ STEPHANOPOULOS: ‘But the prosecutor is a former Republican, I think.’ NOONAN: ‘That may be. But when you look at this case, it just looks crazy.’ Of course, this is less about what ‘may be’, and more about what is…. Nine days to get the basic details straight…. Told that her key complaint was based on a falsehood, Noonan didn’t acknowledge her error…. Wayne Slater joked that the Wall Street Journal pundit ‘looked confused’ by the details she should have known but didn’t…. Democratic officials in Travis County recused themselves from the case, and the prosecutor in this case, Michael McCrum, worked in the Bush/Quayle administration. What’s more, McCrum, who enjoys a solid reputation as a credible attorney, was appointed to oversee this case by a Republican judge. To see this as ‘local Democratic overreach’ is to simply not understand what happened…”