Category: Equitablog

Twitter / amprog: STARTING NOW: “STARTING NOW: The White House Summit…

…on Working Families! Watch the livestream here h #FamiliesSucceed…”

Betsey Stevenson: “Fact 1: Mothers are increasingly the household breadwinners…”

Should-Reads:

1. Paul Krugman: The Damage Done: “Look at the Spring 2008 World Economic Outlook of the IMF, which projected real GDP (pdf) for advanced countries, and compare it with the actual path…. Yet the IMF believes that the output gap is only a couple of percentage points… either… a huge coincidence– sudden, unanticipated drop off in potential… that just happened to coincide with the financial crisis–or the crisis, and the poor macroeconomic management that followed, have done incredible damage.”

2. Stephen Walt: Being a Neocon Means Never Having to Say You’re Sorry: “The zombie-like ability to maintain influence and status in the face of overwhelming evidence tells you that F. Scott Fitzgerald was wrong: There are in fact an infinite number of ‘second chances’ in American life and little or no accountability in the U.S. political system. The neocons’ staying power also reminds us that the United States can get away with irresponsible public discourse because it is very, very secure. Iraq was a disaster, and it helped pave the way to defeat in Afghanistan, but at the end of the day the United States will come home and probably be just fine. True, thousands of our fellow citizens would be alive and well today had we never listened to the neoconservatives’ fantasies, and Americans would be more popular abroad and more prosperous at home if their prescriptions from 1993 forward had been ritually ignored. Hundreds of thousands of Iraqis would be alive too, and the Middle East would probably be in somewhat better condition (it could hardly be worse)…”

3. Paul Krugman: The Big Green Test: “Henry Paulson, the former Treasury secretary and a lifelong Republican… declared that man-made climate change is ‘the challenge of our time’, and called for a national tax on carbon emissions…. Brave…. But not nearly brave enough. Emissions taxes… [are] not going to happen in the foreseeable future…. Yet there are a number of second-best things…. In policy terms, climate action… will be an awkward compromise dictated in part by the need to appease special interests… the subject of intense partisanship, relying overwhelmingly on support from just one party, and will be the subject of constant, hysterical attacks…. The question for Mr. Paulson and those of similar views is whether they’re willing to go along with that kind of imperfection. If they are, welcome aboard.”

Should Be Aware of:

• Stefano Giglio, Matteo Maggiori, and Johannes Stroebel: “This column estimates a discount rate for very long-run housing cash flows of 2.6%…. We exploit a unique feature of residential housing markets in the UK and Singapore, where property ownership takes the form of either very long-term leaseholds or freeholds…”
• Ashoka Mody and Michael Walton: “The rise in Indian inequality reflects more pernicious forces. Government contracts and relationships play a central role…. Influence and connectivity create access to land, construction and mining permits and so-called ‘public-private partnerships’…”
• Aswath Damodaran: Bubble, Bubble, Toil and Trouble: The Costs and Benefits of Market Timing
• Ryan Decker: “If you haven’t been paying attention, Amazon and book publisher Hachette are in an ongoing dispute about the distribution of surplus. I wrote about this here, but I underestimated how complicated the situation is. Cory Doctorow reports that Hachette is trapped with Amazon by the nature of its intellectual property policies…”
• Heidi Moore: Wall Street and Washington want you to believe the stock market isn’t rigged. Guess what? It still is

And:

1. Greg Ip: What secular stagnation means for interest rates: Is it secular or is it stagnation?: “Let’s assume… the normal cyclical recovery of the economy is being smothered by headwinds to demand…. The Fed keeps interest rates near zero as long as possible…. But eventually, the headwinds fade, demand springs back… the natural rate is same as it was before the crisis, i.e. a nominal rate of around 4%, and a real rate around 2%…. Suppose instead that secular, supply-side forces are the reason growth has been so disappointing…. The Fed must start to raise interest rates sooner…. But lower potential growth… reduces the natural, or Wicksellian… interest rate…”

2. Philippe Weil: Has the Great Recession harmed the long-term growth prospects of the Eurozone economy?: “The CEPR Business Cycle Dating Committee recently concluded that there is not yet enough evidence to call a business cycle trough in the Eurozone. Instead, the committee has announced a ‘prolonged pause’ in the recession…. [Perhaps] the Great Recession has harmed the Eurozone’s long-term growth prospects to the extent that meagre growth could become the ‘new normal’…”

Already-Noted Must-Reads:

1. Adrianna Macintyre: The Second Most Depressing Graph in American Health Care:

2. Hank Paulson: Lessons for Climate Change in the 2008 Recession: “The carbon dioxide we’re sending into the atmosphere remains there for centuries heating up the planet…. The decisions we’re making today — to continue along a path that’s almost entirely carbon-dependent — are locking us in for long-term consequences that we will not be able change but only adapt to, at enormous cost. To protect New York City from rising seas and storm surges is expected to cost at least $20 billion initially, and eventually far more. And that’s just one coastal city…”

3. Tim Duy: Inflation Hysteria: “It appears that a case of inflation hysteria is gripping Wall Street…. Goodness, you would think it is 1975. It is probably instructive to stop and see what all the fuss is about. Although core-CPI is about to brush up on 2%, core-PCE remains well below, and it is the latter that is most important…. Inflation is not a sustained phenomenon in the absence of participation from wage dynamics. If inflation accelerates while wage growth remains stagnant, demand will soften and so too will any incipient price pressures. Hence why Yellen sees the potential for downside risk for consumer spending in the absence of stronger wage growth. Moreover, as she notes, wage growth itself is not inflationary… inflation… [is] correlated with unit labor costs…”

4. Peter Lindert: Making the Most of Capital in the 21st Century: “Thomas Piketty… has transported us to a higher understanding of historical movements in inequality…. The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for…”

Peter Lindert: Making the Most of Capital in the 21st Century: “Thomas Piketty… has transported us to a higher understanding…

of historical movements in inequality…. The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for…

Tim Duy: Inflation Hysteria: “It appears that a case of inflation hysteria…

…is gripping Wall Street…. Goodness, you would think it is 1975. It is probably instructive to stop and see what all the fuss is about. Although core-CPI is about to brush up on 2%, core-PCE remains well below, and it is the latter that is most important…. Inflation is not a sustained phenomenon in the absence of participation from wage dynamics. If inflation accelerates while wage growth remains stagnant, demand will soften and so too will any incipient price pressures. Hence why Yellen sees the potential for downside risk for consumer spending in the absence of stronger wage growth. Moreover, as she notes, wage growth itself is not inflationary… inflation… [is] correlated with unit labor costs…

Cardiff Garcia: The growth of US student loan debt: causes and consequences: “Both rising tuition and a higher share of students borrowing…

…have contributed just as much as higher student enrollment…. A recent New York Fed report:

Between 2004 and 2012, the number of borrowers increased by 70% from 23 million borrowers to 39 million. In the same period, average debt per borrower also increased by 70%, from about $15,000 to $25,000.

And… Brookings….

From 2002 to 2012, inflation-adjusted (2012 dollars) college costs—defined as the sum of room, board and “net tuition” (tuition costs after subtracting federal, state, and private [non-loan] aid, as well as any discounts offered by the institution)—rose by 41 percent within public four-year institutions, by 9 percent for private four-year institutions, and actually fell 7 percent for two-year public institutions… average college costs rose by about 16 percent….

Furthermore, there is evidence that many students and households don’t understand what they’re getting themselves into…. That’s the background against which Obama is now proposing a plan to expand the number of borrowers who can cap their loan repayments at 10 per cent of their income, along with endorsing a bill that would allow more students to refinance at lower rates. (The latter is unlikely to get through Congress, as the proposed budgetary offset is the proposed closing of loopholes for the wealthy. Republicans are already pushing back.)

From $350 billion to $1 trillion in student debt in the eight years from 2004-2012 is an extraordinary increase–so large that even though I have checked and re-checked I cannot help but fear that somewhere an apples-and-oranges comparison has crept into the mix.

It also very strongly suggests that the marginal borrowers do not have a handle on what they are doing. If it made no sense for borrowers to take out more than $350 billion in debt in 2004–if the marginal material and psychological benefit of college then was no greater than the marginal burden of debt repayment–then it really makes no sense for borrowers to take out $1 trillion in debt in 2012. Either of them are little borrowers in 2004 we’re irrationally scared of taking on student debt loads, or them are total borrowers today are much too blasé about the burdens–and by “marginal”, we mean all those holding all the tranches between $350 billion and $1 trillion.

As I have said before, the key questions are: how likely are those taking on the extra debt to actually finish their B.A. degrees in a reasonable amount of time? How quickly can we move from a regime of fixed repayments to one of income-contingent loans (or, as Aaron Edlin points out, a more attractive system of income-contingent grants)? And how then do we manage the borrowing-attending decision when potential students no longer fear landing in permanent debt peonage?

My instinct is that Clark Kerr had it right: that the best compromise is to make education free for those willing to devote the time, but to make students borrow to cover their living expenses. That treats getting educated as having positive externalities broadly understood equal to the cost of education, and my guess is that is the right order of magnitude. But that is only an instinct.

These are not questions that I can answer with clarity and confidence, or even on which I can guess in a relatively informed manner. So: a question for the internet: who should I take as my guides, and whose analyses should I trust on these questions?

Hank Paulson: Lessons for Climate Change in the 2008 Recession: “The carbon dioxide we’re sending into the atmosphere remains there for centuries…

…heating up the planet…. The decisions we’re making today — to continue along a path that’s almost entirely carbon-dependent — are locking us in for long-term consequences that we will not be able change but only adapt to, at enormous cost. To protect New York City from rising seas and storm surges is expected to cost at least $20 billion initially, and eventually far more. And that’s just one coastal city…

Adrianna Macintyre: The Second Most Depressing Graph in American Health Care:

Should-Reads:

1. Jim Henley: Twitter / UOJim: “Congrats, trans friends!: Your liberation struggle has reached the point where NRO writers [like Charles C.W. Cooke] now write anti-anti-transphobia pieces!… Every white anti-anti rewriting a piece the New Criterion played out by 1991, you’re the ‘vocally boring & perpetually aggrieved’ dude…”

2. Paul Krugman: Austerity and Hysteresis: “If you believe official estimates of potential output… the Great Recession and its aftermath have done incredible damage, not just to short-run output and employment, but to long-run prospects…. Advanced country real GDP… grew 18 percent from 2000 to 2007… and… was… expected to keep rising at… the same rate… [but] advanced-country GDP is likely… in 2014… [to be] 10 percent below trend…. [with] estimates of economic slack… only 2.2 percent…. Something like an 8 percent hit to economic potential all across the advanced world, which is huge.”

3. David Dranove et al.: Pharmaceutical Profits and the Social Value of Innovation: “Exogenous shocks to the demand for medical products spur additional product development…. Breakthrough products and those that largely duplicate the performance of existing products…. We… explore the impact of the introduction of Medicare Part D… [and[ find that the law spurred development of products targeting illnesses that affect the elderly, but most of this effect is concentrated among products aimed at diseases that already have multiple existing treatments. Moreover, we find no increase in products targeting orphan disease or those receiving either fast track or priority review status from the FDA. This suggests that marginal changes in demand may have little effect on the development of products with large welfare benefits.”

4. Andres Velasco: Inequality in the region must be addressed by pre-distribution, not just redistribution: “No one can deny that the distribution of income is scandalously unequal in Latin America. But it will come as a surprise to Piketty’s boosters (many of whom have yet to read his book) that his theory has little, if anything, to do with the measured dynamics of income distribution in the region. Piketty’s theory concerns what economists call the functional distribution of income, or the split between providers of labor and owners of capital. But the maldistribution that causes so much unease in Latin America concerns the personal distribution of labor income…”

5. M. Buettgens and J. Dev: The ACA and America’s Cities: Fewer Uninsured and More Federal Dollars: “Among the seven cities in states that have expanded Medicaid, the ACA will likely decrease the number of uninsured by an average of 57 percent… between 49 percent in Denver and 66 percent in Detroit by 2016.  New federal spending on health care from 2014 to 2023 would range from $4.1 billion in Seattle to $27 billion in Los Angeles. Among the seven cities in states not expanding Medicaid… an average of 30 percent… from 25 percent in Atlanta to 36 percent in Charlotte by 2016. New federal spending… would increase by between $1.9 billion in Atlanta and $9.9 billion in Houston…”

Should Be Aware of:

• • Ed Kilgore: HRC’s Single Mindedness
• Emily Badger: Taxi medallions have been the best investment in America for years. Now Uber may be changing that
• Matthew Yglesias 7 ways Mike Lee’s push to get the GOP to stop obsessing over tax cuts for the rich matters
• Dan Gilbert: “Tattoos are a good example of a universal error in thinking. Human beings, and especially young adults, underestimate how much their personalities and values will change as they age…”
• Alex Payne: “Dear Marc Andreessen…. You seem to think everyone’s worried about robots. But what everyone’s worried about is you, Marc. Not just you, but people like you. Robots aren’t at the levers of financial and political influence today, but folks like you sure are. People are scared of so much wealth and control being in so few hands…”
• John Hechinger: Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers
• Bryan Caplan: Embarrass Me Now, Please
• Barry Eichengreen: “The Tyranny of Economic Growth: The South Korean ferry disaster shows the problem with putting too much emphasis on numerical targets, a lesson with relevance for China…”

And:

1. Doug Elmendorf: Projections of Tax Expenditures: “On the basis of estimates prepared by the staff of the Joint Committee on Taxation, CBO projects that, under current law, all tax expenditures in the individual and corporate income tax systems will total roughly 8.2 percent of GDP in fiscal year 2014, if their effects on social insurance taxes as well as on corporate and individual income taxes are included. CBO estimates that the comparable total for 2017 is 9.0 percent. The agency has not estimated the magnitude of all tax expenditures beyond 2017, but the percentage of GDP for the years 2018 to 2024 is probably similar to the percentage estimated for 2017. By comparison, CBO projects that total federal tax revenue will be close to 18 percent of GDP during the coming decade under current law…”

2. Jamelle Bouie: Juneteenth: The Black American Holiday Everyone Should Celebrate but Doesn’t: “Thursday marks the 148th anniversary of the first Juneteenth. For now, it’s a niche holiday, celebrated by black Americans and a handful of others who know and understand the occasion. But it deserves wider reach. Indeed, I think we should add it to the calendar of official federal holidays. Insofar that modern Americans celebrate the past, it’s to honor the sacrifices of the Greatest Generation or to celebrate the vision of the Founders. Both periods are worthy of the attention. But I think we owe more to emancipation and the Civil War…”

Already-Noted Must-Reads:

1. Mark Thoma sends us to Steve Cecchetti and Kermit L. Schoenholtz: Monetary Policy Target Regimes: Inflation, Price Level, Nominal GDP, etc.: “The question of the appropriate policy target… has become a matter of intense debate…. We conclude that returning to the price path implied by the pre-crisis trend is a realistic possibility. Returning to the earlier nominal GDP path is not. That said, the inflation overshoot that our rough calculations suggest is moderate, so the benefits are likely to be limited. But the costs could include a loss of credibility in the inflation-targeting framework. Would that really be worth it?”

2. Nick Bunker: Weekend reading: “Secular Stagnation: Greg Ip and John Hilsenrath. Long-Term Unemployment: John Hilsenrath and Victoria McGrane and Matt O’Brien. Allocation of Time: Danielle Kurtzleben, Ben Casselman, and Maria Konnikova. Millennials: Adam Davidson. China’s Credit Boom: Jamil Anderlini, David Keohane, and Kaushik Basu…”

3. Emmanuel Saez and Thomas Piketty: Inequality in the long run: “During the 20th century, growth rates were exceptionally high and rates of return were severely reduced by capital shocks (destructions) and the rise of taxation… quantitatively sufficiently important to explain why wealth concentration did not return to pre-WWI levels in the postwar period. Other factors might also have played a role… [but such] process[es] does not seem to have taken place in pre-WWI Europe…. To the extent that population growth (and possibly productivity growth) will slow down in the 21st century, and that after-tax rates of return to capital will rise… the 21st century… could… [see] wealth concentration…”

4. Michael Hiltzik: Can we finally agree that Obamacare is working?: “At the end of a war, some people will remain holed up in the trees thinking they can still turn the tide of a lost cause. Increasingly, that’s the best description of the anti-Obamacare dead-enders…. Nearly 60% of enrollees in ACA-compliant exchange health plans this year were previously uninsured…. Obamacare cut costs for buyers eligible for subsidies by an average 76% …. More than 80% of buyers are eligible for government subsidies…. Most people can save money by choosing plans offering narrower provider networks, and there’s “no meaningful” difference in health outcomes…. Projected rate increases for 2015 are coming in well below expectations…. Here’s the Republican approach to these trends. On Thursday, Sens. Orrin Hatch, R-Utah, and Charles Grassley, R-Iowa, issued a report attacking the Administration for its botched rollout of Healthcare.gov…. Texas Gov. Rick Perry fired up his state’s Republican convention by calling the expansion of Medicaid, which he’s refused to implement, ‘federal blackmail’. Number of Texas residents left without health insurance by his stand: 1.1 million…”

Michael Hiltzik: Can we finally agree that Obamacare is working?: “At the end of a war, some people will remain holed up in the trees…

…thinking they can still turn the tide of a lost cause. Increasingly, that’s the best description of the anti-Obamacare dead-enders…. Nearly 60% of enrollees in ACA-compliant exchange health plans this year were previously uninsured…. Obamacare cut costs for buyers eligible for subsidies by an average 76% …. More than 80% of buyers are eligible for government subsidies…. Most people can save money by choosing plans offering narrower provider networks, and there’s “no meaningful” difference in health outcomes…. Projected rate increases for 2015 are coming in well below expectations…. Here’s the Republican approach to these trends. On Thursday, Sens. Orrin Hatch, R-Utah, and Charles Grassley, R-Iowa, issued a report attacking the Administration for its botched rollout of Healthcare.gov…. Texas Gov. Rick Perry fired up his state’s Republican convention by calling the expansion of Medicaid, which he’s refused to implement, ‘federal blackmail’. Number of Texas residents left without health insurance by his stand: 1.1 million…

Emmanuel Saez and Thomas Piketty: Inequality in the long run: “During the 20th century, growth rates were exceptionally high…

…and rates of return were severely reduced by capital shocks (destructions) and the rise of taxation… quantitatively sufficiently important to explain why wealth concentration did not return to pre-WWI levels in the postwar period. Other factors might also have played a role… [but such] process[es] does not seem to have taken place in pre-WWI Europe…. To the extent that population growth (and possibly productivity growth) will slow down in the 21st century, and that after-tax rates of return to capital will rise… the 21st century… could… [see] wealth concentration….

The long-run dynamics of income inequality… is the most difficult part because income inequality combines forces arising from the inequality of capital… and forces related to the inequality of labor income…. Kuznets posited that income inequality first rises with economic development when new, higher-productivity sectors emerge… but then decreases as more and more workers join the high-paying sectors…. Our data show that this is not the reason that income inequality declined in developed countries during the first half of the 20th century…. Kuznets’ overly optimistic theory of a natural decline in income inequality in market economies largely owed its popularity to the Cold War context of the 1950s….

The most widely used economic model is based on the idea of a race between education and technology…. Such skill-biased technological progress is not sufficient to explain important variations between countries…. The race between education and technology fails to explain the unprecedented rise of very top labor incomes that has occurred in the United States over the past few decades…. Changes in tax policy, as well as social norms regarding pay equality, likely play a key role in shaping labor income inequality…. Inequality does not follow a deterministic process. In a sense, both Marx and Kuznets were wrong. There are powerful forces pushing alternately in the direction of rising or shrinking inequality. Which one dominates depends on… institutions and policies…