Category: Equitablog

Christian Broda and Jonathan A. Parker: The Economic Stimulus Payments of 2008 and the Aggregate Demand for Consumption: “Using a survey of households in the Nielsen Consumer Panel…

…and the randomized timing of disbursement of the 2008 Economic Stimulus Payments, we find that a household’s spending rose by ten percent the week it received a Payment and remained high cumulating to 1.5–3.8 percent of spending over three months. Our estimates imply partial-equilibrium increases in aggregate demand of 1.3 percent of consumption in the second quarter of 2008 and 0.6 percent in the third. Spending is concentrated among households with low wealth or low past income; a household’s spending did not increase significantly when it learned about its Payment..”

David Cutler and Steven Walsh: JAMA Forum: Will the Country Look to Massachusetts Again?: “The centerpiece of the current Massachusetts reform effort…

…is a target for the growth of medical spending in the state. Spending on medical care should not increase more rapidly than the long-run growth of the state economy, a value forecast to be 3.6% annually…. There were a range of opinions about the target, ranging from the view that it was impossible to predict cost growth and so a target was not appropriate, to the view that medical costs were so high that the target ought to be set at no annual growth or even below…. If the target is breached, the entities—for example, clinicians and hospitals—found to be most responsible for the high rate increases are required to develop and implement a performance improvement plan. The plan can be negotiated over, but state government regulation of rates is prohibited under the law. The power of the target lies not in its enforcement backstop, but in the collective sense that the public and private leaders of Massachusetts have committed to it. Consistent with this, contracts between payers and those who offer health care services are being rewritten to ensure that cost increases do not exceed that goal…”

Carter Price: Piketty’s data deserve better analysis: “Perhaps the key claim by Giles is erroneous.

Giles bases his argument that there was not an increase in wealth concentration in the United Kingdom but rather a decrease on a single data point from a 2010 wealth survey in the UK. Because that survey did not exist in 2000, it cannot be directly compared to other time series data without harmonization. The entirety of the drop Giles claims is occurring can be explained by switching from one survey to another…. Piketty had to look at disparate data sources, harmonize them (so that he could compare apples to apples), and draw conclusions. Wealth is notoriously difficult to measure, which makes working with wealth data especially tricky. Piketty has been exceptionally transparent with the data sets…. Giles uses the raw, non-harmonized wealth data to claim that wealth inequality in the United States has been flat and that it has been decreasing in the United Kingdom. Yet by combining these non-harmonized data sets, Giles is comparing apples to oranges…

Mark Thoma sends us to Larry Summers at Michael Tomasky’s Democracy Journal:

Lawrence H. Summers: The Inequality Puzzle: “His policy recommendations are unworldly….

Success in combating inequality will require addressing the myriad devices that enable those with great wealth to avoid paying income and estate taxes. It is sobering to contemplate that in the United States, annual estate and gift tax revenues come to less than 1 percent of the wealth of just the 400 wealthiest Americans. With respect to taxation, as so much else in life, the real scandal is not the illegal things people do-—it is the things that are legal. And second, such efforts are likely to require international cooperation if they are to be effective in a world where capital is ever more mobile….

Beyond taxation, however, there is, one would hope, more than Piketty acknowledges that can be done to make it easier to raise middle-class incomes and to make it more difficult to accumulate great fortunes without requiring great social contributions in return… vigorous enforcement of antimonopoly laws, reductions in excessive protection for intellectual property… profit-sharing schemes that benefit workers and give them a stake in wealth accumulation, increased investment of government pension resources in riskier high-return assets, strengthening of collective bargaining arrangements, and improvements in corporate governance… the strengthening of financial regulation… an easing of land-use restrictions that cause the real estate of the rich in major metropolitan areas to keep rising in value…

Continue reading “Reviewing Lawrence H. Summers’s Review of Piketty IV: Combatting Inequality on Many Fronts: Tuesday Focus: May 27, 2014” →

Thomson Reuters: Reuters Insider:

STREAM: Larry Summers speaks in London,

http://reut.rs/1tdO1KZ

Should-Reads:

1. DougJ.: Their eyes were watching Jeb: “This [by Michael Barbaro] sounds eerily like some of the North Korean-style Dear Leader fan fiction Elisabeth Bumiller used to write about W in the [New York] Times…”

2. Matthew Boesler and Aki Ito: Piketty Rejects ‘Ridiculous’ Allegations: “Thomas Piketty rejected allegations that data behind his best-selling book on inequality are flawed as fellow economists spoke up in his defense… called a Financial Times analysis of his statistics ‘just ridiculous’…. The newspaper’s economics editor, Chris Giles, wrote last week that figures underpinning the 696-page book contain unexplained statistical modifications, ‘cherry picking’ of sources and transcription errors…. Two of the book’s ‘central findings–that wealth inequality has begun to rise over the past 30 years and that the U.S. obviously has a more unequal distribution of wealth than Europe–no longer seem to hold’, according to Giles…”

3. Thomas Mann: Politics Is More Broken Than Ever: Political Scientists Need to Admit It: “I’ve spent decades in Washington explaining and defending the American constitutional system in the face of what I considered to be uninformed and ill-considered attacks on Congress and our way of governing. I’ve also worked scrupulously to avoid any hint of partisan favoritism…. But I believe these times are strikingly different from the past, and the health and well-being of our democracy is properly a matter of great concern. We owe it to ourselves and our country to reconsider our priors and at least entertain the possibility that these concerns are justified–even if it’s uncomfortable to admit it…. Congress has ceased to operate as an effective legislative body…. The supposed promise of linking more tightly party and ideology was that it would offer more clarity and accountability for voters…. Austin Ranney… argued that more ideologically coherent, internally unified, and adversarial parties in the fashion of Westminster-style parliamentary democracy would be a disaster within the American constitutional system…. Republicans have become a radical insurgency–ideologically extreme, contemptuous of the inherited policy regime, scornful of compromise, unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition. The evidence of this asymmetry is overwhelming.”

4. Minxin Pei: Minxin Pei asks whether the Chinese Communist Party can rule for another quarter-century: “25 years ago the Chinese Communist Party (CCP) was nearly toppled by a nationwide pro-democracy movement. It was the late paramount leader Deng Xiaoping’s steely nerves and the tanks of the People’s Liberation Army… that enabled the regime, at the cost of several hundred civilian lives, to avoid collapse…. How has the CCP survived the last quarter-century, and can its rule endure for another 25 years?… Policy adjustments, clever tactics of manipulation, and a healthy dose of luck enabled the CCP to win the support it needed to retain power and suppress destabilizing forces…. Deng again managed to save the Party… an unprecedented wave of growth and development… granting Chinese citizens considerable personal freedoms…. Carefully orchestrated moves to promote Chinese nationalism and exploit xenophobia also helped. Even repression, the mainstay of the regime’s survival, was fine-tuned…. The post-1992 reforms coincided with a surge of globalization… the so-called demographic dividend…. The problem facing the CCP now is that most of the factors that enabled it to survive since Tiananmen either have already disappeared or are headed in that direction. Indeed, for all practical purposes, pro-market reforms are dead. A kleptocracy of government officials, their families, and well-connected businessmen has colonized the Chinese state and is intent on blocking any reforms that might threaten their privileged status…. Rampant corruption and rising inequality, together with obvious environmental decay, are causing ordinary Chinese–especially the middle class, which once had high hopes for reform–to become increasingly disillusioned…. That leaves only repression and nationalism in the CCP’s post-Tiananmen toolkit. And, indeed, both of them continue to play a central role in President Xi Jinping’s strategy for ensuring the Party’s survival.”

5. Michael Hiltzik: Tim Geithner gets FDR very wrong (but so did Obama): “It’s necessary to correct an old canard repeated by former Treasury Secretary Timothy Geithner about Franklin Roosevelt’s behavior in the long interregnum between the 1932 election and his 1933 inauguration…. Geithner’s goal is to draw a distinction between FDR’s ostensibly shocking irresponsibility and President Obama’s ostensibly laudable behavior in going along with his predecessor’s economic crisis response…. The truth is that Hoover didn’t need FDR’s help–he just didn’t want to act on his own. It’s important to set the record straight, because Geithner’s version was ginned up by Hoover himself and is cherished by Hooverite conservatives, who still walk among us today…. A fuller discussion is in my book about the Roosevelt administration…”

Should Be Aware of:

Continue reading “Things to Read on the Morning of May 27, 2014” →

Dylan Matthews (2013): The Tuition is Too Damn High, Part II: Why college is still worth it: “Perhaps the most persuasive skeptical case…

…is that while the average student still benefits from college, that doesn’t mean the marginal student does…. The best study I’ve seen on this comes from Seth Zimmerman, a PhD student at Yale. He compared the earnings of Florida students whose GPAs were just above and just below the Florida State University system’s cutoff. There’s a huge effect of being just above the cutoff (3.0, for most students), suggesting that students at the margin still gain substantially from college…. Work by Nobel laureate James Heckman and his colleagues backs this up…

Erik Loomis: This Day in Labor History: May 26, 1924: “On May 26, 1924, the doors of the United States closed to most immigrants…

…as President Calvin Coolidge signed the Immigration Act of 1924. The law set the yearly quota for a nation’s population to immigrate to the U.S. at 2% of its U.S. population in… 1890…. This law put an end to the immigrant flows to the U.S. that had provided the labor force for the nation’s stupendous industrial growth in the late nineteenth and early twentieth centuries. It also demonstrates the great discomfort many Americans had with the diversity that became a byproduct of the need for such an expanding labor force. Immigrants from southern and eastern Europe seemed to threaten American values for reasons outside their funny religions, peasant clothing, and garlic-eating ways. Most people came to the U.S. for the precise reason they do today: to make money for their families back home… many hoped to make money and then return… and many did that…. But some of these immigrants, even if they just wanted to work, also believed in the need for a better world…. The Jewish women leading the Uprising of the 20,000 against apparel company exploitation in 1909 and after the Triangle Fire in 1911 were the cheap labor the department stores and clothing designers wanted but they had radical tendencies of standing up for their rights that was definitely not what the capitalists wanted…. Individual acts like Russian Jewish immigrant Alexander Berkman trying (and failing in spectacular fashion) to assassinate plutocrat Henry Clay Frick after Homestead or the native-born but son of immigrants Leon Czoglosz killing President William McKinley was a sign of the very real violence…. The American Federation of Labor strongly supported all anti-immigration legislation despite being headed by an English immigrant by the name of Samuel Gompers…. The events of World War I changed the equation. The unfair equation of the IWW with pro-Kaiser sentiment… meant that immigrants were more suspect than ever and that everything about them needed watching…. Perhaps the most notable feature about the Immigration Act was setting the racial quotas to 1890 level. The quotas of immigrants from each country would be based upon their numbers in the United States according to the 1890 census. It meant that Germans, Irish, and English could still come over in relatively undiminished numbers…

Room for Debate: Did the Bank Bailout Do Enough for the Country?:

AMIR SUFI, UNIVERSITY OF CHICAGO: Housing Crisis Was Overlooked: Letting bankruptcy judges write down mortgages and providing an ambitious mortgage refinancing plan would have reduced foreclosures.

LEE SACHS, FORMER COUNSELOR TO THE TREASURY SECRETARY: Our System Is Safer and More Stable: Radical reshaping should not be an objective for its own sake. Rescue efforts and reforms protected consumers, taxpayers and the flow of credit.

DEAN BAKER, CENTER FOR ECONOMIC AND POLICY RESEARCH: Better No Bailout, Than the One We Got: Banks weren’t forced to shrink and get boring. If they were allowed to fail, federal spending could have kept the economy afloat and led to recovery.

ANAT R. ADMATI, STANFORD UNIVERSITY: Too Much Debt and Not Enough Equity: Tougher requirements would have prevented banks from hiding their true losses, and loosened credit for businesses and individuals.

EDWARD HARRISON, CREDIT WRITEDOWNS: More Focus Is Needed on Deep Economic Flaws: Until we address stagnant income, high household debt, insufficient bank capital and excessive risk, another crisis may be inevitable.

GLENN HUBBARD, COLUMBIA UNIVERSITY: Too Narrow a Focus on Banks: There was little discussion of financial institutions other than banks and government institutions, which helped spread contagion.