Category: Equitablog

Matthew Yglesias: Our Vacant Homes Aren’t Where People Need Houses: “I argued… zoning regulations are holding back a potential construction boom….

One key challenge to that view comes from… housing vacanc[ies]… which… remains stubbornly high…. Banks who’ve foreclosed on homes prefer to keep these houses vacant and preserve their paper value as assets than to sell the houses at current market rates and acknowledge the extent of their financial losses. But… if rents are rising nationwide… why aren’t these empty houses increasing in value and being brought back to the market?… Vacancies are in the wrong places. People can’t move into vacant homes in Florida, Detroit, and Las Vegas and commute to jobs in Silicon Valley, Manhattan, or Washington DC…. The markets in the San Francisco Bay… have super-low vacancy rates… so do the suburbs of the three major cities of the Northeast Corridor, and… the two highest-wage cities in the interior of the country, Denver and Minneapolis. The places where people could find the most economic opportunities, in other words, don’t have the housing supply…. Rents are rising in these areas, but they’re also the toughest markets to get permission to build. So we’re left with the worst of both worlds–high rents and empty houses…

Should-Reads:

1. Eric Monnet: A Monetarist History of the Fed: “The monetarist prism through which [Allan] Meltzer sees the history of monetary policy is also the cause of certain errors and oversights…. The history of ideas and… political relations… supplants administrative history…. His analyses of decision-making and administrative processes are nowhere near as extensive as his history of monetary theory. For instance, he never mentions the number of people employed by the Fed; little detail is offered about the operation of the twelve regional federal banks; and there is no discussion of the relation between these banks and regional economies. The… primacy accorded to the monetary prism… prevent[s] the author from considering Fed decisions in any framework other than one of simple… price stability…. It is hard to deny that in a democracy the representatives of the people are entitled to make the law, which cannot be set aside in the name of economic efficiency defined in a highly theoretical manner. This of course raises the question of the political legitimacy of Fed policy, which Meltzer dismisses with the assertion that the Fed must be credibly committed to price stability…. In the end, it is difficult to overlook a certain gap between the history that Meltzer recounts and the conclusions he draws…. Even if the decisions of the Fed draw on a framework of economic theory, that framework cannot fully determine the outcome because it is never comprehensive enough to yield unambiguous solutions to problems as they arise in real time…. Despite this cognitive complexity, Meltzer simply reiterates his belief in the need for price stability as a long-term goal, along with a credible rule for anchoring expectations, and he regards any deviation from such a rule as a failure of monetary policy…. His interpretation… does not really do justice to the complexity of the phenomena…. He shares… the old monetarist dream of an ‘automatic monetary policy’…. Despite Meltzer’s own position on the issue, his absorbing history of more than seventy years of Fed activity will convince many readers that such a rule is absolutely impossible to define…”

2. Duncan Black: Whatever Pisses Off Liberals: “The reverse isn’t true. I really don’t see liberals supporting or opposing things because they imagine it’ll piss off conservatives…. ‘Increased MPG standards will sure piss off Limbaugh! Let’s vote for that!’ It’s somewhat unrelated, but I’m reminded of when the Last Honest Man In Washington, Joe Lieberman, briefly floated Medicare buy-in at 55 as a kind of compromise for the public option in the ACA. I pleaded with everyone I knew to STFU about it, because of course liberals would have taken that deal. I knew that the instant the greatest man who ever lived got wind of the fact that liberals would actually love that deal he’d back off supporting it, because liberals. And he did…”

Should Be Aware of:

Continue reading “Things to Read on the Morning of April 29, 2014” →

Ezra Klein: The Republican replacement for Obamacare is Fauxbamacare: “Scott Brown… called Obamacare a ‘disaster’…

…Then he was asked what he’s for  — and he went on to describe Obamacare.

I’ve always felt that people should either get some type of health care options, or pay for it with a nice competitive fee. That’s all great. I believe it in my heart. In terms of preexisting conditions, catastrophic coverages, covering kids, whatever we want to do… [it could] include the Medicaid expansion [for] folks who need that care and coverage…

Continue reading “Morning Must-Read: Ezra Klein: The Republican replacement for Obamacare is Fauxbamacare” →

Rob Wile: Brad Delong On Piketty: Below is a Q&A with Brad Delong…

…economics professor at Berkeley. The topic was Thomas Piketty’s new book “Capital in the Twenty-First Century.” This Q&A went out to subscribers of our “10 Things You Need To Know Before The Opening Bell” newsletter on Monday morning. Sign up here to get the newsletter and more of these interviews in your inbox every day.

I have expanded my answers a bit:

BUSINESS INSIDER: What one comment or idea has stuck with you most from Berkeley’s “Piketty Day?” ​

BRAD DELONG: That Piketty has a very uphill climb to get modern American economists to believe his story. Their–our–default models were built for an age in which there was very little movement in inequality and in the capital share of income, and thus the models assume that virtually nothing has a big effect on income and wealth inequality or the capital share of income. Thus our knee-jerk reaction is to reject Piketty’s story because it does not fit our standard models. But, then, no story that accounted for the rise would fit our standard models.

Continue reading “Over at Business Insider: Five Questions and Answers About Thomas Piketty’s “Capital in the Twenty-First Century”: Monday Focus; April 28, 2014″ →

There are many candidates for the worst review of Thomas Piketty’s Capital in the Twenty-First Century**. Consider Allan Meltzer. He opens:

Allan Meltzer: The United States of Envy: “In advance of the 2014 election…

…the Obama administration has drawn the political discussion away from its unpopular and flawed healthcare plan, usually called Obamacare, to bring public attention and support for increased income redistribution…. We can all expect this theme to be trumpeted loudly by the mainstream press as the mid-term election approaches: Some of us can have more, the argument goes, if we force others to have less. Support for the alleged social benefits of setting much higher marginal tax rates on the highest incomes has now been endorsed by the International Monetary Fund, based heavily on research by two French economists named Thomas Piketty and Emanuel Saez. The two worked together on the faculty at MIT, where the current research director of the IMF, Olivier Blanchard, was a professor. Like Piketty and Saez, he is also French. France has, for many years, implemented destructive policies of income redistribution….

I agree that in the past there was a notable positive association between economic growth and the spread between the shares of income going to the top 1, 5, or 10 percent of the earners and the share going to the remainder. The mistake is to conclude that narrowing the distribution contributes to growth. The far more plausible explanation is that economic growth in capitalist countries over the past two centuries contributed to a steep decline in the share of the top earners…

What can we say? That Meltzer has not read the book, because if he had read the book he would know that one of Piketty’s big points–r > g, remember–is that patrimonial capitalism weakens when economic growth is fast? That he is too disconnected from the world to remember that Emmanuel Saez was never on the MIT faculty? That he is too lazy to check his (faulty) memory against Emmanuel Saez’s cv? That there are many people in France who are as opposed to progressive taxation as Allan Meltzer? That France’s income-redistribution policies have not kept it from having as high median after-tax incomes with a lot more vacation time and better health care outcomes than the United States? Or that the lead with its invocation of the joint conspiracy of the mainstream media and the Obama Administration to distract attention from ObamaCare is unhinged wingnut regurgitation of mendacious talking points at its worst?

Must-Reads:

1. Jonathan Chait: Piketty, Oligarchy, and Conservative Evasion: “Every so often, a right-winger billionaire will go on an epic public rant against class warfare, populism, and the depredations of the Democratic soak-the-rich tax agenda. But such rants are noteworthy not only for their hilarious lack of self-awareness and uncomfortable tendency to invoke Adolph Hitler, but for their sheer discordance with the rest of the Republican message. The GOP obviously does not want its public face to be filthy rich men wallowing in self-pity…. The sudden popularity of Thomas Piketty’s Capital in the Twenty-First Century has again thrust conservatives into the pseudo-populist defensive stance…. David Brooks’s column today… a wilder essay/rant by Washington Free Beacon editor Matthew Continetti. Brooks (not for the first time) suggests that the liberal concern over inequality is driven by liberal elites, who are prestigious and wealthy, but less wealthy than the hedge-fund titans with whom they regularly interact, and against whose riches they bristle with resentment…. Continetti, meanwhile, brings up Piketty only to argue that the true oligarchs in America are the liberals…. What both have in common is a myopic focus on the sociological identity of Democratic elites…. In fact, American politics revolves around a policy dispute that carries massive repercussions for inequality…. Neither Brooks nor Continetti mentions any of these things. For all the demented paranoia of Tom Perkins, Ken Langone, Charles Koch, and the like, at least they are willing to acknowledge the basic class contours of the struggle in which they’re engaged…”

2. Adam Bonica and Jenny Shen: The rich are dominating campaigns. Here’s why that’s about to get worse

Continue reading “Things to Read at Nighttime on April 25, 2014” →

Larry Bartels does not like Nate Cohn’s piece in The Upshot on America’s (and Obama’s: but largely America’s) big problem–that southern (and prairie) whites seem to be separating themselves from the rest of us in their political (and other) attitudes to a remarkable degree.

I badly need a referee here to sort out the arguments. Is there one?

Continue reading “Southern (and Prarie) Whites as a Separate Ethnicity: I Want a Referee Here!: Early Monday Focus for April 28, 2014” →

Consider Henry Blodget, who appears to expect rapid and full mean-reversion to the very long run average ratio of prices to earnings, in spite of secularly low interest rates…

Henry Blodget: Stock Market And Investing Outlook: “Everyone’s getting cautiously bullish again…

…except me. I still think stocks are poised to have a decade or more of lousy returns…. Stocks are very expensive. Corporate profit margins are at record highs. The Fed is now tightening…. Unless ‘it’s different this time’ — the four most expensive words in the English language — stocks are priced to return only about 2.5% per year for the next decade, a far cry from the 10%-per-year long-term average…. I own lots of stocks, though, and I’m not selling them…. No other asset classes are attractively priced, either. Unfortunately, it looks as though we’re set up to have one of the worst decades in history in terms of the performance of financial assets….

The chart below is from Yale professor Robert Shiller. It shows the cyclically adjusted price-earnings ratio of the S&P 500 for the last 130 years. As you can see, today’s P/E ratio of 25X is miles above the long-term average of 15X…

I don’t see this: I see that stocks are likely to return:

• 6%/year in real (inflation adjusted) terms,
• plus or minus whatever changes we see in valuation ratios.

That means that if we expect to see P/E10 fall over the next decade from 25X to 19X then we can expect to see returns of 3%/year real–that is, 5%/year nominal. That means that if we expect to see P/E10 fall all the way back to 15X over the next decade, then we can expect to see returns of 1%/year real–that is 3%/year nominal. But that is unlikely to happen. And if P/E10 remains at its current valuation ratios, we have 6%/year real returns–8%/year nominal.

Equities still look very attractive to me…

Must-Reads:

1. Ezra Klein: What’s the liberal equivalent of climate denial?: “Kahan… argu[es]… being right is irrelevant. ‘It’s not whether one gets the answer right or wrong but how one reasons that counts.’ A liberal who works backwards from conclusions but happens to believe in climate change is ‘to be congratulated for being lucky that a position they unreasoningly subscribe to happens to be true’, but nothing more. Here, Kahan makes a serious mistake. Political reasoning doesn’t take place inside our heads. It takes place inside our parties. No one can personally investigate the vast array of issues facing the country. In terms of getting the right answers, the most important decision people make is choosing whom to trust…. Majority parties bear the heavy responsibility of actually getting policy right…. That’s less true for minority parties. They have the luxury of being irresponsible…. But even minority parties have reason to calm the tribal impulses of their members. Winning elections requires winning the support of many voters who aren’t hardcore conservatives or liberals…”

2. Kevin Drum: Aetna CEO: Obamacare Pretty Much On Track: “CEO Mark Bertolini passed along a couple of interesting factlets: ‘Bertolini said about half of the company’s premium increases, whatever they turn out to be, will be attributable to “on the fly” regulatory changes made by the Obama administration. He cited as an example the administration’s policy of allowing old health plans that were supposed to expire in 2014 to be extended another three years if states and insurers wanted to…. Aetna has added 230,000 paying customers from ACA exchanges, and it projects to end the year with 450,000 paid customers. It said it can’t yet draw a “meaningful conclusion” about the population’s overall health status.’ The first is interesting because it suggests that Aetna’s premium increases won’t be based on fundamentals… aren’t rising because the customers Aetna signed up were older or sicker than they expected…. And the second is interesting because Aetna apparently expects to double its Obamacare customer base by the end of the year.”

3.

Continue reading “Things to Read on the Afternoon of April 24, 2014” →

Kevin Drum: Aetna CEO: Obamacare Pretty Much On Track: “CEO Mark Bertolini passed along a couple of interesting factlets:

Bertolini said about half of the company’s premium increases, whatever they turn out to be, will be attributable to “on the fly” regulatory changes made by the Obama administration. He cited as an example the administration’s policy of allowing old health plans that were supposed to expire in 2014 to be extended another three years if states and insurers wanted to…. Aetna has added 230,000 paying customers from ACA exchanges, and it projects to end the year with 450,000 paid customers. It said it can’t yet draw a “meaningful conclusion” about the population’s overall health status.

The first is interesting because it suggests that Aetna’s premium increases won’t be based on fundamentals… aren’t rising because the customers Aetna signed up were older or sicker than they expected…. And the second is interesting because Aetna apparently expects to double its Obamacare customer base by the end of the year.