Category: Equitablog

Bloomberg Surveillance: Wednesday 4:15 AM PDT: LIVE on TV with Tom Keene and Bill Janeway:

1. What does the 2008 global financial crisis tell us about innovation and digital tech in financial sector? What lessons have you gleaned? That our private sector financial institutions really lousy job at risk management. And this is horrible because if there is one factor of production in desperately short supply right now, it is risk-bearing capacity. The potential risk-bearing capacity of our economy is enormous, but private financial markets managed to mobilize very little of that.

2. How should we be calculating GDP, employment and productivity? Differently than we do now! We really are moving away from the rival-and-excludible-commodity paradigm. Yet we have a measure of economic welfare–GDP–that relies extremely heavily upon that paradigm

3. How should DC communicate with Wall Street & Silicon Valley? I do not think that DC needs to communicate or be thinking about communicating with Wall Street and Silicon Valley. I think Main Street, Silicon Valley, and Wall Street need to effectively communicate their displeasure to DC instead.

   The fact the Bush administration took the deficit reduction work of the Clinton administration and gleefully smashed it on the floor should have provoked enormous displeasure with DC from all three. But what we have here is a failure to communicate. Consider that Barack Obama has put forward George H.W. Bush’s tax policy, second-term Ronald Reagan’s foreign policy, Mitt Romney’s health-care policy, John McCain’s climate-change policy, and Bill Clinton spending-growth policy, and yet is still denounced by Republicans everyday as the radical left-wing Kenyan Muslim Socialist. Enormous displeasure at this should be expressed everyday by Main Street, Wall Street, and Silicon Valley. Yet it is not.

   Plus the Republican establishment in Red States really need to be expressing their enormous displeasure with their statehouses. Their statehouse politicians decided that even though Obamacare implementation–Medicaid expansion, Marketplace competition, the subsidy pool for the working poor to purchase insurance–is working between excellent and so-so in Blue States, they from their Red-State statehouses are going to try to break its implementation in their states. Why? in the hope of gaining some electoral advantage. At what price? At the price of doing a remarkable job to impoverish their constituents. “Political malpractice” and “awesome in its evilness” was how Jon Gruber was characterizing this last week…

4. Thoughts on the digitization of global economy. That we economists haven’t thought through the issues around radical relative price changes/real income/relative income/relative wealth…

5. Are bubbles necessary? No. They may be inescapable, but they are not necessary. But we can hope for systems of surveillance good enough so that central bankers and finance ministers can determine where the punchbowl is, and then brave enough to take it away. And some bubbles may be useful. Cf. Stiglitz on dot-coms…

6. What matters most to you right now? Trying to be one of Larry Summers’s wingmen as he continues what is now the fifth year of his crusade for expansionary fiscal policy via an infrastructure bank. He’s right. Yet his arguments are getting much too little traction everywhere…

Ben Casselman: Losing Benefits Isn’t Prodding Unemployed Back to Work: “More than a million Americans saw their unemployment benefits expire at the start of the year, after Congress failed to renew the Emergency Unemployment Compensation program….

Some economists had argued that the program was doing more harm than good by discouraging recipients from looking for work or taking jobs. They said that because the job market was improving, the time had come to cut off benefits. That would prod the unemployed to get back to work, perhaps leading them to accept offers that seem less than ideal. So far, however, the evidence doesn’t seem to support that theory. Rather than finding jobs, the long-term unemployed continue to be out of luck. We now have three months’ worth of job market data since the benefits program expired…”

Jared Bernstein: Summers on Infrastructure Needs: “If there’s something awry in the logic of Larry Summers’ argument here for more infrastructure investment…

…I certainly can’t see it. Based on low real interest rates, still high unemployment particularly among blue-collar production and construction workers, and most of all, the need for productivity-enhancing investments in our aging public goods, Larry is very much correct to ask “if not now, when?”…. We are, at some point, going to wise up and start engaging in the needed maintenance of our depreciating stock of public goods…. So given the confluence of factors Larry identifies, shouldn’t we start now? There are many “two-fers” in this space…. Larry doesn’t get much into the politics, but they’re of course central.  One could historically count on bipartisan support for this type of investment.  I mean, business interests might oppose the minimum wage and unions, but of course they want and need adequate ports, roads, airports, and so on, not to mention a skilled work force.  No firm can supply these public goods. But in a sign of how different these times are, not only is bipartisan support for infrastructure investment far from forthcoming, Rep. Paul Ryan’s new budget significantly cuts transportation funding…

Must-Reads:

1. Felix Salmon: Yes, the SEC Was Colluding with Banks on CDO Prosecutions: “Back in 2011, I asked whether the SEC was colluding with banks on CDO prosecutions. And now, thanks to an American Lawyer Freedom of Information Request, we have the answer: yes, they were. This comes as little surprise: it beggared belief, after all, that every bank would end up being prosecuted for one and only one CDO. But now we have chapter and verse…. It’s quite impressive how quickly and accurately Goldman nailed the amount of money that it would have to pay the SEC to settle the case: when it took three months to come to the $550 million settlement, I for one assumed that Goldman had to be dragged kicking and screaming to that point. In fact, however, Goldman was happy to offer half a billion dollars right off the bat. The tough part of the negotiation was… over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent. The answer was a clear no… the SEC quietly assured Goldman–but not the public at large–that none of those deals would result in any charges. And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS…. Basically, there’s a CDO lottery, and, thanks to the way in which the SEC cozied up to the big banks, the average CDO investor has a very small chance of having won it…”

2. Ezra Klein: The Right Can’t Admit that Obamacare Is Working: “Obamacare’s successes are… conservatism’s successes. The individual mandate is a conservative idea–and it’s working. Liberals were skeptical that private insurers would compete on price even absent a public option–but they are. High-deductible health plans are a longtime conservative solution for health costs–and Obamacare is spreading them far and wide. But conservatives can’t take credit for any of this, much less build on it…. Many think Obamacare is basically working despite the Obama administration’s best efforts. The roll-out really was a disaster, the law remains unpopular, and estimations of the Obama administration’s competence are still low. The public would gladly flock to a political party that had a real plan for improving Obamacare, and a serious claim to being able to manage it more professionally. Luckily for the Obama administration, Obama Derangement Syndrome ensures Republicans are still far, far away from being that party.”

3. Daniel Kuehn: Strong and Weak Forms of Gender Pay Gap Skepticism: “Critics assert… that invocation of the gender pay gap is usually of the form ‘the entire 23% gap is discrimination by employers’. Rarely is any evidence offered that this is what most people claim…. Strong claim: The conditional difference in means is the amount of discrimination between men and women in pay and therefore there is little discrimination because women choose different occupations, majors, etc. Weak claim: The conditional difference in means is the amount of discrimination between men and women in pay and therefore there is little discrimination but there might be other social problems we don’t like…. So what are the issues with Steve’s post?… You can’t simply control for occupation and major and call it a day because people select into occupations and majors based on expected wages, and that selection process influences the observed wage distribution…. The framing problem…. Steve uses ‘discrimination’ to refer to discrimination in the salary determination and ‘sexism’ to refer to everything else. With these definitions in hand he starts off his video by telling people (like Perry and Biggs did) that the pay gap is an economic ‘myth’, and that ‘it’s “mostly” not discrimination’…. This muddies the waters…”

4. Austin Frakt: What happened to offsetting coverage expansion costs?: “I’m old enough to remember when a good deal of the Affordable Care Act’s coverage expansion cost was to be offset by cuts to Medicare. I also recall that many critics of the ACA said Congress and the Administration would not uphold those cuts, that they’re politically unrealistic. I agreed with that critique, at least in part. Now we have solid evidence that critique was on target, at least as far as Medicare Advantage (MA) is concerned. Last week, the Centers for Medicare & Medicaid Services, once again, failed to uphold scheduled cut payments to MA plans…. I’ve long argued that MA payment rate setting needs to be further insulated from politics. The much maligned IPAB could serve such an insulating role…. Ironically, it’s attacked from some of the same quarters that question the government’s resolve in upholding ACA cuts to Medicare…. As far as MA is concerned, it’s not clear that the existing governing structures are willing and able to do the job…”

Continue reading “Things to Read on the Morning of April 15, 2014” →

Austin Frakt: What happened to offsetting coverage expansion costs?: “I’m old enough to remember when a good deal of the Affordable Care Act’s…

…coverage expansion cost was to be offset by cuts to Medicare. I also recall that many critics of the ACA said Congress and the Administration would not uphold those cuts, that they’re politically unrealistic. I agreed with that critique, at least in part. Now we have solid evidence that critique was on target, at least as far as Medicare Advantage (MA) is concerned. Last week, the Centers for Medicare & Medicaid Services, once again, failed to uphold scheduled cut payments to MA plans…. I’ve long argued that MA payment rate setting needs to be further insulated from politics. The much maligned IPAB could serve such an insulating role…. Ironically, it’s attacked from some of the same quarters that question the government’s resolve in upholding ACA cuts to Medicare…. As far as MA is concerned, it’s not clear that the existing governing structures are willing and able to do the job…

Felix Salmon: Yes, the SEC Was Colluding with Banks on CDO Prosecutions: “Back in 2011, I asked whether…

the SEC was colluding with banks on CDO prosecutions. And now, thanks to an American Lawyer Freedom of Information Request, we have the answer: yes, they were. This comes as little surprise: it beggared belief, after all, that every bank would end up being prosecuted for one and only one CDO. But now we have chapter and verse…. It’s quite impressive how quickly and accurately Goldman nailed the amount of money that it would have to pay the SEC to settle the case: when it took three months to come to the $550 million settlement, I for one assumed that Goldman had to be dragged kicking and screaming to that point. In fact, however, Goldman was happy to offer half a billion dollars right off the bat. The tough part of the negotiation was… over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent. The answer was a clear no… the SEC quietly assured Goldman–but not the public at large–that none of those deals would result in any charges. And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS…. Basically, there’s a CDO lottery, and, thanks to the way in which the SEC cozied up to the big banks, the average CDO investor has a very small chance of having won it…

Please join the Economic Policy Institute and the Washington Center for Equitable Growth: “for a presentation by Thomas Piketty…

…economist from the Paris School of Economics and ground-breaking researcher on income inequality—of the findings in his new book, Capital in the Twenty-First Century.

;His presentation will be followed by a panel discussion moderated by Heather Boushey, Executive Director and Chief Economist of the Washington Center for Equitable Growth, with Josh Bivens, Research and Policy Director of the Economic Policy Institute, Robert M. Solow, Professor Emeritus at the Massachusetts Institute of Technology and Betsey Stevenson, Member of the White House Council of Economic Advisers, serving as discussants.

When: Tuesday, April 15, 2014 from 9:30 AM to 11:00 AM (EDT)

Where: 1333 H St NW; Suite 300, East Tower; Washington, DC 20005…

Ezra Klein: The Right Can’t Admit that Obamacare Is Working: “Obamacare’s successes are… conservatism’s successes.

The individual mandate is a conservative idea–and it’s working. Liberals were skeptical that private insurers would compete on price even absent a public option–but they are. High-deductible health plans are a longtime conservative solution for health costs–and Obamacare is spreading them far and wide. But conservatives can’t take credit for any of this, much less build on it…. Many think Obamacare is basically working despite the Obama administration’s best efforts. The roll-out really was a disaster, the law remains unpopular, and estimations of the Obama administration’s competence are still low. The public would gladly flock to a political party that had a real plan for improving Obamacare, and a serious claim to being able to manage it more professionally. Luckily for the Obama administration, Obama Derangement Syndrome ensures Republicans are still far, far away from being that party.

I confess I thought that Nicholas Bagley had misread Michael Cannon. But no…

Cato: if you want to be taken seriously at all, you need to step up your game. Badly.

Nicholas Bagley:

Nicholas Bagley: A bad reason to oppose Burwell: Michael Cannon has predicted…

…indeed, he hopes—that [Sylvia Matthews Burwell] will have a “brutal confirmation process,” and all because of IPAB… the Independent Payment Advisory Board… a pre-commitment device, one that reflects the public’s genuine desire to constrain Medicare spending even if feckless legislators can’t muster the political courage to do it themselves…. Because the Secretary can wield IPAB’s Medicare-cutting powers herself, “[t]he question confronting senators is, should Burwell be entrusted with more power than the entire Senate?”… [But] Burwell will never exercise IPAB’s powers.

Under the ACA, the Secretary can only issue a proposal if the Medicare per capita growth rate exceeds a target rate…. Under the ACA, the Secretary must submit a proposal by January 25 of each year, but only if CMS’s actuary determines by April 30 of the previous year that the target was exceeded. The target won’t be exceeded this year, so there won’t be a proposal in 2015….

Burwell could submit a proposal in 2016—but only if Medicare spending exceeds the [five-year average] target by April 2015…. Last year, the five-year growth rate was 1.15%—nowhere near the current 3% target. The growth rate this year will probably be only slightly higher…. CBO’s projections suggest that the five-year per capita growth rate in 2015 will be a measly 1.17%…. Her confirmation hearings should focus on the powers she will exercise—not the ones she won’t.

There’s no point in Cato having analysts who don’t understand how the government works.

Must-Reads:

1. Samuel G. Hanson et al.: Banks as Patient Fixed Income Investors: “We examine the business model of traditional commercial banks in the context of their co- existence with shadow banks. While both types of intermediaries create safe “money-like” claims, they go about this in very different ways. Traditional banks create safe claims with a combination of costly equity capital and fixed income assets that allows their depositors to remain “sleepy”: they do not have to pay attention to transient fluctuations in the mark-to-market value of bank assets. In contrast, shadow banks create safe claims by giving their investors an early exit option that allows them to seize collateral and liquidate it at the first sign of trouble. Thus traditional banks have a stable source of cheap funding, while shadow banks are subject to runs and fire-sale losses. These different funding models in turn influence the kinds of assets that traditional banks and shadow banks hold in equilibrium: traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk, but are relatively illiquid and have substantial transitory price volatility.”

2. Barry Eichengreen: It’s Not a Savings Glut, It’s a Tolerance for Holding Risky Investment Shortfall: “The data show little evidence of a savings glut…. It is plausible that the wealthy consume smaller shares of their income…. But to affect global interest rates, these trends have to translate into increased global savings…. A second explanation for low interest rates is a dearth of attractive investment projects. But this does not appear to be the diagnosis of stock markets…. Capital expenditure has been insufficient to prevent rates from trending down for more than three decades…. If the disorder has multiple causes, then there should be multiple treatments… tax incentives for firms to hire the long-term unemployed; more public spending on infrastructure, education, and research to compensate for the shortfall in private capital spending; and still higher capital requirements for banks and strengthened regulation of nonbank financial institutions…. Finally, central banks should set a higher inflation target…”

3. Owen Zidar Weekend Links: “Larry Summers gave a talk at INET (starts at 45 min and goes to 1:38 or so) with some especially interesting hypotheses about the changing structure of investment (from GE’s high capital investment model to Google’s abundance of cash) and reflections on the agriculture transition (around 1:21) and the associated difficulties with large shifts in the industrial composition of employment… http://new.livestream.com/INETeconomics/HumanAfterAll/videos/47888551“

Continue reading “Things to Read on the Morning of April 14, 2014” →