Noted for the Afternoon of June 9, 2014

Should-Reads:

1. Kenneth Rogoff: Two ways to beat the zero bound on nominal interest rates: “There is no longer any reason to let the zero bound on nominal interest rates continue to hamper monetary policy. A simple and elegant solution is to phase in a switchover to a fully electronic currency, where paying interest, positive or negative, requires only the push of a button. And with paper money – particularly large-denomination notes – arguably doing more harm than good, currency modernization is long overdue. Using an electronic currency, central banks could continue to stabilize inflation exactly as they do now. (Citigroup’s chief economist, Willem Buiter, has suggested numerous ways to address the constraint of paper currency, but eliminating it is the easiest.)
   A second, less elegant idea is to have central banks simply raise their target inflation rates from today’s norm of 2% to a higher but still moderate level of 4%…”

2. David Cutler: Sometimes less health care is better health care: “Nobody denies that there’s a lot of waste. Estimates range from 15 to 20 percent on the low end to 50 percent at the high end. There are a few different categories of waste. One is clinical waste, things that are done that don’t need to be done…. We pay much more for medical services than is necessary…. The third kind of waste is administrative cost. What we spend on administrative expenses in the US is twice what we spend on heart disease and three times what we spend on cancer. That’s just absurd…. The fourth broad area is fraud and abuse…. Between all that, you get to enormous amounts of money…. The single hardest challenge… is to figure out how to make the system work better so that our goal is not cutting costs; our goal is improving value…. If you look at the poster children for bad care, like preventable readmissions, infections, and other hospital errors, there are very protocols that can be put in place. Hospitals have had enormous success with these…. There’s enough low-hanging fruit that we can make huge progress…. Fixing the supply-side problem is really about payment reform…. Right now we have one foot on the dock and one foot in the boat. The dock is the old fee-for-service system and the boat is a new, alternative payment system that is much more quality-based. It’s untenable to try to do both. The dock wasn’t working; we were basically destroying ourselves. We’ve got to jump in the boat — let’s just do it.”

3. Emily Becker: Details on the June 2014 ENSO discussion: “Today, the Climate Prediction Center (CPC) released the June ENSO Diagnostic Discussion. Chances that an El Niño will occur by summer are above 70%, and reach 80% by the fall…. Tropical rainfall across Indonesia and the Pacific remain close to average, but forecasters are confident that the atmosphere will begin to respond to the ocean and El Niño will develop, likely in the next few months…. However, right now, forecasters are not favoring a strong event (while not at all ruling it out) and believe a moderate event (ONI 1.0 – 1.5) is slightly more likely, sometime during the fall/winter…”

4. Rafael La Porta and Andrei Shleifer: Five Facts About Informal Economies: “First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life.”

5. Paul Krugman: Interests, Ideology And Climate: “The real obstacle, as we try to confront global warming, is economic ideology reinforced by hostility to science. In some ways this makes the task easier: we do not, in fact, have to force people to accept large monetary losses. But we do have to overcome pride and willful ignorance, which is hard indeed.”

Should Be Aware of:

• Michael Berube: Portrait of a Young Man with Down Syndrome
• Mallory Ortberg: What Became of the Entwives: Political Lesbianism
• Tod Kelly: Is the best satirical news found at The New Republic?
• Dylan Scott: McConnell Has Taken Almost Zero Interest In Kentucky’s Hugely Successful Obamacare Exchange

And:

1. Daniel Andrei, Bruce Carlin, and Michael Hasler: Model Disagreement and Economic Outlook: “We study the impact of model disagreement on the dynamics of asset prices, return volatility, and trade in the market. In our continuous-time framework, two investors have homogeneous preferences and equal access to information, but disagree about the length of the business cycle. We show that model disagreement amplifies return volatility and trading volume by inducing agents to have different economic outlooks, which generates a term structure of disagreement. Different economic outlooks imply that investors will trade even if they do not disagree about the current value of fundamentals. Also, we find that while the absolute level of return volatility is driven by long-run risk, the variation and persistence of volatility (i.e., volatility clustering) is driven by disagreement. Compared to previous studies that consider model uncertainty with a representative agent or those that study heterogeneous beliefs with no model disagreement, our paper offers a theoretical foundation for the GARCH-like behavior of stock returns.”

2. Violet Blue: Thanks for nothing, jerkface: “One month after creator and leader of Google+, Vic Gundotra, quietly quit, Google chief Sergey Brin told a conference audience last week that involvement in Google+ was ‘a mistake’. He made the exact opposite statement in 2011…. In the background, Google+ began ‘unifying’ people’s identities (combining its background matching of users names and profiles) in Android address books…. Google’s problems with Google+ identity control malfeasance became pop culture fodder. Android apps got similarly screwed by Google+ in 2012 when Google changed its Play Store to only allow comments from Google+ accounts…. Google Search is no longer the clean, high-performance tool we once relied on and admired — now it’s a fetid stew of Google+-littered, screwed up mystery-mechanics, running under the misguided assumption that anyone and everyone only wants more of their own location, their connections, Google’s clumsily guessed interests, and Google+ favoritism in the results served back to them…”

3. Martin Longman: The Right’s Turn Away from Representative Government: “Part of this is explained by the fact that the GOP has a lot of rotten people in it, but I understand that if you are socially or fiscally conservative you want to have your views prevail, and if your views aren’t prevailing you’ll begin to devalue other objectives like determining the true will of the people. If everything I cared about was at risk because my party couldn’t win elections, I might start to waver on this whole democracy thing, too…. They don’t want to moderate their positions on gay marriage or abortion or immigration, and as those positions become giant liabilities they feel that their only option is to turn against individual voters and try to keep them from casting their votes. This is related to all the calls for secession, for example, in the rural areas of Colorado and California…. It really begins to resemble fascism, because it’s nationalistic, race-based, often pro-corporate (although it has populist anti-corporate elements, too), anti-immigrant, and basically revolutionary in its opposition to the central government. Add in the attraction to pseudoscience and ‘creating their own facts’, its basic anti-intellectualism… and you begin to see too many parallels with the… fascism of Franco or Mussolini…”

Already-Noted Must-Reads:

1. Ashok Rao: Stress-Testing Stress Test: “Geithner certainly has history on his side when noting that far more benign banking crises have caused far more pain when confidence is missing. And, indeed, expectations are everything – putting cash in the window makes depositors less worried about taking it out now. The really damning part of Stress Test is its total disregard for monetary policy. In the sprawling seven hundred pages, there wasn’t even one fully devoted to understanding the importance of the Fed…. Geithner admits that Obama almost always heeded his advice, which makes Geithner’s own apathy towards the economics, not just finance, of the Fed that much more astonishing. The long unfilled vacancies and a bias towards bubble-bursters rather than economy-growers really redoubles the view that the Obama administration neither knew nor cared about monetary policy beyond as an immediate bandaid for Wall Street. I’m not sure what the lesson here is, but I think it militates in favor of more academic expertise within high politics…. The Federal Reserve’s goal goes beyond financial stability, and no one in the administration seemed to realize this…. Geithner is unable to provide a theoretical justification behind his policy actions…”

2. David Beckworth: Macro and Other Market Musings: Abenomics as a Fulfillment of Milton Friedman’s Policy Prescriptions: “Abenomics is largely a fulfillment of the policy prescriptions he outlined for Japan 13 years ago…. Friedman was calling for large scale asset purchases (LSAPs) long before it was vogue and understood that for the purchases to help the economy there must be a sufficiently large and permanent expansion of the monetary base…. Friedman knew that even though the monetary base and treasuries may be near perfect substitutes in a zero lower bound environment, they would not be in the future. And since investors make decisions on what they think will happen in the future, a monetary base injection that is expected to be permanent and greater than the demand for the it in the future is likely to affect spending today.  The importance of the public believing the monetary base expansion will be permanent can be illustrated by looking back to the early part of the Great Depression…. The key, then, to making monetary policy expansions work in a slump is to create the expectation that at least some part of the monetary base expansion will be permanent. Japan’s first try at quantitative easing in the early-to-mid 2000s failed on this front…. Well that was then and this is now…. It is too early to know for sure whether Abenomics is working, but the evidence so far suggest it is making a difference…. I think Milton Friedman would be happy to see Abenomics if he were alive. Happy Birthday Milton Friedman…. P.S. Whether one increases the monetary base through open market operations or through helicopter drops, the point that the increase remain permanent holds. See Willem Buiter for more this point.”