Should-Read: Robynn Cox, Seva Rodnyansky, Benjamin Henwood, and Suzanne WenzelMeasuring population estimates of housing insecurity in the United States: A comprehensive approach: “A seven dimension definition of housing security set forth by Cox et al. (2017)…

…While the categories overlap, they do not do so perfectly…. Rural, exurban, and central city locations experience the most housing concerns…. Single households, poor households (i.e., income less than two times the poverty line), black households, Hispanic households, undocumented immigrants, and less educated individuals experience more severe forms of housing insecurity…. Older adults are also more likely to experience low housing security. This provides some validation that our measure is trending with well-established poverty measures…

Should-Read: Elizabeth U. Cascio: Does Universal Preschool Hit the Target?: Program Access and Preschool Impacts: “This paper takes advantage of age-eligibility rules to construct an instrument for prekindergarten (pre-K) attendance…

…in survey data where the mediating influence of program access can be directly assessed… exploit[ing] the relatively large difference in pre-K attendance rates between 4 year olds in adjacent kindergarten entry cohorts in states with robust state-funded pre-K programs. This approach reveals a substantial positive effect of attending pre-K on cognitive test scores at age 4, but only for low-income children enrolled in universal programs.

Both universal and targeted programs displace enrollment in other center-based care, and differences in state standards cannot explain the higher impacts of universal programs for low-income children. Together, these findings suggest that universal programs offer a relatively high-quality learning experience for low-income 4 year olds not reflected in the quality metrics
frequently targeted by policymakers…

Should-Read: I think Skidelsky gets it closer to right here than Krugman did in the piece Skidelsky is critiquing: Robert Skidelsky: How Economics Survived the Economic Crisis: “Unlike the Great Depression of the 1930s, which produced Keynesian economics, and the stagflation of the 1970s, which gave rise to Milton Friedman’s monetarism…

…the Great Recession has elicited no such response from the economics profession. Why?… There are serious problems with Krugman’s narrative…. Krugman’s… response is that the New Keynesians… [had] a failure not of theory, but of “data collection.” They had “overlooked” crucial institutional changes in the financial system…. Faced with the crisis itself, the New Keynesians had risen to the challenge. They dusted off their old sticky-price models from the 1950s and 1960s, which told them… budget deficits would not drive up near-zero interest rates… increases in the monetary base would not lead to high inflation… and… there would be a positive… multiplier… from changes in government spending and taxation…. [But] the success of New Keynesian policy had the ironic effect of allowing “the more inflexible members of our profession [the New Classicals from Chicago] to ignore events in a way they couldn’t in past episodes.” So neither school–sect might be the better word–was challenged to re-think first principles.

This clever history of pre- and post-crash economics leaves key questions unanswered…. Krugman admits to a gap in “evidence collection.” But the choice of evidence is theory-driven. In my view, New Keynesian economists turned a blind eye to instabilities building up in the banking system, because their models told them that financial institutions could accurately price risk…. Krugman fails to explain why the Keynesian policies vindicated in 2008-2009 were so rapidly reversed and replaced by fiscal austerity…. The answer I would give is that… Keynes was briefly exhumed for six months in 2008-2009… for political, not intellectual, reasons…. Krugman comes close to acknowledging this: New Keynesians, he writes, “start with rational behavior and market equilibrium as a baseline, and try to get economic dysfunction by tweaking that baseline at the edges.”… The problem for New Keynesian macroeconomists is that they fail to acknowledge radical uncertainty in their models, leaving them without any theory of what to do in good times in order to avoid the bad times…. Without acknowledgement of uncertainty, saltwater economics is bound to collapse into its freshwater counterpart…. So Krugman’s argument, while provocative, is certainly not conclusive. Macroeconomics still needs to come up with a big new idea…

Should-Read: What an enormous, unbelievable mess. The IRS ought to draw this tightly—goods producers, licensed architects, and degreed engineers qualify; everybody in the service sector is selling their “reputation or skill” and hence does not qualify. But I do not think that they will: Ruth Simon: The Tax Break That Doctors and Plumbers Both Will Miss: “Architecture and engineering groups…

“are right in the sweet spot”, said Mr. Viviano…. Owners of financial services, brokerage services and investment management firms cannot claim the deduction if their income is above the limits. Neither can the owner of a business “involving the performance of services” in health, law, accounting, performing arts, actuarial science, consulting or athletics. The “reputation or skill” clause could create a tax hurdle for celebrity chefs and people in many industries who built companies on their brands…. For celebrity brands, whether or not they get to benefit from the 20% deduction is likely to depend on a variety of factors, including the fine points of licensing agreements, said Howard Wagner, a managing director at the accounting firm Crowe Horwath LLP. “This stuff is as clear as mud,” he said….

Tax experts are looking to the Internal Revenue Service to help clarify many of the gray areas, including who falls under the reputation and skills limits and which businesses are covered by words such as “health” and “consulting.”… Marshall Goldsmith, a California-based executive coach, is among those struggling to determine whether he will be able to claim the new deduction. “My accountant is not sure how this impacts me,” Mr. Goldsmith said in an email. “I guess my answer is, ’I don’t know’”…

Should-Read: The very sharp Peter Hall engages in what I think is some fuzzy thinking here, caused by his paying too much attention to economists’ tautological claim that people maximize their utility, or, as Peter puts it, “pursue their interests”. People’s actions are determined by their interests when they pursue the material well-being and freedom of themselves, their families, and those of particular concern by acting on well-founded beliefs about how the world works. When people act on beliefs that are not well-founded; or pursue goals that are not the material well-being and freedom of themselves, their families, and those of particular concern; are pursue the material well-being of people who do not have particular concern for them—well, then, they are acting against their interest, and according to ideas. To say that ideas shape interest is, in my view, unhelpful. Ideas create true or false consciousness, and then afterwards people act out of concern for their interest or because they are driven by ideas: Peter Hall: Ideas and Interests: “Interests are always interpreted (by ideas), i.e. they do not arise unambiguously from the material world…

…contrast the ‘ex ante’ account from interests with an ideas account of outcomes. But one might put even more emphasis… on… that people always act based on both their ideas and their interests…. It is impossible to have perceptions of interest without ideas (and it is those perceptions of interest rather than the interests in themselves that motivate actors). Thus claims that people are acting on their ‘interest’ are, in effect, claims that they are acting in line with some conventional set of ideas about what those interests are…. Now, there may be small sets of actors who in certain circumstances act against their ‘interests’ in the sense that they realize, by virtue of the ideas they hold, that they will lose something they value (material goods, power, etc.) by so acting. And those actors might do that as a result of holding (other) sets of ideas, eg. of the sort associated with some sort of ‘altruism’….

It becomes interesting to inquire about the role of ideas when there is (some kind of) contestation about precisely what is in the interest of the actors…. The key problem is to explain (make claims about) why some ideas become influential in specific contexts while others do not….

What sorts of implications follow from this? The Germans are probably… influenced by (Hayekian) ideas that tell them that their current posture is in the national interest as they construe it…. We can detect… instances that are distinctive by virtue of something about the prominence of the role that ideas play in them…. What is distinctive is that there was contestation… about how to interpret… the… interests of the populace…. The analytical way forward is… to ask: ‘how might we best distinguish between situations in which ideas play a somewhat different role in the interaction between interests and ideas that underpins all action?’…

Must-Read: But who is this “we”, Kemosabe? Paul Krugman believes that “saltwater” economists have little to learn, theoretically, from the financial crisis. I think that is wrong. I think what “saltwater” economists have to learn is that it was a huge mistake to engage with rather than ignore—”freshwater” economists. People interested in understanding the world and guiding policy should always have been focused on the world outside, rather than on RE and DSGE and RBC and other pointless alphabet soup: Paul Krugman: Good enough for government work? Macroeconomics since the crisis: “hen the financial crisis came policy-makers relied on some version of the Hicksian sticky-price IS-LM as their default model; these models were ‘good enough for government work’…

…While there have been many incremental changes suggested to the DSGE model, there has been no single ‘big new idea’ because the even simpler IS-LM type models were what worked well. In particular, the policy responses based on IS-LM were appropriate. Specifically, these models generated the insights that large budget deficits would not drive up interest rates and, while the economy remained at the zero lower bound, that very large increases in monetary base wouldn’t be inflationary, and that the multiplier on government spending was greater than 1. The one big exception to this satisfactory understanding was in price behaviour. A large output gap was expected to lead to a large fall in inflation, but did not. If new research is necessary, it is on pricing behaviour. While there was a failure to forecast the crisis, it did not come down to a lack of understanding of possible mechanisms, or of a lack of data, but rather through a lack of attention to the right data….

The intellectual impact of the crisis just seems far more muted than the scale of crisis might have led one to expect. Why?… Macroeconomics hasn’t changed that much because it was, in two senses, what my father’s generation used to call ‘good enough for government work’. On one side, the basic models used by macroeconomists who either practise or comment frequently on policy have actually worked quite well, indeed remarkably well. On the other, the policy response to the crisis, while severely lacking in many ways, was sufficient to avert utter disaster, which in turn allowed the more inflexible members of our profession to ignore events in a way they couldn’t in past episodes….

The DSGE models that occupied a lot of shelf space in journals really had no room for anything like this crisis. But macroeconomists focused on international experience—one of the hats I personally wear—were very aware that crises triggered by loss of financial confidence do happen, and can be very severe…. Did economists ignore warning signs they should have heeded? Yes…. But did this failure of observation indicate the need for a fundamental revision of how we do macroeconomics? That’s much less clear…. Was the failure of prediction a consequence of failures in the economic framework that can be fixed by adopting a radically different framework?… A significant wing of both macroeconomists and financial economists were in the thrall of the efficient markets hypothesis, believing that financial overreach simply cannot happen—or at any rate that it can only be discovered after the fact, because markets know what they are doing better than any observer. But many… knew better… especially those who had studied or been involved with the Asian crisis of the 1990s. Yet they (we) also missed some or all of the signs of overreach. Why?…

My bottom line is that the failure of nearly all macroeconomists, even of the saltwater camp, to predict the 2008 crisis was similar in type to the Met Office failure in 1987, a failure of observation rather than a fundamental failure of concept. Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas…

Must-Read: In Charlie Stross’s view, the discourse and worries about Artificial Intelligence “Singularity” are of primary interest to sociologists, psychologists, and theologists; and not to economists or technologists. Stross says that economists and technologists should, instead, think of AI as purposeful cognitively informed nonhuman behavior toward goals—and view the development of, growth of, and consequences of those slow AI entities called “business corporations” as our template for thinking about the coming of nonhuman near-Turing class cognition to our world: Charlie Stross: Dude, you broke the future!: “If it walks like a duck and quacks like a duck, it’s probably a duck. And if it looks like a religion it’s probably a religion…

…I don’t see much evidence for human-like, self-directed artificial intelligences coming along any time now, and a fair bit of evidence that nobody except some freaks in university cognitive science departments even want it. What we’re getting, instead, is self-optimizing tools that defy human comprehension but are not, in fact, any more like our kind of intelligence than a Boeing 737 is like a seagull. So I’m going to wash my hands of the singularity as an explanatory model… and try and come up with a better model…. History gives us the perspective to see what went wrong in the past, and to look for patterns, and check whether those patterns apply to the present and near future. And looking in particular at the history of the past 200-400 years—the age of increasingly rapid change—one glaringly obvious deviation from the norm of the preceding three thousand centuries—is the development of Artificial Intelligence, which happened no earlier than 1553 and no later than 1844. I’m talking about the very old, very slow AIs we call corporations, of course. What lessons from the history of the company can we draw that tell us about the likely behaviour of the type of artificial intelligence we are all interested in today?…

Should-Read: As near as I can see it, the clever Simon Wren-Lewis thinks that what Brexit will mean in practice is that Britain loses its votes in Brussels and Strasbourg, but otherwise things go on as they have been: few in England really want a hard Irish border; or the departure of large chunks of London finance for Frankfort, Paris, and Dublin; or restrictions on Britain’s abilities to visit and move to continental Europe. That’s called “staying in the EU—but without any control over what the EU does because you have Brexited”. And Simon is right to say that this is stupid and idiotic and unsustainable, and would it short order be rationally followed by Brexreentrance. But I think he has it wrong: he presumes that the Tory and Labour politicians in Westminster in the medium-term future will not be cynical posturing morons. And he has no warrant for believing that: Simon Wren-Lewis: Does Brexit end not with a bang but a whimper?: “Most media commentary on Brexit makes a huge mistake… focuses on what the UK government may wish to do or should do…

…We should have known the moment Article 50 was triggered: the EU is calling the shots…. But the fact that the UK agreed to the text, and particularly the parts on the Irish border, has told the EU… the current UK government is not going to walk away with no deal, and even if it did the current parliament would almost certainly stop it. That in turn tells the EU that it can get, to the first approximation, the agreement it wants. So what we should be asking is not what the UK’s next move will be, but what the preferred outcome for the EU is. My guess would be that their preferred outcome is a formalisation of the transition arrangements…. It avoids a hard Irish border, it imposes no additional trade restrictions, and the UK is clearly worse off… has no control over the rules it must obey…. Two alternatives… staying in the Single Market and staying in it just for goods… Dreams of doing trade deals with other countries would no longer be possible, and for that and other reasons a large part of the Conservative party would not be happy. The Conservative’s Europe problem would not be solved. The fact that the Brexiters will still be agitating for a more pronounced break from Europe will be one reason why the UK will stiff suffer in economic terms…. Norway and Switzerland may be able to tolerate being out of the club but obeying its rules because they would probably reason their impact within the club would be small….

Does this mean that any deal will just be the first stage of breaking away from Europe? The Brexiters will agitate for this, but I doubt it will happen. The Brexit is essentially a project of the old. It seems far more likely to me that as time passes a majority for rejoining will emerge, and Brexit will come to an end. This made period of UK politics, and all the political and economic harm it has done, will be a complete dead end, a colossal and damaging waste of time. This is my best guess at how Brexit will end…. The vote that rules them all today will gradually be seen… as just the machinations of a small number of hollow men…