Should-Read: OK. But where is The Ugly?

Karl Smith: THE BIG SIX’S TAX REFORM FRAMEWORK: THE GOOD AND THE BAD: “For individual taxpayers, we see a meaningful effort to curb and slowly eliminate the myriad of deductions and loopholes that plague the tax code… https://niskanencenter.org/blog/big-sixs-tax-reform-framework-good-bad/

…On the corporate side, the move to a territorial system is a step in the right direction, toward a system with less gamesmanship and fewer tax-avoidance strategies. That being said, I understand the incredulity and disgust provoked by the administration’s rhetoric. President Donald Trump explicitly rejected the tax reform label in favor of the more compelling, but far less accurate, language of a middle-class tax cut. We shouldn’t, however, let the president’s inanity drive our actual analysis of policy. If we do that, the imps win. Secretary of State Rex Tillerson said it best: “The president speaks for himself.”

There are two big elements in this package that tax reformers have been looking for—for decades. The first is an end to itemization in the individual tax code. The second is the move to destination-based taxation in the corporate code…

Should-Read: Michael Geruso and Timothy Layton: Selection in Health Insurance Markets and Its Policy Remedies: “We begin by outlining some important but often misunderstood differences between two types of conceptual frameworks… http://www.nber.org/papers/w23876

…The fixed-contracts approach… views selection as influencing only insurance prices in equilibrium. The… endogenous contracts approach treats selection as also influencing the design of the contract itself, including the overall level of coverage and coverage for services that are differentially demanded by sicker consumers…. We discuss four commonly employed policy instruments….

1. premium rating regulation, including community rating;
2. consumer subsidies or penalties to influence the take-up of insurance;
3. risk adjustment; and
4. contract regulation.

We discuss these policies with reference to two markets that seem especially likely to be targets of reform in the short and medium term: Medicare Advantage and the individual insurance markets reformed by the Affordable Care Act of 2010…

Must-Read: Everybody should be very clear: Kevin Warsh is likely to be a disaster as Fed Chair—and a disaster for every class of assets:

Pedro Nicolaci de Costa: Trump sees Fed chair nomination as a reality show: “Neil Dutta, head of US economics at the research firm RenaissanceMacro, had this to say about the possible appointment of Warsh… http://www.businessinsider.com/trump-fed-chair-nomination-a-reality-show-2017-9

…a lawyer by training and a banker by profession — in a note to clients: “A client asked me ‘Can you tell me your thoughts on Kevin Warsh as the next Fed Chair? The likelihood as well as what type of chairperson they would be and how would the market react?'” His response confirms my own analysis.

Not positive. Yes, Kevin Warsh was a governor during the financial crisis. But, the way he has gone after the Fed since he has left probably has not endeared him to the people there. So, my primary concern is whether the organization would even respect him. Normally, the board’s staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption. That is a big problem.

Warsh was consistently on the wrong side of the policy debate, Dutta adds… “calling for a sharp upturn in inflation when none arrived,” Dutta wrote. “He was originally sold as a student of the financial markets in 2006 but was grumbling about aggressive monetary action while the credit markets froze up.” As for his chances at clinching the post, Trump appears to be doing a good job of keeping the reality-TV-inspired suspense alive. “Trump met with Warsh,” Dutta said. “Fine. Should we draw a big line to an actual appointment? I am quite skeptical.” Not me. Stay tuned.

Should-Read: Daniel Davies (2002): Two Cheers for This Year’s Nobel Prize: “What the hell is an “ergodic process” when it’s at home?… http://blog.danieldavies.com/2002/10/

…Ergodicity is a statistical property…. With ergodic stochastic processes, collecting more data gets you a better and better estimate of what the underlying parameters of the process are, as the “noise” cancels itself out in some statistically well-defined way…. [But] to talk about “expectations” of the future states of a nonergodic system are meaningless; people might have opinions about the future, but there aren’t the solid linkages between these views and the actual data which one would need to call them “expectations”. Certainly, there isn’t enough to support the trick used by economists in using the expectations operator to make dynamic processes static so that they can be modelled tractably.

So what? Well, so this: Most processes which are characterised by positive feedback are nonergodic. Most economic processes of interest are subject to significant, destabilising positive feedback

It’s a real problem, and in my opinion, Paul Davidson ought to be looking at something like a Nobel Prize for being one of the few economists to take it seriously. (He won’t get it, of course, because this is way out of the mainstream of academic economics, where it is still considered the mark of a clever young man to say that “chaos theory never amounted to much”). Kahneman’s work is important, but in order to be a constructive contribution to some future correct theory of economics, it needs to be thought of as a description of human decision making and behaviour forming, not as a way of rescuing the broken models of expectations economics. So a hearty “Hip hip” from me, but I’ll be keeping the champagne on ice for the meantime…

Should-Read: Ricardo Hausmann: Making the Future Work for Us: “To pessimists, the introduction of… general-purpose technologies – including 3-D printing, artificial intelligence, and the Internet of Things – threatens the demand for labor… https://www.project-syndicate.org/commentary/technology-future-of-work-by-ricardo-hausmann-2017-09

…without new forms of social solidarity, such as a universal basic income, the future will be one of widespread destitution. To optimists, the latest technological developments, like others that have propelled humanity forward, promise to deliver unprecedented levels of prosperity. It is probably impossible at this stage to say which side is right….

Since as recently as 1980, most countries have experienced large declines in agricultural employment. In some, like Portugal, Malaysia, Turkey, and Indonesia, the share of agricultural employment declined by more than 20%. In others, like Greece, Italy, Bulgaria, Hungary, Estonia, Poland, Philippines, and Sri Lanka, the decline exceeded 10%. And it’s not just agriculture. According to the World Bank’s World Development Indicators, the share of manufacturing in GDP fell in 100 of the 124 countries reporting data since 1990….

[So]what makes today’s technology-driven shifts so scary?… Technology… depends on… embedded knowledge in tools; codified knowledge in recipes, manuals, and protocols; and tacit knowledge, or knowhow, in brains.
Most of the time, these… complement one another…. But technological progress occasionally substitutes one for another…. As David Autor of MIT has pointed out, the automatic teller machine (ATM) displaced human bank tellers, but so reduced the cost of branches that their number rose, fueling an increase in employees focused on customer relationship management…. But while it is clear which jobs new technologies displace, it is harder to anticipate how the new possibilities will be exploited…. Today we are trying to predict the nature of future work before the jobs of the future have been invented….

In the end, predicting the future is beside the point. Most countries’ future is more likely to be bright if they focus on ensuring that they can master every new technology and exploit every new opportunity that comes their way.

Should-Read: Atif Mian, Amir Sufi, and Emil Verner: How do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s: “Does an expansion in credit supply affect the economy by increasing productive capacity, or by boosting demand?… http://www.nber.org/papers/w23802

…We design a test to uncover which of the two channels is more dominant, and we apply it to the United States in the 1980s where the degree of banking deregulation generated differential local credit supply shocks across states.

The stronger expansion in credit supply in early deregulation states primarily boosted local demand, especially by households, as opposed to improving labor productivity of firms. States with a more deregulated banking sector see a large relative increase in household debt from 1983 to 1989, which is accompanied by an increase in the price of non-tradable relative to tradable goods, an increase in wages in all sectors, an increase in non-tradable employment, and no change in tradable employment.

Credit supply shocks lead to an amplified business cycle, with GDP, employment, residential investment, and house prices increasing by more in early deregulation states during the expansion, and then subsequently falling more during the recession of 1990 and 1991. The worse recession outcomes in early deregulation states appear to be related to downward nominal wage rigidity, household debt overhang, and banking sector losses…

Should-Read: OK. We are agree that you should never do anything in Excel. But what should you do?

Jake VanderPlas: Reproducible Data Analysis in Jupyter: “Jupyter notebooks provide a useful environment for interactive exploration of data… http://jakevdp.github.io/blog/2017/03/03/reproducible-data-analysis-in-jupyter/

…A common question I get, though, is how you can progress from this nonlinear, interactive, trial-and-error style of exploration to a more linear and reproducible analysis based on organized, packaged, and tested code. This series of videos presents a case study in how I personally approach reproducible data analysis within the Jupyter notebook…