Must-Read: The fact that the rest of the economy pays the financial sector 2% of net asset value a year for “managing” our money indicates an enormous market failure. So does the current 7%-point/year gap between the S&P 500 earnings yield and short-term safe bond rates. Moving your portfolio from active to passive management almost surely–unless you are invested with Renaissance, Bridgwater, or one of the few other hedge funds that has an edge–helps you avoid the costs of these market failures. But does it raise or lower them for the economy as a whole?

I ought to have an informed view about this. I am distressed to find that I do not:

Robin Wigglesworth: Buy The Dip: The Death of Active Asset Management?: “The WSJ has run an annoyingly good series on the whole active versus passive asset management theme…

…Credit where credit is due etc…. On the idea that active will come back as the market becomes increasingly ruled by passive flows… active asset management performance has actually deteriorated as flows into passive have grown…. On interest rates somehow suppressing performance…. This is something you should be able to deal with. This isn’t a Rumsfeldian unknown unknown….

[On] the WSJ’s more optimistic take on active bond fund management…. Bond markets are seeing the same, accelerating trend towards passive investing…. The piece on the Nevada Public Employees’ Retirement System…. Sitting on our hands is often the best choice. That dopamine hit we feel when we take a gamble and it pays off can be too intoxicating for some to ignore…

Stephen Cohen and J. Bradford DeLong (2016): Concrete Economics: The Hamilton Approach to Economic Policy (Cambridge: Harvard University Press) http://amzn.to/2fJnSEe | Keynote

Must-Read: Noah Smith: Japan Shuts Down Its Monetary Lab: “People know that the central bank can break its promises at any time…

…Even… rule[s] can be amended at any time. The bank might change its mind…. Or the people in charge of the central bank might simply be replaced with new, more hawkish leaders. Since the central bank can’t make believable long-term promises, the effects of forward guidance and bold rhetoric are limited in reality, even if they could work in an ideal world. As for quantitative easing, it has run into its own practical hurdles…. Eventually, it starts to affect corporate governance in ways that are well outside the scope of any macroeconomic model. And since companies and consumers knew that the buying binge was temporary, that probably limited its effectiveness.

So we’re seeing that even if inflationary monetary policy works fine in theory… reality just doesn’t work the way the models assume…. If Japan is out of the monetary easing game, other countries will doubtless follow. The era of bold monetary policy experimentation that began with the global financial crisis is now drawing to a close. More and more, economic policy makers will look to fiscal initiatives and to deeper structural reforms to boost growth and stop deflation.

Must-Read: Fritz Minsky: @FritzMinsky: “Prescient analysis by @AdamPosen – ‘A Better Global Policy Mix by Accident?'” https://t.co/nKCxEp9iIK

Must-Read: The lowest-hanging fruit in terms of improving the conditions of life of the working class was… ObamaCare: the system that Mitt Romney had set up in Massachusetts generalized to the nation as a whole. But the next lowest-hanging fruit is Social Security expansion, as Jesse Rothstein points out:

Ben Steverman: Advice for the Next President: Expand Social Security: “Is expanding Social Security the right thing to do? Is it even possible? Yes and yes, Jesse Rothstein argues…

…The only problem with the word “crisis” is that it didn’t happen overnight—it’s a very slow-rolling crisis. An awfully large number of people hit retirement with nothing to live on except Social Security benefits…. [Franklin Roosevelt] talked about the “three-legged stool,” that Social Security would be basically one-third of the solution to the retirement puzzle…. And we’ve never really gotten the other two legs of the stool…. If you set up your “nudge” right, you can raise the share of people participating in their 401(k) plan by a few percentage points. But… there are still an awful lot of people who don’t participate. States trying to set up portable plans is a good idea, and we should be doing that. But ultimately what all these plans are relying on is voluntary contributions from people who aren’t necessarily making enough money to be able to make those contributions.

Social Security offers two things…. One, a Social Security payment is an annuity: The money keeps coming as long as you live. That’s really useful. If you’re living on private retirement savings, even if you saved enough, you have to be very careful how you spend it down, because you don’t know how long you need it to last. The other thing that Social Security solves is market risk….

We should be expanding Social Security. We should be making it more generous…. Instead of having the Social Security payroll tax rate be 6.2 percent, we could make it 7.2 percent, and all of a sudden everybody’s Social Security benefit gets 15 percent larger…. If we raise the cap and start taxing higher incomes, we can expand benefits by a lot without increasing the burden on middle-class workers….

If the question is, “Can we afford more generous Social Security benefits?” the right way to think about it is, we’re asking people to afford lots of private retirement savings in addition to Social Security. It doesn’t make it any less affordable to move it into the Social Security system rather than outside of it. And, again, Social Security offers you a much more robust benefit. The goal should be telling people not to save quite so much in their 401(k) or their IRAs, because Social Security is doing it for them….

The threat is that the vast majority of workers retire without enough to live on. People will continue to save, to try to assure themselves a secure retirement. And some of them will get it, and some of them won’t, due to factors entirely outside their control…

Must-Read: The bad thing about President-elect Donald Trump is that he has no clue about policy debates. The good thing is that he has, in the past, taken every single possible policy position on both sides in an off-the-cuff fashion. Thus there may be opportunities, depending on who can convince Jared Kushner that his father-in-law needs policies that will actually work:

James Kwak: The Last Chapter Problem: “Bernstein, to his credit, gets the description of the problem out of the way in the first two chapters…

…He devotes the rest of the book to solutions: policy tools that can not only increase growth but, just as importantly, ensure that the benefits of growth are widely shared… expanding automatic stabilizers, spending more on infrastructure, universal pre-school, and maintaining a symmetric monetary policy—that is, not pretending you have an inflation target when what you really have is an inflation ceiling…. Bernstein focuses on the importance of using economic policy to change the pre-tax distribution of income—bolstering the bargaining power of workers so they can demand a larger share of the gains from increases in their own productivity… unions, subsidized jobs and apprenticeship programs to help people gain skills, and ban-the-box rules…. But, as Bernstein writes, turnout by Democratic constituencies “may well hinge on whether they believe a candidate will try to implement a set of policies that convincingly relinks growth and their living standards.”… Democrats… [need to] convince the public that we care about something more than fiscal responsibility and overall economic growth.

Must-Read: Nathanael Johnson: What the New York Times missed with its big GMO story: “A big piece [by Danny Hakim] that made the front page of the New York Times… takes aim at…

…[the claims that] genetically modified crops… increase yields… and reduce pesticide use…. The article concludes that GMO seeds are no better at either than any other form of breeding…. The story is an odd one…. The most mild interpretation of the piece–GMOs haven’t dramatically improved yields, but they are useful… is really not news…. If your takeaway… is that GMOs just aren’t useful, then it runs contrary to loads of evidence–which the story almost completely omits. And it makes comparisons that sound compelling, but don’t actually tell you much…. The problem here is that there’s enough data that you can easily pick the evidence to support your favorite narrative, depending on where you focus….

The most balanced approach is to look at all the available evidence–and that’s what the National Academy of Sciences report already did. Hakim cites the report where it supports his conclusions, but not in the places it contradicts them…. Perhaps the most compelling stats in Hakim’s story come from a comparison with France, which has reduced insecticide use by 65 percent… [while the] United States has only reduced insecticide use by 33 percent…. But… zoom in and you can see that France started with crazy-high pesticide application levels…. It’s also odd that Hakim would single out France: Pesticide use there has been declining, but it’s been increasing in other parts of Europe….

Because most of us aren’t farmers, we have a hard time seeing the GMO age at all. But U.S. farmers can see it. Farmers aren’t backward dupes…. They clearly think they’re getting something valuable when they pay the extra money for GMOs…. And GMOs really aren’t all associated with industrial farming. The disease-resistant papaya is a wonderful innovation. The insect-resistant eggplant seems to be reducing pesticide use in Bangladesh. This banana, this cassava, and this rice could all truly improve the lives of small farmers if those new crops make it over the technical and political hurdles…. It would be a shame if we on the liberal coasts decided the technology was useless just because we have a hard time seeing the benefits that are clear to Midwestern farmers…

Must-Read: Federal spending needs to rise significantly if the government is to accomplish its missions:

John Perr: Inflation-Adjusted Federal Spending Has Fallen Under President Obama: “It is an article of conservative faith that federal spending under President Obama is ‘out of control’…

As the 2016 GOP Platform states in an amazing revision of recent history:

The Administration’s policies systematically crippled economic growth and job creation, driving up government costs and driving down revenues. When Congressional Republicans tried to reverse course, the Administration manufactured fiscal crises — phony government shutdowns — to demand excessive spending.

As the data and history show, every claim in those two sentences is flat-out wrong.