Must-Read: I have never thought that this graph is fair. “College tuition and fees” have skyrocketed in significant part because government subsidies have been withdrawn. (This withdrawal is, I think, a huge mistake.) Medical care costs have exploded because (a) our medical system is uniquely inefficient and (b) medicine today does so much more. Rich people at least would rather have today’s medicine at today’s nominal cost than 1960 medicine at its nominal cost–suggesting that from some points of view medical cost inflation has been negative:

Noah Smith: Don’t Be So Sure the Big Tech Breakthroughs Are Behind Us: “Timothy B. Lee used to be one of the most ardent techno-optimists. But he’s had a bit of a conversion…

…Lee now broadly suggests that the inventions of tomorrow won’t be as world-changing as those of yesteryear…. There are a number of industries–with health care and education being the most important–where there’s an inherent limit on how much value information technology can add. Because in these industries, the main thing you’re buying is relationships to other human beings, and those can’t be automated…. Manufactured goods have mostly fallen in price, while college and health care have soared. He reasons that these are difficult industries for technology to disrupt, since they rely so much on human-to-human interaction….

[But] there’s a case to be made for continued techno-optimism…. There are a vast number of other goods that also use huge amounts of time and resources to create… intermediate goods… parts and components, but also all the back-office services…. Technology that makes these things cheaper will make the business world more efficient, just like cheaper steel makes manufacturing cars more efficient…. A lot of effort right now is being poured into machine learning and artificial intelligence….

Technology is fundamentally about saving labor, and most of the labor in the typical white-collar work-day consists of thinking. Just as factory tools and vehicles saved physical labor in the Industrial Revolution, smart machines will save more and more mental labor in the Information Revolution…. Of course, there’s also a second possibility–the possibility that many humans might become redundant…. This is the rise-of-the-robots scenario that lots of people are worried about, but it doesn’t have to be a scary thing, if society changes accordingly…

Must-Read: Anat R. Admati et al.: The Leverage Ratchet Effect: “Firms’ inability to commit to future funding choices has profound consequences for capital structure dynamics…

…With debt in place, shareholders pervasively resist leverage reductions no matter how much such reductions may enhance firm value. Shareholders would instead choose to increase leverage even if debt levels are already high and new debt must be junior to existing debt. These asymmetric forces in leverage adjustments, which we call the leverage ratchet effect, cause equilibrium leverage outcomes to be history-dependent. When forced to reduce leverage, shareholders are biased toward selling assets relative to potentially more efficient alternatives such as pure recapitalizations.

Must-Read: Antonio Fatás and Lawrence H. Summers: The Permanent Effects of Fiscal Consolidations: “The global financial crisis has permanently lowered the path of GDP in all advanced economies…

…At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.

Matthew Yglesias: We Still Haven’t Recovered: “The long-term structural decline of American men’s attachment to the labor market is an interesting and important issue, [but] it’s not really an alternative to the theory that current low participation rates reflect an overall weak labor market…

…What’s true here is that non-working women are much more likely than non-working men to be spending their time on things like caring for children or for elderly or disabled relatives…. The paucity of jobs for men is arguably cause for a different level–or at least a different kind–of social concern. But in terms of understanding labor market dynamics, there is nothing special happening with American men that isn’t also happening to American women. What’s unique and different… is Americans in general…. Perhaps the best and clearest evidence that the labor market continues to be depressed is that employers have had an easy time getting people to work at a discount…. We have seen meaningful improvement in this metric over the past year, confirming that the labor market really has improved, but we’re still clearly not back to where we were before the crisis hit….

If the “missing” workers are really having so much fun playing video games that they refuse to work or are otherwise unhireable, then employment costs would be rising sharply and the Federal Reserve would have no choice but to tap the brakes to stop an inflationary spiral. The fact that employment cost growth is still on the low side suggests that the opposite is the case. The economy can safely keep adding jobs at the current pace–or, ideally, a faster one–for quite a while, just by drawing workers off the sidelines back into the labor force…. But to get this happy outcome we need patience from American policymakers…

Must-Read: John Hempton: Twitter Buyout Rumours: “Twitter is [a] wildly addictive… chaotic world full of trolls, useless information, porn-spam and videos of kittens… [that] is… for sale…

…Revenue has gone up very nicely–from $664 million to $2.2 billion and is still increasing. And costs have gone up… by $1.5 billion…. But… it is almost impossible to find out what they spend that $1.5 billion extra per annum on…. This is just a website…. It does roughly what it did in 2012…. But spends well over a billion dollars more to do the same thing….

Almost all of the strategic buyers (other big tech companies) have pulled out…. Somewhere near half a billion dollars of costs need to be taken out almost immediately. And that involves firing people and being a general tough-bastard…. A Salesforce.com or similar company… will… [find it] hard to take costs out in a disciplined fashion without upsetting the culture of the home company…. The best bastards are from Wall Street. And this needs a Wall Street bastard….

That said–there are [some substantive] things that need to be done…. Troll detection has to be done much better.  Their degree of incompetence in troll-hunting beggars belief…. Somehow Twitter has not managed to stop filling my time-line with porn spam. Blocking this is the sort of pattern recognition that computers should do…. Also there is a lot of semi-commercial (even scam) spam…. If I worked at Twitter I would be preparing my resume and providing a list of really quick things that can be done to improve the user experience–with the code all mapped out… getting rid of spam bots and the like. But unless it radically improves the user experience or monetisation and you can convince the new owners you can implement then you are out…

Must-Read: Neil Irwin: Britain’s Economy Was Resilient After ‘Brexit.’ Its Leaders Learned the Wrong Lesson: “The British currency is plummeting again…

…The underlying reason is that the British government is ignoring the lessons from the relatively benign immediate aftermath of the vote…. The Brexit vote… set off a chaotic time of political disruption, especially the resignation of the prime minister, David Cameron…. Theresa May… is temperamentally pragmatic… [and] seemed like the kind of leader who would ensure that some of the worst-case possibilities of how Brexit might go wouldn’t materialize. Exporters would retain access to European markets. London could remain the de facto banking capital of Europe. All would be well. Meanwhile, the Bank of England… cut interest rates and started a new program of quantitative easing to try to soften the blow.

All of that… kept the economic damage mild, as the purchasing managers’ surveys show. But in the last couple of weeks… the May government has sent a range of signals indicating it will take a hard line in negotiations… begin[ning] the “Article 50” process… by the end of March, declaring that the government’s negotiators would insist that Britain… control… immigration…. European leaders will be reluctant to allow Britain continued free access to its markets… without similarly free movement of people…. And… the British government has signaled… [it] will be hostile to those who are not British citizens….. The confidence that Brexit will not mean Britain is shutting itself off from Europe and the world is starting to dissipate…. [And] after Mr. Carney helped foam the economic runway after the Brexit vote, Ms. May’s comments were the equivalent of complaining about the mess created by all that foam…

Must-Read: Aimee Donnellan: Hard Brexit to cost 2,000 Goldman Jobs: Wall Street giant to shift third of City staff if single market access is lost…

…The Wall Street giant will switch nearly one in three of its bankers to rival European cities if Britain loses preferential access to the single market…. In an open letter this weekend, the CBI and the EEF, which represents manufacturers, said the government should prioritise free trade in its divorce talks with the EU, which begin in March. Carolyn Fairbairn, director general of the CBI, urged the government to rule out the “worst aspects” of a hard break….

Theresa May sent shock waves through global markets last week when she suggested that Britain was heading for a clean break with Europe… signalled that controlling immigration would take precedence over access to the single market…. “US banks are suggesting about 20%-30% of their workforce will go in the event of a hard exit. That number is about right for Goldman Sachs,” said a City source…. A hard Brexit, with a loss of passporting rights, could cut tax revenues by £10bn and cost up to 71,000 jobs, according to consultancy Oliver Wyman…