Morning Must-Read: James D. Hamilton, Ethan S. Harris, Jan Hatzius, and Kenneth D. West: The Equilibrium Real Funds Rate: Past, Present and Future

James D. Hamilton, Ethan S. Harris, Jan Hatzius, and Kenneth D. West: The Equilibrium Real Funds Rate: Past, Present and Future: “The uncertainty around the equilibrium rate is large…

…and its relationship with trend GDP growth much more tenuous than widely believed… a wide range of plausible central estimates for the current level of the equilibrium rate, from a little over 0% to the pre-crisis consensus of 2%…. Dhis uncertainty, we are skeptical of the ‘secular stagnation’ view that the equilibrium rate will remain near zero for many years to come…. The disappointing post-2008 recovery is better explained by protracted but ultimately temporary headwinds from the housing supply overhang, household and bank deleveraging, and fiscal retrenchment…. The uncertainty around the equilibrium rate argues for more ‘inertial’ monetary policy than implied by standard versions of the Taylor rule… a later but steeper normalization path for the funds rate compared with the median ‘dot’ in the FOMC’s Summary of Economic Projections.

Morning Must-Read: Barry Eichengreen: Greece in Light of the Past and Future of the Euro

Barry Eichengreen: Greece in Light of the Past and Future of the Euro: “I’m strongly of the view that 1929-1931 and 2008-2010 were cut from the same cloth…

…broadly speaking, whereas 1920-1922 was a fundamentally different animal… caused by monetary tightening by the Federal Reserve designed to wring inflation out of the economy, not by deeper economic and financial imbalances like those that set the stage for 1929-1931 and 2008-2010. The economy recovered quickly from the 1920-1921 downturn, despite an absence of monetary and fiscal stimulus, because of the delayed resumption of ocean shipping after World War I and resulting availability of cheap imported inputs… inferring from 1920-1921 that the economy can recover spontaneously from a serious downturn would be erroneous…

Morning Must-Read: Carter Price: Is a Line of Code More Like a Factory or a Painting?

The smart young dude Carter Price nails one to the wall and to the floor at the same time! Something very pertinent–and important:

Morning Must-Read: Carter Price: Is a Line of Code More Like a Factory or a Painting?: “Benzell… Kotlikoff… LaGarda…and… Sachs [claim]…

…in most cases rapid technological advancement decreases wages and raises inequality…. If we believe that once code is written, it is good forever (maybe with a few tweaks or upgrades over time), then the stock of code would grow rapidly. If that stock of code is a substitute for future code, then demand for high-tech workers would decrease over time… push down wages not just for high-tech workers but also for other workers…. But… what if it is more like art?… We have more than a hundred years of movies, but new movies are still produced and make lots of money. Coders are still producing new video games despite no one needing to rewrite Tetris…. Technology has not led to mass unemployment and immiseration of labor in the past, yet the very nature of technological development means each invention and advancement is new… [and so] the this-time-is-different argument is generally pertinent, but cannot easily be verified a priori…

Is a line of code more like a factory or a painting?

In an interesting new working paper, economists Seth Benzell, Laurence Kotlikoff, and Guillermo LaGarda at Boston University and Jeffrey Sachs of Columbia University present a model of technology’s impact on workers’ incomes differentiated by their skills. In the authors’ model, high-tech workers write code and develop technologies that build upon the already accumulated code and technology base. The big finding—in most cases rapid technological advancement decreases wages and raises inequality.

This is an important topic that has led to some hysteria—a couple of the headlines covering the paper were “the robots are coming for your paycheck” and “how the robots will take your job and kill the economy.” But there are several ways to think about this research.

If we believe that once code is written, it is good forever (maybe with a few tweaks or upgrades over time), then the stock of code would grow rapidly. If that stock of code is a substitute for future code, then demand for high-tech workers would decrease over time. Reduced demand would push down wages not just for high-tech workers but also for other workers because high-tech workers look for work outside of the technology industry.

Think about Tetris. The video game was released in 1984 and now people can play it forever without ever having to hire someone to code it again (except maybe to port it to another platform). In some sense, this is could be an economics 101 story of declining marginal utility—as you get more of something, each additional piece gets less valuable.

But is that the right way to think about code? If instead of thinking about code as a capital good akin to a factory except that code never depreciates, what if it is more like art. Artists have contributed to the stock of art for thousands of years, but we still have people producing more art. We have more than a hundred years of movies, but new movies are still produced and make lots of money. Coders are still producing new video games despite no one needing to rewrite Tetris.

A lot of people are skeptical about the robots-are-coming-to-taking-your-jobs narrative. My colleague, Marshall Steinbaum, wrote a telling response to this narrative earlier this week. Technology has not led to mass unemployment and immiseration of labor in the past, yet the very nature of technological development means each invention and advancement is new and some technologies may replace people instead of make them more efficient. Because each innovation is by definition new, the this-time-is-different argument is generally pertinent but cannot easily be verified a priori. The bottom line is that the implications for workers of the evolving technological landscape will likely be a fruitful topic of debate for many years.

Nighttime Must-Read: Paul Krugman: Quantitative Easing and Monetary Aggregates

Paul Krugman: Quantitative Easing and Monetary Aggregates: “I get especially annoyed when economists who have been wrongly predicting inflation…

…say that it’s not their fault–who could have known that banks would just sit on all those reserves? The answer is, anyone who had paid attention…. Let me quote myself, from… 1998…. Data from the 1930s… seemed to confirm…. Japan gave us another experiment, when it tried quantitative easing…. Theory and experience both predicted exactly the sterility of monetary base expansion that we saw in practice. And, you know, that’s the kind of successful prediction that is supposed to change peoples’ minds: if you’re that wrong about how an experiment turned out, and someone else made a prediction you considered foolish but turned out completely right, you’re supposed to concede that just maybe, possibly, they were on to something. The fact that essentially nobody on that side of the debate has budged in the slightest tells us that whatever it is they’ve been doing, it’s not scientific research.

Evening Must-Read: Lemin Wu: If Not Malthusian, Then Why?

Problems of measuring living standards properly go way, way, way back, as Lemin Wu demonstrates:

Lemin Wu: If Not Malthusian, Then Why?: “The pre-industrial stagnation of living standards…

…Technological improvement in luxury production… faster than improvement in subsistence production, would have kept living standards growing…. [There is] a puzzle of balanced growth between the luxury sector and the subsistence sector…. [The hypothesis is of] group selection in the form of biased migration. A tiny bit of bias in migration can suppress a strong tendency of growth. The theory reexplains the Malthusian trap and the prosperity of ancient market economies such as Rome and Song…”

Thomas Malthus (1809): “All other arguments are of slight and subordinate consideration in comparison of this. I see no way by which man can escape from the weight of this law which pervades all animated nature…”

Lionel Robbins (1998): “But in economics, the admission that mankind need not live at the margin of subsistence […] meant that, the very long run limit of wages was not physiological subsistence, it was psychological subsistence—a much more complicated and difficult matter to formulate exactly…”

Things to Read on the Evening of February 26, 2015

Must- and Shall-Reads:

 

  1. Ann Marie Marciarille: Teeth Whitening at the Supreme Court: The Antitrust Limits of Professional Sovereignty: “The Supreme Court’s 6-3 opinion in North Carolina State Board of Dental Examiners vs. FTC is out…. It… in an unexpected way… delineat[es] antitrust’s limits on the states’ powers to regulate, de-regulate, and out-source regulation to a “non-sovereign actor.”… [The case] has ended up as a poster child for the clear articulation and active supervision standards required to determine whether an anticompetitive policy is indeed the policy of a given state, and entitled to immunity…. North Carolina’s Dental Board functioned more as a trade association with super powers granted to it by the state–apparently with an open-ended portfolio of responsibilities relating to dentistry in the state…. The dissent argues the delegation was valid and the Sherman Act does not sit to second guess the wisdom or even fairness of the delegation. Whatever you think of the dissent, Justice Alito is spot on when he notes that the majority opinion is potentially quite disruptive for state medical licensing boards… long been under full sway of the regulated health professions…. We have almost no tradition of genuine state regulation of doctors, dentists, and optometrists other than the North Carolina Dental Board model…. If we aim to take it over it will not be a taking it back, but a taking it on–an invention out of whole cloth.”

  2. Arindrajit Dube, Laura Giuliano, and Jonathan Leonard: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior: “At a large U.S. retailer… discrete pay steps created discontinuities in raises, where workers initially earning within 1 cent of each other got raises that differed by 10 cents…. We find large causal effects of wages on quits…. The large effects of wages on quits mostly reflects relative-pay concerns and not market comparisons…. After accounting for peer effects, quits do not appear to be very sensitive to wages–suggesting substantial employer wage–setting power…. The relative-pay concerns are asymmetric… driven mainly by workers who are paid below their peers, suggesting concerns about fairness or disadvantageous inequity.”

  3. Deane Barker: Breaking the Web: “I absolutely loved this New York Times column which lamented… apps… [with no] capability to link…. ‘Unlike web pages, mobile apps do not have links. They do not have web addresses. They live in worlds by themselves, largely cut off from one another and the broader Internet. And so it is much harder to share the information found on them.’ Yes, yes, for the love of God yes. We have broken HTTP… a good specification which we’ve steadily whittled away…. A core understanding of HTTP should be a base requirement for working in this business.  To not do that is to ignore a massive part of digital history (which we’re also very good at)…. Narcissism runs rampant in this industry, and our willingness to throw away and ignore some of the core philosophies of HTTP is just one manifestation of this.  Rant over.”

  4. Matthew Yglesias: I’m writing a newsletter: “I made the case for Obama’s new regulations on investment advisors, did an explainer on Greece’s deal with the Eurogroup, aggregating some cool diagrams of an energy-negative house in Australia, aggregated a cool chart about cohabitation among unmarried parents, and offered a hot take on partisanship and patriotism…. Those pieces… are all designed for the social web as it exists in the winter of 2014-2015, which is to say that they are designed to be viable as atomic pieces of content read and shared by people who have no idea who I am or what I’ve done before. There’s a lot to like about the contemporary social web, but one thing it lacks that I loved about blogging was the sense of direct, continual engagement between author and audience. My solution to that, I hope, is a newsletter. Specifically this newsletter. Communication between myself and a self-selected audience of individuals who I hope will subscribe with the intention of reading regularly and coming back for more…. Though I will always–always–have a very special place in my heart for blogging as a medium…. This will be like blogging, but for your inbox… it will come out frequently–but unpredictably. And like a Matthew Yglesias blog, it will come with plenty of typos and minimal editing…”

  5. Diggudugg: Is There a Site That Is the Opposite of Zero Hedge?: “Back in 2009 or so, I found Zero Hedge… and it seemed like a well-reasoned, thoughtful, informative blog, with a number of clearly articulated reasons why the Fed’s actions were unsustainable, would fail, etc. Now, many years later, I see that none of these clearly articulated positions have come true. Everything they said couldn’t and wouldn’t happen did in fact happen. So, having missed out on the market’s huge rally, I am looking for some other well articulated blog…”

Should Be Aware of:

Evening Must-Read: Ann Marie Marciarille: Teeth Whitening at the Supreme Court: Occupational Licensing and Antitrust Law

Ann Marie Marciarille: Teeth Whitening at the Supreme Court: Occupational Licensing and Antitrust Law: “The Supreme Court’s 6-3 opinion in North Carolina State Board of Dental Examiners vs. FTC…

…is out…. It… in an unexpected way… delineat[es] antitrust’s limits on the states’ powers to regulate, de-regulate, and out-source regulation to a “non-sovereign actor.”… [The case] has ended up as a poster child for the clear articulation and active supervision standards required to determine whether an anticompetitive policy is indeed the policy of a given state, and entitled to immunity…. North Carolina’s Dental Board functioned more as a trade association with super powers granted to it by the state–apparently with an open-ended portfolio of responsibilities relating to dentistry in the state…. The dissent argues the delegation was valid and the Sherman Act does not sit to second guess the wisdom or even fairness of the delegation. Whatever you think of the dissent, Justice Alito is spot on when he notes that the majority opinion is potentially quite disruptive for state medical licensing boards… long been under full sway of the regulated health professions…. We have almost no tradition of genuine state regulation of doctors, dentists, and optometrists other than the North Carolina Dental Board model…. If we aim to take it over it will not be a taking it back, but a taking it on–an invention out of whole cloth.

Afternoon Must-Read: Arindrajit Dube, Laura Giuliano, and Jonathan Leonard: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Arindrajit Dube, Laura Giuliano, and Jonathan Leonard: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior: “At a large U.S. retailer…

…discrete pay steps created discontinuities in raises, where workers initially earning within 1 cent of each other got raises that differed by 10 cents…. We find large causal effects of wages on quits…. The large effects of wages on quits mostly reflects relative-pay concerns and not market comparisons…. After accounting for peer effects, quits do not appear to be very sensitive to wages–suggesting substantial employer wage–setting power…. The relative-pay concerns are asymmetric… driven mainly by workers who are paid below their peers, suggesting concerns about fairness or disadvantageous inequity.

What Is the Interaction of the Supreme Court’s Forthcoming King v. Burwell Decision with Health Policy? Is There an Interaction?: Focus

For the first time, we have a clue as to what Republican plans are for what to do with respect to health policy in the event of an anti-government Supreme Court decision in King v. Burwell. And the Republican plan of Nebraska Senator Ben Sass is the same as the Democratic plan–override the Supreme Court, with the difference being that the Democratic override would be permanent, while Sass is only proposing a temporary override.

For now.

Now the obvious way for the Supreme Court to decide this year’s ObamaCare case–King v. Burwell–would be to dismiss the case because it is a political football, and the plaintiffs lack standing because they have not suffered the kind of injury from government policy necessary for this to be a real case rather than a judicial intrusion into political questions.

If the Supreme Court does not take that road, the obvious way for it to decide King v. Burwell would be to note that the absence of a technical-corrections amendment bill makes the ObamaCare statute more than usually ambiguous, and that fifty years of unanimous Supreme Court administrative-law precedent says that agencies have broad discretion to interpret ambiguous statutes in ways that seem sensible to them.

If the Supreme Court does not take that road, the obvious way for it to decide King v. Burwell would be to note that when the federal government attempts to coerce states into acting as it wishes by withholding funds the state must be put on clear notice as to what will happen, when, and why; that ObamaCare did not do that; and that federalism concerns thus require the provision of subsidies to ObamaCare insurance purchasers whether they buy on the federal or the state exchange.

Supreme Court justices are cranky beasts, impelled more often by their beliefs about what the law should be or what their political party wishes than by logic, reason, and precedent. So odds are about one-in-five that a justice will decide the other way even on a question where there is no genuine split in logic, reason, and precedent. We would thus expect–given the three considerations that weigh heavily for the government in King v. Burwell–that the decision for the government would be 9-0 or 8-1, because each justice would have only a 1-in-125 chance of rejecting all of the government’s standing, administrative law, and federalism arguments.

But we all know that if the government wins in King v. Burwell the decision is highly likely to be 6-3, and that the government may lose.

And the question is what to do if, this spring, five rather than three Republican Supreme Court justices are willing to reject standing arguments designed to prevent judicial intrusion into politics, overrule the unanimous Burger Court Chevron decision and throw half a century of administrative law into chaos, and disrupt federalism jurisprudence as well–all to promote the partisan end of removing ObamaCare exchange insurance coverage from states that rely on the federal exchange?

The Republican view is that then the Republican House and Senate majorities will pass their preferred ObamaCare replacement, and Obama will have to sign it to avoid total collapse. The Democratic view is that the Republicans have to come up with a plan and an offer, and then we will see what the future of health policy is.

But what is the preferred ObamaCare replacement? What is the plan and the offer?

Now, for the first time, there is a Republican legislator putting forward a proposal–but it is only a proposal that we pretend that King v. Burwell had not been decided, for a while.

For Nebraska Republican Senator Ben Sasse says that Republicans in Congress should immediately blink: rather than allow the Supreme Court’s decision to go into effect, they should immediately pass a bill overruling the Supreme Court–but only for the next eighteen months:

Ben Sasse: A First Step on the Way Out of ObamaCare: “In the event that the [five Republican justices on the Supreme] Court…

…strike down the [federal-exchange health insurance] subsidies… Congress must… offer immediate, targeted protection…. Congress should offer individuals losing insurance the ability to keep the coverage… with financial assistance for 18 transitional months… [to] protect suffering patients entangled in the court’s decision to strike down… subsidy payments…

A game theorist–or even an experienced politician–would ask: and what will have changed in eighteen months to make the situation look any different?

Extending federal-exchange ObamaCare subsidies then becomes just another one of the must-do extenders, like postponing implementation of the SGR or raising the debt ceiling, that takes up Congress’s time and occasionally threatens to disrupt the country’s economic life for no good purpose. So why not just overrule the five Republican justices once and for all?

So why is Sasse proposing this? Is this his game–to permanently overrule the Supreme Court the day after the five Republican justices speak?

Perhaps…

Certainly Sasse embeds his legislative proposal in a great deal of verbiage. Some of the verbiage is a very unconvincing claim that his proposal is not, in fact, a temporary-but-renewable ObamaCare fix and extension to overrule the five Republican justices:

This is neither an ObamaCare fix nor an extension of it. This is temporary, transitional relief–completely outside of ObamaCare–to millions of Americans who will suffer because of the administration’s illegal actions…

But it is a fix and an extension–albeit a temporary one!

Some of the verbiage is partisan-squid ink:

King v. Burwell… is… of profound national importance… challenges the legality of 75% of ObamaCare…. I am hopeful about the court’s decision…. ObamaCare’s central planning is unworkable and unpopular…. The court… [could deliver] a mortal blow to ObamaCare…. The Machiavellian fine-print that regulators wrote to protect their bedfellows… big insurers will be allowed to dump ObamaCare patients…. Cynics in the administration…. The administration has no plan to help…. We’ve already seen some Republican governors finesse their principles to expand Medicaid and secure extra money…. ObamaCare’s command-and-control regime will reduce families’ choices, thwart innovation and chart a path of European-style debt and rationed access to health care…. Those hurt by this administration’s reckless disregard for the rule of law. ObamaCare took these patients hostage…. The stakes couldn’t be higher. Either we will continue the march toward a harmful European-style system, or we’ll adopt real, patient-centered solutions…

Some of it is the plea, once again, for Republicans to form a rough consensus and put forward some health care proposal of their own–a thing that they have never done. Recall that even Richard Nixon’s health-care proposal’s legislative strategy involved combining centrist Democrats with about the one-third of early 1970s Republican legislators who were relatively liberal:

Republicans need to unify around a specific set of constructive, longer-term solutions, and then turn the 2016 presidential election into a referendum on two competing visions of health care. Simply opposing ObamaCare isn’t enough…. In the media’s caricature, Republicans have no ideas on health care. In reality, my colleagues have put forward many ideas. I don’t endorse every approach, but all of them are more humble than ObamaCare’s broken one-size-fits-all regime…

And some of it is simple recognition that if there turn out to be five rather than three Republican justices willing to break administrative law, the consequences are likely to be disastrous for public health:

Big insurers will be allowed to dump ObamaCare patients…. Chemotherapy turned off for perhaps 12,000 people, dialysis going dark for 10,000. The horror stories will be real…

Coupled with recognition that responsibility for the public-health disaster is likely to adhere to the Republican judges who overruled half a century of interpretive precedent, and to the Republican state governors and legislators who do not immediately do the state-level fix–that is, pass a short resolution establishing a state ObamaCare exchange and authorizing the governor discretion to delegate the operation of that exchange:

A deluge of attacks on Republicans for supposedly having caused this…. [In] the holdout states and their 37 governors, the political pressure to adopt ObamaCare will be crippling…. Most governors will fold…. If governors cave, ObamaCare is never going away…. Some… believe… winning King means winning…. I… doubt their strategy… inaction… enshrine[s] ObamaCare eternally…


Memo: Exchange Types:

  • State-based: California, Colorado, Connecticut, District of Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, Washington,

  • State-partnership: Arkansas, Delaware, Illinois, Iowa, Michigan, Nevada, New Hampshire, New Mexico, Oregon, West Virginia.

  • Federal: Alabama, Alaska, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Mississippi, Montana, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota Tennessee, Texas, Utah, Virginia, Wisconsin, Wyoming.

Memo: Medicaid Non-Expansion:

  • Alabama, Alaska, Florida, Georgia, Idaho, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia. Wyoming.

The full nullification states are thus: Alabama, Alaska, Florida, Georgia, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wyoming. The full nullification states thus have 113 million people in them compared to 206 million people in the rest of the country.