Things to Read on the Afternoon of April 23, 2014

April 23, 2014

Must-Reads:

  1. Paul Krugman: Inequality 1992: “I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought ‘Wait–didn’t we deal with that one long ago?’ And that brought to mind the piece I wrote for the American Prospect 22 years ago, ‘The rich, the right, and the facts.’ (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility. The truth is that inequality denial is largely a crusade of cockroaches–the same bad arguments just keep coming back. Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then…” http://prospect.org/article/rich-right-and-facts-deconstructing-income-distribution-debate

  2. Mary Daly et al.: Interpreting Deviations from Okun’s Law: “The traditional relationship between unemployment and output growth known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated.”

  3. Richard Mayhew: ObamaCare and Medical Loss Ratios: “The Medical Loss Ratio (MLR) is… the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare… small groups and individual policies as a pool have to have an MLR of at least 80%…. This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell…. Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no…. Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered…”

  4. Martin Wolf: A more equal society will not hinder growth: “Over the past half century, notes the IMF… inequality has been rising in high-income countries and falling in developing countries… the difference between market and post-intervention inequality in high-income economies is smaller than elsewhere…. Inequality reduces growth. The direct impact of redistribution is negligibly negative. But the indirect effect, via reduced inequality, is beneficial to growth…. Increasing already very high levels of redistribution will harm growth. Yet, below the policy extreme, further redistribution does not harm growth…. Not only does inequality damage growth, but efforts to remedy it are, on the whole, not harmful. These are just statistical relationships derived from data that cover a large number of heterogeneous countries. Nonetheless, the findings suggest that trade-offs between redistribution and growth need not be a big worry…”

  5. Suresh Naidu: Notes from Capital in the 21st Century Panel: “There is a ‘domesticated’ version of [Piketty’s] argument… a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates…. This is story that is told to academic economists, and it is plausible, at least on the surface. There is another story… that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market…. I think the production approach is less plausible… because housing [with land] plays such a large role… average wages would have increased along with K/Y [if factors are paid marginal products]…. The (really great) sections from the book on corporate governance actually suggest something quite different… a gap between cash-flow rights and control rights…. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies…. If it is just a very high substitutability… labor market reforms are… off the table, as firms just replace workers with machines if you try to raise the wage…”

Should-Reads:

  1. Phil Swagel: Mortgage Reform Is Worth the Small Extra Cost to Borrowers: “In the current housing financing system, shareholders and management of Fannie Mae and Freddie Mac got the considerable profits in good times, and when the housing market collapsed, taxpayers were stuck with the bill…. A Senate proposal for a new system would have private investors rather than taxpayers take on most of the risks and returns involved with mortgage lending–if a misguided obsession with the small additional cost to borrowers doesn’t sink the reforms…. Private investors [would have] to risk their own capital in an amount equal to 10 percent of the value of the mortgages receiving a government guarantee. The government would then sell secondary insurance on mortgage-backed securities composed of qualifying home loans…. As mortgages go bad (which they do even in good times), the private capital would take the first losses…. The 10 percent capital requirement is large enough to protect taxpayers. Fannie Mae and Freddie Mac together in the crisis suffered losses of about 4 percent of the value of their assets…. The existence of the secondary government backstop would ensure that mortgages remained available to Americans across financial market ups and downs…”

  2. Ezra Klein: Outside Washington, Obamacare doesn’t exist: The program will end up seeding many huge successes–and some painful failures. It depends on who you are, and where you live…. California’s exchange looks like a wild success…. The poster child for Obamacare failure is arguably Mississippi…. Covered California might prove a wild success while Mississippi’s exchange could collapse. Talking about Obamacare as a single thing paves over this huge difference. Obamacare’s Medicaid expansion also varies wildly by state…. 10 states are driving 80 percent of the Medicaid enrollments… 23 states aren’t participating in it at all…. A family of three living in Los Angeles making $17,000 a year can walk into a community health center and walk out with Medicaid coverage. That same family in Mississippi isn’t eligible for Medicaid–or for subsidies on the insurance exchange…. It gives states plenty of room to fail, and some of them will…”

  3. Steve Randy Waldmann: VC for the People: “I had a question for Summers that I didn’t get to ask. So I’ll ask it here…. Summers pointed out, accurately, that… almost no one prefers a life of pure ‘leisure’. Human beings like to… ‘make a contribution’ or ‘pay their own way’…. As people grow wealthy, they become more free to choose the ways by which, and the terms under which, they will do useful or important things. Wealth is better understood as conferring upon individuals a greater freedom of choice over what kinds of work they wish to do than as endowing lives of ‘leisure’…. If it is true… there might be social return in having the state absorb some of the risk of failure faced by individual humans. In effect, the state could provide venture capital to the people…. ‘VC for the people’ has a more common name. It is called a universal basic income…. It’s important to note a difference between… proposals for fiscalist central banks that ‘cut checks’ to regulate the macroeconomy… and proposals… for a universal basic income. A fiscalist central bank must be able to tighten as well as loosen…. A universal basic income, however, is intended to be depended upon. Its purpose is to alter people’s behavior, to render them more risk-tolerant, to increase their bargaining power…”

  4. Catherine Rampall: Here’s how much Americans love housing, for financial and ‘lifestyle’ reasons: “The many psychic/lifestyle/security benefits of homeownership are perfectly valid and important reasons to buy. The problem is that people misunderstand and overstate the financial benefits of this decision, relative to other ways they could invest their savings, and that behavior leads to buying more house on the margin. If we understood that housing was good as somewhere to live but not so great as an investment, we would probably buy smaller houses, and downsize more quickly after children left the nest…”

Should Be Aware of:

  1. Mark Thoma: Report Card on Fed Policy During the Great Recession: “Overall Assessment: While the Fed was far from perfect, a bit behind the curve, and too quick to see ‘greens shoots’ and inflation around every corner, we would have been much worse off without the Fed’s creative response to the crisis. Overall, it was clearly a success…”

  2. Paul Krugman: No Time For Sargent: “When Sargent gave that speech – before the financial crisis – he could reasonably have imagined that conditions under which his eternal truths weren’t true would be rare. But at this point we’ve been against the zero lower bound for more than five years, and we’re talking seriously about the possibility that depression-like conditions are the new normal. So why the sudden attention to Sargent’s 2007 speech? I think it’s fairly obvious: it’s essentially stealth anti-Keynesian propaganda, cloaked in the form of a widely respected and liked economist uttering what sound like eternal truths. But they aren’t, and the real goal here is to undermine the case for fighting unemployment in the here and now. There are virtues to that 2007 talk, but right now is no time for 2007 Sargent…”

  3. Shane Ferro: The housing density is too damn low: “Tech companies keep creating jobs in San Francisco and Silicon Valley without building more housing to accommodate the extra workers. As computer programmers flood in to the existing housing stock, the working class is pushed out completely. A big part of this problem, says Ryan Avent, is San Francisco’s restrictive zoning requirements. The city’s longtime residents are very good at keeping new construction out of their backyard…. While the tech industry (and San Francisco’s zoning laws) exacerbate the situation in California, it’s really part of a greater trend in urban housing affordability. Urban populations around the country, Cutler points out, have been rising since the 80’s…. Bill McBride has the numbers. He finds that there should be an increase in multi-family (apartment) building completions in 2014, but the number is still below the number of buildings completed every year in the decade before the crisis…”

  4. Nicholas Thompson: Paul Ryan’s Marathon: Everyone Else Remembers His or Her Time: “As has now been reported in many places, Ryan told Hugh Hewitt in an August interview that he had run a marathon in ‘under three, high twos’. But then, after an investigation by Runner’s World, Ryan admitted he’d actually run 4:01:25. (To put the difference in race times in perspective: Lance Armstrong ran his first marathon in just under three hours; P. Diddy ran his first in 4:14.) In a statement first given to The New Yorker, Ryan joked about the error, and said, ‘The race was more than 20 years ago’…. I called many other runners who finished right around Ryan in that race, and they all remembered their times pretty well. (When I called them, I just said who I was and that I was writing a story about running; then I asked their time in that race.) They also all considered it impossible to conflate a sub-three with a just-over-four…”

And:

April 23, 2014

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