Things to Read on the Afternoon of July 22, 2014

Should-Reads:

1. Nicholas Bagley: The government may have lost in D.C., but it just won in the Fourth Circuit: “Just hours after the D.C. Circuit invalidated an IRS rule extending tax credits to federally established exchanges, the Fourth Circuit issued an opinion upholding the very same rule…. In the Fourth Circuit’s view, the relevant ACA language—the language that pins the calculation of tax credits to the cost of a plan purchased on an exchange that was ‘established by the State under 1311’–is ‘ambiguous and subject to multiple interpretations’…. The context… cuts against the challengers’ interpretation…. In the court’s view, ‘it makes sense to read § 1321(c)’s directive that HHS establish “such Exchange” to mean that the federal government acts on behalf of the state when it establishes its own Exchange’…. At the end of the day, the court said that it could not definitively ‘discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated exchanges’. As such, the court reasoned, under basic principles of Chevron deference, the IRS’s interpretation of the ambiguous statute was owed deference. That’s especially so, the court reasoned, since ‘the plaintiffs do not dispute that the premium tax credits are an essential component of the Act’s viability’…”

2. Mary Daly and Bart Hobijn: Downward Nominal Wage Rigidities Bend the Phillips Curve: “Both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities…. Downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.”

3. Brianna Cardiff-Hicks et al.: Do Large Modern Retailers Pay Premium Wages?: “With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores…”

4. Josh Barro: Not Everyone Is Addicted to Inflation: “The fight over monetary policy is rather similar to the fight over Common Core curriculum standards. These reforms, born out of a years-long bipartisan consensus process and supported by policy wonks on both sides of the aisle, have become the latest object of conservative opposition now that President Obama is taking credit for them. The obvious move for a Republican politician wishing to please the conservative base is to oppose Common Core…. Bobby Jindal… who listed Common Core as a plank of his education reform agenda in 2012, is now an ardent foe. Yet withdrawing from Common Core has proved surprisingly hard, even in places where Republicans control all branches of government…. Look at Wisconsin. Gov. Scott Walker has decided he wants out of Common Core. But Common Core opponents have run into a roadblock in the form of the Republican chairmen…. It’s one thing to oppose Common Core when your career is not steeped in education policy; it’s another thing to throw away years of work toward a policy you’ve long thought was good. On inflation, as on curriculum, the conservatives who matter most have been generally able to resist the demands of their base.”

5. Ryan Sweet and Adam Ozimek: The U.S. Labor Market’s Chicken-Egg Dilemma: “Policymakers can approach the situation in several ways. One would be to assume that labor force participation will not respond to wage growth… and unless the Fed raises rates soon inflation will accelerate. Second, they can assume the labor force will respond… and simply wait for that to happen, holding to the current course of near-zero interest rates…. A third approach would focus on productivity growth, which could remain suppressed by underinvestment over the next couple of years. This would hurt wages and thus keep many out of the labor force longer. Since higher interest rates would likely undermine investment, the Fed should be patient. One advantage of the wait-and-see approach is that will at least allow economists and policymakers to see which story is correct…. In contrast, acting now by raising rates will leave the answer unknown to the structural-versus-cyclical question…”

Should Be Aware of:

• Fabius Maximus: Tom Clancy, manufacturer of myths that kept us happy & ignorant
• Seth Borenstein: World Breaks Monthly Heat Record 2 Times in a Row

And:

1. Charles Stross: App Store Annoyances: “For most mobile apps I use iOS…. Walled gardens may be prisons, but the bigger they are the less you notice the walls: also… the best iOS apps are pretty, and if I’m going to be interacting with a device from dawn ’til dusk I do not want it to offend my eyes every time I look at it…. But now for my main gripe…. The App Store has usability flaws that are becoming crippling…. The iTunes app store offers virtually zero library management and curation tools…. My app library is slowly sinking under a pile of… Abandonware…. Take-overware…. Forced upgrade-ware…. Get-out-of-my-face-ware…. Excessively-updated-ware…. Over to you folks. What do you acutely feel the lack of in these curated app collections?”

2. Guido Matias Cortes et al.: The Micro and Macro of Disappearing Routine Jobs: A Flows Approach: “The U.S. labor market has become increasingly polarized since the 1980s, with the share of employment in middle-wage occupations shrinking over time. This job polarization process has been associated with the disappearance of per capita employment in occupations focused on routine tasks. We use matched individual-level data from the CPS to study labor market flows into and out of routine occupations and determine how this disappearance has played out at the “micro” and “macro” levels. At the macro level, we determine which changes in transition rates account for the disappearance of routine employment since the 1980s. We find that changes in three transition rate categories are of primary importance: (i) that from unemployment to employment in routine occupations, (ii) that from labor force non-participation to routine employment, and (iii) that from routine employment to non-participation. At the micro level, we study how these transition rates have changed since job polarization, and the extent to which these changes are accounted for by changes in demographic composition or changes in the behavior of individuals with particular demographic characteristics. We find that the preponderance of changes is due to the propensity of individuals to make such transitions, and relatively little due to demographics. Moreover, we find that changes in the transition propensities of the young are of primary importance in accounting for the fall in routine employment…”

Already-Noted Must-Reads:

1. Robert Waldmann: Anchored Perceived Inflation, or How Fox News Helped Obama: “A huge recession, sluggish recovery and gigantic persistent output gap…. Core PCE inflation… fell from sticking close to 2% to fluctuating in the range of 1% to 2%. The standard lowbrow backward-looking forecasting equation… completely failed…. There are two candidate explanations for this surprising behavior of inflation. One is that there is strong downward nominal rigidity…. Another quite different explanation is that expected future inflation has a very important role in wage and price setting and that inflation expectations are anchored…. The median respondent in the Michigan University/IPSOS Reuters survey persistently expected future inflation of almost exactly 3% in almost all surveys since mid 2009… in period after period a majority of survey participants have been surprised by actual inflation lower than their forecast. This is a new phenomenon…. [Perhaps,] like inflation expectations, inflation perceptions have delinked from reality…. I give the credit to Fox news…. People… [who] rely on Fox News… are out of touch with reality–their expectations and perceptions are what Roger Ailes wants them to be…. Fox News convinces people that inflation has been and will be high…. [Thus] actual inflation is low but positive. It fits the facts which I reported. You decide.”

2. Scott Lemieux: The Teleological Fallacy: “A good point about… Thomas Frank… [by] fearless navigator of our new comment system JeremyW…. ‘[W]hat strikes me… is that… rather than a system where actual progressive change is difficult to win support for and subject to several veto points, he seems to think we have one where radical changes are constantly on the cusp of occurring and the whole neoliberal enterprise must be held together by a dastardly sellout president who can subvert the will of the people.’

   “The most crucial underlying premise of Frank’s argument is that the American political economy was on the verge of a radical transformation in 2008, and this was prevented from happening because Barack Obama saved neoliberalism’s bacon. This is a rather problematic for his argument given its transparent falsity. It’s simply not true that most Americans drew the same conclusions from the financial meltdown that Frank did, and even they did the elites who control or strongly influence many key veto points in the American system certainly didn’t…. Similar premises are also generally seen on attacks on the ACA from the left. To argue that the ACA isn’t better than the status quo ante from a progressive standpoint would be ridiculous, so the strategy is to change the baseline and compare the ACA to another alternative. In policy terms, this isn’t challenging, since you could throw a dart and Western Europe and get a health care system preferable to the ACA. But it’s also completely irrelevant…

   “Left ACA critics smart enough not to argue that Barack Obama could have forced the Senate to pass single payer through such brilliant strategery as promising senators that he would campaign for them in states where he’s enormously unpopular turn to assertions that the American insurance industry was on the verge of collapse before Barack Obama saved it… sheer lunacy…. To people who confuse American politics with the Oxford debating society, the success of Medicare should make Medicare for all highly popular. In reality, the overwhelmingly conservative white beneficiaries of Medicare are much more likely to take the lesson of ‘I’ve got mine and to hell with you’…. What’s going on with Republican statehouses and the Medicaid expansion should draw a line under that. The typical Republican state politician is willing to turn down huge pots of free money from the federal government to validate the principle that if the working poor get sick it should be left to the Great Market in the Sky to sort things out. To believe in this context that the collapse of the private American health insurance industry was inevitable absent the ACA is to enter a land of fantasia.”

3. Nicholas Bagley: ObamaCare and Halbig: What Does This Morning’s Decision Mean?: “In a major setback for the Affordable Care Act the D.C. Circuit just released a fractured opinion invalidating the IRS’s rule extending tax credits to federally facilitated exchanges…. About two-thirds of the states… declined to establish exchanges. In those states, the federal government stepped in and established the exchanges on the states’ behalf. In today’s opinion, the D.C. Circuit held that a federally facilitated exchange isn’t “established by the State under 1311.” As a result, the IRS can’t offer tax credits to those who purchase plans on such exchanges… the average estimated tax credit in 2014 is $4,700…”

4. Bob Laszewski: Halbig Decision Puts Obamacare Back on the Front Burner and Will Give Republicans a Huge Political Headache: “In the DC Court ruling one of the majority judges said: ‘The fact is that the legislative record provides little indication one way or the other of the Congressional intent, but the statutory text does. Section 36B plainly makes subsidies only available only on Exchanges established by states.’… This issue never came up…. About everyone also believed some states would not establish their own exchanges. Smaller states, for example, might opt out because they just didn’t have the scale needed to make the program work. I don’t recall a single member of Congress, Republican or Democrat, who believed that if this happened those states would lose their subsidies. At worst, this is clearly a drafting error that in the old days would have been quickly fixed in a technical corrections bill. But these aren’t the old days…. No one risks losing their subsidies until this issue is finally decided….

   “This would put Republicans in the federal exchange states in a heck of a political bind…. The political consequences for all of these people losing their subsidies and their coverage would immediately shift to the Republicans who control these state governments. Proponents of Halbig argue that the fault for people losing their coverage would be on the Obama administration because they have operated Obamacare in an illegal manner…. Millions of people would have their insurance yanked out from under them in what people will see as part of the ongoing partisan political wars being waged by people out of touch with life in the rest of the country. The fundamental problem the Halbig proponents have here is that common sense, whatever a court rules, tells people that denying subsidies in half the states was never the intent of the Congress–that this is all about political point scoring and stopping a law Republicans hate…. Obamacare’s most partisan and ideologically opposed enemies scored a big victory today…. But below the surface lots of sensible Republicans must be sweating bullets.”