Things to Read on the Afternoon of May 10, 2014

Should-Reads:

1. Paul Krugman: Already in the Lowflation Trap: “Dean Baker, reacting to Neil Irwin, feels that he needs to make the perennial point that zero inflation is not some kind of economic Rubicon. Below-target inflation is already a problem, and a very serious problem if you don’t have an easy way to provide economic stimulus…. Europe’s low and falling inflation isn’t a problem because it might turn into deflation–it’s a problem because of what it’s doing right now…. It’s not that something could go wrong, but the fact that it already has gone wrong. And remember, above all, that the risks aren’t symmetric. Controlling inflation may be painful, but we do know how to do it. Exiting deflation or lowflation is really, really hard, which is why you never want to go there.”

2. Simon Wren-Lewis: Economists and methodology: “A feeling that the methodology being used is unproblematic, and therefore requires little discussion. I cannot help giving the example of macroeconomics to show that this view is quite wrong. The methodology of macroeconomics in the 1960s was heavily evidence based. Microeconomics was used to suggest aggregate relationships, but not to determine them. Consistency with the data… governed…. The methodology of macroeconomics now is very different. Consistency with microeconomic theory governs… and evidence plays a much more indirect role. Now… I know enough to recognise this as an important methodological change. Yet I find many macroeconomists just assume that their methodology is unproblematic…. Most methodological discussion of economics is (and should be) about what economists do, rather than what they think they do. That is why I find that the more interesting and accurate methodological writing on economics looks at the models and methods economists actually use, rather than relying on selected quotations…”

Should Be Aware of:

1. Kevin Drum: Obama’s Foreign Policy Paradox: “Fareed Zakaria is the latest… to acknowledge that… President Obama’s foreign policy… largely correct… [has] been sadly unaccompanied by any magic powers…. ‘Obama has put forward an agenda that is ambitious and important, but he approaches it cautiously, as if his heart is not in it, seemingly pulled along by events rather than shaping them. Once more, with feeling, Mr. President!’ I’ll concede that as a political partisan, maybe I’m cutting Obama too much slack. But I still wonder what all these critics want. I don’t mean the Bill Kristols and John McCains… [who] want maximum confrontation, maximum bluster, and maximum military intervention. But what about the others? Like Zakaria, they… grudgingly recognize that Obama’s actual foreign policy actions have been about as good as they could have been, and yet they’re still unhappy…. I wonder: Has any president in history been so widely criticized for doing everything right but not crowing loudly enough about it?… Before long we’re going to be holding Obama responsible for the fact that pi doesn’t equal three…”

2. Jonathan Chait: Liberal Bloggers Doing Obama’s Bidding?: “The Obama administration, like previous administrations, holds frequent briefing sessions with… journalists, both conservative and liberal… A National Journal story by James Oliphant, headlined ‘Progressive Bloggers Are Doing the White House’s Job’, horribly botches the topic…. Dave Weigel is cited as a prime example of the administration using liberal bloggers…. despite the fact that Weigel has not attended such briefings…. Ezra Klein is cited as both… a partisan water-carrier and an independent, truth-to-power-speaker… a total, incoherent mess…. An expression of a certain kind of centrist worldview currently embodied in its most flamboyant form by Oliphant’s colleague, Ron Fournier…. In Fournier’s mind, since any expression of non-partisanship is by definition true, any attack on such a claim is by definition partisan, and therefore false. You could see the gears turning in Fournier’s brain as he fiercely defended the story on Twitter, processing every argument against the story as ‘moderation is bad, partisanship is good’…. And that’s the thing–Fournier isn’t engaging in a straw-man tactic here. He is providing an honest rendering of his own interpretation…”

And:

• Ashok Rao: Wealth Inequality: Signal or Noise?
• Prairie Weather: Is this about “being black”? Or what the hell?
• Daniel Larison: So Bush Wasn’t a “Monster”–So What?
• Joe Stiglitz: Why Inequality Matters and What Can Be Done About It
• Replication in Economics Wiki
• Michael Darda: “When your inflation forecast fails for 5 straight years, perhaps it’s time to change your inflation model?”

Already-Noted Must-Reads:

1. Jared Bernstein: Principal Reduction is Still a Good Idea: “I’ve been downright remiss in not continuing to hammer this…. This nice oped [by Peter Dreier]… reminds us that this is still an important intervention to clear the housing market and avoid more mortgage defaults…. The [anemic] housing recovery has hit a bit of a stall…. [My] key theme… back when [in 2009-10] was that Fan and Fred—the GSEs—could make a real difference here but… [Ed DeMaro at the FHFA] was stiffly resisting taking action. So I and others urged the White House to replace him. They’ve done so but still, nothing yet. From the oped: ‘The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has refused to allow these two mortgage giants to reduce the principal on underwater mortgages that they own or guarantee. All it would take is for President Obama’s new appointee as F.H.F.A. director, former Representative Melvin Watt, to change the policy, an action that does not require congressional approval. He should do so immediately.'”

2. Roger Myerson: Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig’s The Bankers’ New Clothes: “Worthy of such global attention as Keynes’s General Theory received in 1936 [is] The Banker’ New Clothes: What’s Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig…. A book for the general public about fundamental problems of financial instability in our time… banks should be required to have much more equity…. In response to all their arguments against the increasingly complex provisions for minimizing banks’ capital requirements, Admati and Hellwig report (p. 182) that they have never received a coherent answer to the basic question of why banks should not have equity levels between 20 and 30 percent of their total assets…. This recommendation is simple, but it is based on their deep command of theory. The book is long… because it takes time to rebut all the bankers’ arguments…”

3. Andrew Gelman: Troublesome Inheritance critique: Nicholas Wade’s Dated Assumptions About Race, Genes, and Culture: “The racism of the day seems reasonable and very possibly true, but the racism of the past always seems so ridiculous…. Wade… writes about the big differences in economic success between whites, blacks, Asians, and other groups and offers a sophisticated argument that racial differences arise from genetic differences that are amplified by culture…. Wade’s argument… racial groups have genetically evolved to differ in cognitive traits such as intelligence and creativity… “minor differences… invisible in an individual, have major consequences at the level of a society”… his views are uncomfortable truths that have been suppressed by a left-wing social-science establishment…”