Things to Read on the Afternoon of October 25, 2014

Must- and Shall-Reads:

• Thomas Piketty, Claudia Kemfert, and Cameron Hepburn: Europe must set a course to decarbonise world’s economies
• Karl Whelan: The Money Supply
• Paul Farmer: “I have just returned from Liberia with a group of physicians and health activists. We are heading back in a few days. The country is in the midst of the largest ever epidemic of Ebola haemorrhagic fever. It’s an acute and brutal affliction”
• John Williams: Federal Reserve Bank San Francisco | Navigating toward Normal: The Future for Policy |
• Martin Wolf: Reform alone is no solution for the eurozone

1. Gauti Eggertsson and Neil Mehrotra: Secular stagnation and the paradox of worth: “It is important to ensure that the asset cannot operate as a perfect storage technology as this may put a zero bound on the real interest rate… a secular stagnation equilibrium remains a possibility as the natural rate can be negative while the discount rate relevant for risky assets remains positive. The real interest rate and the possibility of a secular stagnation can also be affected by the presence of bubble assets… [such] bubbles may be efficient, but depending on the stability of the bubble, interesting tradeoffs may emerge between the level and volatility of employment…”

2. Izabella Kaminska: Cult Markets: When the bubble bursts: “We’re going to stick our neck out at this stage and call this the end of Bitcoin… the positive-feedback loop forces which drove Bitcoin to $1124.76 have now become the same very same which will drive it down… the fact that the mechanism that ensures coins cannot be overproduced to benefit from high prices also prevents supply from being contracted when prices/demand collapses… in a race to the bottom it doesn’t pay to switch off your mining machine if you’re the most efficient miner. So how did we find ourselves on this delusional joy ride to begin with?… It’s the same old story of frivolity, irrational exuberance, hysteria and of course the mistaken belief that something like a free lunch is truly possible… the sort of irrationality and bad allocation of capital that the Fed is trying to shake-out at this stage with tightening talk. We’re sure we may still see a few deep pocketed VCs or ‘believers’ throw more money at defending the dream, but chances are we’ve now gone through the exponential break point. Time and money would probably be better spent trying to pump up Bitcoin V.2.”

3. Larry Mishel: The Wage Message: “The intellectual basis for [skill-biased technological change, SBTC] in my view has collapsed. It has very little to contribute to the understanding over inequality over the last 20 years, and is not the basis for thinking about the future so much.”

4. David Drake: Newsletter #82: “I was a conservative kid. Dad worked with his hands–he was an electrician–but he was anti-union and identified with the middle class rather than radical labor. Our family had middle-class values, read slick magazines rather than pulps, and voted Republican…. A lot of people raised the way I was think that Something Should Be Done about this or that world problem… Boko Haram’s kidnapping… the Lord’s Resistance Army… the Islamic State…. All of these organizations do horrific things by the standards of any civilized human being, myself included… [and] are demonstrably beyond the capacity of local governments to deal with…. If I hadn’t ridden a tank in SE Asia, I probably would have been on one or all of those bandwagons and on many others over the years. The thing is, I know what Doing Something means at the sharp end. I’ve helped to burn a village, I’ve watched a gutshot girl die (she’d been transporting rice for the NVA), and I was involved with a variety of other things that make me doubt the value to the ordinary people of Viet Nam and Cambodia of what we did there. Would it be different in Africa or the Middle East? Maybe, but I find wars have a logic of their own for the people in the mud and the dust and the insects. I think it would be good for folks who say, ‘We have to do something!’ to at least talk to some of us who’ve Done Something ourselves. Talk to us–or keep their mouths shut.”

5. Fabian Kindermann and Dirk Krueger: High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk: “Very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.”

6. Barry Eichengreen: Doctrinal Determinants, Domestic and International, of Federal Reserve Policy 1914-1933: “International considerations were part, but only part, of the constellation of factors shaping the Fed’s outlook and policies in the gold standard era… and their importance waxed and waned with circumstance, personality, and the changing influence of competing doctrines…. Gold Standard Doctrine… rules and, more broadly, the gold standard mentalité were standard central banking doctrine in this period…. Real Bills Doctrine… enshrined in the ‘elastic currency’ terminology of the Federal Reserve Act. Riefler-Burgess Doctrine… pointed to interest rates as the only adequate summary statistics for the stance of monetary policy. Warburg Doctrine… emphasized the advantages of internationalizing the dollar…. privileged developing a market in trade acceptances–an instrument which, it turned out, was also convenient for intervening in financial markets. Strong Doctrine: Strong’s views are not easily summarized…. Rather than looking exclusively at interest rates, he looked also at money and credit aggregates…. Believed in discretionary policy…. Comfortable with… steriliz[ing] gold inflows… to achieve other targets…. Harrison Doctrine… difference from Strong was primarily one of temperament, not doctrine… where Strong was willful and assertive, Harrison was thoughtful and reflective…”

Should Be Aware of:

• Emily Washington: The Status of Smart Growth Regulation)
• “We paint women with one arm as ‘aloof,’ yet women with three arms as ‘trying too hard.’ And good luck being a two-armed actress over 45 and getting cast as anything but a two-armed mom to some newly discovered Disney Channel pop star with a tail. What any woman, in any profession, of any age, chooses to do to augment her own body is not fair game for public ridicule, be it a third arm, a little Botox, or acid-spitting glands.”

1. Paul Krugman: The Invisible Moderate: “[O]ne of the enduringly weird aspects of our current pundit discourse: constant calls for a moderate, sensible path that supposedly lies between the extremes of the two parties, but is in fact exactly what Obama has been proposing…. [Brooks:] ‘The federal government should borrow money at current interest rates to build infrastructure, including better bus networks so workers can get to distant jobs. The fact that the federal government has not passed major infrastructure legislation is mind-boggling, considering how much support there is from both parties.’ Well, the Obama administration would love to spend more on infrastructure; the problem is that a major spending bill has no chance of passing the House. And that’s not a problem of ‘both parties’…. Also, there’s this: ‘[T]he government should reduce its generosity to people who are not working but increase its support for people who are. That means reducing health benefits for the affluent elderly…’ Hmm. The Affordable Care Act subsidizes insurance premiums for lower-income workers, and pays for those subsidies in part by eliminating overpayments for Medicare Advantage. So conservatives are celebrating both ends of that deal, right? Oh, wait, death panels. It’s an amazing thing: Obama is essentially what we used to call a liberal Republican, who faces implacable opposition from a very hard right. But Obama’s moderation is hidden in plain sight, apparently invisible to the commentariat.”

2. • Duncan Black: Eschaton: Savvy “One of the most annoying tics of our establishment press is, years later, to announce ‘yes we all knew that’ when new information comes to light. Yes we did all know that the AIG bailout was a bailout of the vampire squids, but our insider press generally talked about things as if that wasn’t the case. ‘Critics’ spend years trying to point this out, and then when it becomes irrefutable suddenly it’s ‘yes that’s old news’…”

3. Josh Marshall: Sarah, Bristol & The Recurrence Of The Eternal Victim: “In very broad terms, the origin of Fox News is analogous. Conservatives in the ’70s and ’80s looked at the mainstream media and saw it as liberal and against them. That was largely bogus but not entirely. The mid-late 20th century elite ‘media’ did generally buy into a series of cosmopolitan assumptions about public and private life. That worldview generally aligns more with liberalism than conservatism, but the two are by no means identical. And this did shape coverage in significant ways. But many conservatives genuinely believed that most people in media were and are little different from Democratic political operatives writing propaganda. So when they went to create ‘their’ media, that’s basically what they created, a propaganda network. The reality is as much a matter of genuine misperception as bad faith, though it’s both and together they make for a toxic brew. But again, if you see these issues as just a cudgel that people hit each other with, it’s easy to say things that are basically nonsense. Because who cares? None of it means anything anyway. So no. Bristol is not a battered woman. She is a battering woman, which may give her some claim to being a feminist icon, as she suggests. I don’t blame or care if the Palins are defending themselves or making up stories or doing whatever else. That’s just the drama and involuntary performance art that makes up their public lives. But their dead-ender defenders need to accept that if you’re a public figure, a recent candidate for national office, and you crash a party drunk and the fists start flying and the police have to show up to sort everything out, people may end up hovering over the details and getting a chuckle out of it. That’s life.”

4. William Black: Jamie Dimon: U.S. Must Create a “Safe Harbor” Where JPM’s Corruption Is Not “Punished” – New Economic PerspectivesNew Economic Perspectives: “It never dawns on Sorkin during the interview that there might be something desperately wrong about Dimon’s belief that multinational corporations have the inalienable right to buy influence through their hires of ‘ex government officials’ and ‘Chinese princelings’ and that the duty of the U.S. government is to create a ‘safe harbor’ for JPM’s officers so that they can be assured that they can freely buy influence with no risk of ‘getting punished.’  There epitome of merit-based hiring at JPM’s China operations is based on the answer to the colloquial question:  ‘who’s your daddy?’”