Things to Read on the Afternoon of September 19, 2014

Must- and Shall-Reads:

• Dutch Book: My Ten Commandments for Finance Twitter
• Sam Wang: How Our Predictions Work
• Chris Giles et al.: Pay Pressure: Economists from across the political spectrum offer their ideas to jump-start wage growth
• Robert Pollin et al.: Green Growth: A U.S. Program for Controlling Climate Change and Expanding Job Opportunities

1. James Pethokoukis: Is it time to retire the most important chart in the world?: /The gap between actual GDP and potential GDP. It represents trillions in missing economic growth caused by a failure of the US economy to return to its previous trend growth path. The cost of the Two Percent Economy is staggering, and it’s a big reason — along with quiescent inflation — that “market monetarists” have been in no hurry to see the Federal Reserve do less. In fact, many would prefer the central bank do more — or, actually, do different. But at this point, economist David Beckworth thinks it’s time to look forward and forget about returning to the pre-crisis trend level…. That is reality talking. The Fed is winding down QE and will begin nudging up rates next year (hopefully avoiding a repeat of the Fed’s 1936-37 mistake). From this point on, I suppose, better to focus on crisis avoidance through smarter, rule-based, market-based monetary policy. That, and faster potential GDP growth through supply-side reforms in areas such as taxation, regulation, and education.’

2. Paul Krugman: Could Fighting Global Warming Be Cheap and Free? “Where is the new optimism about climate change and growth coming from? It has long been clear that a well-thought-out strategy of emissions control, in particular one that puts a price on carbon via either an emissions tax or a cap-and-trade scheme, would cost much less than the usual suspects want you to think. But the economics of climate protection look even better now than they did a few years ago. On one side, there has been dramatic progress in renewable energy technology…. On the other side, it turns out that putting a price on carbon would have large ‘co-benefits’–positive effects over and above the reduction in climate risks–and that these benefits would come fairly quickly. The most important of these co-benefits, according to the I.M.F. paper, would involve public health: burning coal causes many respiratory ailments, which drive up medical costs and reduce productivity…”

3. Reuters: U.S. House Speaker Boehner bemoans notion ‘I don’t have to work’: “Boehner’s remarks were in response to a question following a speech he delivered to the conservative-leaning American Enterprise Institute…. Boehner… lamented ‘this idea that has been born, maybe out of the economy over the last couple years, that you know, I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around. This is a very sick idea for our country.’…. Boehner talked about his large family of 11 brothers and sisters, saying that as a youngster… ‘If you wanted something you worked for it’… adding, ‘Trust me, I did it all’…. [Paul] Ryan… spoke of a ‘tailspin of culture in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value of work’. Ryan later said his remarks were ‘inarticulate’…”

4. Joe Romm: NOAA: Hottest August On Record: Last month was the warmest August since records began being kept in 1880, the National Oceanic and Atmospheric Administration (NOAA) reported Thursday…. The oceans were particularly warm. In fact, ocean warming blew more than one record out of the water: ‘The August global sea surface temperature was 0.65°C (1.17°F) above the 20th century average of 16.4°C (61.4°F). This record high departure from average not only beats the previous August record set in 2005 by 0.08°C (0.14°F), but also beats the previous all-time record set just two months ago in June 2014 by 0.03°C (0.05°F).'”

5. Peterson Institute: Event: Labor Market Slack: Assessing and Addressing in Real Time: “Live Webcast September 24, 2014…. Demographics versus demand as determinants of US labor force participation. Erica Groshen… Betsey Stevenson… David Blanchflower… Julie Hotchkiss… Michael Kiley… Justin Wolfers, University of Michigan and PIIE…. Hhow estimates of labor market slack are constructed… David Stockton… Wendy Edelberg… William Wascher… Andrew Levin… Michael Horrigan…. Charles Evans…. Angel Ubide… implications of current labor slack for monetary policymaking… Laurence Ball… William Dickens… Jan Hatzius… Stephen Oliner… Adam S. Posen…. Implications of current labor lack assessments for structural reform… Karen Dynan… Jared Bernstein… Jennifer Hunt… Jacob Kirkegaard… Michael Strain…”

6. Pedro da Costa: Fed economic projections: A colorful patchwork of downward revisions (via Deutsche): http://t.co/i6oqsQzf1G

Should Be Aware of:

• Gershom Gorenberg: The Jerusalem Approach: After a summer of war, we need a different way to think about Israeli-Palestinian peace. It starts with the holy city
• Jo Walton: Love as Struggle in the Works of Mary Renault
• Thomas I. Palley: Milton Friedman’s economics and political economy: an old Keynesian critique

1. Squarely Rooted: Margins and Ecosystems: “James Pethokoukis… ‘…humans have a poor record of understanding risk in complex systems, full of interdependencies, feedback loops, and nonlinear responses. Perhaps humility and caution and consideration are warranted.’… The economic way of thinking is deeply rooted in margins. This is, in many instances, very useful, and has a lot of explanatory power in dealing with a diverse set of market outcomes…. The problem, however, that this mode of thinking runs into is that it’s very poor at understanding ecosystems, and therefore poor at detecting the boundaries between changes that do and don’t disturb that ecosystem…. Where economists and that mode of understanding and problem solving tend to go wrong are those places where ecosystemic factors and risks go undetected by a mindset not trained to see them…”

2. James Surowiecki: Give the Homeless Homes: In 2005, Utah set out to fix a problem that’s often thought of as unfixable: chronic homelessness…. Housing First… started by just giving the homeless homes. Handing mentally ill substance abusers the keys to a new place may sound like an example of wasteful government spending. But it turned out to be the opposite: over time, Housing First has saved the government money. Homeless people are not cheap to take care of. The cost of shelters, emergency-room visits, ambulances, police, and so on quickly piles up. Lloyd Pendleton, the director of Utah’s Homeless Task Force, told me of one individual whose care one year cost nearly a million dollars, and said that, with the traditional approach, the average chronically homeless person used to cost Salt Lake City more than twenty thousand dollars a year. Putting someone into permanent housing costs the state just eight thousand dollars, and that’s after you include the cost of the case managers who work with the formerly homeless to help them adjust. The same is true elsewhere. A Colorado study found that the average homeless person cost the state forty-three thousand dollars a year, while housing that person would cost just seventeen thousand dollars. Housing First isn’t just cost-effective. It’s more effective, period. The old model assumed that before you could put people into permanent homes you had to deal with their underlying issues—get them to stop drinking, take their medication, and so on. Otherwise, it was thought, they’d end up back on the streets. But it’s ridiculously hard to get people to make such changes while they’re living in a shelter or on the street…”