Things to Read on the Afternoon of September 24, 2014

Must- and Shall-Reads:

• Ta-Nehisi Coates: The Case for Reparations
• John Bogle on the Rise of Index Funds
• Michael McKenzie: Treasury market cuts US inflation outlook
• Tim Harford: Selten’s Chain-Store Paradox

1. Young Rand Paul (1984): Stealing to Help the Needy: “To the editors: After reading Mr. Wilzrkarth’s editorial (Feb. 2) condemning President Reagan’s plan for a ‘New Federalism’, every national person should contemplate the essence of the system that has created such a controversy. The main thrust of the article lies in the assertion that neither state governments nor private charity can absorb the immensity of the welfare system. We have been taught as Christian people that it is wrong to steal. But underlying the whole welfare concept is the principle of theft. Money in the form of taxes is confiscated from the producers in society and redistributed to those who can’t or won’t produce. The immoral act of stealing, thus, has become moral in the eyes of society. Immediately, I sense the horror stricken faces of those persons finishing the previous paragraph. Why, he would let the needy starve! My reply would be: How many realistic people believe there are 22 million Americans who need food stamps to survive? How many open-minded people believe 11 million Americans actually need sustenance? Let us assume a highly unlikely percentage, such as half, truly need some support. If individuals were not burdened by taxes incurred by this wealth transfer system, the truly needy would surely be supported. Randall H. Paul; Biology, ’85”

2. David G. Blanchflower and Adam Posen: Wages and Labor Market Slack: Making the Dual Mandate Operational: “We examine the impact of rises in inactivity on wages in the US economy and find evidence of a statistically significant negative effect. These nonparticipants exert additional downward pressure on wages over and above the impact of the unemployment rate itself. This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. We also examine the impact of long-term unemployment on wages and find it has no different effect from that of short-term unemployment. Our analysis provides strong empirical support, we argue, for the assessment that continuing labor market slack is a key reason for the persistent shortfall in inflation relative to the Federal Open Market Committee’s (FOMC) 2 percent inflation goal. Further, we suggest our results point towards using wage inflation as an additional intermediate target for monetary policy by the FOMC.”

3. Jason Fried (2012): Some advice from Jeff Bezos: “Jeff Bezos… shared an enlightened observation about people who are ‘right a lot’. He said people who were right a lot of the time were people who often changed their minds…. The smartest people are constantly revising their understanding, reconsidering a problem they thought they’d already solved. They’re open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking…. What trait signified someone who was wrong a lot of the time? Someone obsessed with details that only support one point of view…”

4. John Holbo: If she weighs the same as a duck… she’s made of wood… and therefore–: “Unless I’m missing something, [Stanley] Kurtz’s actual argument [at National Review] that Hillary has consistently remained an Alinskyite radical is that, for decades, she has consistently done absolutely nothing whatsoever to suggest this is true–as one would expect! She is, to all appearances, moderate, incrementalist and pragmatic. Just like Barack Obama, who is such a model Alinskyite radical that he is on track to govern for eight years and retire to private life without once doing anything to suggest he’s got a radical bone in his body. How much more sinister would The Manchurian Candidate have been if the trigger word were never spoken? The sleeper never wakes! (A lone hero tries to warn the world but, because there is literally nothing to warn people about, he is ignored.)

5. Suzy Khimm: How DC’s conservative elite view liberals: “Here’s the view from the Heritage Foundation: Liberalism creates self-indulgent, licentious hedonists willing to cede every other kind of freedom to an increasingly authoritarian government. ‘Give up your economic freedom, give up your political freedom, and you will be rewarded with license’, said Heritage’s David Azerrad, describing the reigning philosophy of the left. ‘It’s all sex all the time. It’s not just the sex itself—it’s the permission to indulge.’ Liberals, said editor Bill Voegeli, want to create ‘the United States of Feeling Good About Ourselves’. What’s more, they think that those who disagree with them ought ‘to imprisoned—not to be debated, to be locked up on criminal charges and imprisoned’, said the National Review’s Kevin Williamson…. The event at Heritage—which prides itself as being the intellectual backbone of the conservative movement—was intended to address where liberalism was headed…. At the Tuesday event, a curious portrait of modern-day liberalism emerged. Liberalism meant Robert F. Kennedy Jr. and Gawker (for wanting to punish climate change deniers), Senate Democrats (for wanting to undo Citizens United), writer Matt Yglesias (for wanting to eliminate summer vacations), the term ‘mansplaining’ (for being a symptom of P.C. extremism), and Rolling Stone magazine (for giving voice to far-left writers in ‘the most frivolous consumer product in the history of frivolous consumer products’, per Williamson). But more than anything, the panelists stressed, liberalism is an idea, and a deadly one at that: a Janus-faced monster of moral relativism and authoritarianism.”

6. • Daron Acemoglu and James Robinson: Taxation vs. Expropriation: “What’s the difference between a 50% marginal tax rate on income vs. 50% expropriation by a kleptocratic ruler or corrupt officials?… Most citizens of Western democracies (with the notable exception of Tea Party supporters in the United States) are happy with marginal tax rates around 50% or sometimes above, but few businessmen in sub-Saharan Africa or South Asia can be found to sing the praises of similar rates of expropriation or corruption. Why?… High tax rates that emerge from the democratic process are viewed more positively… because citizens consent to them with the expectation that the proceeds will be used for spending that they value…”

7. Schumpeter: Entrepreneurs Anonymous:/a> “Over half of American startups are gone within five years. Most of the survivors barely stumble along…. Barton Hamilton of Washington University in St Louis compared the income distributions of American employees and entrepreneurs, and concluded that the latter earned 35% less over a ten-year period than those in paid jobs…. The paradox of the current, romantic view of entrepreneurs is that it leads us to undervalue their achievements. It is easy to envy people if you focus on a handful of success stories…. Would-be entrepreneurs need to have a more measured view of the risks involved before they start a business. But society also needs to have more respect for people who put their lives on the line to build something from nothing.”

8. Richard Mayhew: Tools to Detect Bulls—: “There are a couple obvious sign-posts…. If you start to see the following signs, you are either engaging with a sophomore in college who just learned something really cool in an introductory class but has neither the advanced classes in the field nor the experience to know better or you are seeing bulls—. 1. The units of analysis make no sense: Avik Roy’s ‘study’ of sticker shock in 2014 based on average prices per county had the unit of analysis as the county…. There are 3,144 counties in the US. 8 counties contain slightly more than 10% of the US population, and the largest county in the US, Los Angeles County, is roughly 120,000 times larger than the least populated…. 2. The comparisons are wildly bizarre: Again, Avik Roy compares community rated insurance with a fairly rich benefit package to underwritten insurance with significant exclusions of coverage…. It is real easy for an insurance company to offer low prices when it is statistically unlikely to pay big claims due to a screening of the risk pool…. 3. The claims are incredible: Timothy Jost looked at Avik Roy’s Obamacare replacement plan…. ‘He claims it would increase access to providers by 4 percent (98 percent for Medicaid recipients) and average health outcomes by 21 percent, while reducing the federal budget deficit by $29 billion over the first 10 years and $8 trillion over 30 years…. These claims are based on analysis of the proposal conducted by Stephen Parente, an American Enterprise Institute Scholar. I can find, however, no description of the methodology, or for that matter of the inputs, applied in this analysis. In particular, how Parente and Roy modeled an improvement in health outcomes, something the CBO never attempts, is a complete mystery.’… 4. The underpants gnomes dominate the theory of change:… When the underpants gnomes have to do the heavy lifting in a theory of change, it is either a first draft that needs to be fleshed out…. Congressman Ryan (R-Wis) wants to use dynamic scoring to get around the fact that he is making two incompatible promises–lower tax rates, especially on the wealthy, and revenue neutrality…. 5. Don’t look at past predictions: Be extremely skeptical of people who don’t audit their past predictions. Jonathan Chait ripped Reason magazine’s Peter Suderman apart on his Obamacare predictions…. People get things wrong all the time. That is fine. It is not fine when there is no evaluation of the process that produces wrongness as that guarantees the continuation of the Garbage In-Garbage Out loop. There are plenty of other high quality bullshit detection tools that are useful in policy analysis, but the above tools can be safely applied by anyone with some curiosity and interest in a subject.”

Should Be Aware of:

• Ruthanna Emrys and Anne M. Pillsworth: Finding the Other Within: [H.P. Lovecraft’s] “The Shadow Over Innsmouth” | “The Litany of Earth”
• Bryan Burrough: On Writing Narrative
• Alfred Marshall: “Highly paid labour is generally efficient and therefore not dear labour; a fact, though it is more full of hope for the future of the human race than any other that is known to us, will be found to exercise a very complicating influence on the theory of distribution.”
• Scott Brown blanks on abortion bill he co-sponsored

1. Ali Ozdagli: Financial Frictions and the Reaction of Stock Prices to Monetary Policy Shocks: “This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal, the stock prices of firms sharing the same auditor as Enron responded by about 50 to 60 basis points less than other firms to a 10 basis point reduction in the federal funds target rate. This effect is particularly strong among more opaque firms for which financial statements likely provide a more important monitoring tool.”

2. Regis Barnichon and Andrew Figura: The Effects of Benefits on Unemployment and Labor Force Participation: “This paper presents estimates of the effect of emergency and extended unemployment benefits (EEB) on the unemployment rate and the labor force participation rate using a data set containing information on individuals likely eligible and ineligible for EEB back to the late 1970s. To identify these estimates, we examine how exit rates from unemployment change across different points of the distribution of unemployment duration when EEB is and is not available, controlling for changes in labor demand and demographic characteristics. We find that EEB increased the unemployment rate by about one-third percentage point in the most recent recession but did not affect the participation rate. In previous recessions, the effect of EEB on the unemployment rate was even smaller.”

3. Thoreau: Merit-based charade: “I’ve been thinking more about Twilight of the Elites…. I wish Chris Hayes had come up with a descriptor better than ‘meritocracy’ for what he’s arguing against. The issue is… that our elite is exceptionally isolated and powerful, and more and more of a monoculture. And our ‘solution’ is to use educational tools to solve problems that are fundamentally not about education…. I admit that I don’t have an obvious candidate that packs all of the counter-intuitive punch and connects to all the ideas presented there, but when you pick a term like that you are just setting up the argument against yourself…”

4. David Freedman (2010): “In my view, regression models are not a particularly good way of doing empirical work in the social sciences today, because the technique depends on knowledge that we do not have…. Their conclusions may be valid for the computer code they have created, but the claims are hard to transfer from that microcosm to the larger world…. I doubt that models can be rescued by technical fixes. Arguments about the theoretical merit of regression or the asymptotic behavior of specification tests for picking one version of a model over another seem like the arguments about how to build desalination plants with cold fusion and the energy source. The concept may be admirable, the technical details may be fascinating, but thirsty people should look elsewhere…. Causal inference from observational data presents may difficulties, especially when underlying mechanisms are poorly understood. There is a natural desire to substitute intellectual capital for labor, and an equally natural preference for system and rigor over methods that seem more haphazard…. However, the assumptions often turn out to be unsupported by the data. If so, the rigor of advanced quantitative methods is a matter of appearance rather than substance…”