Things to Read on the Evening of November 1, 2014
Must- and Shall-Reads:
- : Economist’s View: Links for 11-01-14)
- : Asymptosis » How Do Households Build Wealth? Probably Not the Way You Think. Three Graphs
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: Goldman Disagrees With The Fed On Labor Market Slack: “We disagree with the [FOMC’s] view on labor market slack. While the unemployment rate is now below 6% and the explicit phrase in the FOMC statement that ‘…underutilization of labor resources is gradually diminishing…’ is factually correct, the implicit notion that underutilization is no longer ‘significant’–the term used in the July and September statement–looks inconsistent with the employment and wage data…” -
: Affordable Housing and the Legit Big-City Whinge: “When city-dwellers moan about their high cost of living, they often elicit the unsympathetic retort that they should shut up and praise the ghost of Jane Jacobs for the cultural vibrancy of their neighborhoods, the lucrative jobs, and the artisanal pizza: ‘Living in a great city is a consumption good, you whinging ninnies — you SHOULD have to pay for it! Why do you think you’re entitled to live wherever you want?’ Hey, fair enough. But there’s a difference between grumblings about $5 cinnamon macchiatos and the more useful outrage about meaningful troubles that can be solved — a difference between #firstworldproblems and the healthier expression of annoyed patriotism towards one’s habitat: ‘I like living here and want to keep living here, which is why the problems I complain about aren’t enough to push me out. I’d rather stick around and see the problems solved. But those problems suck, so let’s start doing something about them.’ To complain that rents, for instance, could and should be lower isn’t always a sign of yuppie entitlement. Nor is it mutually exclusive with appreciating the wonderful aspects of city life. Sometimes the gripe really is legitimate…” -
: The Kuroda Bazooka, Round Two: “Faced with fresh evidence that his bold campaign to end deflation was losing steam, Bank of Japan Gov. Haruhiko Kuroda Friday fired off a fresh round of ammunition from his famed money-spewing bazooka, shocking markets with a big increase in the central bank’s stimulus program. The impact was immediate, with the Nikkei Stock Average soaring more than 4% and the yen dropping sharply to a near-seven-year low against the dollar…. In sharp contrast to Mr. Kuroda’s first major easing announcement in April 2013, shortly after he took office, the central bank’s policy board was deeply split. Last year, he managed to get a 9-0 vote in favor of a policy that broke sharply with his more cautious predecessor. This time, the board voted 5 to 4…. Earlier in the day, the government had announced that the most closely watched gauge of inflation had fallen to 1% in September, having decelerated sharply from the 1.5% peak in April. That’s well below Mr. Kuroda’s 2% target, and showed the limited impact of the stimulus program to date…. Behind the surprise may also lie a broader strategy of economic policy coordination with the government. Before the BOJ announcement, Japanese stocks were up sharply in anticipation of an announcement planned for later in the day that the giant government pension fund would reallocate its portfolio…. And, looming for Mr. Abe is a decision on whether or not to go forward with a plan to raise the sales tax next year to 10% from the current 8%. It was the boost earlier this year… that slowed Japan’s economy and seemed to derail Mr. Kuroda’s earlier success in battling deflation. Mr. Kuroda has been a staunch and public advocate that Japan needs to go forward with the tax hike in order to curb its mammoth sovereign debt. Friday’s move, by providing at least a short-term dose of growth, will likely make it easier for Mr. Abe to take that step.” -
: Apologizing to Japan: “For almost two decades, Japan has been held up as a cautionary tale, an object lesson on how not to run an advanced economy…. Western economists were scathing in their criticisms…. I was one of those critics; Ben Bernanke… was another. And these days, I often find myself thinking that we ought to apologize…. Our economic analysis… look[s] more relevant than ever now that much of the West has fallen into a prolonged slump very similar to Japan’s experience…. In the 1990s, we assumed that if the United States or Western Europe found themselves facing anything like Japan’s problems, we would respond much more effectively than the Japanese had. But we didn’t, even though we had Japan’s experience to guide us…. Start with government spending. Everyone knows that in the early 1990s Japan tried to boost its economy with a surge in public investment; it’s less well-known that public investment fell rapidly after 1996 even as the government raised taxes, undermining progress toward recovery. This was a big mistake, but it pales by comparison with Europe’s hugely destructive austerity policies, or the collapse in infrastructure spending in the United States after 2010…. Or consider monetary policy. The Bank of Japan, Japan’s equivalent of the Federal Reserve, has received a lot of criticism…. That criticism is fair, but Japan’s central bank never did anything as wrongheaded as the European Central Bank’s decision to raise rates in 2011…. And even that mistake is trivial compared with the awesomely wrongheaded behavior of the Riksbank…. As for why the West has done even worse than Japan, I suspect that it’s about the deep divisions within our societies. In America, conservatives[‘]… general hostility to… a government that does anything to help Those People. In Europe… the German public is intensely hostile to anything that could be called a bailout of southern Europe…. Japan used to be a cautionary tale, but… [now] it almost looks like a role model…” -
: The takeaway from six years of economic troubles? Keynes was right: “The policy experiments… since… 2008 crisis. The main lesson is that government decisions on taxes and public spending have turned out to be more important… than the monetary experiments…. Fiscal policies have been very different and the divergence in outcomes… has been exactly the opposite to what was implied by the rhetoric of most politicians and central banks. Countries that took emergency measures to reduce public borrowing have mostly suffered weaker growth…. The six years since 2008 have provided strong empirical support for the supposedly outmoded Keynesian view that government borrowing is more powerful than monetary policy in stimulating severely depressed economies and pulling them out of recession…. The underlying reason… is a matter of simple arithmetic… should not be open to debate…. [With] ‘deleveraging’… in the private sector… arithmetic shows that economic balance can only be restored if some other sector of the economy spends more than its income…. Monetarism… assum[ed]… interest rates could always be reduced sufficiently to stimulate private investment, discourage private savings…. In the era of high inflation when monetarism was introduced, the idea… was reasonable enough…. Ironically… the very success of monetarism and central banking in conquering inflation now means that the era of monetary dominance is over…. With interest rates at or near zero, private demand cannot be simulated with further rate cuts and this means that monetary easing can no longer offset fiscal tightening…. Conversely, fiscal expansion now provides an unqualified economic stimulus because there is no risk of interest rates rising significantly… perhaps not until the end of the decade…” -
: The Roberts Court’s “Greatest Threat to Public Confidence”: “Late on a Friday night earlier this month, the Supreme Court voted in another case from Texas to permit the state’s voter ID law, the strictest in the country, to take effect… prevent as many as 600,000 Texans, 4.5 percent of all those registered, from voting next month. The impact, Judge Nelva Gonzales Ramos found, would fall disproportionately on black and Latino Texans. She ruled that the law violated Section 2 of the Voting Rights Act of 1965…. The six justices who let the stay remain in effect didn’t bother to explain themselves beyond the word ‘denied.’ That left it to Justice Ruth Bader Ginsburg and two others, Justices Sonia Sotomayor and Elena Kagan, to explain in dissent what was wrong with that outcome…. ‘The greatest threat to public confidence in elections in this case,’ Justice Ginsburg said, ‘is the prospect of enforcing a purposefully discriminatory law, one that likely imposes an unconstitutional poll tax and risks denying the right to vote to hundreds of thousands of eligible voters.’ A law, in other words, that in the full glare of publicity and on the verge of a highly polarized election, threatens destruction to the social fabric in the most dangerous way, by shutting thousands of citizens out of the democratic process of choosing their leaders. ‘There is no right more basic in our democracy than the right to participate in electing our political leaders,’ Chief Justice John G. Roberts Jr. wrote for the court in April of this year. His subject then was the right to spend money in politics, not the right to vote. If people conclude that the current Supreme Court majority cares more about the first than the second–surely a logical inference–the court will have entered a dangerous place. And so–as a conservative justice once realized in another context–will the country.” -
: This is why the economy has fallen and it can’t get up: “The chart… shows how much more pessimistic the Congressional Budget Office (CBO) has become about the economy, revising its estimate of potential economic down in each of the last seven years…. This is scary stuff…. If it’s right, it means that the Great Recession has made us permanently poorer…. But why hasn’t this big crash been followed by a big comeback? Well, like everything else in economics, it comes down to two things: supply and demand. Larry Summers, who put this chart together, points out that the economy has needed lower and lower interest rates just to get enough investment to create jobs for everyone who wants one…. Not only that, but this ‘secular stagnation’ could turn deficient demand into deficient supply, too. It’s what economists call hysteresis, and the idea is that a long slump can hurt the economy’s productive capacity…. The economy can’t recover on its own, and if it doesn’t soon it might never be able to. We need more inflation, more infrastructure spending, and less tut-tutting about the deficit that… isn’t an urgent problem….” -
: Fiscal Policy Spillovers: Points of Employment to Places of Residence: “Using cross-county Census Journey to Work commuting data, we cluster U.S. counties into local labor markets, each of which we further partition into two subregions. We then compare differential labor market outcomes and Recovery Act spending at the regional and subregional levels using instrumental variables. Among pairs of subregions, we find evidence of fiscal policy spillovers. For example, $1 of Recovery Act spending in a large subregion increases its own wage bill by $0.79 and increases the wage bill in its neighboring subregion by $0.59. We find similar spillover effects when we replace the wage bill with employment as our measure of economic activity. Next, we build a dynamic equilibrium trade model with interregional commuting capable of propagating these spillovers across regions.”
Should Be Aware of:
- : I’m not “that creepy guy from the Internet”: How Gamergate gave the geek community a bad name – Salon.com
- : Transfer Pricing Economics | News and analysis from the arcane world of transfer pricing.
- : As you head to the polls, remember who wrecked the economy
- : Is this House Republican about to lose to a climate hawk?
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: “There’s a Second Macroeconomic Fallacy…. ‘If you want higher interest rates then the central bank should just set a higher interest rate, duh!’… We saw this fallacy at work in Sweden recently. The Riksbank wanted higher interest rates, to reduce the dangers of financial instability, so it set a higher interest rate. But the only result was that the Riksbank needed to set an even lower interest rate a little while later. Lars Svensson understood the Interest Rate Fallacy, but then ordinary people are not Lars Svensson…”
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: Mississippi, the Affordable Care Act, and racism: The state’s failures are rooted in its violent and racist history: “Driven by its high poverty rate, Mississippi ranks low on health and wellness. It has one the highest rates of obesity, heart disease, and diabetes in the country, as well as the highest mortality rate for infants and adults. These ills are worst among its black residents: 43.2 percent of Mississippi blacks are afflicted by obesity and its associated problems and 44 percent live at or below the poverty line, compared with a—still high—30.2 percent obesity rate and 16 percent poverty rate for whites. Which is to say that, more than anywhere else, the Affordable Care Act is necessary in Mississippi. But, as Sarah Varney describes in a vital piece for Politico Magazine, the state’s Tea Party–tinged Republican leadership—including Gov. Phil Bryant—refuses to budge. Not only did it shutter a state-run private exchange for individuals to purchase health insurance, it refused the Medicaid expansion, which would have extended coverage to those living in desperate poverty. The latter consequence is especially destructive…. Mississippi has poor social outcomes and a threadbare safety net. It also has—and has long had—the largest black population in the country. And it’s where slavery was very lucrative, and Jim Crow most vicious. This is not a coincidence. In Mississippi—as in the rest of the South—white supremacy brought a politics of racist antagonism…. Where they existed, public services were sparse and utterly segregated. Anything public had to be kept separate from blacks, or degraded, if that wasn’t possible. To get a sense of the scale of white resistance in Mississippi, consider this: During the civil rights movement, white supremacists built a network of state and private agencies to wreak havoc on black activists with surveillance, economic reprisals, and extreme violence…. More than a half-century later, and all of this is dead. But the ideas and culture it built are not. And why would they be? For nearly a 100 years, Mississippi was a white supremacist police state. Of course this made a mark on its culture. Of course these ideas of exclusion—and specifically, of racial hostility to outside interference and public goods—are still embedded in the structure of its politics…” -
: The value of open content production: “Many organisations are developing open platforms to create, store, and share knowledge. This column analyses editing data by Wikipedia users to show how content creation by individuals generates significant ‘spillover’ benefits, encouraging others to contribute to the collective process of knowledge production.”