Things to Read at Lunchtime on August 20, 2014

Must- and Shall-Reads:

1. Graeme Wearden: Bank of England split 7-2 over interest rates: “The Institute of Directors, which represents Britain’s bosses, is delighted to see two hawks emerge at the Bank of England. The IoD suggested that the seven MPC members who voted for no-change are wrong to focus their attention on weak wage growth (!), and should crack on with raising rates–ideally before Christmas…. The British Chambers of Commerce believes the UK economy isn’t strong enough to support higher interest rates…. Professor Danny Blanchflower, a former (dovish) member of the MPC, reckons the two hawks have blundered…. Jonathan Pryor, head of FX dealing at Investec Corporate and Institutional Treasury, says the 7-2 split is a surprise, given how dovish the Bank’s Inflation Report was last week: ‘This vote is likely to leave UK businesses scratching their heads about the direction of sterling and the best way to guard against potential volatility over the coming weeks and months.'”

2. Stefan Wagstyl: Europe pessimistic on income equality as Americans cling to dream: “Most Europeans think their societies are far less equal than they are, while Americans are unusual in believing that their country is somewhat more equal than it really is…. Judith Niehues is due to present her findings this week at Germany’s Lindau economic conference…. People in Europe underestimate the proportion of middle-income earners and overestimate the proportion of the poor…. Only the US has a more unequal income distribution than its citizens imagined…”

3. Rajiv Sethi: The Agent-Based Method: “It’s nice to see some attention being paid to agent-based… models, but Chris House has managed to misrepresent the methodology so completely that his post is likely to do more harm than good…. ‘Probably the most important distinguishing feature is that, in an ABM, the interactions are governed by rules of behavior that the modeler simply encodes directly into the system individuals.’… [House is,] to say the least… grossly misleading…. We could start from the premise that our high-frequency traders want to maximize profits…. Agents can be as sophisticated and forward-looking in their pursuit of self-interest in an ABM as you care to make them…. What you cannot have in an ABM is the assumption that, from the outset, individual plans are mutually consistent. That is, you cannot simply assume that the economy is tracing out an equilibrium path. The agent-based approach is at heart a model of disequilibrium dynamics, in which the mutual consistency of plans, if it arises at all, has to do so endogenously through a clearly specified adjustment process…. In failing to understand this, House makes claims that are close to being the opposite of the truth…”

4. Jonathan Chait: The Republican Party’s Geriatric Trap: “Frum’s essay actually understates the party’s failure…. The GOP’s old-person problem is on inadvertent display in a Wall Street Journal op-ed by Andrew Biggs…. Biggs is professionally committed to cutting Social Security… [and] finds himself dancing awkwardly around the reality that Obama is the one who has proposed to do the thing he advocates, and Republicans are the ones who stopped him. His excruciating contortions highlight the impossible predicament faced by Republican entitlement hawks trying to defend the party line…. At no point anywhere in his op-ed does Biggs mention Congressional Republicans, not to mention their repeated refusal to accept Obama’s deal that would have cut Social Security spending in return for closing tax deductions for the affluent…. The Republican Party constructed a geriatric trap for itself. Just how it will escape is hard to see. It is a small-government party whose base is wedded to the programs that constitute a large and growing share of government…. Frum, interestingly, identifies another side effect of the geriatric trap: It infuses the party and its public spokesmen with mournful sensibility…”

5. Cullen Roche: More Thoughts on the CAPE and Valulations: “I’ve made my opinion on valuations and the use of CAPE pretty clear–these sorts of metrics don’t tell us much…. If investors are willing to pay more for stocks today than they were in 1950 then maybe a CAPE of 15 has no bearing on what a CAPE of 25 means [today]…. I don’t know what the “value” of stocks are today. And I don’t think anyone else really does. And I think trying to put a value on them through these sorts of metrics is just a big waste of time that leads some people to believe they’ve been able to pinpoint… ‘value’… when… they’ve simply tried to calculate, with  precision, something that is very imprecise…”

6. Adam Posen: Keep rates low until the hidden jobless return to work “[In] any decision by the Federal Open Market Committee to hold off raising interest rates… two… judgments are involved. The first concerns the relative costs of erring in one direction or another…. Under conditions of persistent low inflation and slow growth… [inflation] expectations are well-anchored… [while] long-term unemployment… does lasting damage…. [Will] keeping interest rates low will do some other form of harm[?]… Financial imbalances can be tackled directly using macroprudential tools…. By contrast, increasing interest rates has little effect on asset price booms…. This is the conclusion that ought to emerge from Jackson Hole. The Fed should hold off raising rates, for the sake of fuller employment.”

7. Esther Inglis-Arkell: Ancient Roman Tech Cache Shows How Horror Movies Would Really Play Out: “In 1961… Professor Ian A. Richmond of Oxford University happened on a trove that no Briton was meant to discover hidden by… the most powerful and technologically innovative empire the world has ever seen. Forced into retreat by the Kelts, a Roman legion had hidden this incalculably valuable technology. They’d gone to great lengths, picking it out of the remains of their destroyed fort, and burying it deep underground, where no one could ever find it. That is, until one archaeology professor, searching for knowledge, uncovered a weapon so powerful it might have changed the face of the Earth…. The artifacts were nails. They were steel nails, and thus incredibly valuable and dangerous. Steel is an alloy of iron and carbon. Getting one’s hands on a great deal of iron is hard enough. Processing it into a material with just the right amount of carbon–over 4% will render the alloy brittle and useless–is another long learning process…. The eventual success of the project didn’t just lead to stronger weapons. It led to the ability to make superfortresses–like the one that held the 5,000 men in the legion…. The fort contained seven tons of nails, which is quite a cache of versatile tech to be left in the hands of the enemy. The legion picked through the ashes of the fortress to find their tech, and buried it. Until the archaeologists discovered it…”

And:

• Richard Mayhew: Reading the Manhattan Institute so you don’t have to: Part 1 | Part 2 | Part 3
• Philipp Hildebrand: There will be no robust growth without properly capitalised banks
• Asger Lau Andersen et al.: Household debt and consumption during the financial crisis: Evidence from Danish micro data
• Laura Tyson: Bridges to Somewhere
• Ken Liu
• Nick Bunker: Deep data matters when assessing global income inequality
• Jay Rosen: When quoting both sides and leaving it there is the riskier call
• Dan Frommer: Google’s growth since its IPO is simply amazing

Should Be Aware of:

1. Menzie Chinn: Implications of Procyclical Fiscal Policy: Wisconsin Edition: “Recent actions have pushed the balances in the 2015-17 biennium into deficit. But even the news for the 2013-15 biennium has turned dark. By June 2014, it was apparent that there were both tax revenue shortfalls and outlays in excess of planned…. The shortfall in revenues is not surprising. The administration has implemented a contractionary fiscal policy…. My predictions of what would occur have been borne out in actual developments in aggregate economic activity. Wisconsin has experienced substantially slower growth than it otherwise would have…. Note that a regional comparator, Minnesota, that embarked upon a different fiscal path has experienced substantially faster growth, as documented above. To sum up: A procyclical fiscal policy has been undertaken in the past three and a half years, with predictably counterproductive results. The depressed level of economic activity has resulted in a revenue shortfall.”

2. Duncan Black: (G)Libertarianism: “There are people such as Radley Balko who take this stuff on! Good for them! Liberals would like libertarians more if they spent more time on the militarization of the police and the approved abuse of (especially) minority populations rather than, say, seatbelt laws and top marginal tax rates. Because top marginal tax rates aren’t actually a libertarian issue, just a conservative one.”

3. D.K.: Armed police: Trigger Happy: “Civilians—innocent or guilty—are far more likely to be shot by police in America than in any other rich country. In 2012, according to data compiled by the FBI, 410 Americans were “justifiably” killed by police—409 with guns. That figure may well be an underestimate…. Last year, in total, British police officers actually fired their weapons three times. The number of people fatally shot was zero. In 2012 the figure was just one…”

4. Ezra Klein: Why Obama won’t give the Ferguson speech his supporters want: “The White House no longer believes Obama can bridge divides… [but] that he widens them…. Nor is Obama able to bridge the red-blue divide anymore. Presidents are polarizing figures, and Obama is more of a polarizing president than most…. President Obama’s speeches polarize in a way candidate Obama’s didn’t…. When Obama gave the first Race Speech he was a unifying figure trying to win the Democratic nomination. Today he’s a divisive figure who needs to govern the whole country…. There probably won’t be another Race Speech because the White House doesn’t believe there can be another Race Speech. For Obama, the cost of becoming president was sacrificing the unique gift that made him president.”

5. Brianne Gorod: There They Go Again: “Opponents of the Affordable Care Act apparently will say anything…. In a brief that’s as thin on credible legal analysis as their underlying lawsuit, the ACA opponents in Halbig have said the full D.C. Circuit shouldn’t rehear the case. Instead, they argue that the Supreme Court ‘must’ decide… because only the Supreme Court can ‘giv[e] a definitive answer’…. There’s just one problem.  As any lawyer knows, the vast majority of lawsuits in this country are ‘definitive[ly]’ decided without Supreme Court review…. The D.C. Circuit decides to rehear Halbig en banc… vacate[s the] panel decision… eliminate[s] the split with the Fourth Circuit… [and] the full D.C. Circuit might well agree with the Fourth Circuit…. Two judges on the D.C. Circuit may have been willing to buy their arguments, but if the full D.C. Circuit decides to rehear Halbig en banc (as it should), it’s very unlikely the full D.C. Circuit will.”