Things to Read on the Morning of August 12, 2014

Must- and Shall-Reads:

1. Scott Lemieux: Halbig Trooferism: ‘Nice catch by Abbe Gluck: ‘It is no secret that the people bringing the challenge to the Obamacare subsidies in the Halbig and King… are some of the same people who brought the 2012 constitutional challenge…. What’s less known, however, is that in the 2012 constitutional case, these same challengers filed briefs describing Obamacare to the court in precisely the way they now say the statute cannot possibly be read….’ It must be remembered here that the… challenge to the ACA… [must] show that there is no other reasonable interpretation of the statute…. The argument that the statute could not possibly have meant what everyone on both sides of the political spectrum thought it meant in 2010 is so preposterous it’s profoundly embarrassing that even two federal judges bought it. This litigation, admittedly, does seem to be based on a principle… that it’s not a lie if you [claim to] believe it.”

2. Simon Wren-Lewis: On Macroeconomic Forecasting: “Macroeconomic forecasts produced with macroeconomic models tend to be little better than intelligent guesswork. That is not an opinion–it is a fact…. The sad news is that this situation has not changed since I was involved in forecasting around 30 years ago. During the years before the Great Recession (the Great Moderation) forecasts might have appeared to get better, but that was because most economies became less volatile. As is well known, the Great Recession was completely missed…. Does that mean that macroeconomics is not making any progress?… [This] raises an obvious question: why do people still use often elaborate models to forecast?… Why use the combination of a macroeconomic model and judgement to do so, rather than intelligent guesswork?…”

3. Sahil Kapur: GOP States Give Up $423 Billion By Rejecting Medicaid Expansion “The 24 states which refused to expand Medicaid under Obamacare are poised to give up $423.6 billion in federal funds over a decade and keep 6.7 million residents uninsured, according to a new study by the Urban Institute and Robert Wood Johnson Foundation…. Since September 2013 the number of uninsured fell by 38 percent in expansion states and just 9 percent in non-expansion states, the study found…. The study pointed to other economic costs for non-expansion states, notably the higher cost of uncompensated care for hospitals, who are legally required to provide emergency care for patients whether or not they’re insured…

4. Jared Bernstein: Fed Vice-Chair Stan Fischer on Whether Stronger Actual Growth Can Boost Potential Growth: “Stan poses the right question… this part of his answer is particularly important[:]… ‘There are good reasons to believe that some of the surprising weakness in labor force participation reflects still poor cyclical conditions…. It may also be possible to reverse or prevent declines from becoming permanent through expansive macroeconomic policies.’… The implication for current policy is clear: we need to run a high-pressure economy for a while not just to close existing output gaps but to increase potential growth by pulling more people and capital investment back into the economy…”

5. bspencer: The Lego Movie: “This movie surprised me by being as cute and clever as it was. The cast was great, the voice work was great, Morgan Freeman took a break from playing dignified serious characters by playing a dignified funny character, and the whole thing was consistently funny. When you get to the live action part, you get a really fun and surprisingly poignant twist. Plus there’s a unicorn-cat. Really, what more do you want?”

6. Claude B. Erb: Betting on ‘Dumb Volatility’ with ‘Smart Beta’ “It is possible that some investors make the ‘dumb mistake’ of ‘buying high and selling low’. This may create ‘dumb volatility’ which might allow some smart beta strategies to exploit the ‘behavior gap’ by ‘buying low and selling high’. ‘Live data’ suggests 1) the value-added from exploiting dumb volatility has been about 2-4% per year, 2) dumb volatility strategy risk-adjusted-returns have been similar, 3) there could be a ‘dumb volatility return frontier’ offering more ‘return from dumb volatility’ in exchange for more ‘dumb volatility’ and 4) some dumb volatility strategies have achieved Warren Buffett-like ‘value-added’. A six factor model shows no evidence that traditional factors, such as ‘size’ and ‘value’, drove the dumb volatility return. Going forward, the ability of a strategy to absorb capital will be an important economic moat.”

7. Melvin Backman: Kansas runs afoul of the SEC over pensions: “The Securities and Exchange Commission… says the state’s public employees’ retirement system committed securities fraud by not telling investors how underfunded the pensions of its 155,000 workers were…. ‘We are pleased that the SEC did not seek any financial penalties or make any claims of intentional misconduct’… said Jim Clark, Kansas’ Secretary of Administration, in a statement…. The SEC said Kansas raised $273 million in bonds in 2009 and 2010 but failed to disclose to investors how badly the pension situation was. That meant that the bonds’ buyers didn’t know which obligations would be competing for state money that would be used to pay them back. Kansas’ finances have come under scrutiny of late. Last week. Standard & Poor’s downgraded Kansas’ credit rating last week because its tax cuts were more expensive than legislators initially let on.”

8. Jared Bernstein: Antidotes to Samuelson’s Free-Floating Anxiety re Slack and Inflation “Just a quick note re the [Robert] Samuelson piece this AM suggesting that maybe the Fed should raise rates sooner than later. Or maybe not. Actually, all he seems to be saying here is: ‘maybe they should start fighting inflation now, or maybe they shouldn’t; we can’t really tell how much slack there is; but it would be terrible if inflation spirals out of control; but there’s still at least some slack; so we should just be nervous.’ Actually, that’s not as incoherent as it sounds…. Our nervousness can be reduced by thinking through two basic sets of points. First, the diminished relationship between slack and inflationary pressures… and two, the mechanics by which wage growth feeds into price growth…. This point re the changing empirics of slack and inflation is widely known and Samuelson should incorporate it…. Second… Samuelson… need[s] to understand and appreciate at least three mechanisms by which wage gains would not be inflationary, as Baker and I explain here…. The current state of key [economic] variables… given productivity growth, there’s room for a point-and-a-half faster wage growth without undue pressures on unit labor costs… [and] there has been a large shift… from wages to profits…. Wage growth paid for by a shift back toward to a more normal split…is non-inflationary…. And this argument isn’t just academic: millions of jobs and paychecks depend on it.”

And:

• Ayako Saiki and Jon Frost: How Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan
• Stanley Fischer: The Great Recession: Moving Ahead
• Chad Jones: The Macroeconomics of Piketty
• Pascal Michaillat and Emmanuel Saez: Unemployment, and product and labour-market tightness

Should Be Aware of:

1. Zaid al-Ali: Iraq’s Rot Starts at the Top “We have learned since 2003… that merely ensuring that there are ministers from each of Iraq’s main communities — Shiites, Sunnis, Kurds and minorities like the Chaldeans and Turkmen — will not ensure that they will represent those communities’ interests, let alone the national interest…. Prime Minister Nuri Kamal al-Maliki has deservedly been the focus of criticism, given his authoritarian exercise of his constitutional powers, his paranoia and his blindness to real dangers. But the rest of Iraq’s elite has not done any better…. Our political class behaves as if there is no crisis, because for them, there is none: If it comes to it, they can pack their bags and leave with their families…. Iraq’s problems are… as always, political…. The most America can do now — alongside its actions to provide humanitarian relief and keep ISIS at bay — is to support the political process with fair advice. Iraq’s existence as a nation hangs in the balance.”

2. D.R. Tucker: Speak Softly, and Carry a Big Stick: “The [National Review’s] brief… nowhere makes the case that it is scientifically ‘fraudulent’, instead claiming the word was used in a way meant not to imply actual fraud…. NR’s legal team is trying to avoid trial, so all who were hoping to read Lowry’s promised discovery dirt can forget it. Clearly, Lowry is no longer confident that his magazine can beat Mann…”

3. Jonathan Weiler: “Virtually every comment on Hamas in American media includes the assertion that the group’s Charter rejects Israel’s right to exist, it’s worth noting the following from the Likud Platform of 1999: a. “The Jordan river will be the permanent eastern border of the State of Israel.” b. “Jerusalem is the eternal, united capital of the State of Israel and only of Israel. The government will flatly reject Palestinian proposals to divide Jerusalem”. c. “The Government of Israel flatly rejects the establishment of a Palestinian Arab state west of the Jordan river.” d. “The Jewish communities in Judea, Samaria and Gaza are the realization of Zionist values. Settlement of the land is a clear expression of the unassailable right of the Jewish people to the Land of Israel…. The Likud Party has never in its statements of principles, accepted a Palestinian State. Its electoral partner, Yisrael Beitenu, has likewise categorically rejected the possibility of an independent Palestinian State, insisting that the idea is nothing more than a ploy to facilitate the destruction of Israel. The Hamas charter, of course, does more… a vile document that echoes some of the worst anti-Semitic tropes of the modern era. But on the central question of one side denying the other’s legitimacy… symmetry…. Too much political discussion in the United States about Israel/Palestine proceeds from the premise that Palestinians have no other interest than to destroy Israel and drive the Jews into the sea. Therefore, it is said, well-intentioned Israel has no viable negotiating partner for peace…. In fact. Likud leaders have said unequivocally that no two-state deal is possible…”