Things to Read on the Morning of July 31, 2014

Must- and Should-Reads:

1. Paul Krugman: Circles of Influence: “Thomas Palley is upset…. I was reacting to… his claim that mainstreamers like me were looking in all the wrong places…. This wasn’t about intellectual priority–it was about refuting a claim of ideological blindness…. I’m willing to accept that Palley was somewhat ahead of the curve. And it’s… true that… those like me… think of it as an arc from Tobin to Akerlof-Dickens-Perry to Daly and Hobijn…. There’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading…. This is a tendency one ought to lean against…. On the other hand, if you want the mainstream guys to listen to you, you probably shouldn’t accuse them of being denser and more rigid than they really are…”

2. Ylan Mui: Economy’s growth rate surges to 4 percent in second quarter

3. Rick Perlstein: “To me, Reagan’s brand of leadership was what I call ‘a liturgy of absolution’…. Who wouldn’t want that? But the consequences of that absolution are all around us today. The inability to contend with climate change. The inability to call elites to account who wrecked the economy in 2008. The inability to reckon with the times when we fall short…. When Samantha Power is chosen to be ambassador to the U.N.; she’d written a magazine article in 2003 in which she wrote American foreign policy needed a ‘historical reckoning’ for crimes ‘committed or sponsored’…. Marco Rubio brought this up… asked her for examples… and the response was that America is the greatest country in the world and has nothing to apologize for. So that’s where we’re at today…. He believed strongly that moderates had no place in the Republican Party…. Pundits then and now believed the problem for Republicans was an inability to broaden their base. Reagan always insisted on the opposite…”

4. Gary Burtless: Unemployment and the “Skills Mismatch” Story: Overblown and Unpersuasive: “We shouldn’t be surprised when shrinking unemployment makes it harder for employers to fill job vacancies…. Economists have examined the skill mix of workers laid off from shrinking industries and compared it with the mix of occupational skills needed in industries that are growing…. To an economist, the most accessible and persuasive evidence demonstrating a skills shortage should be found in wage data. If employers urgently need workers with skills in short supply, we expect them to offer higher pay…. Where is the evidence of soaring pay for workers whose skills are in short supply?… It is cheap for employers to claim qualified workers are in short supply…. When employers are unwilling to offer better compensation to fill their skill needs, it is reasonable to ask how urgently those skills are really needed.”

5. Mark Thoma: Why the Rich Should Call for Income Redistribution: “If inequality continues to rise… redistribution… will happen…. The only question is what form…. Thus, the rich and the powerful… can bury their heads in the sand… [or] recognize that something needs to be done… and support the needed investment in the middle and lower classes that will make it possible for them to gain a larger and more equitable share…”

6. Josh Bivens et al.: State Cuts to Jobless Benefits Did Not Help Workers or Taxpayers: “most state unemployment insurance fund accounts became insolvent in the wake of the Great Recession because states did not adequately fund them in the early to mid-2000s recovery. States that responded to the insolvency by cutting the duration of unemployment benefits did not save significant amounts of money or boost employment.”

7. Brad DeLong (2012): Nobody Believes Me When I Tell Them How Wacka-Wacka Paul Ryan’s Views on Monetary Policy Are: “[He] is on record as saying: ‘I always go back to, you know, Francisco d’Anconia’s speech (at Bill Taggart’s wedding) on money when I think about monetary policy…’ That means… ‘It is not the moochers or the looters who give value to money…. Those pieces of paper, which should have been gold, are a token of honor… of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money…’ That says not that we ought to be on a gold standard, but that we should have a gold coinage–that we should not use credit cards or checks or currency at all…”

8. Ezra Klein: Why I have become more pessimistic about Israel: “I want to see Israel succeed. I want to see it thrive. And that makes this moment in Israeli history painful to watch. The state of Israel is supposed to make Jews safer. But Israel itself is terrifyingly vulnerable: it is home to 6 million Jews in a tiny sliver of land surrounded on all sides by enemies…. The nightmares are easy to conjure: the Six-Day War ending another way, or a dirty bomb detonating in Tel Aviv. Israel’s political ideals are similarly imperiled: it is a liberal democracy that intends to remain a Jewish state. The problem is that Jews might become a minority in the territory they control… and even if they don’t, liberal democracies do not deprive millions of their native residents of a say in their government. Israel’s problems aren’t easy to solve–and Israel cannot solve them without moderate leadership in Palestine and the region. But in recent years Israel seems to be making its problems insoluble. The continued growth of the settlements is morally indefensible, but it’s also deeply counterproductive…. Israel’s peace movement has collapsed, and its government has become more bellicose and aggressive: Avigdor Lieberman’s presence in the cabinet is painful proof that Israel’s fear is outpacing its hope. The excuse used to be that Israel did not have a partner for peace, and that was true. But it’s clear today that Israel itself is not much of a partner for peace, either…”

9. Paul Krugman: Useless Expertise: “Justin Wolfers calls our attention to the latest IGM survey of economic experts…. IGM has been trying to pose regular questions to a more or less balanced panel of well-regarded economists…. And when it comes to stimulus, the consensus is fairly overwhelming: by 36 to 1, those responding believe that the ARRA reduced unemployment, and by 25 to 2 they believe that it was beneficial. This is, if you think about it, very depressing…. Policy has been dominated by pro-austerity views while stimulus has become a dirty word in politics. What this says is that in practical terms the professional consensus doesn’t matter. Alberto Alesina may be literally the odd man out, the only member of the panel who doesn’t believe that the fiscal multiplier is positive–but back when key decisions were being made, it was ‘Alesina’s hour’ in Europe and among Republicans…. You fairly often hear people describe the very poor track record of policy since 2008 as an indictment of economists, who clearly didn’t have the right answers. But actually mainstream macro has a pretty decent track record since 2008…. The other is that you have to wonder what good we’re all doing. If policymakers ignore professional consensus, and if views about how the world works are completely insensitive to evidence and results, does knowledge matter. If a tree falls in the academic forest, but nobody in Brussels or Washington hears it, did it make a sound?”

And:

• David Weigel: The Official Eric Cantor Tribute Video Barely Mentions
• Robin Harding: Fear of bubbles hides the danger of stagnation
• Minxin Pei: Xi Jinping takes risky path in disposal of ‘tiger’ Zhou Yongkang
• James Tobin (1972): Inflation and Unemployment
• Kevin Drum: My Ten-Dollar Offer to the Halbig Truthers
• Erik Loomis: That Pro-Life Hobby Lobby
• Nick Rowe: A simple test of simple rules against actual policy in the actual economy
• Dylan Matthews: Giving everyone a basic income would work for the same reasons Social Security does
• Prachi Gupta: Report: Woody Allen won’t hire a black actor unless he “writes a story that requires it”: “A New York Observer profile of the director tries–and fails–to redeem Allen’s floundering image…”

Should Be Aware of:

1. Richard Mayhew: AIDS, Formularies and Gresham’s Law: “Before the Affordable Care Act, insurance companies could refuse to cover people with HIV or other costly conditions. Obamacare was supposed to end that by making insurers sell policies to all comers…. Now advocates for HIV patients and others with chronic diseases say some health plans are making them bear a huge cost for life-saving medications—and that the strategy’s a backdoor method of discriminating against sick people…. One of the major challenges for Obamacare is transitioning the health insurance industry from being extremely competent at finding ways to not covering sick people towards finding ways to keep people from getting too sick. The biggest stick in this transition is the massive sea change in underwriting from exclusionary, statistical and experience underwriting to an inclusionary community rating system…. Insurers are required to accept and cover HIV patients. They don’t want to.  So they are trying to avoid them by being fugly…. Even relatively inexpensive AIDS mediciation… get put on the most expensive formulary where pre-authorizations, high co-insurance and high co-pays apply until the member reaches the out of pocket maximum. This anti-social but rationally based business model should make the plan very unnattractive to individuals with HIV. They will logically look at the market and look for a plan that does not completely f— them over. The same logic applies to diabetics, cancer survivors, transplant recipients and other high cost individuals…. Once one plan in a market decides to make themselves as unattractive as possible, every other plan has to either follow suit in making themselves unattractive or be willing to take on massive health costs as they become the preferred plan for HIV-positive individuals…”

2. Simon Wren-Lewis: Methodological seduction: “The standard account of scientific revolutions… goes…. 1) Theory A explains body of evidence X 2) Important additional evidence Y comes to light (or just happens) 3) Theory A cannot explain Y, or can only explain it by means which seem contrived or ‘degenerate’. (All swans are white, and the black swans you saw in New Zealand are just white swans after a mud bath.) 4) Theory B can explain X and Y 5) After a struggle, theory B replaces A…. The Keynesian revolution fits this standard account: ‘A’ is classical theory, Y is the Great Depression, ‘B’ is Keynesian theory. Does the New Classical counterrevolution (NCCR) also fit, with Y being stagflation?… It does not. Arnold Kling makes the point clearly. In his stage one, Keynesian/Monetarist theory adapts to stagflation, using the Friedman/Phelps accelerationist Phillips curve. Stage two involves rational expectations, the Lucas supply curve and other New Classical ideas. As Kling says, ‘there was no empirical event that drove the stage two conversion’…. (4) did not happen: New Classical models were not able to explain the behaviour of output and inflation in the 1970s and 1980s, or in my view the Great Depression either. Yet the NCCR was successful. So why did (5) happen, without (3) and (4)?… You need to ask why New Classical ideas could have been gradually assimilated into the mainstream. Many of the counter revolutionaries did not want this…. If mainstream academic macroeconomists were seduced by anything, it was a methodology…. Noah Smith… ‘raises the question of how the 2008 crisis and Great Recession are going to affect the field’. However, if you think as I do that stagflation was not critical to the success of the NCCR, the question you might ask instead is whether there is anything in the Great Recession that challenges the methodology established by that revolution. The answer that I, and most academics, would give is absolutely not…”

3. Jonathan Chait: I Have Mocked Ross Douthat One Time too Many: “Ross Douthat… also accuses me of… [mocking] Reason’s Peter Suderman…. My post about Suderman… charged him with writing a series of negative stories about Obamacare’s coverage that conveyed an overall tone of failure, while consistently retreating in unstated ways…. Suderman began the year by questioning whether Obamacare would reduce the number of uninsured Americans, and ended by questioning whether it had reduced the number of uninsured by 20 million…. Suderman… respon[ds] pointing out… a (pretty) clear admission of failure that I should have cited…. The rest of the pieces I missed were merely continuations of the pattern I identified. Two of them have headlines–“Obamacare Sees Last Minute Sign-Up Surge, But How Many Enrollees Were Previously Uninsured?”; “Obamacare Sign Ups Hit 8 Million; Demographic Mix Falls Short Of Target”–that do convey their tone of implicitly abandoning a previous doom prediction and immediately moving on to a new one. The third, “Obama Takes Obamacare Victory Lap,” straightforwardly describes Obama crowing about sign-up numbers without reckoning with Suderman’s or other right-wing analysts’ deep record of skepticism…”

4. Jeremie Cohen-Setton: The economics of big cities: “An intriguing paradox of our age is that the global economy is becoming increasingly local, with super-productive cities driving innovation and growth nationwide. This has generated a discussion as to whether local land use policies, which restrict the housing supply in high productive metro-areas, should be constrained by central governments to limit their negative externalities on overall growth. Local economies in the age of globalization Enrico Moretti writes that the growing divergence between cities with a well-educated labor force and innovative employers and the rest of world points to one of the most intriguing paradoxes of our age…. Moretti writes that, historically, there have always been prosperous communities and struggling communities. But the difference was small until the 1980’s. The sheer size of the geographical differences within a country is now staggering, often exceeding the differences between countries. The mounting economic divide between American communities–arguably one of the most important developments in the history of the United States of the past half a century–is not an accident, but reflects a structural change in the American economy. Sixty years ago, the best predictor of a community’s economic success was physical capital. With the shift from traditional manufacturing to innovation and knowledge, the best predictor of a community’s economic success is human capital…”