Things to Read on the Morning of June 11, 2014

Should-Reads:

1. Jonathan Chait: Eric Cantor’s Shocking, Richly Deserved DefeatNYMag: “Cantor went out the way he carried himself throughout his career: making comically disingenuous attacks. His television commercials assailed Brat as a tax-loving Democrat–he served on a non-partisan state revenue-estimating commission–and actually ran ads calling him a “liberal college professor”…. It is conceivable that, by preposterously describing a Rand-loving right-wing crank as a liberal, Cantor actually managed to underestimate the intellectual discernment of his voters. In any case, he had ceded all the premises of the argument to his opponent even in the course of smearing him. Cantor was, finally, Cantor’d. He will not be missed.”

2. Danny Vinik: Brookings Survey: Republican Fear Changing Demographics, Immigration: “Hispanics don’t care that much about immigration reform. They care more about finding work and being treated with respect…. Republicans’ Hispanic problem… is a deep-seated fear of the changing demographics in America. While House Republicans do not need to pass immigration reform to woo Hispanic voters, they do need to show compassion for them. In 2012, Mitt Romney was unable to do that: He argued that ‘self-deportation’ was the best strategy for dealing with the 11 million undocumented immigrants in the United States. In the end, he won just 27 percent of the Hispanic vote…”

3. John Aziz: Beware the self-fulfilling prophecies of economic pessimists: “Their prophecies of economic malaise haven’t become self-fulfilling, but there has been several instances in which their predictions have won the argument–to ruinous effect…. Sweden…. It’s highly troubling, then, that one of the arch-pessimists has a prominent spot at the Federal Reserve. Richard Fisher, president of the Dallas Fed, has been warning about economic bubbles throughout the bull market, saying that easy money is stoking up a mania on Wall Street. ‘I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis’, he told the Association of Mexican Banks last week. Fisher’s view is a gross oversimplification. Low interest rates and quantitative easing do encourage investment and spending. But that really says nothing about whether the subsequent growth will be productive growth or bubbly growth. Throughout human history… economic growth has overwhelmingly been productive. Why should we assume that bubbly growth is now the norm?…”

4. Lawrence Ball: The Case for a Long-Run Inflation Target of Four Percent: “Many central banks target an inflation rate near two percent. This essay argues that policymakers would do better to target four percent inflation. A four percent target would ease the constraints on monetary policy arising from the zero bound on interest rates, with the result that economic downturns would be less severe. This benefit would come at minimal cost, because four percent inflation does not harm an economy significantly.”

Should Be Aware of:

• “Open Library is yours to borrow, read & explore…. Over 1,000,000 free ebook titles available…”
• David Leonhardt: “Sydney Nye was a straight-A student with an SAT score high enough to apply to any college in the country…. The notion of attending anything other than a local college seemed too far-fetched…. Her parents… would have a hard time paying the nearly $100 application fee to elite colleges, let alone the tuition…”
• Guinevere Liberty Nell: “Careful study of the theories of Marxists and the real-world experience in the Soviet economy offer important lessons and insight for economic modeling and the ongoing development of theory…. Marxist/Leninist theory and Soviet reality will be studied with an open mind, and with the goal of taking lessons from the case study…”
• Michael Kitces: “Top 50 Financial Advisor Blogs And Bloggers: Barry Ritholtz… Joshua Brown… Cullen Roche… David Merkel… Neal Frankle… Michael Kitces… Robert Seawright… Jonathan Heller… Roger Wohlner… Thomas Brakke… Mebane Faber… Theodore Jenkin…”
• Andrew David Thaler: How to convert a used SodaStream into an ocean acidification simulator, for science
• “”A federal appeals court… upheld the right of universities… [and] Google, to scan millions of library books without the authors’ permission… the institutions were protected by the so-called ‘fair use’ doctrine…”
• Jeremy Lott: “Last month, Tea Partiers in the suburbs of Richmond, Va., kicked out an incumbent chairman of the local Republican Committee…. It put U.S. House Majority Leader Eric Cantor’s future in great peril. Party activists had turned out Cantor’s own ally over his impassioned pleas to keep the guy. This breathed new life into the longshot candidacy of econ prof Dave Brat, who is seeking to oust Cantor…”

And:

1. Paul Glastris and Haley Sweetland Edwards: The Big Lobotomy: How Republicans Made Congress Stupid: “Last September, as they scrambled to decide on one final ultimatum before shutting down the federal government, Republican House leaders came up with what seemed like an odd demand: to strip their own staff of health care benefits. At the time, staffers reacted to the news with a mixture of despair and disbelief. ‘It was like getting sucker-punched by your boss’, one aide told me. ‘Everyone was thinking, “What’s the point? How is screwing us going to help you?”‘…”

2. Andrew Prokop: What is the battle over Medicaid expansion?: “Obamacare’s authors wanted to make more people eligible for Medicaid, and to make the eligibility rules more uniform overall. So the law contained an expansion of Medicaid to everyone making beneath 138 percent of the federal poverty line — more generous coverage than any state had previously offered. But there’s a catch: due to [John Roberts’s] subsequent court ruling, states can now reject the expansion, and many states with Republican governors or legislatures have done just that. Only 26 states have signed on so far…”

3. Robert Waldmann: Consumption, Real Interest Rates, and Habit Formation: “Many macroeconomists use models of aggregate consumption based on utility maximization by a rational representative agent… inter-temporal substitution subject to a lifetime budget constraint… utility function is time separable with a constant inter-temporal elasticity of substitution… stationary distributions around a balanced growth path. All this implies that the expected rate of growth of consumption is a constant (the inter-temporal elasticity of substitution of consumption) times the expected real interest rate…. Estimates of this constant are alarmingly tiny (generally around 0.1)… imply extremely slow growth of consumption given measured real interest rates and even complete patience…. That is estimates based on first differences are inconsistent with estimates based on long term trends. In order to reconcile the model with the data, it is necessary to modify the assumptions…. This was an important impetus for the development of models of rational addiction, that is, of habit formation…. The standard new Keynesian DSGE model due to Smets and Wouters… includes habit formation… to explain the low correlation of the rate of growth of consumption and the expected real interest rate… [and make it] consistent with the… long-term trend of increasing consumption…. Their claim must be that short run fluctuations in real interest rates don’t matter much, because of habit formation, but long run persistent variation matters a lot. This claim suggests… [that] as consumption growth and real interest rates are averaged over longer and longer periods of time, their correlation gets higher until the very strong long run association appears…. [But] there is essentially no sign of a high long-term correlation between real interest rates and consumption growth… no sign that the low quarterly correlation is due to habit formation…. There have been huge and highly-persistent fluctuations in US achieved safe short-term real interest rates, with enormous rates in the 80s and very high rates in the 90s. The fact that the growth rate of aggregate consumption was similar in the 80s to that of other decades should have made it obvious that standard macroeconomic models with habit formation did not fit the data at all…”

4. Steve M.: The Powell Memo Had a Baby Named David Brat: “The BB&T Moral Foundations of Capitalism program is designed to push [Ayn Rand’s] work and her philosophy. In fact, the program — at Randolph-Macon and quite a few other institutions — is an open campaign of proselytization for her worldview as much as it is for capitalism. John Allison explained this in 2012: ‘About twelve years ago we [at BB&T] re-examined our charitable giving and realized that our contributions to universities were not typically being used in our shareholders’ best interest…. The Left had taken over the universities and educated future leaders, including teachers, in statist/collectivist ideas…. BB&T has used the fundamental ethics expressed in Ayn Rand’s philosophy of Objectivism in very successfully growing our business, and we wanted Rand’s ideas to be heard in the academic community…. Typically, Atlas Shrugged is included in the reading list….’ Does this talk remind you of anything? It reminds me of the Powell memo–Lewis Powell’s 1971 memo to the president of the U.S. Chamber of Commerce, which warned that capitalists were losing the war of ideas…. The people who read the Powell memo in 1971 ultimately won–we’ve been living in their world ever since the Reagan presidency. But they’re still fighting…. Dave Brat is one of their propagandists, and tonight he just toppled a giant from the last wave of Republican radicals, who’s now, clearly, not deemed radical–or Randian–enough.”

Already-Noted Must-Reads:

1. Jim Newell (June 10, 2014): Drudge’s new fixation: Eric Cantor and the right’s frenzied paranoia: “As a hobby, scanning the Drudge Report for signals of what rabbit hole the conservative brain has gone down at any given point has lost some of its novelty over the years. Still, it was hard not to notice this morning that Drudge, in the prime upper-left real estate of his site, had listed a full 14 links regarding immigration and a supposed impending push for “amnesty” among the House Republican leadership. (Personal favorite: “Kids Complaining Burritos They’re Being Fed Making Them Sick…”) What gives on this sleepy Tuesday? We learned last week, after all, that the House won’t hold any immigration-related votes in June. That leaves the leadership a few weeks in July to pass the unicorn-like Secret Amnesty that’s not in its interest to pass. Why is it so vital to whip up the conservative base about immigration reform on today of all days? Hmmm … maybe something about Tuesday … primary season … it’s a Tuesday during primary season … Ohhhhhhhh, we get it: House Majority Leader Eric Cantor’s primary is today!”

2. Matthew Zeitlin: Goldman Sachs CEO: “Income Inequality Is A Very Destabilizing Thing In The Country”: “Lloyd Blankfein, in an interview with CBS, said that income inequality is ‘destabilizing’ and ‘responsible for the divisions in the country’. Calling it a ‘very big issue… that has to be dealt with’, Blankfein said that whether or not the economy grows faster, ‘too much of the GDP over the last generation has gone to too few of the people’…”