Things to Read on the Morning of June 30, 2014

Should-Reads:

1. Joe Stiglitz: Inequality Is Not Inevitable: “why has America chosen these inequality-enhancing policies? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model. Without this international competition, we no longer had to show that our system could deliver for most of our citizens. Ideology and interests combined nefariously…. But this ideology was hypocritical…. The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality. In fact, as he recognizes, Mr. Piketty’s argument rests on the ability of wealth-holders to keep their after-tax rate of return high relative to economic growth. How do they do this? By designing the rules of the game to ensure this outcome; that is, through politics…”

2. Gary King and Margaret E. Roberts: How Robust Standard Errors Expose Methodological Problems They Do Not Fix, and What to Do About It: “‘Robust standard errors’ are used in a vast array of scholarship to correct standard errors for model misspecification. However, when misspecification is bad enough to make classical and robust standard errors diverge, assuming that it is nevertheless not so bad as to bias everything else requires considerable optimism. And even if the optimism is warranted, settling for a misspecified model, with or without robust standard errors, will still bias estimators of all but a few quantities of interest. Even though this message is well known to methodologists, it has failed to reach most applied researchers. The resulting cavernous gap between theory and practice suggests that considerable gains in applied statistics may be possible. We seek to help applied researchers realize these gains via an alternative perspective that offers a productive way to use robust standard errors; a new general and easier-to-use ‘generalized information matrix test’ statistic; and practical illustrations via simulations and real examples from published research. Instead of jettisoning this extremely popular tool, as some suggest, we show how robust and classical standard error differences can provide effective clues about model misspecification, likely biases, and a guide to more reliable inferences…”

Should Be Aware of:

• Cory Doctorow: Thomas Piketty’s Capital in the 21st Century
• Ashoka Mody: Europe has wasted a good crisis
• Robert Farley: “Gavrilo Princip and his co-conspirators were given a trial in a civilian court, with access to defense counsel…. As he was a minor (just short of 20) at the time of the assassination, Princip was sentenced to the maximum allowable punishment, 20 years at hard labor…. Princip himself contracted tuberculosis in prison, and died in April 1918…”
• Jared Bernstein: What’s the Matter with (Tax Cuts) in Kansas?
• Christopher Blattman: Let Them Eat Cash

And:

1. Odran Bonnet et al.: Housing capital and Piketty’s analysis: “Capital is not back: A comment on Thomas Piketty’s ‘Capital in the 21st Century’: Thomas Piketty’s claim that the ratio of capital to national income is approaching 19th-century levels has fuelled the debate over inequality. This column argues that Piketty’s claim rests on the recent increase in the price of housing. Other forms of capital are, relative to income, at much lower levels than they were a century ago. Moreover, it is rents – not house prices – that should matter for the dynamics of wealth inequality, and rents have been stable as a proportion of national income in many countries…”

2. Charlie Stross: The Rhesus Chart: Chapter One: “‘Don’t be silly, Bob’, said Mo, ‘everybody knows vampires don’t exist’.”

Already-Noted Must-Reads:

1. Lee Sandlin: Book Review: ‘Robert A. Heinlein’ by William H. Patterson Jr.: “Heinlein was the best sci-fi writer of all time and then mysteriously he became the worst:… Conviction… an intensely persuasive optimism… a radiantly hopeful vision of human prospects…. The novels for adults that followed were just as emotionally compelling…. ‘Starship Troopers’… hurls the reader into its midst with such imaginative force that its rationale seems not only inevitable but somehow desirable. Many readers have been deeply moved… others have felt that they’re being bullied by a brilliant piece of fascist propaganda… the most bitterly divisive book in the history of sci-fi…. ‘The Moon Is a Harsh Mistress’ is a visionary epic of a lunar colony breaking free… and establishing an anarchist-libertarian utopia…. ‘Stranger in a Strange Land’. Heinlein… was both amused and appalled when the hippies took it up, enchanted by his luxuriantly sybaritic portrait of a Martian free-love commune…. The novels he wrote in the 1970s and 1980s wholly lack his old persuasiveness. Nothing in them is real, nothing is at stake and nobody takes anything seriously… adolescent ribaldry and reams of metafictional banter, for which Heinlein has approximately zero gift…. The overall effect is so low-energy and stupefying that it’s hard to believe it isn’t somehow deliberate—as though Heinlein is out to… make sure no reader is inspired to take any action whatever…”

2. Jacob Rose et al.: Will Disclosure of Friendship Ties Between Directors and CEOs Yield Perverse Effects?: “We conduct an experiment involving 56 active and experienced corporate directors… and a second experiment with MBA students…. Friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses… to meet the CEO’s minimum bonus target more often than when the directors and CEO were not friends. However, disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses…. Friendship ties between the CEO and board members can impair the directors’ independence and objectivity, and… disclosure of the relationships can worsen this effect.”

3. Nick Hanauer: The Pitchforks Are Coming… For Us Plutocrats: “The most ironic thing about rising inequality is how completely unnecessary and self-defeating it is. If we do something about it, if we adjust our policies in the way that, say, Franklin D. Roosevelt did during the Great Depression—so that we help the 99 percent and preempt the revolutionaries and crazies, the ones with the pitchforks—that will be the best thing possible for us rich folks, too. It’s not just that we’ll escape with our lives; it’s that we’ll most certainly get even richer…”

4. Annie Lowrey: What’s the Matter With Eastern Kentucky?: “Clay County… median household income there is barely above the poverty line at $22,296, and is just over half the nationwide median…. The disability rate is… 11.7 percent. (Nationwide, that figure is 1.3 percent.) Life expectancy is six years shorter than average…. It’s coal country… in name only… just 54 people [are] employed in coal mining in Clay County, a precipitous drop from its coal-production peak in 1980. That year, about 2.5 million tons of coal were taken out of the ground in Clay; this year… 38,000…. What has happened in the smudge of the country between New Orleans and Pittsburgh–the Deep South and Appalachia–is in many ways as remarkable as what has happened in affluent cities…”

5. Joe Stiglitz: The Myth of America’s Golden Age: “I hadn’t realized when I was growing up in Gary, Indiana that I was living in the golden era…. Smokestacks poured poisons into the air. Periodic layoffs left many families living hand to mouth. Even as a kid, it seemed clear to me that the free market as we knew it was hardly a formula for sustaining a prosperous, happy and healthy society…. The standard economic texts… seemed to be unrelated to the reality I had witnessed growing up in Gary. They said that unemployment shouldn’t exist and that the market led to the best of all possible worlds…. I focused a lot of my work on why markets fail, and I devoted much of my Ph.D. thesis at MIT to understanding the causes of inequality…. Most disturbing is the realization that the American dream—the notion that we are living in the land of opportunity—is a myth…. During the period from World War II to 1980… the fortunes of the wealthy and the middle class rose together. But the evidence of the last third of a century suggests this period was an aberration…. a time of war-induced solidarity when the government kept the playing field level, and the GI Bill of Rights and subsequent civil rights advances meant that there was something to the American dream….
    
   Geithner’s attempts to justify what the administration did only reinforce my belief that the system is rigged. If those who are in charge of making the critical decisions are so ‘cognitively captured’ by the 1 percent, by the bankers, that they see that the only alternative is to give those who caused the crisis hundreds of billions of dollars while leaving workers and homeowners in the lurch, the system is unfair…. Inequality commands a high price: a weaker economy, marked by lower growth and more instability. It is not very complicated. None of this is the outcome of inexorable economic forces, either; it’s the result of policies and politics—what we did and didn’t do…”

6. Scott Westerfeld: Twitter: “Just realized how far in the future we are: The first day of World War 2 is now closer to the Civil War than to the present…”

7. Adam Tooze: The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931

8. James Surowiecki: Why Are the Super-Rich So Angry?: “The past few years have been very good to Stephen Schwarzman, the chairman and C.E.O. of… Blackstone…. Schwarzman is now worth more than ten billion dollars. You wouldn’t think he’d have much to complain about. But, to hear him tell it, he’s beset by a meddlesome, tax-happy government and a whiny, envious populace. He recently grumbled that the U.S. middle class has taken to ‘blaming wealthy people’ for its problems. Previously, he has said that it might be good to raise income taxes on the poor so they had ‘skin in the game’, and that proposals to repeal the carried-interest tax loophole—from which he personally benefits—were akin to the German invasion of Poland….
    
   “That’s not how it’s always been. A century ago, industrial magnates played a central role in the Progressive movement, working with unions, supporting workmen’s compensation laws and laws against child labor, and often pushing for more government regulation… to co-opt public pressure…. Still, they materially improved the lives of ordinary workers…. If today’s corporate kvetchers are more concerned with the state of their egos than with the state of the nation, it’s in part because their own fortunes aren’t tied to those of the nation the way they once were…. Today, by contrast, corporate chieftains have little to fear, other than mildly higher taxes and the complaints of people who have read Thomas Piketty. Moguls complain about their feelings because that’s all anyone can really threaten.”