Things to Read on the Morning of May 12, 2014

Should-Reads:

1. Amir Sufi and Atif Mian: Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t: “Despite seeing similar nominal dollar losses, the housing crash led to the Great Recession, while the dot-com crash led to a mild recession. Part of this difference can be seen in consumer spending. The housing crash killed retail spending…. The bursting of the tech bubble, on the other hand, had almost no effect at all…. What explains these different outcomes?…. We argue that it was the distribution of losses that made the housing crash so much more severe than the dot-com crash. The sharp decline in home prices starting in 2007 concentrated losses on people with the least capacity to bear them, disproportionately affecting poor homeowners who then stopped spending. What about the tech crash? In 2001, stocks were held almost exclusively by the rich. The tech crash concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending…”

2. Timothy Snyder: Fascism Returns to Ukraine: “We easily forget how fascism works: as a bright and shining alternative to the mundane duties of everyday life, as a celebration of the obviously and totally irrational against good sense and experience. Fascism features armed forces that do not look like armed forces, indifference to the laws of war in theirapplication to people deemed inferior, the celebration of “empire” after counterproductive land grabs. Fascism means the celebration of the nude male form, the obsession with homosexuality, simultaneously criminalized and imitated. Fascism rejects liberalism and democracy as sham forms of individualism, insists on the collective will over the individual choice, and fetishizes the glorious deed. Because the deed is everything and the word is nothing, words are only there to make deeds possible, and then to make myths of them. Truth cannot exist, and so history is nothing more than a political resource. Hitler could speak of St. Paul as his enemy, Mussolini could summon the Roman emperors. Seventy years after the end of World War II, we forgot how appealing all this once was to Europeans, and indeed that only defeat in war discredited it. Today these ideas are on the rise in Russia, a country that organizes its historical politics around the Soviet victory in that war, and the Russian siren song has a strange appeal in Germany, the defeated country that was supposed to have learned from it…”

3. Paul Krugman: Desperately Seeking Irrelevance: “I think it’s important to highlight the self-destructiveness of [Tony Yates’s] attitude…. Economists who understood and took seriously simple macro models… [vs] people who did macroeconomics not by models but via slogans and gut feelings. The lay side of this debate looked at budget deficits and “money printing” (the expansion of the central bank balance sheet) and issued dire warnings about soaring interest rates and inflation. The other side said no, we’re at the zero lower bound…. And these predictions – which the non-economists considered completely implausible and absurd – proved correct. If economics were an ordinary field of scholarly inquiry, this outcome would have been celebrated as proof that we really do know something useful…. But… a significant number of economists refuse to take “yes” for an answer; they seek out reasons to insist that things are more complicated than that… [and] the field isn’t ready to offer useful advice…. If your view is that after three generations of macroeconomics, the field had nothing helpful to say… why should anyone believe that your research program will ever produce anything useful?…”

Should Be Aware of:

1. Felix Salmon: Jeremy Peters’s False Equivalency in the New York Times: “Jeremy Peters’s voter ID reporting is even more wrong than you think…. Let’s break it up a little, into its constituent parts. ‘1) Few issues ignite such passion among the base of both parties.’ This is a simple true statement. As such, it’s unobjectionable–except, as we’ll see, it sets up Peters’s ability to frame the rest of his statements in party-political terms…. ‘2) The laws are intended to keep poor voters away from the polls because they often have difficulty obtaining identification.’ This is also a true statement, but it’s a contentious one. So rather than come out and say it directly, Peters puts it in the mouth of ‘Democrats’: ‘3) Democrats argue that the laws are intended….’ It has become a statement about political beliefs. ‘4) Cheating is rife in today’s elections.’ This is a false statement…. So how did I just manage to copy-and-paste it from the NYT to here? Because Peters put it into the mouth of ‘Republicans’: ‘5) Republicans contend cheating is rife in today’s elections.’ This is where the problem of false equivalence comes in. The statement attributed to Democrats is true, while the statement attributed to Republicans is false. Yet Peters treats them both equally…. On the face of things, Peters is doing Republicans a favor here…. But actually, it’s worse than that…. I would go so far as to say that (5)–the reported sentence which the NYT is standing behind–is actually false…. I don’t think that Republicans believe–or even contend–that cheating is rife…. A lot of Republicans support voter ID laws. But you don’t need to think that cheating is rife in order to support such measures. In fact, you don’t even need to think that cheating exists in order to support such measures…. Peters doesn’t show the truth of (5); he merely asserts it. He doesn’t quote a single Republican, let alone a nationally-important Republican…”

2. Vikram Bath: Apples Beats: “You have been taught that wearable computing are watches and glasses…. [But] this is the best-selling wearable computing device in the world…. At some point Apple redesigned its crappy, uncomfortable, circular earbuds to create these ergonomic gems… $29… three buttons… volume… pause and play music and answer calls. Holding it down summons Siri to send texts; create notes, reminders, and appointments; or check the weather…. It seems from the outside to be stupidly simple technically…. The reason I bring up this hyper-inclusive framing of what constitutes a wearable computing device is a way to make sense of this: ‘Not to malign members of my own demographic, but it seems a lot of 40-something white guys are simply incapable of fathoming why Apple might want to pay $3.2 billion for Dr. Dre and Jimmy Iovine’s Beats business.’… Beats is a brand. Their primary business is selling… non-magical headphones… [that] may be more comfortable and have better sound isolation…. If you think of headphones as wearable computing accessories that form an important touchpoint for customers within the Apple ecosystem, the move would be arguably in character… mov[ing] into areas that are important to the experience of its products.”

3. Ogged: Tech billionaire Vinod Khosla decided the beach is his, all his…. By California law, the beach itself remains open to the public; it’s just inaccessible by land. This is one of those moments that I wish I had a large pile of money…. Ladies and gentlemen, announcing our free ferry service to Martins Beach. That’s right, folks, the first 200 people to line up each day will be given a ride and a hot meal on their way to a day of frolic on Martins Beach. No shoes, no money, no ID: NO PROBLEM…”

4. Charlie Stross: The Snowden Leaks; a Meta-Narrative: “At every step in the development of the public internet the NSA systematically lobbied for weaker security, to enhance their own information-gathering capabilities. The trouble is, the success of the internet protocols created a networking monoculture that the NSA themselves came to rely on for their internal infrastructure. The same security holes that the NSA relied on to gain access to your (or Osama bin Laden’s) email allowed gangsters to steal passwords and login credentials and credit card numbers. And ultimately these same baked-in security holes allowed Edward Snowden—who, let us remember, is merely one guy: a talented system administrator and programmer, but no Clark Kent—to rampage through their internal information systems. The moral of the story is clear: be very cautious about poisoning the banquet you serve your guests, lest you end up accidentally ingesting it yourself…. It’s a self-reinforcing failure mode, and the more it fails the worse it will get…. The secret police have installed locks in everything and the criminals are now selling each other skeleton keys…”

And:

• Jeff Leek: A summary of the evidence that most published research is false
• Gavyn Davies: Macro pru is no panacea
• John Aziz: You should need a license to take out a mortgage
• Becky McKendry: “In only three weeks, the state’s Medicaid expansion program that gives health coverage to low-income residents is almost halfway to its yearly signup goal…”

Already-Noted Must-Reads:

1. David Dayen: “Hedge funds figured out u can buy troubled mortgage funds at huge discount, restructure loans, keep people in homesThey’re basically just doing 30’s era-HOLC stuff, which Geithner called “unicorny.” This could have been done to scale.” Matthew Goldstein: http://dealbook.nytimes.com/2014/04/30/troubled-mortgage-funds-on-rise-but-face-headwinds/ “In the world of hedge funds, distressed mortgage funds are suddenly hot…. Donald R. Mullen Jr., the manager of Goldman Sachs’s subprime mortgage trade during the housing bubble, is raising $1 billion for a fund to be managed by his investment firm, Pretium Partners. Deepak Narula’s Metacapital Management also plans to start a fund to invest in delinquent mortgages…. The hedge funds Ellington Management Group, One William Street Capital and Angelo, Gordon & Company are either already in the market or planning their own funds. Other institutional investors that are active in the so-called nonperforming loan market include the Blackstone Group, Oaktree Capital and Lone Star Funds. Bloomberg News first reported about Metacapital, which has traditionally invested in mortgage securities and a few years ago was one of the top-performing hedge funds, moving into home loans. The appeal of the distressed mortgage market is understandable for managers looking to generate above-normal returns for their wealthy investors. Even though home prices have rebounded some in many areas hardest hit by the housing bust, there are still more than four million loans on which borrowers are delinquent. Hedge fund managers are wagering that after buying some of these troubled home loans at a substantial discount, they can reach an agreement to restructure the loans in a way that allows borrowers to resume payments — generating sufficient cash flow and decent returns…”

2. Simon Wren-Lewis: Sticky prices: How We Confuse Students, and Sometimes Ourselves: “In week one I talked about time periods in macro, and how the ‘short run’ was the length of time ‘it takes prices to fully adjust’…. [This] is at best highly misleading… the short run is the length of time it takes… monetary policy to achieve the real rate of interest implied by the RBC, or Classical, model.  Calling this the time period it takes prices to fully adjust only makes sense when monetary policy involves some kind of nominal anchor…. The big danger in equating Keynesian economics with sticky prices is that students forget about the crucial role monetary policy is playing…. Yet the linking of the short run with sticky prices is ubiquitous…. Mankiw… says: ‘In the long run, prices are flexible and can respond to changes in supply or demand. In the short run, many prices are sticky at some predetermined level. Because prices behave differently in the short run than the long run, economic policies have different effects over different time horizons.’ This kind of statement makes sense in a fixed money supply world, but it makes much less sense in the real world…”