Things to Read on the Morning of October 29, 2014
Must- and Shall-Reads:
- Management
- Is Economic Growth Permanently Lower?
- : An End to QE
- : Are Economists Ready for Income Redistribution?
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: Lars Svensson: 1, Sadomonetarists: 0: “Lars Svensson quit Sweden’s Riksbank in a huff last year, frustrated by the central bank’s insistence on raising rates despite the deflationary dangers. His former employer has just tacitly admitted that the economist was right. The Riksbank earlier this morning cut its benchmark interest rate to an unprecedented zero per cent, and markedly moved out its forecast for when it will lift rates again until mid-2016, in an attempt to ease the deflationary forces gripping the Swedish economy. The Riksbank should arguably have listened more closely to its former deputy governor sooner…” -
: Getting Dropped Hurts: “Back in 2008, there was an excellent study on the cost of losing health insurance and then regaining it for people with chronic conditions…. $240 per member per month for Medicaid members in the mid-2000s is a massive number…. I am speculating that a decent chunk of the cost growth slowdown and differential for Expansion states compared to non-Expansion states is a more streamlined set of care…. In 2013, a person who made a few dollars too many, or had been on a program for a month too long would be dropped from Legacy Medicaid, and previously manageable conditions could become unmanaged. In 2014 in expansion states, that person would be dropped from Legacy Medicaid and instantly re-enrolled into Federally funded Expansion Medicaid. The only difference they would see in most expansion states was a different ID card in the mail three weeks later…” -
Climate change: Lessons for Our Future from the Distant Past: “Climate change has been the main driver of mass extinctions over the last 500 million years… provides a stark warning. Human activity is producing greenhouse gases, and as a consequence global temperatures and ocean heat content are rising. Such trends raise the risk of tipping points. Economic analysis offers a number of ideas, but a key problem is that distributions of climate variables can shift, invalidating stationarity-based analyses, and making action to avoid possible future shifts especially urgent…” -
Obamacare’s drip-fed success: “President Barack Obama’s… Obamacare is rapidly settling into America’s landscape. In politics, its virulence is receding: Republicans are far more muted in their attacks than anyone expected a few months ago…. Obamacare is messy and ugly. But it is starting to cover the map…. Republicans in the Senate… are adopting what can politely be called a pretzel stance–promising to keep those parts that voters like while vowing to kill the law ‘root and branch’, in the words of Mitch McConnell, Senate Republican leader. Mr McConnell has pledged that Kentucky, where he is battling to save his seat, will keep its healthcare exchange, ‘Kynect’, even after Obamacare is abolished…. John Kasich, the Republican governor of Ohio, is equally contorted…. After an outcry on talk radio, he ‘clarified’ that he would fight for the law’s full repeal but his state would still keep its Medicaid benefits, which has brought 330,000 Ohioans in from the cold…. There are roughly 10m fewer uninsured Americans than there were a year ago. That number will only grow…” -
: Big Brother’s Liberal Friends: “Sean Wilentz, George Packer and Michael Kinsley are a dismal advertisement for the current state of mainstream liberal thought in America. They have systematically misrepresented and misunderstood Edward Snowden and the NSA.”
Should Be Aware of:
- Still waiting for the Great Rotation? Stop
- Thinking About Bond Bubbles…
- Wonder Woman’s Kinky Feminist Roots
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ERP Derp: “McCrum smackdown watch…. FT Short View…. ‘Over time, the average equity risk premium has been 3.5 per cent, and Goldman Sachs uses that figure to estimate the long term rate of earnings growth embedded in stock prices… the implied rate of real growth for earnings [on European equities]… is now negative…. “Since long-term growth and inflation expectations seem to have fallen in the bond markets, it would be logical that they have fallen in the equity markets too. But… it is hard to disaggregate the relative shifts between growth expectations and the risk premium…. Assuming a fixed 3.5% ERP… the implied real rate of growth… [is] around -4%… clearly pricing in some form of long-run stagnation…. But even if we assume the ERP does not revert to long-run averages of around 3.5% but converges to a long-run average of, say 5%, the market is still implying 0% pa earnings growth over the next 20 years….”‘ This sort of analysis is probably more of a starting point for an interesting conversation about the market, than fill your boots with stock conclusion. Which we mention as using the Equity Risk Premium for any sort of analysis is not without haters. Here, for one, is the Economist: ‘Equity risk premium and term premium sound like sophisticated economic concepts, but in reality they are statistical junk yards into which economists toss stuff they can’t explain with fundamentals… all the murky, unquantifiable factors traders study….’ Then there is also this FT blog from Andrew Smithers, scourge of stockbroker economics: ‘In some of my more gamesome moments I have challenged students to produce an article about the ERP which made a useful contribution to our understanding of the way financial markets work. So far the challenge has not been met…” -
Resetting the Urban Network: 117-2012: “Do locational fundamentals such as coastlines and rivers determine town locations, or can historical events trap towns in unfavorable locations for centuries? We examine the effects on town locations of the collapse of the Western Roman Empire, which temporarily ended urbanization in Britain, but not in France. As urbanization recovered, medieval towns were more often found in Roman-era town locations in France than in Britain, and this difference persists today. The re-setting of Britain’s urban network gave it better access to natural navigable waterways when this was important, while many French towns remained without such access. We show that towns without coastal access grew more slowly in both Britain and France from 1200-1800, and calculate that with better coastal access, France’s urban network would have been up to 20-30 percent larger in 1800.” -
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: Facebook’s phony claim that “you’re in charge”: “In today’s New York Times… Ravi Somaiya visits with Facebook…a writes: ‘Mr. Marra said he did not think too much about his impact on journalism: “We try to explicitly view ourselves as not editors… don’t want to have editorial judgment over the content…. You’ve made your friends… connected to the pages that you want to connect to… are the best decider…. We’re saying, ‘We think that of all the stuff you’ve connected yourself to, this is the stuff you’d be most interested in reading.’”‘… I say a lie, not just an untruth, because anyone who works day-to-day on the code for News Feed knows how much judgment goes into it…. I’m not sure why it’s sitting there unchallenged in a New York Times story. For that doesn’t even rise to the level of ‘he said, she said.’ It’s just: he said, poof!… A more plausible description would go something like this: ‘The algorithm isn’t picking stories the way a home page or front page editor would…. Instead, it’s… recommending stories based on Facebook’s overriding decision rule… maximizing time on site…. The end-in-view is… a user base in constant contact with Facebook. As programmers we have to use our judgment–and a rigorous testing regime–to make that happen. We think it results in a satisfying experience.’ That would be a more truthful way of putting it…. Here is where journalists have to do their job better. It’s not just calling out BS statements…. It’s recognizing that Facebook has chosen to go with ‘thin’ legitimacy as its operating style, in contrast with ‘thicker’ forms…” -
: The worst possible case for the worst possible idea, the gold standard – The Washington Post: “Thiel might think that gold is the only ‘real’ money, and everything else is just a representation of it. That’s what Krugman calls the ‘Midas delusion’: the belief that the one true measure of money isn’t how many goods and services it can buy, but rather how much gold. This is just as nutty as it sounds. It’s saying that the only way to measure our standard of living is by the price of gold, but the price of the things we need to actually, you know, live. The dustbin of history is there for a reason.”