Things to Read on the Morning of Thursday, September 4, 2014

September 4, 2014

Must- and Shall-Reads:

  • Tobias Adrian, Richard Crump, Benjamin Mills, and Emanuel Moench: Treasury Term Premia: 1961-
  • Mark Thoma: How to shock the U.S. economy back to life
  • Mark Thoma: Objections to Fiscal Policy are Groundless—It Works
  • Alan Kirman: Demand Theory and General Equilibrium: From Explanation to Introspection, a Journey down the Wrong Road
  • Cardiff Garcia: “Oops, we raised rates too soon”
  • Cathy O’Neil: Mathbabe
  • Robert E. Hall and Charles I. Jones: The Value of Life and the Rise in Health Spending

  • Radley Balko: How municipalities in St. Louis County, Missouri profit from poverty

  • Paul Krugman: Money in a Time of Zero: “People who spend too much time… [saying] monetary policy doesn’t matter…. Contractionary monetary policy is working just fine; all the central banks that mistakenly decided that it was time to raise rates… [are now] realizing their error and reversing course. But what about the fact that vast increases in the monetary base have failed to do much to the economy?… The irrelevance of the monetary base is… something that happens when you’re in a liquidity trap…. I get annoyed both by people who declare that nobody could have predicted the failure of balance-sheet expansion to cause inflation, and by those who claim that conventional economists like me just don’t understand that money is endogenous. Guys, I laid it all out 16 years ago. And as for the idea that the absence of a clear definition of money, plus the fact that most money is created by financial institutions, means that central banks don’t matter, James Tobin dealt with all that more than fifty years ago…. If you think something deeply disturbing from an analytical perspective has taken place… you basically weren’t paying attention. If you read your Tobin… [and what] Woodford and I had to say about the liquidity trap, you expected to see exactly what we’re seeing.”

  • State Earned Income Tax Credits and Minimum Wages Work Best Together Center on Budget and Policy PrioritiesErica Williams and Chris Mai: State Earned Income Tax Credits and Minimum Wages Work Best Together: “Lawmakers should look to help working families recover…. They can do this effectively by strengthening their states’ earned income tax credits (EITCs) and minimum wages.  EITCs and the minimum wage are twin pillars of making work pay for families that earn low wages…. Strengthening either… will boost incomes for low-wage working families, but these policy improvements are particularly effective in combination…”

  • Martin Wolf: Financial reform: Call to arms: “The financial crises and the years of economic malaise that followed represent profound failures of the economy and of policy. Above all, they were failures of understanding…. In retrospect, the insouciance of policy makers about the risks being run seems terrifying. But this also raises a big question now: have they learnt the right lessons for the future?… The target of monetary policy is to keep inflation low and stable, though some central banks (notably the Fed) explain that the aim is the highest level of activity subject to hitting its inflation target…. The financial sector is also to remain broadly the same as before, albeit vastly more tightly regulated and with somewhat higher capital requirements. There is also to be enhanced oversight of the systemic fragility of the financial system under the rubric of macroprudential policy. This new orthodoxy is merely a chastened version of the old. But is it workable?… There are a number of reasons for believing the answer is no First, policy makers rely overwhelmingly on monetary policy as the stabilisation instrument of choice. But monetary policy works via asset prices and credit expansion. This combination certainly risks a repeat of crises…. Second, experience shows that the low inflation targets to which policy makers are committed are not high enough to ensure short-term interest rates can remain above zero in all circumstances…. Third, potential exists for conflict between monetary policy on the one hand and macroprudential policy on the other…. The new regulatory regime is an astonishingly complex response to the failures of this model. But ‘keep it simple, stupid’ is as good a rule in regulation as it is in life. The sensible solution seems clear: force banks to fund themselves with equity…. A shift away from over-reliance on inflexible debt contracts, with all the fragility they create in the economy, would require complementary policy changes. The existing favourable tax treatment of debt needs to be ended…. The pre-crisis orthodoxy proved defective. The new orthodoxy is an improvement. But it is open to question in important respects. The financial system remains fragile. The risks of further crises are not small. Far greater ambition is needed.”

  • Alex Tabarrok: What has Economics Done for You Lately?: “A very nice talk by Robert Litan on the contributions of economists and economic ideas to the internet economy”

  • Nick Bunker: Weekend reading: “Jeff Guo on the ‘shadow’ price of housing and the places where housing is more expensive than you would expect…. What do employers look at when hiring recent college graduates?… It’s internships….. Neil Irwin… the gains that middle-income households… haven’t seen…. Izabella Kaminska on how patent trolls are the new rentier class…. Search models… can help us better understand… recessions…”

Should Be Aware of:

September 4, 2014

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