Things to Read on the Morning of March 30, 2014

March 30, 2014

Must-Reads:

  1. Atif Mian and Amir Sufi: Measuring Wealth Inequality: “Emmanuel Saez and Gabriel Zucman have preliminary work: http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdfMeasuring Wealth Inequality House of Debt

  2. Duncan Black: On Robert Lucas: The E-con: “There are a couple of versions, but this one is basically: We should focus on economic growth because that greatly expands our ability to improve human welfare. But, well, let’s not worry about the human welfare part, just the growth.”

  3. Charles Gaba: California: Suggestions of even larger numbers?: “I included the 80K in 4 days info yesterday but didn’t realize the implications of the second sentence until a commentor pointed it out: ‘The Covered California exchange said sign-ups have been building throughout the week with about 80,000 people picking a health plan Monday through Thursday. An additional 150,000 households created an online account and started the shopping process in the last three days, officials said.’ That’s 50,000 households–not individuals–PER DAY who JUST ceated an account for 3 days straight. Pretty sure most of those are actually enrolling even as I type this. I think this final weekend surge is going to be MUCH larger than even I’ve been projecting. Gotta run for the moment, but I’m going ahead and calling it 6.7 million exchange-based QHPs as of now.”

  4. Ryan Avent: Interest rates and inflation: Zero forever: “WHICH do central banks hate more: low interest rates or rising inflation? They really, really hate low rates…. Searching the Federal Reserve’s website for “reach for yield” returns a nice long list of speeches in which Fed officials warn against the dangers of a long period of low rates. And yet…. Markets think both America and Britain will by 2016 be closing in on nearly a decade of ultra-low rates…. Alone among big rich economies, Japan is now actively trying to raise inflation…. Last November Fed economists published a paper arguing that lifting the inflation target to 3% would rapidly lower unemployment while allowing the Fed’s policy rate to rise higher, faster. The argument does not seem to have swayed the Fed’s monetary-policymaking committee, which continues to project inflation of at most 2% until the end of 2016. Markets reckon prices will rise even more slowly.
    Not only is the Fed not raising its inflation target, it is tightening while inflation remains well below the 2% target…. Just today we learned that the Fed’s preferred inflation gauge rose at just 0.9% in the year to February, down from 1.2% in January…. The rich world’s central banks are behaving with a dangerous complacency. Low and falling inflation will retard ongoing recoveries. Perhaps more important, this path forward leaves the rich world with virtually no cushion against future shocks…. I’m not sure how the Fed can expect anyone to take its word seriously when it has undershot its target nearly every month that target has been in place, when its forecasts make clear that it fully intends to undershoot that target for years to come and indeed on average, and when it is busy pulling away support to the economy while inflation falls ever farther below 2%. It’s a joke.”

Should-Reads:

  1. Tim Fernnolz: Everything wrong with capitalism, as explained by Balzac, “House” and “The Aristocats”: “The Balzac novel that Piketty draws on most is the tale of an entrepreneur who makes a fortune in the lucrative pasta business in revolutionary France, before cashing out—’much in the manner of a twenty-first-century startup founder exercising his stock options’—to invest his wealth and give his daughters a substantial enough inheritance that they can marry well…. Inherited wealth was about 20% of national income in the France of that time. This created a nasty situation where it was impossible to work enough to match what one could earn with inheritance. In Le Père Goriot, this is made explicit through an ambitious young man, Rastignac, who comes to understand that no matter how long he works as a lawyer, he will never have the fortune he could gain by marrying a wealthy heiress…. A society where the main standard of success is earning 20, 50, or even 100 times the average annual income…. In Henry James’s 1880 novel Washington Square, a key plot point revolves around an engagement broken off when the dowry is only 20 times the average income, rather than 60. ‘It was perfectly obvious’, Piketty writes, ‘that without a fortune it was impossible to live a dignified life’.”

  2. Brad DeLong: You too Can Make Big $$$$$ Warning About the Risks and Dangers of Quantitative Easing! Wealth via Privatizing Cardiff Garcia’s Work Product Weblogging…: “Just print out these four thousand words from Cardiff Garcia of the Financial Times, use them as your speech and you will be better prepared to make the one-hour case for Novtaper and Aprunwind by the Federal Reserve than anyone else! Now if only Cardiff would freely distribute a powerpoint deck for this as well…”

  3. Mistermix: Out Loud in a Crowd: “Sam Wang has a piece on autism risks in the Times… graph of the real risks versus the risks that get reported in the newspaper… another tribute to Jenny McCarthy…. The two risks that parents can possibly control, based on real science, are avoiding prenatal stress and early elective C-sections. The non-risk that’s the talk of the town is vaccination. By the way, as probably the one person writing here who hasn’t given up on Nate Silver, this is the kind of stuff that 538 could be publishing. It’s a piece by a scientist who works in a discipline that’s involved in a popular controversy writing to explain the results of recent research. It isn’t some fringe-dweller with questionable credentials who’s cherry picking this or that result to gin up controversy where there isn’t any. Silver needs to fire Pielke and start commissioning pieces from people writing at sites like Scienceblogs.”

Should Be Aware of:

  1. Noah Smith: Land of the brave” no more?: “I really like this Megan McArdle piece about risk-taking…. Is American risk-taking really decreasing? Well, it’s hard to say…. But anyway, let’s assume it’s true, and that America has on the whole become a more timid nation. Why might this be happening? 1. No social safety net…. 2. Income inequality + income stagnation + social preferences…. 3. Labor market segmentation…. What if risk aversion is increasing too?… High-Investment Parenting… parents are going out of their way to discourage their precious kids to take risks…. So the question is, what do we do to encourage Americans to take more risks?… the best way to boost risk-taking seems to be to decrease the downside risks of failure – by establishing a social safety net (including universal health care), and by doing whatever we can to fight labor market segmentation…. It’s a lot easier to be the ‘land of the brave’ when you’ve got a whole army behind you.”

  2. Barry Ritholtz: Are Stocks Pricey or Cheap?: “Standard & Poor’s 500-stock index… is currently trading at 16.7 times forward earnings estimates…. That’s more expensive than the average price over the past century, but it’s about a 5 percent discount to the average over the past 15 years…. In 1982… price-to-earnings multiples were under 10, and stocks, which were widely reviled, were cheap. Fast forward to 1999… the S&P 500 traded at an expensive 27 times forward earnings. Today, using the same measures, stocks are more or less fairly valued…. For cheap stocks, you have to look abroad. Using these metrics, European equities are trading at an 18 percent discount to their 15-year average. And emerging markets are even cheaper, trading at more than a 20 percent discount…. The quantitative research team at Bank of America Merrill Lynch looked at 15… commonly used metrics. By most of these measures, stocks were fairly priced. By one metric — Yale professor Robert Shiller’s cyclically adjusted price-to-earnings ratio, or CAPE ratio — stocks are especially pricey. This has become the bears’ favorite valuation measure. But beware of cherry-picking any particular metric that rationalizes your position…”

And:

March 30, 2014

Connect with us!

Explore the Equitable Growth network of experts around the country and get answers to today's most pressing questions!

Get in Touch