Brad DeLong

Noted for May 25, 2013

Greg Ip: The week in American monetary policy: Parsing the Federal Reserve | Sarah Kliff: California Obamacare premiums: No ‘rate shock’ here | Nick Rowe: Monetary policy is not interest rate policy The Challenges of Mark Carney’s European "Mission Civilisatrice" | Pius IX: Syllabus of Errors | Alan Auerbach (2010): A Modern Corporate Tax | Martin Wolf: Why George Osborne should not be so complacent |

• Matthew Yglesias: Obamacare implementation good news: "You heard it here first from me in April, but I want to reiterate that over the next 18 months you're going to read a lot of stories about problems with Affordable Care Act implementations. Many of those stories are going to be accurate. But fundamentally Affordable Care Act implementation is going to work out great, and people are going to love it. The latest evidence comes to us today from California… premiums for 'silver' and 'bronze' plans are both going to be lower than was previously expected. Far from a 'train wreck', in other words, the biggest single set of clients for the program is getting something like a nice, smooth high-speed train ride. There was also good news from Oregon recently…. And the Affordable Care Act's goal of slowing the growth in aggregate health expenditures is also coming true. Now of course not every state is going to have as happy an experience as California and Oregon. There are huge swathes of the country where public officials have been deliberately refusing to try to make the new law work well, and congressional Republicans are also doing their best to try to stymie implementation. Those efforts will succeed. Residents of California, Oregon, Maryland, Massachusetts, New York, and other eager implementers will see much larger gains from the new law than residents of Texas, Florida, and Alabama… this will be a real tragedy for the country. But even in those places, people are going to end up better off than they were pre-Obamacare…. Journalists tend to cover new programs relative to politicians' promises about them, while beneficiaries judge new programs in terms of the impact on their lives. And the bottom line here is that a small number of high-income individuals are going to pay more taxes on their investment income, while a large number of working-class Americans are going to get free or discounted health insurance. There are plenty of writers out there who I read and respect who quite genuinely believe that taxing rich people's investment income in order to bolster the living standards of the bottom third of the population is disastrous long-term public policy, but in concrete terms, this has all the hallmarks of a successful and popular initiative."

• Ryan Avent: Busts: The wages of sin: "MUST we pay for past sins? Michael Kinsley thinks so: 'I don’t think suffering is good, but I do believe that we have to pay a price for past sins, and the longer we put it off, the higher the price will be. And future sufferers are not necessarily different people than the past and present sinners. That’s too easy.'But he isn't known for his economic bona fides. Matt Klein, who is, tries to put some meat on Mr Kinsley's argument… that 'we must pay for past sins'. As a first step, who is 'we'? It would seem to be the folks whose overoptimistic predictions led them to make big IT investments. What was their sin? I think that would be making IT investments that ended up yielding much less in returns than anticipated. And how were they made to pay? Well, by reaping less than anticipated returns, of course! Only, that's not the consequence Mr Klein identifies. Rather, he says that low post-crisis investment economy-wide was the cost, contributing to stagnant incomes and slow employment growth. But wait: those things affected everyone, including some people who probably thought the tech boom was ridiculous all along and who instead put their money into a 'real economy' stock like Ford, and others who didn't invest at all but just worked as bookkeepers or hotel desk clerks. So what did those people do wrong that necessitated punishment? We no longer seem to be talking about payment for sins. So let's strip the argument of its moral content and simply ask: must a financial gyration like the tech boom and bust cause economy-wide pain?… There are certainly ways that a financial mania could impair future growth potential. If the people getting the wrong kind of skills were a particularly large demographic cohort in their prime working years, then retraining might nonetheless leave the economy unable to grow as rapidly as it otherwise would have…. Had the dot come boom entailed the burning of all the world's coal or a misguided scheme to profit by salting the earth's arable land, that would have been problematic, but it didn't…. History clearly shows that whether necessary or not, financial meltdowns do tend to cause serious economic pain…. But it's important to point out that these consequences don't flow inevitably from poor past investment choices. Past 'excess' doesn't somehow break an economy; it just confuses the people who run it regarding what is supposed to come next. That might strike some as effective acknowledgement that booms necessarily require penance. If the only way to avoid a painful bust is to employ policy-makers who know just what to do in just the right circumstances, then there is no avoiding a painful bust. But there is an important difference. We, rather than some divine agent of economic karma or physical economic law, are the ones causing the pain. And just because we don't know any better now doesn't mean we'll never learn…. And so I dream of a day when the only people who suffer from money-losing investments are the money-losing investors, whose only penance is lost money."

Friday Night Music

Ken Rogoff: For Europe, Debt Relief for the Periphery, Not Fiscal Expansion at the Core

There are two ways to think about why North Atlantic economies are depressed. The first is that would-be spenders (including people and businesses that buy durable capital goods) want to spend less than income earners would earn if there were full employment. The second is that would-be lenders want to lend more than would-be borrowers would want to borrow and than financial intermediaries would be willing to let them borrow if there were full employment. These two ways of thinking about it are, in the math, identical. But they highlight different aspects of the situation.

Now comes the very smart Ken Rogoff to say:

Europe’s Lost Keynesians: There is no magic Keynesian bullet for the eurozone’s woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising. Commentators are consumed by politics, flailing away at any available target, while the “anti-austerity” masses apparently believe that there are easy cyclical solutions to tough structural problems.

Liveblogging World War II: May 24, 1943

Admiral Karl Donitz:

The overwhelming superiority achieved by the enemy defence was finally proved beyond dispute in the operations against the next two convoys, SC 130 and HX 239. The convoy escorts worked in exemplary harmony with the specially trained ‘support groups‘.

To that must be added the continuous air cover, which was provided by carrier-borne and long-range, shore-based aircraft, most of them equipped with the new radar. There were also new and heavier depth charges and improved means of throwing them. With all this against us it became impossible to carry on the fight against convoys.

It was only bit by bit that I received definite details of the losses we had suffered in the action against these two convoys and among the boats on passage, particularly in the Bay of Biscay, off Iceland and the focal areas in the North Atlantic.

Noted for May 24, 2013

Andrew Sheng and Xiao Geng: The Night-Watchman State’s Last Shift | Linda Beale: Another reason for NOT cutting Social Security benefits--seniors poorer than you think | Kenneth Rogoff: Europe’s Lost Keynesians | Marty Weitzman: The Odds of Disaster: An Economist's Warning on Global Warming |

• Paul Krugman: Macroeconomic Machismo: "It was obvious during the runup to the Iraq war that what was going on in the minds of many hawks — and not just the neocons — was not so much a deep desire to drop lots of bombs and kill lots of people (although they were OK with that) as a deep desire to be seen as people who were willing to Do What Has to be Done. Men who have never risked, well, anything relished the chance to look in the mirror and see Winston Churchill looking back…. And the austerian impulse is pretty much the same thing, except that in this case the mild-mannered pundits want to look in the mirror and see Paul Volcker. Much of the problem in trying to stop the march to war was precisely the fear of many pundits that they would be seen as weak and, above all, not Serious if they objected. Austerity has been very much the same thing — and again, it’s not just the right-wingers who are afflicted. Let me illustrate that point with two parallel diagnoses of economic crisis, 78 years apart. The first is from John Maynard Keynes, The Great Slump of 1930; the second from Barack Obama’s first inaugural, in January 2009…. Do you see where [Obama] goes wrong? Most of the way through, Obama is getting it right…. But then he suddenly swerves into the language of Very Serious People, talking about the need to make unpleasant decisions (which is always there, but if anything less so in a depression). I was very upset about this at the time, but not upset enough — for there, right at the beginning, was the austerian temptation, adulterating the message of the man who should have been that temptation’s fiercest opponent. So if you like, the problem is Seriousness rather than sadism. On foreign policy, it’s always 1938; on economic policy, it’s always 1979. And the colossal muddle goes on."

• John Maynard Keynes: The Great Slump of 1930: This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time.

• Barack Obama: We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed.

Michael Kinsley's Repeated Factual Errors: Why Oh Why Can't We Have a Better Press Corps?

Dan Drezner is sick of trying to reason with Michael Kinsley:

Sometimes a factual error is just a factual error: I've spent a rather alarming portion of this week wading into intellectual pissing matches, so I'm loath to respond to Michael Kinsley's response to last week's brouhaha over austerity policies. But one paragraph does merit a response. After noting the backlash to his last column, Kinsley writes the following:

There are two possible explanations. First, it might be that I am not just wrong (in saying that the national debt remains a serious problem and we’d be well advised to worry about it) but just so spectacularly and obviously wrong that there is no point in further discussion. Or second, to bring up the national debt at all in such discussions has become politically incorrect. To disagree is not just wrong but offensive. Such views do exist. Racism for example. I just didn’t realize that the national debt was one of them.

Kenneth Rogoff Is Smart Today

Here:

"Europe’s Lost Keynesians" by Kenneth Rogoff

But I don't have time to react…

Michael Kinsley Says: Leave Ben Carson Alooooonnnneeee!!!!: Thursday "WTF?!" Weblogging

Why oh why can't we have a better press corps?

Scott Lemieux:

Did Michael Kinsley Invent the Concept of Same-Sex Marriage?: [T]his great moment in unwarranted self-aggrandizement: "The first known mention of gay marriage is an article (“Here Comes the Groom” by Andrew Sullivan) commissioned by me and published in this magazine in 1989." I… wow. I don’t mean to suggest that the Sullivan article wasn’t important in its way…. But “first known mention?” I don’t know what the very first was, but I do know that there were lawsuits claiming that bans on same-sex marriage were unconstitutional that made it to state appellate courts in Minnesota, Kentucky, and Washington between 1971 and 1974…

The context:

Liveblogging World War II: May 23, 1943

Flying Fish - Dave Barry:

In December 1941, shortly after Pearl Harbor, a Pennsylvania dental surgeon named Lytle S. Adams thought of a way that the United States could fight back against Japan. It will come as no surprise to anyone who has undergone dental surgery that the idea he came up with was: attaching incendiary bombs to bats and dropping them out of airplanes. The idea was that the bats would fly into enemy buildings, and the bombs would go off and start fires, and Japan would surrender.

So Dr. Adams sent his idea to the White House, which laughed so hard that it got a stomachache.

No! That's what you'd expect to happen, but instead the White House sent the idea to the U.S. Army, which, being the U.S. Army, launched a nationwide research effort to determine the best kind of bat to attach a bomb to. By 1943 the research team had decided on the free-tailed bat, which "could fly fairly well with a one-ounce bomb." Thousands of these bats were collected and -- remember, we are not making any of this up -- placed in ice-cube trays, which were then refrigerated to force the bats to hibernate so bombs could be attached to them.

On May 23, 1943, a day that every school child should be forced to memorize, five groups of test bats, equipped with dummy bombs, were dropped from a B-25 bomber flying at 5,000 feet. Here, in the dramatic words of the article, is what happened next:

Noted for May 23, 2013

Ben McLannahan: BoJ holds amid signs of economy ‘picking up’ | Paul Krugman: The point, I think, is that you can simultaneously fault the Fed and economists in general for failing to see this crisis coming, and ridicule the hedge fund guys for giving advice right now that is both ludicrous and dangerous. And you should | Martin Wolf: Global inaction shows that the climate sceptics have already won | Barry Ritholtz: GMAMX: Goldman Sach’s Muppet Fund of Funds | Robert Skidelsky: Austere Illusions | John Williams: Commencement Address: Economics Department: University of California, Berkeley: "Life’s Unpredictable Arc" | Peter Orszag: As Job Flow Slows, Americans Get Stuck in Place | Felix Salmon: Don’t fear the bubble | Eduardo Porter: A Keynesian Victory, but Austerity Stands Firm |

• Mark Thoma: The Unemployed Need Bold, Creative Moves from the Fed: "The Federal Reserve has increased the size of its balance sheet nearly four-fold since the onset of the financial crisis, from around $870 billion in 2007 to $3.35 trillion today. This has caused people like Peter Schiff to predict that we are headed for a severe outbreak of inflation. An inflation problem is just round the corner we’ve been told again and again since 2008, yet inflation remains below the Fed’s two percent target, long-run inflation expectations are well-anchored, and there is little evidence in recent data that inflation is or will be a problem. Why is inflation so low?… Stimulating demand and creating inflation has not been as easy as the Fed thought it would be even with the dramatic increase in the size of its balance sheet, and the Fed has been unwilling to take the additional bold and creative steps needed to bring inflation up to –– or in the short-run even above –– its target level…. We do not want to repeat the wage-price spiral problems of the 1970s and the recession of 79-82 that was needed to break the cycle. So in the long-run, we want to hit our inflation target. We also don’t want to repeat the financial meltdown we’ve just been through. But the risks of inflation and financial instability have been overblown relative to the large costs associated with high long-term unemployment and it’s time for the Fed to address the unemployment problem with the same creativity, boldness, and perseverance it displayed when banks were its main concern."

• Paul Krugman: German Wages and Portuguese Competitiveness: "But what really puzzles me about Cowen’s exposition here is his misplaced focus on the extent to which Portugal and Germany are in direct competition with each other…. This is very nearly irrelevant…. Germany and Portugal, for better or (mainly) worse, now share a currency, and what happens in Germany very much affects the value of that currency relative to other currencies. Cowen writes that rising wages in Germany 'solves (at best) only one of the core problems of the eurozone, namely incorrect relative prices between Portugal and Germany. It helps less with the “Portuguese nominal wages are too high” problem…' OK, stop right there… too high relative to what? As Rudi Dornbusch always used to say, it takes two nominals to make a real. And the answer, clearly, is 'too high relative to German wages'. What else could it be? But, you say, Portugal doesn’t compete that much with Germany. Ahem. Suppose that I could wave a magic wand (or play a few notes on a a Magic Flute) and suddenly increase all German wages by 20 percent. What do you think would happen to the value of the euro?… Portuguese exports would become a lot more competitive everywhere, including non-German and indeed non-Euro destinations. I guess I thought this was obvious. Apparently not…. Germany and Portugal share a currency. This creates obligations for Germany, whether it likes them or not."

“Unknown Unknowns”: High Public Debt Levels and Other Sources of Risk in Today’s Macroeconomic Environment

Robert Skidelsky Certainly Does Not Think There Is Only a Dime's Worth of Difference Between Cameron and Obama

Robert Skidelsky:

Austere Illusions: The doctrine of imposing present pain for future benefit has a long history – stretching all the way back to Adam Smith and his praise of “parsimony.” It is particularly vociferous in “hard times.” In 1930, US President Herbert Hoover was advised by his treasury secretary, Andrew Mellon:

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system...People will...live a more moral life...and enterprising people will pick up the wrecks from less competent people.

To “liquidationists” of Mellon’s ilk, the pre-2008 economy was full of cancerous growths – in banking, in housing, in equities – which need to be cut out before health can be restored. Their position is clear: the state is a parasite, sucking the lifeblood of free enterprise. Economies gravitate naturally to a full-employment equilibrium, and, after a shock, do so fairly quickly if not impeded by misguided government action. This is why they are fierce opponents of Keynesian interventionism.

Ryan Cooper Talks to Michael Kinsley, as One Would to a Child

Why oh why can't we have a better press corps?

To extend a metaphor originated by R.G. Hawtrey: the house is on fire, and Michael Kinsley is out there screeching about how we dare not hook up the firehose because there was a flood 40 years ago. And now Ryan Cooper tells me Kinsley is back--this time screeching not just because those of us who know what we are talking about want to hook up the firehose, but also because we are not treating him with the sufficient respect he believes is his due.

So Ryan Cooper attempts a mitzvah, and tries to get through by taking the advice Saris offers in Galaxy Quest as to how one should talk to Mathezar:

And If You Can Gain Access to Vince Reinhart's Morgan Stanley Research Short Videos, They Are Very Good...

U.S. Second-Quarter Growth Now Looks Likely to Be at a Pace That Puts Downward Pressure on the Employment-to-Adult-Population Ratio...

Not too Late for the Social Credit Helicopters!

Duncan Black:

Eschaton: Not Too Late For The Helicopters: A big tragedy of the last few years is the failure to recognize that being in a low inflation world at the zero lower bound was a tremendous opportunity to massively enhance human welfare in this country. Mailing out 10 grand checks to everyone would have been an egalitarian massive boost to the economic well-being of huge numbers of people. Instead, the Fed has goosed asset prices, mostly benefiting the rich. Trickle down through another means, but still trickle down. Better than doing nothing, probably, but there were other ways.

How can you oppose a social-democratic economic policy that had the endorsement of Robert A. Heinlein?

Noted for May 22, 2013

Mark Thoma: Economist's View: Inequality and Economic Growth: Paul Krugman and Tony Atkinson | Dylan Matthews: Senior poverty is much worse than you think | THE humble shipping container is a powerful antidote to economic pessimism and fears of slowing innovation. Although only a simple metal box, it has transformed global trade. In fact, new research suggests that the container has been more of a driver of globalisation than all trade agreements in the past 50 years taken together |

• Paul Krugman: Jaime Caruana, general manager of the Bank for International Settlements, warning of the dangers of easy money and the need to raise rates now to avert … something or other. And his views matter, says the Wall Street Journal: "Mr. Caruana is no disgruntled outvoted hawk on a policy-setting council, trying desperately to set the record straight after being outvoted. Rather, he’s the mouthpiece for a global college of central bankers, almost all of whom find themselves under intense pressure from their national governments to keep things ticking over while they try to repair the economy...." What I do recall, however — which the Journal apparently doesn’t — is that the BIS has spent years warning about the dangers of low interest rates. Except that a couple of years back it was telling a completely different story about why we needed to raise rates; you see, the big danger was of imminent inflation: "'Global inflation pressures are rising rapidly as commodity prices soar and as the global recovery runs into capacity constraints', said the BIS, which acts as a central bank for the world’s central banks. 'These increased upside risks to inflation call for higher policy rates.'” In fact, inflation is running below target just about everywhere. You might therefore think that the BIS would step back a bit and reconsider both its policy recommendations and the framework it uses to derive those recommendations. But no. Higher interest rates are always the solution; it’s only the problem they’re supposed to solve that changes."

• Zack Beauchamp: The Inside Story of The Harvard Dissertation That Became Too Racist For Heritage: "The idea that some racial groups are, on average, smarter than others is without a doubt among the most discussed (and debunked) 'taboos' in American intellectual history. It is an argument that has been advanced since the days of slavery, one that helped push through the draconian Immigration Act of 1924, and one that set off a scientific firestorm in the late 60s that’s hardly flagged since. Yet every time the race and IQ hypothesis reclaims the public spotlight, we are caught slackjaw, always returning to the same basic debates on the same basic concepts… Jason Richwine…. If the dissertation was bad enough to get him fired from the Heritage Foundation, how did it earn him a degree from Harvard? A popular answer among Richwine’s defenders is that, quite simply, it was exemplary work…. But dozens of interviews with subject matter experts, Harvard graduates in Richwine’s program who overlapped with him, and members of the committee itself paint a somewhat more textured picture. Richwine’s dissertation was sloppy scholarship, relying on statistical sophistication to hide some serious conceptual errors. Yet internal accounts of Richwine’s time at Harvard suggests the august university, for the most part, let serious problems in Richwine’s research fall through the cracks."

Brad DeLong (Summer 2010): It Is Far too Soon to End Expansion: Wednesday Hoisted from Three Years Ago

Brad DeLong: It is far too soon to end expansion:

It was in 1829 that John Stuart Mill made the key intellectual leap in figuring out how to fight what he called “general gluts”: he saw that what had happened was an enormous excess demand for particular financial assets was driving an enormous excess supply of goods and services – and if you relieved the excess demand in finance you would cure the excess supply of labour. When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy. 

Exchequer Chancellor Osborne Braced for IMF Verdict

An Article IV consultation for a reserve-currency sovereign that might actually matter:

Rachel Cooper:

Osborne braced for IMF verdict on UK economy: George Osborne is braced for the International Monetary Fund's verdict on Britain's economic prospects amid speculation it will urge him to change course. On Wednesday, the IMF presents its annual healthcheck on the UK and the international body is expected to suggest that deficit reduction should be slowed amid anaemic growth. The “Article IV” report is expected to recommend Mr Osborne change his plans and borrow more to invest in infrastructure or cut taxes. Previously, the IMF was among the strongest backers of the Chancellor's economic strategy, but has gradually changed its tone in response to dwindling growth forecasts.

Liveblogging World War II: May 22, 1943

Release of "Mission to Moscow":

"Mission to Moscow" was made at the behest of F.D.R. in order to garner more support for the Soviet Union during WWII. It was from the book by Joseph E. Davies, former U.S. Ambassador To Russia. The movie covers the political machinations in Moscow just before the start of the war and presents Stalin's Russia in a very favorable light. So much so, that the movie was cited years later by the House Un-American Activities Commission and was largely responsible for the screenwriter, Howard Koch being Blacklisted.

Another Opinions-of-Shape-of-Earth-Differ Journamalist Who Doesn't Do His Homework: Charles Lane of the Washington Post

Why oh why can't we have a better press corps?

Charles Lane emulates Clive Crook and Michael Kinsley in not citing and not quoting from the people he is criticizing. But he goes further: he doesn't even try to read what they have just written.

Daniel Kuehn delivers the smackdown:

Facts & other stubborn things: An email to Charles Lane of the Washington Post: Perhaps I'm missing something, but isn't your "compromise" option precisely Krugman's position? I think it's the right idea, but I think that's exactly where Keynesians are. The tough part is figuring out how to get the pro-austerity crowd to that point.

Keynes actually advocated separating the current budget from the capital budget, and it was the current budget that was supposed to be balanced, not necessarily the two together. Most economists agree that you can run perpetual budgets and still maintain a stable debt ratio as long as the deficits aren't too large.

Daniel Kuehn
Doctoral student, Department of Economics
American University

Daniel W. Drezner: MIchael Kinsley Produces the Worst Piece of Conventional Wisdom You Will Read This Year

Why oh why can't we have a better press corps?

Daniel W. Drezner:

The worst piece of conventional wisdom you will read this year: Stagflation in the 1970s was caused primarily by an inward shift of the aggregate supply curve due to a surge in commodity prices, particularly energy. Some central banks responded with accommodating monetary policies that accelerated inflation even further. Fiscal policy was an innocent bystander to this whole shebang. So I honestly don't know what the hell Kinsley is talking about. More importantly, the current macroeconomic climate is really, really different from the 1970s. Inflation was a Big Bad Problem during that decade. It is not a problem right now. If inflation were spiking, then a genuine debate could be had on macroeconomic policy options. But that's not the case.

Sidney Hillman Would Be Really Pissed at Sidney Hillman Foundation President Bruce Raynor and Company, Is What I'm Saying: Tuesday Hoisted from the Internet from Eleven Years Ago

Why oh why can't we have better foundations?

Tim Noah:

Gore, Sullivan, and "Fifth Column": Andrew Sullivan wants to know why it was OK for Al Gore (in an interview with the New York Observer) to describe Fox News, Rush Limbaugh, and the Washington Times as a "fifth column," but not OK for Sullivan to use that same epithet to describe the tiny band of leftists who, after Sept. 11, opposed the war against al-Qaida. As one who criticized Sullivan for slinging the term "fifth column," Chatterbox will gladly explain: It's the context, stupid.

Department of "Huh?!": Apple Computer Valuation Edition

If I have the right numbers in my head (which I may not), Apple currently makes $40 billion a year in profits, has $150 billion in free cash, and has a market value of $500 billion. That's a (price-cash)/earnings ratio of 7.75.

In what way is that divorced from fundamentals? Sounds like the market thinks that Apple has a very good franchise with a half-life of seven years, which seems about right to me. But if you told me the franchise was twelve years, I would not be surprised. And if you told me Apple was going to pull a Microsoft or a GM and burn all of its cash and its future earnings in a vain attempt to preserve a franchise beyond its natural life, I would not be surprised either. Apple's fundamentals are uncertain, but it does not seem to me that its market price is or was disconnected from them…

Muhammed El-Erian writes:

We should listen to what gold is really telling us: Like Apple, valuation has become divorced from fundamentals….

Liveblogging World War II: May 21, 1943

Axis Smashed in North Africa:

Martha L. Olney and Aaron Pacitti: More Services Means Longer Recoveries

Martha L. Olney and Aaron Pacitti:

More services means longer recoveries: The four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007…. The shift from being a goods-producing, manufacturing-based economy to a service economy… is causing the pace of economic recoveries to slow…. Because services can’t be inventoried nor, for the most part, exported, services are only produced when domestic demand exists.

Goods-producing businesses… can produce in anticipation of increasing demand or in response to increased external demand. Either way, domestic demand need not increase before goods production increases. Service producers are not so lucky. A restaurant won’t produce a meal before you are in the booth. And your dentist can’t produce and inventory a teeth cleaning. You have to be in the dentist’s chair. So service producers must wait…. The greater the share of services in the economy, the greater the share of businesses that must wait for domestic demand to actually pick up…

Ezra Klein: Medicaid in Oregon

Ezra Klein:

Is the future of American health care in Oregon?: Two weeks ago, the group reported… that Medicaid coverage increased the amount of health care people used, offered almost total protection against catastrophic health expenses and reduced depression by 30 percent, but it didn’t show a statistically significant effect on blood pressure, cholesterol or blood sugar…. The sample of sick people was too small to show statistically significant improvements in those measures…. It’s a critique that Katherine Baicker, a Harvard health economist who was one of the principle authors of the study, partially accepts:

Our power to detect changes in health was limited by the relatively small numbers of patients with these conditions. Indeed, the only condition in which we detected improvements was depression, which was by far the most prevalent of the four conditions examined.

She also noted that the diabetes results were consistent with the improvements one would expect from the clinical literature but the number of people with diabetes was too small to establish significance. However, she said the sample size was large enough to rule out large improvements in blood pressure and cholesterol, at least over the first two years.

Noted for May 21, 2013

Brink Lindsey: Jason Richwine's IQ-based argument that American Hispanics are less intelligent than native-born whites has been called racist. It's also wrong | Jon Bakija et al.: Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data | The World Top Incomes Database | Unconventional Monetary Policies | Summary of Informal Discussion | Robert Litan: Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity | Jagdish Bhagwati and Arvind Panagariya: Why Growth Matters: How Economic Growth In India Reduced Poverty and The Lessons For Other Developing Countries | Timothy Jost: Implementing Health Reform: Defining ‘Minimum Value’ For Employer Coverage |

• Henry S. Farber and Robert G. Valletta: Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market: "In response to the Great Recession, the availability of unemployment insurance (UI) benefits was extended to an unprecedented 99 weeks in many U.S. states in the 2009-2012 period. We use matched monthly data from the CPS to exploit variation in the timing and size of the UI benefit extensions across states to estimate the overall impact of these extensions on individual exit from unemployment, and we compare the estimated impact with that for the prior extension of benefits during the much milder downturn in the early 2000s. In both periods, we find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment. The effects on exits and duration are primarily due to a reduction in exits from the labor force rather than to a decrease in exits to employment (the job finding rate). Although the overall effect of UI extensions on exit from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term."

• Jesse Rothstein and Albert H. Yoon say that Stuart Taylor, Jr., and Richard Sander simply do not know what they are talking about: Affirmative Action in Law School Admissions: What Do Racial Preferences Do?: "As a policy matter, reasonable people may disagree about whether the costs of “taking a chance” on marginal black applicants outweigh the benefits, and we have little that is new to say about this. Our analysis suggests, however, that one cannot credibly invoke mis- match effects to argue that there are no benefits. Only a small fraction of students who are unsuccessful today would be successful under race- blind admissions. Without affirmative action, the legal education system would produce many fewer black lawyers. Although we do not provide a normative assessment of affirmative action policies, these facts must be part of any informed evaluation."

Jeffrey Frankel: "[It Is] Alberto Alesina [Who] Has Not Been Receiving His 'Fair Share of Abuse'”

Jeff Frankel:

On Whose Research is the Case for Austerity Mistakenly Based?: Several of my colleagues on the Harvard faculty have recently been casualties in the cross-fire between fiscal austerians and stimulators…. Carmen Reinhart and Ken Rogoff… the statistical relationship between debt and growth…. Niall Ferguson… “suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay.”

Liveblogging World War II: May 20, 1943

CBI Roundup:

BAD NEWS FOR JAPS: Fighter pilots of the 14th Air Force have been erasing Jap planes out of the skies with regularity during the past three weeks. These pilots recently drove into a formation of bombers and Zeros and, though greatly outnumbered, knocked down 10 confirmed and eight probable enemy. Left to right seated on the fuselage: Maj. Edmund Goss, Lt. Col. John Alison, and Lt. Roger Pryos; standing on ground: Lt. Joe Griffen, Lt. Mack Mitchell, Capt. John Hampshire, and Capt. Hollis Blackstone. This was the last picture taken of Hampshire, who was later shot down after he had bagged 14 confirmed Jap planes to become the Theater's leading ace.

Noted for May 20, 2013

Paul Krugman: Financial Repression | Fernando Duarte and Carlo Rosa: Are Stocks Cheap? A Review of the Evidence | Gavin Kennedy: Adam Smith's Lost Legacy: Keynes on Laissez-Faire | Brad DeLong: Notes on Carmen Reinhart and M. Belen Sbrancia: "The Liquidation of Government Debt" | Alan M. Taylor: Comment on “The Liquidation of Government Debt” | Olivier Blanchard: Rethinking Macroeconomic Policy | Brad DeLong: IS-LM Watch: Smart Words from Karl Smith | Karl Smith Has a Stiglitzian Credit-Rationing View of the Flow-of-Funds Through Financial Markets Department | Three Ways of Looking at a (Closed-Economy) IS Curve: Karl Smith Raises My intelligence Department | Raghu Rajan: Has Financial Development Made the World Riskier? | General Discussion |

• Jeff Weintraub: Peggy Noonan goes Krugman (Hendrik Hertzberg): "Rather than waste time wondering what is going through [Peggy Noonan's] mind when she does this or how she gets away with it—is she really that clueless, or is she being cleverly hypocritical?—we should begin with the fact that she generally does get away with it and consider what Noonan's inversions of reality might tell us, symptomatically, about current political discourse…. That seems to be a hypothesis that Hendrik Hertzberg is toying with, at least, in his recent evisceration of a column by Noonan that went on and on with her standard anti-Obama rant and then, in the process, slipped in this startling admission:  'It’s not a debt and deficit crisis, it’s a jobs crisis'."

• Rick Hertzberg: "The column tries to disguise itself as yet another right-wing attack on the Journal’s default punching bag, President Obama… But her heresies… begin with her startling opening line: 'It’s not a debt and deficit crisis, it’s a jobs crisis.' Say what? The biggest argument in Washington is about which is more urgent, the unemployment problem or the deficit and debt problem. Democrats say it’s unemployment and therefore advocate stimulus, which causes an increase in the deficit (though not necessarily in the long-term debt). Republicans say it’s the deficit/debt and therefore advocate austerity, which causes an increase in unemployment…. Noonan… is clear about which side she’s on: 'But it’s a jobs crisis that’s the central thing. And you see it everywhere you look.' For Noonan, 'everywhere you look' is a hotel she stayed at in Pittsburgh, which was so understaffed there was no bellhop to walk her up to her room in case a criminal was lurking…. She’s also right about what Obama should have done about it: 'He should have seen unemployment entering a crisis stage four years ago, and he did not. At that time I was certain he’d go for public-works projects, which could give training to the young and jobs to the experienced underemployed, would create jobs in the private sector and, in the end, yield up something needed—a bridge, a strengthened power grid. He instead gave his first term to health care.' Here’s where I started getting dizzy. Noonan is describing exactly what Obama did do. He did see a jobs crisis four years ago. As a major part of his eight-hundred-billion-dollar stimulus package (which he pursued in addition to, not instead of, health care), he did go for public-works projects, specifically including bridges and a strengthened power grid. The only opposition to all that bridge-building and grid-strengthening came from Noonan’s party. In the House, zero Republicans voted yes. In the Senate, three did…. From Peggy’s peroration: 'Mr. Obama is making the same mistake he made four years ago. We are in a jobs crisis and he does not see it…. But the real question is whether the American people will be able to have jobs. Once they do, so much will follow—deficits go down a little as fewer need help, revenues go up as more pay taxes. Confidence and trust in the future will grow. People will be happier.' Noonan is with Obama, or Obama is with Noonan, on the substance of jobs vs. deficits. 'We don’t have an immediate crisis in terms of debt', the President said last week in an interview on ABC, adding: 'My goal is how do we grow the economy, put people back to work, and if we do that we’re going to be bringing in more revenue'. I guess she has to say it’s all Obama’s fault. It’s the Wall Street Journal. It’s Chinatown."

Understanding the Roberts Court's Health-Care Decision: Monday DeLong Smackdown by Jonathan Adler

The extremely smart Jonathan Adler delivers the smackdown:

For some reason I just saw this now. The Eldred point is interesting, but it’s missing important context. Lessig abandoned the Lopez-style argument against the CTEA. A conservative group had filed an amicus brief in the D.C. Circuit making a Lopez-influenced textual argument, Lessig failed to adopt it as an alternative argument, and the D.C. Circuit held that the argument was waived (a point on which the judge for whom I was clerking at the time – David Sentelle – dissented). As a consequence, the textualist argument against Eldred was never really in play in the Supreme Court.

As for your hippie-punching theory, that does more to explain the voting pattern of Justice Kennedy – who joined the majority In Raich, and tends to vote against criminal defendants in close drug cases – than Scalia or Thomas. See, e,g., Kyllo v. U.S.

Ryan Avent: "Mr Cowen's posts, and many other like them by other authors, sometimes look like elaborate efforts to avoid concluding that German inflation-phobia, while totally understandable and rational, looks like a grave moral error in the current econ

Ryan Avent watches Karl Smith remind Tyler Cowen that people respond to market prices, and piles on himself:

The euro crisis: Der Elefant im Raum: TYLER COWEN writes on the euro-zone economy:

Would the new helicopter drop money be kept in periphery banks and lent out to stimulate business investment? Or does the new money flee say Portugal because Portuguese banks are not safe enough, Portuguese loans are not lucrative and safe enough, and Portuguese mattresses are too cumbersome? The former scenario implies that monetary policy should be potent. The latter scenario implies that the helicopter drop will be for naught and the fiscal policy multiplier also will be low, on the upside at the very least (fiscal cuts still might cause a lot of damage on the downside). I call this the liquidity leak, rather than the liquidity trap.

Karl Smith gives the correct response:

What Tyler calls a liquidity leak, I call markets at work. The ECB provides enough stimulus to get all of the Eurozone going but it all leaks to Germany. Fine. The German market heats up. German wages and rents rise. Retired German doctors start considering the virtues of a flat in Lisbon overlooking the harbor. German consultancies hold seminars on “How to make your Mediterranean town competitive in the new German Outsourcing Model.” This is the way things are supposed to work. The idea that a more competitive and efficient Germany should not command higher wages and rents is bizarre; and is only called inflation because the Eurozone, in its heart-of-hearts, doesn’t actually believe its one monetary union where the richer parts are distinguished principally by the fact that they have more money.

Department of "WTF?!?!": Education Gap Weblogging

Why oh why can't we have a better press corps?

For at least half a generation, liberals--at least liberals that I know--have been hammering on the fact that the stepping-away from the commitment to universal free or nearly-free education has been a long-run disaster for America. With Claudia Goldin and Larry Katz's The Race Between Education and Technology serving as its analytical spearhead, the liberals I know spend lots of time talking about how the pace of technological progress requires a more-educated and thus more-skilled workforce, and about how the rise in college costs starting around 1970 stopped the normal American pattern by which each generation gets much more education in its tracks--with rising income inequality between the 80th and the 20th percentile being a big consequences:

Solutions proposed vary from having your college costs be an income-contingent grant recaptured from those who earn much in life by a surcharge on your form 1040 to a mammoth federal commitment to universal access to broadband and to free provision of the highest-quality education online.

Some liberals (e.g., Larry Mishel of EPI) go further, and say that rising 80/20 inequality is the result not just of our losing the race between education and technology but also the collapse of labor unions. The Goldin-Katz alliance (or which I am a part) tends to see the collapse of the union movement as a consequence of the loss of the race.

Now comes Timothy Noah to tell me that none of this focus that I see among the liberals I talk to ever happened:

The 1 Percent Are Only Half the Problem: Most recent discussion about economic inequality in the United States has focused on the top 1 percent… that if we would just put a tight enough choke chain on the 1 percent, then we’d solve the problem of income inequality. But alas, that isn’t true, because it wouldn’t address the other half of the story: the rise of the educated class. Since 1979 the income gap between people with college or graduate degrees and people whose education ended in high school has grown….

Conservatives don’t typically like to talk about income inequality. It stirs up uncomfortable questions about economic fairness….

Liberals resist talking about the skills-based gap because they don’t want to tell the working classes that they’re losing ground because they didn’t study hard enough. Liberals prefer to focus on the 1 percent-based gap. Conceiving of inequality as something caused by the very richest people has obvious political appeal…

And it is at this point that I say: "WTF?!?!"

Now let me say that Timothy Noah is one of the very best of mainstream American journalists--he isn't an opinions-of-shape-of-earth-differ-both-liberals-and-conservatives-have-a-point clown uninterested in policy substance who covers our nation from a celebrity-gossip perspective.

But here we have, I think, another example of the Michael Kinsley-Clive Crook disorder: Noah provides no links to and no quotes from "liberals" who "resist talking about the skills-based gap because they don’t want to tell the working classes that they’re losing ground because they didn’t study hard enough". So he winds up just making stuff up--and the New York Times editorial process is sufficiently jelly-like that nobody asks him "who are you talking about?". This produces bad thought.

Indeed, read further down in the article and you find, near the end, links to Larry Mishel definitely not being resistant to talking about the decline of unions, to Josh Bivens not being resistant to talking about workers' reduced bargaining power and the 80/20 wage gap, Barack Obama and his staff worrying about the rising costs of college--in a story reported by Timothy Noah himself.

Are these people not liberals?

Paul Krugman: One of Michael Kinsley's Problem Is That He Is Not Living in the Real 1970s

Paul Krugman:

The Mythical 70s: It’s actually even worse than Matt [O'Brien] says. For the 1970s such people remember as a cautionary tale bears little resemblance to the 1970s that actually happened. In elite mythology, the origins of the crisis of the 70s, like the supposed origins of our current crisis, lay in excess: too much debt, too much coddling of those slovenly proles via a strong welfare state. The suffering of 1979-82 was necessary payback. None of that is remotely true. There was no deficit problem: government debt was low and stable or falling as a share of GDP during the 70s… a runaway welfare state more broadly just wasn’t an issue — hey, these days right-wingers complaining about a nation of takers tend to use the low-dependency 70s as a baseline.

What we did have was a wage-price spiral… exacerbated by big oil shocks… a case of self-fulfilling expectations, and the problem was to break the cycle.

So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action…. Was there a better way? Ideally, we should have been able to get all the relevant parties in a room and say, look, this inflation has to stop; you workers, reduce your wage demands, you businesses, cancel your price increases, and for our part, we agree to stop printing money so the whole thing is over. That way, you’d get price stability without the recession. And in some small, cohesive countries that is more or less what happened. (Check out the Israeli stabilization of 1985). But America wasn’t like that, and the decision was made to do it the hard, brutal way. This was not a policy triumph! It was, in a way, a confession of despair….

No, America didn’t return to vigorous productivity growth — that didn’t happen until the mid-1990s. 60-year-old men should remember that a decade after the Volcker disinflation we were still very much in a national funk; remember the old joke that the Cold War was over, and Japan won? So it would be bad enough if we were basing policy today on lessons from the 70s. It’s even worse that we’re basing policy today on a mythical 70s that never was.

One thing going on is that the 1980s did see (a) a reduction in the progressively of taxation and (b) the start of the huge surge in overclass income. For overclass people--or people who are now part of the overclass and who then identified with the overclass like Michael Kinsley--the 1980s were pretty good (as, by the way, were the 2000s up until 2007).

Kansas State University: April 30, 2013: Brad DeLong and Alan Reynolds: "Proposed Solutions to the Fiscal Crisis in the United States"

Kansas State University: April 30, Brad DeLong, University of California-Berkeley and Alan Reynolds, Cato Institute - Debate:"Proposed Solutions to the Fiscal Crisis in the United States":

Audio download: http://www.k-state.edu/economics/econclub/lectures/Debate.mp3 | http://www.k-state.edu/economics/econclub/lectures/Debate2.mp3 

Liveblogging World War II: May 19, 1943

Convoy SC 130: Wikipedia:

SC 130, comprising thirty-seven ships, departed Halifax Harbour on 11 May 1943; in the care of a Western Local Escort Force, led by RCN destroyer Niagara. Convoy Commodore was HC Forsyth in the freighter Sheaf Holme. They were met on 15 May by Mid-Ocean Escort Force Group B-7, led by Cdr. P Gretton in the D class leader Duncan and consisting of the V and W class destroyer Vidette, the River class frigate Tay, and Flower class corvettes Snowflake, Sunflower, Pink, Loosestrife and two armed trawlers. As B-7 was one vessel short for the voyage, the corvette Kitchener was seconded from the local group for the crossing. SC 130 also included two oilers for mid-ocean re-fueling and re-arming, and the convoy rescue ship Zamalek.

Ranged against them were 25 U-boats in three patrol lines, which had been organized by U-boat Command BdU on 15 May. This was in response to intelligence from B-Dienst which reported a westbound convoy (ONS 7) and two eastbound (HX 238 and SC 130) approaching the Air Gap. One group, Iller, of six newly arrived boats was just arriving, while two other groups, Donau I and Donau II, were formed from boats already on station, plus reinforcements.

ONS 7 came under attack on 13 May, and, warned by this and by intelligence from HF/DF readings and Enigma decrypts, the Admiralty was able to divert HX 238 (which arrived without incident) and to reinforce SC 130.

The convoy was found and reported by U-304 on the evening of 18 May, which commenced shadowing, while the other U-boats gathered during the night. The B7 mounted an aggressive defence, chasing down all contacts in order to frustrate any attacks. In this they were successful and none of the U-boats were able to attack that night. On 19 May long-range aircraft were able to join the action and commenced patrolling, attacking Donau boats as they moved to join the assault. A Hudson of 269 Sqdn destroyed U-273, and a Liberator of 120 Sqdn hit another, which was thought to have sunk U-954, but later judged to have hit U-731, causing little damage. Later that day the convoy escort was reinforced by the 1st Support Group consisting of the Banff class sloop Sennen (Capt. G Brewer) with River class frigates Wear, Jed and Spey. U-954 was sunk by hedgehog attacks from Sennen and Jed. Admiral Karl Dönitz's son Peter Dönitz was among those lost aboard U-954. An attack by Snowflake and Duncan delivered a hit with a Hedgehog bomb, and was thought to have destroyed a U-boat (U-381) but this was later claimed to have hit U-636, which survived with damage. That evening Tay attacked U-952 and damaged her so badly she had to retire from the action and return to base.

On 20 May the assault continued, but without success, while No. 120 Squadron RAF B-24 Liberator J sank U-258. At midday on 20th BdU called off the action, and the U-boats withdrew.

The convoy reached Liverpool without loss on 26 May.

SC 130 was seen as an Allied victory. No ships had been lost, though two had returned to port; all 35 that made the crossing arrived safely. On the other hand, at least three U-boats were destroyed. This was a major blow which contributed to BdU's decision to abandon the assault on the North Atlantic convoy route, a turning point in the Battle of the Atlantic.

Noted for May 19, 2013

Doug Hall: Ongoing employment disaster evident in too many states | Dan Drezner http://drezner.foreignpolicy.com/posts/2013/05/16/the_worst_piece_of_conventional_wisdom_you_will_read_this_year | Raghu Rajan: Has Financial Development Made the World Riskier? | Carmen M. Reinhart and *M. Belen Sbrancia: The Liquidation of Government Debt

• Matthew Yglesias: Michael Kinsley on austerity: Everyone is jumping on this Michael Kinsley…. Kinsley is mistaken about… the nature of our sins and the nature of the price that has to be paid. Think about Iceland… [which] pretend[ed] that they'd developed a super-innovative new model of hyper-profitable banking…. So the sector went bust and a huge blow was dealt to the economy. But rather than coping with the blow by implementing hard money and huge budget cuts, spurring mass unemployment and a years-long episode of penance, Iceland paid its penance through currency depreciation and repudiation of many foreign debts… [which] have made it much harder for Iceland's citizens to go on vacation in Spain or study abroad…. Icelanders need to smelt more aluminum and catch more fish… while consuming less…. Foreigners don't want to lend Iceland money…. Belts have to tighten. It's an all-around bad situation. But. Iceland's unemployment rate is below five percent. The country is paying for the sin of excess debt with the penance of hard work. Which makes sense. When you discover you're less wealthy than you thought you were, the appropriate response is to work longer hours… not to quit your job. Longer hours and joblessness are both forms of punishment, but longer hours is a punishment that fits the crime."

• Matthew O'Brien: This Is the Biggest Mistake 60-Year Old Men Make About the Economy=: "Our present problem isn't too little inflation-fighting, but too much. Indeed, headline prices rose just 1.1 percent in April, while unemployment is still a depressing 7.5 percent. But it's not just the unemployment; it's the long-term unemployment. Millions have been out of work for six months or longer, at which point companies won't even look at your resume. The only bit of good news is this is an easy problem to solve: with interest rates as low as they'll ever be, the government can borrow money and put people back to work. It's really that simple. Except for people who don't want it to be that simple…. Michael Kinsley…. 'I don't think suffering is good, but I do believe that we have to pay a price for past sins, and the longer we put it off, the higher the price will be.' This gets things completely backwards. The longer we put off austerity, the lower the price will be, since fewer of the long-term unemployed will become unemployable. And besides, there's no reason we shouldn't produce as much as we can now just because we made mistakes before. As Keynes said, the resources of nature and men's devices are just as fertile and productive as they were -- or, as John McCain might put it, the fundamentals of the economy are strong. It's up to us to make those fundamentals work with the right ideas. But this doesn't make for an exciting narrative. A failure of ideas is much less dramatic than a failure of Leadership™. Where's the sacrifice? The hard-headed vision? That's what Kinsley pined for back in 2010…. That would all be fine if it were still 1979. It's not. The facts have changed. It's time for inflationistas to change their minds."

Lettuce in Dixon, CA is 8 Cents a Head...

Liveblogging World War II: May 18, 1943

Sturmbannfuehrer Gricksch for SS-Col. von Herff and Reichsfuehrer-SS Himmler:

The Auschwitz camp plays a special role in the resolution of the Jewish question. The most advance methods permit the execution of the Fuehrer-order in the shortest possible time and without arousing much attention. The so-called “resettlement action” runs the following course:

The Jews arrive in special trains (freight cars) toward evening and are driven on special tracks to areas of the camp specifically set aside for this purpose.