- Evening Must-Read: Binyamin Appelbaum: The Fed Appears to Have Been Wrong About Growth. Again | Washington Center for Equitable Growth
- Thoughts on Robert Skidelsky's Manifesto for the Reform of the Anglo-Saxon Economics Curriculum: Wednesday Focus for June 18, 2014 | Washington Center for Equitable Growth
- Evening Must-Read: Robert Skidelsky: What Should Economics Professors Teach? | Washington Center for Equitable Growth
- Afternoon Must-Read: Mark Thoma: The Output Gap | Washington Center for Equitable Growth
- Afternoon Must-Read: Matthew Yglesias: This Disruptive Think Piece Will Change the World | Washington Center for Equitable Growth
- Thoughts on Robert Skidelsky's Rant Against the Current Economics Curriculum: Over at Equitable Growth: Thursday Focus for June 18, 2014 (Brad DeLong's Grasping Reality...)
- Ben Handel et al.: Compensation or Information?: Understanding the Role of Information Technology in Physician Response to Financial Incentives (Brad DeLong's Grasping Reality...)
Steve Beshear: Without Obamacare, there is no Kynect: "There had been an extreme amount of effort put in for months... planning for the rollout of the Affordable Care Act, planning the website, organizing connectors, doing educational outreach. There were thousands of people involved all during the spring and summer.... We didn't require people to register and sign-in before they could browse our website. You could go on and plug your numbers in and see what kind of subsidy you're going to get. The federal website was set up where everyone had to sign in first, and that just created a bottleneck.... At midnight when October 1 rolled around, we crossed our fingers.... We were working hard to make sure that everything worked, but we had no idea that we would be one of the few whose website would actually work when we started. All at once, we were a national model because we were working with ease.... Before I made the decision to expand Medicaid, I wanted an answer to the question of whether we could afford to do so. It's easy to determine its the right thing to do, if you can do it without bankrupting the state. I brought PriceWaterhouseCooper in and they did that study for us that indicated that not only can you afford it, but you really can't afford not to. This is a positive economic impact on your state for the next five to ten years..."
Nick Bunker: The Federal Reserve can’t stop supporting economic growth now: "A look at the Fed’s earlier attempts at quantitative easing indicates the relationship between QE and financial stability isn’t so clear cut. Economist Gabriel Chodrow-Reich of Harvard University looked at the effects of unconventional monetary policy and found there is no trade-off between expansionary monetary policy and financial stability. The International Monetary Fund (via Mike Konczal) has also looked into this question and found evidence that monetary policy affects financial stability in a variety of ways but says it’s not certain which effect would be the strongest. So the total effect of tightening policy is uncertain. Even if monetary policy could easily pop bubbles, the Fed is mandated to promote maximum employment. With our current labor market, employment is anything but maximum..."
Doug Elmendorf: CBO's Projections of GDP Per Capita: "The agency projects that real GDP per capita will grow, on average, by about 2 percent per year between 2014 and 2017, when it is expected to return to its historical relationship with the economy’s potential output (see the table below). CBO projects that, after 2017, real GDP will grow at the same rate as potential GDP—by an average of about 2¼ percent per year during the 2018–2024 period—because the agency does not attempt to predict the timing or magnitude of business cycle fluctuations in the economy so far into the future. With the population expected to grow by about 1 percent per year, real GDP per capita is projected to grow, on average, by about 1¼ percent per year between 2018 and 2024--a slower rate than the annual average rate of about 2 percent since 1950. That difference reflects CBO’s projection that real GDP will grow more slowly over the latter part of the projection period than it has in the past several decades, primarily because of slower growth of the labor force stemming from the retirement of the baby boom generation..."
Should Be Aware of:
- Franz R Hahn: Culture, Geography and Institutions: Empirical Evidence from Small-Scale Banking
- Scott Galupo: David Brat’s Half-Cocked Theological-Economic Fusionism
- Danielle Kurtzleben: 21 charts that explain how the US is changing
- Christopher Hill: "[Bush's] de-Ba’athification ended up targeting anyone who ever had ties to... the vast patronage system that Saddam had created... even elementary school principals.... Thus the overall effect of this de-Ba’athification program was to marginalize the Sunnis. And the Sunni response to de-Ba’athification became de facto support for Islamists. That is where we are today..."
- Hannah Groch-Begley and Oliver Willis: The Numbers Behind Maureen Dowd's 21-Year Long Campaign Against Hillary Clinton
- Noah Smith: "This is my full 5-part review of Big Ideas in Macroeconomics, by Karthik Athreya.... If you're mostly just interested in the policy kind... skip Athreya's book.... If you're one of those few people who wants to understand macro by poring through dense literary tomes... Big Ideas could be just the book for you. But... I don't think you'll really understand modern macro.... Big Ideas in Macroeconomics... definitely has the feel of a Scholastic apologia... intended as a response to the outside criticisms of academic macroeconomics..."
- Timothy B. Lee: "The Federal Reserve just announced something a bit unnerving: they're planning to accept slower growth in the next few months..."
Matthew Yglesias: Has the World Gone Entirely Mad?: "Perhaps. People have been looking for a new tech bubble for years long before there was any evidence of one, and now we have some real evidence.... Totally ridiculous novelty companies attracting seven-figure investments... people investing a million bucks in an app that just sends 'yo' to people.... You should probably think of this as a general illustration of the principle that investing in early-stage startups is not really a rational act. Hogeg has the money to spare (apparently), has a relationship with Arbel, probably enjoys this media attention, and stands at least a sliver of a chance of somehow making this investment pay off. So why not?"
Matthew Yglesias: 9 reasons the Fed made a mistake today: "The Fed should have done the opposite and increased the amount of QE it's doing. Here are nine great reasons why: 1) The unemployment rate is still really high.... 2) Inflation is still really low.... 3) QE doesn't undermine financial stability.... 4) The long-term unemployed still count.... 5) It's working in Japan.... 6) Labor force dropouts will return.... 7) Inflation expectations are... low.... 8) Wage gains have been pathetic.... 9) Businesses can afford to pay more..."
Mark Thoma: "[What] economists call the output gap... the difference between actual output and the economy's potential, or the full employment level.... Data on potential GDP... must be estimated from economic models.... John Fernald took on this task, and it found that the growth in potential output has slowed recently... the 'slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains.'... Given... that the costs of overshooting the Fed's inflation target are much smaller than the costs of unemployment, many economists believe the Fed should wait until there are clear signs that we're running up against capacity constraints before taking action to reverse course. So far those signs--wage and price inflation, for example--aren't yet in evidence... 'watchful waiting' rather than decisive action..."
Matthew Yglesias: This disruptive think piece will change the world: "If your company (like Vox Media!) is funded by venture capital two things are going on: 1. You're not profitable enough to finance investment out of retained earnings, and. 2. You're not creditworthy enough to get a loan from a bank. Disaster! Why would anyone ever give a company like that money? Well... if you get a small ownership stake in the next Google or Facebook you're going to strike it rich. So how do you think you're going to convince someone to make a long-shot, high-reward investment in your unprofitable, non-creditworthy company? Well, it's hard. And you're definitely not going to do it by being humble and well-mannered. You need to sell the sizzle.... Not only are you asking people to take a reckless gamble... you're asking people who are already rich and don't even really need the money that will come from your company's success. So you need to appeal to their vanity and egomania.... And yet the alternative to the buzz economy is even worse. It is definitely A Good Thing that we have Google and its excellent search engine rather than the bad old indexes we used to put up with..."
Robert Skidesky: Robert Skidelsky knocks the scientific halo off mainstream economists' teaching and research: "The growing discontent of economics students with the university curriculum.... Students at the University of Manchester advocated an approach 'that begins with economic phenomena and then gives students a toolkit to evaluate how well different perspectives can explain it'.... Andrew Haldane, Executive Director for Financial Stability at the Bank of England, wrote the introduction.... Students have little awareness of neoclassical theory’s limits, much less alternatives to it.... The deeper message is that mainstream economics is in fact an ideology--the ideology of the free market.... The austerity policies that Europe used to fight the recession from 2010 on were based on the belief that there was no recession to fight. These ideas were tailored to the views of the financial oligarchy. But the tools of economics, as currently taught, provide little scope for investigating the links between economists’ ideas and the structures of power.... So what is keeping the mainstream’s intellectual apparatus going?... An institutional structure that... rewards orthodoxy and penalizes heresy. The great classics... from Smith to Ricardo to Veblen, go untaught.... It has become an article of faith that any move toward a more open or 'pluralist' approach to economics portends regression to 'pre-scientific' modes of thought.... Curriculum reform can... remind students that economics is not a science like physics, and that it has a much richer history than is to be found in the standard textbooks.... Indeed, mainstream economics is a pitifully thin distillation of historical wisdom on the topics that it addresses.... What students are taught today certainly does not deserve its imperial status in social thought..."
Binyamin Applebaum: The Fed Appears to Have Been Wrong About Growth. Again: "Federal Reserve officials, who have persistently overestimated the strength of the economic recovery, predicted last June that the economy in 2014 would finally grow more than 3 percent for the first time since the recession. The updated forecasts the Fed will publish on Wednesday are likely to reflect more modest expectations.... The Fed’s policy-making committee is still expected to announce another $10 billion cut in its monthly bond purchases.... But the continuing wait for faster growth has reinforced the concern of some critics that the Fed is retreating too quickly from its stimulus campaign... undermining its own forecasts by providing less support to the economy.... 'Given the persistent overoptimism about the growth outlook by Federal Reserve officials and others in recent years, we shouldn’t count our chickens before they hatch', William C. Dudley, president of the Federal Reserve Bank of New York and vice chairman of the Fed’s policy-making committee, said last month in New York. The pattern is striking. In every year since 2008, Fed officials have steadily reduced their initial expectations for economic growth. In each year except 2012, they had still overestimated the strength of the economy in June of the forecast year. The consequences at times have been painful. Fed officials have said they did not act more strongly to stimulate the economy in the immediate aftermath of the recession because they expected the economy to rebound more quickly...