## Over at the Washington Center for Equitable Growth: On the Real Pace of Growth: I Think the Very Smart Joe Stiglitz Gets One Wrong: Thursday Focus: March 20, 2014

Over at the Washington Center for Equitable Growth: On the Real Pace of Growth: I Think the Very Smart Joe Stiglitz Gets One Wrong: Thursday Focus: March 20, 2014: There are, I believe, eight requirements for the competitive marketplace–the System of Natural Liberty of Adam Smith–to do its job as our collective societal calculating mechanism for managing our enormous and finely-graded social division of labor:

1. Excludibility–commodities must be such (or be made such via th legal order) that you can charge a price for them…
2. Rivalry–commodities must be such that one person’s using it imposes a cost on others, and so it makes sense for you to charge a price for them…
3. Information–if one person knows more about the true properties of what is being bought or sold, things will go badly wrong: markets in commodities subject to adverse selection and moral hazard do not work well…
4. Competition–markets with only one or a very few effective buyers or sellers cannot work well…
5. Equilibrium–people cannot go away disappointed by their inability to find a counterparty at the prevailing price or surprised at what the prevailing price turns out to be…
6. Restriction–the benefits and costs must fall upon the buyer and seller, rather than ramify via externalities and have large effects on other…
7. Calculation–people must not make large and systematic mistakes about what their interests are…
8. Distribution–the people who have the money, and thus the power to command the division of labor, must be those who in our estimation deserve to do so either because of their need or for other reasons…

When I look at where our economic growth is coming from, it is coming from activities in which it is increasingly the case that the market economy is likely to do a worse and worse job because of (1) and (2): I see more and more information goods that are largely non-rival and difficult to exclude–and so when firms do make profits by selling them they sell them at too small a scale, and when firms find themselves relying on selling ancillary advertising services they find themselves producing at too small a scale.

Thus my view is that we are not devoting nearly enough of our societal division of labor to our high-tech industries, and the GDP-growth numbers that these sectors produce greatly understates their likely contribution to our collective Benthamite utility.

Joe Stiglitz views it differently:

Joseph Stiglitz: Technology and Living Standards: “There is enormous enthusiasm for the type of technological innovation symbolized by Silicon Valley…. READ MOAR

Continue reading "Over at the Washington Center for Equitable Growth: On the Real Pace of Growth: I Think the Very Smart Joe Stiglitz Gets One Wrong: Thursday Focus: March 20, 2014" »

## Department of "Huh?!": I Don't Think David Weigel Knows What "Grift" Means: Live from the Roasterie Live CXXIII: March 20, 2014

RunTedRun is, IMHO, focused not on electing President Ted Cruz but on getting Raz Shafer a big mailing list of people whom he can then milk for various purposes. That's a grift...

David Weigel: Raz Shafer and the birth of the "Draft Ted Cruz for President" campaign.: "When the existence of http://RunTedRun.com was first pointed out to me, I wondered if a grift was in the offing....

Sometimes it pays to be less cynical. RunTedRun is real, founded by former American Majority grassroots trainer and Cruz regional director Raz Shafer, who's still in his 20s.... Shafer laid out his plans and rationale:

Continue reading "Department of "Huh?!": I Don't Think David Weigel Knows What "Grift" Means: Live from the Roasterie Live CXXIII: March 20, 2014" »

## Morning Must-Read: Austin Frakt: Job Lock

Austin Frakt: Job lock: Introduction: "Ask an economist about employer-sponsored health insurance (ESI) and it won’t be long until s/he tells you it distorts the labor market.

To most health economists, “job lock,” the idea that workers work more or face constraints in job mobility due to provision of work-related health insurance, is a real and important phenomenon. It’s one reason why many advocate limiting or ending the exclusion of ESI from taxation, among other reforms. But why, you might ask, do some so firmly believe in job lock? What’s the conceptual or theoretical explanation? Where’s the evidence that it exists and is substantial? If it exists, what laws and regulations help keep it in place? Finally, how does the Affordable Care Act (ACA) begin to address it, if at all?... I will tackle these questions.... I will rely most heavily on the literature reviews contained in Gruber and Madrian (2002), Fairlie, Kapur, and Gates (2011), Bradley, Neumark, and Barkowski (2013), and GAO (2011). Nick’s forthcoming post will cover the legal landscape. He has also provided helpful feedback on early drafts of my posts.

## Morning Must-Read: Quoctrung Bui: Who Had Richer Parents, Doctors or Artists?

Quoctrung Bui: Who Had Richer Parents, Doctors Or Artists?: "A few weeks ago, we were sitting around the office arguing over this simple question:

Who had richer parents, journalists or people working in finance? Doctors or artists? More generally: What's the link between household income during childhood and job choice during adulthood?... A government survey has tracked more than 12,000 people for decades. It allowed us to look at the same group of people in 1979 and 2010 — from a time when most were teenagers to the time when they were middle-aged and, for the most part, gainfully employed.

## Morning Must-Read: Tim Mulaney: Here's What I Thought the Biggest Difference Between Bernanke and Yellen Was

Yellen’s invocation of the continuing struggles of people involuntarily working part-time, and the ongoing struggle of workers around the middle of the income strata to get a raise of much more than 2% a year. Delivered with what passes for passion among economists, it was a sharp contrast with Bernanke’s last press conference in December, where he mentioned wages only in passing and didn’t mention the part-timers at all.... Her argument was that inflation can’t be close if wage gains are lousy and 5% of U.S. workers are stuck in part-time jobs.... A Fed that worries as much about part-timers as plutocrats? Is that a gaffe? Maybe on K Street. Probably, on parts of Wall Street. On Main Street, it’s a breath of fresh air.

## Thursday Idiocy: Steve M. Does the Garbage Collection on the New Republic, Plus MOAR...

Steve M.: No, Leon, Those Issues Aren't too Lofty to Be Reduced to Data: "I was going to ignore Leon Wieseltier's get-off-my-lawn attack on young whippersnapper Nate Silver's preference for data-driven journalism, but this jumped out at me:

Many of the issues that we debate are not issues of fact but issues of value. There is no numerical answer to the question of whether men should be allowed to marry men, and the question of whether the government should help the weak, and the question of whether we should intervene against genocide. And so the intimidation by quantification practiced by Silver and the other data mullahs must be resisted.

But there is very much a "numerical answer to the question of whether men should be allowed to marry men".... Opponents... say that children suffer harm from not having two opposite-sex parents.... We can look at the lives of children raised by gay couples and compare their well-being to that of children raised by married heterosexuals. If gay marriage were harming the children of gay couples, we'd know it, but it isn't. And it's good that we have studies showing a lack of harm, because if we were high-mided and Wieseltierian and chose to remain above the tawdry collection of data on this subject, the anti-gay right would generate all sorts of anti-gay-marriage data and drive the debate with it.... There is also very much a "numerical answer" to "the question of whether the government should help the weak".... We're not discussing this on the basis of morality, as Wieseltier airily suggests; we don't simply assume that government has a responsibility to help the weak because the right incessantly argues that it can demonstrate the failure of any such efforts -- with data.

And as for genocide: Does Wieseltier seriously believe that we regard intervention as an unquestioned duty? If so, how does he explain the fact that we intervene in some genocides and not others? Why does he suppose that is? I'd argue that our leaders consider morality, but also calculate the potential cost in blood and treasure, while pondering poll numbers for or against intervention. I don't what the hell Wieseltier's explanation would be.

Plus:

Continue reading "Thursday Idiocy: Steve M. Does the Garbage Collection on the New Republic, Plus MOAR..." »

## Liveblogging World War II: March 20, 1944

Stalag Luft III (Stammlager Luft, or main camp for aircrew) was a Luftwaffe-run prisoner-of-war camp during World War II that housed captured air force servicemen. It was in the German province of Lower Silesia near the town of Sagan (now Żagań in Poland), 100 miles (160 km) southeast of Berlin. The site was selected because it would be difficult to escape by tunneling.

Continue reading "Liveblogging World War II: March 20, 1944" »

## Evening Must-Read: Noam Levey: In Northern Maine, Collaboration Brings Better Health

Noam Levey: In northern Maine, collaboration brings better health - latimes.com: "Many of the nation's healthiest communities are wealthy and have large numbers of college-educated residents.

But northern Maine is among a handful of telling exceptions, making it an important guidepost as the country searches for ways to improve health.... The region now is among America's poorest.... Yet northern Maine ranks high on national measures of health.... Residents of the region receive recommended screenings and medical care more often than other Americans. They suffer fewer complications in nursing homes and are less frequently prescribed risky medications. And they are nearly half as likely to die from preventable diseases as residents of other low-income areas.... Maine's success owes much to the type of care that Patterson typifies — intensely personal, data-driven and highly coordinated. The approach grew out of a decades-long effort by local leaders that many experts consider a model for how to improve community health.

## Evening Must-Read: Ryan Avent: Monetary Policy: Try Overshooting for Two Years

Ryan Avent: Monetary policy: Try overshooting for two years: "Though it would be the right thing to do,

I don't expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don't expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don't expect those things, I don't think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.

## Evening Must-Read: James Kwak: There’s No Substitute for the Government

James Kwak: There’s No Substitute for the Government: "There are basic economic reasons why public social insurance is superior to voluntary charity.

The goal here is to protect people against risk: of unemployment, of health emergency, of outliving one’s savings, and so on. For a risk-mitigation scheme to work, there are a few things that are necessary. One is that people actually be covered. This is something you can never have with a private system (unless it’s regulated to the point of being essentially public), since charities get to pick and choose whom they want to help. As Konczal says of private agencies before the Depression, “They were also concerned they’d lose their ability to stigmatize—or to protect—various populations; by playing a role in determining who wasn’t deserving of assistance, they could shield those they felt worthy of their support.”

Another thing you want is the assurance that the system has the financial capacity to actually protect you in the event of a crisis. That’s why you don’t depend on your neighbors to rebuild your house if it burns down. Besides the fact that they may not like you, they probably don’t have enough money—especially if you lose your house in a fire that burns down the entire neighborhood. As I’ve said many times before, there is no other entity in the country—and not really one in the world—with the financial capacity of the federal government. Even state governments scramble to cut benefits when push comes to shove, which is one reason why some states provide Medicaid coverage to almost no one.

## Science! It Works! Gravitational Waves in the Cosmic Microwave Background

And I am really, really sad that I will never understand this. I mean, I have derived the precession of the perihelion of Mercury and calculated the energy states of a particle trapped in a box. But with this stuff I am lost...

Sean Carroll:

San Carroll: Gravitational Waves in the Cosmic Microwave Background: "You’ve heard the rumor:

the BICEP2 experiment has purportedly detected signs of gravitational waves in the polarization of the cosmic microwave background radiation. If it’s true (and the result holds up), it will be an enormously important clue about what happened at the very earliest moments of the Big Bang....

Continue reading "Science! It Works! Gravitational Waves in the Cosmic Microwave Background" »

## Over at the Washington Center for Equitable Growth: In Which I Try and Fail to Understand the Current State of Right-Wing Monetary Economics: Wednesday Focus: March 19, 2014

Over at the Washington Center for Equitable Growth: In Which I Try and Fail to Understand the Current State of Right-Wing Monetary Economics: Wednesday Focus: March 19, 2014: Josh Bivens sends us a link to a House of Representatives hearing he participated in, with a striking discussion that takes place at the 45:00 mark…

On the panel, in addition to Josh, were Larry White,[1] Marvin Goodfriend, and Paul Kupiec. Congressman Bill Foster asked why predictions five years ago that the Federal Reserve’s expansion of its balance sheet would produce runaway inflation had been wrong...

Marvin Goodfriend said he would: “forgive people who… did not catch what what the Fed was doing” and so forecast inflation. In his view, the Fed’s “dumping so many reserves into the system created a zero opportunity cost environment and the banks just held the reserves”, and that was not something that we had seen since the 1930s--hence not something people should have been expected to forecast. READ MOAR

Continue reading "Over at the Washington Center for Equitable Growth: In Which I Try and Fail to Understand the Current State of Right-Wing Monetary Economics: Wednesday Focus: March 19, 2014" »

## Liveblogging World War II: March 19, 1944

The occupation of Hungary by Nazi German forces during World War II, as it was ordered by Hitler on 12 March 1944.... The Hungarian Prime Minister Miklós Kállay, with the knowledge and approval of Regent Miklós Horthy, had been discussing an armistice with the Allies. German dictator Adolf Hitler found out about these discussions and... ordered German troops to... capture critical Hungarian facilities....

Continue reading "Liveblogging World War II: March 19, 1944" »

## Republicans in Tree Stands Talking About Lazy Inner City Youth: Live from La Farine CXXII: March 19, 2014

For some reason David Weigel feels like he has to defend PauL Ryan and Bill Bennett:

David Weigel: Paul Ryan accused of racism for suggesting that there's endemic poverty in inner cities.: "ThinkProgress provides the clip, which is—shock—less definitive than the headline.

Ryan says there's a problem "in our inner cities in particular," of "generations of men not even thinking about working." "In particular" is a useful qualifier, isn't it?... Ryan's problem, it seems, is that he's talking about inner cities while being 1) a Republican who is 2) about to unleash poverty legislation heavy on work requirements. If you're a Democrat, you can talk about the inner city in the same way Ryan does.

And so he drives Steve M. into shrill ululating madness:

Continue reading "Republicans in Tree Stands Talking About Lazy Inner City Youth: Live from La Farine CXXII: March 19, 2014" »

## Evening Must-Read: Glenn Greenwald: On the Meaning of Journalistic Independence

Glenn Greenwald: On the Meaning of Journalistic Independence: "This morning, I see that some people are quite abuzz about a new Pando article 'revealing' that the foundation of Pierre Omidyar, the publisher of First Look Media which publishes The Intercept, gave several hundred thousand dollars to a Ukraininan 'pro-democracy' organization....

This, apparently, is some sort of scandal.... That several whole hours elapsed since the article was published on late Friday afternoon without my commenting is, for some, indicative of disturbing stonewalling.... The Pando article adopts the tone of bold investigative journalism that intrepidly dug deep into secret materials.... But as I just discovered with literally 5 minutes of Googling, the Omidyar Network’s support for the Ukrainian group in question, Centre UA, has long been publicly known: because the Omidyar Network announced the investment at the time in a press release and then explained it on its website.

## Evening Must-Read: Uwe Reinhardt: How the Medical Establishment Got the Treasury's Keys

Uwe Reinhardt: How the Medical Establishment Got the Treasury's Keys: "The proponents of Medicare... were anything but stupid....

Confronted by the health care sector with a harsh trade-off between their cherished vision for health care, on the one hand, and a sensible payment policy, on the other, they let their vision override economically sound payment policy. Millions upon millions of America’s senior citizens are indebted to them for a program that remains highly popular to this day. Younger leaders of medicine and the hospital industry would do well to recall this dubious social contract struck by their predecessors to appreciate that the countless amendments to Medicare and the ever-new regulations emanating from the program are just the byproduct of many skirmishes in a protracted and tenacious war over possession of the keys to the Treasury.... The fiercest generals in this war on the government’s side have been Republican stalwarts... Reagan and George H.W. Bush. Desperate over the ever-escalating costs of Medicare during the 1970s and ’80s, both presidents resorted to what has been described as a Soviet-style payment policy for Medicare: administered prices set by the central government for the whole country.... But the war over the keys to the Treasury will probably never be fully concluded.... In retrospect, it would have been better all around to cut a more rational deal from the outset.

## Things to Read on the Evening of March 1, 2014

1. Uwe Reinhardt: How the Medical Establishment Got the Treasury's Keys: "The proponents of Medicare... were anything but stupid.... Confronted by the health care sector with a harsh trade-off between their cherished vision for health care, on the one hand, and a sensible payment policy, on the other, they let their vision override economically sound payment policy. Millions upon millions of America’s senior citizens are indebted to them for a program that remains highly popular to this day. Younger leaders of medicine and the hospital industry would do well to recall this dubious social contract struck by their predecessors to appreciate that the countless amendments to Medicare and the ever-new regulations emanating from the program are just the byproduct of many skirmishes in a protracted and tenacious war over possession of the keys to the Treasury.... The fiercest generals in this war on the government’s side have been Republican stalwarts... Reagan and George H.W. Bush. Desperate over the ever-escalating costs of Medicare during the 1970s and ’80s, both presidents resorted to what has been described as a Soviet-style payment policy for Medicare: administered prices set by the central government for the whole country.... But the war over the keys to the Treasury will probably never be fully concluded.... In retrospect, it would have been better all around to cut a more rational deal from the outset."

2. Glenn Greenwald: On the Meaning of Journalistic Independence: "This morning, I see that some people are quite abuzz about a new Pando article 'revealing' that the foundation of Pierre Omidyar, the publisher of First Look Media which publishes The Intercept, gave several hundred thousand dollars to a Ukraininan 'pro-democracy' organization.... This, apparently, is some sort of scandal.... That several whole hours elapsed since the article was published on late Friday afternoon without my commenting is, for some, indicative of disturbing stonewalling.... The Pando article adopts the tone of bold investigative journalism that intrepidly dug deep into secret materials.... But as I just discovered with literally 5 minutes of Googling, the Omidyar Network’s support for the Ukrainian group in question, Centre UA, has long been publicly known: because the Omidyar Network announced the investment at the time in a press release and then explained it on its website..."

Continue reading "Things to Read on the Evening of March 1, 2014" »

## Morning Must-Read: Suzanne Mettler: College, the Great Unleveler

Suzanne Mettler: College, the Great Unleveler: "The G.I. Bill of Rights....

Robert Maynard Hutchins, the president of the University of Chicago, worried that it would transform elite institutions into 'educational hobo jungles'. But the G.I. Bill... federal student aid... increasing state investment... transformed American higher education over the course of three decades from a bastion of privilege into a path toward the American dream. Something else began to happen around 1980. College graduation rates kept soaring for the affluent, but for those in the bottom half, a four-year degree is scarcely more attainable today than it was in the 1970s.... The demise of opportunity through higher education is, fundamentally, a political failure. Our landmark higher education policies have ceased to function effectively, and lawmakers — consumed by partisan polarization and plutocracy — have neglected to maintain and update them.

## Morning Must-Read: Noah Smith: Behavioral Economics vs. Behavioral Finance

Noah Smith: Noahpinion: Behavioral economics vs. behavioral finance: "Chris House has a new blog post that is pretty dismissive of behavioral economics....

I don't think Chris gives a particularly enlightening explanation of where behavioral economics is falling short (what does 'helps us much' or 'transcendent principle' even mean??... It's important to point out that 'behavioral economics' is a different thing from 'behavioral finance'.... 'Behavioral economics' means something along the lines of 'economics in which individual decision-making behavior is assumed to be subject to observable, predictable psychological biases'.... 'Behavioral finance'... began... with Robert Shiller, who showed that stock prices fluctuate more than the standard theories would suggest....

Continue reading "Morning Must-Read: Noah Smith: Behavioral Economics vs. Behavioral Finance" »

## Things to Read on the Afternoon of March 2, 2014

1. Noah Smith: Noahpinion: Behavioral economics vs. behavioral finance: "Chris House has a new blog post that is pretty dismissive of behavioral economics.... I don't think Chris gives a particularly enlightening explanation of where behavioral economics is falling short (what does 'helps us much' or 'transcendent principle' even mean??... It's important to point out that 'behavioral economics' is a different thing from 'behavioral finance'.... 'Behavioral economics' means something along the lines of 'economics in which individual decision-making behavior is assumed to be subject to observable, predictable psychological biases'.... 'Behavioral finance'... began... with Robert Shiller, who showed that stock prices fluctuate more than the standard theories would suggest.... A bunch of other 'anomalies' in standard theory were soon discovered... value... momentum.... These anomalies have proven so durable that they have become standard pieces of the risk models used by every large financial institution.... Most phenomena that don't agree with classic, Gene Fama vintage efficient-markets theory have come to be labeled 'behavioral finance'.... A second strand... finance based on informational frictions.... A third strand... that deals with individual investor behavior.... A fourth strand... noise-trader bubble models.... A fifth strand... tests the usefulness of psychological biases for investing strategies.... And of course a sixth strand... is experimental finance.... The behavioral finance rebels are merging with the old establishment instead of overthrowing it. So behavioral finance is not a speculative, marginal, or incipient field. It has already won at least two Nobel prizes (Smith and Shiller), or maybe four if you want to count Stiglitz and Kahneman."

2. Suzanne Mettler: College, the Great Unleveler: "The G.I. Bill of Rights.... Robert Maynard Hutchins, the president of the University of Chicago, worried that it would transform elite institutions into 'educational hobo jungles'. But the G.I. Bill... federal student aid... increasing state investment... transformed American higher education over the course of three decades from a bastion of privilege into a path toward the American dream. Something else began to happen around 1980. College graduation rates kept soaring for the affluent, but for those in the bottom half, a four-year degree is scarcely more attainable today than it was in the 1970s.... The demise of opportunity through higher education is, fundamentally, a political failure. Our landmark higher education policies have ceased to function effectively, and lawmakers — consumed by partisan polarization and plutocracy — have neglected to maintain and update them."

Continue reading "Things to Read on the Afternoon of March 2, 2014" »

## DeLong/Equitable Growth Smackdown Watch: Thomas Frank on How he Doesn't Want to Be Lectured by Paul Krugman or Joe Stiglize Anymore: Monday Focus: March 3, 2014

Thomas Frank: Paul Krugman won’t save us: "When President Obama declared in December that gross inequality is the 'defining challenge of our time', he was right, and resoundingly so....

However, he quickly backed away... at the urging of pollsters and various Democratic grandees. I can understand the Democrats’ fears... a throwback to an incomprehensible time.... Unfortunately, they really have no choice. Watching... the bankers steered us into disaster in 2008 and then... harvested the fruits of our labored recovery--these spectacles have forced the nation to rediscover social class...

My thought here is to ask the Tonto question: "Who is this 'us', kemosabe?"

Continue reading "DeLong/Equitable Growth Smackdown Watch: Thomas Frank on How he Doesn't Want to Be Lectured by Paul Krugman or Joe Stiglize Anymore: Monday Focus: March 3, 2014" »

## Afternoon Must-Read: Yonatan Ben-Shalom et al.: An Assessment of the Effectiveness of Anti-Poverty Programs in the United States

Yonatan Ben-Shalom et al.: An Assessment of the Effectiveness of Anti-Poverty Programs in the United States: "We assess the effectiveness of means-tested and social insurance programs in the United States.

We show that per capita expenditures on these programs as a whole have grown over time but expenditures on some programs have declined. The benefit system in the U.S. has a major impact on poverty rates, reducing the percent poor in 2004 from 29 percent to 13.5 percent, estimates which are robust to different measures of the poverty line. We find that, while there are significant behavioral side effects of many programs, their aggregate impact is very small and does not affect the magnitude of the aggregate poverty impact of the system. The system reduces poverty the most for the disabled and the elderly and least for several groups among the non-elderly and non-disabled. Over time, we find that expenditures have shifted toward the disabled and the elderly, and away from those with the lowest incomes and toward those with higher incomes, with the consequence that post-transfer rates of deep poverty for some groups have increased. We conclude that the U.S. benefit system is paternalistic and tilted toward the support of the employed and toward groups with special needs and perceived deservingness.

## Things to Read on the Afternoon of March 4, 2014

1. Yonatan Ben-Shalom et al.: An Assessment of the Effectiveness of Anti-Poverty Programs in the United States: "We assess the effectiveness of means-tested and social insurance programs in the United States. We show that per capita expenditures on these programs as a whole have grown over time but expenditures on some programs have declined. The benefit system in the U.S. has a major impact on poverty rates, reducing the percent poor in 2004 from 29 percent to 13.5 percent, estimates which are robust to different measures of the poverty line. We find that, while there are significant behavioral side effects of many programs, their aggregate impact is very small and does not affect the magnitude of the aggregate poverty impact of the system. The system reduces poverty the most for the disabled and the elderly and least for several groups among the non-elderly and non-disabled. Over time, we find that expenditures have shifted toward the disabled and the elderly, and away from those with the lowest incomes and toward those with higher incomes, with the consequence that post-transfer rates of deep poverty for some groups have increased. We conclude that the U.S. benefit system is paternalistic and tilted toward the support of the employed and toward groups with special needs and perceived deservingness."

2. Andrew Kramer: Ukraine Turns to Its Oligarchs for Political Help: "Mr. Turchynov on Sunday vetoed a divisive law passed last week that would have eliminated Russian as an official second language: about half of Ukraine’s population speaks Russian."

Continue reading "Things to Read on the Afternoon of March 4, 2014" »

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## Afternoon Must-Read: Aaron Carroll and Austin Frakt: Zombie Medicaid Arguments

Aaron Carroll and Austin Frakt: Zombie Medicaid arguments: "They just won’t die....

We want to focus on the first statement, the one that declares that Medicaid doesn’t improve patients’ health. That’s not true.... There are lots of legitimate claims to make against Medicaid. It under-reimburses physicians, for instance, causing access problems in some areas and for some beneficiaries.... But the natural response to saying docs don’t get paid enough would be to increase Medicaid funding to improve that. Gutting the program will do the opposite.... We look forward to a continuing and lively debate on how to reform the health care system. But declaring that health insurance in the form of Medicaid hurts people or “doesn’t work” ignores the real good that it does.... Let’s listen to each other’s arguments and respond to them, instead of repeating talking points past each other.

## Tuesday Focus: Macroeconomics and the Crisis: March 4, 2014

I have already written about how the world looked as Paul Krugman saw it at the start of 2008:

And I don’t see why the same couldn’t happen this time. After all, what’s supposed to take the place of weak housing and consumer spending. Exports, yes — but how much will come, how fast?... The last recession was not, in reality, short — and this one might not be, either" | "Deep? Maybe. Long? Probably.... There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending. There’s still the question of how deep the slump will be. I can see the case for arguing that it will be nasty. The 1990-91 recession was brought on by a credit crunch, the 2001 recession by overinvestment; this time we’ve got both" |

And you get a very similar vibe from Larry Summers's speeches at the time:

Lawrence H. Summers: "We are facing the most serious combination of macroeconomic and financial stresses that the United States has faced in at least a generation....

The essential policy problem is to manage a combination of... vicious cycles... the traditional Keynesian vicious cycle... [the] more serious... Liquidation vicious cycle... the Credit Accelerator vicious cycle.... It is a grave mistake to believe in the self-equilibrating properties of the economy or markets in the face of large shocks....

I have talked – and I suspect we will talk later in this conference – of these issues as an abstraction. As a Recession. As a Cyclical Down-Turn. As Declining Asset Values. Make no mistake, there will be millions of people who have never heard of a CDO or a CLO and who think triple A refers to the American Automobile Association, whose lives will be very much affected by the wisdom with which macroeconomic financial policy is made in the weeks and months ahead. The individuals for whom this will be the difference between staying in a home and the humiliation of a Bailiff removing one’s kids from one’s home. The individuals for whom this will be the difference between having a job and not having a job. Between being able to afford to borrow and not being able to afford to borrow. The stakes are not small.

Continue reading "Tuesday Focus: Macroeconomics and the Crisis: March 4, 2014" »

## I Continue to Fail to Understand Robert Rubin Thought...: Wednesday Focus: March 5, 2014

And I cannot see why he thinks what he thinks:

Pedro Nicolaci da Costa: Rubin Says Fed’s QE3 Will Lead to Trouble: "Rubin took the central bank to task for its bond-buying program...

The real issue is, what were the risks and rewards of QE3? There’s a widely held view that the benefits of QE3 have been relatively limited.... These vast flows of capital have gone up the risk curve and created what may well have been excesses, that now as we know are tending to unravel--and that has a destabilizing effect.... I don’t think there are any magic wands. Uncertainties could be far greater with the vast increases that have taken place in the balance sheet of the Fed....

Continue reading "I Continue to Fail to Understand Robert Rubin Thought...: Wednesday Focus: March 5, 2014" »

## Afternoon Must-Read: John Aziz: Why is American Internet so Slow?

Jon Aziz: Why is American internet so slow?: "Other countries have done more to ensure that the market is open to competition.

A 2006 study comparing the American and South Korean broadband markets concluded:

[T]he South Korean market was able to grow rapidly due to fierce competition in the market, mostly facilitated by the Korean government's open access rule and policy choices more favorable to new entrants rather than to the incumbents. Furthermore, near monopoly control of the residential communications infrastructure by cable operators and telephone companies manifests itself as relatively high pricing and lower quality in the U.S. [Professor Richard Taylor and Eun-A Park via Academic.edu]

And the gap between the U.S. and Korea has only grown wider since then...

## Things to Read at Night on March 5, 2014

1. Aaron Carroll and Austin Frakt: Zombie Medicaid arguments: "They just won’t die.... We want to focus on the first statement, the one that declares that Medicaid doesn’t improve patients’ health. That’s not true.... There are lots of legitimate claims to make against Medicaid. It under-reimburses physicians, for instance, causing access problems in some areas and for some beneficiaries.... But the natural response to saying docs don’t get paid enough would be to increase Medicaid funding to improve that. Gutting the program will do the opposite.... We look forward to a continuing and lively debate on how to reform the health care system. But declaring that health insurance in the form of Medicaid hurts people or 'doesn’t work' ignores the real good that it does.... Let’s listen to each other’s arguments and respond to them, instead of repeating talking points past each other."

2. Jon Aziz: Why Is the American internet so slow?: "Other countries have done more to ensure that the market is open to competition. A 2006 study comparing the American and South Korean broadband markets concluded: '[T]he South Korean market was able to grow rapidly due to fierce competition in the market, mostly facilitated by the Korean government's open access rule and policy choices more favorable to new entrants rather than to the incumbents. Furthermore, near monopoly control of the residential communications infrastructure by cable operators and telephone companies manifests itself as relatively high pricing and lower quality in the U.S. [Professor Richard Taylor and Eun-A Park via Academic.edu]' And the gap between the U.S. and Korea has only grown wider since then..."

Continue reading "Things to Read at Night on March 5, 2014" »

## Nighttime Must-Read: Tim Noah: No, Today's Republicans Do Not Like the EITC. Why Do You Ask?

Tim Noah: The partisan divide over the Earned Income Tax Credit: "President Obama’s new budget increases spending on and expands eligibility for the Earned Income Tax Credit,

the largest and most successful government assistance program for the working poor. The much-praised House GOP tax reform introduced last week would cut the EITC, even though a House GOP report excoriating most federal assistance to the poor singled out the program for applause. This new partisan difference over the EITC... speaks volumes.... Welfare reform should have ended the partisan scrimmage over welfare dependency. Instead, it merely shifted the goalposts. Previously, the GOP had praised the 'deserving' (i.e., working) poor even as it derided the 'dependent' (i.e., welfare-collecting) poor.... Republicans... rebrand[ed] as 'dependent' any low-income person who collected government assistance, even if that person also had a job.... House Ways and Means Committee Chairman Dave Camp’s tax reform... would in effect replace the EITC with a payroll-tax exemption up to $4,000 and impose various restrictions... would cut this highly-regarded program by$217 billion over the next decade. Robert Greenstein, chairman of the Center on Budget and Policy Priorities, a Washington nonprofit, calculates that a mother with two children working full-time at the minimum wage would lose roughly $2,000 per year once the change went fully into effect. ## Morning Must-Read: Ryan Avent on Monetary Policy Ryan Avent: Monetary policy: No cushion needed, apparently: "THE Federal Reserve basically never sees a recession coming (at least when it isn't busily creating one to whip inflation).... San Francisco Fed president John Williams spoke as if America's most recent macroeconomic convulsion took place in the 1970s: 'In his own economic forecast, Mr Williams said, the Fed will raise interest rates in the middle of next year with the unemployment rate at about 6 per cent, inflation at 1.5 per cent and “everything moving in the right direction”.“At that point if we don’t start to adjust monetary policy there’d be a risk of overshooting,” he said. “You don’t wait until you’re at full employment before you start to raise interest rates from zero.”' That reads to me like the words of a man who has learned nothing at all from the experience of the past few years. That's probably a little unkind; what is said in public never corresponds exactly to what is said in discussions with the rest of the FOMC or in private. But I find this very troubling.... Monetary policy appears to have consistently underreacted to weak demand—delivering too little stimulus with too long a lag. That underreaction is down partly to a lack of familiarity with 'unconventional' policy tools, and partly to FOMC members' concerns that unconventional tools involve risks that normal interest rate policy does not. I don't know exactly how much the zero lower bound has cost the American economy over the past half decade, but the bill probably runs to several trillion dollars. So you're on the FOMC. You have plenty of recent, bitter experience with this important assymetry.... How do your views evolve? Not at all, it would seem, if you are Mr Williams, who appears to be suggesting that any risk of overshooting is intolerable. Better to put the current recovery at risk and court future disaster than treat the inflation target symetrically. ## Things to Read at Lunchtime on March 6, 2014 ### Must-Reads: 1. Ryan Avent: Monetary policy: No cushion needed, apparently: "THE Federal Reserve basically never sees a recession coming (at least when it isn't busily creating one to whip inflation).... San Francisco Fed president John Williams spoke as if America's most recent macroeconomic convulsion took place in the 1970s: 'In his own economic forecast, Mr Williams said, the Fed will raise interest rates in the middle of next year with the unemployment rate at about 6 per cent, inflation at 1.5 per cent and “everything moving in the right direction”.“At that point if we don’t start to adjust monetary policy there’d be a risk of overshooting,” he said. “You don’t wait until you’re at full employment before you start to raise interest rates from zero.”' That reads to me like the words of a man who has learned nothing at all from the experience of the past few years. That's probably a little unkind; what is said in public never corresponds exactly to what is said in discussions with the rest of the FOMC or in private. But I find this very troubling.... Monetary policy appears to have consistently underreacted to weak demand—delivering too little stimulus with too long a lag. That underreaction is down partly to a lack of familiarity with 'unconventional' policy tools, and partly to FOMC members' concerns that unconventional tools involve risks that normal interest rate policy does not. I don't know exactly how much the zero lower bound has cost the American economy over the past half decade, but the bill probably runs to several trillion dollars. So you're on the FOMC. You have plenty of recent, bitter experience with this important assymetry.... How do your views evolve? Not at all, it would seem, if you are Mr Williams, who appears to be suggesting that any risk of overshooting is intolerable. Better to put the current recovery at risk and court future disaster than treat the inflation target symetrically. 2. Tim Noah: The partisan divide over the Earned Income Tax Credit: "President Obama’s new budget increases spending on and expands eligibility for the Earned Income Tax Credit, the largest and most successful government assistance program for the working poor. The much-praised House GOP tax reform introduced last week would cut the EITC, even though a House GOP report excoriating most federal assistance to the poor singled out the program for applause. This new partisan difference over the EITC... speaks volumes.... Welfare reform should have ended the partisan scrimmage over welfare dependency. Instead, it merely shifted the goalposts. Previously, the GOP had praised the 'deserving' (i.e., working) poor even as it derided the 'dependent' (i.e., welfare-collecting) poor.... Republicans... rebrand[ed] as 'dependent' any low-income person who collected government assistance, even if that person also had a job.... House Ways and Means Committee Chairman Dave Camp’s tax reform... would in effect replace the EITC with a payroll-tax exemption up to$4,000 and impose various restrictions... would cut this highly-regarded program by $217 billion over the next decade. Robert Greenstein, chairman of the Center on Budget and Policy Priorities, a Washington nonprofit, calculates that a mother with two children working full-time at the minimum wage would lose roughly$2,000 per year once the change went fully into effect."

Continue reading "Things to Read at Lunchtime on March 6, 2014" »

## Afternoon Must-Read: Tim Duy: A Lackluster Start to the Year

Tim Duy: A Lackluster Start to the Year: "Incoming data... disappoint[s]....

Part of the blame should fall on overly optimistic interpretations of data patterns at the end of 2013. In particular, the recently downwardly revised GDP numbers were less than spectacular abstracting away from inventory effects. Looking at real final sales, I see slow and steady, or even a modest softening, not magic acceleration.... The latest data disappointments were the weak ADP report suggesting a just 139k private sector NFP gain in March and a similarly weak reading on the service side of the economy from ISM.... My baseline expectation for monetary policy is that recent softer data makes little difference in the tapering plans.... My suspicion is that [Yellen] will need to see real evidence that labor market slack has evaporated in the form of faster wage growth before she begins to worry of overshooting.

## Afternoon Must-Read: Tim Worstall on Equitable Growth

Tim Worstall: Ritchie on redistributionl: "There’s another very interesting bit to add to this as well.

Which is that other work tells us that how you do the redistribution does indeed matter. Transactions taxes are worst (they have the highest deadweight costs), then capital and corporation taxes, then income taxes, then consumption and finally repeated taxes upon real property. And it’s notable that the countries that do the most redistribution (the Nordics, they have the biggest gaps between market and post tax post benefit gini) do it by having heavier than we do consumption taxes and lighter than we do capital and corporate ones (note that that last is influenced not so much by the rate but by the base).

## Afternoon Must-Read: Joseph E. Stiglitz: Stagnation by Design

Joseph E. Stiglitz: Stagnation by Design: "Markets are not self-correcting.

The underlying fundamental problems that I outlined earlier could get worse--and many are. Inequality leads to weak demand; widening inequality weakens demand even more; and, in most countries, including the US, the crisis has only worsened inequality.... Markets have never been very good at achieving structural transformations quickly on their own.... The sectors that should be growing, reflecting the needs and desires of citizens, are services like education and health, which traditionally have been publicly financed, and for good reason. But, rather than government facilitating the transition, austerity is inhibiting it...

## Evening Must-Read: Dylan Scott: New Hampshire Advances Medicaid Expansion Under Obamacare

Dylan Scott: New Hampshire Advances Medicaid Expansion Under Obamacare: "The GOP-controlled New Hampshire Senate approved a privatized plan for expanding Medicaid under Obamacare....

The bill passed 18 to 5. Five of the 13 Republicans opposed the plan.... The proposal would use Medicaid dollars to help low-income residents purchase private health coverage, as Arkansas has done. The Democratic-controlled House is expected to approve the plan, and Democratic Gov. Maggie Hassan has expressed her support. About 58,000 New Hampshirites are expected to gain coverage under the expansion.

## This Is Not a Better Labor Market than We Had a Year Ago This Is a Worse One

• The proportion of the adult population in the civilian labor force has fallen from 63.5% to 63.0%

• The proportion of the adult population employed has risen very slightly from 58.6% to 58.8%

• The unemployment rate has fallen from 7.7% to 6.7%.

As far as the long-run prosperity of America is concerned, this past year has been yet another disaster for the labor market. Demography would lead one to expect a decline in the labor force of 0.1% or 0.2% points--not 0.5%.

Keith Humphreys: Dear Bill Keller, Please Start Taking Drug Addiction Treatment Seriously: "In his closing contribution to the New York Times, Bill Keller laments President Obama’s unwillingness to invest in drug addiction treatment....

It is also embarrassingly, verifiably, wrong. I am sure Mr. Keller and all the other journalistic critics of Obama’s drug treatment record have heard of The Affordable Care Act... [that] expands access to care for over 60 million Americans by mandating that drug treatment coverage be included in every plan and be at parity with that for other disorders... [the] regulations for the Mental Health Parity and Addiction Equity Act provide benefit parity to more than 100 million Americans with employer-provided health insurance... independent analysts at CMS consider the current public policy environment the most dramatic improvement in the quantity and quality of addiction treatment in U.S. history... Rather than use his platform to make assertions that are demonstrably inaccurate, I hope he will in the future engage in... due diligence...

## Things to Read on the Morning of March 7, 2014

1. Joseph E. Stiglitz: Stagnation by Design: "Markets are not self-correcting. The underlying fundamental problems that I outlined earlier could get worse--and many are. Inequality leads to weak demand; widening inequality weakens demand even more; and, in most countries, including the US, the crisis has only worsened inequality.... Markets have never been very good at achieving structural transformations quickly on their own.... The sectors that should be growing, reflecting the needs and desires of citizens, are services like education and health, which traditionally have been publicly financed, and for good reason. But, rather than government facilitating the transition, austerity is inhibiting it..."

2. Tim Worstall: Ritchie on redistributionl: "There’s another very interesting bit to add to this as well. Which is that other work tells us that how you do the redistribution does indeed matter. Transactions taxes are worst (they have the highest deadweight costs), then capital and corporation taxes, then income taxes, then consumption and finally repeated taxes upon real property. And it’s notable that the countries that do the most redistribution (the Nordics, they have the biggest gaps between market and post tax post benefit gini) do it by having heavier than we do consumption taxes and lighter than we do capital and corporate ones (note that that last is influenced not so much by the rate but by the base)."

3. Tim Duy: A Lackluster Start to the Year: "Incoming data... disappoint[s].... Part of the blame should fall on overly optimistic interpretations of data patterns at the end of 2013. In particular, the recently downwardly revised GDP numbers were less than spectacular abstracting away from inventory effects. Looking at real final sales, I see slow and steady, or even a modest softening, not magic acceleration.... The latest data disappointments were the weak ADP report suggesting a just 139k private sector NFP gain in March and a similarly weak reading on the service side of the economy from ISM.... My baseline expectation for monetary policy is that recent softer data makes little difference in the tapering plans.... My suspicion is that [Yellen] will need to see real evidence that labor market slack has evaporated in the form of faster wage growth before she begins to worry of overshooting."

4. Dylan Scott: New Hampshire Advances Medicaid Expansion Under Obamacare: "The GOP-controlled New Hampshire Senate approved a privatized plan for expanding Medicaid under Obamacare.... The bill passed 18 to 5. Five of the 13 Republicans opposed the plan.... The proposal would use Medicaid dollars to help low-income residents purchase private health coverage, as Arkansas has done. The Democratic-controlled House is expected to approve the plan, and Democratic Gov. Maggie Hassan has expressed her support. About 58,000 New Hampshirites are expected to gain coverage under the expansion."

Continue reading "Things to Read on the Morning of March 7, 2014" »

## Morning Must-Read: Jason Furman: Poverty and the Tax Code

Jason Furman: Poverty and the Tax Code: "The creation and expansion of these tax credits have served as a powerful demonstration that the old adage 'a program for the poor is a poor program' need not always be true....

There has been a long-standing torrent of fierce criticism of the EITC and the partially refundable child tax credit, including claims of fraud, criticism of beneficiaries who end up not paying any federal taxes (going so far as to call them “lucky duckies”), and strong resistance to extending or expanding the benefits.... But... the political success of these credits over the years is also likely a function both of the inherent work requirement and the fact that they are administered through the tax code, which is a universal system... not just tax credits for one section of the population, but... provide broader insurance to a much wider set of beneficiaries over time.... Over an 18-year period, because of fluctuations in income, more than half of taxpayers benefitted from the EITC. (As an aside, a similar point applies to other programs like nutrition assistance or unemployment insurance).... The relative size and scope of the tax credits compared to traditional means-tested programs underscores the extent to which poverty-alleviation programs now emphasize employment...

## The Objective Function of the Federal Reserve Looks Not to Be the Right One: Friday Focus: March 7, 2014

Tim Duy: Unemployment, Wages, Inflation, and Fed Policy: "Historically, the Fed tightens before wages growth accelerates much beyond 2%....

Wage growth tends to accelerate as unemployment approaches 6 percent.... That 6.5% [unemployment] threshold was not pulled out of thin air.... The tightening cycle is usually topping out when wage growth is in the 4.0-4.5% range. One interpretation is that the Fed continues to tighten policy to prevent workers from gaining too much of an upper-hand.... They see it as tightening monetary conditions to hold inflation in check.  Either way, the end is the same. It would represent a very significant departure from past policy if the Fed waited until wage growth was at pre-recession rates before they tightened policy or if they allow conditions to remains sufficiently loose for wage growth to eventually rise above pre-recession rates. If you want the Fed to make such a departure, start laying the groundwork soon....

Continue reading "The Objective Function of the Federal Reserve Looks Not to Be the Right One: Friday Focus: March 7, 2014" »

## It Looks Like Obamacare Is Finally Making Progress With The Uninsured

Dylan Scott: It Looks Like Obamacare Is Finally Making Progress With The Uninsured: "A new survey has found that 27 percent of people who signed up for coverage in February were previously uninsured....

"There’s every reason to believe that early enrollment skewed towards the already insured and that the uninsured will sign up later," Larry Levitt [said].... "People who were insured and had their old non-compliant policies cancelled were no doubt first in line in the new marketplaces, along with some people with pre-existing conditions who were locked out of the market before." Another finding from the survey also suggests there could be a March surge in uninsured people enrolling in coverage: 65 percent of respondents who said they hadn't enrolled yet but planned to before March 31 were uninsured....

The survey doesn't account for Medicaid enrollees.... 31 percent of uninsured Americans have an income below 138 percent of the federal poverty level -- the threshold for expanded Medicaid under the law in states that chose to participate.... Between 1.1 million and 1.8 million new enrollees could be attributed to the law through January.