Links of the Week - 27 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


On the inevitability of justice
Ryan Avent

Inflationistas at Bayes
Paul Krugman

Why I Haven't Changed My Mind About Bitcoin
Matthew Yglesias

The Unemployment Rate at Full Employment: How Low Can You Go?
Jared Bernstein and Dean Baker

The Minimum Wage and the Laws of Economics
Jared Bernstein

Not even past: A battle over bronze and over memory
London Economist

Dumb and Dumber, NFL Edition
Brian Burke

Is inequality bad for economic growth?
Brad Plumer

Raise the Gas Tax!
Matthew Yglesias

What the Volcker Rule Really Does
Matthew Yglesias

There are six big arguments against the Volcker Rule. Here’s why they’re wrong
Mike Konczal

The Argument for the Volcker Rule
Evan Soltas

Links of the Week - 20 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


James Baldwin debates William F Buckley Jr
via Brad DeLong

The shakeup at the Minneapolis Fed is a battle for the soul of macroeconomics—again
Miles Kimball and Noah Smith

[and Mark Thoma's take]

[and Brad DeLong gives us everyone else's take]

On the Importance of Little Arrows (Wonkish)
Paul Krugman

New Thinking and Old Books Revisited
Paul Krugman

Colleges are teaching economics backwards
Mike Konczal

Racism isn’t over. But policymakers from both parties like to pretend it is
Ezra Klein

Paths to Full Employment
Jared Berstein

What If Rich People Got More Votes?
Dave Gibson

Reagan and the role of the past in shaping the future

My colleague Ziyi Mai writes that critics of today's slow economic recovery should not look to the policies of the Reagan administration for any explanations. He cites the similar (or better) unemployment and inflation numbers of the late 1970s and early- to mid 1980s, and says that the policies of the second Bush administration have more to do with today's lackluster recovery than those of the Reagan administration. He also claims that consumption inequality, which is lower than income inequality, is a better measure of economic equality.

While it is true, as Mai writes, that unemployment has remained persistently high for a longer period after the 2008-09 recession than after the 1982 recession, much of this persistence is attributable to the different dynamics of recovery from financial panics. Political intransigence has also led to contractionary fiscal policy in direct contradiction to textbook macroeconomics. Had the Congress taken up the monetary 'slack' provided by unconventional monetary policy over the last five years, it is likely that unemployment would be significantly lower today. It is worth noting, as well, that this intransigence has its roots in the political style of Mr Reagan, whose language of class warfare and racially incendiary rhetoric and actions sought to undermine the value of government as an institution, and whose fruits are borne today.

None of this, however, is related to the criticism that Mai seeks to address, which is that income inequality has inhibited this recovery. It is clear that income inequality has skyrocketed since 1980. It doesn't seem as if Mai would disagree with this; but he would rather talk about consumption inequality. That's fine; there are plenty of good reasons to do that. The best reason is that the ultimate purpose of income is to spend it. Various macro models address the utility of bequeathment, and the concept of discounting future consumption is at the heart of any dynamic macro model, but it is safe to say that we seek income so that we (or our heirs) may spend (today, tomorrow, whenever).

So, why not focus on consumption inequality? I think the best reason is that, contrary to Mai's assertion, consumption inequality has risen right alongside income inequality. The argument implicit in the focus on consumption inequality is that "if people can spend, it doesn't matter if they cannot save." This has unfortunate consequences both individually and macroeconomically. Households that are income-constrained, and which therefore must spend to their limits rather than save, face tremendous financial uncertainty. The rise in bankruptcies due to medical emergencies demonstrates this clearly. As Mai cites, the decrease in the national saving rate, while beneficial in the short-run during the recovery, will eventually have dire ramifications in terms of private investment.

There is, of course, a mechanism by which consumption equality could persist in the face of rising income inequality. The trend toward "cash-out refinancing," an equity-draining loan option popular during the housing boom of the early 2000s, allowed the income-constrained to treat their homes like ATMs in order to boost consumption. This was made possible by the outsized demand for collateralized debt obligations, the mortgage bonds whose bubble most directly led to the financial panic of 2007-08.

Mai is right that we cannot look solely to the past to explain our current economic trouble. He is too quick, however, to absolve Mr Reagan and his political descendants of blame for their role in setting the table for the rotten meal we're all staring at now.

Links of the Week - 13 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


Yes, the government should spend more each year
Mike Konczal

Structural Problems With Economese
Paul Krugman

The central banker who changed his mind
John Aziz

When Someone Claims the War on Drugs Is a War on Minorities…
Mike the Mad Biologist

[John Derbyshire] Hasn’t Seen ’12 Years A Slave,’ But He’s Sure It’s Too Hard On Slavery
Alyssa Rosenberg

Why guru ETFs beat human gurus
Felix Salmon

Does your job create real value?
Noah Smith

The Answer to the Crisis in Democracy Is More Democracy
Ta-Nehisi Coates

Twenty tips for interpreting scientific claims
William J. Sutherland, David Spiegelhalter, and Mark Burgman

The GOP’s Obamacare Playbook Has One Football Play, and It Makes No Sense
Jonathan Chait

A brief note on unemployment

This graph shows the gap between the number of unemployed and the number of job openings, measured in millions. This is about the best indication there is that the time for stimulus (monetary, but especially fiscal) is not over. The good news, of course, is that the gap is shrinking, but 7.5 million more unemployed than job openings is staggering. At the current rate, we should be back to the previous high (~6 million) in about 12-18 months. What this says above all is that the assertion that we can reduce unemployment by cutting unemployment benefits, a dubious notion in the best of times, is downright insane right now.

Links of the Week - 6 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


Washington Center for Equitable Growth Launch Event: Robert Solow Introductory Video
via Brad DeLong

Explainer: How does the Fed stimulate the economy?
Mark Thoma

There is no such thing as redistribution
Matt Bruenig

Brad Plumer’s Redistribution Blindspot
Matt Bruenig

Given the Myth of Ownership, is the Idea of Redistribution Coherent?
Mike Konczal

The Power of Two (Extra Wonkish)
Paul Krugman

Political Questions About the Jobs Report
Nelson D Schwartz

This is why you shouldn’t pay attention to consumer confidence indicators
Neil Irwin

Dick Cheney lied about more than Iraqi WMDs
Barney Frank

The ‘economic justice’ wing of the Democratic Party: A monetary policy menu
Ryan Cooper

Links of the Week - 29 November 2013

Wall Street figured out how to securitize your rent. Should you worry?
Lydia DePillis

Privacy Isn’t a Right
Josh Klein

Is Economics a Science?
Robert Shiller

Benford’s Law in the NFL, Part II
Chase Stuart

Attention Health Care Shoppers!
Jared Bernstein

Encouraging Paid Employment
Nancy Folbre

Before the panic
Ryan Avent

Nobel Calling
Tom Whipple

Uwe Reinhardt Is Unhappy with the Idea That What Health-Care Financing Needs Is More Cost Sharing
via Brad DeLong

Why We’re Launching the Washington Center for Equitable Growth
John Podesta

Links of the Week - 22 November 2013

The Decline of the Tea Party
Bruce Bartlett

What We’ve Learned from the Financial Crisis
Justin Fox

Free-Floating Inflation Hysteria
Paul Krugman

The Great Recession may have crushed America’s economic potential
Neil Irwin

Gross Domestic Thinking
Jared Bernstein

Ron Paul Basically Called for Armed Revolution This Week
Kevin Drum

Washington Center for Equitable Growth
Brad DeLong

How Social Security redistributes money from minorities to whites
Brad Plumer

Defending rational expectations
Simon Wren-Lewis

Wealth, Health and Inequality
Uwe E. Reinhardt

Food Deserts as Market Failure

NPR and others have been reporting for some time about "food deserts," areas that are underserved by grocery stores. These "deserts" are usually, but not always, concentrated in low-income areas. A new story highlights "banking deserts," in which a similar paucity is observed in banking services. Once again, the poor bear a disproportionate share of the burden.

A bog-standard free-market analysis of this problem holds that these firms (grocery stores, and now financial institutions) observe marginal revenue below average variable cost. In other words, the firm identifies locations at which the day-to-day costs of operating the location are greater than the day-to-day revenue generated by the location. The firm then decides that it is profitable to shutter the location. Causal explanations for this phenomenon usually invoke higher shrinkage rates (theft, spoilage), or basic demand deficiencies (the poor would rather eat fast food) for the services involved. Further, market fundamentalists say that residents of the affected areas who desire the abandoned services are incentivized (and therefore likely) to relocate to areas where such services are more readily available.

This analysis fails to account for the often high costs involved with relocation. Let's try a thought experiment. If we disaggregate the population of a low-income food desert into "employed" and "unemployed," we can quickly see the positive correlation between "employed" and "available financial resources to relocate." We may even be able to infer a positive correlation between "employed" and "demand for fresh food," though this controversial and problematic inference is not material in this thought experiment. 

Regardless, let's assume both of these correlations hold for now. If those who most want the fresh food are most able to relocate, then perhaps these closures are the efficient outcome. Stop for a moment, however, and consider our relocation criteria. We observed that the employed have the most resources at their disposal in order to move. On the other hand, the employed have the most to lose by moving, namely, their jobs. I think it's safe to assume that the employed fraction of a low-income population have the most tenuous hold on their jobs of any employed person (who isn't the drummer for Spinal Tap). Often these workers must commute far to their jobs, and often by public transport. Unless the representative low-income employed person who seeks to relocate to escape a food desert has the good fortune of being willing and able to move closer to their job, it's unlikely that any fraction of the population of "food deserts" is made better off by these closures.

Is the best solution to this problem the "government takeover of grocery stores" that Mr Johnson so fears? Probably not. Thankfully, no one is suggesting it is. If, on the other hand, you believe that we elect a government to fix problems, then a small federal program to incentivize grocers seems like a staggeringly pragmatic solution.



See also:

Schuetz, Jenny & Kolko, Jed & Meltzer, Rachel, 2012.

"Are poor neighborhoods “retail deserts”?,"

Regional Science and Urban Economics,

Elsevier, vol. 42(1-2), pages 269-285.

Links of the Week - 15 November 2013

Australia had a government shutdown once. In the end, the queen fired everyone in Parliament
Max Fisher

Modeling Policy When Policy Is Inside the Model
Peter Dorman

World War II in Europe: Every Day

CEOs All At Sea
Paul Krugman

Alan Greenspan Rediscovers Keynes—Sort Of
John Cassidy

Is There Any Appropriate Reaction to This on the Part of Eugene Fama?
via Brad DeLong

What frequent flyer miles teach about central banking
Neil Irwin

The tea party’s assault on workers
Mike Konczal

Adjusting the Taylor Rule for the Unemployment Rate Bias
Jared Bernstein

A Tale of Two Fed Presidents
Paul Krugman

Bubbles of fun

Evan Jenkins, sitting in for Guan Yang, in turn sitting in for Noah Smith, writes, in a long exposition on Bitcoin, that it surely represents a bubble at this time. I want to focus on the two "confounding factors" Jenkins cites. I'm not sure if he meant that these factors confound his analysis, as I don't see that. It's more that these two facts confound the entire Bitcoin project (if "project" is the appropriate term).

Jenkins: (emphasis added)

The first confounding factor is that the Bitcoin market, as it exists now, probably does a pretty bad job of pricing correctly. The problem is that it is very difficult for somebody who does not already hold Bitcoins to make a bet against the future of Bitcoin. The only people with the power to move the Bitcoin market down are those who have already bought into the Bitcoin market, and they likely have rosier visions of the future of Bitcoin than the rest of us. This, in my opinion, is the biggest piece of evidence in favor of calling Bitcoin a bubble. In order for the Bitcoin market to price Bitcoin correctly, there needs to be a good way to short Bitcoins. But until there is a reliable way to lend and borrow in Bitcoins, that won’t happen. 

The second confounding factor is that if Bitcoin really does establish itself as a legitimate currency, we will need to throw our assumptions of how many Bitcoins there are out the window. In principle, there should be no more than 21 million Bitcoins ever produced. In fact, since Bitcoins can be irreversibly lost, we should actually expect the number of extant Bitcoins to start decreasing at some point. But, as much as the True Believers like to rail against fractional reserve banking, the truth is that once Bitcoins become a real currency, it will start being banked and invested like a real currency, which will effectively increase the number of Bitcoins in existence. Depending on how we measure total “amount of money” in US dollars is anywhere from 10 to 20 times the amount of physical currency in circulation. But there is reason to think that for Bitcoin, the mulitplier could be even higher, as Bitbanks would lack, at least initially, any sort of reserve requirement. This lowers the future price, and thus raises the probability, of the True Believer future. But is this the future that the True Believers want? Not really.

To my view, what Jenkins is saying here is that a future in which Bitcoins is a real currency that competes with what we think of now as real currencies, without the bummers inherent in real currencies like fractional reserve banking and governmental oversight (or literal control), is not a real future. In other words, the things that define modern currencies are the things that Bitcoin advocates seek to avoid. This is likely problematic if these advocates want to see Bitcoin compete with real currencies. If, on the other hand, Bitcoin settles into a comfortable role as a niche asset, like tobacco shares or Renoir paintings, then it will likely be a success.

Bitcoin is a neat throwback to the days of state banking with its minimal oversight, competing currencies, high transactions costs, wild price swings, and regular financial panics. Anyone who misses those days of sweet freedom is likely a Bitcoin advocate. None of this is to say that the system we have today is free from frictions and inefficiencies. My point is that, as fuddy-duddy as 21st century currencies like the dollar and the euro are, and as exciting as Bitcoin promises to be, who really wants their medium of exchange, their unit of account, or their store of value to be fun?

Response to Mankiw on community rating (in the unlikely event his questions were genuine)

Greg Mankiw asks "Is Community rating fair?" His contention seems to be that the market has deemed that people with different health risks should pay more for health insurance, much in the way that the market has deemed that people who are statistically more likely to be involved in auto accidents should pay pay more for car insurance and that people who are statistically more likely to die sooner should pay more for life insurance. By way of example, he cites teen drivers (higher car insurance premiums) and old people (higher life insurance premiums, if they can get a policy at all).

Mankiw's complaint is specifically that pregnancy is, for the purposes of the ACA, a "pre-existing condition," the cost of which should not be spread among all of the insured, because pregnancy is a choice. Leaving aside the fact that the degree to which pregnancy is a choice is correlated with, and proportional to, socioeconomic status, Mankiw takes a logical leap that goes something like this:

1. Pregnancy is a choice.
2. Pregnancy is a pre-existing condition.
3. Community rating spreads costs for pre-existing conditions across all insured.
4. Community rating is unfair!!

It should be noted that community rating is primarily meant to remove the penalty of a lifetime of burdensome costs for those of us unlucky enough to be born with genetic conditions, to contract less-than-curable lifetime ailments like Lyme disease, and other catastrophic health scenarios that currently send people down a road toward something that most closely resembles serfdom. It should also be noted that community rating is very similar to the way in which employer-based health insurance plans spread risk, and have done so for decades. It's not like we're landing on Neptune here. Perhaps pregnancy is different in some fundamental way from the sorts of conditions I describe. Then again, maybe it's not. This is a relatively simple technocratic question, not the grand philosophical debate over which Mankiw wastes so much hand-wringing. Perhaps, in a sane political environment, we'd be able to discuss this question and others like it calmly and reach a practical solution.

So, Professor Mankiw, since you asked, yes, fairness is being treated differently here. And further, since you also asked, it's because This Thing isn't like Those Things. And we can't have a rational conversation about this stuff at the legislative level because your political masters can't talk about this stuff without bringing up death panels and the Fugitive Slave Act.


UPDATE: Matt Yglesias adds his inimitable take.

(The Return of) Links of the Week - 8 November 2013

The Derp and Fall of Inflation Fearmongers
Matthew O'Brien

Do the inflationistas really believe what they say?
Noah Smith

Down With Lemonade Stands
Michael Lemberger

Regions of Derpistan
Paul Krugman

Show me the model
Antonio Fatas

Post-Scarcity Economics
Tom Streithorst

The Federal Reserve helped fund the D.C. Metro system. Wait, what?
Ylan Q. Mui

The Case for Paying People More
Justin Fox

Getting paid: Labour markets and partisan minds
Will Wilkinson

This CNBC clip shows everything wrong with how Wall Street thinks about banking
Neil Irwin

FedSim Followup

In my second attempt at Evan Soltas' FedSim, I was able to hold off rising inflation expectations for a while, mostly by raising the Funds rate when the pace of improvement in the labor market was encouraging, rather than when the level of unemployment was satisfactory. The cost of this, of course, is that I stifled that pace, and we found ourselves with unemployment stuck between 6 and 7%, and inflation, especially core, began to pick up significantly toward the end of the experiment. These are, of course, Milton Friedman's "long and variable lags." Oh, well, back to the woodshed.

Showing improvement

FedSim, by Evan Soltas

Blogger, college student, Wonkblog contributor, and all-around wunderkind Evan Soltas has created a monetary policy simulator called FedSim. The idea here is to do a better (more realistic) job of presenting a simulation of central banking action than those that are offered by the ECB and the San Francisco Fed.

In a followup post, Soltas outlined the gargantuan obstacles to the sort of modeling that underlies these sorts of simulators. I think he's all around done a great job overcoming them, however.

My first attempt was going along fine until Zimbabwe set in. I think I allowed the Funds rate to stay so low so long that my 'citizens' came to anticipate low rates forever. Thus my wild punches (2020 and onward) at inflation never landed. My next attempt, the results of which I will also post to CW, will hopefully be less Weimaresque.

I'd encourage readers to try the simulator out and see what you get.

First sad attempt

I am Emmanuel Saez.

I've been relatively neglectful of this blog over the last several weeks. I hope that is set to change, but I make no promises. In the meantime, enjoy this diversion.

In the interest of transparency, here are my answers.

Success and the perception of success

Ezra Klein writes that "Obamacare will never be a huge political success for Democrats," in response to Yglesias and Krugman, who are more optimistic. Klein believes that this is because the benefits to health care reform will be largely invisible to the majority of Americans, and that the costs will be "marginal." I mostly agree, but I will take an even more pessimistic tack by noting that, for the foreseeable future, some people will blame any poor healthcare outcome on the new law. Price of an MRI goes up? Obamacare! Longer wait for appointments? Obamacare! Unfortunate test results? Obamacare! Weird guy gave me the side-eye on the way to the doctor's office? Obamacare!

Now, it is likely that this group will never comprise more than five or ten percent of the population. Remember, however, that this group is likely only that big now, and yet they control two of the three branches of government.

Links of the Week - 28 June 2013

Short list again this week. -ed.


Robert Solow:
Hayek, Friedman, and the Illusions of Conservative Economics

Jared Bernstein:
The Top 1% and the College Earnings Premium: Don’t Confuse Them (as Mankiw Does)

Jared Bernstein:
Inequality and Mobility, Again

Noah Smith:
Some essential papers in behavioral finance

Links of the Week - 21 June 2013

Kevin Drum:
Chart of the Day: America's 30-Year Project to Make the Rich Even Richer

Mark Thoma:
7 Important Examples of How Markets Can Fail

Paul Krugman:
Rents and Returns: A Sketch of a Model (Very Wonkish)

Jonathan Chait:
Why Rand Paul Distrusts Democracy

Jonathan Chait:
Is Rand Paul’s Love of Ayn Rand a ‘Conspiracy’?

Harold Pollack:
The complacency of the meritocrats

Paul Krugman:
Greg Mankiw and the Gatsby Curve

Elias Isquith:
Rand Paul: Not Aristotle

The Economist:
The 1 percent needs better defenders

Links of the Week - 14 June 2013

A light list this week. -ed.

Jared Bernstein:
No, Public Sector Jobs Do Not Crowd Out Private Sector Ones

Neil Irwin:
How the Spurs beat the Heat: the principle of financial arbitrage

Paul Krugman:
Unproductive Finance

(related: Karl Smith: How Schlubs Get Taken By Wall Street Pros)

Neil Irwin:
Alan Krueger on how the music industry explains inequality

Jared Bernstein:
Pictures of the Corresive Linkage Between Higher Inequality and Diminished Opportunity

Links for the (two) week(s) - (31 May and) 7 June 2013

We got a little behind last week and forgot to put together the Links. -ed.


Jonathan Chait
Josh Barro, the Loneliest Republican

Ezra Klein
Josh Barro didn’t leave conservatism. Conservatism left Josh Barro.

Expecting the Unexpected
An Interview With Edmund Phelps

Noah Smith
What can you do with a DSGE model?

Noah Smith
What is an economic equilibrium?

Ta-Nehisi Coates
Health Care and Social Justice

Ezra Klein
No one really believes in ‘equality of opportunity’

Justin Fox
Who Should Actually Have Say on Pay?

Also: Corporate governance and banks: what have we learned from the financial crisis?

Paul Krugman
Ben Bernanke Endorses A 73 Percent Tax Rate [semi-satire]

more

Dylan Matthews
The black/white marijuana arrest gap, in nine charts

Dan Amira
Why Conservatives Hate Citi Bike So Much, in One Venn Diagram

The role of relative market power in compensation negotiations

Justin Fox on the new frontier of executive compensation.

I think Fox's idea that employees could (should?) have a say in determining executive compensation schemes is precisely what both managers and directors are most trying to avoid. It isn't really that revolutionary of an idea, however. One of the ancillary benefits of organized labor is the provision, indirectly, of this sort of input. There was certainly a time in which directors wouldn't dare pay managers 200-400 times that which they paid typical workers. Omitted variable bias notwithstanding, it's likely no accident that this fear began to evaporate with the decline of organized labor.

Also:

Corporate governance and banks: what have we learned from the financial crisis?

Jersey-Number Assignment Equilibrium

Abstract
This paper describes a market model in which property rights for the desired good are not assignable ex ante, using the example of professional athletes and the assignment of jersey numbers when two players have an equal inherent right to the number.

Links of the Week - 24 May 2013

Karl Smith:
Central Bank Competence Is A Technology

Paul Krugman:
The Mythical 70s

James Kwak:
Liberty for Whom?  (via)

How President Obama Won a Second Term -
Political strategist James Carville breaks down where the Republicans went wrong – and what it means for the future

Jared Bernstein:
Government Failure vs. Market Failure

Robert Solow:
It Ain't the Things You Don't Know That Hurt You, It's the Things You Know That Ain't So

Zack Beauchamp:
The Inside Story Of The Harvard Dissertation That Became Too Racist For Heritage

Dylan Matthews:
How our community colleges are falling behind

Economics-Illiteracy Whack-a-Mole: Health Insurance Market Edition

Gene Schwimmer, in a monster of a post, lays out a plan to "exploit - and have some fun" with the new health care law. He's clearly a guy given to intricate, complex plans, but he should've taken some economics classes at some point; he might've learnt something.

Or I could just save the money to do what I should be doing – and will be doing, once Obamacare is gone:  buying my own health insurance, with the services and from the firms that I choose, in a free market.  Though I must confess that the cute-nurse alternative does sound better – actually, a lot better. [emphasis added]

I responded directly to Mr Schmimmer, and I've reprinted my comment below because it illustrates one of the (myriad) ways in which Mr Schwimmer is mistaken.

You almost had me! As a student of economics, I am interested in incentives and rationality. You almost convinced me that, given your particular circumstances, your [Obamacare-avoidance-and-exploitation] plan was sound. I don’t know the ins and outs of filing as a self-employed person, but it seemed as if you do, just as it seemed as if you generally knew what the hell was going on. 

Seemed, that is, until you said that you could imagine a world in which health insurance could be bought in a free market, like a commodity. You see, Mr Schwimmer, in my discipline, we refer to something called ‘asymmetric information.’ Imagine if you wanted to buy a bunch of wheat, say, seven tons. I offer you my seven tons at the market rate, and you’re inclined to take the deal, except you don’t know if my wheat is rotten. Worse yet, you have no way of knowing. So, to hedge, you say you’ll only pay, say, 90% of the market rate, just in case. Then I only want to sell my crappiest wheat to you. Then you want to pay even less. This spiral will continue until there is no market for wheat. Asymmetric information sucks that way. Thankfully, the wheat market can solve this information problem. Presale inspections cover buyers beforehand, and tort law covers them afterwards. 

The market for health insurance has no such natural corrective to its information problem. Physical exams and questionnaires can weed out some undisclosed conditions. But insurers never really know what the hell sort of lives their customers and potential customers lead. Insurers would rather lump a bunch of folks together and let the actuaries figure out how many of each expensive procedure they should plan to pay for each year. This is why group plans are manageable for most folks. 

If an individual wants normal health insurance, outside of a group (such as through an employer), the insurer has really only one meaningful question: ‘Why? Are you sick?’ Since the cost of individual coverage is automatically going to be at least a little higher due to higher fixed costs, the insurer thinks ‘This guy must really be sick, if he’s willing to pay that much for insurance. We’d better charge him even more, just in case.’ Since the insurer is always going to imagine that anyone willing to pay the higher price is expecting to need more coverage than the amount of the premium, the premiums creep up. 

If there was only a way to get everyone into one big pool… Wait! There is! And my guy Mitt came up with it! I didn’t even know back when I voted for him that he had such a good idea! In fact, it worked so well that I resolved to vote for the next guy who wanted to try it. Along came my guy Barack! I’ve gotta admit, it got a little hairy there when my two guys were up against each other! Mitt made that really easy when he pretended not to remember that good idea he had way back when. 

Anyway, Mr Schwimmer, enough laughs. A lot of people yell and scream about ‘free markets,’ thinking that ‘free market’ is an antonym for ‘government intervention.’ You should read up on what ‘free market’ really means. I’m talking about many buyers and sellers, low entry costs for sellers, perfect information, reasonably balanced market power. Every one of these is violated by the ‘free market for health insurance’ you imagine. Now if you hate the ACA just because you want to hate it, or because you hate the President, or just because you hate government in general, that’s your right. Just don’t pretend like there is some sort of economics argument backing you up.

Public Healthcare Finance in the United States: A Literature Review

This paper will review three recent papers that discuss the future prospects of public health finance in the United States. Most commentators agree that the current long-run growth path of public healthcare spending in the US is unsustainable. Each of the papers examined here address this problem from a different perspective, and their conclusions are, in some cases, extremely different. Each paper, however, constructs a useful framework within which to analyze what exactly is meant by the notion that “rising healthcare costs are a problem,” provides valuable insights necessary to crafting a solution.

Links of the Week - 17 May 2013

Moby Ben, or, The Washington Super-Whale: Hedge Fundies, The Federal Reserve, and Bernanke-Hatred
Brad DeLong

Att. Jason Richwine: You're Not the First Guy to (Wrongly) Believe Immigrants are Dumb
Dana Goldstein

Full Employment: Is Labor-Saving Technology Making It Harder to Get There?
Jared Bernstein

Markets, Power, and Economic Policy
Jared Bernstein

Mark Thoma and Noah Smith on the motivations for austerity.

Central Bank Competence Is A Technology
Karl Smith

Stereotyping in Europe

via Tyler Cowen.

Quote of the Day - Chris Hayes on Inequality, Broadly

"Along with all of the other rising inequalities we've become so familiar with -- in income, in wealth, in access to politicians -- we confront now a fundamental inequality of accountability. 

"We can have a just society whose guiding ethos is accountability and punishment, where both black kids dealing weed in Harlem and investment bankers peddling fraudulent securities on Wall Street are forced to pay for their crimes, or we can have a just society whose guiding ethos is forgiveness and second chances, one in which both Wall Street banks and foreclosed households are bailed out, in which both inside traders and street felons are allowed to rejoin polite society with the full privileges of citizenship intact. 

"But we cannot have a just society that applies the principle of accountability to the powerless and the principle of forgiveness to the powerful. This is the America in which we currently reside." 

-Chris Hayes

via

Image of the Day - Productivity and Employment

via Jared Bernstein

Agency Costs in the Mortgage Securitization Market

Many theories exist that purport to explain the Financial Crisis of 2008 and the subsequent recession, the aftereffects of which are still felt in 2012. While the story of the private mortgage security market is  part of the overall story  of the Crisis, no single facet of the Crisis taken in isolation can possibly explain the entire narrative. Nor is the story of private mortgage securities simply a story from the last decade, a footnote to the Crisis and its run-up. Mortgage securities have existed in the United States for over forty years, and mortgage securities created by private firms for thirty. And despite their potential to create havoc, mortgage-backed securities (MBS) are an essential component of housing finance, and are likely to remain so for the foreseeable future.


[This paper has a lot of equations, and the formatting constraints of this platform make posting it in its entirety not feasible. Please follow this link if you'd like to read the whole paper.]



The list below is a miniature bibliography. "Miniature" in the sense that I have no pretense to completeness. I will just post links below that are relevant as I find them. Feel free to suggest something in the comments.

Did Securitization Lead to Riskier Corporate Lending? João Santos

Did the Rise of CLOs Lead to Riskier Lending? Vitaly Bord and João A. C. Santos

Did Securitization Lead to Lax Screening? Evidence from Subprime Loans Benjamin J. Keys, Tanmoy Mukherjee, Amit Seru, and Vikrant Vig

Links of the Week - 10 May 2013

Another big one this week. -ed.


The Four Noble Truths of Full Employment
Jared Bernstein

This accounting tweak by Fannie Mae and Freddie Mac will mean $60 billion for the U.S. government
Neil Irwin

A Thorough Summary of the Ferguson Fiasco
via Brad DeLong

Fact Finders (2005)
Jonathan Chait

Down the Up Staircase
Jared Bernstein

The Preferences of the Wealthy and Their Role in Our Politics

more from Larry Bartels: 

Democracy and the Policy Preferences of Wealthy Americans (2013) 

Economics Still Matters to Poorer Voters (2008) 

Economic Inequality and Political Representation (2005)

and yet more: Do Politicians Serve the One Percent? Evidence in OECD Countries 

P. Torija (2013)

 Let's get real about the stock market
Antonio Fatás

Heritage study co-author opposed letting in immigrants with low IQs
Dylan Matthews

The Health Care “Market” is So Not a Market
Jared Bernstein

The Political Imbalance Facing Unions in America
Jared Bernstein

Boehner Accidentally Explains Why His Deficit Position Is Phony
Josh Barro

Are Stocks Cheap? A Review of the Evidence
Fernando Duarte and Carlo Rosa

Image of the Day - Tax Burden

Image of the Day: The relative burden on sales and income taxes, by income class.

Remember this when hucksters try to tell you that we'd be better off lowering income tax and raising sales tax. Find your place on this chart and decide if you'd be better off paying more in sales tax and less in income tax.





via

Quote of the Day - Coates

"One of the problems with the idea that America needs a 'Conversation On Race' is that it presumes that 'America' has something intelligent to say about race. All you need do is look at how American history is taught in this country to realize that that is basically impossible."

-Ta-Nehisi Coates

Down the Up Staircase

This is where I was yesterday.

"NC has long been committed to solid education from early childhood interventions through their jewel-in-the-crown system of higher ed, along with maintaining some beautiful natural resources.  The idea that they’ll seduce businesses to come to the state by shifting taxes from income to sales, while continuing a trend toward disinvestment in public goods like higher ed, natural resources, and infrastructure is exactly backwards."

Matching Dilemma

Via The Onion: No One In Limo Going To Prom With The One They Wanted

Perhaps these guys could've done it better.

Links of the Week - 3 May 2013

The Ignoramus Strategy
Paul Krugman

Lee Atwater’s Infamous 1981 Interview on the Southern Strategy
Rick Perlstein

Banks Have Become “Too Big To Fail” Again. Uh-Oh.
Simon Johnson

Tax Day!
Jared Bernstein

How to Save American Finance from Itself
Robert Solow

The incomparable economist
Paul Krugman

Samuelson Memorial
Paul Krugman

Hedging America
Robert Solow

Brad DeLong on "What is Macro?"

Brad DeLong:

This year I am on sabbatical--which means I do not teach. And I do miss it. Thus, from my perspective at least, this next hour is going to be an hour of pure fun.

I hope it will be an hour of pure fun for you all as well.

As Bob Strom said, right now in this MBA class you are transitioning from studying micro to studying macroeconomics. You are moving away from studying that part of economics where you talk about how the market system works well: how supply balances demand to make the maximum possible amount and value of win-win deals, and how people respond to the incentives they’re given to change their behavior. To the extent that things go wrong in microeconomics--to the extent that when you step back and look at the situation you say "Geewillickers! I really wish this had not happened!"--it is because you wish that you or the market system had not given people the incentives that it in fact did.

Practically everything that goes wrong in micro goes wrong because somewhere in the system some people have what we regard as the "wrong" incentives, and have responded to them. In such a situation you frantically scramble to fix it and correct it. And you do so by finding ways to change public policies so that people in fact have the right incentives.

Micro is somewhere between half and three-quarters of economics.

The other quarter or so of economics is macroeconomics.

Macro is different. Macro deals with the fact that sometimes the economy seems to have some sort of a grand mal epileptic seizure. It freezes up. Something goes mysteriously wrong--and wrong not with an individual firm, or an individual industry, or an individual sector of the labor market, but wrong with pretty much the whole thing. This happened to the US economy in 2008 and 2009.


link

Quote of the Day - Ownership Culture

"No one washes a rented car."

-Origin unclear, variously attributed to Larry Summers, Tom Friedman, Jack Kemp, and an unnamed aircraft maintenance crew chief in a book by Thomas Peters and Nancy Austin...

more

still more

Man washing a Zipcar: NCSU, 10 April 2013

Links of the Week - 26 April 2013

A slow week for curated news:


Why gold and bitcoin make lousy money
David Andolfatto

Inside the offbeat economics department that debunked Reinhart-Rogoff
Dylan Matthews

'Unemployment and the Free Market'
Chris Dillow, via Mark Thoma

Quote of the Day - Michael Lewis on Capital

"I also found myself thinking: the English may finally have decided they have had enough of their experiment with the American financial way of life. If what happened in the Western world financial system had happened at another time in history, there would have been an obvious political response: a revolt against the Roger Younts of the world and, more generally, the grotesque inequities spawned by the putatively free financial marketplace. If the memory of British socialism wasn’t so fresh—if people didn’t still recall just how dreary London felt in 1980—they’d be pulling down the big banks, and redistributing the wealth of the bankers, and it would be hard to find a good argument to stop them from doing it. The absence of the satisfying political response to the financial crisis is due, at least in part, to the absence of an ideological vessel to put it in. No one wants to go forward in the same direction we’ve been heading, but no one wants to turn back either. We’re all trapped, left with, at best, the hope that our elites might experience some kind of moral transformation."

-Michael Lewis, on Capital, by John Lanchester


link

Links of the Week - 19 April 2013

Kind of a big week for links, but then it was kind of a big week for news. There was such a big pile of links this week that I put them into categories. This may become a trend, but no promises yet.

Gold:

The Gold Bubble Is Bursting: Who’s To Blame? - David Glasner 

12 Rules of Goldbuggery - Barry Ritholtz

Bitcoin:

Bitcoin is ludicrous, but it tells us something important about the nature of money - Neil Irwin 

Adam Smith Hates Bitcoin - Paul Krugman

Thatcher Roundup:

David Corn 

Wonkblog 

Paul Routledge

General Macro:

Milton Friedman, Currency Debaser - Paul Krugman

Empirical Methods and Progress in Macroeconomics - Mark Thoma

Getting Back to Full Employment - Jared Bernstein 

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion - The Onion

Marathon:

‘If you are losing faith in human nature, go out and watch a marathon’ - Ezra Klein

Please, Listen to Ruslan - William Saletan (video)

The Rest:

Why doing your taxes is much harder than it ought to be - Neil Irwin 

The Limits of Good Faith - Ta-Nehisi Coates 

What are some of the most ridiculous startup ideas that eventually became successful? - Michael Wolfe

Why I Don't Love Frederic Bastiat - Matthew Yglesias

How a student took on eminent economists on debt issue - and won - Edward Krudy

Quote of the Day - Chris Hayes

"My disposition as a human being is kind of a go-along-to-get-along person. I tend to trust authority. I tend to think people in charge broadly know what they're doing, don't lie to you, aren't going to start wars for no reason, and, you know, watching Iraq happen and then watching the financial crisis happen and then Katrina in the middle of that, you know, you turn around and you think, 'Wait a second: No one is on top of anything. Who the heck is in charge here? These people who say that they know what they're doing don't know what they're doing. I'm not going to trust them the next time they tell me they know what they're doing.' It's a radically unmooring feeling to recognize that people that you just figured kind of had it under control don't have it under control and might be totally incompetent or completely corrupt or totally self-dealing."-Chris Hayes

from

Links of the Week - 12 April 2013

Haircuts on Intrade - Rajiv Sethi (via Mark Thoma)


The nihilism of David Stockman - Neil Irwin

Michael Lewis on the King of Human Error

Will Bitcoins Make Me Rich? - Farhad Manjoo

Two versions of Goodhart's Law - Noah Smith

Fool's Gold - Eric Posner

Inside the Bitcoin economy - Free Exchange

Quote of the Day - Matt Yglesias

"The concept of "redistribution" falsely implies that the existence of property is prior to the existence of the state."

-Matthew Yglesias


more

Conscience Warrior Store

We are pleased to announce this week the launch of the Conscience Warrior Store. The Store is powered by Amazon, and will include books, films, and other products that may be of interest to readers of Conscience Warrior. 

All transactions made in the Store will be handled by Amazon. In the interest of full disclosure, CW will receive a small fee for each transaction. That said, all products listed in the Store are actually endorsed by CW, with the exception of those listed in the 'Similar Items' sidebar, which are generated by Amazon's magic algorithms.

If you have any comments or suggestions regarding the Store, please email here.

Conscience Warrior Store

Links of the Week - 5 April 2013

Is "Intellectual Property" a Misnomer?
Tim Taylor

The choice between debts and austerity
Larry Summers, via Jonathan B. Wight

The problem with Twitter
Ezra Klein

The Rewards of Being Very Serious
Paul Krugman

The Price Is Wrong
Paul Krugman

Jack-booted Insurance-bringing Thugs
Paul Krugman

Soup Kitchens Caused the Great Depression
Jonathan Wight

Stockman, Morality Plays, and Wishful Thinking

An excellent video here on the David Stockman kerfuffle. The most important takeaway for me was the idea, previously articulated elsewhere, that macroeconomics is not a morality play. That is to say, if the answer to a macro problem is normatively pleasing, that fact is a coincidence.

Many of us have normative views about 'what ought to be.' These views may differ from person to person; that's ok. Views on 'how the world works' are of a different genus. These things are testable. Disagreements of this nature are resolvable through empiricism, if the data exist.

A related idea: if your theory of how the world works is untestable, it's not really a theory; it's probably just a wish.



**UPDATE: Neil Irwin disassembles Stockman's argument, looks around inside, and doesn't find much.

Quote of the Day - Martin Luther King, Jr: I've Been to the Mountaintop

3 April 1968
I’ve Been to the Mountaintop
Memphis, TN

audio

Thank you very kindly, my friends. As I listened to Ralph Abernathy and his eloquent and generous introduction and then thought about myself, I wondered who he was talking about. [Laughter] It's always good to have your closest friend and associate to say something good about you, and Ralph Abernathy is the best friend that I have in the world.

I'm delighted to see each of you here tonight in spite of a storm warning. You reveal that you are determined [Audience:] (Right) to go on anyhow. (Yeah, All right) Something is happening in Memphis, something is happening in our world. And you know, if I were standing at the beginning of time with the possibility of taking a kind of general and panoramic view of the whole of human history up to now, and the Almighty said to me, "Martin Luther King, which age would you like to live in?" I would take my mental flight by Egypt (Yeah), and I would watch God's children in their magnificent trek from the dark dungeons of Egypt through, or rather, across the Red Sea, through the wilderness, on toward the Promised Land. And in spite of its magnificence, I wouldn't stop there. (All right)

Quote of the Day - Martin Luther King, Jr: Beyond Vietnam

4 April 1967
Beyond Vietnam
New York, NY

audio

Mr. Chairman, ladies and gentlemen, I need not pause to say how very delighted I am to be here tonight, and how very delighted I am to see you expressing your concern about the issues that will be discussed tonight by turning out in such large numbers. I also want to say that I consider it a great honor to share this program with Dr. Bennett, Dr. Commager, and Rabbi Heschel, some of the most distinguished leaders and personalities of our nation. And of course it’s always good to come back to Riverside Church. Over the last eight years, I have had the privilege of preaching here almost every year in that period, and it’s always a rich and rewarding experience to come to this great church and this great pulpit.

Links of the Week - 29 March 2013

The Economics of Evil Google: Paul Krugman


Attacking Success: Paul Krugman


Markets in almost nothing: Noah Smith


Three Cheers for the Nanny State: Sarah Conly


The Unnatural Rate Hypothesis: Paul Krugman


Crying Wolf, Bear, Lion -- Whatever It Takes: Mark Thoma

Quote of the Day - Winston Churchill on the Moochers

"Here let me remark that the best way to insure against unemployment is to have no unemployment.

"There is another point: unemployables, rich or poor, will have to be toned up. We cannot afford to have idle people. Idlers at the top make idlers at the bottom. No one must stand aside in his working prime to pursue a life of selfish pleasure.

"There are wasters in all classes. Happily they are only a small minority in every class, but anyhow we cannot have a band of drones in our midst, whether they come from the ancient aristocracy or the modern plutocracy, or the ordinary type of pub crawler."

-Winston Churchill


from

via

Strong-Dollar Debate

Frederic Mishkin, John Taylor, Steve Forbes, and James Grant debate the motion "America doesn't need a strong-dollar policy."

The Federal Reserve has two basic methods by which to conduct monetary policy. One is to hold the growth level of the money supply (relatively) fixed, and allow interest rates to adjust to macro conditions. The other is to target a range of inflation and interest rates, and allow the money supply to fluctuate with macro conditions.

I describe this contrast because it is analogous to a very good point that came out of the above debate. If we fix the value of money to some sort of benchmark*, the macroeconomy will then be allowed its full natural range of fluctuations and gyrations, for better or for worse. Better, perhaps, to target various macro indicators**, and make (less harmful) monetary adjustments to maintain target ranges. This is, of course, both what the Fed has done since the mid 1980s and what conservative economist John Taylor has prescribed for twenty years.


*Gold, wheat, oil, gummy bears, and so forth.

**Such as changes in CPI and PPI, various short and long interest rates, change in GDP, unemployment levels, etc.

Links for the week - 22 March 2013

Increasing the Minimum Wage does not lower Employment, Continued

Singapore’s Lessons for an Unequal America

Is capitalism moral?

What Ben Bernanke would say...

"If it were any less diverse it would look like the Senate."

Google and the Lucas Critique

The Economics of Evil Google

Jersey-number assignment equilibrium: When one buyer pays another, and the seller gets nothing

Background

In the National Football League, when a high-profile player is signed to a contract by a new team, he oftentimes wants to keep using the jersey number he wore with his previous team. If the player wearing that number on the new team is suitably low-profile, a deal is sometimes struck, in which the new player buys the right to that number from the existing player for an amount that is relatively insignificant to the high-profile player, but may represent a nontrivial 'bonus' to the marginal player. So long as everyone holds up his end of the bargain, this usually goes off without a hitch.


Problem

But what to do if a team signs two players who each desire the same number? Since the team is prohibited from selling the number to the highest bidder, how can we resolve this dilemma?


Solution

The utility-maximizing approach would be to have each player submit a blind bid for the number, and the number is awarded to the player with the higher bid, who then pays the other player the mean of the two bids.

The player who gets the number gets it for less than he was willing to pay, and the player who doesn't get the number gets more than he was willing to pay. Also, the players are disincentivized to either over- or under-bid, as over-bidders are wasting money and under-bidders are leaving money on the table.


Examples

Smith and Jones are both signed by the same team and both very much want to wear number 19, which is currently unassigned. Smith submits a blind bid for $10,000 and Jones submits a blind bid for $12,000. These amounts are theoretically the value each places on wearing number 19. In this example, Jones gets number 19 and pays Smith $11,000.  Smith, who was willing to pay $10,000 for the right to wear 19 gets $11,000 instead. Jones, who was willing to pay $12,000, gets the number for $11,000. Both players come out ahead.

Let's relax the assumption that each player bids the value he places on wearing 19. If Smith underbids by offering only $7,000, then he gets only $9,500, which is less than the true value he placed on number 19. If, on the other hand, Jones overbids by offering $15,000, then he has to pay $12,500, which is greater than the true value he placed on number 19.


Conclusion

The example shows that, while it is possible that players could strategically over- or under-bid, doing so would run them the risk of dissatisfaction with the outcome. The only way that both players fail to come out ahead is if one or both fail to bid their true value, unless, of course, they both bid the same amount, a situation for which I don't yet have a satisfactory equilibrium, and is an avenue for further research.



UPDATE: Professor Walt Wessels suggests that the best solution uses the same bidding technique, but has the higher bidder get the number and pay the lower bidder the amount of the lower bid.