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