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Preview: Grasping Reality with Opposable Thumbs

Grasping Reality with Both Hands:

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Updated: 2017-10-22T20:19:19-07:00


Some Fairly-Recent Must- and Should-Reads...


1. _What were they thinking of, signing this? Wasn't Kevin Hassett's behavior since 100% predictable?_ [Letter in Support of the Nomination of Kevin Hassett to be Chairman of the Council of Economic…]( "Alan J. Auerbach... Martin N. Baily... Dean Baker... (TRUMP) 2. **Olivier Blanchard and Lawrence Summers**: [Rethinking macro stabilization: Back to the future]( "Lessons from past crises... (ECONOMICS) 3. **Simon Wren-Lewis**: [The lesson monetary policy needs to learn]( "The main problem with monetary policy... (MACRO) 4. **Karl Smith**: [Pax Sinica: What Is To Be done?]( "Tyler Cowen reminds me of an issue I used to think a lot about... (STRATEGY) 5. **Jay Shambaugh _et al._**: Thirteen Facts About Wage Growth: "Economic and policy changes are both important for the division of economic gains... (LABOR) 6. **Ben Thompson**: [Netflix’s Earnings, Netflix’s Price Raise, Additional Netflix Notes]( "Netflix has a completely orthogonal strategy: content is only valuable if it is evergreen... (INTERNET) 7. **Melissa S. Kearney**: [How Should Governments Address Inequality?]( "**Putting Piketty Into Practice**... (MORAL PHILOSOPHY) 8. **Raymond Fisman, Keith Gladston, Ilyana Kuziemko, and Suresh Naidu**: [Do Americans want to tax capital? Evidence from online surveys]( "We provide, to our knowledge, the first investigation of individuals’ preferences over jointly taxing...

Procrastination for October 18, 2017


**Over at [Equitable Growth]( Must- and Should-Reads:** * **Issi Romem**: [Paying For Dirt: Where Have Home Values Detached From Construction Costs?]( "In the expensive U.S. coastal metros, home prices have detached from construction costs... * **Melissa S. Kearney**: [How Should Governments Address Inequality?]( "**Putting Piketty Into Practice**... * **Ben Thompson**: [Netflix’s Earnings, Netflix’s Price Raise, Additional Netflix Notes]( "Netflix has a completely orthogonal strategy: content is only valuable if it is evergreen... * **CPPC**: [Senator Amy Klobuchar: Drug Price Bills Will Likely Advance As Amendments to Larger Bills]( "Senator Klobuchar began with... 1 out of 4 Americans have either cut their prescription drugs in half... * **Ryan Hagemann**: [The Coming Age of Genetic Modification]( "Shoukhrat Mitalipov and a team of researchers at Oregon Health and Science University announced they had successfully altered human embryos with a mutation of the MYBPC3 gene... * **Raymond Fisman, Keith Gladston, Ilyana Kuziemko, and Suresh Naidu**: [Do Americans want to tax capital? Evidence from online surveys]( "We provide, to our knowledge, the first investigation of individuals’ preferences over jointly taxing income and wealth... * **Simon Wren-Lewis**: [The lesson monetary policy needs to learn]( "The main problem with monetary policy... * **Darrick Hamilton**: [Post-racial rhetoric, racial...


**Should-Read: Bruce Bartlett**: [I helped create the GOP tax myth. Trump is wrong: Tax cuts don’t equal growth]( "Even if they had released a complete plan — not just the woefully incomplete nine-page outline released Wednesday... >...Republicans have failed to make a sound case that it’s time to cut taxes. Nor have they signaled that they’ll commit to a viable process.... The first version of the ’81 tax cut was introduced in 1977 and underwent thorough analysis by the CBO and other organizations, and was subject to comprehensive public hearings. The Tax Reform Act of 1986 grew out of a detailed Treasury study and took over two years to complete. Rushing through a half-baked tax plan... should be rejected out of hand. As Sen. John McCain (R-Ariz.) has repeatedly and correctly said, successful legislating requires a return to the “regular order.” That means a detailed proposal with proper revenue estimates and distribution tables from the Joint Committee on Taxation, hearings and analysis by the nation’s best tax experts, markups and amendments in the tax-writing committees, and an open process in the House of Representatives and Senate. >There are good arguments for a proper tax reform even if it won’t raise...


**Live from the Laugher Curve: Bill Easterly**: [On Twitter: @bill_easterly]( "The Laffer Curve napkin is mathematically incoherent: why is the x variable on the y-axis? Why is 100% at the origin?" Why does the "normal" range in which d(TR)/dt > 0 extend from a tax rate t of 100% down to 50%? Why does the "prohibited" range in which d(TR)/dt t>0%?


**Should-Read: @delong @pseudoerasmus @leahboustan**: [On Twitter: What high skilled jobs did the domestication of the horse eliminate?]( "**@leah_boustan**: @pseudoerasmus @de1ong To me, robot has connotation of 'artificial intelligence' so CNC would be robot-like but assembly line would not be... >...**@pseudoerasmus**: well the issue is mostly semantic but I see no reason to stress AI like aspects; for me anything which reduces L intensity is ‘robotic’ >**@leahboustan**: Yes, I suppose it is semantic. But, we already have a phrase for what you describe ("K that subs for low-skilled L") >**@pseudoerasmus**: I prefer to stress the historical continuity. fear of robots continues a 250 year old theme of fear of biased tech changes reducing L inputs. The earliest machines did not eliminate low-skilled jobs. they eliminated (for that time) high-skilled jobs. **@de1ong**: What high skilled jobs did the domestication of the horse eliminate? Humans add value as: * B. strong backs * F. nimble fingers * M. microcontrollers * R. robots not yet invented * A. accountants * S. smilers * P. personal servitors * T. thinkers (B) started to go out with the horse, & (F) with the IR. But that OK, because huge demand for M, R, A. But now...


**Should-Read**: This piece by the interesting Geoffrey Pulham seems to start out non-optimally. There is a difference between (1) true "AI" on the one hand and (2) successful voice/text interface to database search on the other. At the moment (2) is easy. And we should implement (2)—which requires that humans do a little bit of adjusting in order not to use "not", for figuring out within which superset of results any particular "not" is asking for the complement is genuinely hard, and does require true or nearly-true "AI". Thus to solve Pulham's problem, all you have to do is ask two queries: (i) "Which UK papers are part of the Murdoch empire?"; (ii) "What are the major UK papers?"; take the complement of (i) within (ii) and you immediately get a completely serviceable and useful answer to your question. That you need to do two rather than one query is because Google has not set itself up to produce short lists as possible answers to (ii) and (i), and then subtract (i) from (ii), and that the reason that it has not done that is a hard AI problem rather than the brute-force-and-massive-ignorance word-frequency-plus-internet-attention that is Google shtick. But what...


**Should-Read: Luigi Iovino and Dmitriy Sergeyev**: [Quantitative Easing without Rational Expectations ]( "We study the effects of risky assets purchases financed by issuance of riskless debt by the government (quantitative easing) in a model without rational expectations... >...We use the concept of reflective equilibrium that converges to the rational expectations equilibrium in the limit. This equilibrium notion rationalizes the idea that it is difficult to change expectations about economic outcomes even if it is easy to shift expectations about the policy. Without additional assumptions about non-pecuniary demand for safe assets or segmentation of assets markets, we find that in the reflective equilibrium quantitative easing policy increases the price of risky as- sets and stimulates output, while it is neutral in the rational expectations equilibrium.


**Live from the Warming Earth**: Hurricanes in Ireland?


**Should-Read: Paul Krugman**: [Lies, Lies, Lies, Lies, Lies, Lies, Lies, Lies, Lies, Lies]( "Modern conservatives have been lying about taxes pretty much from the beginning of their movement... >...Made-up sob stories about family farms broken up to pay inheritance taxes, magical claims about self-financing tax cuts, and so on go all the way back to the 1970s. But the selling of tax cuts under Trump has taken things to a whole new level.... When I set out to make a list of the bigger lies, I thought there would be six or seven, and was surprised to come up with ten. So I thought it might be useful, both for myself and for others, to put together a crib sheet.... >Lie #1: America is the most highly-taxed country in the world.... Lie #2: The estate tax is destroying farmers and truckers.... Lie #3: Taxation of pass-through entities is a burden on small business.... Lie #4: Cutting profits taxes really benefits workers.... Lie #5: Repatriating overseas profits will create jobs.... Lie #6: This is not a tax cut for the rich.... Lie #7: It’s a big tax cut for the middle class.... Lie #8: It won’t increase the deficit.... Lie #9:...


**Live from the Orange-Haired Baboon Cage: Paul Krugman**: [On Twitter: Why are Jews more liberal?]( "Why are Jews more liberal than expected given income? Because unless stupid, they know where illiberalism leads" Back in the 1960s-1970s Podhoretz, Kristol, & co thought that they could lead Jews into a conservative Republican Party no longer (explicitly) anti-semitic in the same that Pat Buchanan & co were leading many Irish Catholics into a conservative Republican Party no longer (explicitly) anti-Catholic. Deep historical memory of Irish Potato Famine & colonial rule served as a factor separating Irish Catholics from Anglo-Saxon Protestant establishment: more American money flowed to IRA than to Irgun & Stern Gang. Yet Podhoretz, Kristol, & co failed where Buchanan & co succeeded...


**Should-Read**: I really wish that the FT would stop calling it "populism" and start calling it "fascism". "Populism" is a set of policies—some good on net, some bad—to redistribute income downward. Fascism is something much uglier. Fascism is what we have. Nobody thinks Trump or his Republican enablers or their allies and fellow travelers elsewhere are interested in redistributing income downward: **Martin Wolf**: [A political shadow looms over the world economy]( "Optimism about the global economy is tempered by fears of populism... >...promising simple solutions to complex problems... Brexit... Catalonia... above all, in the US, where the implications of Donald Trump’s election remain almost as obscure as they were on the day of his inauguration. Inevitably, the transformation of US policy is far and away the deepest worry. This might still amount to little more than sound and fury signifying nothing. But it is also far too early to be confident of that.... Vast tax cuts at a time of near full employment... reducing the external deficit through a series of negotiations, starting with Nafta. The aim of fixing an overall current account deficit through bilateral trade negotiations is not only intellectually incoherent, but clashes directly with its fiscal policies....


**Should-Read: Simon Wren-Lewis**: [How Neoliberals weaponise the concept of an ideal market]( "I would tend to suggest... >..."neoliberalism is a political strategy promoting the interests of big money that utilises the economist’s ideal of a free market to promote and extend market activity and remove all ‘interference’ in the market than conflicts with these interests." This replaces a definition based on following an idea ([Colin Crouch's] market neoliberalism), by one of interests promoting an idea so long as it suits those interests. This alternative definition seems to fit two cases.... Large banks benefit hugely from an implicit subsidy provided by the state (being bailed out when things go wrong), but neoliberals do not worry too much about this form of state interference in the market (whereas economists do). Regulations on the other hand they do complain about. It is a very selective focus on market interference.... >Executive pay... is always justified by neoliberals as being something determined by the free market, when obviously it is not. Yet if you pretend that there is a market in executives and salaries etc are set by that market and not the remuneration committees of firms, then you are being a good neoliberal by...


**Live from the Northern California Inferno**: Star Wars Saga CGI, or Oakland?


**Live from the Orange-Haired Baboon Cage: Peter Suderman**: [The G.O.P. Is a Mess. It’s Not All Trump’s Fault]( "When the year began, the speaker of the House, Paul Ryan, cited health care and taxes as his top legislative priorities... >...Yet... the Republicans have accomplished essentially nothing. They have become a party without a consensus. It would be easy to simply blame the president.... Yet... Trump... is not their root cause... [but] an avatar of the party’s pathologies, the culmination of its cynical and shambolic trajectory over the last two decades. Many of those issues can be traced back to the administration of George W. Bush, which functioned as an enormous political bait and switch. The 43rd president campaigned on humble foreign policy and prudent conservative solutions, but his presidency quickly became oriented almost exclusively around a political defense of the Iraq war.... Domestic policy, and... domestic policy expertise became an afterthought at best, an opportunity for cynical political maneuvering at worst.... >National security fear-mongering and culture war controversies, especially over same-sex marriage, were employed to rally the base and ensure its loyalty, even as dissatisfaction with Mr. Bush’s governance continued to grow. The Bush presidency, then, was both a failure...


**Live from the North Bay Inferno**: [2017 Statewide Fire Map](


**Should-Read**: If only this Ben Bernanke (2017) (and [Paul Krugman (1998)]( could have had the ear of some central bank leader over 2006-2014! **Ben Bernanke**: [Monetary Policy in a New Era]( "Outside of making a stronger case for proactive fiscal policies, there are two broad possibilities... >...Monetary policymakers could make greater use of new tools... both forward guidance and quantitative easing are potentially effective supplements to conventional rate cuts, and that concerns about adverse side effects (particularly in the case of quantitative easing) are overstated. These two tools can thus serve to ease the ZLB constraint in the future.... A second broad response to the problem is to modify the overall policy framework.... I propose... a “temporary price-level target” that kicks in only during periods in which rates are constrained by the ZLB...


**Should-Read: Bridget Ansel**: [Weekend reading, “racial health disparities, wealth inequality, and labor market tightness” edition]( "Equitable Growth released three new working papers... >...Darrick Hamilton... the role of racism and stigma in persistent racial health disparities.... Jess Benhabib and Alberto Bisin... Mi Luo... wealth distribution in the United States and why it’s so unequal. In a separate column, Nick Bunker digs into the papers’ main findings. Bunker also... asks “Just how tight is the U.S. labor market?” As wage growth continues to be tepid, Bunker’s analysis shows that the labor market is not as tight as the low unemployment rate would have you believe.... Heather Boushey argues that repealing and replacing D.C.’s paid family leave act won’t just harm workers, but businesses, and D.C.’s government and economy as well...


**Must-Read**: I read this as saying, in one respect: "the neoclassical synthesis, and the resulting decision by MIT Keynesians to focus on the errors of Cambridge Keynesians and to build bridges not to them but to Chicago monetarists was, in retrospect, a big mistake". I remember Larry saying in, I think 1981, "there are a lots of careers to be made and knowledge to be gained by mathing up Keynes's _General Theory_ properly". Yet, the honorable examples of Roger Farmer and a number of others notwithstanding, too much macro has instead been off chasing squirrels for two generations: **Olivier Blanchard and Lawrence Summers**: [Rethinking macro stabilization: Back to the future]( "Lessons from past crises... >...The Great Depression: The economy can implode.... Need for aggressive policies.... Apparent success, from 1940 to the late 1960s. The stagflation of the 1970s: The Keynesian approach.... Think of fluctuations as "business cycles".... With predictable policy rules, economy will be stable.... Apparent success, from the mid 1980s to the mid 2000s >The three main lessons we draw from this crisis.... Centrality of the financial system... nature of fluctuations... low rates (“secular stagnation”)... interact[ing] with the first two. One should add, but we leave it aside: The...