30 January 2014

The equation at the core of modern macro

Noah Smith

Paul Krugman & The Nature Of Economics

Chris Dillow

So, it could be that "columnist Krugman" and "textbook Krugman" are both right, but they are describing different states of the world - and different facts require different models; I fear that Krugman's excessively combatative style is ill-judged in this context.

The Moral Indignity of Social Democracy

via Brad DeLong

Why stopping the next financial crash is an impossible dream

John Aziz

As the mid-20th century economist Hyman Minsky put it, stability is destabilizing. The American economy experienced a period of relative stability from the end of stagflation in the early 1980s until the 2008 financial crash. Ben Bernanke called this period The Great Moderation. But how do people react to a stable world? Very often, they become more tolerant of risky behavior.

27 January 2014

The Anti-Scientific Revolution in Macroeconomics

So did plagues kill off part of the work force? Did termites eat part of the capital stock? Did technology retrogress? No, no. no. On the last point, has anyone noticed that the iPhone was introduced in 2007, and that the whole smartphone/tablet revolution has more or less coincided with a period of terrible economic performance? 
So what did happen? Keynes offered an answer: it is, in fact, possible for economies to suffer from an overall lack of demand. Other people had said things along these lines, but Keynesian economics put it front and center. 
This really was an intellectual revolution; indeed, while I’m generally against scientific pretensions, it amounted to a scientific revolution, something like plate tectonics in geology. Suddenly the seemingly inexplicable — what elevates mountain ranges? what explains periods of economic retrogression? — became comprehensible.

The Vicious Circle of Income Inequality

Robert Frank

Wealthy people don’t choose just any architects, artists, lawyers, plastic surgeons, heart specialists or cosmetic dentists. They seek out the best, and the most expensive, practitioners in each category. The information revolution has greatly increased their ability to find those practitioners and transact with them. So as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.

Tribal Reality and Extant Reality

Noah Smith

Noah Smith’s not-so-damning critique of DSGE models

Chris House

24 January 2014

Capital in the long run

The London Economist
Economists tricked themselves into thinking that the resulting compression in the income and wealth distribution was a natural feature of the maturation of capitalist economies. But as the shocks receded wealth began to accumulate again and growth in income inequality resumed. From the perspective of 2014, concentration of wealth and income begins to look like the natural state of capitalism rather than an exception.
The second law is more a rough rule of thumb: over long periods and under the right circumstances the stock of capital, as a percentage of national income, should approach the ratio of the national-savings rate to the economic growth rate. With a savings rate of 8% (roughly that of the American economy) and GDP growth of 2%, wealth should rise to 400% of annual output, for example, while a drop in long-run growth to 1% would push up expected wealth to 800% of GDP. Whether this is a “law” or not, the important point is that a lower growth rate is conducive to higher concentrations of wealth. 

The Raleigh Experiment

Paul Krugman

The most damning critique of DSGE

Noah Smith

Is There One Economic Model to Rule Them All?

Mark Thoma

22 January 2014

Tax Frenzies and How to Hose Them Down

John Scalzi

"I really don’t know what you do about the “taxes are theft” crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people’s fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch. That’ll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools."

The NYT spreads AEI’s Big Lie of the Crisis

Ryan Chittum

After Obamacare Is No Longer Doomed, It Will Become a Scandal

Jonathan Chait

Something to Behold

Josh Marshall

I expect Terry will continue to rant against Mexicans, blacks, Africans and all manner of racial freeloaders and vote for Mitch McConnell to keep them in line. I also think he'll be insured, which is the fundamental good in itself. And I think it will quickly become impossible to turn back the clock on the millions of who have care because of Obamacare and the tens of millions who have dramatically improved care (pre-existing conditions, lifetime limits, etc.) because of it. And Terry will become part of the expanding Obamacare constituency which will make it impossible to repeal even as he rages against Obama's socialism and Obamacare. This shouldn't surprise us. It's the world we already live in with regards to Medicare when the GOP's increasing number of older voters demand the government keep its hands off their Medicare.

15 January 2014

07 January 2014

“Free speech” hypocrites: Dixie Chicks, “Duck Dynasty” and America’s pointless shell arguments

Matthew Bruenig

Most of the time, proclaimed commitments to uncoerced free speech, minority parliamentary power, states rights and any other content-neutral procedural rule are not serious. Some people are seriously concerned about process for its own sake, but such people are few and far between. Everyone else has a substantive agenda and merely stakes out the short-term positions on content-neutral procedural justice that further that agenda. Filibusters are good when they block what I dislike, but bad when they block what I like. States rights are good when states do what I like, but bad when they do what I dislike. Private economic coercion of expression is good when it shuts down comments I dislike, but bad when it shuts down comments I like. And so on.

Save Your Worry

Evan Soltas

Yet, whatever the reason, it's simply not true that the U.S. faces some growing problem of private saving. The savings rate that is economically relevant is gross private savings, not gross personal savings -- and we're doing fine by that measure. The economy does not care where its savings come from.

The Plight of the Employed

Paul Krugman

Now, you may believe that employment is a market relationship like any other — there’s a buyer and a seller, and it’s just a matter of mutual consent. You may also believe in Santa Claus. The truth is that employment is, in many though not all cases, a power relationship. In good economic times, or where workers’ position is protected by legal restraints and/or strong unions, that relationship may be relatively symmetric. In times like these, it’s hugely asymmetric: employers and employees alike know that workers are easy to replace, lost jobs very hard to replace.

06 January 2014

Rand Paul has some Festivus grievances with Washington. The unemployed have some with him.

Ezra Klein

Rand Paul: 
There was a study that came out a few months ago, and it said, if you have a worker that's been unemployed for four weeks and on unemployment insurance and one that's on 99 weeks, which would you hire? Every employer, nearly 100 percent, said they will always hire the person who's been out of work four weeks. 
When you allow people to be on unemployment insurance for 99 weeks, you're causing them to become part of this perpetual unemployed group in our economy. And it really -- while it seems good, it actually does a disservice to the people you're trying to help. 
Ezra Klein: 
This is a correlation/causation error of staggering size -- and, because it's coming from a sitting U.S. senator whose vote will help decide whether millions of unemployed families lose the paltry checks that are helping them buy food and shelter and fuel, of staggering consequence.

Charts: The Worst Long-Term Unemployment Crisis Since the Depression

Dave Gilson, Tasneem Raja, and AJ Vicens

10 Reasons That Long-Term Unemployment Is a National Catastrophe

Kevin Drum