J. Bradford DeLong's Blog, page 1120

Weekend Reading: Jason Zweig from Fifteen Years Ago on the Internet Bubble

Jason Zweig: Don't believe the hype about Internet stocks and funds:

For the next few months, perhaps even for a year or two, this may seem like one of the stupidest investing columns ever written. That's because I've
been asked to answer the question "Can you get rich by buying an Internet stock fund?" and my answer is no.

Yes, I know: The Internet Fund was up 196% in 1998 and another 84% through
March; Munder NetNet Fund was up 98% last year and 42% more so far in 1999; and Monument Internet Fund, launched just last November, has returned 135% in its first four months of life.

Who can resist returns like these? Maybe no one, but I think you should. In the long run, the Internet stocks and the funds that buy them have no more chance of living up to their hype than Mike Tyson has of winning a Nobel Peace Prize. Many people investing in the Internet are basing their decision on a complete misunderstanding of how industries grow and investors prosper. The notion that a long-term investor can become rich simply by "buying early" into a revolutionary new industry—like the Internet—is flat-out wrong.

Of course that's not what the bulls say. At a recent conference on Internet stocks sponsored by PaineWebber, Greg Jones, chief executive of uBid, an Internet auction site, told me, "The Internet will change your life. It's the next frontier, as radio once was. This is the wave of the future, this is the business. You need to invest in the companies that will be part of the future."

And the people who invest in these companies are at least as bullish as the people who run them. "I firmly believe the Internet companies will be among the great growth companies of the future," says Monument Internet Fund co-manager David Kugler. "There's no stoppin' 'em."

But let's look at why Internet stocks are really so hot: It has less to do with their actual growthprospects than you may think. And let's see what past revolutions can tell us about this one.

The thrill seekers

Peter Lynch, the legendary former manager of Fidelity Magellan Fund, has long advised investors to "buy what you know." Advocating "the amateur's edge" that comes from "the power of common knowledge," Lynch has famously recommended buying the stock of companies whose products or services you like. For instance, after his wife told him how great Leggs pantyhose were, Lynch bought the stock. Likewise, with a few clicks of a mouse, you can buy books on Amazon.com; with just a couple more clicks, you can buy Amazon's stock through an online brokerage. "F-commerce" is easy, economical and exhilarating. And that's part of the reason so many people believe it's inevitable that Internet stocks will pay off big—and why they think their high prices are justified.

But as Lynch has pointed out, you can't just invest in what's familiar; you must also research it. There's a world of difference between a great company and a great stock. Just because you love shopping online doesn't mean that online retailers will turn out to be good investments. One big reason online shoppers love "e-tailers" so much is because their prices are low—so low, in fact, that it's not clear how some of these companies can ever turn a profit. That's great for you as a shopper—but maybe not as an investor.

Internet stocks are also hot because their share prices are so high and because of the throngs of thrill-seeking day-traders who chase them. If you've got $1,000 invested in a stock priced at $1, and it goes up to $2, you've doubled your money. But you probably won't be as excited as someone who has $1,000 invested in a stock that jumps from $100 to $200— even though you both have the same 100% gain. That's because people tend to focus on the absolute size of a price change, not its relative value. Because big price swings make it seem "something important and exciting has occurred," Harvard psychologist Paul Andreassen has written, "large price movements cause increased trading." And, as anybody who has ever been a teenager knows, people are much more willing to take risks when they're in groups than when they're alone. Marvin Zuckerman, a psychologist at the University of Delaware, has noted that merely joining a group of "sensation seekers" can make risks seem less scary—and that the worry of being seen as a wimp can become scarier than almost any physical or financial risk. That's why the visitors to online chat rooms and message boards egg one another on so wildly as Internet stocks surge up or down. And it helps explain why the price of these shares is so often divorced from their business prospects.

If only I had bought Microsoft...

Investors also have a bad habit of beating themselves up over past mistakes. How many times have you heard someone groan, "If only I had bought Microsoft when it went public..."? It now seems obvious that in 1986 Microsoft was sure to be a big winner. But in a series of brilliant experiments, psychologist Baruch Fischhoff of Carnegie Mellon University has shown that the knowledge of how an event actually turned out changes our original opinion of how likely it was to occur in the first place. Looking back, says Fischhoff, a given outcome seems "more likely than it actually was." Thus Microsoft now appears t have been a sure thing—but, in fact, it was considered a controversial and risky stock at the time, and many professional money managers wouldn't touch it until 1991.

Microsoft's spectacular gain makes picking long-term winners seem much easier than it really is, because it makes us forget that in 1986 several other companies, such as Novell and Borland, looked just as likely as Microsoft to dominate the software business. When you're looking for "the next Microsoft," you need to ask whether you could have recognized the first Microsoft. Most people—including most mutual fund managers—did not.

Don't know much about history

There's a phrase used by Internet bulls: "first-mover advantage." That's Net-speak for "the early bird catches the worm," and it expresses the belief that the companies that grow the biggest, the fastest—like, say, Amazon, AOL, eBay and Yahoo!—will obliterate the competition over time.

But 200 years of corporate history show that the early leaders in a dynamic industry almost never turn out to be the victors in the end. This is not some antiquated rule of how companies used to behave in the days when men wore powdered wigs and wooden dentures; it's more like a universal law that governs how companies evolve in any industry, at any time. Nor does the fact that everything moves faster on the Internet nullify this law; actually, the high velocity of "Net time" is likely to enforce this law of corporate destruction even faster and more forcefully.

Thinking today's market leaders will prevail in the future is probably a great mistake—especially when their stocks are at such high valuations

says Alan Meclder, who runs http://www.internet.com, one of the best Websites for monitoring the online world, and who took his first Internet company, Mecldermedia, public five full years ago, raising $6 million—and then selling it last year for $274 million. Back in 1982, Meckler points out, two leading software programs were Wordstar and Visicalc—packages that ended up on the ash heap of computing history.

Time after time, history has shown it's the companies that come later—in our case, meaning Internet companies not yet extant—that end up making the real money Far from being easy, the game of picking long-term winners among Internet stocks is probably as tough a challenge as any investor will face—so tough that most investors are doomed to fail.

Ye olde information superhighway

Today's information superhighway is all about moving data, goods and
money—so let's compare the Internet to the first great wave of change in transportation. If you think the Internet has transformed human life more than anything else, here's some quick history Before 1800, it took a week to travel from Boston to New York City over crude and crooked roads, and you would have arrived exhausted, aching and cloaked in dust. If you rode by coach instead of on horseback, you endured broken axles, shattered wheels and the ordeal of helping lift the wagon over ruts or out of mud.

Then came a quantum leap in transportation technology: turnpike companies that cleared straight, smooth swaths through the woods, laying down roadbeds of gravel or timber. These new highways struck many as one of the greatest improvements in the quality of life ever seen. Between most cities, the travel time was suddenly cut in half—with more comfort and safety. So great was the miracle of rapid transit that new users of the turnpikes often burst into spontaneous prayers of gratitude when they arrived at their destination. By 1822, the cost of shipping a ton of goods had dropped from as high as 600 per mile to just 12c —much as Amazon.com and Shopping.com are slashing prices today.

Over the corpses

Only a dunce could have looked at the phenomenal transformation the turnpikes
had wrought and not have wanted to invest in them. And, in fact, they were the most popular stocks of their time. By 1800 two of every three companies in the U.S.—219 in all—were in the transport business, and by the end of the highway boom in the 1830s roughly 500 had sprung up. All told, investors put up roughly a billion dollars in today's money The initial public offerings of the early transportation companies were often oversubscribed, with demand for shares often exceeding supply by nearly 100 to 1. Sound familiar?

Unfortunately, while the turnpikes were incredibly beneficial for the people who used them, they were a disaster for the people who invested in them. Only six of New England's 230 turnpikes ended up earning positive long-term returns, and 3% to 5% a year turned out to be the best they could muster— at a time when government bonds yielded 5% to 7%.

Price competition, then newer technologies like canals and steamboats (also hot stocks for a few years), crushed the rest of the turnpikes. Finally, around 1835, came the railroads, which not only finished the last of the turnpikes but put the canals and steamboats out of business too.

Most poignantly, the railroads were often able to lay their tracks with remarkable ease over ready made rights of way, through the clearings that had been made, years before, by the turnpikes. It's hard to think of a more poetic irony: The transportation revolution was consummated on top of the corpses of the companies that invented it.

Creative destruction

These waves of entrepreneurial energy and technological innovation—which Austrian economist Joseph Schumpeter called "creative destruction"—seem to apply to every newborn industry. Imagine that 90 years ago you had foreseen that the automobile industry, then in its infancy would change the world. You would have been absolutely right—but your investments would have been absolutely wrong. You couldn't have bought Ford, even though the company was already 10 years old: Ford didn't go public until 1956. Chrysler did not yet exist. General Motors was only a year old

Instead, you would have bought the industry's dominant companies: hot stocks like Hupp, Packard, Pierce-Arrow, Road-Runner Auto and Stanley Motor. But other companies—like Hudson, Nash, REO and Studebaker, not to mention GM and Ford—quickly zoomed past the early leaders. Over the next 20 years you would have lost nearly all your money—even as the auto business was going through one of the great booms of all time. The same thing happened with radio in the 1920s.

Now imagine that it's 1982, and you sense that the PC will become the hottest technology product of all time. Which stocks would you buy? Not Compaq, which didn't go public until 1983; not Dell, which wasn't founded until 1984; not Microsoft, which was privately owned until 1986. No, you would have bought one of the computer industry's early leaders—Commodore, for example. Nearly all of these companies, despite their "first-mover advantages," went bust; investors in several of these stocks lost nearly all their money.

The price is not right

The question is not whether the Internet will be a great growth industry— even I have no doubt about that—but whether it's worth paying up to 100 times the price of the average stock to participate in that growth. At Home Corp., for instance, is trading at 269 times its sales over the past year, with Broadcast.com, CMGI, eBay, Inktomi and Yahoo! at 128, 53, 284, 105 and 149 times their sales, respectively. Meanwhile, the average stock can be bought for just two times its sales.

That means there's no margin for error. Unless the Internet companies grow vastly faster than the average stock—and sustain that growth for many years to come—they will turn out to have been terribly overpriced. While a handful of Internet stocks will go on to earn gigantic returns, I would not be at all surprised to see most of them lose at least 90% of their value.

Of course, I'd rather see you invest in the Internet through a long-term holding in a fund than by trading a few Internet stocks at a time. Funds are a lot safer. But the best approach—a broadly diversified index fund that would own nearly every available Internet stock— doesn't exist yet. And Paul Cook, lead manager of the $1.2 billion Munder NetNet Fund, tells me he's got only 15% of his personal assets invested in his own fund. More than that, says Cook, "would not be a prudent allocation for me."

That's a wake-up call if I've ever heard one, and one more reason why regular folks should consider a 5% position the absolute limit in this kind of fund. Personally, I'm keeping my position at zero for the foreseeable future.

For the Weekend: S--- Is All F----- Up and B------- Edition: Come Thou Fount of Every Blessing

Yes, I know that Google will serve me up odd ads occasionally.

But, while searching to see if there is a live performance of Lisa Arrington's amazing version of Nettleton/Come Thou Fount of Every Blessing from "Return to Nauvoo"...

...to serve me up "Concealed Carry" ads?

Come, Thou Fount of every blessing,

Tune my heart to sing Thy grace;

Streams of mercy, never ceasing,

Call for songs of loudest praise.

Teach me some melodious sonnet,

Sung by flaming tongues above.

Praise the mount! I’m fixed upon it,

Mount of Thy redeeming love.

Sorrowing I shall be in spirit,

Till released from flesh and sin,

Yet from what I do inherit,

Here Thy praises I’ll begin;

Here I raise my Ebenezer;

Here by Thy great help I’ve come;

And I hope, by Thy good pleasure,

Safely to arrive at home.

Jesus sought me when a stranger,

Wandering from the fold of God;

He, to rescue me from danger,

Interposed His precious blood;

How His kindness yet pursues me

Mortal tongue can never tell,

Clothed in flesh, till death shall loose me

I cannot proclaim it well.

O to grace how great a debtor

Daily I’m constrained to be!

Let Thy goodness, like a fetter,

Bind my wandering heart to Thee.

Prone to wander, Lord, I feel it,

Prone to leave the God I love;

Here’s my heart, O take and seal it,

Seal it for Thy courts above.

O that day when freed from sinning,

I shall see Thy lovely face;

Clothed then in blood washed linen

How I’ll sing Thy sovereign grace;

Come, my Lord, no longer tarry,

Take my ransomed soul away;

Send thine angels now to carry

Me to realms of endless day.

Think what it means that Google's algorithms tell it that it is most profitable to serve up "concealed carry" ads when it is confronted with a search for "Come Thou Fount of Endless Glory" coming from the Missouri Valley...

Liveblogging World War II: November 14, 1944: Letters

: A Soldier's Letters Home: November 14, 1944:

Dear Mother and Dad,

Yesterday was my birthday and it certainly seems like I got my present. I was assigned to the I04 Quarter Master Corp attached to the 104 division. My present job is that of a typist clerk in the Special Effects Department of the division. It is a newly created department and I was fortunate enough to be passing through a replacement depot when they requisitioned for five typist. Its one of those breaks that happen once in a live (sp) time. All the other boys who were with me went on to infantry regements (sp) where they are used as replacements. I'm still in Germany, but now instead of living in a pup tent I'm living in a German building. To be exact in a German kitchen. It feels great to get back on a typewriter again.

It's been snowing and raining intermittingly for the last few days. Its a wet snow and doesn't stick to the ground readily. Walking around here is very difficult because of the mud. In places its as deep as one foot.

Mom, I ope you forward the address of Russell Baruch to me. I'd like to write to him.

I the future I'll be able to write more letters home. I'll write soon because one of my buddys (sp) wants to use the typewriter.

Love, Hal

Law in the Raw: Live from the Roasterie

I do not know whether to laugh or cry at the fact that Linda Greenhouse says that for decades she has been struggling to maintain the belief that "the Supreme Court really is a court and not just a collection of politicians in robes". The Supreme Court has always--or at least since in Marbury vs. Madison it seized the power of judicial review--been both a court and a collection of politicians in robes. There are few things in our political system more fundamental than that we have a common-law Supreme Court that, when the chips are down, delineates and changes what the law is in oracular pronouncements from the bench--not final because it is infallible, but infallible because it is final.

The curious thing about the Rehnquist-Roberts Supreme Courts is that, historically, the Supreme Court has deployed its low-transforming power in the interest of overwhelmingly-felt principles of justice: it says that "we do not care what the law has been, here is what justice tells us the law ought to be". Bush v. Gore, Citizens United, NFIB v. Sibelius, and now King appear very different--they are, rather, naked pursuit of partisan advantage.

I can think of no parallels, safe perhaps Federalist Chief Justice John Marshall's acquittal of Aaron Burr in the hope that if Aaron Burr were set free he might cause Democratic-Republican President Thomas Jefferson additional trouble...

Linda Greenhouse: Law in the Raw - NYTimes.com: "Nearly a week has gone by since the Supreme Court’s unexpected decision to enlist in the latest effort to destroy the Affordable Care Act...

...‘This is Bush v. Gore all over again,’ one friend said as we struggled to absorb the news last Friday afternoon. ‘No,’ I replied. ‘It’s worse.’... The inconclusive aftermath of the 2000 presidential election... gave rise to a plausible argument that someone had better do something soon.... True, a federal statute on the books defined the ‘someone’ as Congress, but the Bush forces got to the Supreme Court first.... I disagreed with the decision and considered the contorted way the majority deployed the Constitution’s equal-protection guarantee to be ludicrous. But in the years since, I’ve often felt like the last progressive willing to defend the court for getting involved when it did.

That’s not the case here... no urgency... no crisis of governance... rather, a politically manufactured argument over how to interpret several sections of the Affordable Care Act that admittedly fit awkwardly together.... The case... doesn’t fit the normal criterion for Supreme Court review.... This is a naked power grab by conservative justices who two years ago just missed killing the Affordable Care Act in its cradle.... There is simply no way to describe what the court did last Friday as a neutral act.

Now that the justices have blown their own cover, I notice the hint of a slightly defensive tone creeping into the commentary of some of those who have been cheering the prospect of rendering the Affordable Care Act unworkable: that as a statutory case, without major constitutional implications, any problems for ordinary Americans that result from a ruling against the government can be fixed by Congress... or by the states.... Sure....

The 1984 decision that established this deference principle, Chevron U.S.A. v. Natural Resources Defense Council, Inc., is so central to the modern understanding of how the government works that it is among the most often invoked Supreme Court decisions of all time, cited in some 13,000 judicial decisions so far, a number that grows at the rate of about 1,000 a year. The tax provisions of the Affordable Care Act fall so naturally onto the ‘Chevron deference’ landscape that it would take an agenda-driven act of judicial will to keep them out and to conclude that Congress enacted a law that contained the seeds of its own destruction....

It takes the votes of four of the nine justices to accept a case. Certainly Justices Anthony M. Kennedy, Antonin Scalia, Clarence Thomas, and Samuel A. Alito Jr. — the four who two years ago would have invalidated not only the individual mandate but the entire law — voted to hear King v. Burwell.... An intriguing question is whether there was a fifth vote as well, from the chief justice. I have no idea, although I can’t imagine why he would think that taking this case was either in the court’s interest or in his own....

Here’s another possible scenario, just a theory: that the four, still steaming over what the right wing regards as the chief justice’s betrayal two years ago, voted to hear King v. Burwell not only for its destructive potential, but precisely to put the heat on John Roberts....

Its arrival on the Supreme Court’s docket is also profoundly depressing. In decades of court-watching, I have struggled — sometimes it has seemed against all odds — to maintain the belief that the Supreme Court really is a court and not just a collection of politicians in robes. This past week, I’ve found myself struggling against the impulse to say two words: I surrender.

Do Twitter Cards Work?

Do Twitter Cards work?

Jon Gruber in 2011: Yes, Subsidies Are Available to People Purchasing Health Insurance on the Federal Exchange

Back in 2011 when Jon Gruber was writing Health Care Reform: The Graphic Novel he assumed that subsidies were available to all purchasing on any exchange--whether a state-initiated §1311 exchange, a joint exchange, or a federally-initiated §1321 exchange did not matter: families will pay no more than 9.5% of their income to purchase health insurance--not families living in states that have established §1311 exchanges: families full stop:

The truly remarkable thing about Halbig/King is that conservatives care much more than liberals do that the health exchanges actually work. Health exchanges are a last-ditch conservative attempt to keep private health-insurance markets from collapsing under the weight of increasing adverse selection and decreasing willingness to provide a large tax subsidy for employer-sponsored insurance. If the exchanges fail, the liberals try again in another decade with single-payer--Medicare for all--in order to attain near-universal coverage. If the exchanges fail, conservatives are out of arrows.

I have never understood why conservatives interested in health policy have not drawn a line in the sand here--have not said to their political masters: "Yes, we know that you have a strong partisan interest in destroying the signature accomplishment of a Black Democratic president. But the substantive policy stakes are too high."

Hoisted from Other People's Archives from September 20, 2008: Financial Crisis Edition

Via Felix Salmon:

"MS" is "Morgan Stanley". "TFG" is "Tim Geithner". "GS" is Goldman Sachs". "BHC" is "Bank Holding Company". "FYI" is "For Your Information". "PDM team" is "Public Debt Management team". "EVP" is "Executive Vice President"--the Federal Reserve Bank of New York has ten Executive Vice Presidents and one Principal Vice President.

Liveblogging the American Revolution: November 13, 1776: John Paul Jones

The Continental Navy ship Alfred...:

...commanded by John Paul Jones, along with Continental sloop Providence, commanded by Hoysted Hacker, capture the British transport Mellish, carrying 10,000 winter uniforms later used by Gen. George Washington’s troops.Three days later, Alfred captures the British brig Hetty off the New England coast.

Hoisted from the Archives: The Dynamics of Political Language: Partisan Asymmetries Weblogging

The Dynamics of Political Language: Partisan Asymmetries Weblogging (Brad DeLong's Grasping Reality...): The Dynamics of Political Language: Partisan Asymmetries Weblogging
Comment on Jacob Jensen, Ethan Kaplan, Suresh Naidu, and Laurence Wilse-Samson, 'The Dynamics of Political Language':

Let me pick up and expand on the line of discussion initiated by David Gergen's excellent comment.

I think this paper does an excellent job of documenting and helping us understand ideological polarization.

I think this paper does not do a good job of understanding partisan polarization.

Theodore Roosevelt in 1896 was a Republican attack dog, denouncing Democratic Presidential candidate William Jennings Bryan as a mere puppet of the Alien Communist Anarchist John Peter Altgeld. Bryan, Roosevelt said:

would be as clay in the hands of the potter under the astute control of the ambitious and unscrupulous Illinois communist... free coinage of silver... but a step towards the general socialism which is the fundamental doctrine of his political belief... He seeks to overturn the... essential policies which have controlled the government since its foundation...

That's language as extreme as any we hear today.

That came from somebody who is shortly to be Vice President, not from mere Secretary of State of Kansas Chris Kobacs, saying that he is thinking of kicking the President off the ballot because he is a Kenyan Muslim and not a natural-born citizen.

Theodore Roosevelt, however, was very happy to make deals with Democrats--to put himself at the head not just of the Republican Party but of the bipartisan Progressive coalition, and try to either yoke them together or tack back and forth to achieve legislative and policy goals.

By contrast, Obama--and Clinton before him--have not been able to get people like Collins, Snowe, Voinovich, McCain to vote for their very own campaign finance and climate change policies.

Obama has not been able to get Mitt Romney to endorse his own health care plan.

Obama has not been able to get Paul Ryan to endorse his own IPAB Medicare cost-control proposal.

Why not? Because their party leaders have told them not to.

That partisan polarization seems to me to be very different from the ideological polarization, which is what we saw in the New Deal 1930s and the Progressive Era 1900s.

And this partisan polarization is not exclusively but largely concentrated among the Republicans. There are no signs that the Feinsteins, the Lincolns, the Nelsons, and so forth have been willing to sacrifice their policy preferences at all in order to give their president a victory or give the president of the opposing party a defeat. Things appear very different on the Democratic and the Republican sides.

Noted for Your Morning Procrastination for November 13, 2014

Over at Equitable Growth--The Equitablog

Morning Must-Read: Leaked Geithner Files, as Quoted by Peter Spiegel - Washington Center for Equitable Growth
Afternoon Must-Read: James Pethokoukis: Time for the American Right to Declare Peace on the US Welfare State - Washington Center for Equitable Growth
Afternoon Must-Read: Martin Wolf: An Unethical Bet in the Climate Casino - Washington Center for Equitable Growth
Afternoon Must-Read: Daniel Drezner: Best APEC Summit Ever - Washington Center for Equitable Growth
Afternoon Must-Read: Ian Millhiser: A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare - Washington Center for Equitable Growth

Plus:

Noted for Your Morning Procrastination for November 13, 2014 - Washington Center for Equitable Growth

Must- and Shall-Reads:

Austin Frakt: Medicaid patients have better access to primary care than you might think
Nathan Pippenger: The Thousand Fronts of Inequality
Timothy Geithner: Leaked Geithner Files, as Quoted by Peter Spiegel
James Pethokoukis: Time for the American right to declare peace on the US welfare state
Martin Wolf: An Unethical Bet in the Climate Casino
Daniel Drezner: Best APEC summit ever
Ian Millhiser: A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare
David Beckworth: Macro and Other Market Musings: The Cure for Neo-Fisherism: History
Olivier Blanchard et al.: Understanding Spillovers

And Over Here:

James Pethokoukis: Time for the American right to declare peace on the US welfare state: "While the recovery’s glacial pace, both in terms of GDP and jobs, is unacceptable, the safety net’s performance is encouraging. The pain from the Great Recession, as bad it was, would have been far worse for middle- and low-income Americans if we were still in a sort of 1920s, Coolidgean world that many on the right these days seem to long for.... Now declaring peace isn’t the same thing as surrendering to the status quo.... But the welfare state needs thoughtful and thorough reform. And that doesn’t mean just slapping arbitrary spending caps on federal programs and block granting them back to the states.... Edward Glaeser would alter the EITC by making it a clear and transparent wage subsidy to all workers making less than $9 an hour.... There are lots of other center-right ideas out there: expanding the child tax credit, providing lump-sum bonus payments to unemployed workers who find a job, relocation vouchers to the long-term unemployed in high-unemployment areas, premium-support Medicare reform, expanding healthcare access through tax credits and well-funded high-risk pools.... The safety net isn’t going away, nor should it, but it will need to look a different tomorrow than it does today..."

Martin Wolf: An Unethical Bet in the Climate Casino: "The Republican victory in the midterm elections was a triumph for its strategy of sustained vilification of the president and obstruction of his policies. The result will have big implications for the future of the US. But it also has implications for the rest of humanity.... The US is also the world’s second-largest emitter of greenhouse gases and among the highest emitters per head. The most important consequence of this election may therefore be to bury what little hope remained of getting to grips with the risk of dangerous climate change.... Other countries will not--indeed cannot--compensate.... Nothing now suggests that humanity will move off the path towards ever greater emissions, with potentially huge and irreversible consequence. Why is that? If one ignores the charge that the science is a hoax, one sees two justifications and two reasons. One justification is that cost of action to mitigate emissions would be inordinate. It should be noted, however, that the costs indicated above would be less, possibly substantially less, than the costs to the high-income countries of the recent financial crises.... Yet, fascinatingly, the very same people who consider the costs of mitigation excessive wish to lighten financial regulation and so increase the risk of a repetition of the recent calamity. In addition, many of the opponents of such action are firm believers in the ability of economies to respond to market forces. So why do they not believe that markets would adjust to higher carbon prices? So what then are the real reasons? The first is ideology. If one accepts the existence of large global environmental externalities, one must also accept that there exists an important role for policy.... The second and more important reason is indifference to the fate of future generations..."

Daniel Drezner: Best APEC summit ever: "This year’s APEC summit... stuff got done. Seriously, a LOT of stuff got done. For the United States, the centerpiece was three bilateral deals reached with China.... New targets for carbon emissions reductions by the United States and a first-ever commitment by China to stop its emissions from growing by 2030.... Mr. Obama and Mr. Xi also agreed to a military accord designed to avert clashes between Chinese and American planes and warships... as well as an understanding to cut tariffs for technology products. Those latter two agreements would be big deals in their own right.... The climate change agreement is even bigger, however, as it lays the groundwork for a global deal to be negotiated in Paris in 2015..."

Ian Millhiser: A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare: "The Supreme Court announced on Friday that it would hear a lawsuit, known as King v. Burwell, seeking to undermine the Affordable Care Act by cutting of subsidies intended to help millions of Americans pay for health insurance. Obamacare gives every state government a choice.... The government’s arguments are correct and the plaintiffs’ arguments are misleading.... Congress can define the phrase ‘Exchange established by the State’ to also include exchanges established by the federal government... and that is exactly what Congress did in the Affordable Care Act. Two provisions.... The first provides that ‘[a]n Exchange shall be a governmental agency or nonprofit entity that is established by a State.’ Read in isolation, this passage can be read in one of two ways. One way to read it is as a passage limiting who can set up exchanges. If an Exchange ‘shall be’ an ‘entity that is established by a State,’ that seems to mean that no other kind of ‘Exchange’ can exist. If the passage is read this way, federally run exchanges would be illegal, because they are not an ‘entity that is established by a State.’ The other... is that it is meant to define the term ‘Exchange.’ Under this second possible reading, the word ‘Exchange’ is defined so that any Exchange is deemed to be ‘established by a State,’ even if it was actually established by the federal government.... A third provision... provides that if a state elects not to set up its own exchange, ‘the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.’... This may seem as bizarre as using the word ‘dog’ when you really mean ‘cat,’ but Congress has the power to define words in counterintuitive ways, and courts are obligated to follow those definitions.... King v. Burwell, in other words, is a straightforward case of statutory interpretation, and the law is clearly on the government’s side.... The subtitle of the Affordable Care Act which contains the provision plaintiffs rely upon is titled ‘Affordable Coverage Choices for All Americans.’ It is not entitled, ‘Affordable Coverage Choices for Americans Who Live In States That Elect To Set Up Their Own Exchanges’..."

David Beckworth: Macro and Other Market Musings: The Cure for Neo-Fisherism: History: "Stephen Williamson, John Cochrane, and Stephanie Schmitt-Grohe and Martin... argue that a central bank holding interest rates low for a long period will cause inflation to fall. The conventional view is that such actions should cause inflation to rise.... There are two reasons to be leery of Neo-Fisherism. First, it ignores Wicksell's cumulative process. This idea says that if the central bank pegs the short-term nominal interest rate below the natural interest rate the price level will eventually explode and vice versa. The Fisher relation is an equilibrium condition and says nothing about this disequilibrium dynamic.... Second, Neo-Fisherism has been tested in the real world and failed.... Germany During and After World War I.... The United States and the Accord of 1951.... Canada Over the Past Twenty Years.... History is filled with many examples of monetary policy regimes that violate Neo-Fisherism. In fact, it is hard to come up with examples that unambiguously fit the Neo-Fisherite view..."

Olivier Blanchard et al.: Understanding Spillovers: "Hélène Rey, Professor of Economics at the London Business School, and Research Fellow at the Center for Economic Policy Research (CEPR) and the National Bureau of Economic Research (NBER), will give the keynote Mundell-Fleming lecture on the controversial issue of global financial cycles and the extent of monetary policy independence of national central banks.... Just to give you a flavor of what to expect, here are some of the questions that we will be discussing: What is the impact of changes in US monetary policy on foreign bonds yields? Does it differ depending on the policy instrument used? Do conventional and unconventional policies have a different impact on the yield curve? How has unconventional monetary policy by the European Central Bank worked? What was the impact on Europe and the on the rest of the world? What are the relevant transmission channels; are these similar to the ones under US UMP? What is the impact of government spending on the exchange rate? Is it really associated to exchange rate depreciations, i.e. ‘beggar-thy-neighbor’ type of effects? Do sovereign debt defaults in one country trigger defaults in other countries? Do they change the cost of financing and incentives to default in other countries?
What are the conditions under which international spillovers effects are Pareto efficient? How does equilibrium with strategic policy setting at the global level compare against equilibrium with global policy cooperation? Is it optimal to restrict international capital flows amid financial markets incompleteness, i.e. prices sending signals that do not induce socially optimal outcomes? Have capital controls been effective? How is their potential effectiveness affected by leaks—i.e. the limited enforcement of these measures? Does deeper trade integration through international input linkages amplify cross-border spillovers? Can fiscal and capital market integration dampen the transmission of leveraging/deleveraging shocks within a monetary union –i.e. Europe? Did growth in countries with higher trade and financial integration fall more during the Great Depression?..."

Should Be Aware of:

Ezra Klein: Is wage stagnation killing the Democratic Party?
David McRaney: "Each one of us has a relationship with our own ignorance, a dishonest, complicated relationship, and that dishonesty keeps us sane, happy, and willing to get out of bed in the morning"
Philip Gulley: I was wrong about the Second Amendment: Why my view of guns totally changed - Salon.com:

 

Jesse Eisinger: The Real Roots of Hedge Fund Manager Rage: "Paul Singer, the head of the $25 billion hedge fund Elliott Management, had an Edvard Munch moment in his most recent letter to his investors. 'Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth,' he wrote. Some commenters think the economy is improving, but he wrote, 'We do not think this optimism is warranted, and we think a lot of the data is cooked or misleading.' This is only the latest howl about incipient inflation from the hedge fund manager crowd over the last several years. These inflation truthers have come in for consistent mockery, and deservedly so. They have aligned with conservative economists to attack the Federal Reserve and warn that its loose monetary policies are debasing the dollar and spurring sure-to-come, any-day-now runaway inflation. As The Washington Post's Matt O'Brien noted, Mr. Singer made a classic, and in this case pretty hilarious, mistake of generalizing from his own experience. 'Check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like,' Mr. Singer wrote.... Still, I come not to bury the wealthy investors, but to try to clarify what I think might be informing their perspective.... Hedge fund managers came of professional age during two gigantic bubbles, mass delusions that went on for years... the stock market bubble... a credit bubble.... These hedge fund managers--and the rest of the world of sentient markets observers--have spent the formative periods of their professional lives watching the madness of crowds, enabled by central banks.... After the stress tests, the government pronounced the banks O.K. (with a promise to backstop them if they couldn't raise private capital). It was simply a collective exercise in looking the other way. Then, weirdly, it worked.... At the risk of sounding like a Singerite, doesn't it sound just a bit--what's the word?--fake? Just because you are paranoid, doesn't mean the capital markets aren't out to get you..."

Thomas Piketty’s ‘Capital’ wins Business Book of the Year - FT.com: cg12348: "Don't need to read the book - here is the premise. Business dreams are nothing more than greed. An you greedy business people should pay for those who are not cut out to take risk. You did not build your business - you owe everyone for your opportunity - you may have worked harder, taken more risk and even failed and picked yourself up at great personal risk and injury ( yes we often lose relationships and loved ones fall out along the way). However, none the less your are not entitled to what you make. Forget the fact that the real reason we have massive wealth today is we can now reach the global consumers - not just local - so the numbers are larger. None the less the fact is that is not fair - and fair is something life now guarentees - social engineers demand that you suspend the laws of nature and reward all things equally. 2 plus 2 = 5 so does 3 plus 3 = 5 everything is now levelled by social engineers.  We need to be responsible for those who choose not to risk, want a 9 to 5 job and health benefits and vacation. The world is entitled to that - it is only right - so you must be taxed to make up for those who are too lazy to compete, simply don't try or fail. In short the rich must map up the gap for the also ran's. Everyone gets a ribbon. There are exceptions - if you are Google, BIDU, Apple or someone so cool or cute or a liberal who will tell people they should pay more taxes - you aren't to be held to the same standard as everyone else." Martin Wolf: "@cg12348, I think you succeeded in discrediting yourself comprehensively. You didn't read the book. You do not in fact know what is in it. But you just 'know' what is in it. One can only hope that you do a little more work in your business ventures."