Noted for Your Lunchtime Procrastination for January 3, 2015

Over at Equitable Growth--The Equitablog

William Gale Responds to Me on the Fiscal Sitch...: The Honest Broker
Ezra Klein: In 2014 Obama Picked Getting Things Done Over Fixing US Politics
Dylan Matthews: Greg Mankiw's Worst Argument Against Piketty Yet
Paul Krugman: Recent History in One Chart
Michael Joyce et al.: The Portfolio Balance Effect of QE

Plus:

Noted for Your Lunchtime Procrastination for January 3, 2015

Must- and Shall-Reads:

Leon Nayfak:
How the elevator transformed America
Jonathan Portes:
"Halving the deficit--however measured--was not the [Osborne-Cameron-Clegg] government’s plan; not even close.  Eliminating it... was..."
Stephany Griffith-Jones:
"Sir, The headline to Gideon Rachman is unfortunate: ‘Eurozone’s weakest link is the voters’.... If Greek citizens are democratically voting against policies that are seen as failing, the policies need changing..."
Trevon Logan
Michael Joyce et al.:
The Portfolio Balance Effect of QE
Paul Krugman:
Recent History in One Chart
Dylan Matthews:
Greg Mankiw's Worst Argument Against Piketty Yet
Ezra Klein:
In 2014 Obama Picked Getting Things Done Over Fixing US Politics
Michael McCarthy:
The Power of Bad Ideas
Dani Rodrik:
Fundamental Lessons Economists Have Refused to Learn

And Over Here:

What Are the Experiences That MOOCs Need to Replicate?: Early (Monday) DeLong Smackdown Watch
Liveblogging the American Revolution: January 3, 1777: Battle of Princeton
For the Weekend...
Mallory Ortberg Gets Thrown by an Egg Avatar!: Live from La Farine
William Gale Responds to Me on the Fiscal Sitch...: The Honest Broker
Weekend Reading: John Cassidy's Interview with James Heckman: Selections

Michael Joyce et al.:
The Portfolio Balance Effect of QE:
"A key transmission mechanism of QE... has been the ‘portfolio balance’ channel.... Insurance companies and pension funds... [in] the UK.... Investors shifted their portfolios away from government bonds towards corporate bonds. But portfolio rebalancing has been limited to corporate bonds and did not extend to equities..."

Paul Krugman:
Recent History in One Chart:
"A number of people have been putting up candidates for chart of the year. For me, the big chart of 2014 was... from earlier work (pdf) by Branko Milanovic.... It shows income growth since 1988 by percentiles of the world income distribution... the surge by the global elite (the top 0.1, 0.01, etc. would be doing even better than his top 1), plus the dramatic rise of many but not all people in emerging markets. In between is what Branko suggests corresponds to the US lower-middle class, but what I’d say corresponds to advanced-country working classes in general, at least if you add post-2008 data with the effects of austerity. I’d call it the valley of despond..."

Dylan Matthews:
Greg Mankiw's Worst Argument Against Piketty Yet:
"Greg Mankiw has been a vocal critic of Thomas Piketty's Capital in the Twenty-First Century since its release.... He challenges Piketty's claim that wealth inequality threatens democracy.... 'A final possibility is that wealth inequality is somehow a threat to democracy. Piketty alludes to this worry throughout his book. I am less concerned. The wealthy includes supporters of both the right (the Koch brothers, Sheldon Adelson) and the left (George Soros, Tom Steyer), and despite high levels of inequality, in 2008 and 2012 the United States managed to elect a left-leaning president committed to increasing taxes on the rich. The fathers of American democracy, including George Washington, Thomas Jefferson, John Adams, and James Madison, were very rich men. With estimated net worth (in today’s dollars) ranging from $20 million to $500 million, they were likely all in the top 0.1 percent of the wealth distribution, demonstrating that the accumulation of capital is perfectly compatible with democratic values. Yet, to the extent that wealth inequality undermines political ideals, reform of the electoral system is a better solution than a growth-depressing tax on capital...' Contra Mankiw, the Founding Fathers are a vivid illustration of Piketty's point, not a refutation of it. The United States in the 1780s was controlled by economic elites that were universally white and male and owned considerable capital, much of it... slaves.... The slave-holding class was able to translate its wealth into political influence, enough to maintain the institution for 77 years after the Constitution was ratified... a system that was, by any reasonable definition, not a democracy.... It'd be preposterous to argue that the staggering wealth gap between white men and women and African-Americans played no role in the latter's systematic exclusion from political life for most of American history. There was enormous wealth inequality, and the result was a massive betrayal of democratic values in favor of an apartheid system. This is exactly the kind of thing Piketty is concerned about."

Ezra Klein:
In 2014 Obama Picked Getting Things Done Over Fixing US Politics:
"2014 was the year that Barack Obama saved his presidency by... abandoning... his 2008 campaign. It was the year that he accepted that the only way to bring the policy changes he had promised was to abandon the political ideals that first got him elected.... The 2008 Democratic primary was, as Mark Schmitt wrote, a 'theory of change' primary. The different candidates didn't disagree all that much about what to do. They disagreed about how to get it done. Hillary Clinton's argument was that she best understood the conflictual nature of American politics: she had fought these battles before and so she was best positioned to win them in the future. Change would come through mastery of the old politics. Obama's argument was just the opposite: the conflictual nature of politics, he said, was the product of the people who knew no politics other than conflict. He would win the battle by ending it... ending the partisan divisions and moneyed interests that had broken American politics.... Obama pushed more change through the political system than any serious observer expected.... But he didn't do all this by fixing American politics.... He's one of the most polarizing presidents since the advent of polling. There isn't much Obama could have done about this. Party polarization is bigger than any one president. When the Senate Minority Leader says publicly, as Mitch McConnell did, that 'the single most important thing we want to achieve is for President Obama to be a one-term president,' then it's a safe bet that legislative cooperation isn't forthcoming..."

Michael McCarthy:
The Power of Bad Ideas:
"The Power of Market Fundamentalism: Karl Polanyi’s Critique
by Fred Block and Margaret Somers"

Dani Rodrik:
Fundamental Lessons Economists Have Refused to Learn:
"This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago. First... governments that can intervene massively to restructure and diversify the economy, while preventing the state from becoming a mechanism of corruption and rent-seeking, are the exception. China and (in their heyday) South Korea, Taiwan, Japan, and a few others had such governments; but the rapid industrialization that they engineered has eluded most of Latin America, the Middle East, Africa, and South Asia. Instead, emerging markets’ growth over the last two decades was based on... fortuitous... high commodity prices, low interest rates, and seemingly endless buckets of foreign finance.... Financial globalization has been greatly oversold. Openness to capital flows was supposed to boost domestic investment and reduce macroeconomic volatility. Instead, it has accomplished pretty much the opposite.... Portfolio and short-term inflows fuel consumption booms and real-estate bubbles, with disastrous consequences when market sentiment inevitably sours.... Floating exchange rates are flawed shock absorbers.... Few economies can bear the requisite currency alignments without pain. Sharp currency revaluations wreak havoc on a country’s international competitiveness. And rapid depreciations are a central bank’s nightmare, given the inflationary consequences.... The Fed’s... quantitative easing... benefited the world as a whole by propping up demand and economic activity in the US.... The rest of the world will benefit when Europeans are able to get their policies right.... The rest is in the hands of officials in the developing world. They must resist the temptation to binge on foreign finance when it is cheap and plentiful.... It is true, but unhelpful, to say that governments have only themselves to blame for having recklessly rushed into this wild ride. It is now time to think about how the world can create a saner balance between finance and the real economy."

Should Be Aware of:

Monty Python:
Oscar Wilde
Dani Rodrik:
["Levels of intellectual responsibility in enabling the steady deterioration of the political climate in Turkey over the last decade."](http://rodrik.typepad.com/dani_rodrik...

 

Kevin Drum:
Quote of the Day: Hooray For Nerdy Details!:
"The problem is that the internet does help people who are 'sufficiently motivated and clueful,' but that's never been a big part of the population. And sadly, the internet is probably as bad or worse than Dr. Oz for all the people who don't know how to do even basic searches and don't have either the background or the savvy to distinguish between good advice and hogwash. Regular readers will recognize this as a version of my theory that 'the internet is now a major driver of the growth of cognitive inequality.' Or in simpler terms, 'the internet makes dumb people dumber and smart people smarter.'"

The Onion:
Lovecraftian School Board Member Wants Madness Added To Curriculum:
"ARKHAM, MA—Arguing that students should return to the fundamentals taught in the Pnakotic Manuscripts and the Necronomicon in order to develop the skills they need to be driven to the very edge of sanity, Arkham school board member Charles West continued to advance his pro-madness agenda at the district's monthly meeting Tuesday. 'Fools!' said West, his clenched fist striking the lectern before him. 'We must prepare today's youth for a world whose terrors are etched upon ancient clay tablets recounting the fever-dreams of the other gods—not fill their heads with such trivia as math and English. Our graduates need to know about those who lie beneath the earth, waiting until the stars align so they can return to their rightful place as our masters and wage war against the Elder Things and the shoggoths!'... West's plan for increased madness... included field trips to the medieval metaphysics department at Miskatonic University, instruction in the incantations of Yog-Sothoth, and a walkathon sponsored by local businesses to raise money for the freshman basketball program..."

Comments:

Maynard Handley,
in reply to Altoid:
"The point is: this is NOT about rational expectations, it is about theology. The issue is not whether the rich and powerful would be better off going down path A rather than path B, it is is that Western Society (ie the entire construct, meaning not just what the rich and powerful believe, but how the man on the Clapham omnibus views the world) has a particular view of how the world works, and decisions are made according to that view, not according to reason. It has always been thus. Byzantium would rather die at the hand of the Turks than accept some changes in its theology. There are a whole bunch of countries in 'The Middle East' that are likewise on a fairly obvious path to destruction (a compound of dwindling natural resources and rapidly growing populations) where theology dictates that they reject the one realistic life raft (education, industrialization, democratization) available to them. And so it is with the West. There ARE some things that we will not do purely because of the influence of the rich and powerful (eg constraints on how banks operate; or technical details regarding tax, or how stock markets operate) but that is not the driving force behind austerity in its various forms, from Germany to Kansas. THAT is driven by deep theology, by how the society as a whole views causes, effects, and how the cosmos works, by how society believes karma plays itself out. It is changed by changing these deep beliefs of society, which is a generational project..."

Nicholas Beaudrot:
Warn of an Even Bigger Fire Next Time:
"I think you're presuming that financial elites are interested in their absolute personal financial fortunes to the exclusion of all else. But there are other possible interests for someone who's done so well: (1) their relative personal financial fortunes (hard money might not be optimal for the elite, but it's much worse for most everybody else); (2) social standing (from the Clinton election until 2007, not many people said bad things about the banksters; no longer true);
(3) being proven f*ing right and making sure those dirty hippies who took sociology classes and ended up in academia or nonprofits were proven f*ing wrong"

Alex H.,
in reply to Nicholas Beaudrot:
"Yeah, added wealth can maybe allow an already rich man to buy a few more things. Only increasing inequality can make him an aristocrat, and that's worth way more."

Maynard Handley,
in reply to Graydon:
"Again, I think this imputes the wrong motives to 'the people paying for the chanting'. Savonarola-rites paid for plenty of chanting that was counter-productive to their wealth. Ghost-dancers in their various manifestations really did believe their magic was going to slay their enemies. Repetition holds just as much for the rich and powerful as the poor. European history is littered with high society corpses, from Anne Boleyn and Thomas Moore to Nikolai Bukharin who went to their deaths fervently believing in and supporting the system that condemned them. The problem with the rich and powerful is not that they are more evil and cynical than the poor, it is that they are EVERY BIT AS STUPID as the poor."

Kaleberg:
Noted for Your Afternoon Procrastination:
"So Robert Lucas rejects the idea of chemistry. How can we predict the behavior of 6.023 x 10^23's of molecules? The very outer fabric of the atoms that comprise molecules are probabilistic, unpredictable charge clouds. The very idea is absurd. But then, strangely enough, I ignite a mixture of hydrogen and oxygen and get water. Why does anyone take anything he says seriously? Does he even have an inkling of how silly he sounds?"

Noted for Your Morning Procrastination for January 6, 2015