Relevant and even prescient commentary on news, politics and the economy.

News from hřbitov Nové Město na Moravě, Czech Republic “Stupid is as Stupid does Edition

– “Missouri Republicans have drafted a bill that would allow parents to pull their children from science classes that are teaching the theory of evolution. According to the National Center for Science Education (NCSE), Missouri’s House Bill 1472 would effectively “eviscerate” the teaching of biology in the state.” Stupid is as stupid does. “Missouri GOP: Allow Parents to Pull Their Kids From Science Classes Teaching Evolution”

– “Drop Dead, Detroit!” Oakland County Executive L. Brooks Patterson admitted, “Anytime I talk about Detroit, it will not be positive. Therefore, I’m called a Detroit basher. The truth hurts, you know? Tough shit.”
“I made a prediction a long time ago, and it’s come to pass. I said, ‘What we’re gonna do is turn Detroit into an Indian reservation, where we herd all the Indians into the city, build a fence around it, and then throw in the blankets and the corn.’” Stupid is as stupid does. Michigan GOPer:’Herd all the Indians’ to Detroit, build a fence and throw them some corn” Stupid is as stupid does.

– “Fox News host Martha MacCallum on Monday asserted that the solution to the arrest gap between black and white Americans was for African-Americans to smoke less marijuana. ”Fox’s MacCallum: Solution to high minority arrest rate is for blacks to smoke less weed. “Fox’s MacCallum: Solution to high minority arrest rate is for blacks to smoke less weed.” Stupid is as stupid does.

– “Sitting around that table we felt like a rag-tag grouping of Davids, in the historic Biblical story,” DeVos told me in an email. “But we left the table committed to doing our best to change Michigan’s future for the better.” Another wealthy wingnut trying to buy influence in government. As if he has not done much to influence the Michigan courts through his funding. QOTD: Dick DeVos Stupid is as stupid does.

– “On Thursday, an Orlando man shot and killed a 21-year-old who was fleeing his yard. He didn’t appear to be stealing anything, according to witness accounts. He didn’t appear to be threatening anybody. But Claudius Smith said he feared he was a burglar, followed him over the fence to a neighboring apartment complex, where he shot him after he said he felt threatened, according to a confession documented in an Orlando Police Department report. Smith even said he feared victim Ricardo Sanes was armed “because his pants were falling down” and his hands were in his hoodie pockets, according to a report obtained by the Orlando Sentinel.” Get off my lawn or I’ll shoot you dead. Stupid is as stupid does.

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How the Fed can raise Fed rate without unwinding excess reserves

If inflation starts to rise or the economy overheat, how can the Federal Reserve raise their Fed rate? One might think it would be impossible with $4 trillion in reserves, but the Fed does have a way. They can simply raise the floor under the Fed rate. What is the floor? The interest on reserves.

If you raise the interest on reserves, banks will not lend below that rate. For example, if the interest on reserves was 1.5%, a bank would not lend at 1% with risk, when it could keep the money with the Fed and earn 1.5% interest. Effectively the Fed rate is raised by raising the interest on reserves.

Here is a quick video explaining this visually.

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Is the Permanent Income Hypothesis Glass Half Full ?

This is one of my usual boring posts on the same things I often type about. I have nothing much new to say and certainly won’t present any new evidence.

There is no good reason to click “more.” In case anyone hasn’t guessed my answer, it is that I know of no good reason to be confident that the permanent income hypothesis is even partially true to any useful extent.

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Oh, dear. Another loopy challenge to yet another ACA provision, this one concerning the Independent Payment Advisory Board.*

A legal-news blog I read mentions an article published today on the National Review Online aspirationally titled “A Strike at the Heart of Obamacare” and subtitled “A case against IPAB is heard by the Ninth Circuit — and eventually by the Supreme Court?”  I don’t normally read the National Review and am not familiar with the article’s author, Quin Hillyer.  But the article discusses in frenzied fashion a case that will be argued on appeal next week at the Ninth Circuit Court of Appeals, the federal appellate court based in San Francisco, that hears appeals in federal cases from west-coast and several mountain states.

I did not know what IPAB stands for, so I clicked the link to the article in order to find out, and learned that the IPAB is “that monstrosity called the Independent Payment Advisory Board (IPAB), a 15-member body invested with virtually unreviewable, plenipotentiary powers.” Glad I did.

The case to be heard on appeal next week, Coons v. Lew, was filed by the Goldwater Institute and several medical practitioners, and challenges the constitutionality of the section of the ACA that creates and establishes the powers of the IPAB, the ACA provision that Hillyer says is “the law’s most obnoxious violations of Madisonian principle and essential constitutional structure.”  Which, best as I can tell from what he says about the provision, absolves the law from any obnoxious violations of Madisonian principle and essential constitutional structure.  I’ll take his word for it.

Coons, Hillyer fumes in dismay, is the only Obamacare case that has included a challenge to the IPAB, and the trial-court judge, whose ruling the plaintiffs are appealing, gave that challenge short shrift.  Why only one case making that argument?! And, why short shrift?! I’m just guessing here, but I suspect that one reason is that one of the two grounds for constitutional challenge–that Congress can’t delegate specific rulemaking functions to executive-branch agencies, because that constitutes a violation of the doctrine of separation of powers–was rejected by the Supreme Court initially many decades ago when certain New Deal legislation was at issue, and that in 1984 the Supreme Court, in an opinion called Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., created what is known as the Chevron doctrine, giving executive-branch agencies broad “deference” to promulgate “regulations,” i.e., sets of substantive (as well as procedural) laws about which the agency has specific expertise.  Which suited conservatives fine during the Reagan and various Bush administrations, which, courtesy of that doctrine, had virtual carte blanche to undermine, say, the Environmental Protection Act or the Securities Exchange Act. But conservatives are having second thoughts about the wonders of the Chevron doctrine these days.

The current Supreme Court Republican majority, of course, shows no inhibition about switching sides in light of new circumstances, such as a Democratic White House.  The Chevron doctrine was too broad, but only very recently has the Court shown interest in narrowing it–in a way that probably would allow the doctrine to be broadened again, during the next Republican administration.

So the Chevron doctrine alone probably doesn’t explain why only the Goldwater Institute and a few Western-state doctors are the only ones to challenge the IPAB and questions related to review of the Board’s payment recommendations. And I haven’t read the trial judge’s ruling, and in fact was unaware of the case until I read Hillyer’s article.  But I’ll go way out on a limb here and suggest another sorta large problem with the challenge to that section of the ACA.  Whatever the Board’s plenipotentiary powers actually are, and whatever “plenipotentiary” means–I actually have no idea what the Board’s powers are, but the title of the agency is after all the Independent Payment Advisory Board, so presumably it’s an advisory board–what is clear is that neither the Medicare Act nor the ACA requires healthcare providers to accept Medicare insurance.  These healthcare professionals are no more required by law to accept Medicare patients than they are to accept patients who have insurance through one or another private company, or who have only catastrophic insurance, or Medicaid, or no insurance.

Their claim, in other words, is ridiculous.  But it does have the advantage of carrying with it the Madisonian Freedom/Liberty tag, a label that the Koch right confers upon anything it wishes, because that surely will gain the attention of the Fab Five’s law clerks once the Court is asked to hear the case.  Normally, they attach this label to anything concerning property rights or wealth or income accrued or to be accrued, actually or ostensibly, through the private sector, but here they’re branching out.  Here, they’re claiming a Madisonian constitutional right by the private healthcare industry to Medicare payments set by the private healthcare industry.

Farm subsidies and Medicare payment levels set by the healthcare industry forever! That was Madison’s motto.

Keep your government hands off my Medicare payment levels!  Who knew Madison was an M.D.?

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*Post edited slightly for clarity after initial posting.

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Matthew Yglesias reports another dramatic study providing evidence against the safety net as hammock hypothesis. The argument that just giving poor people cash helps in the short run but hurts in the long run by creating dependency is extremely influential. The evidence supports the opposite conclusion.

Here I note Yglesias noting Moises Velazquez-Manoff noting another study.

here’s a great writeup from Moises Velazquez-Manoff of a study of an unconditional cash transfer program related to a casino gambling windfall along the Cherokee that suggests yes it can:

[J]ust four years after the supplements began, Professor Costello observed marked improvements among those who moved out of poverty. The frequency of behavioral problems declined by 40 percent, nearly reaching the risk of children who had never been poor.

Yglesias also mentions that

the best evidence we have shows a large positive impact of welfare checks on life outcomes for kids who benefitted from the pre-Depression version of cash assistance for poor single moms

He didn’t mention the evidence that, in the very long run, food stamps reduce obesity and increase high school graduation rates.

Or the genuinely experimental evidence (I am tempted to type proof) that welfare reform kills people.

I wonder if the flood of excellent empirical work might have some effect on the policy debate. I know this is naive, but I don’t think it’s crazy. Pundits have noticed that the USA is no longer the land of opportunity with low inter-generational income mobility. I think there is a chance that they will discover that the indirect behavioral benefits of cash assistance outweigh the indirect costs.

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Choosing sides not Sides

by Robert Waldmann

Choosing sides not Sides
Booman wants me to set up an account to comment at his tribune. Like hell. He debates John Sides about 2016. I want to pile on.

Associate Professor of Political Science at George Washington University, John Sides, attempts to rebut Dan Balz’s fine analysis yesterday that the Republican Party has an uphill battle to win the presidency in 2016. I find his argument unconvincing.He begins by providing his credentials.

“In April 2012, two other political scientists — Seth Hill and Lynn Vavreck — and I did a presidential election forecasting model for The Washington Post. The model had only three factors: The change in gross domestic product in the first two quarters of the election year, the president’s approval rating as of June of that year and whether the incumbent was running. That model forecast that Obama would win in 2012, and — although there is nothing magic about this model — it was ultimately accurate within a percentage point”

.

Here not Sides uses only the popular vote.

But later he decides to look at who won the election

Since the passage of the 22nd amendment limiting the president to two terms, only one time (1980-88) has the incumbent party held the White House for more than two consecutive terms. The regularity with which control of the White House changes hands also suggests that the playing field may tip in the GOP’s favor in 2016.

This is Bad statistical analysis. The result of taking a small sample, arbitrarily making it smaller and then deciding which of two variables to average.

The result of the gross data mining is to reject the null that the party that has held the White House has a 50-50 chance at a p level of 7/64 (one tailed) or 14/64 two tailed. I count 6 cases 1960, 1968, 1976, 1988, 2000 and 2008 with one exception to the “rule”. This is the sort of data analysis one finds from political scientists and baseball color commentators.

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Mike Konczal Vs Market Monetarists

Just click the link

I don’t have anything interesting to add. My problem is that I can’t help thinking of whether Konczal’s criticisms amount to a credible accusation of impropriety. I have tried not to blog this, but really can’t resist.

At the end of 2012, David Beckworth told the Keynesians they were wrong. In a provocative post, he argued “that nominal GDP (NGDP) growth has been remarkably stable since about mid-2010 despite a contraction in federal government expenditures” and that “the Fed has been doing a remarkable job keeping NGDP growth stable.”

[skip]
So how did this line in the sand turn out? Here’s the data updated through 2013, with year-over-year (Beckworth’s line) and two quarters showing …
It was stable, until it wasn’t. … NGDP growth was lower in the first two quarters of 2013 than it was in 2012.

The third quarter did spike, [skip]

“I’d note Beckworth didn’t mention this data or his old approach at all in his victory lap. Scott Sumner used this graph and data for his “Most Important Graphic of 2013,” but didn’t include any of the 2013 data. “

I think that suppressing all data from 2013 in a contribution to a collection of “Graphic[s] of 2013” is, at least, getting very close to the line.

I am genuinely interested in what commenters think of this.

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Comparing methods to determine the Output Gap

David Beckworth made a determination of nominal interest rates using the Output Gap from this paper…Measuring potential output: Eye on the financial cycle, by Claudio Borio, Piti Disyatat, Mikael Juselius. Determining the output gap correctly in real-time is very important for determining the nominal interest rate and many other factors. It is not good to get the output gap wrong.

In the paper they present this graph of output gaps determined by various methods, real-time and ex-post.

output gap 2

The red lines are what was given in real-time. The blue lines show what was determined later by looking backward (ex-post).

In the paper, they say…

“The HP filter gap and the full-fledged approaches of the OECD and IMF – a representative sample of current approaches – did not detect that output was above sustainable levels during the boom that preceded the financial crisis. In fact, the corresponding real-time estimates indicated that the economy was running below, or at most close to, potential. Only after the crisis did they recognise, albeit to varying degrees, that output had been above its potential, sustainable level. By contrast, the finance-neutral measure sees this all along (bottom right-hand panel). And it hardly gets revised as time unfolds.”

David Beckworth uses the Finance-neutral calculation for his determination of the output gap.

But now I want to show my determination which would have been real-time without being revised later. (quarterly data)

output gap 3

The paper criticizes the approaches of the IMF, OECD and HP filter for not seeing the economy was over potential before the crisis, but my real-time calculation would have seen that for 3 years.

Also, the Finance-neutral method did not see that the economy was running below potential after the 2001 recession. My method, along with the IMF and HP filter, did see that. Even their revisions kept showing the economy was below potential in 2003.

My method, along with all others, recognized the fall from potential in the crisis. However, my method is set up to see in real-time a fundamental shift in demand impacting potential if one occurs. My method and the HP filter show GDP returning to potential by 2011. A shift downward in potential is seen since the crisis.

The HP filter gives results that most resemble mine. HP stands for Hodrick-Prescott (HP) filter. A neighbor of mine works in the same office as Edward Prescott… Coincidence.

My method to determine potential GDP is a simple equation that does not require re-configuring ex-post…

Potential GDP = real GDP – a * (c/f – 1)

a = business cycle amplitude constant in real 2009 $$, $3.4 trillion… f = effective labor share (Labor share: Business sector * 0.762)… c = capacity utilization…

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