Good morning, all. Here's today's recommended reading.
Finding out what's in it
Health insurance companies are cancelling hundreds of thousands of individual policies because they fall short of what the Affordable Care Act requires. Chicago's John Cochrane, aka the Grumpy Economist, says individuals who aren't dumped by their carriers have an incentive to drop their existing coverage because they can pay the penalty and buy insurance when they get sick. "It would be hard to design a more effective 'nudge' to get such people to think about it and conclude that dropping health insurance is a good idea," Cochrane writes. Here's the best line from his blog post, a quote from a woman who learned the premium for a new plan is going up by 50 percent: "I was all for Obamacare until I found out I was paying for it." Sort of what then-House Speaker Nancy Pelosi said about passing the bill.
Expectations can't go much lower
The 29-member House-Senate committee tasked with crafting a budget deal by Dec. 13 holds its first meeting tomorrow. After three decades of failed efforts at long-term debt reduction, both sides are doing their best to lower expectations, according to Bloomberg News' Heidi Przybyla. A "grand bargain" isn't even mentioned. The best anyone hopes for is an agreement to ease the blunt, across-the-board cuts mandated by the Budget Control Act of 2011. In other words, "a smarter way to cut spending," according to House Budget Committee Chairman Paul Ryan. Budget guru Stan Collender asks the questions you're probably asking. "When is the last time Congress has done anything substantive on the budget that far in advance of a deadline?" And, "When is the last time a congressional group that large has been able to come up with any kind of serious compromise on spending and taxes?" No one can say expectations were inflated in advance of the talks.
Monetary policy and asset bubbles
In a new paper published by the National Bureau of Economic Research, Rutgers economists Michael Bordo and John Landon-Lane examine housing, stock market and commodity booms for 18 OECD countries from 1920 to 2011 and determine that monetary policy played a role in inflating them. (Federal Reserve officials do not share that view.) In some cases, asset booms may be a precursor of higher inflation. In others, the bursting of the bubble precedes a financial crisis and severe, prolonged recession. If that's the case, should central bankers use their policy tools to restrain the boom? The economists don't respond definitively, but they seem unimpressed that macro-prudential regulation, which seems to be the default option now that the crisis has passed, is the answer.
If all else fails, pray
The Fed begins a two-day meeting today. Even though tapering has been tabled until March, according to a Bloomberg News survey, policy makers can't ignore the potential for monetary stimulus to fuel asset bubbles, write Bloomberg's Craig Torres and Caroline Salas Gage. Janet Yellen referred to "financial stability" as the central bank's third mandate when she accepted the nomination as Fed chairman. When one considers that quantitative easing is designed to force investors to take risk, no wonder officials are concerned about the undesired effects of its policies. Former Fed governor Larry Meyer says supervision and regulation are the first line of defense. "The second is to pray."
Of economists and greed
All that self-interest stuff is starting to rub off on the economics profession, according to an article in Psychology Today. Research from economist Robert Frank shows that economics professors give less to charity than other profs, while economics students had a greater acceptance of greed and less concern for fairness than their peers. Perhaps it's a case of "self-selection: Students who already believe in self-interest are drawn to economics," according to the article. Other research suggests the attitudes evolve during course study. Odd, isn't it, considering most of academia has a liberal bias?
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)