Weekly Top 5 Papers – February 14, 2014

1. The Perfect Crime by Brian Kalt (Michigan State University College of Law)

I wrote this article more than ten years ago, when I discovered that sloppy legislation, combined with a forgotten provision in the Bill of Rights, opened up a shocking loophole. According to my theory, there is a small corner of Idaho where major crimes cannot be prosecuted. This was tangential to my main research focus at the time, but the topic was irresistible to me. The piece received a lot of attention, which I hoped would help convince Congress to close the loophole. It did not. The experience led me to focus more of my research on the question of what happens when legal arguments encounter political reality. In the meantime, the article usually gets a new round of attention every year or two, usually when a blogger rediscovers and re-publicizes it. –Brian Kalt

2. Inequality, the Great Recession, and Slow Recovery
by Barry Cynamon (Federal Reserve Bank of Saint Louis) and Steven Fazzari (Washington University in St. Louis)

We began collaborating on research when Barry Cynamon was a student in Steve Fazzari’s undergraduate macroeconomics seminar at Washington University in St. Louis. After a class discussion of Hyman Minsky’s financial instability hypothesis and its application to business debt and investment, Barry asked whether it was possible for the same kind of Minsky cycle to affect households. We began to think about consumption and household debt in a Minsky framework. Our first writing on this topic to appear in print was an op-ed in the St. Louis Post Dispatch on October 3, 2007, well before the financial crisis and Great Recession. We wrote that the “impending trouble with household debt threatens more than just the construction of new homes. It could spill over to severely curtail overall consumer spending that now comprises more than 70 percent of the economy. … If the consumption boom of the past 25 years reverses in the near future, it won’t be pretty out there.” The details behind our prediction appeared in the journal Capitalism and Society within a week or two of the failure of Lehmann Brothers.

While our predictions about household debt and financial instability were sadly confirmed by the turbulent U.S. economy of 2008 and 2009, we started thinking about another major characteristic of the finances of American households: rising income inequality. In what was initially a conference paper for the Work and Livable Lives initiative at Washington University, we considered whether rising inequality was linked directly to the emergence of unsustainable household financial trends. With the generous support of the Institute for New Economic Thinking and the Federal Reserve Bank of St. Louis Center for Household Financial Stability, we compiled original data that show how rising financial fragility and the spending crash that it caused were concentrated outside of the top income group. That is, financial instability emerged in those households who have been falling behind as the distribution of income has become more unequal.

The result of this research is the paper cited here, which we argue demonstrates the key role of rising inequality in creating the financial instability that led to the Great Recession. We also propose that high and rising inequality are central to the slow recovery from the crisis, and that the resulting problems are likely to confront the U.S. economy for years to come.  –Barry Cynamon and Steven Fazzari

3. A Brief Introduction to the Basics of Game Theory
by Matthew Jackson (Stanford University – Department of Economics)

4. A Quantitative Approach to Tactical Asset Allocation
by Mebane T. Faber (Cambria Investment Management)

5. Chief Justice Roberts in His Own Voice: The Chief Justice’s Self-Assignment of Majority Opinions
by Linda Greenhouse (Yale Law School)

To put this paper in context, it appeared in the September/October 2013 issue of Judicature as part of a written symposium on the recent book The Behavior of Federal Judges, by Lee Epstein, William Landes, and Richard Posner. I teach a course for first-year students at Yale Law School that I call “The Institutional Supreme Court.” It draws on the judicial-behavior work of these authors. When Judicature invited me to participate in the symposium I decided to look into a subject that had long interested me but that I hadn’t studied systematically. There turned out to be a fairly rich literature on the topic of self-assignment of majority opinions by Chief Justices, but nothing that included data from the Roberts Court. I was most interested to be able to document how like his predecessors John Roberts — now in his ninth term — has become, or in fact, has been almost since the beginning of his tenure.

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