Friday, December 31, 2010

Apocalypse Via the Roomba



So perusing Matthew Yglesias' blog, I came across this line about the company that makes Roomba's:

Perhaps the most notable American civilian robot is the Roomba, a sort of semi-intelligent vacuum cleaner. But even this is made by a firm, iRobot, that has extensive defense contracts for its PackBot and other military robots.

Why on Earth would a company name itself after a
book whose main focus is on the unpredictability of intelligent machines and the danger they could pose to humanity. Maybe it has something to do with that sense of unlimited progress the book evokes, or it could have to do with how wildly unsuccessful the movie franchise was that no one even gets the reference, but I digress.

On a more serious note, military robotics have always been an interesting topic for me. The rise of asymmetric warfare demands that military strategy change to deal with fluid battle lines, unrecognizable enemies, and different types of weapons technologies. I have always wondered why the changing nature of warfare demands turning towards more autonomous forms of war machines. If the threat that a military has to deal with gets more complex, how does making the fighting systems themselves more complex help to deal with it? Why does this not mean we should return to the basics, i.e. focusing on the particularity of the combat environment?Pushing towards greater understanding of the cultures we're fighting in would make more sense to me. For every advanced fighter jet we build, we could be hiring thousands of cultural experts including sociologists, translators, linguists and other academics who have expertise in that area.

My inkling is that this has something to do with the military-industrial complex in our country. Via Will Wilkinson, there is a discussion floating around on this Bryan Bender article in the Boston Globe. The gist of the article is that just as the executive branch sometimes acts as a revolving door to high-power financial institutions, so does our military act as a conduit of influence for defense firms:

But this is the Pentagon where, a Globe review has found, such apparent conflicts are a routine fact of life at the lucrative nexus between the defense procurement system, which spends hundreds of billions of dollars a year, and the industry that feasts on those riches. And almost nothing is ever done about it.

The Globe analyzed the career paths of 750 of the highest ranking generals and admirals who retired during the last two decades and found that, for most, moving into what many in Washington call the “rent-a-general’’ business is all but irresistible.

From 2004 through 2008, 80 percent of retiring three- and four-star officers went to work as consultants or defense executives, according to the Globe analysis. That compares with less than 50 percent who followed that path a decade earlier, from 1994 to 1998.

Defense companies determine which technologies will be developed via grant proposals, just as academic researchers determine which ares constitute their field of study by choosing those topics which are relevant. The reason that there is a dearth of economists writing from a Marxian perspective has as much to do with the failure of Marxian economics as it has to do with the field itself determining that Marxian economics is not a worthwhile area of study. The problem with this method is these companies are not pushing for an intercultural approach to warfighting. Their expertise exists in weapon technology and all foils of that, irrelevant of the culture they exist in. By having these channels open, where companies influence the defense department, it seems likely that the defense department will view their toolbox of military strategies more and more through the lens of defense contractors. This is not to group all defense contractors into one group. There do exist many groups that deal with the intercultural exchanges necessary to deal with modern combat. However, after reading the Bender article, it is striking how much influence technology firms have over the process. They are the ones with the big bucks, and as the illustrious Wu-Tang have said, "Cash Rules Everything Around Me."

Thursday, December 2, 2010

Alleged Democratic Missteps

I've had this in the docket for awhile now. Liberals criticism of democratic strategy towards the tax cuts have been a bit over the top. Via Ezra Klein, he laments how democrat's have squandered a favorable situation:

Democrats, it seemed, had won this one. They had the popular position, the president's veto pen and control of the Congress. But they simply refused to carry the ball over the goal line. Instead, they began negotiating with themselves, talking about millionaires' brackets and short-term extensions. Republicans noticed the Democrats' disarray and lost their fatalism: "Incoming House Majority Leader Eric Cantor (R-Va.) said on Bloomberg Television he was ready to instruct GOP members to vote down legislation Democrats plan to bring to the floor that would extend the expiring Bush-era tax cuts only for the middle class."

Now it looks like all the tax cuts will be extended, at least for the moment. But it's a baffling outcome. The structure of the situation favored -- and continues to favor -- the Democrats. No tax cuts pass without their support, and Republicans have previously admitted that their position isn't popular enough to prevail in a standoff. The only thing that's changed is that Republicans have realized Democrats aren't confident enough to enter a standoff. But it didn't have to be this way. Think back to early this week, when the president announced the federal pay freeze. "The hard truth is that getting this deficit under control is going to require broad sacrifice," he said. "And that sacrifice must be shared by the employees of the federal government." Here's what he could've said next:

It also must be shared by those among us who've prospered most in recent years. Even before the financial crisis, middle-class incomes had stagnated. But the incomes of the wealthiest Americans hadn't. Similarly, America's upper class has recovered from the crisis much quicker than the working class. There's nothing wrong with that: The country depends on the ingenuity and resourcefulness of its most successful citizens. But in a time of high deficits and belt tightening, it makes $700 billion in tax cuts that go solely to the top 2% an unreasonable expense. Those tax cuts were passed in a time of surplus, and now we're in a time of deficits. As our situation changes, so must our policy. I will veto any bill that extends those tax breaks.

Though, I frequently agree with Mr. Klein, this seems a bit off the mark. Let's envision a world where the tax cuts expire. Would the public sift through the situation and understand that the GOP used its minority status to throw up procedural hurdles on behalf of the richest few? Or, would they make the easier calculation that democrats were in charge while taxes increased, and democrats are too blame? Hm, let's quote Jon Chait to help me answer this question:

In fact, another analysis of over 40 years of presidential elections, this one by political scientists Richard Nadeau and Michael Lewis-Beck, found the same thing. Voters rewarded the president's party when times were good and punished it when times were bad -- no matter whether government was unified or divided. Nadeau and Lewis-Beck write:

The presidential office is viewed as the command post of the economy, irrespective of whether the president actually has sufficient control of Congress to implement his or her economic plan.

No matter the Congressional make-up, the public puts the President in the driver's seat of the economy. With the high-profile, nearly aristocratic status we assign to the President, this makes sense. Recall any election season. There are rarely thousands of people rallying for individual congress persons, but they are a frequent occurrence for our Presidential nominees. Add onto to that how meta-narratives of presidential elections are repeated and amplified through our media institutions and you get a very high-profile, almost deified, figure. And when things go poorly, the false gods are the first ones to go. All I'm saying is in a world where people still blame the stimulus, and subsequently the President, for our economic woes, I don't understand how the tax fight would've been any different.

Wednesday, November 10, 2010

Currency Mania

In honor of Robert Zoellick hyping some gold, I thought I'd share a favorite song of mine from Via Audio:

Friday, October 15, 2010

To Ease or Not To Ease

I have now been grappling with the issue of federal reserve action and credibility for some time. Tyler Cowen's piece in the NYT sums up the sort of cost-benefit thinking I've been going through in relation to the Fed's non actions to stimulate the economy:

"Sadly, although Mr. Bernanke clearly understands the problem, the Fed hasn’t been acting with much conviction. This is understandable, because if the Fed announces a commitment to a higher inflation target but fails to establish its credibility, it will have shown impotence. It would be a long time before the Fed was trusted again, and the Fed might even lose its (partial) political independence. All of a sudden, the Fed would end up “owning” the recession...In failing to push harder for monetary expansion, is Mr. Bernanke a wise and prudent guardian of the limited discretionary powers of the Fed? Or is he acting like a too-hesitant bureaucrat, afraid to fail and take the blame when he should be gunning for success?"


The benefits of a new rounds of quantitative easing seem very uncertain, at best. The threat to the fed's credibility as an effective stabilizer of the economy if QE fails may in fact be true, such as occurred to the Bank of Japan during its long slog. A note to be made to this is the reason the BOJ looks so impotent now may stem from the inability to get their act together and really prime the economy, but that's a completely debatable issue.

The one thing that does seem clear to me, though, is if Chairman Bernanke decides to take the QE approach, it should be an all-or-none, guns-blazing, helicopter bill dropping economy priming fest. If the Fed makes the bold promise that they will step in to correct a downward spiraling economy, as they have, and fail to deliver the job, then their credibility will take a hit. I think the best example of this is in the recent anti-stimulus furor. The Obama administration passed a stimulus that was too small, and primarily focused on tax cuts, yet they sold it as a Keynesian cure-all. When things did not turn out as well as they had hoped, not only had the administration been discredited but the act of stimulating the economy vis-a-vis fiscal policy seemed to go down with them. This is why a QE approach that is lackluster is worse than no QE at all. Unfortunately, according to Tim Day, the approach the Fed is taking will not be close to enough:

"Bottom Line: Right now, I have more questions than answers. The US economy is operating below potential to the tune of about a trillion dollars give or take...For better or worse, that leaves monetary policy to bear the burden. But the Federal Reserve is signaling they are poised to deliver far less than necessary to meet expectations, expectations that already were likely overly optimistic. Truly, it boggles the mind, and suggests that Bernanke is far more worried about the specter of inflation than the real pain of unemployment."

This is a sad state of affairs. If Bernanke really places Fed credibility above everything else, he should stay out and leave the table all-together. If, however, he believes credibility rests in jump-starting the economy, he should push all his chips in now. Over time no matter how hard he tries just placing small bets, he will inevitably be pulled into the fray when the economy does not grow fast enough. Muddling through helps no one.

Thursday, September 30, 2010

Energy Legislation Math

A few days back, Jonathan Chait linked to an article in The Hill by Daily Kos' Markos Moulitsas. The article is another in the long line of off-the-cuff midterms analysis, this one being that the fact that the democrats did not go left enough is at the heart of their midterm woes. Ignoring all the other structural factors working against the dems; mid-term during a first-term presidency, a weak economy, an unsustainable majority made up of normally republican states, Moulitsas eyes climate change as one of those wedge issues that would have tipped public opinion:

"On global warming legislation, a Gallup poll for USA Today in June found that 56 percent of Americans favored “Regulat[ing] energy output from private companies in an attempt to reduce global warming,” while 40 percent opposed. Democrats did nothing."

This ignores the basic structural feature of the Senate, representation is not proportional. The fundamentals of energy legislation do not align with public opinion, even if the public supports energy legislation that does not guarantee mean that victory of climate legislation was an inevitability. Many of the coal-mining states have democrats representing them, including, but not limited to, West Virginia, Illinois and Pennsylvania. Using a chart from the American Coal Foundation, I calculated how much of the public is represented by an alignment against energy legislation in these states. (It should be noted that I have not checked to make sure all of the democratic senators in these states are opposed, though many of these states have republicans representing them so I may only be off a percentage point or two.) With a coalition of these democrats and republicans from the least-populace republican leaning states, the amount of public represented is only 46%. This is a fundamental point missed by most commentators, even if there exists a plurality of public opinion, that does not mean that there is a plurality in the Senate. Plurality in the Senate meaning above 60 votes.

Friday, September 24, 2010

Toxie Song

Hilarious song for NPRs adventure into buying a toxic asset, which they named Toxie. Song is here. NPRs most recent article on the death of their pet asset is here.

Tuesday, September 14, 2010

Head Winds to Growth

One of the main arguments for the possibility of a double-dip recession is the amount of astounding debt that is floating around out there. Felix Salmon highlights that credit card interest rates are rising, while consumers are still racking up the debt:
But two years after Lehman Brothers collapsed, credit card default rates are still high — in fact, at 10.8% in the second quarter of 2010, the charge-off rate is hitting new highs and rising alarmingly. (It was 9.8% in the same quarter of 2009, and 10.1% in the first quarter of 2010.) Consumers are continuing to rack up new credit-card debt: far from paying down their balances at all, they’re charging new stuff every month. Yes, the total amount of credit-card debt outstanding is falling — but that’s only because the banks have given up on collecting an enormous amount of it — they wrote off $81.6 billion in 2009, and another $43.5 billion in the first half of 2010.
A rise in interest rates is not a good sign. It shows that financial institutions are lending less, hoping to try and make up for losses in their balance sheets. This issue should be no surprise to people that understand the dynamics of a financial crisis versus more vanilla-type recessions. In most recessions, a shock to aggregate demand occurs, via supply shocks, decrease in money supply, or demand-related impacts, such as loss of confidence. In these recession people to have less money in there pocket, causing them to pull back spending in order to offset the loss they have incurred from price increases or job loss. Now these types of recession presume that people's balance sheets are overall healthy, i.e. people are living within their means, it's just that price increases or lost wealth, in the context of job losses, are offset by people recalibrating their budgets to live within these new means.

Now what happens if people are living beyond their means when a recession strikes? Not only do people have to recalibrate their balance sheets in regards to lost wealth, they also are forced to pay back all that outstanding debt they had when the crisis started. This occurs because financial institutions, who were also living beyond their means, have the same balance-sheet issue. Asset-values have dropped significantly, causing these institutions to go from the black to the red, and they have to pull back on lending, calling back loans and increasing interest rates on any new loans that they give out.

This dual balance-sheet issue has two implications. First, it means the recession will be starkly longer then normal crisis. People are starting deeply in the red with debts, and therefore need to increase greatly the amount of money they save. But since job-creation is slowed down and new lending will not help pick it back up, people are going deeper into the whole, forced to take out more debt at higher interest rates to pay back the debt they already owe. Second, and this is the most important, the ways to tackle this sort of recession changes the normal dynamics of fiscal policy. Normally, tax cuts are targeted to try and induce as much spending as possible. Because normal recessions have the sole issue of inadequate demand, tax cuts/stimulus that induces greater spending on the part of the consumer is considered optimal. However, our economy is not just facing an aggregate demand problem, but also a balance sheet issue. Here is where Mark Thoma has some interesting analysis:

Initially I was critical of how the tax cuts were targeted since so much ended up going to saving rather than consumption. This is the part I am rethinking.

There are different types of recessions, and this one can be termed “a balance sheet” recession. It had a big impact not just on bank balance sheets, but on household (and, for that matter firm) balance sheets as well. Households were particularly hard hit due to declines in stock prices and declines in the value of housing. These losses were large, they upset plans for things such as retirement, and households needed to refill the holes in their balance sheets that had been created (this includes paying off debt).

How do they refill their balance sheets? By saving more and consuming less (paying off debt is a form of saving). Thus, as the recession took hold, we saw a large increase in the saving rate and a corresponding fall in consumption. The tax cuts were an attempt to reverse the decline in consumption, but instead they mostly raised the amount that went into saving.

Since consumers need to get back to square one to start consuming again, tax cuts that induce saving are not the sub-optimal policy anymore. If consumers are able to restore confidence in paying back loans, interest rates can go down, causing an increase in lending generally. Now this raises issues of normal multipliers. Is it better to increase aggregate demand now, which may seem to indicate that tax cuts for those who don't have much debt, i.e. those in the top brackets, could be beneficial, or is it better to try and recalibrate balance sheets with demand picking up once this occurs, i.e. tax cuts to middle to lower income individuals. It seems a question with a thousand answers.

Saturday, September 4, 2010

Euphemisms for balancing the budget

The now infamous Jan Brewer debate is circling the web. The funniest part I find about her stilted opener is her use of two different phrases for balancing the budget. She says, "..We have cut the budget, we have balanced the budget, we are moving forward..." Her performance shows a lack of intelligence flexibility in her use of language. Here's a few off the cuff suggestions for further talk about her fiscal policies, or lack thereof:

1. We have brought revenues in line with expenditures

2. We have cut out those free-riders getting unemployment checks instead of finding jobs, to allow all our high-income earners to keep free-riding on our low tax policies

3. We have moved money from our checking to our savings account

4. We have done fiscal realignment along the cost/income axis

5. We have gone from red to black

6. We have decided that Keynesians are a bunch of hogwash, and implemented our own unsubstantiated economic policies

7. We have ignored histories experiences with consolidation and decided to take the road less traveled, and now less paved, thanks to cutting money going to highway infrastructure

All I'm saying is that commentators need to do less to show me how she did poorly, I believe that's self-evident, but instead show me how she could have done better when her brain is stuck on recycling her conservative talking points.

Monday, August 23, 2010

Language and Psychology

Great new podcast up by the people at Radio Lab over language experiments and the ability to process the outside world. I don't have much to add, in relation to the talk. But I do find Jill Bolte Taylor's discussion about the new experiences she felt when language was taken away from her by a stroke, a very interesting experiment that seems to show support for the hypothesis that some psychoanalysts have on language. The notion that language imposes an arbitrary divide between the subject and an object, causing the subject to never experience the object as an entity in itself, instead attempting to impose a hierarchical relation to it. Though, at the same time, it's hardly an objective experimental design, what is to say that her emotions were not also created by the strokes impact on the brain itself? Nevertheless, great podcast, I would recommend it to all.

Thursday, August 19, 2010

State Budget Crisis Interactive Map

Interesting interactive map at the financial times website, here .

This highlights the fiscal picture that is often obscured in our deficits debate. For all the good the stimulus did, it was still rather small, considering the deficits the states were running. As Ezra Klein has
pointed out before, much of the stimulus dollars were used just to get states back to square one when the financial crisis destroyed their balance sheets. Since states are heavily reliant upon consumption and property taxes, and the crisis primarily hit the housing sector and also saw a massive drop in consumption spending, states were in dire need. Here is a good chart showing the states fiscal situation, that Ezra uses in his post:



This is a pretty good depiction of the downward drags facing our economy. With balanced budget amendments, states will have to cut services and jobs, causing further reduction in spending. It's not a question of whether or not stimulus is good or bad, but what are the offsetting measures that could affect the success of a stimulus that are often ignored.

Saturday, July 31, 2010

Oxford's English Dictionary for the Win

Scary article in the WSJ about internet tracking technology, this snippit helped me justify why Oxord's English Dictionary Online should be your only source for word issues:

"The top venue for such technology, the Journal found, was IAC/InterActive Corp.'s Dictionary.com. A visit to the online dictionary site resulted in 234 files or programs being downloaded onto the Journal's test computer, 223 of which were from companies that track Web users."


The joys of web searching in the 21st century.

Tuesday, July 27, 2010

The Purplish United States


Jonathan Chait
links to a comment Hendrik Hertzberg makes on his blog at the New Yorker. The issue is over the electoral college and its implications on domination of the two-party system. Mr. Hertzberg takes the view, which I agree with mostly, that the electoral college system guarantees two party domination because people are forced to make the decision about which person has the most likely chance of winning in their state. Since there can be only one winner, people have an incentive to pick the candidate who will most likely win, which happens to be amongst the two major parties. I think his comments on the ability for people to dominate regionally, even with the electoral college, deserves attention:

So that argument is merely untrue. A second argument—that N.P.V. would empower regional candidates—goes further: it is the exact opposite of the truth. Do I really need to explain why awarding a hundred per cent of a state’s electors to the plurality winner in that state favors candidates whose appeal is regional as opposed to national? “The George Wallaces of the world, which right now have basically no impact on national elections, would have a much larger voice,” she argues. No impact? In 1968, Wallace, whose appeal was regional, got 13.5 per cent of the popular vote and 46 electoral votes. In 1992, Ross Perot, whose appeal was national, got 18.9 per cent of the popular vote and zero electoral votes.


This sort of regional appeal issue harkens back to some reading I've been doing in a book by Morris Fiorina called,
Culture War: The Myth of a Polarized America . The main thrust of the book is the notion the US is a nation embroiled in a war between 50% conservatives and 50% liberals is media hype. Instead, the nation exists on a continuum, with most people straddling the moderate category. The best example of this is his use of the often viewed electoral college map of the 2004 presidential contest:




This graph reinforces the notion that we are a starkly divided country, with the southern united states being the gun-toting, freedom-loving conservatives pit against the northeastern/western free-love, big-government liberals. However, this is misinformation, if one were to look at the percentage of blue/red individuals within states the picture becomes quite different:




If you'll notice the stark red/blue divide goes away, and instead much of the country turns purple. In other words, the red-south, blue-northeast/west coast divisions are hype. In looking at these, I agree with Mr. Hertzberg's claim that the electoral college actually makes regionalization easier on the voting level, but I also think perception has a factor in it, as well. There is a famous bias discovered by Amos Tversky and Daniel Kahneman known as the
availability heuristic . This heuristic basically says that the most widely available information colors an individuals perception. For example, I have a friend that smokes cigarettes and yet can run miles a day, therefore I am prone to think that cigarettes impacts running less than what is actually scientifically true. The stark blue/red electoral college maps are an example of this. It is a a very nice and easy map for the media to use to portray the stark differences in the country. Nothing gets more ratings then talking about the fights that go on in american politics. Saying something along the lines of, "The US is a pretty moderate country with mixed views throughout," is less likely to get ratings then saying, "A battle is being waged between blue and red factions for the heart of the country." This sort of reporting would seem to enhance the regionalization created by the electoral college. Not only does it give electoral rewards, via electoral college votes, for those people that focus on winning the south, but it also sends a covert message to the voter that this area is more conservative/liberal, therefore it is my interest to vote/not vote because I am a blue person living in a sea of red, or vice versa This is all just speculating, but I would like to see if there's been any experiments using these two different maps as primers to see if it influences people's opinions of certain region's views.

Friday, July 23, 2010

Christmas Card-Gate

Politico informs us that, if God decides to abandon the United States and allows for the Republicans to retake control of the House of Representatives come November, then Michelle Bauchmann (and her new Tea Party caucus) will follow through with what the American people want: investigations!



If Republicans take the House in November, Rep. Michele Bachmann of Minnesota says that “all we should do is issue subpoenas and have one hearing after another.”
Speaking at the GOP Youth Convention on Thursday in Washington, she said she hopes to "expose all the nonsense that is going on.”
Although I was but a wee lad during the Clinton Administration, I have been absolutely fascinated by the bizarre and un-relenting conservative outrages, often courtesy of the newly-invented Drudge Report, that quickly became full-scale Republican investigations.  There was Whitewater, Cattle-gate, and Travel office-gate among many others.  But by far the most fascinating "Gate" of the Clinton Administration was Christmas-Card Gate. Courtesy of the Straits Times (no-link):

President Bill Clinton and First Lady Hillary Clinton could face charges of "theft of government property" for transferring a White House database to the Democratic National Committee to help raise election funds, according to a government report.
Allegations that the Clintons had authorised the list's transfer have long swirled.
But the report by the investigative sub-committee of the House Government Reform and Oversight Committee could be the first step in their substantiation. 
The database, put together with taxpayers' money, is reserved for official White House use.
It includes records of people who attend social events and meetings as well as the Christmas card list
Another example of the liberal War on Christmas?  Perhaps.  But more interesting are the investigations instigators, Rep. David M. McIntosh (R-Indina), and House Speaker Newt Gingrich, who can provide us some insight into the future allegations of wrong-doing in the Obama White House--especially if we consider the electoral viability (or lack thereof) of Mr. Gingrich.

McIntosh (courtesy of The Guardian, no-link):

Republicans insist that the political use of public assets is illegal, and are to subpoena Ms Scott to face questioning by the House committee on government reform. Already there are two other congressional inquiries and one justice department probe into the fund-raising scandal, which is now dwarfing the old Whitewater affair as a threat to the Clinton administration - and to Mr Gore's hopes of succession.
"I think it is very serious for Mrs Clinton," said Republican congressman David McIntosh, a former aide to Ronald Reagan and his vice-president, Dan Quayle, who is chairing the probe into the database affair. "It troubles me deeply that Mrs Clinton, a very bright lawyer, saw no problem with using taxpayer funds to aid the political operations of the DNC."
Newt:

The Republicans are hoping, almost desperately, that the latest fuss over Vice -President Al Gore and Mrs Clinton will reach a critical mass of public outrage. So far, mainly because the public seems to see the affair as politics-as-usual, there has been no dent in Mr Clinton's poll ratings, which are still close to 60 per cent approval.
"This has clearly become the most systematic effort to get around the law that we have seen since Watergate," said the Republican Speaker of the House of Representatives, Newt Gingrich. "The total effort is, in fact, much bigger than Watergate and far more insidious."
All this is to say: I am not looking forward to the 112th Congress.

~Louis~



  

Tuesday, July 20, 2010

Present-Oriented versus Long-Term Benefits

While reading this Salon article about whether cheaper doctors provided worse care this passage stuck out to me:

In addition, a doctor's ability to build a large client base—and gain leverage for negotiating with insurers—might have little to do with patient outcomes. Studies have shown that patients' hospital preferences are more responsive to improvements in amenities like wireless Internet and on-demand video than the likelihood that the hospital will help them get well.

This is not all too surprising. When using cost-benefit analysis, individuals rely upon certain heuristics, or short-cuts for complicated decisions. One of the most often discussed is a present-oriented bias. Individuals often give greater weight to current benefits, over long-term benefits when making decisions. This TED talk by Esther Duflo makes this point.


In this talk Prof. Duflo discusses an experiment her team did with vaccinations. In this experiment they had two groups. Both groups were offered free camps for people to get their children immunized. Group 1 was given the option of going to these camps. While Group 2 was given an incentive, in this case, a kilogram of lentils. Group 2 had much higher immunization rates. This was a striking finding because if rational cost-benefit decision-making holds true that would imply, the benefits of immunization against the costs of getting a disease, or B(immunization) vs. C(Getting Disease), should be less than the benefits of immunization plus the benefits of free lentils, or B(immunization + lentils) > B(Immunization).

But, in her talk, she comments on how a kilogram of lentils is an inconsequential incentive, it is only enough food for barely a day. So therefore, once again assuming rational cost-benefit decision-making, B(lentils) > C(Getting disease), which if you think about it should not seem true. The long-term costs of getting a disease can include, among other things, high medical bills, time away from work, death etc. What the talk shows is how present-oriented benefits, a la free lentils, can play into the hands of peoples' present oriented bias. From that sort of discussion, it is not surprising to find out people care more about whether or not they have a nice television or a good wifi connection versus a good doctor, because the benefits of a good doctor accrue over time whereas the inability to surf the web are something that individuals accrue at the time of stay in the hospital. This strikes a blow into attempting to do cost-control at the consumer level, which unfortunately, is what a lot, not all, that the PPACA (health care reform) relies upon. It means there needs to be much more effort at getting providers to pare down the cost, not consumers.

**I am a big proponent of the health care legislation, though I feel, like many, it is a necessary but not sufficient step in changing our health care delivery and price system.

Our Warming Planet

Just thought this graph was a nice concise image of the current upward trend in global temperatures. Via wonk room, these last 12 months have been the hottest in history:



Then again, to channel CNN and give equal sides to this debate, Dome C in Antartica is set to have average highs of around -80 degrees fahrenheit in the next week. So I guess we can't say for sure...

Monday, July 5, 2010

Brooksian Economics versus Actual Economics

Ah, another week, another David Brooks attempt to condense a complicated issue into a story about the social forces dominating American economic life. On his plate today, Mr. Brooks uses the fear of deficits to attack any increased stimulus:

The theorists have high I.Q.’s but don’t seem to know much psychology. Lord Keynes, though a lesser mathematician, wrote that the state of confidence “is a matter to which practical men pay the closest and most anxious attention.” These days, debt-fueled government spending doesn’t increase confidence. It destroys it. Only 6 percent of Americans believe the last stimulus created jobs, according to a New York Times/CBS News survey. Consumers are recovering from a debt-fueled bubble and have a moral aversion to more debt.


Though I do appreciate his acknowledgement of Keynes foray into behaviorism, an often overlooked aspect of his theory, he seems to miss the boat here. Via Ben Somberg:

A Pew Research / National Journal poll from early June asked "Which of the following national economic issues worries you most?" Number one was "job situation" with 41%. "Federal budget deficit" got 23%.
An NBC / Wall Street Journal poll from early May asked "Please tell me which one of these items you think should be the top priority for the federal government." Sure enough, "job creation and economic growth" won with 35%. "The deficit and government spending" got 20%.
A Fox News poll also in early May got even more dramatic results. "Economy and jobs" topped the priority list with 47%, while "deficit, spending" garnered only 15%.
A CBS / NYT poll in early April found 27% prioritizing "jobs", 27% the "economy" and 5% prioritizing "budget deficit/national debt."
In the USA Today / Gallup poll from late May . . . participants were asked "How serious a threat to the future well-being of the United States do you consider each of the following." For "federal government debt", 40% said extremely serious, 39% very serious, and 15% somewhat serious. For "unemployment", 33% said extremely serious, 50% said very serious, and 15% said somewhat serious.

You know what American's don't like, having to compete with 5 other applicants for every job they are applying for, while also being underwater on their mortgages. Even if there exists some anxiety over the amount of deficit the government holds, the increased quantity of money in people's pockets goes a lot farther to quell that unrest than half-hearted attempts at budget peacockery. These arguments about quelling the anxiety of the consumer seem to see behavior only being affected by governmental policy and not economic fundamentals. To deficit hawks, only the government's fiscal policies can impact the firm/consumer's feelings about spending decisions, whereas signs of economic growth can not. If this were true why would economic anxieties be reaching their zenith when the ARRA is on the decline, and the economic recovery is slowing down. Both of these trends would seem to either indicate the irrationality of hawks, which would seem to be a case for more spending no matter what, or that other factors are at play in increasing the anxiety of firms/consumers. I'll have a post later elucidating my feelings about government stimulus and waning aggregate demand, though if you view my blogroll, it would seem pretty apparent on which side of the debate I stand.

Wednesday, June 30, 2010

Ricardian Equivalence, when 19th century economics strikes back

Jon Chait, over at The New Republic, has this nice little find from the always entertaining op-ed section of the Wall Street Journal. Today's entertainer is Allan Meltzer of the AEI. Prof. Meltzer seems to have his doubts on the effectiveness of the stimulus. Unlike some more nuanced criticisms, such as Mark Thoma's Stabalization versus Growth issue, Meltzer kicks it old school, using a favorite of conservative economists:
"Most of the earlier spending was a very short-term response to long-term problems. One piece financed temporary tax cuts. This was a mistake, and ignores the role of expectations in the economy. Economic theory predicts that temporary tax cuts have little effect on spending. Unless tax cuts are expected to last, consumers save the proceeds and pay down debt. Experience with past temporary tax reductions, as in the Carter and first Bush presidencies, confirms this outcome."
This notion that temporary tax cuts don't increase consumption because people will defer current consumption to pay for future taxes, whereas permanent tax cuts are good because people will not defer, but consume now, borrows from an idea Robert Barro, an economics professor at Harvard, calls Ricardian Equivalence. In this view, any tax cuts that are financed by adding to the deficit will cause consumers to save more now to offset increased taxes in the future. This relies on the belief that consumers have perfect information and are completely forward-looking, luckily a Noble Prize winner has already been handed out to someone for dismantling this view, Joseph Stiglitz from his new book Freefall, take it away:

Now the interesting thing about Meltzer's argument is that not only does it assume that consumer's are completely forward-looking, ignoring borrowing constraints people face, as well as, the uncertainty people feel towards the futuer, but it also tacks on the belief that consumer's can distinguish between tax cuts that will "pay" for themselves if they are permanent versus those that are temporary, and will be rescinded. This seems like quite a leap of faith to me, surveys show that barely 50% of Americans can accurately name a basic economic idea, the unemployment rate. Until surveys show a massive majority of people understand even these basic ideas, I will be highly skeptical of any claims that consumers can accurately predict the intricacies of economic policy.




Tuesday, June 29, 2010

Polling Fail

Damn.  I've been looking at Daily Kos' Research 2000 polling for over a year, because, well, I trusted their numbers, and often developed a sense of optimism from their conclusions.  


Kos:
While the investigation didn't look at all of Research 2000 polling conducted for us, fact is I no longer have any confidence in any of it, and neither should anyone else. I ask that all poll tracking sites remove any Research 2000 polls commissioned by us from their databases. I hereby renounce any post we've written based exclusively on Research 2000 polling.
Damn.  


Read the detailed report here from the scientists Markos hired to uncover Research 2000's fishy polling.  And of course, Nate Silver.

~Louis~


[Update] via Greg SargentThe lawsuit

Monday, June 28, 2010

Jindal Follow-Up

Seems there is some actual reporting going on in relation to the political tug-of-war going on between Jindal and the White House over the oil spill:

1. This report by Faiz Shakir at The Progress report seems to be the best summary of attacks made by the Jindal regime, and the steps not taken to try and address the spill. Seems the EPA and Army Corps have looked into the most promising of Jindal's ideas, the Sand Berms, and ruled them to be exorbitantly expensive and impossible to predict their long-term effectiveness due to wear and tear of environmental factors.

2. This next article in the NYT captures the heart of modern anti-government/free market sentiment. Even after the knowledge of that same EPA review which ruled the berms ineffective, at best, environmentally destructive, at worst, they were still allowed to be created. But once dredging was halted in an environmentally pristine area, Jindal went full Sarah Palin (the Thrilla from Wasilla, as Louis and I aptly call her) on the White House,

"But the public disagreements have not stopped. This week federal authorities halted the dredging of sand for the berms in a certain part of the Chandeleur Islands, saying it violated the state’s permit and could jeopardize the islands themselves. Mr. Jindal replied by urging the federal government to “get out of the way” of a necessary defense strategy."

This notion that all the federal government has to do is lower the barriers and let the invisible hand do its work, makes little to no sense in the context of disaster management. This is a moment where disequilibrium, not equilibrium, rules. As was shown in the financial crises, when incentives are not aligned to make sure someone actually takes responsibility not just for the mess they created (i.e. securitizing mortgages), but also for the cleanup (i.e. resolution authority/bailout funds) then people/firms/governments do not easily come to a consensus about what is the right course of action. Instead, when disaster strikes, everyone is caught off guard and equilibrium is shattered, causing chaos to reign, and no one to be at the helm of a ship that has been left to steer the "free waters" for years. The bailout was a good example. Though a necessary pain to prevent an outright depression, it still left many of the critical decisions (executive pay, creditor haircuts, future management choices etc.) up to the financial firms, believing that all the government had to do was provide the map and the market would steer everything back on course. It seems Jindal's response to this off-course ship, that is the oil spill cleanup, follows this same sort of chaos. Let anyone and everyone try their hand at righting the ship, and if enough people are in on it, then the ship will inevitably get back on course. Unfortunately, this type of response means that the costs of failed attempts at righting existing wrongs are ignored. The smartest people, who have navigation skills, only get their chance at the wheel once some people have steered the ship for hundreds of miles in the wrong direction. It's the inability to internalize those externalities that causes much clouded thinking by proponents of the powers of the invisible hand, when, instead, regulation is what's needed when the equilibrium is shattered.

Friday, June 25, 2010

Strategic Blunders and Bobby Jindal

Polarization seems an endemic part of our current political climate, but would people really think that it would go so far as to affect the state responses to the current disaster, in order to score easy points against the White House. Well, according to a CBS report, Governor Jindal may be playing the political game with disaster management:
"But nearly two months after the governor requested - and the Department of Defense approved the use of 6,000 Louisiana National Guard troops - only a fraction - 1,053 - have actually been deployed by Jindal to fight the spill... "Actually we asked the White House to approve the initial 6,000," Jindal said. "What they came back and said is the Coast Guard and BP had to authorize individual tasks."...Coast Guard Adm. Thad Allen...said Jindal is just flat wrong. "There is nothing standing in the governor's way from utilizing more National Guard troops," Allen said...In fact, the Coast Guard says every request to use the National Guard has been approved, usually within a day. Now Jindal's office acknowledged to CBS News the governor has not specifically asked for more Guard troops to be deployed."

Now this is speculation, but the backtracking by the Governors office does highlight an interesting disconnect between rhetoric and reality here. I understand some would say that this is just a politician being a politician, trying to rhetorically demonize the only other plausible option for voters, the democrats, while not really changing the substance of the situation. But it seems to go against the strategic interests of politicians in our representative system. Jonathan Bernstein, over at his Plain Blog about politics, has a series of posts, here and here, arguing about the nature of representation in a system that does not rely on direct governance. For Bernstein, representation does not mean that a politician follows in lock step with the public opinion polls within their given constituency, but instead they create a pseudo-contract between politicians and constituents, over campaign promises that are made:

"And, again, my point is that as long as a politician fulfills her promises, and explains what she's doing in a way that strengthens her constituents' trust in her, then she's a good representative."

Now this is what strikes me as interesting about Jindal's move. Though these rhetorical jabs may help to bolster him in relation to Obama, the politically strategic maneuver would be to bolster him in relation to the next person he sees challenging his governorship. Empty promises post this disaster seems to violate one of the fundamental tenets of his platform from the 2007 campaign, that Louisiana would not experience the sort of state level incompetence they experienced during Katrina under Governor Blanco. So what is Governor Jindal doing here? It seems, though, many counted his chances at national prominence over his now infamous response to Obama's State of the Union, he's playing like a politician who is responding to a base of constituents far beyond his home state. It's nice to see even the the fringe candidates gearing up for 2012.


Thursday, June 24, 2010

Identity Economics and Cartooning Around


Ho Internet,


To kick off this quaint little forum, I thought a post that blends three of my favorite subjects; economics, cartoons, and contrarianism, would be fitting. My friend/fellow blog cohort, Louis, stumbled across this article by Frances Woolley at Worthwhile Canadian Initiative comparing Spongebob and Canadian education/immigration policies to Akerlof and Kranton’s “Identity Economics,“ which I would say is a must read for anyone interested in sociology or economics.


Woolley boils down Akerlof and Kranton’s thesis to the notion that if a person’s place of work affirms their self-defined identity then they will be more productive. In the case of the show Spongebob, the character Squidward is the unproductive employee because he deems himself an intellectual and therefore over-qualified to be working as a cashier at the local burger shack, whereas Spongebob believes being a fry cook is his calling, so his job reaffirms his identity, causing him to work harder.


Woolley ties this over-qualification, under-performance problem to Canadian immigration policy:


“In Canada, the problem of over-qualification is exacerbated by our immigration system. Canada admits immigrants on a point system that gives preference to highly educated candidates. However research by Phil Oreopoulos suggests that Canadian employers place little to no weight on foreign credentials and experience, while Steven Wald and Tony Fang and others have found that immigrants are more likely to be over educated for the jobs they hold.”


The study by Oreopoulous concludes that outright discrimination, not the points system, is at the heart of immigrant’s inability to get the jobs that they are qualified for:


Regardless of what behavior underlies these results, deciding whether to interview an applicant based solely on his or her name is illegal under the Ontario Human Rights Act. …Previous research on why immigrants do not assimilate in the labor market has largely ignored this potential explanation, perhaps because of lack of data ... Discrimination causes immigrants to miss out on hiring opportunities in situations where they are most qualified for a job.”


This harkens back to a point of Akerlof and Kranton’s Identity-based method that Woolley misses. It is not that individual utility can only be increased by realizing some self-made ideal, but utility-maximization can occur by fitting into a group that the individual feels a part of, “The utility then derives from group processes (p. 24).“


In the case of Spongebob, there is an episode where another employer buys Spongebob’s contract and tries to force Spongebob to make food for his burger joint. This competitor, named Plankton, even goes so far as to make an exact replica of the kitchen that Spongebob worked in previously, but that doesn’t make Spongebob work anywhere near as hard as he did at his old job. Spongebob does not feel that the competitor’s culture maximizes his pleasure, even though he is doing his same ideal job. Group-created culture and atmosphere, not just individual ideals, create utility.


If one looks at the question of over-qualification and immigration from this standpoint, then company-based discrimination becomes important. The issue of responsibility is no longer on the numbers game of immigration policy, is the country letting in too many over-qualified immigrants, but instead becomes centered around policies used to incorporate immigrants into the economy, is the economy structured fairly to allow immigrants to feel like they are part of the in-group of the economy?


The productive benefits to inclusion of people into these in-group’s are numerous, as outlined in Akerlof and Kranton. They pull from Muzafer Sherif’s famous experiments on inter-group bias, which show how people are bias towards the groups they have been assigned to/pick themselves, and likely to work harder for them. Spongebob only can identify himself with the Krabby Shack, and not Plankton’s Chum Bucket, therefore working for the former, but not the latter. One example Akerlof and Kranton use is how the best schools garner consistent results. These "model" schools are constantly attempting to break down divisions within student groups, creating a more holistic group encompassing the entirety of the school. This sort of what’s good for the group is good for you, reminds me of a now famous New York Magazine article which focuses on Goldman Sachs. Goldman benefited from this sort of inclusive atmosphere compared to its competitors:


“The cult of the individual, which I think has been a disadvantage to so many of the firm’s competitors, really doesn’t exist here,” says Lucas van Praag, the British-born communications director. “The more you have acceptance, the easier it is to be effective.”


So what does all of this say about where to take immigration policies from here. One idea is to provide more social networking for incoming immigrants. Providing tax-breaks to employers at medium to small sized firms for hiring recently admitted immigrants. A stricter enforcement of anti-discrimination policies may also be an idea. Oreopoulous and his coauthors were able to deduce this discrimination from merely mailing in applications. I wonder if this could not be replicated by the appropriate governmental agencies?


Nevertheless, this focus on the notion that over-qualification is an inevitability allows easy scapegoating, when concrete solutions seem like a better point for discussion.