Showing posts from August, 2010

The Speech

The Prez gave our troops some well-deserved props, but the speech was otherwise pretty low on content. Yes we need to fix the economy, so how do you propose to do that? We would like to get the leaders of al Quaeda, but they don't even seem to be in the country we are taking big casualties to occupy. What's up with that? Where is the leadership? UPDATE: Kevin Drum heard more in the speech than I did and has a somewhat more positive take on it

Economic Evidence

In the comments, Wolfgang says: ...the problem is that there were also economists that predicted that the stimulus program would not work. So how do you distinguish 'not big enough' from 'would not work' ? By the way, i am of the opinion that TARP and various Fed programs had a big positive impact, but the Obama stimulus program made no significant difference (except increasing the deficit). How do you evaluate such an opinion? Good question, but how about explaining your reasoning in so concluding? Opinions, mine anyway, can be cheap, but evidence is pricier, as WB points out. One of the things that makes economics seem more like a religion than a science is the fact that economists seem unable to agree even on most of the basic kinds of evidence. In my opinion, the direct effect of the stimulus looks fairly easy to calculate: x-dollars went out the door, y people got or kept jobs as a result. Positive feedback is only slightly harder - the people hired spent mone


They say that we get dumber faster as we get old. I watched part of Fauxsnooze Sunday today and liked it better than Christianne Amanpour's This Week . Some highlights from the latter: CA's no-brow bangs have been thinned enough to hint that she might actually have a forehead. Michelle Rhee needs a less asymmetric botox. The Sec of Ed needs to get more sleep. The leader of the AFT aparently had her head screwed on slightly sideways. And, oh yeah - we could use better schools.

My Bad

Various economists are fessing up to past errors of judgement. The reader must judge the sincerity and remorse in these sentiments. Here are Brad DeLong, Tyler Cowen, and Megan McArdle. I'm a physicist, not an economist, and my eccentric ideas in physics aren't even wrong - yet, so my confession will be about my political misjudgements. I didn't think that Obama would be so easily cowed by the CIA, the DoD, and especially, Wall Street. I drastically overestimated both his ability and his will to use the bully pulpit of the Presidency to lead the country. I underestimated his timidity and overestimated his fight. I didn't think he would fiddle while the economy burned. I didn't think that Republicans would try to wreck the country in their efforts to destroy Obama. My bad.

What's In a Name?

What’s in a name? Would not a turdorch* by any other name smell as sweet? Today's question is inspired (or perhaps provoked) by this Steve Landsburg claim: "well formed statements about arithmetic are either true or false, regardless of whether they have proofs or disproofs." For example, the following: "Every even number is the sum of two primes." Steve Landsburg has a series of posts on the foundations of arithmetic. I won’t try to summarize them in any detail, so it’s not likely that you will be able to follow my argument below without reading them at least in part. There is a central point I want to dispute, that “every well-formed arithmetical statement is either true or false,” whether provable in some axiomatic description or other. This claim assumes that numbers, and their arithmetic, have an existence independent of that axiomatic description. As a philosophical point, I tend to agree, but the point is hardly self-evident. The strange thing to me is t

Envy as a Virtue

If I recall correctly, Envy is reputed to be one of the seven deadly sins. Its vile reputation is well celebrated in art and literature, including this recent piece but I always like to try to comprehend the social function of common but unpopular behaviors. Envy is a pretty fundamental element of social glue, I think. People band together in cooperative groups if they think it profits them, but when the benefits go disproportionately to one or a few, it becomes hard to trust the social bargain. That's precisely the situation in most large societies, of course, so it becomes important to suppress envy as a disreputable emotion. Just sayin'.

One Personal Data Point

In 1850, Glacier National Park had 150 glaciers. When I visited it the day before yesterday, they were down to 26, and shrinking.

Bernie Madoff Was a Piker

You probably don't understand the great financial meltdown of 2007 if you haven't read Michael Lewis's book The Big Short . He constructs a persuasive case that that meltdown was the direct result of the most massive fraud in financial history. That fraud had more than one origin, but the engine of doom at its heart was conceived by our friends at Goldman Sachs, picked up by Deutsche Bank and then everybody else. Its elements, as outlined by Lewis, were these: vast packages of really rotten home loans were packaged, tied up with various bows, and sold as triple AAA and other highly rated bonds. In order to get these high ratings they engaged in systematic campaigns to confuse, misinform, bribe, and intimidate the ratings agencies that produced these ratings. Because there weren't enough of these truly rotten mortgages to package, they created synthetic products of side bets on the value of these bonds, and packaged and sold them with high ratings. When the meltdown happ

Dumb Money

The efficient market hypothesis (EMH) is the central tenet of the Chicago economic religion. According to that dogma, the prices of products and capital computed by the market are optimal within the constraints of the information available. This optimization supposedly happens because agents could otherwise profit by taking advantage of mispriced assets. In capital markets this occurs by “shorting” the stock or bond in question, in effect betting that its price will go lower. In the real world, as opposed to the EMH model, information is often in short supply, especially where intent of fraud is in action. In such a circumstance, those who first recognize what’s happening can reap outsize rewards even as a house of cards comes tumbling down. Michael Lewis’s book, The Big Short: Inside the Doomsday Machine , is, among other things, the story of those who figured out how to take advantage of the inevitable collapse of the giant Ponzi scheme that mortgage backed securities (MBS) had becom

Idiots and Statistics

One of the unhappiest marriages of modern technology is that of economists and multiple regression. With the aid of a computer, multiple regression is simple enough for anyone to do it, and far too many of them do. Another egregious example seems to be Dr Dave Berri (with details here ). His technique produces a number of counterintuitive results - for example, he rates Derek Fisher of LA as the least productive player on a winning team. This is sufficient evidence for me to rate Berri as an idiot among economist multi-regressors. The are several kinds of pitfall for multiple regression, prominent among them neglect of correlations and of variables not in the regression. This sort of thing is especially evident in the kinds of statistics Berri uses. Key stats are what he calls "defensive efficiency" which is essentially just points scoring of the guy you are guarding and "offensive efficiency," scoring per unit time. These stats are very easily contaminated. If yo

Why Health Care Markets Don't Work

Brad DeLong points us to Kenneth Arrow and Uwe Reinhardt on why health care markets don't work. The central clue is asymmetric information. Arrow figured this out in 1963! The promotion of markets in health care since then has had the effect of destroying some of the social glue that helped health care function despite the markets. My favorite line (Reinhardt): In my view, when economists wax mushy on the virtue of what they call “efficiency,” it is time to run for the hills, for they are selling a preferred moral doctrine in the guise of science.

Worst American

Various idiots on the right are flogging the idea of a list of "worst Americans." Nominees to date include the usual suspects - Obama, Jimmy Carter, FDR - as well as some less conventional choices: Lincoln, Washington, and Andrew Jackson. Paris Hilton and Michael Moore are presumably included for comic relief. Lists, of course, are for the weak. Make one choice and stick with it, I say. So I've got to go with Chris Columbus - the sailor, not the filmaker. He not only initiated the slaughter and genocide of hundreds of millions but was a pretty nasty and avaricious fellow in his own right. Hell of a sailor, though.

New Golden Age of Pop?

Quite suddenly, for me, popular music is again sounding really good - musically interesting and dramatic. If you don't keep up, you might want to check out Love the Way You Lie . Besides the music, we have Megan Fox and Rihanna minus pants (and Eminem and Meriadoc Brandybuck sans shirts) in a rather dramatic video. On a lighter note, there are Taylor Swift and T-Pain laying it down not hardly freestyle.

The German Economy is Allright

Tyler Cowen: Here is another factor behind the recent German economic success: A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis. ... The U.S. auto bailout, for instance, worked better than did most of the stimulus program. Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure.

Burnett on Jobs

I think that Bob Burnett is on the mark in many of his economic precriptions . Some excerpts: The roots of the jobs crisis stretch back to the Ronald Reagan presidency when conservative economic ideology began to dominate American political discourse. At the forefront of this philosophy were three malignant notions: helping the rich get richer will inevitably help everyone else, "a rising tide lifts all boats;" markets are inherently self correcting and therefore there's no need for government regulation; and the US does not need an economic strategy because that's a natural consequence of the free market. What followed was a thirty-year period where America's working families were abandoned in favor of the rich. Inequality rose as middle class income and wealth declined... America has economic cancer and radical surgery is required. First, there has to be a massive redistribution of income by increasing taxes on both the wealthy and financial institutions (parti

Pride, Prejudice and Honor Killings

The first book I read on my new Kindle was Pride and Prejudice. I hadn't read it before but I'm happy to report that Miss Austen did a pretty good job of capturing at least the spirit of the Keira Knightley movie - except for the latter's cheesy American ending. The book got me thinking, though, about the problem of "honor" killings. From a Darwinian point of view the honor killing seems profoundly unnatural - killing one of your own offspring just at the point of reaching her reproductive capacity seems very anti-fitness. I recall recently reading somewhere that a spate of honor killings in India was a new phenomena, related mainly to the disintegrating power of the traditional family organization. Family control of daughters is apparently a key instrument of social power. There weren't any honor killings in P&P, to be sure, but flighty Lydia's running off with the rascally Wickham was a similar type of social earthquake. For her to be living with him

More Faux Demagoguery

I was talking to a couple of conservative friends last night and they assured me that taxes on dividends were going up to 40% next year (from the current 15%). One retired gentlement was convinced that this was going to devastate his life style. I didn't ask how much money he was making, but he indicated that it was less than $100K - and pretty clearly a $25,000 or so income cut would be pretty painful. Anyway, I decided to check out the rumor. It seems that Faux Biznews, Larry K r udlow, and their ilk have been pushing this meme. The reality is, that if the Bush tax scheme expires without modification, dividends would be taxed at the rate of ordinary earned income, and income over $385,000 or so would be taxed at 39.5%. Someone with an income of $100K would not see any of this rate, and the average rate would more likely be on the the order of 17-20%. Congress is likely to do some adjustments though - either freezing in place the current rates or putting in a new dividend rate of

You Ain't Seen Nothin' Yet

Record temperatures around the globe, massive draughts and fires, and huge floods have killed thousands (or tens of thousands) this summer. People are starting to ask "Is this what global warming is like?" It's a hint, maybe. Or a tiny cell-phone preview of coming attractions. We have probably so far seen only half of the warming already baked in the cake if we stopped using fossil fuels tomorrow. Heidi Cullen offers her take here. I was a bit surprised to learn that heat is already the number one weather related killer in the US.

A Last Chance for Obama to Make a Difference

The last few week have seen the double whammy of a deteriorating economy and the associated popularities of the President and Congressional Democrats falling like a bag of dirt. Is there anything Obama can do? I can't believe that the kind of small beer talking to auto workers is going to do much for the country. What he could do is something dramatic. Announce a national economic emergency and call on Congress to cancel recess and get back to work with a focussed agenda: create two or three million direct temporary federal jobs - a version of the Depression's CCC. These jobs would be in labor intensive, direct short term jobs - teacher's aides, elder care, infrastructure maintenance - As Robert J. Schiller advocated in this NYT Op-Ed entitled "What Would Roosevelt Do?" . Republican's would doubtless resist, but at least that would give Democrats a club to beat them with, and a program should they salvage the election.


Obama seems poised to lead the Democratic party to a historic bloodbath, and it's hard to say that they don't deserve it. Unfortunately, Republicans are so much worse that it's hard to avoid despair. Obama's decision to seek the Presidency was a bold one, but having won it his boldness seem to desert him. Instead we have seen a pattern of deferring to elites and avoiding taking on the Republicans squarely. Without strong leadership, the Democratic Congress seems afraid of its own shadow - witness, for example, their cowardly failure to support health care for the 9/11 responders. There was a time, I think, when a bold plan for jobs might have turned the tide: say two million direct hires for a CCC type program. Now, I think, it's much too late. The President is going around the country cheering tiny victories while the jobs economy is in collapse.

Review of String Theory

"The universe has eleven dimensions, but we don't see seven of them. It's like having basic cable." That is an approximation of the most memorable quote from String Theory, the movie. Yes, there really is a movie by that name, starring people you never heard of, and there is even quite a bit of chatter about string theory. Getting the drift of this movie is a bit like learning string theory - time consuming and arduous. After the initial scene where the preacher croaks in the middle of giving a sermon to a nearly empty church, it takes quite some time to introduce the other main characters - a mute boy, a homeless man, a prostitute whom we are sure will turn out to have a heart of gold, a string fanboy/druggie/??, an aging physics prof, a mercenary coke snorting televangelist, a couple of hoodlums... you get the idea. OK, I picked up this movie for the title. Aside from the morality play/action drama playing out in the background, an awful lot of this movie is

What Norquist Wants

Grover Norquist and his Americans For Tax Reform basically have only one principle: low taxes for the rich. One of the myths they spread is that the US is a high tax country. It isn't. True, there are lower tax countries. Pakistan for example. Sierra Leone. It's not coincidence that these countries are a mess. Their governments lack the resources to organize a modern country - though of course their corruption is a factor as well. Among OECD countries. in typical years only Mexico has a lower tax burden than the US - not coincidentally another country that is having great trouble holding itself together. These low tax paradises may be hell for the average citizen, but the rich can live high on the hog. Servants work cheap. Let's say no to the Republicans who want to turn us into Pakistan or Mexico.

Holes: Black and White

Lubos Motl has a new post up on Black Holes and White . I think that he gets a bit carried away with his theme that white holes are not time reversed black holes, but he makes some illuminating points. From the standpoint of pure general relativity, I think, it really is true that white holes are time reversed black holes - at least from the standpoint of a distant observer. There is one very important experimental fact about white holes: they don't seem to exist. There is one sort of exception, however: the Big Bang. I asked him about this, and if I correctly understand his answer, it's this: entropy. Black holes have a very large entropy, but the big bang had extremely low entropy. I like this answer a lot, mostly because it takes us back to microphysics. What follows are my own thoughts, inspired by Lumo's comment but hardly his fault. If we look at a black hole in terms of its interior, or maybe just its surface, as a seething mass of strings (or what have you),

Deflation Hawkers

There is a widespread and well justified fear of deflation among economists. Paul Krugman rarely misses an opportunity to warn about it. The basic argument is that deflation destroys jobs and creates economic paralysis, since it makes it more valuable to sit on money than spend or invest it. There is plenty of history to back this view. Not everybody shares this view though. Michael Pento, allegedly an economist for some investment fund, is one who doesn't. He makes his argument here. - shame on Huffington for this. Deflation is an ill wind, but it blows good to some. Borrowers may be crushed, but lenders do very well indeed - if they can get their money back. History has more than a few fortunes built on the power of deflation to extract money from the public and concentrate it in the hands of bankers. The rentier class is the big benificiary of deflation. Entrepreneurs and workers grow poorer, but the rich grow richer. Unfortunately we live in a time when that class has


It's pretty universally understood that what the economy needs now is jobs. I have argued for direct government employment. Tyler Cowen, a fairly conservative economic voice, has a comment here on this New York times Op-Ed by Robert Schiller. ACROSS the United States, thousands of federally financed stimulus projects are under way, aimed at bolstering the economy and putting people to work. The results so far have not been spectacular. Why not? There’s nothing wrong with the idea of fiscal stimulus itself. We need more stimulus, not less — but we need to focus much more on actually putting people to work. Two friends of mine, both economists, came upon a stimulus project recently that illustrated the problem. On a Wyoming highway they saw a sign that read “Putting America to Work: Project Funded by the American Recovery and Reinvestment Act” and prominently featured a picture of a worker digging with a shovel. Out on the road, there was plenty of equipment, including a gigantic


Christiane Amanpour has been a great reporter, but I didn't care for her as moderator of ABC's This Week . She did ask a few good questions when she was on the subject of Afghanistan, but when it turned to the economy, and there was actually something interesting coming out between Will and Krugman, she turned instead to her Madrid based expert on the Taliban. WTF? On politics she was just boooorrring. The interview with Defense Secretary Gates was mainly scary for his enunciation of a excruiatingly bankrupt American strategy: "reverse Taliban momentum" (whatever that might mean), degrade their capability, improve security, persuade them to agree to Karzai's terms. But we won't "nation build." OK, we are in Afghanistan, never mind that the al Quaeda guys we went there to fight are now across the border in Pakistan having tea. Of course our being there annoys some Afghans (the Taliban) who kill our soldiers, so we kill some more Afghans, which st