Robert Waldmann

Paul Krugman thinks that a US politician is excessively opposed to tariffs.

End of days near.

I think the president has this wrong:

President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

[snip]

The truth is that there’s perfectly sound economics behind border adjustments related to cap-and-trade.

Krugman goes on to make a perfectly convincing case (click the link) but would the Krugman of 1992 have discussed this in public with protectionist politicians listening ?

Already Krugman has shocked DeLong by agreeing with Reich.

Being a seven-hour drive away, I don't have as much direct knowledge of the NYC economy as I did a year or so ago. So I have to rely on Different Metrics.

Here is one DrektheUninteresting (see #6) (of Scatterplot and Total Drek fame) will love, when he resurfaces.

For those who want a contemporary view of how bad things have gotten in the U.S. economy in general and NYC, just check out the result of this eBay auction.

The winning bid was $10,250. The last time this item was auctioned, a mere six months ago (though in Los Angeles), it went for $12,000.

And a mere three years ago, the item was sold, in NYC, to two separate bidders (it being relatively non-rival), for $20,000 each.

Forget housing prices. If you want a metric to judge the decline of the NYC-area economy, just consider the decline in bidding even as the value of the underlying has gone up.

by Bruce Webb

In comments on the last post MG was challenging 2Slugs contention that the real issue was Medicare, while BuffPilot was accusing me of ignoring Obama spending. Well I am on my way out the door and will let the CBO do the talking for me:


That near term temporary light blue peak? Obama stimulus spending. That rising tide of deep blue? Medicare and medicaid.

QED.

Discuss.

CATO was making much hay a few days ago about budget problems in California, New York, and New Jersey, which can be explained, respectively, by the Governor's veto of an Assembly-passed budget a few months ago, the decline in tax revenues from financial services firms and continuing loss of upstate industry, and underfunded pension obligations whose origins date back to Christie's cocaine-inspired budgets of the mid-1990s.

Strangely (via Dr. Black), they missed the crises in a few other states, most especially including the state governed by Republic hero Mitch Daniels:

Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today.

Closing down the casinos? Now that is extreme.

Mitch Daniels, doing for my old home state what he did for the country.

by cactus

Unsolicited Advice to Makers of Computers - From a Heavy User

I have three Windows based PCs, and the ex-GF has a Mac. One of the Windows based PCs is a desktop, all the rest of our machines are laptops. One is a mini purchased three months ago, and the oldest machine (the desktop) is two years old. All but one are name brands... and a few months ago there was another (name brand) machine that has since died. Until recently I was a consultant, so there was a need for much number crunching in our household.

But here's the thing - not one of the machines is fully operational. Peripherals don't work, or don't work with the machine, or don't work reliably. We're not computer geeks in this household, but we're not exactly ignorant either. I spent a summer working in a computer repairshop and I have no problems opening up a machine and poking around if need be. I've even been known to do some prodding and the occasional fondling when the situation called for it. The ex-GF is more the help-desk type, and I've been forced to deal with that lately too. It usually doesn't help. Its not helping the ex-GF either; her machine just came back from the "Genius Bar" and I wouldn't be surprised if it goes back pretty soon.

I realized that maybe as recently as four or five years ago, every computer I bought lasted four or five years or more, and usually gave me no problems. On the rare occasions when I had to call the help desk, it solved the problem once and for all. I'm about to take the new mini to repair shop and tell them a) to do something about the the wireless modem turning itself off at random times for a week at a time and b) make the $#%^ cd reader I bought work with the thing. I'm prepared to pay as much as the mini itself cost me just to have it working once and for all and never again have to deal with the tech support people. I estimate I've spent about eighteen hours trying to fix these two problems myself (with and without tech support) and I'm tired and aggravated. My time is worth something, and avoidance of aggravation is worth more.

I was kvetching to my Dad, but his response was: "How many other industries are there which produce such complex pieces of equipment so cheaply?" I guess when you grew up with punch cards, you bring a different perspective to the table. And he's right - you can't build something this complex for this little and expect it to work. But computer makers aren't advertising their machines as being any less reliable than the machines that a decade ago were being engineered to be dropped from a third story window and still function as if nothing happened.

All this got me thinking about the 1968 Buick Skylark I drove while I was high school and college. It was older than I was (I'm a 1970 model year, having, rolled off the assembly line in late 1969), and you had to fill it up every time you left the house, plus once more on the way back. And it could take a beating; a woman ran into me once with a Lincoln, and while I would not be surprised if that was the end of the Lincoln, I fixed the damage to the Skylark with a hammer. No amenities except an ashtray, but the damn thing worked for twenty five years. Which means it was still running long after most of the Buicks made in the 1970s and 1980s had been scrapped. (I don't have statistics to back up that statement, but like everyone else, I've been in Buicks made in the 1970s and 1980s.) On paper Buicks from the 1970s and 1980s were much better vehicles, coming with fancy features such as shoulder restraints, automatic windows, better mileage, and a suspension system that didn't allow the $#%^ing boat to rock for a twenty-three minute window after every turn.

My guess is that the 1970s and 1980s models were also better for GM's profitability, at least at first. After all, they had to be replaced a lot sooner, which meant more cash flow. At least at the time. But eventually, people stopped buying American vehicles. I had three American cars before I called it quits. The aggravation of dealing with all the little things that went wrong wasn't worth the hassle. Its not just that the vehicles themselves had issues; the dealers I dealt with weren't much better. All sorts of bits and pieces like vent covers and knobs fell off my then brand-new Camaro, and the windows never sealed properly from day one, but none of the dealers ever fixed these problems.

As I see it, computer manufacturers today are emulating GM in the 1970s and 1980s. They're starting the process of driving away their customer base. What makes their situation, for now, better than GM's in the 1970s and 1980s is that it seems like all the computer makers are doing it. There is nobody out there producing quality machines, even at slightly higher prices. I suspect there is a market for more reliable machines - even if that reliability comes at the expense of a few features or a higher price, provided its advertised and sold that way. It doesn't have to be engineered to take a bullet, but it does have to work. All the time. Convince me that it does and I'll pay a premium. And I suspect there are a lot of people like me out there.
___________________________________________
by cactus

Robert Waldmann

Suggests that serious readers go read Brad Delong's comment on Greg Mankiw's comment on Paul Krugman's assertion that George Will and Gred Mankiw are "either remarkably ignorant or simply disingenuous." Totally asking for it, Mankiw also commented on Krugman's post referring to DeLong and Krugman as a tag team.

I just want to note that Greg Mankiw chooses a very odd example to illustrate his ignorance of basic economic theory.

He wrote

[Obama's] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices..."

Mankiw chose to talk about the market for gasoline !



OK prof Mankiw I have a proposal. This evening get out of Your office, get on Mass Ave and drive South. You will see a river. Across that river you will see a huge red glowing triangle. Do you know what that triangle advertises ? Yes it's the Citgo sign. It avertises a publicly owned oil company and chain of gas stations.

So if you have no problem with a public provider of gasoline, why are you opposed to a public provider of health care ?

Somewhat more importantly, the idea that the market for gasoline shows that we can trust the private sector to give us "Consumer choice and honest competition" is beyond bizarre. Ever heard of Standard Oil professor Mankiw ? The fact is that it requires constant struggle to preserve competition and a market based approach of offering a public plan has advantages compared to a litigation based approach.

It just so happens that the health insurance market is not at all competitive in many regions, that profits of large health insurance companies have exploded and that the fraction of money paid to health insurance companies which they send on to health care providers have plummeted. Sort of like the market for gasoline that the private sector gave us before massive public intervention.

America's health insurance companies had better decide if they prefer a public option or actual enforcement of the Sherman antitrust act. Splitting up health insurance companies (what was done to achieve competition in the market for gasoline) would be rather more disruptive to policy holders (and executives) than allowing the medicare administration to compete with them.

I'd say Mankiw has a point. Health insurance is like gasoline in the sense that the market has failed -- that profit seeking corporations have managed to reduce competition to levels such that their profits explode. The main differences are that it's the 21st century and the President is using a market based rather than a punitive approach to the problem.

Claiming that there is currently a competitive market for health insurance in the USA is like claiming that they sky is green.

I subscribe to too many RSS blog feeds. So everyone once in a while one pops up and I think, "Should I drop this"?

And so it is with Evolutionary Economics, which occasionally seems like a self-parody of what would happen if you recited Economics 101 cant with an added, even-less-scientific, "evolutionary psychology" glean to it.

However, they occasionally publish interesting work, such as this.

And then there's the paper they describe as "in Japanese." Unfortunately, they mean Hiragana script, which thoroughly defeated my efforts in the early 1990s. And while Babel Fish is willing to try, the result is less than encouraging:

ら哲学者や為政者を解放した。また，顕示選好理論によれば，個人の選択を観察すれば，
そのような行動が導かれる効用関数が存在する。効用の個人間比較が問題にならない状況

becomes

...[a]nd others the philosopher and the administrator were released. In addition, according to revelation preference theory, if selection of the individual is observed, the use function where that kind of conduct is led exists. The circumstance where comparison between the individuals of use does not become problem

which has a few verb problems, I suspect.

Anyone want to read and translate and do a guest-post about this one?

by Bruce Webb

In a previous post I highlighted the chapter of CBO's Long-Term Budget Outlook that pertained to Social Security. But the Report goes beyond that and in fact focuses on two different possible scenarios outlined in the following Table:

The shorthand way of defining 'extended baseline' is 'Bush tax cuts expire on schedule' while 'alternative fiscal' equates to 'extending tax cuts'. There are additional components like AMT and physician compensation which have been consistently adjusted to avoid the impacts of then current law projections (feel free to expand on this in comments) but the real question boils down to 'sunset tax cuts' or 'extend them'. So what would be the consequences? More figures under the fold.


Under 'extended baseline' the deficit in 2035 projects to be 5.6% of GDP. Is this good? Well no, I don't think it is even acceptable. But it is a lot better place to start that the 14.6% of GDP deficit we get from 'alternative fiscal'.

Now the above are snapshots. What if we aggregate this over 25, 50, and 75 year intervals? Well you get Box 1-1.


Now these annual and aggregated deficts all need to get financed by borrowing. How does that shake out?

So if we let the Bush tax cuts sunset we buy ourselves about 20 years to figure out what to do long-term. If we extend them we are looking at a situation by 2037 where debt held by the public is a full 200% of GDP as opposed to 75% under current law (i.e. tax cuts sunset).

So those people who are attacking Obama spending effects on the deficit over the next 10 to 20 years using CBO numbers need to confront the fact that there is a lot more long term impact from the foolish policy of tax cuts on top marginal rates.

Let the hot, hot fun begin!

rdan


Finacial Times points us to WTO thinking on trade issues and cap and trade agreements. (log in required)

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published on Friday, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

EDITOR’S CHOICE
Europe moves to reduce pollutants - Jun-26EU invests in China carbon capture facility - Jun-25Carbon credits placate US farmers - Jun-25Australia delays vote on carbon trading - Jun-25

by: Divorced one like Bush



Ok folks. It's real, this familiarity with the health care reform debate. It is a real memory you are experiencing, that deja vu feeling. Only, the reason it seems so much as deja vu is because what your being told is the trigger of the deja vu is not the real memory. Hillary Care is not the correct memory for the current debate and thus it "feels" like you have been there before: deja vu. However, you really have been there before, and thus it is a real memory, not a similar feeling. It was Nixon, 1971. And, the experience of the mind games that are being tempted upon you are as real and cautioning a memory as having burned your hand on a hot pan, or caught a knief falling.


February 17, 1971

Ehrlichman: We have now narrowed down the vice president's problems on this thing to one issue, and that is whether we should include these Health Maintenance Organizations like Edgar Kaiser's Permanente thing.
Nixon: Now let me ask you...You know I'm not to keen on any of these damn medical programs.
Ehrlichman: This is a private enterprise one.
Nixon: Well that appeals to me.
Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it...I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: ...and the incentives run the right way.
Nixon: Not bad.

February 18, 1971
Nixon's Special Message to Congress proposing a National Health Strategy

I'm going to start with his last paragraph:

Nineteen months ago I said that America's medical system faced a "massive crisis." Since that statement was made, that crisis has deepened. All of us must now join together in a common effort to meet this crisis--each doing

Going forward, I only excerpted the parts related to insurance because the truth now as then is that the real issue when this nation talks about health care reform, is that we are only talking about how the money will travel to pay for it. Cost controls are always second and presented as a results of how the money will travel. Improved outcomes are always third and a result of how the money will travel. Tort reform equals how the money will travel. More people having access? Again a result of how the money will travel.

What follows are Nixon's arguments for keeping a private system. The points should all sound very familiar. There are a few items however that might surprise you as to him being a republican compared to today's “republican”. In the end, it is still the republican (and now also DLC) ideology of free market rhetoric supporting a discussion of what I consider the false market in “health care reform”: The third party, the middleman.

This is long after the jump. Please take the time to read Nixon's words. Reading such history first hand is the only means we have for growing a more mature social personality.

As you read, pay attention to the reasoning and expected results, then compare them to today. Today, is the actual results. The results are what we are living.

Recognize the sales pitch. Recognize the appeal to humanistic needs as part of the pitch for the product. Nixon was not trying to sell a better America. That was just jive talk to sell HMO's. Recognize such in today's presentation.

Continuing Nixon's presentation:
Our record, then, is not as good as it should be. Costs have skyrocketed but values have not kept pace. We are investing more of our nation's resources in the health of our people but we are not getting a full return on our investment.

This new strategy should be built on four basic principles.
1. Assuring Equal Access
2. Balancing Supply and Demand.
3. Organizing for Efficiency. There are two particularly useful ways of doing this:

A. Emphasizing Health Maintenance. In most cases our present medical system operates episodically--people come to it in moments of distress--when they require its most expensive services. Yet both the
system, and those it serves would be better off if less expensive services could be delivered on a more
regular basis... In short, we should build a true "health" system-and not a "sickness" system alone. We should work to maintain health and not merely to restore it.
B. Preserving Cost Consciousness. As we determine just who should bear the various costs of health care, we should remember that only as people are aware of those costs will they be motivated to reduce them. When consumers pay virtually nothing for services and when, at the same time, those who provide services know that all their costs will also be met, then neither the consumer nor the provider has an incentive to use the system efficiently.

4. Building on Strengths. We should also avoid holding the whole of our health care system responsible for failures in some of its parts. There is a natural temptation in dealing with any complex problem to say: "Let us wipe the slate clean and start from scratch." But to do this-to dismantle our entire health insurance system, for example--would be to ignore those important parts of the system which have provided useful service...

One of those strengths is the diversity of our system--and the range of choice it therefore provides to doctors and patients alike. I believe the public will always be better served by a pluralistic system than by a monolithic one, by a system which creates many effective centers of responsibility--both public and private--rather than one that concentrates authority in a single governmental source.

A. REORGANIZING THE DELIVERY OF SERVICE

In recent years, a new method for delivering health services has achieved growing respect. This new approach has two essential attributes. It brings together a comprehensive range of medical services in a single organization so that a patient is assured of convenient access to all of them. And it provides needed services for a fixed contract fee which is paid in advance by all subscribers.

Such an organization can have a variety of forms and names and sponsors. One of the strengths of this new concept, in fact, is its great flexibility. The general term which has been applied to all of these units is "HMO"--"Health Maintenance Organization."
The most important advantage of Health Maintenance Organizations is that they increase the value of the services a consumer receives for each health dollar. This happens, first, because such organizations provide a strong financial incentive for better preventive care and for greater efficiency. A fixed-price contract for comprehensive care reverses this illogical incentive. Under this arrangement, income grows not with the number of days a person is sick but with the number of days he is well. HMO's therefore have a strong financial interest in preventing illness, or, failing that, in treating it in its early stages, promoting a thorough recovery, and preventing any reoccurrence. Like doctors in ancient China, they are paid to keep their clients healthy. For them, economic interests work to re-enforce their professional interests.

...So is this administration. That is why we proposed legislation last March to enable Medicare recipients to join such programs. That is why I am now making the following additional recommendations:
2. To help new HMO's get started-an expensive and complicated task--we should establish a new $23 million program of planning grants to aid potential sponsors--in both the private and public sector.
At the same time, we should provide additional support to help sponsors raise the necessary capital, construct needed facilities, and sustain initial operating deficits until they achieve an enrollment which allows them to pay their own way. For this purpose, I propose a program of Federal loan guarantees which will enable private sponsors to raise some $300 million in private loans during the first year of the program. (In 2009 dollars that's: $1,594,443,347.32 using the Consumer Price Index, $1,270,112,394.52 using the GDP deflator, using value of consumer bundle, $1,572,128,637.06 using the unskilled wage, $2,589,331,122.17 using the nominal GDP per capita, $3,796,805,962.20 using the relative share of GDP)

F. A NATIONAL HEALTH INSURANCE PARTNERS HIP
In my State of the Union Message, I pledged to present a program "to ensure that no American family will be prevented from obtaining basic medical care by inability to pay." I am announcing that program today. It is a comprehensive national health insurance program, one in which the public and the private sectors would join in a new partnership to provide adequate health insurance for the American people.

In the last twenty years, the segment of our population owning health insurance has grown from 50 percent to 87 percent and the portion of medical bills paid for by insurance has gone from 35 percent to 60 percent. But despite this impressive growth, there are still serious gaps in present health insurance coverage. Four such gaps deserve particular attention. (Ok, well this has definitely been reversed.)
First--too many health insurance policies focus on hospital and surgical costs and leave critical outpatient services uncovered... Because demand goes where the dollars are, the result is an unnecessary--and expensive--- overutilization of acute care facilities. The average hospital stay today is a full day longer than it was eight years ago. (Yup, fixed that one.)

A second problem is the failure of most private insurance policies to protect against the catastrophic costs of major illnesses and accidents. Only 40 percent of our people have catastrophic cost insurance of any sort and most of that insurance has upper limits of $10,000 or $15,000. This means that insurance often runs out while expenses are still mounting. For many of our families, the anguish of a serious illness is thus compounded by acute financial anxiety. Even the joy of recovery can often be clouded by the burden of debt--and even by the threat of bankruptcy.
A third problem with much of our insurance at the present time is that it cannot be applied to membership in a Health Maintenance Organization--and thus effectively precludes such membership. No employee will pay to join such a plan, no matter how attractive it might seem to him, when deductions from his paycheck--along with contributions from his employer--are being used to purchase another health insurance policy.

The fourth deficiency we must correct in present insurance coverage is its failure to help the poor gain sufficient access to our medical system. Just one index of this failure is the fact that fifty percent of poor children are not even immunized against common childhood diseases. (We are above 80% now.) The disability rate for families below the poverty line is at least 50 percent higher than for families with incomes above $10,000.

Our National Health Insurance Partnership is designed to correct these inadequacies--not by destroying our present insurance system but by improving it. Rather than giving up on a system which has been developing impressively, we should work to bring about further growth which will fill in the gaps we have identified. To this end, I am recommending the following combination of public and private efforts.

1. I am proposing that a National Health Insurance Standards Act be adopted which will require employers to provide basic health insurance coverage for their employees. (Guess that answers the question of why we have an employment based system. Oops! Hey, no Walmart then either.)

2. I am also proposing that a new Family Health Insurance Plan be established to meet the special needs of poor families who would not be covered by the proposed National Health Insurance Standards Act--those that are headed by unemployed, intermittently employed or self-employed persons.
Accordingly, I propose that the part of Medicaid which covers most welfare families be eliminated. The new Family Health Insurance Plan that takes its place would be fully financed and administered by the Federal Government. It would provide health insurance to all poor families with children headed by self-employed or unemployed persons whose income is below a certain level. For a family of four persons, the eligibility ceiling would be $5,000. (I'll say it for Fox News: Democrat President Nixon today proposed...)

Our program would also require the establishment in each State of special insurance pools which would offer insurance at reasonable group rates to people who did not qualify for other programs: the self-employed, for example, and poor risk individuals who often cannot get insurance. Did I hear something about co-ops?)

I also urge the Congress to take further steps to improve Medicare. For one thing, beneficiaries should be allowed to use the program to join Health Maintenance Organizations. (Well it took 30+ years, but they got that: Medicare Advantage.)

...To begin with, there simply is no need to eliminate an entire segment of our private economy and at the same time add a multibillion dollar responsibility to the Federal budget. Such a step should not be taken unless all other steps have failed.
More than that, such action would be dangerous. It would deny people the right to choose how they will pay for their health care. It would remove competition from the insurance system--and with it an incentive to experiment and innovate...There is a better way--a more practical, more effective, less expensive, and less dangerous way--to reform and renew our nation's health system.

38 years since this speech. A speech that has all the same talking points regarding a private, free market based system as we heard with Hillary Care and today. We did the employer based HMO version of private insurance after the other version (BCBS employer based) did not work including the HMO medicare experiment in this decade. We are worse off than ever by all reports from all parties. It was not “ a better way--a more practical, more effective, less expensive, and less dangerous way...”. It has failed. People are in more danger today. All other ways have failed: a no health insurance system, an employer based non-profit private system, an employer based for profit private system and privatizing a single payer, government run system. The time has come. We have met the exception that Nixon gave the nation. We can now prove or disprove that there is such a creature as the “rational consumer”.

Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it...I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: ...and the incentives run the right way.
Nixon: Not bad.

Tina at Scatterplot Explains It All to You (now in paperback).

Robert Waldmann

A good sign of a totally bogus argument is reliance on contradictory presumptions of fact. When one is simply wrong, one can often make a convincing argument by inventing facts. When one is being absurd, one can fall into the temptation to invent inconsistent facts.

In this article in the Washington Post Ceci Conolly is being absurd. She argues that progressives (such as movon) who attack Democratic Senators who don't support a public option are endangering health care reform. For brevity only I will call the first group "leftists" and the second "centrists." "Centrists" is not as accurate as "people who care more about the value of insurance company shares than equity or efficiency and who are willing to sell their votes for campaign contributions" would be more accurate but too long.

She presents two arguments one stated in her own name in what is supposed to be a news article and one ascribed to an anonymous source whom she does not criticize.

The first is that the centrists have the power and might destroy health care reform if their feelings are hurt. Hence her personally stated opinion that leftist pressure is a bad idea because "the intraparty rift runs the risk of alienating centrist Democrats who will be needed to pass a bill." Now I know it was rude of me to suggest that said centrists are more or less corrupt, but at least I didn't assert as Connolly did that they are willing to leave people without health insurance out of pique.

The second is that centrist Democrats are better than Republicans and terribly weak so that criticizing them will cause them to lose office -- just look what a close call Ben Nelson had last time. Hence the anonymous source "The strategist, who asked for anonymity because he was criticizing colleagues, said: "These are friends of ours. I would much rather see a quiet call placed by [Obama chief of staff] Rahm Emanuel saying this isn't helpful. Instead, we try to decimate them?"" So which are they people so powerful that they must not be offended or they will damage the country or people so weak that one tenth of them will die horrible deaths if they are criticized ?

One of the other Conolly and Penn or maybe Schoen .

Oh and did the strategist also ask that it not be mentioned whether or not he or she is paid by big business for helping them with public relations ?

Just reading the headline, I knew I'd be hearing about this at eschaton who linked to Adam Green.

Boy am I late on this. I'm not even the first Waldman[n] to denounce Connolly.

rdan

I found this saying over at Oildrum in the comments on a post about asset deflation and price inflation through the rise in prices for oil and some other commodities instead of money/interest rate centered thinking.

"People don't change when they see the light; they change when they feel the heat." (source unknown)

Add the campaign of writing to the SEC at Zero Hedge and create some heat.

rdan

Americas Program, Center for International Policy provided a translation of news from Peru, in relation to the working of the recently signed free trade agreement (Jan. 16, 2009) and effective Feb.1, 2009.

Three MI-17 helicopters took off from the base of the National Police in El Milagro at six in the morning of Friday, June 5. They flew over Devil's Curve, the part of the highway that joins the jungle with the northern coast, which had been occupied for the past 10 days by some 5,000 Awajún and Wampi indigenous peoples. The copters launched tear gas on the crowd (other versions say that they also shot machine guns), while simultaneously a group of agents attacked the road block by ground, firing AKM rifles. A hundred people were wounded by gunshot and between 20-25 were killed.

I haven't found anything on twitter. Why the difference in our coverage?

Update: hat tip reader juanjo for the twitter link to Bagua.

Some blogs suggest a topic when posting open threads. Should this be tried? And who has a list? Of course, some should simply be open.

With today's (well, yesterday's) five closings, the total of failings of U.S. banks since March of last year to 69.

Of those, slightly more than 20% (14) are from the state of Georgia. Excepting the much larger California, there have been more failings in Georgia than in any two other states combined.

Also as a matter of record, the 69 failings since last March constitute more than 70% of the 97 failings since October of 2000. So, in round numbers, 15% of the time accounts for 70% of the failings.

Bubbles beget bubbles. Anyone find anything more to it than that?

rdan

Reader Jack sends this link to Michael Jackson's death:

This is the best commentary on Michael Jackson that you're likely to read. That's only because it's not written by a member of the media, but a well educated and well intentioned person instead.

From: Informed Comment by Juan Cole:

Michael Jackson's sad death at age 50 has provoked an outpouring of emotion around the whole world. Because of globalization, it is an event that affects fans in Asia and the Middle East, as well. In early 2007, his brother Jermaine, a Muslim, announced that Michael would embrace that religion. In November of 2008, just months before his death press reports said that Michael Jackson had formally converted to Islam.

Jackson was a man of multiple identities, which helped account for his enormous worldwide popularity. It seems clear that he was deeply traumatized by his rough show business childhood, and that things happened to him to arrest his development. Just as a stem cell can grow into any organ, Michael's eternal boyishness made him a chameleon. Increasingly androgynous, he expressed both male and female. A boy and yet a father, he was both child and adult. In part because of his vitiligo, he interrogated his blackness and became, like some other powerful and wealthy African-Americans of his generation, racially ambiguous. Toward the end of his life he bridged his family's Jehovah's Witness brand of Christianity with a profound interest in Islam. He was all things to all people in part precisely because of his Peter Pan syndrome. A child can grow up to become anything, after all.

Our findings do not provide much support for the usefulness of monetary aggregates in forecasting inflation.

See more at the St. Louis Fed.

Did building realistic macroeconomic models just get a touch more difficult?

When I first heard that Michael Jackson died, I thought immediately of Chuck Sullivan. I met him once, probably in the early 1990s, after his sponsorship of The Jacksons's Victory tour savaged his fortune. Unlike the other Moguls I Have Seen, it seemed his reversal of fortune impacted his mood. (More likely, I just caught him on a bad day.)http://www.blogger.com/post-create.g?blogID=5048766

So I decided to do an AB post about the Victory tour, which was probably the beginning of the end for MJ's claim to being "the new Elvis," since it was the last time he toured with his family.

Fortunately, as my Loyal Reader (a loyal Patriots fan) notes, I don't have to. Chad Finn at the Boston Globe tells the story:

[A] disastrous business venture by the Sullivan family -- the founding owners of the franchise -- indirectly helped Kraft fulfill his dream of owning the Patriots....Charles Sullivan had used the stadium as collateral to fund the Jackson brothers' Victory Tour back in 1984. Over-leveraged, Sullivan went bankrupt and was forced to sell the arena.

The rest, as they say, is HIStory.

UPDATE: More discussion of the Victory tour, the Reagan Administration, and the bitter attitude of a future Supreme Court jutice at the NYT blog h/t Greg Mitchell's Twitter feed).

Dear Barry:

The need for posts such as this one recurs because the large majority of economists are idiots. (Multiple exceptions noted—but not enough to change the truth of the initial statement.)

As the regulatory reform report notes (quoted by PK at the last link above):

In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA.

But the truth should never be allowed to get in the way of Economic Theory.

by Bruce Webb

Congressional Budget Office Long Term Budget Outlook
Discuss.

(Social Security is chapter 3)

(Update) Not a lot of meat here. CBO offers two outlooks for Social Security, one which projects a payroll gap of 1.33% (extended baseline) and another 1.54%. (alternative fiscal scenario). The former assumes that the 2001 and 2003 tax cuts sunset on schedule and the AMT is not indexed for inflation, the latter assumes the opposite. In any event either is below the Trustees' current law projection of 2.00%. Meaning the cost of the Northwest Plan would be adjusted down by a third or a quarter respectively.



Oh my gosh! As the percentage of people of retirement age doubles so does the amount of GDP needed to house and feed them! Hmm, what the hell is wrong with that? Retirees not having to shuffle up to the table to beg for scraps? Getting their proportionate share of GDP? The horrors!



And for the privatizers out there, be sure to compensate for the fact that 36% of benefits goes to survivors and disabled workers when calculating your ROI.

by reader ilsm

GAO Testimony 09-969T, On Cost and Performance of the V-22 Osprey.

“Availability challenges also impacted the MV-22. In Iraq, the V-22’s mission capability (MC) and full-mission capability (FMC) rates fell significantly below required levels as well as rates achieved by legacy helicopters.6 The V-22 MC minimum requirement is 82 percent, with an objective of 87 percent, compared with actual MC rates for the three squadrons of 68, 57 and 61 percent.” Pg 7.

Availability is the percent of a fleet of systems which are serviceable to be committed to military missions. The only valid way to measure availability is across fleets. Here GAO errs slightly and uses mission capability in the same paragraph; possibly because it is the metric the Navy wants to use to save face. GAO goes on to state that the required mission capability is not achieved. Mission capability is important to the individual squadron which has to perform instant operations with its assigned aircraft, which are all serviceable going into the operation. This does not account for systems in long term unserviceable condition, which are counted in availability figures.
Generally, mission capability runs 20% higher than availability, but availability is hidden on new stuff, while shouted about on older stuff, because there would be severe embarrassment if you considered that 40% of the brand new V-22 were not available (okay 60% available sounds much better, buy a car which is broke 40% of the time, how good does the warranty service need to be?).
The Navy and GAO are not sure which metrics to use. One of the reasons that US quality fell in the 70’s was avoiding measuring the hard things gets you in trouble; a weakness of the DoD acquisition process. But the spending is more important than meaningful results.
Missing mission capable suggests that basic reliability and maintenance performance are not part of V-22 repertoire. Quality may not have been affordable during the long development cycle, and the savings are now costing in added support and lost use of the V-22
Not surprising the MV-22 was deemed unsuitable in 2000. Nothing seems to have improved in the past 9 years.
A lot of reliable beaks could have been whittled and as useful as the unavailable, not mission capable V-22 taking up maintenance space.
___________________________________________
by reader ilsm

Via Eszter, there is one thing that is very clear from this graphic (duplicated below because I can't figure out how to embed it):

There is an excess of home-based internet capacity in the United States, for which people are definitionally paying too much.

The question is whether this is a problem. If you argue it is not—that the excess spending gets reinvested and used to develop new products and services that, on balance, benefit the economy—then please explain this in the context of any contemporary economic model.

Discuss in comments.

rdan

The Economist reminds us of a common notion, but not explored a lot in the news. Decline in demand overall, and finance, is a major concern for trade partners, but is complicated because products often travel from country to country in stages of completion to finished product.

Economists believe that an additional reason for these sharp and co-ordinated drops lies in a fundamental change in the nature of global trade over the past three decades, as a result of the rise of global supply chains. When David Ricardo posited that comparative advantage was the basis of trade, he conceived of countries specialising in products, such as wine or cloth. Now, they specialise not so much in final products as in a step, or steps, in the production process, what economists call “vertical specialisation”. Vertical specialisation has grown by about 30% and accounts for a third of the growth in trade over the past 20 to 30 years.

Vertical specialisation led trade to grow much faster than it would have otherwise. Earlier, a tractor made in America would use American steel and parts: its only contribution to trade would come if the finished item were exported. Now, that tractor may use steel from India that is stamped and pressed in Mexico, before being exported to Tanzania. Global supply chains have increased the amount of international trade involved in getting a product made and delivered to its final user.

On the flip side, declines in demand that would once have resulted primarily in a fall in domestic output, and would only have had a second-order effect on other countries' exports because of the decline in domestic incomes, now immediately affect trade flows in several countries. The same mechanism that was responsible for the remarkably rapid growth in trade since the early 1980s is now amplifying the extent to which trade responds to a decline in demand, which explains the remarkable synchronisation with which trade is declining everywhere.

Kiplinger offers an example of such a process, the manufacture of plastic pipe. Product crosses the border multiple times as it is completed.

Update: Voxeu covers the issue, of course, very thoroughly.

Much of U.S.-Canadian trade involves goods crossing the border multiple times before the products in which they're used are finally completed. Indeed, supply chain integration has long been one of the main benefits of NAFTA, given its role in increasing trade and lowering production costs. Makers of water and wastewater equipment, the manufacturers hit hardest by the stimulus bill's Buy American rules, accounted for $10 billion in cross-border trade last year. Other industries with North American supply chains will get dragged down, too, if they're unable to buy from Canada and Mexico.

Consider the case of IPEX, a Canadian-based manufacturer of thermoplastic pipe systems for the construction sector, to see how the problem is playing out on both sides of the U.S.-Canadian border. Before it can participate in a U.S. construction project, IPEX is now asked to sign a certificate affirming that all its products are made in the U.S. Since IPEX's supply chain is integrated across the border, its product load is invariably a mix of Canadian and U.S. parts. The result is that it is either unable to bid on the project or the parts are turned away if they have already been shipped to a construction site.

"Before Feb. 17, we had access to the U.S. market," says Veso Sobot, an IPEX engineer, referring to the date the stimulus bill became law. "Since Feb. 17, we have not." That's bad news for companies such as Westlake Chemicals. Westlake, based in Houston, manufactures the raw materials IPEX uses to make its pipes. IPEX's troubles in the U.S. market will force it to cut back production.

"America ships way more product into Canada than Canada ships into America," says Sobot. "If we injure either one of us, we're injuring ourselves collectively, and we won't be able to compete effectively on the world stage."

rdan

American Economic Alert points us to a lack in who has a voice in manufacturing. The Economic Recovery Advisory Board was set up in 2008:

ERAB's makeup is a case in point. Headed by former Federal Reserve Chairman Paul Volcker, the panel contains members from many perspectives beyond what Mr. Obama calls the Washington "echo chamber." But ERAB needs more than the academics, labor leaders, financiers, chief executive officers and former officials whom the president has appointed (along with a media representative and a major Realtor).
Like the rest of Mr. Obama's advisory team, the board also needs adequate business representation from the economy's real wealth-creating sector - the goods-producing industries that Washington has too long neglected and whose revival is essential to overcome a crisis born of overconsuming, overborrowing and excessive debt.
ERAB does contain two representatives from manufacturing - which dominates the goods-producing sectors. But the picks - Jeffrey Immelt of General Electric (GE) and Jim Owens of Caterpillar - head multinational companies whose top declared priorities do not include expanding output in the United States.
Two years ago, for example, senior GE executive Lloyd Trotter told an investor conference that by 2010, more than 50 percent of the company's worldwide manufacturing would be performed outside the United States. As recently as 2002, that figure was only 28 percent. At the end of 2006, Mr. Immelt said that in five years, GE would likely at least double the share of its global purchases from low-income countries, like China and India, from the then-current level of 19 percent.
As Mr. Trotter explained: "Low-cost country savings are generally 20 [percent] every time we do it."
As Mr. Immelt made clear, except for goods restricted by export controls, there are many other products "that we can move substantially outside the United States." Mr. Immelt did specify that these offshored goods wouldn't be sold only locally, but worldwide, including of course to U.S. customers.
Because the United States still represents nearly a third of the world economy and an outsize share of its consumption, it's easy to see how Americans fit into this business model as customers. It's much harder to see how they fit in as producers to any comparable extent. With America's chances for recovery depending ultimately boosting production relative to consumption, Mr. Obama clearly needs to hear a fundamentally different manufacturing perspective.
Caterpillar doesn't fit the bill, either - even though the president keeps touting its achievements (during a visit to its Peoria, Ill., headquarters) and its challenges (at the Group of 20 summit). For many years, the company has indeed kept a much higher share of its worldwide employees in the United States than most other U.S. multinational manufacturers. But it preserved U.S. jobs mainly by crushing its unions and slashing wages, down to near Wal-Mart levels for new hires. That's a recipe for fixing Americans' broken finances only if living standards fall even more dramatically.
Moreover, Mr. Owens lately has been moving many more Caterpillar jobs and production offshore despite these employee sacrifices. From 2006 to 2008 alone, according to the company's latest figures, its U.S. work force rose by nearly 10 percent, but its foreign work force increased by more than 29 percent. As a result, the U.S. share of its global work force has slipped during this period from 51.5 percent to 47.4 percent. And during this period, Caterpillar's foreign work force grew fastest by far - more than doubling - in predominantly low-wage Asia.

...

More important, the economy remains so weak that Mr. Obama can't afford to wait for new priorities from Mr. Immelt or any of his peers. The administration urgently needs to start hearing consistently from executives fiercely devoted to producing, innovating, and creating good jobs in the United States, and boasting decades of experience in succeeding. The U.S. Business and Industry Council knows nearly 1,900 of them. It owns our member companies. We would be honored to recommend any of them to help the president put the economy back on track.

Caterpillar is scheduled to replace older factories in the US with new facilities in China...three new facilities I believe, to manufacture and sell for Chinese consumption as well as ours. However, I have not found announcements of plant closings at this time.


It is not the fact of new plants in China that is a problem. Chinese government stimulus spending emphasizes infrastructure spending as well. What is a global economy going to look like, and what response needs doing other than simple slogans like "Buy American".

In which Robert Waldmann finds economic theory useful.

A question: when does deficit financed public spending cause higher interest rates which cause private investment to be lower than it would be other things (including the spending) equal.

Proposed answer, not when we are in a liquidity trap.

Depending on the definition of liquidity trap this answer is wrong or not relevant to the current situation.

Now I confess that some economists (including me) sometimes rely on an equivocation to argue that we are in a liquidity trap and therefore there will be no crowding out via interest rates. The evidence that we are in a liquidity trap is that safe short term interest rates are very low. However, for there to be no crowding out via interest rates it is necessary either that deficit financed public spending doesn't affect long term interest rates, or that long term interest rates don't affect investment.

Also note that investment depends on factors other than just interest rates. In the data, high investment is associated with high GNP growth as well as with low interest rates, so even if there is some crowding out via interest rates, the net effect of the spending on private investment can be positive.

One justification for looking only at safe short term interest rates and the whole yield curve is that, if safe short term interest rates are zero expansionary monetary policy is pushing on a rope (as is absolutely demonstrated by recent experience). This means fiscal policy is the only available demand policy so "is there any crowding out via interest rates" is not the key issue. So we should define a liquidity trap as a period with safe short term interest rates are zero and define a new term for the whole term structure is zero -- say a super liquidity trap and get to a second proposed answer

Not when we are in a super liquidity trap. After the jump I criticize my second proposed answer.



It is clear from the data that increased deficits and expected future deficits cause higher long term nominal interest rates. Direct measurement of real interest rates via markets for TIPS (indexed to the CPI) is a recent phenomenon. The anticipated effect of Bush deficits on long term interest rates didn't IIRC show up. The counter-argument basically is that the period whith both TIPS and insane US fiscal policy is identical to the period of insane People's Bank of China policy.

However, it is also possible that deficits affect long term interest rates only via inflation. Economic theory suggests that investment should depend on real not nominal interest rates. So it is possible that there is no crowding out via interest rates due to deficit spending.

Oddly, there is a strange argument which is the same up to the last sentence and then draws the opposite conclusion. The argument is high deficits cause high expected inflation which causes high nominal long term interest rates which cause reduced investment. One often meets this argument in non-academic discussion of the economy. My reaction has always been "huh?!?" (also before I took my first economics course). I don't think it is possible to write down an economic model in which people are rational and price indices are available and indexed contracts can be written, in which long term nominal interest rates matter.

I now discover that I find economic theory useful in my efforts to understand this argument. I don't generally find economic theory useful. Certainly my opinions on the economy and economic policy haven't been influenced at all by my own work in economic theory which is modest but not zero.

However, I didn't find economic theory useful in a way which is flattering to economic theory. My reasoning is that an argument which is so theoretically unsound probably wouldn't survive if it weren't supported by actual experience. Now this argument might rely on an underestimate of human idiocy, but I find it convincing.

If all firms considered only their expected long term real interest rate when deciding on investment, then people would notice.

It is very possible that nominal interest rates matter because debt contracts aren't indexed. For example take floating interest rate loans with fixed nominal repayment schedules. Higher inflation implies a more rapid rate of required real repayment. Ooops. There are many many such contracts. It is hard to reconcile the existence of such contracts with rationality but they exist. If people look at debt service ratios and count nominal not real interest as the cost of debt then they will be confused by inflation. And so forth and so on.

To me the fact that the argument makes no sense in theory leads me to suspect that it is important in practice.

By Spencer

In today's New York Times business section I read this headline:


Weak Dollar Helps Send Profit Down at Oracle

As I read the article I found this statement:

The company attributed the declines to the effects of a stronger dollar, which makes deals done in other currencies worth less.

I wonder which statement is correct.

In general, the best relationship between the dollar and earnings growth is a negative relationship between the change in the dollar lagged about one year.

P.S. Earlier chart updated to show last year. Thanks Greg.

Note, despite all the headlines about the weak dollar, in May the dollar was 15% above its year ago level. Like bonds, late last year when the markets feared a depression scenario the dollar rallied strongly, and the recent weakness looks more like a return to normal than anything else.

rdan

UNU Conversation Series

As the think-tank for the United Nations and its member states, the United Nations University brings some of the most important intellectual and policy voices from around the globe, including Olivier Blanchard, Janos Bogardi, Francois Bourguignon, Noam Chomsky, Richard Cooper, Evsey Gurvich, Thomas Hoenig, Robert Johnson, Jomo Kwame Sundaram, Wim Naude, Léonce Ndikumana, Eisuke Sakakibara, Luc Soete, Joseph Stiglitz, Roberto Mangabeira Unger, Aude Zieseniss de Thuin, to name a few, to help bring clarity to some of the key issues at the center of the economic crisis.

...

The portal of the UNU Conversation Series will be launched on June 23 2009 and
available at www.ony.unu.edu/unueconomiccrisis. As these conversations are meant to be a work in progress, your feedback, comments and suggestions on the conversations are welcome and can be addressed to economiccrisis@unu.edu.

Update: Link fixed

by cactus

Inflation or Deflation, That is the Question

These days some smart people are expecting inflation, other smart people are expecting deflation, and there's another big batch of smart people who are either expecting both or don't know. I figured - why should smart people have all the fun?

So I came up with a working hypothesis that the evaporation of wealth created a hole in the public's collective balance sheet which the Fed is trying to fill with money. While the hole doesn't have to be completely filled for there to be inflation, I suspect while the hole is mostly empty pumping money in won't create inflation. After all, for years following the dot com bomb, the Fed kept the money supply nice and loose and there was no inflation. (And yes, I'm sidestepping what constitutes a mostly empty hole and at what point it becomes filled enough for inflation to be a worry.)

I got net worth for households and nonprofits (sorry, but the Fed groups nonprofits in there and I can't find this series without nonprofits) and m2 from the fed, both quarterly. I annualized quarterly inflation, then adjusted both series (net worth and M2) and then divided by population. I then graphed 'em both. (Note - normally I would use M1 as opposed to M2 because the Fed has more control over M1. However, in this instance, it seems that some of the actions we've seen the Fed plus the gubmint take are intended to loosen up components of M2 that are not encompassed in M1, so I'm going with M2 here.)



The hole in the public's collective balance sheet appears to be quite a bit bigger than the pile of money the Fed has shoveled into it, or rather, into the big players on Wall Street. (Note the big difference in the scale of the two axes!!) Thus, for the time being at least, I think we're closer to deflation (in general) than inflation (in general).

I realize this isn't the usual way to think about inflation, and I'm not sure its right. Any thoughts?

---

Data
households and nonprofit organizations net worth (market value) asset
CPI, M1, M2 and Population
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by cactus

by Linda Beale

There is an interesting book that I am just beginning, by George A. Akerlof & Robert J. Shiller. It's called "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". The jacket says that the authors "challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity." It is clearly a Keynesian approach--the jacket, again, says they make the case for "a more robust, behaviorally informed Kenyesianism".

Sounds like a tall order, and I have not yet read or thought about enough of the book to know whether it is satisfied or not. But I do find the emphasis on fairness of considerable interest.

Fairness has long been a keystone of tax policy, and yet there are a number of tax scholars who consider efficiency the quintessential policy consideration and sometimes appear to relegate fairness to the corner for hobgoblins of small minds. So I wonder if this book, and its recognition of the overriding importance of fairness to economic analysis, is indicative of a fundamental change in the academic approach to economics and related fields that have tended to push fairness aside.

Here's a quote from Albert Rees (Chicago PhD in labor economics) that starts off the second chapter on fairness.

The neoclassical theory of wage determination, which I taught for 30 years and have tried to explain in my textbook...has nothing to say about fairness. ... Beginning in the mid-1970s, I began to find myself in a series of roles in which I have participated in setting or controlling wages or salaries. ... In none of htese roles did I find the theory that I taught so long to be the slightest help. The factors involved in setting wages and salaries in the real world seemed to be very different from those specified in the neoclassical theory. The one factor that seemed to be of overwhelming importance in all these situations was fairness. (Akerlof & Shiller at 20, quoting Rees, The Economics of Trade Unions, Univ. of Chicago Press, 1973).

The authors go on to admit that Rees exaggerates, but then they provide a critical insight.

However many articles there have been on fairness, and however important economists may consider fairness, it has been continually pushed into a back channel in economic thinking. ... But fairness may be just as important as the economic motivations that are given prime time. (Akerlof & Shiller at 20.)

So what economic theories of fairness do the authors suggest merit consideration? They highlight socilogy's equity theory of exchanges, which consider far more than the monetary value of the counterparties' positions, adding subjective evaluations about status, gratitude and similar factors. Another if the theory of social norms, that suggests that people are happiest when they live up to what they think they should be doing, including conducting themselves fairly with others (and being treated fairly by others).

And how should fairness be taken into account? Essentially, Alerkoff and Shiller argue that the old way of treating "real" economics as fundamental and fairness as an afterthought has to go. In stead, if fairness motivations are discounted, justification must be provided for doing so.

This approach, they say, explains much better than traditional economics the reality of unemployment and the fact that most firms pay their workers more than the market would require. It has to do with one's sense of fairness--if workers sense they are being treated more than fairly (and their wage is the ulimate symbol of this treatment), they will fully buy into the goals of their employers." If they are treated unfairly, they will tend to shirk. Id. at 105.

The difficulty of course, is in settling upon a definitive theory of fairness. In tax, we often talk about "ability to pay", in a relative sense, as the critical definition, which is in turn the justification for a progressive rate schedule that taxes wealthy people at a rate considerably (or, after 40 years of rate lowering, somewhat) higher than it taxes middle income people. Libertarians, among others, have pushed back against the ability to pay concept of fairness, arguing for one version or another of a flat tax. It is one of the critical struggles, from my perspective, in the current class warfare whereby some groups are pushing for zero taxation on capital income (through a national sales tax or consumption-base rather than an income-based tax system). In other words, though there is a long-held consensus position about fairness in tax, there is currently considerable foment around the very concept of fairness. I'm glad to see fairness appropriately emphasized, but that is just the first step to developing a fairer tax system or a more complete economic theory.

rdan

I have been chasing information on the budget deficits and potential impacts, the US trade deficit, and the cap and trade arguments linked to HR 2454 Waxman-Markey bill of hundreds of pages. Mostly it was figuring out how assumptions in data and baselines (such as the CBO reports) made a difference in the shrillness of the discussions on many blogs, including here. Then I visited David's blog and laughed out loud. Cleared my head for a new try.

David Zetland at Aguanomics helped lift my spirits a little today from a tired and unreflective male perspective I suppose. I was tired of being an uberwonk at that moment, with too many details and charts, and it fit the bill.

22 June 2009

Monday Morning Smile

Indian Chief Two Eagles was asked by a white government official, "You have observed the white man for 90 years. You've seen his wars and his technological advances. You've seen his progress, and the damage he's done."

The Chief nodded in agreement.

The official continued, "Considering all these events, in your opinion, where did the white man go wrong?"

The Chief stared at the government official for over a minute and then calmly replied. "When white man find land, Indians running it, no taxes, no debt, plenty buffalo, plenty beaver, clean water. Women did all the work, Medicine man free. Indian man spend all day hunting and fishing; all night having sex."

Then the chief leaned back and smiled. "Only white man dumb enough to think he could improve system like that."

hattip to JWT

by reader ilsm


The good and the bad (not ugly) analysis of the radically restructured US Army Future Combat System (FCS) if offered by GAO 09-793T:

The testimony covers the lessons from the “restructure” of the US Army’s Boeing (Lead System Integrator, LSI, Bush administration non-ovation) FCS.

The report lists “Good” things to do again, but offers no justification for the funds spent pursuing a super weapon technological solution to an arcane set of problems: “Holistic vision of the future force/ Focus on leveraging capabilities through an information (holistic) network”.

Another goal is "Integrating a common vehicle platform, standardizing support and linking all elements in a networked self reporting information infrastructure giving commanders insight into location and conditions of individuals, vehicles and maneuver units." This has been a goal of commanders since Xerxes, which is to have a picture of operations and threats in the “battlespace” and is something hotly pursued for air and sea battles as well. What is so innovative about this?

“Government insight into subcontractor selection and management." Here the GAO thinks it is good for the Army to do what it hired the LSI to do. I do not think this is any better than “trust but verify”, which is a contract form largely unused called cost plus contracting with the to terminate a loser before too much money is lost.

“Establishment of organizations to train with and evaluate technologies to be spun out to current forces”. This is an endorsement of the Louisiana maneuvers of 1940. Some technologists believe, wrongly, that you should build a system, then find a use for it. That is hoping and wishing some future adversary wants to fight the way you wish. That was okay in Western Europe in 1939 because all sides had agreed to fight WW I over, but the future may not have so many hard headed militarists who view war as a joust.

All the good is not so good, nor suggests much to be repeated.

Next is the bad, and a common observation seen in the 60’s through today:
“Not executable within reasonable bounds of technical, engineering, time, or financial resources, “. The LSI and the Army did not know what they could do for the money. This supports other GAO observations about having knowledge before spending the money. This is common in each GAO set of findings. The program team says they can name the song in 4 notes and end up needing the whole chorus.(metaphore, of course)

“Technology and management immature and unable to meet DOD’s own standards for technology and design,” As above “undue optimism” of the technology and the integration into a “workable” solution.

“Weights and software code grew, key network systems were delayed, and technologies took longer to mature,” Resulted from technological optimism.

“By 2009, it was still not known that the FCS concept would work. Oversight has been extremely challenging, given the program’s vast scope (huge number of bucks better spent elsewhere) and the innovative, but close, partner-like relationship between the Army and the LSI” (Too close, too “success” oriented; how much money had to be sent after bad before failure was too expensive to hide?)

Oversight has been extremely challenging is code(“Success oriented”)for 'don’t tell the bad news until it cannot be avoided, and raising the alarm proved that both the LSI and the Army were not doing the job!

These sets of statements of "good and bad" apply to most DoD acquisitions. Nothing changes, but new program people arrive who forget the past and move ahead to unknown demands on an ever optimistic industry, (which can do anything as long as time and money are not limited).

The point missed is that the only justification for this excursion into trying to run an impossible development is that FCS is needed for “modernization”. Good thing, the US would have been in trouble if the FCS were really needed to provide the common defense.

For the money I might as well whittle beaks……………..

But my dividend structure is less important than Boeing’s.
__________________________________________
by reader ilsm (lightly edited for readability)

by Cactus

Iran and American Conservatives


In Iran, protesters - a mostly young, college educated intellectual urban crowd - are getting their heads bashed in by the regime. Conservatives in the US are championing them and criticizing the administration for doing nothing. I'm curious - over the past few decades, how have conservatives in the US reacted when a mostly young, college educated intellectual urban crowd has protested over one thing or another here in the US? Have conservatives generally championed these people? If not, what is the difference between the two situations?
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by cactus

by cactus

I was going through some old posts of mine looking for something I had written when I stumbled on a gem I had completely forgotten. A few years ago, I had a post that quoted a piece in the American Spectator. Sadly, it seems for some reason they've seen fit to take it off-line, but here's a bit from my cut-and-paste job from a few years ago:

Kudlow: ...The companies that lead that change will lead the NASDAQ to 10,000.
TAS: In this decade?
Kudlow: By 2010 it should reach 10,000. The Dow Jones--which is really an old-economy value index--should keep rising, because the old dogs are learning new tricks.
TAS: The NASDAQ at 10,000 will please my wife. But what about my mother? Where do you expect the Dow to be at the end of the decade?
Kudlow: I've been on the record for 35,000 for awhile.

Last I checked, the Nasdaq was at eighteen hundred and change, the Dow was about 8500. So figure we've got a 5X run-up due on the Nasdaq, and a 4X move on the Dow, all by the time we reach 2010. Unless, of course, Larry is wrong again. We all make the occasional mistake, but has anyone bothered to go back and check on this guy's track record? All through 2008 he was talking about the goldilocks economy. I'm having a hard time coming up with something he was actually right on. Why do people listen to him?
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by cactus

by reader Sammy

Waxman-Markey: Intense Pain, No Environmental Gain

I know you guys won't like the source.... but try to deal with the issue.

From this Editorial:

If the pending Waxman-Markey energy and climate bill (HR 2454) becomes law, utility bills will soar. Farm and business energy costs will skyrocket — and be passed on to consumers, or defrayed by layoffs. Everything Americans grow, make, buy and do will be far pricier. And bureaucrats will control our lives.

Compared to no cap-and-tax regime, Waxman-Markey would cost the United States a cumulative $9.6 trillion in real GDP losses by 2035, concludes a study by the Heritage Foundation's Center for Data Analysis. The bill would also cause an additional 1.1 million job losses each year, raise electricity rates 90% after adjusting for inflation, provoke a 74% hike in inflation-adjusted gasoline prices, and add $1,500 to the average family's annual energy bill, says Heritage.

The Cong ressional Budget Office says the poorest one-fifth of families could see annual energy costs rise $700 — while high-income families could see costs rise $2,200. Harvard economist Martin Feldstein estimates that the average person could pay an extra $1,500 per20year for energy. And those are just direct energy costs.

Written largely by professional environmentalists, the numbingly complex 942-page bill would require an 83% reduction in U.S. carbon dioxide emissions by 2050 — a level last seen in 1908......

There are disputes over the costs of cap and trade (of course), as modelling is extremely complex and fraught with assumptions.

Republican opponents have used the cost figure of $3,100 per household per year based on an MIT study which found a generic cap and trade program would raise an average of $366 billion per year in auction revenues for the federal government 2015-2030, divided by 117 million households. This assumes that the increase in permit costs will be passed to consumers, which seems reasonable to me, YMMV.

Recently,the EPA produced a study for Congress that pegged annual costs at $98-$140 per household. Heritage challenges this analysis here.

The major difference in the two studies, as well as the dissent of one of the authors of the MIT study, is that the smaller cost estimates assume that since the permit costs get paid to the Federal Government they are "returned" to each household, presumably in the form of public services. Ha ha ha ha.

But the bigger question is why?

Even worse, the draconian rules would have no detectable benefits, even assuming CO2 does cause climate change. Using global warming alarmists' own computer models, research climatologist Chip Knappenberger calculated that the painful 83% reductions would result in global temperatures rising a mere 0.1 degrees F less by 2050 than doing nothing. That's because Chinese and Indian emissions would quickly dwarf America's job-killing reductions.

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by reader Sammy


Update 3:00 PM: Rdan here- This was prematurely released by mistake, in that the most recent post is somewhat different. My apologies to Sammy and readers.

Additional sources National Black Chamber of Commerce, Carbon Tax versus cap and trade, state by state differences demonstrating national averages as mis-leading and the complexity of carbon foorprints per capita by state, and Scientific American on some objections to cap and trade models.

Robert Waldmann

The unexpected increase in US productivity growth in the 90's and naughties is an economic puzzle. At the time it was widely argued that investments in information and communications technology had finally finally paid off, that computers and the internet allowed vastly improved corporation wide inventory control and the increased output given inputs reflected lower work in progress inventories. ... hmmmm maybe.

After the jump I will get serious, but here I will describe a theory which just came to me. I was thinking "The internet caused productivity to Increase ?!?!? That doesn't fit my experience. The internet caused my personal productivity to drop from low to minimal, and I know I'm not the only one." In fact, my impression is that office workers, that is cubicle serfs, now spend a large fraction of their working time time in the office, surfing the internet.

Heeey, I thought, maybe that's it. Maybe office workers contribution to actual production is negative. So my theory is that office workers, on average, mostly harass the people who actually make goods and provide services. Now that the internet has distracted us, the people who actually produce things have more time for actual production and waste less time responding to us.

You got to admit it answers a whole lot of quetions.


OK seriously what do I really think. I do think it has to do with office workers and, in particular, middle management. I don't think middle management actually interfered with production, but middle managers and affiliated secretaries and janitors and such count in the denominator of labor productivity. In the 90s there was a wave of downsizing and delayering. Basically top management in many firms decided to thin the ranks of middle management on the grounds that middle managers weren't doing aything useful. The outcome says that the top managers were ruthless and right.

To me the key figure is the almost completely forgotten and hated by the few who know who he is Phillip Caldwell. He's the guy who replaced Henry Ford II as CEO of Ford about the time Ford president Lee Iacocca was fired went off to save Chrystler. Iaccoca was very famous for a while, the guy after Caldwell -- Donald Peterson -- was a corporate hero for a while. Caldwell was a subject that the business press preferred to avoid. When he arrived, he laid of 30,000 people from Ford headquarters staff. He totally disrupted the lives of hard working people who were doing the jobs they were assigned and who had no responsibility for any strategic mistakes (made by various actual human Fords and Mr Iacocca). What a total jerk.

However, no one noticed a decline in the contribution of Ford headquarters to Ford, and, by the way, Ford is not bankrupt.

An even earlier example was the ruthless Jack "the ripper" Welch at GE. Ruthless layoffs in his first years, record profits later.

Basically I think the story is simple -- Parkinson's law -- bureaucracies naturally grow without limit. That includes the management of large corporations. Everyone knows that middle managers are mainly making work for other middle managers writing memos and calling meetings and stuff, but top management does not want to lay people off and especially not managers who are sort of like them instead of production workers who are sort of like equipment.

Before the productivity speed up there was the takeover wave. Corporate predators who converted huge amounts of equity to debt had to be ruthless to survive. Current top management decided they had to do what a predator would do after a takeover to avoid a takeover. They discovered that it was actually quite easy (middle managers don't riot or even strike) and very very profitable. The Drexel Burnham Lambert turned out to have roots as solid as Burham woods, junk bonds turned out to be junk, gambling S&L's went bankrupt and the takeover wave ended.

But CEOs had found a source of huge flows of profits -- slash middle management, and decided to keep the money for themselves paying themselves monster compensation for their ruthlessness.

That's my theory.

I think the standard theory is investment in computers and long slow painful learning what the hell to do with a computer by doing. The huge investment started in the 70s, but, given how helpless most people were with computers (and how user unfriendly computers were back then). Basically this is a theory that the productivity slowdown of the 70s and less so in the 80s was due to measurement error. Learning how to deal with computers is, in fact, investment in human capital, but the stock of human capital is not measured so measured GNP = consumption plus government consumption plus net exports plus investment in *physical* capital was much lower than GNP = measured GNP plus people learning to work with computers (plus other learning at a normal rate).

OK maybe. Betcha the person who came up with that theory had a *lot* of trouble learning to deal with computers *and* that he or she typed it up on a beloved PC.

Another theory is that output in the 90s and naughties was grossly missmeasured as houses and fiber optic cables and stuff were booked at their bubbly market prices, that is, that people weren't producing more they were just imagining that the things they were producing were worth a lot compared to (among other indices) the wages of the workers.

I'm sure my brand new play on the internet and leave actual workers alone hypothesis is false, so back to work pressing a graduate student who is doing actual research while I blog to deliver the written product.

rdan

Barkley Rosser at Econospeak raises several economic points to consider in the current political turmoil in Iran, stagflation (inflation over 17.1%) and significant unemployment (16.3%) among the whole population and perhaps double among the young (2006 data suggests the median age at 24/25 years).

...There are various numbers out there, but after digging around it would seem to me that the best estimate on the overall unemployment rate is that it was about 10.4% in December 2004 (http://www.payvand.com/news/04/dec/1102.html), but that by February 2009 it had hit 16.3% (http://www.encyclopedia.com/doc/1G1-594557005.html).

...the inflation in Iran also appears to have risen as well from 13.5% in 2006 to 17.1% in 2008, prodiving the dread genie of stagflation (http://www.indexmundi.com/iran/inflation_rate(consumer-prices).html) , with some reports suggesting it has soared to over 20% in 2009, all of this with much higher oil prices than in 2005, which should have made things easy for Ahmadinejad economically. It should also be noted that most sources show youth unemployment being anywhere from 50-100% higher than the overall rate, thus quite possibly over 30% now, with that of young women possibly as high as 50%. No wonder that Ahmadinejad has been hurting badly on the economic issue, both with fervent youth now in the streets, as well as with such previous backer as the conservative bazaari merchants and even reportedly with elements of the military and Revolutionary Guards who respected Mousavi's performance as prime minister during most of the Iran-Iraq war in the 1980s.

The real question now, in the face of clear electoral fraud by the regime, is why Khamene'i has switched sides and is backing Ahmadinejad this time over Mousavi, who appears not to have threatened the foundation of the regime before now. Khamene'i has called for there to be no demonstrations today in Iran, with the threat that any might be put down violently. This becomes even more problematic given that the one authority able to replace his is the council headed by former president Rafsanjani, whom he reputedly supported in 2005, but who now supports Mousavi by the best reports. Clearly this is a moment of deep decision in Iran...