Confused about economics? You are forgiven

Recessionary periods, especially the whopper we’re currently in, present ample opportunities to look at economic history and theory. Unfortunately, even a cursory glance at the literature appearing in myriad locations, from popular blogs to academic institutions, offers little relief: it would seem that just about everyone has a different opinion on causes and effects.

The economic news itself continues to be dismal, in particular for the unemployed. Even Ben Bernanke, in a rare Fed press conference yesterday, characterized our unemployment problem as a “deep, deep, hole.” Nevertheless, he says he fears inflation, so he’s not inclined to do anything about it.

But can he? He has said that he possesses the tools to effect the unemployment rate. He’s done some “quantitative easing,” which, he claims, has helped add jobs to the economy. When asked if he would do more, he balked.

Yet, there seems to be little consensus on whether or not Bernanke was right about the positive effects of QE. Some experts contend that the Fed’s actions have made the problem worse.

The forecast by Yi Wen, an assistant vice president and economist at the Federal Reserve Bank of St. Louis, challenges a chorus of pro-purchase research published by the Fed’s Board of Governors in Washington and its regional banks in San Francisco and Boston.

The Fed’s $2.3 trillion asset-purchase programs could lead to a 2.2 percent rise in the unemployment rate in the long term, Wen wrote. The economist argued that the increase in bank reserves — a result of the Fed’s buying programs — could lead to an increase in the amount of money flowing through the economy, which in turn would lead to inflation. Over time, that would lead to an increase in joblessness, he reckoned.

Paul Krugman, who can always be counted on to offer an opinion, posted this on his blog site. He believes that Bernanke “wimped out,” perhaps falling prey to the “inflationistas,” those who have asserted, and continue to assert, that any action by the federal government, whether monetary or fiscal in nature, will cause higher inflation. Krugman counters that at every warning, the inflationistas have been wrong.

For the hopelessly confused layperson, what sense can be made of any of this? First off, shouldn’t an answer exist to this straightforward  question?  Can the federal government reduce the unemployment rate? If we get a “yes” from someone, then the next question is, What actions will work?

But we also get a lot of “no” answers, which leads me to believe that economic thinking, however formal, is either inextricably tethered to ideology or should not be taken seriously, because it doesn’t and perhaps cannot know what the f*** is going on.

Heck, economic historians can’t even agree on the causes of the Great Depression over 80 years ago and what ended it. If they haven’t figured out the mother of all recessions, despite decades of evidence-accumulation and modeling, what hope is there that an economist—any economist—can provide a competent, fact-based theory of present circumstances?

Those in Paul Krugman’s camp refer to the writings of John Maynard Keynes for both an explanation and cure for what ails us. Others, suggest that Keynes’s ideas were thoroughly refuted 40 years ago.

Much rides on answers to these profound questions. If Keynes was right, than the government, and only the government, can step in to create the necessary aggregate demand to restore the economy to “normal,” whatever that will be these days. Keynes argued that in recessionary times there was too much uncertainty, too much lack of faith, to expect the economy to recover on its own. Capitalists won’t invest, since output won’t be consumed, and labor has no place to go, since there are no jobs.

If Keynes was wrong, then there is nothing anyone can do but sit, suffer, and wait. But for how long? Forever?

Where do we start?

Is it the weather? Does Seattle sit in a vortex that sucks talent?

We precious few Mariners fans have been shit out of luck for far too long. If we rooted for the Dodgers, we’d at least have the owners’ side show to distract us. Or the Mets’ fans can derive some sick entertainment value watching the owners’ waste Madoff’s money on long-gone players. But, no, we Northwesterns have to endure simple, ugly mediocrity in dinosaur-sized chunks.

This year would surely be different, we had hoped. Figgins was back at third. Felix was coming off a Cy Young year. There was new blood, maybe some pop in the lineup. Fools, we are, for believing this stuff.

I have to admit that I was taken aback, in a good way, in reading this post by Jim Moore. Figgins is not only hitting the ball like a third-grader, he seems to be a jerk, to boot. What a package.

We need more of this vitriol. Stir things up, boycott the games (which you’re already doing—nice work), and raise a ruckus. Then let’s push for the sports coup de grace: turn all the Seattle teams into public organizations, just like the Green Bay Packers.

Who needs absentee owners? Who needs all that marketing schlock that fills the airwaves? We’ll all become socialists and own the Mariners, the Seahawks, and the Sounders. While we’re at it, let’s build our own publicly-owned basketball team.

Here’s my ten bucks. What are we waiting for?

Amen, Brother Paul

Paul Krugman on the state of health-care discussions:

Medical care is an area in which crucial decisions — life and death decisions — must be made; yet making those decisions intelligently requires a vast amount of specialized knowledge; and often those decisions must also be made under conditions in which the patient is incapacitated, under severe stress, or needs action immediately, with no time for discussion, let alone comparison shopping.

That’s why we have medical ethics. That’s why doctors have traditionally both been viewed as something special and been expected to behave according to higher standards than the average professional. There’s a reason we have TV series about heroic doctors, while we don’t have TV series about heroic middle managers or heroic economists.

The idea that all this can be reduced to money — that doctors are just people selling services to consumers of health care — is, well, sickening. And the prevalence of this kind of language is a sign that something has gone very wrong not just with this discussion, but with our society’s values.

A new science of pitching

Here is a fascinating article on a Danish company’s new radar technology.

Trackman, a company established in 2003, is taking some old-school observational theory out of baseball and replacing it with hard data derived from 3D Doppler radar ball flight measurement.

Trackman identifies not only the speed of a pitch and its trajectory, it also records the rotational velocity and the actual distance the pitched ball travels. The researchers have correlated their data with the usual baseball statistics, which are voluminous and ever-growing.

Among the findings:

  • a pitcher who jumps off the mound (e.g., Tim Lincecum and the Yankees David Robertson) reduce the distance, and therefore the time, the ball travels; thus, at any given pitch speed, the batter will have less time to react, because of the shortened path (see table below)
  • a curve ball with high rotational velocity (the researchers use revolutions per minute, or rpm) is more difficult to differentiate from a fast ball; Detroit’s Justin Verlander’s curve ball spins at over 3,000 rpm, which explains why so many batters miss it
Anyone interested in baseball, and especially pitching, like yours truly, should read the article. Fascinating stuff.

Now, what are some of the implications of this new technology? What will teams be doing—all the way down to high-school level, I suppose—to boost pitchers’ effective velocity or increase the spin on the curve ball?

My guess, is that coaches will be viewing a lot of films of David Robertson and Justin Verlander. They they’ll try to get their young charges to replicate the mechanics.

On the downside, I suspect there will be more stress and strain on pitchers’ arms, especially when trying to ape Verlander. But for future hitters of America, watch out.

On individualism

It has become fashionable amongst the right to whine about taxes, first and foremost, then government spending, the apparent source of all that ails America. If Washington, D.C., could only get its house in order—balancing the budget, of course, but, better yet, building a surplus—the country would realize its Randian destination, freeing the superior among us to accomplish great and wonderful things while consigning the remainder to their proper role: worshiping and serving the best and the brightest.

Under such philosophy the individual is sacred; collectivist and communitarian thought must be purged. Yet, there would seem to be a problem with this notion.

First, the very existence of homo sapiens depends on our species’ social abilities. Our ancestors survived not one-by-one but as groups via cooperation.

Second, no one bothered to tell the Founding Fathers that Ayn Rand should be consulted. The Preamble to the Constitution reveals a marked antithesis to Randian individualism, beginning with its opening pronoun we. It is followed rather quickly by the phrase “promote the general welfare.” Gad. Welfare?

Third, governments are all about providing some sort of order, establishing rules and procedures by which individuals interact with one another, to, among other things, “form a more perfect union.” (Oops. Another collectivist term, union.) Those who dare to establish governments or try to run them acknowledge the imperfect allocation of natural gifts. While we may have all been “created equal” in personal dignity and in the “unalienable rights” that inhere within each of us, we’re not all geniuses, hunks, and beauty queens. Implicit in the founding documents is the belief that, despite our differences, we’re all in a fundamental sense the same. We’re human. Associated with that common understanding is sympathy for victims of misfortune.

If the reader is still with me on the broad contours, he or she will appreciate that governments are more than necessary evils. In complex societies they are essential to realizing and nurturing the human condition, manifested in both saints and sinners.

And the religious allusion is not accidental. The Founding Fathers, however secularly enlightened, were quite familiar with the “new testament,” the “Sermon on the Mount,” and the concept of redemption. The Christian god as revealed in the epistles and gospels was all about faith, hope , and charity (caritas), and the greatest of these was the last.

Yet, governments, like people, are fallible. Nor is there any guarantee that necessary evils do not themselves become evil. They do so, in my judgment, when they stray from embracing “we the people” and promoting the “general welfare” to enriching the lives of an already privileged few. That tendency steers toward fascism—by one definition, “extreme right-wing, authoritarian, or intolerant views or practice.”

You can see where this is going. Those of the Righteous Right, judging by their own words and actions, show scant tolerance toward alternative views and opinion. However, while I can foresee the RR’s facile embrace of a strong authority, provided the authority’s ideology is consonant with theirs, such an “authority” would have to be anti-government, at least rhetorically. The person who’s come closest to satisfying these conditions is, of course, Ronald Reagan (also RR), who famously said that “government is the problem.”

The Ayn Rand reference seems apropos, given the unleashing—on “Tax Day”—of a new film based on her novel Atlas Shrugged. Michael Shermer reviews the film for The Huffington Post. He writes:

The release of the film is also timely with Rand’s resurgence of influence driven in part by Tea Party firebrands who at their rallies have posterized memorable Randenalia, such as “Atlas is Shrugging”, “Who is John Galt?”, and the über-Bondish “The Name is Galt. John Galt.” Stimulated in part by the recession and subsequent government bailout — which Rand watchers are quick to point out was predicted in Atlas Shrugged half a century earlier–sales of the novel skyrocketed in 2009, with its 300,000 copies putting it in competition for sales with the top 20 new novels that year. That is saying something about a half-century old 1,183-page novel chock-a-block full of lengthy speeches about philosophy, metaphysics, economics, politics, sex and money.

Why the renewed popularity of Ayn Rand, in particular among self-proclaimed Tea Party members? I have a hunch.

America, if placed within a broad historical context, is on the wane. While its military is second to none—indeed the US spends more money on “defense” than the rest of the world combined—America can’t seem to score victories against its declared enemies. With the possible exceptions of Panama and Grenada (lopsided engagements in the extreme), the US has not “won” a war since defeating the Japanese and Germans. Not for lack of trying, mind you.

If not in battle, then, the military still has its uses, mostly for protecting corporate interests around the globe. And here is where America’s story starts its downward trajectory.

But I hasten to add that it’s important to distinguish between America as a nationstate and America as the accidental haven for multinational corporations. The very idea of America, loosely defined as “the land of opportunity” combined with an inchoate political notion of a “city on a hill,” is losing or has already lost its luster. The “beacon of freedom,” so tenaciously held in the minds of the Righteous Right, is being transformed into yet another banana republic, fertile soil for xenophobia and über-nationalism, the prickly elements of the Tea Party. Let me explain.

A salient feature of banana republics is oligarchy or plutocracy. While it’s true that we still hold elections in this country, the outcomes are pre-ordained. Not by “the people,” mind you, but by the extremely wealthy. I’m not speaking here of conspiracy, which is unnecessary, but merely the aggregate identification and realization of interests, namely those of the rich. The transformation is the predictable effect of concentrated wealth, so moved.

Imagine, if you will, a population marked by extreme wealth, at one end, and persistent poverty, at the other—in other words, America. Over time, the wealth has become more concentrated in the hands of a few, while poverty has metastasized, infecting more and more people. Meanwhile, the so-called ‘middle class’ has been shrinking.

We would expect, under this set of circumstances, that the rich would increase their share of wealth decade after decade. Everyone else would gradually and increasingly suffer. Why?

In a mostly laissez-faire society, one advocated by Ayn Rand and the Tea Party, the non-rich have diminishing prospects of becoming wealthy, to be sure, but also self-reliant. They cannot possibly catch up to those who were essentially born on third base. Indeed, and over time, the influence and power of the wealthy rises exponentially, since gains are parlayed into further gains.

This essentially inertial process is aided and abetted by the putative democracy we have so long revered—mistakenly, I contend. The campaign contributions and lobbying expenses of the rich act as investments, from which they realize mushrooming returns. All of this has been aptly chronicled by Jacob Hacker and Paul Pierson in their recent book Winner-Take-All Politics. But their observations and conclusions do not comport with the hagiographic treatment of “civics” found in our public schools or in the minds of Tea Partiers. Thus, they are either ignored or ridiculed.

The non-rich, which is decidedly most of us, grow increasingly insecure about their financial situations, both current and future. Their jobs are at risk, wages inadequate, benefits middling to zero, and retirement only the stuff of dreams. This rising insecurity does not fit well, if at all, in the idealized imagery of the United States. How can so many suffer economic anxiety in a country so wealthy? Who is to blame?

Few of us see the culprit in the mirror, although the individualists suggest that’s where we should look. Uncomfortable, we look elsewhere. The answer appears, and take your pick. It’s the Jews, or the Arabs, or the Hispanics, or the Asians, or just about anybody who is different. Once the cause is identified, an entire alternative narrative emerges in which the Others have conspired with the “socialists” who have conspired with the Democrats who have conspired with the devil himself. To what end? To threaten and eventually extirpate the Righteous Right.

But notice who is absent from the list of perpetrators. The rich. By some twisted logic, the Righteous Right, marinated in Randian Objectivism, praises, if not worships, those who extract vast fortunes from the rest of us.

Thus, the RR winds up in bed with the wealthy, trying mightily to help secure the privileged’s agenda. The rich want lower taxes. Amen. The rich want less government intrusion. The rich want to build up the reserve army of workers (ten percent unemployment is not high enough) to press wages further downward. The rich want a vast military apparatus to protect and defend their economic interests, wherever they exist. The rich want to trample on the rights of others. The rich, through its near monolithic media empire, seek to atomize us, transforming a collective citizenry into individual consumers.

Madness run amok.

The antidote cannot be found on the floor of the New York Stock Exchange, or in corporate boardrooms, or, alas, even in the halls of Congress. We won’t find it in the mainstream press, especially given its diminishing effect.

Oddly, and ironically, the cure lies with “the people.”

Jean-Jaques Rousseau, the French philosopher, distinguished between two senses of the people and their desires and intentions. In one sense, the people’s will could be discerned by votes: add up individual preferences to arrive at an aggregate preference. Rousseau preferred a different, albeit more opaque notion. Here is what he wrote in The Social Contract:

“…the general will, if it be deserving of its name, must be general, not in its origins only, but in its objects [my emphasis], applicable to all as well as operated by all, and that it loses its natural validity as soon as it is concerned to achieve a merely individual and limited end, since, in that case, we, pronouncing judgment on something outside ourselves, cease to be possessed of that true principle of equity which is our guide.”

I roughly divide the population by means of a matrix, which I illustrate below. We can be sorted along two continua. The y-axis runs from me to all. The x-axis refers loosely to the timing of gratification, whether we want what is deemed good right now or what we expect to be good over time.

You can go through your own process in filling in the boxes. I’d place corporate CEOs in the lower left box. They are joined by hedge fund managers, most Republicans, and social Darwinists. In the upper right box, which is the antithesis of the lower left, I’d include green socialists and those who adhere to Rousseau’s general will. These are people who prefer that decisions benefit everyone over time.

Occasionally in his posts Paul Krugman will admit to being a “Rawlsian.” He is referring to John Rawls, the Harvard philosopher who authored a modern instantiation of the social contract in his A Theory of Justice. Rawls, like Rousseau, Hume, and Locke before him, attempted to develop a rational basis for government and, ultimately, morality: How should we behave toward others?

Rawls creates a thought experiment. Imagine that all of us are in an “original position.” He assumes that we see through a “veil of ignorance.” That is, we do not know our standing within the group, whether we are privileged or poor, tall or short, white or brown, and so on. How would we then decide? In particular, how would we distribute scarce goods and services. Rawls believed that we would first and foremost be fair. We could not know how decisions would benefit the individual, since the individual was ignorant of his or her unique circumstances. So, Rawls suggested, we would hedge, understanding that a decision could adversely impact us, depending on our situation. We would “spread the wealth,” as it were.

So, back to government and its proper function.

The rich act as if they don’t want government; they may not even need it, save for the limited task of protecting their wealth. Everyone else, I presume, would like some protections from the vicissitudes of life—social safety nets. We acquire some limited protections against hazards via private insurance: fire, theft, and auto accidents. If we have jobs, and most still do, then we’d hope that our employer provides health insurance, sick leave, and a modest retirement fund.

But far too many of us either lack jobs or work in occupations that deny benefits and pay wages inadequate to support a family. Nor are employees so situated able to accumulate surpluses sufficient to provide the aforementioned benefits. Should sickness befall them, tough luck.

And now we get to the heart of promoting the general welfare, a principal function of government. Nature can be cruel, at birth and throughout life. The big question which underlies a proper governmental role is this: By what rationale should those who have give a portion of their wealth to those who lack?

Individualists, libertarians, Tea Partiers, et al., would hold that taxation is confiscatory. I made the money, so keep your filthy government hands off my bank account. We quickly grasp that such ideologues would have no truck with Rousseau’s general will. Their vision is limited, in both object and time.

Their opposite, found in the upper-right box, willingly pay taxes on the belief that the revenues will be used to “promote the general welfare,” which includes compensating what economists like to call “the losers.” (The market, after all, is just one big competition.) They generally support: education, voting for every levy and bond issue; public media; Social Security; Medicare; Medicaid; welfare programs; and adequate pensions. They are less likely to want tax dollars going to the Pentagon.

But I have no confidence that we can transform those inhabiting the box on the lower left. I can only hope in a political economy that there are more in the other box. The circumstances hardly support Rousseau’s preferred concept of the general will.

Why the pessimism? Just read this.

Bias trumps facts

Most of us, I dare say, would agree that we are open to new ideas. We’d also allow that we would change our opinion, when confronted with factual evidence to the contrary. Unfortunately, that’s not at all how we behave. Indeed, some of us have such rigid views that inconvenient facts cause us to cling even more tenaciously to wrong opinions.

Chris Mooney tells us why this is so in this Mother Jones essay. Here’s an excerpt:

So perhaps it should come as no surprise that more education doesn’t budge Republican views. On the contrary: In a 2008 Pew survey, for instance, only 19 percent of college-educated Republicans agreed that the planet is warming due to human actions, versus 31 percent of non-college educated Republicans. In other words, a higher education correlated with an increased likelihood of denying the science on the issue. Meanwhile, among Democrats and independents, more education correlated with greater acceptance of the science.

So, what to do?

Mooney writes:

Given the power of our prior beliefs to skew how we respond to new information, one thing is becoming clear: If you want someone to accept new evidence, make sure to present it to them in a context that doesn’t trigger a defensive, emotional reaction.

In other words, he suggests, first appeal to a contrarian’s values, then hit ’em with the facts. You’re more likely to succeed. For example, if you try to tell a Republican climate-denier that the science of global warming is settled, he’ll respond with even more rigidity. However, if you tell him that we can help prevent climate change by building a whole lot of nuclear power plants, bingo.

Strange.

Enrich the wealthy, they create jobs

Rep. Paul Ryan’s budget proposal, passed by the House on a strict party-line vote, would lower the tax rates to levels not seen since the Great Depression. Mr. Ryan believes, sincerely perhaps, that by giving the rich more money (which is what cutting their taxes would do) is good for the economy, because the rich create jobs. God bless the rich.

Ryan baldly relies on numbers crunched by the Heritage Foundation, that bastion of wealth preservation, which had famously predicted huge employment gains from G.W. Bush’s tax cuts. Yglesias shows us just how fatuous such claims are. Despite the lowest tax rates in the world, next to Australia’s, nearly ten percent of us can’t find a decent job. Perhaps we’re not looking low enough.

In his recent post, David Sirota talks about the race to the bottom. Specifically he calls out the Swedish firm IKEA for locating a manufacturing facility in Danville, Virginia. Why? Because of very low wages, high anti-unionism, and lax regulations. Sirota reminds us of the wisdom of former GE CEO Jack Welch.

He famously said that in an era without strong international unions and with standards-free trade pacts, profit-maximizing companies would end up putting “every plant you own on a barge” and trolling the world for the lowest wages and workplace conditions, knowing they would no longer face tariff costs.

Few have failed to notice that the United States is experiencing high unemployment. Our factories, other than IKEA’s, perhaps, are under utilized. Wages for most of us have either stagnated or fallen. Meanwhile, the top one percent have realized all of the income gains; they control 40 percent of total wealth.

America’s rich may create jobs. Just not here.

Unless…

…there is method to the GOP madness: they are trying to transform America into a banana republic, where the rich have everything and everyone else must become slaves to capitalism—or die. The goal, then, is to be surely competitive. But the competition is now sweat shops in China, India, and South America.

We’ll be number one only if our workers come in last. Brilliant.