Assuming One's Conclusions

Greg Mankiw had a piece recently in the New York Times regarding the hot, hot topic of capital accumulation over time--the subject of Thomas Piketty's new book, Capital in the Twenty-First Century.
Mankiw's piece makes some good points, although I am biased (his text was the one we used in my macro class and it is brilliant).
I haven't read Piketty's book yet.  I will be finished my classes soon and I will have a month to knock it out.  I have been reading some of the reviews and saving others.  Few econ books engender the amount of discussion of Piketty's book, so I am looking forward to it, even if he is channeling Marx's spirit.
Shortly after Mankiw's piece runs, Paul Krugman weighs in on the topic.
First, I have to say that one of the things that truly distinguishes Paul Krugman from anyone that you would want to spend any time around is his astonishing arrogance.  Right off the bat, he is chiming in on the matter because "other people" have asked him to comment on it.  Because, you know, otherwise he's got other topics to exposit upon disingenuously.  So he indulges us for a few minutes on what Mankiw gets wrong.
Krugman takes two positions on Makiw's thesis.  The firs from an economics standpoint, the other from political economy.
Among other things, Mankiw makes the point that inherited wealth is typically saved/invested.  This helps everyone as a source of capital for things like bright, shiny object we like to be distracted by and the jobs necessary to make things happen.  It also makes the cost of borrowing cheaper as it expands the source for loanable funds.
Krugman "catches" Mankiw in not seeing the "opportunity cost" involved in letting people who earn their money pass it along to their heirs.  You see, there are alternatives.  Or at least one alternative.  And since it's Krugman, you can guess that the alternative is... the government.
Because the government can do things with the money that will be more beneficial to the common man who didn't earn someone else's money.  The government could take a wealthy decedent's money and pay down the deficit, but that wouldn't do anything further than what those greedy heirs would have done.
The government could also use the money to pay for "social insurance and/or social goods" and says that Mankiw "forgetting" about the alternative that Krugman favors is "assuming his conclusion;" that the so-called trickle-down benefit is the most desirable.
What Krugman doesn't see is that he is assuming his own conclusion: that the redistribution of wealth is a legitimate function of government.  He is free to believe in whatever he wants, but neither Greg Mankiw nor anyone else is obliged to share his belief.
He could try to use his considerable intellect and charm to try and persuade those who don't share his assumptions.  Or he could stick to ad hominem and mendacity.  I wonder which he will choose?

Verbiage Dervish

One of the greatest responsibilities speakers and writers have is to keep it short.  Words and the attention of the audience are sacred things.
This doesn't mean a lecture, speech, book, article, blog post, interview answer has to be short.  One of the greatest lectures I ever sat through was two hours long, with maybe five or six picture slides in the days before PowerPoint, and it left the entire audience wanting more.  The speaker respected his subject and his audience while also being confident enough in his material and himself that he didn't find it necessary to use fifty words to make a particular point when ten or twenty would do the trick.
The author/speaker is there to convey a story or information, not to attempt to impress.
I thought of this today as I heard a story this morning about John Kerry, Russia and the Ukraine on NPR's Morning Edition.
Regarding Russia's stance viz the Ukraine, Kerry had this to say:

"We will look to Russia for the choices that it makes in the next days for their confirmation of these statements.  Statements are statements, words are words; we have all learned that it's actions and the follow-on choices that make the greatest difference."

I am going to concentrate on the highlighted sentence.  The story played the tape of Mr. Kerry's remarks and the transcript is true to his words; there are no scrivener's errors.  The second clause is an affront to the English language and syntactically appalling.  But the major offense is that Kerry takes twenty-three words to say:

"Actions speak louder than words."

Five words.  Nice.  Pithy.  Apropos.  It conveys the exact same message without assaulting one's ears.

He could have stretched it a bit, gone biblical and said "You will know them by their fruits."  Seven words, but this would still get the message through in 1/3d the words and perhaps even challenged the listener (but in a good way).

Twenty-three words to take a simple message and make it almost incomprehensible.

Kerry isn't the only politician afflicted with maddening logorrhea, nor is this limited to liberals or Democrats.  It is entirely too symptomatic of people who either don't know what they are saying or attempting to appear more thoughtful that they really are or perhaps are capable of being.

A Conversation Somewhere in Philadelphia

circa 1787, near 3d Street.


Hamilton: what's up, JimBob?  How's it coming?

Madison: Hey, Al.  Just dotted the i's and crossed the t's on habeas corpus clause just to make certain that no one ever thinks that the government has the authority to detain anyone without due process.  I think it's pretty solid.  But I keep getting hung up on the preamble.

Hamilton: What part?

Madison: So far I have, "We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defence of all of humanity..."

Hamilton: Whhhooooaaaa there, little man.  What was that last bit?

Madison:  We are establishing a federal government that is to defend the sanctity and dignity of all humans everywhere, except where we don't, for all of time regardless of the threat or consequences, no?  That's the note Gouverneur slipped me.

Hamilton (chuckling): Gouverneur.

Madison: I know, right?

Hamilton (snapping to): That's biting off a little more than we can chew, don't you think?

Madison: Absolutely not.  We have a continent rich with natural resources and more than our share of industrious, entrepreneurial people.  We will tax those people to the point of breaking their spirit while running up unfathomable debt.  We can then establish a military larger than our needs or our means and make sure that nobody ever does anything we don't like.  And none of that will be a problem, right Mr. National Bank?

Hamilton: Watch it.  Where are you going with this?

Madison: With our resources and the fact that we know what's best for everyone else, we can't possibly confine ourselves to protecting, um, ourselves.

Hamilton: Is your stammering the result of your redundancy, your imbecility or you coming to your senses?

Madison: No need to insult.  That's a nasty habit of yours that you'd be wise to mind.

Hamilton (waving off Madison): Listen, let's keep things simple.  Keep it at "provide for the common defense."  You still have that bit in there about being able to change things, right?

Madison: Article V, just where we left it.

Hamilton: Good stuff.  We don't want people to forget that if they don't like what we "old white guys" put in there, they can just change it and not resort to having the courts or congress or the president bastardize all of the work we put in here and ignore what we've plainly written rendering the entire enterprise a sham.

Madison (snaps his fingers):  You're drifting.

Hamilton (starts): Sorry.  Anyway, if the people decide later that they want to become the world's policeman, they can just amend the constitution.  It will spell the end of the republic, but you know what they say about all good things.

Madison: What?

Hamilton: You're an idiot.  What's next?

Madison: Huh?  Oh, OK, so we'll keep it to "provide the common defence."

Hamilton: That should be an "s" there.  We're Americans.

Madison: Fuck off, foreigner.

Hamilton: Next...

Madison: ...Ok...here we are, "provide the common defence," and then "provide welfare to everybody for any reason..."

Hamilton (rubbing his forehead): I'll be back.

Madison: Were are you going?

Hamilton: I'm getting Franklin.  It's going to be a long night.

The Best Analogy

Peter Beinert wrote a hit-peice on Marco Rubio for something called the Daily Beast.  He starts off swimmingly by calling the reading of two books, one an autobiography by Rubio, the other a biography about him, an act of "literary masochism."  So we get how hip and funny Beinert is right off the bat.

The second paragraph cuts right to the heart of things, starting "It’s not that Rubio is as smart and perceptive as Obama."  I was e-mailing a friend of mine tonight along these lines.  What evidence has there been of Obama's intelligence and perspicacity?  But I digress.

Rubio might be sharp as a tack, he may be another Sarah Palin.  I don't know.  I do know that political autobiographies are about as useful for finding out about a person as dropping an anvil on your foot, as both are completely untethered to any useful information about the subject.  My point being that I don't know enough about Rubio to have an opinion one way or the other about him.  I've heard he is a "Tea Party" guy, but I've heard that about both Palin (possibly) and Ron Paul (no), so I don't know exactly what that means.

But after reading these books, Peter Beinert knows Marco Rubio.  I have a sneaking suspicion that he already had a pretty good bead on Marco Rubio before he picked up either book, but that is another matter.

The point of the post is to share what is the best analogy I've ever read. In describing what drove young Rubio into politics, Beinert writes "[w]hat he fell in love with on the streets of Miami’s raucous Cuban ghetto was the political game."  Rubio's parents were Cuban immigrants, and he was raised in Miami.  Beinert then writes the best analogy I've ever read, immediately following the previous sentence, "The best analogy might be John F. Kennedy, who also learned the art of politics in a parochial ethnic community but through personal skill and generational change was able to transcend it."

John F. Kennedy learned the art of politics in a "parochial ethnic community?"  His maternal grandfather was the mayor of Boston and served three terms in congress.  His father, a fabulously lecherous human being, went to Harvard, made money through investing and was hob-nobbing with FDR at the dawn of WWI, three years before JFK was born.  JFK lived from birth to the age of ten in Brookline, MA, then moved to the Riverdale section of the Bronx.  He attended private elementary schools, summered in Hyannisport, MA, went to The Choate School, then on to Harvard.  You get the idea.  I won't disagree that the Kennedy family was ethnic.  I pretty sure there were several pair of Irish sunglasses donned by all of the kids at one point or another, and certainly some of the boys' spouses on more than one occasion.  But to describe his upbringing as happening in a "parochial ethnic community" is patently absurd.  And, further, to depict Kennedy's political ascendency as something that had to be attained through some Herculean transcendence in spite of the parochial ethnic community has somehow managed to escape is an insult to anyone who can spend 35 seconds on wikipedia finding out exactly how unparochially ethnic JFK's upbringing was.

I would go further, but once I got to the best analogy I've ever read, I stopped reading.

Yoo's Back

John Yoo, Chief architect for the George W. Bush administration's more novel views on the constitution and presidentialauthority not found written down anywhere, is sharing his thoughts on the National Security Agency and revelations that the agency, via the Foreign Intelligence Surveillance Court, can collect information on whomever it wants, whenever it wants, regardless of whatever medium humans can communicate through.

Mr. Yoo is against putting the NSA in an "impossible position", because "we are placing these kinds of domestic law-enforcement standards on a foreign intelligence function. With domestic law enforcement, we want the Justice Department to monitor one identified target (identified because other evidence gives probable cause that he or she has already committed a crime) and to carefully minimize any surveillance so as not to intrude on privacy interests.

Once we impose those standards on the military and intelligence agencies, however, we are either guaranteeing failure or we must accept a certain level of error. If the military and intelligence agencies had to follow law-enforcement standards, their mission would fail because they would not give us any improvement over what the FBI could achieve anyway."

What Mr. Yoo fails to grasp is that the government, whether domestic law enforcement, the military or intelligence agencies, is covered by the same standard.  Namely that the government does not have the right to search a person, his house or his "effects" without a warrant and that warrants may only be issued upon probable cause.  The "reasonable suspicion" standard that allows police to detain a suspect temporarily doesn't cut the mustard here.  There are no hidden, secret codicils that say the president gets to do whatever he wants under certain circumstances.  And if the government, all in the name of protecting us, gets to pick and choose what authority it has and what what rights the people get to enjoy under specific circumstances, the whole system has failed.

It is a point I have made before and feel obligated to repeat: in our system, the people are the sovereign, the government is the servant.  Executives, legislators and bureaucrats do not have the authority to decide what powers they have.  This is kind of important.

Don't Call it That

I like language.  I'm not an expert, rather a hobbyist.  I like to play with words in order to convey meaning, tone, emotion and I enjoy writers who do well what I attempt futilely.

I like the utility of words and appreciate the development of contemporary communication, save the text lingo and obsessiveness with acronyms, but that is a fight for another day.

But sometimes, I find, that we don't have words to describe certain things or events.  Neologisms come and go, but it's weird to stumble upon needing a word to describe a thing or event that has been around since civilization dawned.

Take, for instance, when the military in Egypt overthrew the popularly elected government of Mohammed Morsi and suspended the constitution a few weeks ago.  I could have sworn that there was a phrase that we had, of French origin, that described perfectly what that is ("overthrow" is too prosaic).  I scanned wikipedia, I flipped through dusty old books, I meandered through the local library and I couldn't find the words that I was certain existed.

Someone foolishly suggested that the words I was looking for were "coup d'etat," the definition of which is (from dictionary.com):

a sudden and decisive action in politics, especially one resulting in a change of government illegally or by force.

But that can't be it, because the United State Department of State says unequivocally that what happened in Egypt is not a coup d'etat.  Because if it was, according to the law that authorizes the disbursement of financial and military aid to Egypt if the military overthrows the government, then the more than $1.2 billion dollars that our government takes from current and future taxpayers and sends to Egypt each year would automatically be cut.

So my search continues to find out what to call what happened in Egypt.  Any help would be appreciated.

Head Slap Special

President Obama is "pivoting" again, trying to bring attention to the economy.  Which might night be such a hot idea because, in this arena, he's an idiot.

And I don't say that because he's a socialist who like to "spread around" other people's wealth, though that does not help his score here.  I say that because he doesn't know how markets work.  And if you don't know how markets work, you shouldn't try to focus attention on the fact that markets aren't working very well and that the reason they aren't working as well as they ought is directly related to policies promulgated by like-minded intellectual pygmies.

The best part is that he thinks his speeches will help his cause, and if his cause is helped, more of the policies he supports will be put in place and then the economy will perform better.  Let's never mind that this is the heighth of hubris that Hayek addresses in the quote cited on the banner, but just mind that liberal policies are the worst thing you can do to an economy.

But if we put aside the trade-off between the costs versus benefits of wealth-transfer schemes, avoid the discussion of whether the distribution of income is even a concern of the federal government and shy away from rhetoric such as (from the president's speech yesterday at Knox College, emphasis added):

"In the period after World War II, a growing middle class was the engine of our prosperity.  Whether you owned a company, or swept its floors, or worked anywhere in between, this country offered you a basic bargain -- a sense that your hard work would be rewarded with fair wages and decent benefits, the chance to buy a home, to save for retirement, and most of all, a chance to hand down a better life for your kids.

But over time, that engine began to stall -- and a lot of folks here saw it -- that bargain began to fray.  Technology made some jobs obsolete.  Global competition sent a lot of jobs overseas.  It became harder for unions to fight for the middle class.  Washington doled out bigger tax cuts to the very wealthy and smaller minimum wage increases for the working poor."***

And

"So in many ways, the trends that I spoke about here in 2005 -- eight years ago -- the trend of a winner-take-all economy where a few are doing better and better and better, while everybody else just treads water -- those trends have been made worse by the recession.  And that's a problem.

This growing inequality not just of result, inequality of opportunity -- this growing inequality is not just morally wrong, it’s bad economics.  Because when middle-class families have less to spend, guess what, businesses have fewer consumers.  When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy.  When the rungs on the ladder of opportunity grow farther and farther apart, it undermines the very essence of America -- that idea that if you work hard you can make it here."

You can look at actual facts, like:

    (source)

Yes, the president and his supporters are correct.  The middle class is shrinking.  More people are becoming wealthy and slightly fewer people are as poor as they were.  But why let facts get in the way of dulcet, but fatuous, rhetoric.


***Please see here for a partial antidote to this paragraph.  There is so much wrong in his speech and this paragraph is the lodestar for its sophistry.

Of Course He's Smiling. He's Probably Drunk

I'm agnostic on the current immigration debate.  I am for almost completely unfettered open borders, specifically so far as a source for employees is concerned.  If someone can pass some form of security background check, welcome in.
This would work, of course, so long as we were to get rid entirely of the wealth-transfer schemes dressed up as social welfare.  But that is a fight for another day.
The reason I am agnostic is that if the matter is to be addressed by our legislators, I am reasonably certain that the result will be ineffective and expensive.
But God bless Harry Reid for giving me the best reason of all not to support the legislation currently under consideration:

The First Tea Party was Hosted by a Madman

It hasn't happened for a while, but I have occasionally been asked for my thoughts on the "Tea Party" movement.

At first, I thought there might be something to it.  Without knowing what those that identified themselves as tea-partiers stood for, I only knew that people like Keith Olbermann and Aaron Sorkin hated them and called them racists.  Based on that alone, you could have colored me a supporter.

But upon examination, the movement, such as it is, revealed itself to be entirely lacking in any sort of credibility or coherent political philosophy that demonstrates a scintilla of rigorous thought.  I think contemporary progressivism (modern "liberalism") is intellectually offensive and an insult to human dignity; contemporary conservatism is morally bankrupt and clings to impotent nostrums.  But as Walter  Sobchak says in the Big Lebwoski



The Tea Party is an ephemeral trifle.  Hastening itself to its rightful place in forgotten lore, one of the groups that constitutes the movement, the Tea Party Leadership Fund, is pushing for Sarah Palin to run for Senate.  Well done.

Celebrating Diversity

The gay marriage debate is front and center.  I posted my two cents on the matter here over four years ago and, revisiting it today I'd say certain excessive flourishes aside, I stand by what I wrote.

I am a libertarian and hold dear to the notion that behavior by one's self or between consenting adults that does not harm another person or his property is of no concern whatsoever to the state.  I don't know what's best for you, you don't know what's best for me and together we don't know what's best for the other guy.  And this applies to Michael Bloomberg, too.

To recap, I have no problem with gay marriage.  But I am willing to argue the matter with those who may not agree with me.  And I do not think opponents of gay marriage, whatever reason they may have for their opposition, are arguing in bad faith.  So you see how wonderful I am, right?

I was cruising the internet today and I saw this headline at the Huffington Post (here is the story).

I don't really care about the story, it was the headline that grabbed me.  Because places like the Huffington Post (among many other sources) not too long ago bemoaned the "epistemic closure" on the right (Julian Sanchez, libertarian and Cato research fellow, got the ball rolling here and here).  If you don't feel like wading through the morass, it boils down to the fact that conservatives are closed-minded.  Sanchez was making, to my mind, a legitimate critique on contemporary political philosophy. Contemporary in the sense that he was using examples from the (then) current headlines.  The liberals went nuts and ran with the meme, missing the point that this is an issue of contemporary political philosophy, not merely conservatism.

Anyway, the headline reminded me of all this because if you are a Republican who agrees that gays should be allowed to get married, you are either related to someone who is gay or you are truly open-minded.  But if you are a Democrat who opposes either gay marriage or federal intervention into state matters or what have you, you are an embarrassment.  Open-mindedness has nothing to do with considering opinions that you may not necessarily agree with, it means agreeing with liberals (n.b.- Jonathan Chait makes the point that fans of Rush Limbaugh or Glenn Beck would be well-served to read the Huffington Post or other liberal sources, because the practice of listening to opposing view is essential to good citizenship; he does not provide the same advise to devotees of the New Republic or MSNBC, which is surprising).

Diversity of thinking is a beautiful thing, so long as you agree with me.

Foolish Thinking



I love this crazy lady

 

 

Elizabeth Warren says that minimum wage should be $22/hour.  Well, she doesn't say it, she says someone else says it would be if wages kept pace with productivity.  And apparently she agrees.  And when you are on the Senate Committee on Health, Education, Labor & Pensions, when you agree with something this stupid, the rest of us had better hold on to our wallets.

 

Let's put aside the notion that legislators, most of whom haven't the foggiest idea how to create and/or adhere to a budget much less about crazy things like marginal productivity, have insight into what the minimum amount a worker should be paid regardless of that worker's marginal productivity (i.e., no matter what value is produced by a given worker for that hour of labor, we will pay him $x because... well, because that's what's fair!, until, of course, it isn't fair anymore).  Got it?  Let's just ignore all of that.

 

Let's concentrate on productivity.  Labor is a factor of production, labor does not equal production.  The factors of productivity (Y) are Labor (L), physical capital (K), human capital (H) and natural resources (N).  So the production function would look like this: Y = f(L, K, H, N), because productivity is a function of its factors.

 

But what about technology?  Technology has its own variable, A, and technology is not a factor of production.  It is a variable that increases (or decreases, let's not forget the Dark Ages), the effective productivity of all factors as the variable increases (or decreases).  So the real production function looks like this:

 

Y = A f(L, K, H, N)

 

What this means, simply, is that there is no direct correlation between the increase in productivity and the marginal contribution of any particular employee's labor, and a general increase in Y has no direct correlation to the quantity of L in the macroeconomic sense.  So when they stopped using people to connect phone calls through switchboards and moved over to computers, this increase in productivity (more phone calls being routed quickly, efficiently and correctly all around the country) was not the result of "better labor" or an increase in the marginal production of the labor force.  What the productivity function shows is that productivity can increase even if a particular factor decreases or remains unchanged.

 

So the question is, is the marginal product of the burger-flipper $22/hour?  Of course it isn't.  How can I say that so easily?  Because the market doesn't pay $22/hour to uneducated, unskilled people to flip burgers.  Because that would be an inefficient allocation of resources.  Resources that must be taken from elsewhere to make up the difference to the person not contributing $22 worth of goods or services per hour of labor to the market.

 

So even if $7.25 seems unfair please note that fairness is a matter for philosophers and priests and seek counsel from them.  Because $7.25 is also a distortion, just not to the degree, that $22/hour or $100/hour minimum wage would be.

 

See here, here and here for further readings.  And call you congresscritter and ask humbly that the minimum wage be abolished.

Our Archaic, Idiosyncratic, Evil Constitution

"As the nation teeters at the edge of fiscal chaos, observers are reaching the conclusion that the American system of government is broken. But almost no one blames the culprit: our insistence on obedience to the Constitution, with all its archaic, idiosyncratic and downright evil provisions."

The ravings of some fringe anarchist?  The rantings of a social pariah, angry at being marginalized by "the system?"

Nope, this is the introductory paragraph published in the New York Times and written by Louis Michael Seidman.  The same Louis Michael Seidman that is the Carmack Waterhouse Professor of Constitutional Law at Georgetown University.

It is remarkable in its Herculean efforts of straw-man construction.  As one who is partial to the textualist approach to constitutional interpretation I'm impressed with Professor Seidman's tango with arguments that nobody has ever made.  It is easy to build up a body of half-truths and nonsensical extrapolations and then tear the whole thing down.  When you present people with whom you disagree as idiots not meant to be taken seriously, to an audience all to eager to accept this presentation, you are freed from the obligation to make an actual argument that can withstand scrutiny.

But then the good professor saves anyone from the obligation of taking his argument seriously by basically saying "never mind."  You see, he doesn't think the entire constitution is evil and should be ignored.  Just the parts he doesn't like.  "This is not to say that we should disobey all constitutional commands. Freedom of speech and religion, equal protection of the laws and protections against governmental deprivation of life, liberty or property are important, whether or not they are in the Constitution. We should continue to follow those requirements out of respect, not obligation."

Why Economists Shouldn't be Listened To

It's not that Paul Krugman has taken time off, it's just that I tried, I really did, to get off that ship.  But here he goes again.

Please read this.  And don't get thrown.  It is not "wonkish" unless wonkish means deliberately obfuscating some pretty simple concepts.

Krugman presents the following graph:

He writes the following: "Now, in a perfectly competitive economy (don’t worry, we’ll talk about what happens "if not"* in a minute), we would expect the labor force to achieve full employment by accepting whatever real wage is consistent with said full employment. And what is that real wage? It’s the marginal product of labor at that point — which, graphically, is the slope of the aggregate production function where it crosses the vertical blue line." (* quotes added for clarity and emphasis added by me)

This is, so far as any economic theory can be, correct.  Krugman then goes on to make the point that under certain circumstances, technological improvements can lead to lower real wages.  This, too, is correct.  The workers may not share fully in the productivity gains.  So the next logical question is "so what?"  So long as the wage matches the marginal product of one's labor, then we're good.  Unless some people think it better to pay people for work they are not doing so long as those wages for unproductive labor are being paid by someone else, but who would be so damn fool as to think that's a good idea?

But before I come across as callous about people being paid less money for less work (yes, I understand fully the problems and pressure a family can face if, through no fault of one's own, if wages are lower in real terms in succeeding years), let me address what Professor Krugman skips over with an all-too-casual afterthought.  He writes: 

Start with the notion of an aggregate production function, which relates economy-wide output to economy-wide inputs of capital and labor. Yes, that sort of aggregation does violence to the complexity of reality. So?

Furthermore, for current purposes, hold the quantity of capital fixed and show how output varies with the quantity of labor.

In the first part he explicitly acknowledges that the aggregate models has no real bearing in reality.  Will that stop him?  Of course not.

In the second part, he “hold[s] the quantity of capital fixed” in order to show how his spurious function using a bogus model will affect real wages.  The problem is that in any real economy, the quantity of capital is not fixed.  And in a thriving free-market system (which ours isn’t, but if he can live in a fantasy world, why can’t I) far more capital is created than destroyed and everyone is better off.  Further, technological improvements affect positively all of the factors of production, if not there would be no increase in efficiency and thus it would not be considered a “technological improvement.”  Does a technological improvement increase all factors of production evenly?  No, of course not.  But productivity is increased.  And this benefits the economy as a whole, however marginally.  And that is reality.

Politics is What Politicians Do

In response to this piece, a short memo to the president, who happens to be a politician:

1) Whatever a politician does as far as his job is concerned is politics.  Not just when you disagree with what the politician does.  Politics may be a dirty word, but it is the likes of the president and our legislators that have helped make it a dirty word.

2) The legislation proposed would not "take away" anyone's rights.  It would give an employee the right to choose not to be represented by a union.  And if union membership os so wonderful why is membership and dues paying mandatory?

On First Thought

After four years of mulling things over, Paul Krugman comes to the conclusion that he is, in fact, the smartest man in the world.  But woe is him, the world just won't listen.

Back to Work

Anyone miss me?

I want to start by saying I don't care for Mitt Romney, nor do I particular care for Paul Ryan.  And if time allows I will expand on that further at some other time.  They may be fine human beings, but since the odds of our crossing in any meaningful way is nil I don't care.  I don't care for them as politicians and I don't want them to win the election.  I don't care for Obama either and the same corollaries apply. Biden, however, I think is a snake and is the main reason I hope Obama remains healthy so long as he is in office.

So I don't care for any of the principals

But what I really don't like are asinine, hackneyed, ad hominem attacks by alleged journalists.  I don't care who the attacker is and I don't care who the target is.  If you wish to attack a politician's policies or an economist's analysis, a court's opinion or a coach's strategy, fine.  Do so with gusto.  But you are obligated to stick to facts and stick to the policy or analysis or opinion or strategy, at least if you are to be taken seriously.  Some consistency can be helpful as well, but isn't necessary.  See Emerson if you need to learn the dangers of foolish consistency.

And this brings us to Matt Taibbi, a writer for Rolling Stone, among other publications, a frequent guest on Bill Maher's HBO show and he looks, acts, talks and writes like a douche.  Sure, it's ad hominem but he's earned it.

He wrote an article for Rolling Stone.  I read Rolling Stone not too long ago when Howard Stern was on the cover and rather enjoyed the issue.  The writing wasn't half bad.  Beyond that, I hadn't seen the magazine in well over a decade and haven't picked one up since.  I get the feeling that the Stern issue was an exception and the muck Taibbi rakes is the rule.  Regardless, a friend posted the article on facebook, so that's how I came across it.

I didn't finish the article.  I gave it the old college try and slogged through the first eleven paragraphs.  Some tidbits (emphasis added for added emphasis):
 

·      the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left.

·      He said as much when he unveiled his choice of Ryan, the author of a hair-raising budget-cutting plan best known for its willingness to slash the sacred cows of Medicare and Medicaid. "Paul Ryan has become an intellectual leader of the Republican Party," Romney told frenzied Republican supporters in Norfolk, Virginia, standing before the reliably jingoistic backdrop of a floating warship.

·      Our collective debt is no ordinary problem: According to Mitt, it's going to burn our children alive (italics in original).

·      But what most voters don't know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. (Italics in original, this isn't necessarily inflammatory, but do keep this in the back of your head).

·      By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps.  (I would take that bet).

·      choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself.

·      No one in history has ever successfully run for president riding this big of a lie. It's almost enough to make you think he really is qualified for the White House.

·     it stands as an emblem for the resiliency of the entire sociopathic Wall Street set he represents

·      Mitt Romney, it turns out, is the perfect frontman for Wall Street's greed revolution
 

·      A takeover artist all his life, Romney is now trying to take over America itself. And if his own history is any guide, we'll all end up paying for the acquisition.  (Again, please keep this last clause in mind).

These are all just from the first eleven paragraphs, mind you, of a 7,800 word article with 79 paragraphs.  One might get the idea that Taibbi not only doesn’t like Mitt Romney personally, but that he might have some sort of axe to grind.

I made some snide comment to the friend who posted the story about having wasted my time and though that would be it.  Then I saw this:

And then I got pissed.

Because Matt Taibbi doesn’t know what he’s talking about.  Personal attacks aside, when you go to such lengths and make so many personal attacks while demonstrating an extraordinary ignorance of fundamental concepts you deserved to be called out.

What do private equity firms do?  Here is a great piece by the Planet Money guys at NPR that actually gives a case study on a Bain Capital investment:

(Also, a very insightful podcast from Russ Roberts with Steven Kaplan on EconTalk here.  And a paper by Roberts here.)

Basically they will raise funds and take over a company (the investors’ money is the “borrowed money” Taibbi is referencing when not knowing what he is talking about).  They will either make the firm profitable or, failing that, liquidate the assets.  They get a management fee and an share of the profits, usually 20%.  So the Private equity firm wants profits.  The investors want return on their investment.  Profits and returns on investment are known, in the fields of finance, accounting and economics as “good.”  Let me know if I get too technical here.

The added benefit is that if the company that is taken over runs more efficiently, delivers more profits, the investors and the equity partners aren’t the only winners.  Everyone is.  And if the firm ends up being liquidated, that means that there are more effective uses of the capital that the firm employs.  All of the capital: the land, the machines and the people, those resources will get reallocated to more efficient uses.  And that benefits everybody.  Yes, those who lose a job may not appreciate the macroeconomic benefits, and that’s why I am a supporter of unemployment compensation.  Not the way that it is currently funded and managed, but that is another matter.

And if the firm fails?  They don’t get paid and the investors lose their money.  Society may or may not be better off by the reallocation of resources, because they may have been best used where they were.  So it is good for everyone when private equity firms do well, not just for the members.  And if the private equity firm continues to make bad investments, they won’t be a private equity firm for long.  Investors typically don’t like to lose money.

So when Taibbi says, “How is it that no one is bringing up that the fact this guy was a leveraged buyout expert.  I mean, this is how he made his fortune.  And what is leverage?  Leverage is debt.  What this guy did for a living is he borrowed money that other people had to pay back,” it becomes painfully obvious that he’s an idiot.

But this is also a nice segue to idiotic point number 2: “They’re (Romney, Ryan, Republicans, conservatives, infant eating monsters all) trying to make this a referendum on the irresponsibility of the Obama administration borrowing tons of money, pouring it into stimulus, to a lesser degree the bailouts, though they complain a lot less about that for some reason.  But it’s this massive national debt that they’re focusing on and I think that this really strikes a chord with a lot of ordinary Americans despite the fact that I think that a lot of people don’t really don’t understand how deficit spending works and whether it’s always dangerous which is an open question, I think, um, but ordinary people respond negatively to the idea of spending beyond their means.”

In honor of the late, great Ron Palillo

I know how deficit spending works.

And Matt Taibbi may think it’s an open question, but it isn’t.  It’s always bad.  Because the government doesn’t create capital when it gets something right.  It destroys capital.  Now there are trade-offs.  Let’s take the roads that the Democrats just seem to love talking about.  Yes, we need roads.  And police.  So we need taxes to pay for these things.  And when legislators, or despots for that matter, want to spend more than they take in in taxes they can issue debt.  And right now, it doesn’t cost a lot of money at all for the United States to issue debt.  Interest rates are incredibly low.  But low interest isn’t no interest, so there is a cost.  Government borrowing also increases interest rates (long story, but the short answer is “market for loanable funds” and "the quantity of loanable funds"; negative government spending reduces the quantity of loanable funds, interest rates go up*).  The Federal Reserve can do some things to mitigate these factors, and boy howdy have they been doing them.  It also helps to have the rest of the world doing far worse than we are, making our bonds seem the only safe form of sovereign debt out there.  Suffice to say that without Federal Reserve tinkering, interest rates would be (marginally) higher than they are due to the deficit spending.  And the credit downgrade that the US earned would have also hurt much more were it not for the Europeans.  But we can’t count on the Europeans being worse off than we are forever, because we’re going to pass them and become less attractive.  And the Fed keeping rates even marginally lower than they otherwise should be means more capital is borrowed and poured into housing and other long-range investments rather than saved.  Which is what caused the current financial crisis.

But Taibbi’s fatal flaw is his inability to see the difference between private and public finance.  If Mitt Romney makes a bad investment, yes, he may still make money and a firm may end up in ruins, but if the investors don’t make their nut, he won’t have investors.  If banks are left holding the bag, banks won’t work with him.  There are repercussions, consequences that will force the capital (money and otherwise) to its most (more) efficient allocation.  These repercussions and consequences don’t exist when the government spends other people’s money.  For our “investment” in GM to break even, GM shares need to be worth about $53/share.  It closed today at $23.37, so we’ve lost half that money.  And all of the money in Solyndra, after the government insisted on not having lien position in case of liquidation.  These are not the sort of stupid investments that private firms make because they are stupid investments.  But governments do, because Matt Taibbi, the readers of Rolling Stone, the Huffington Post are the ones who don’t understand how deficit spending works.

But keep attacking Mitt Romney personally, for the things he actually did well.

* This is no Austrian theory, this is no Friedman-esque monetarist theory, this is Keynesian economics and is Econ101 stuff.  Yes, Lord Keynes thought, other things equal, deficits are bad.  Short-term deficits during a recession are not to be worried about.  I can agree with Keynesians on this.  I don't think there needs to be concern about cutting government spending, when it comes to government spending on legitimate functions of government (see here for a handy list of what those functions are).  But those arguments go out the window when you're accumulated debt is >$16,000,000,000,000; annual GDP is about $14,500,000,000,000 and annual deficits are >$1,000,000,000,000.  What this means is that if all of the country's production for one year went not to wages, not to firms, not to revenues or profits, but if everything produced in one year were able to be liquidated and that money sent to Washington, we'd still have over $2,000,000,000,000 in debt and it would still be growing.  Oh, and you'd have not the United States but a country poorer than Congo.  The ability to print money to dodge the consequences of this profligacy is no solution.  As Hayek noted, "A government which uses inflation as an instrument of policy but wants it to produce only the desired effects is soon driven to control ever increasing parts of the economy."

Context

So the president says something stunningly stupid on Friday (08 June 2012, below).  It happens.  In our modern culture people are unfortunately expected to talk a lot.  The thinking seems to be that if you speak often, people will think you know something.  Or maybe Ford Prefect was right all along*.

Anyway, when you speak often of many things, especially, in the case of this president, about things you know absolutely nothing about like the economy or the constitution, you are bound to slip up every now and again and say something that pegs the asinine meter.  Obama said the private sector was doing "fine."

So what?  So his press secretary says today that the press isn't doing its job.  It's not reporting on "context."  In this case, Obama is saying that the drag on the economy is the loss of public sector jobs.  And, as a quick aside, based on current political rhetoric one would think that the only public sector employees we have are policemen, firemen and teachers.

So the press secretary has the cojones to berate the press for not doing its job properly because his boss said something just beyond-the-pale stupid and they don't take care to parse nuance?

Please.


http://youtu.be/DvUMvknc228


*Hitchhiker's Guide to Galaxy reference.  I'll explain fully later.

When Ideas Have Sex

What does an Acheulean handaxe have to do with the mouse sitting there on your desk?

I heard this story on NPR today.  A new show my local NPR station called the TED Radio Hour.  It is an interview and abridgment of a speech given by author Matt Ridley (video below).  I transcribed one part of the interview that was particularly sharp and one of the more important points I wish critics of free markets would get their heads around.

Can you explain why you measure prosperity in terms of time?

Yes, this was an insight that's occurred to a lot of people in the economics profession before.  This is what economic prosperity, what economic growth is.  It's a reduction in the amount of time it takes to fulfill a need.  That's how we fit so much consumption in our lives; [it] is by reducing the amount of time it takes to earn it.  So I think in the end the real measure of how well off you are is how long you have to work to fulfill a need, or indeed a luxury, and the difference between a need a luxury is often blurred.

Technological advances benefit everyone in the long run.  Looks like there's another book I'll be picking up.