Remember? I'm no longer a scientist. This isn't about physics.
When I was young, I thought people were fundamentally the same. But I didn't really understand well why people did what they did. So, through some classes and independent reading, and with the passion of a lonely only child, I devoted some of my life to trying to figure people out. Why do people do what they do? Why do we feel what we feel? Or, screw everyone else -- why the hell do I do the things I do?
I think, at some point, the allure of the questioning wears off. It stops feeling deep. It stops feeling meaningful. Instead of feeling like thoughtful scholars in a college lounge, contemplating existence over some wine (or other substances), it starts seeming like, well, something drunk or high wastrels do when they are drunk or high.
But more than that, we decide what people are. Experiences, positive and negative (but especially negative), shape our beliefs on human nature. That, in turn, shapes our beliefs about our social, political, economic, sexual, and religious lives. We decide what we are, and who we are -- and more than that, we decide who everyone else is, too.
We decide people are inherently good, or inherently evil. We decide whether those on welfare need it, or are moochers. We decide whether people of other traditions are an opportunity for growth or a threat, or both. We decide, more or less, how much to worry about the past, the present, and the future. We decide whether obstacles make people stronger or are discriminatory. We decide whether or not men and women and unborn babies deserve death.
And we decide that it is true for everyone, or at least enough people, for it to guide our behavior.
I've been looking for that grand unified theory of human behavior. It started with a bit of religion and philosophy. Then a bit of history. Economics was a key component. I stumbled across some sociology and psychology.
But it didn't get more simple. Unlike what we expect for good theories in the natural sciences, sociological theories don't get more elegant, more predictive, more powerful. They get diffused in detail and case-based evaluations. It's not because human behavior is endlessly complicated -- I sincerely doubt that. A
nd I have no idea why the hell it isn't like that.
For whatever reason -- complexity, some mathematically chaotic process, or shitty analysis -- we don't have a grand unified theory of humans.
And I don't think we're going to get one.
Even more importantly, I don't think we need one.
The belief that there is a unified theory is literally killing us.
It is the belief in the existence of universal truth, and the need to enforce that truth above others, that is the root of our religious and ideological warfare. It is the belief in a commonality that ignores different environments, and the potential for simple unpredictability, that have led us to make horrible foreign policies, often, in America's case, based on what is empirically false assumption that all all of us -- leaders and citizens alike -- are essentially after the same things, and that any gaps are due to misunderstanding that is bridgeable by better communication, empathy, or argument.
It is the belief in a universal truth -- simplicity where there is none -- that has caused our economic policies to be dictated by ideology than empiricism. If the free market is right, it has to be right all the time. If Keynesianism is right, it has to be right all the time.
That's total nonsense, especially when we look at the assumptions -- stated or implied -- that have to work. For example, neoclassical economic policies work given certain conditions that preclude market failure -- information, zero transaction costs, negligible barriers to entry, etc. Even if the conditions aren't perfectly met, they work pretty well a lot of the time (assuming the goal is, say, total GDP, instead of equally shared wealth -- another assumption). Keynesianism economic policies work pretty well when markets aren't working like "normal", or when labor has information about wages of coworkers (and fear of losing the job is less than fear of falling behind). Behavioral economics builds in even more psychology -- though, as it acknowledges itself -- there are different regimes for human thinking and analysis that make a universal model problematic. (You can throw in more coefficient weightings, but at some point it becomes an empirical model, not a theory.)
The absence of a theory doesn't excuse ignorance. We should all know neoclassical AND Keynesian AND Behavioral and perhaps even Hayekian economics -- the assumptions, the implications, and limitations of each "school". We should be able to articulate why we cling to one view or another, and be honest whether our preferred perspective of human nature might not be confirmed in a given situation.
Most of us might not have the time and inclination to carry around nearly innumerable bits of knowledge about cognitive biases, biological-behavioral relationships, sociological models, persuasion tactics, and religious traditions and send some observationally/empathetically derived metaphorical punchcard into the poorly-coded mess of our own minds.
Even if we actually did all this, it might not be worth it. Life is meant to be lived, and some mistakes are a lot more fun than we think. (See: Shitty Dates).
So maybe most of us don't have to. And that makes us no different than where we were, except for one thing:
We embrace the humility that we don't have a grand unified theory, that there might never exist one, and that it's toxic and maladaptive to even believe that one exists.
In other words, go ahead and worry about why your partner/friend/relative/boss is so fucked up and different. But, even if you figure them out, don't count on getting much stuff to be used elsewhere.
You're welcome to try -- especially if you're a therapist, pastor, forensic psychologist, politician, or someone else for whom, I suppose, it's important to see patterns in human behavior. I know I'll keep playing armchair economist and sociologist, just because it's fun and makes me feel like I've got stuff to say that is worth listening to (despite considerable evidence to the contrary).
But I suspect we'd be a lot happier and better at life if we just worked on our relationships with specific individuals, and assume whatever successes or patterns we discover work only for them. That just might keep us out of trouble, and make us better human beings to each other.
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Tuesday, February 12, 2013
Wednesday, March 14, 2012
My rough macroeconomic thoughts (yeah, I shouldn't reply to CNN comments)
Ordinarily, I try to avoid reading comments on CNN articles. And I especially try to avoid replying to comments. But I found myself doing just that recently. It was in response to a question about the current deficits that appeared in an admittedly fluff piece about how the Nov. 6 date for a Presidential election has meant a Republican victory since the Civil War.
It was a good opportunity to get, in rough form, my understanding - limited as it might be - on the macroeconomic factors that make the debt question challenging, and why I'm inclined to answer "No, it's not a problem now. Maybe later, but not now."
Here was the question (possibly rhetorical, but I took it at face value):
Robert
Here's my full reply:
I really, really hope that this is not a rhetorical question. Although I suspect it is, I will reply as best as I can.
First, some points of clarification:
1. Debt measures are not always useful using absolute figures. Even ignoring inflation, an absolute amount isn't useful for assessing the ability of a country to pay off its debt. After all, this is what's used when a bank determines the creditworthiness of a prospective borrower. A standard, commonly used measure is debt-to-GDP. Admittedly, given this measure, one takes a historically huge deficit and makes it only merely pretty damn big.
2. Not all debt (and debtors) are created equal. Our debt-to-GDP ratio is somewhat lower (but not dramatically lower) than some of the so-called European PIIGS (Portugal, Ireland, Italy, Greece, and Spain). But these countries are experiencing a severe debt crisis - the US is not. Japan, which has a debt-to-GDP ratio of around 300%, has seen its currency STRENGTHEN vis a vis the Euro and the Dollar over the last couple years. Why these differences? It has to do with governance, the structure of the debt (Japanese corporations and the government hold each other's debt - which is stabilizing for small crises, but leads to systemic failure in large crises, as well as reduced ability to reform....), and the economic outlook for each country. For all the histrionics, the US is still a comparatively good place to do business, with prospects for economic growth, pro-business regulatory environment, an educated workforce, and - even with tax increases on the horizon - one of the lowest tax rates in the OECD.
3. The ability and willingness of the debt holders also matters. As the vast majority of US federal debt is held by US citizens, corporations, and trusts, changes across currency, to first order, matter less to them than to the foreign debt holders of Greek debt. Furthermore, the outstanding US debt, even pre-Obama and Bush, was such that the debt holders recognized that outsize histrionics could actually make an imaginary crisis real. (For reference: see the debt ceiling debacle a little while ago.)
4. Economically, a country like Greece has numerous liabilities - overly generous public sector compensation and retirement ages, a lack of a viable domestic growth industry, coupled with the inability to exercise either independent monetary or fiscal policy (former because of the Euro and ECB; the latter because it is a member of the EU and, at least on paper, subject to Maastrict). By contrast, the US dollar is still the global reserve currency, which helps put a floor on demand as well as guaranteeing liquidity. The Federal Reserve is independent, and in general, effectively run and organized, as well as increasingly transparent (which helps the purchasers of debt feel that US monetary policy will not engage in wild swings).
For those, and other reasons (most notably good subscription and pretty low yields) I hope I've made the case that the US debt burden, while historically large, has not yet hit crisis levels.
But perhaps the most significant point I'd make is that there is good evidence that we were still in the regime where Keynesian countercyclical fiscal policy was valid and effective. The fact that there was no inflationary spike post-stimulus confirms this.
One of the things I've been shocked by is how vitriolic the opposition has been from the Right regarding the proven track record of Keynesian policy during recessions. Indeed, the second recession during the Great Depression during Roosevelt's second term came precisely because his advisers pushed a belief that the debt burden was becoming too large, and austerity necessary. (This plunged the economy into higher unemployment and undid a lot of the progress done by the New Deal programs up to this point.)
Does there need to be a long-term plan for the debt? Absolutely. Does it also need to incorporate a more cooperative, less hysterical political environment? Absolutely. Note that S&P's downgrade cited not the absolute amount of US debt, but the political standoff that made it clear that, politically - not economically - the US might have problems coming up with a credible debt solution.
Keynesianism, in practice, does suffer from the problem that government spending is a ratchet, instead of a switch. So, down the line, some sort of official or unofficial restriction on deficits would probably be a good idea. However, to proclaim austerity in the middle of a fragile "recovery" is not only unwise - it's downright foolish.
The problem with comparisons with kitchen table economics is that the US, rightly or wrongly, plays by different rules, and is permitted to do so. We, as individuals, do not have a broad mandate to issue debt, change the amount of currency in circulation, or adjust interest rates via a discount or federal funds rate mechanism. We don't have a reserve currency.
One final point: it's also limiting to track responsibility solely by the budgets passed under an administration. First, one has to consider that Congress and the President aren't necessarily in lock-step (especially lately). It's a bit disingenuous to shift blame on Obama when Congress approves the budgets. It's equally disingenuous to place the responsibility of the Iraq war on President Bush when a vast number of Democrats voted for the war.
I haven't seen details of this, but if we really wanted to apportion "blame" - or more constructively, do a post-mortem and figure out what not to do again, it might be better to track policies and programs that helped us get to where we are today. So, given a certain amount of economic losses in the last few years, consider which fraction belongs at the doorstep of the repeal of Sarbanes-Oxley (under Clinton's administration and a Republican Congress), which fraction belongs to the expansion of home mortgages without corresponding oversight (largely, but not exclusively, Democrats under presidents of both administrations), what fraction is due to poorly conceived tax cuts for capital gains and the wealthy (largely Republicans, under administrations of both parties), and what might be due to the collective failures outside of government - Wall Street, bad lending practices, fraud by individuals on mortgage applications, overleveraging on households....
Under that picture, there's plenty of blame to go around. It's a bit disingenuous to lay it all on the new-ish guy's feet, especially given that he's has a Republican House since the 2010 elections (and a rather wimpy/difficult to manage majority in the Senate his entire term).
Such is the viewpoint of a somewhat left-of-center Democrat. But what do I know? I'm a physicist that took graduate level econ classes at Cornell - not a trained policy analyst or an economist.
It was a good opportunity to get, in rough form, my understanding - limited as it might be - on the macroeconomic factors that make the debt question challenging, and why I'm inclined to answer "No, it's not a problem now. Maybe later, but not now."
Here was the question (possibly rhetorical, but I took it at face value):
Robert
Would some liberal Democrat please explain to me why we would want to re-elect a president who has racked up more national debt ($1.8 trillion) in his first four years in office than all 43 presidents before him combined ($1.3 trillion)? Why would we want to enslave our future generations to staggering debt they'll never be able to pay off? We haven't even paid for the debt racked up by President Kennedy 50 years ago! Why would we want to do this to our children??? Some liberal Democrat please give me a reasoned response.
Here's my full reply:
I really, really hope that this is not a rhetorical question. Although I suspect it is, I will reply as best as I can.
First, some points of clarification:
1. Debt measures are not always useful using absolute figures. Even ignoring inflation, an absolute amount isn't useful for assessing the ability of a country to pay off its debt. After all, this is what's used when a bank determines the creditworthiness of a prospective borrower. A standard, commonly used measure is debt-to-GDP. Admittedly, given this measure, one takes a historically huge deficit and makes it only merely pretty damn big.
2. Not all debt (and debtors) are created equal. Our debt-to-GDP ratio is somewhat lower (but not dramatically lower) than some of the so-called European PIIGS (Portugal, Ireland, Italy, Greece, and Spain). But these countries are experiencing a severe debt crisis - the US is not. Japan, which has a debt-to-GDP ratio of around 300%, has seen its currency STRENGTHEN vis a vis the Euro and the Dollar over the last couple years. Why these differences? It has to do with governance, the structure of the debt (Japanese corporations and the government hold each other's debt - which is stabilizing for small crises, but leads to systemic failure in large crises, as well as reduced ability to reform....), and the economic outlook for each country. For all the histrionics, the US is still a comparatively good place to do business, with prospects for economic growth, pro-business regulatory environment, an educated workforce, and - even with tax increases on the horizon - one of the lowest tax rates in the OECD.
3. The ability and willingness of the debt holders also matters. As the vast majority of US federal debt is held by US citizens, corporations, and trusts, changes across currency, to first order, matter less to them than to the foreign debt holders of Greek debt. Furthermore, the outstanding US debt, even pre-Obama and Bush, was such that the debt holders recognized that outsize histrionics could actually make an imaginary crisis real. (For reference: see the debt ceiling debacle a little while ago.)
4. Economically, a country like Greece has numerous liabilities - overly generous public sector compensation and retirement ages, a lack of a viable domestic growth industry, coupled with the inability to exercise either independent monetary or fiscal policy (former because of the Euro and ECB; the latter because it is a member of the EU and, at least on paper, subject to Maastrict). By contrast, the US dollar is still the global reserve currency, which helps put a floor on demand as well as guaranteeing liquidity. The Federal Reserve is independent, and in general, effectively run and organized, as well as increasingly transparent (which helps the purchasers of debt feel that US monetary policy will not engage in wild swings).
For those, and other reasons (most notably good subscription and pretty low yields) I hope I've made the case that the US debt burden, while historically large, has not yet hit crisis levels.
But perhaps the most significant point I'd make is that there is good evidence that we were still in the regime where Keynesian countercyclical fiscal policy was valid and effective. The fact that there was no inflationary spike post-stimulus confirms this.
One of the things I've been shocked by is how vitriolic the opposition has been from the Right regarding the proven track record of Keynesian policy during recessions. Indeed, the second recession during the Great Depression during Roosevelt's second term came precisely because his advisers pushed a belief that the debt burden was becoming too large, and austerity necessary. (This plunged the economy into higher unemployment and undid a lot of the progress done by the New Deal programs up to this point.)
Does there need to be a long-term plan for the debt? Absolutely. Does it also need to incorporate a more cooperative, less hysterical political environment? Absolutely. Note that S&P's downgrade cited not the absolute amount of US debt, but the political standoff that made it clear that, politically - not economically - the US might have problems coming up with a credible debt solution.
Keynesianism, in practice, does suffer from the problem that government spending is a ratchet, instead of a switch. So, down the line, some sort of official or unofficial restriction on deficits would probably be a good idea. However, to proclaim austerity in the middle of a fragile "recovery" is not only unwise - it's downright foolish.
The problem with comparisons with kitchen table economics is that the US, rightly or wrongly, plays by different rules, and is permitted to do so. We, as individuals, do not have a broad mandate to issue debt, change the amount of currency in circulation, or adjust interest rates via a discount or federal funds rate mechanism. We don't have a reserve currency.
One final point: it's also limiting to track responsibility solely by the budgets passed under an administration. First, one has to consider that Congress and the President aren't necessarily in lock-step (especially lately). It's a bit disingenuous to shift blame on Obama when Congress approves the budgets. It's equally disingenuous to place the responsibility of the Iraq war on President Bush when a vast number of Democrats voted for the war.
I haven't seen details of this, but if we really wanted to apportion "blame" - or more constructively, do a post-mortem and figure out what not to do again, it might be better to track policies and programs that helped us get to where we are today. So, given a certain amount of economic losses in the last few years, consider which fraction belongs at the doorstep of the repeal of Sarbanes-Oxley (under Clinton's administration and a Republican Congress), which fraction belongs to the expansion of home mortgages without corresponding oversight (largely, but not exclusively, Democrats under presidents of both administrations), what fraction is due to poorly conceived tax cuts for capital gains and the wealthy (largely Republicans, under administrations of both parties), and what might be due to the collective failures outside of government - Wall Street, bad lending practices, fraud by individuals on mortgage applications, overleveraging on households....
Under that picture, there's plenty of blame to go around. It's a bit disingenuous to lay it all on the new-ish guy's feet, especially given that he's has a Republican House since the 2010 elections (and a rather wimpy/difficult to manage majority in the Senate his entire term).
Such is the viewpoint of a somewhat left-of-center Democrat. But what do I know? I'm a physicist that took graduate level econ classes at Cornell - not a trained policy analyst or an economist.
Saturday, March 3, 2012
Ten of my malleable perspectives on the world
I am not looking forward to a discussion with a family friend about religion. He is a devout Christian; I am a recently converted agnostic/atheist. (I'm still most comfortable somewhere between what I believe each term means.) Functionally, I guess I'm a bit of a Unitarian - I help out and occasionally attend my family church. Granted, it's a pretty liberal denomination (United Church of Christ), which, in practice, means that biblical literalism is low on the priority list, assuming it even appears.
But this post isn't about my journey to and from Christianity (or Buddhism for that matter...). I decided to just throw out a few things I perceive of the world around me, and open myself up to the challenge of refining or rejecting these conceived notions. So have at it - I'll offer them as points with an economy of explanation.
1. Keynesian economics is mainstream economics, supported by considerable evidence and pretty basic economic logic. It runs into practical issues only because of the ratchet effect of government spending, which is a political problem, but should be addressed after economic recovery has stablized, and not during the process.
2. I personally know too many great people of faith to reject the value of faith in America and in the world, even as I don't personally count myself among believers. I still attend church occasionally because it provides a community I haven't been able to find elsewhere.
3. US foreign policy has been sabotaged by our messianic perspective on our mission in the world, stemming from Woodrow Wilson and a general cultural heritage born of relative peace, prosperity and stability within our borders. There is room to temper this with a bit of realism, and still be a reasonably decent member of the community of nations.
4. Birth order plays a very large role in personality. A lot of things that were previously confounding about my family and friends became more understandable when I started viewing things through that lens.
5. In extreme cases (bipolar disorder, schizophrenia, etc.), prescription drugs are necessary and life-saving. But antidepressants are not really useful. However, they are somewhat habit forming, in that the withdrawal period is horrible.
6. It is possible to make a joke about anything. Anything. However, most of us lack the ability to either execute or appreciate such a joke. The possibility helps us heal and move on; the recognition of our limitations in that facility keep us from being complete jackasses.
7. The European Union is not arthritic because of its models of the welfare state. It has problems because of a structure that gives veto power to each member and the divergence of culture and interests within the community. Centralization and effective execution of Europe-wide domestic economic reforms and effective foreign policy will require an external threat. The Soviet Union is gone, and America, while criticized, is never seen as a credible threat. Therefore, barring a dramatic change, we have witnessed the peak of EU power for our lifetimes.
8. Anthropogenic global warming is almost self-evident in its correctness given a fairly basic level of physics - or it is according to my understanding of the science. If you studied and understood quantum mechanics, you would understand why carbon dioxide and water vapor are relatively opaque in the infrared (rotational modes). This means it doesn't radiate away nicely - it gets somewhat trapped and leads to a higher temperature than if the atmosphere were transparent. If you understand where the oil came from, and appreciate some basic conservation of mass (with corrections for chemical reactions), then it makes sense that industrialization and deforestation are tied with an increase in CO2. Therefore, if burning fossil fuels, making concrete, and cutting down trees releases lots of CO2 and restricts its reuptake, and if CO2 is opaque in the infrared, and if that leads to higher surface temperatures and different weather patterns, then what the hell is the controversy?
9. Even so, we will not be able to stop global warming and climate change. Mitigation efforts will be needed. A lot of people will die, indirectly, because of this. It will be a tragedy, but spread out over so much time, and with enough other sources of blame (war, persistent poverty, greed, bad luck, religion) that the tragedy will be diluted into accepted normality. But mitigation companies will be well poised to be a spectacular growth field.
10. Australia's lifestyle, civil structure, and comedy are among the finest in the world. A shame it is also characterized by an intense hatred of boat people and aboriginals. I could consider living there for a large chunk of my life.
11. Engineers and lawyers make particularly difficult friends/partners, because the rules-based thinking contaminates area of lifestyle that are not well negotiated by rules-based systems (or at least rules-based systems with relatively complex levels of subordinate and superodinate "goods" - which I've never seen implemented particularly effectively by anyone).
12. Most social changes in civil rights are generational. People don't change their minds quickly, if at all. Laws and customs change when old people die.
13. I can't count.
But this post isn't about my journey to and from Christianity (or Buddhism for that matter...). I decided to just throw out a few things I perceive of the world around me, and open myself up to the challenge of refining or rejecting these conceived notions. So have at it - I'll offer them as points with an economy of explanation.
1. Keynesian economics is mainstream economics, supported by considerable evidence and pretty basic economic logic. It runs into practical issues only because of the ratchet effect of government spending, which is a political problem, but should be addressed after economic recovery has stablized, and not during the process.
2. I personally know too many great people of faith to reject the value of faith in America and in the world, even as I don't personally count myself among believers. I still attend church occasionally because it provides a community I haven't been able to find elsewhere.
3. US foreign policy has been sabotaged by our messianic perspective on our mission in the world, stemming from Woodrow Wilson and a general cultural heritage born of relative peace, prosperity and stability within our borders. There is room to temper this with a bit of realism, and still be a reasonably decent member of the community of nations.
4. Birth order plays a very large role in personality. A lot of things that were previously confounding about my family and friends became more understandable when I started viewing things through that lens.
5. In extreme cases (bipolar disorder, schizophrenia, etc.), prescription drugs are necessary and life-saving. But antidepressants are not really useful. However, they are somewhat habit forming, in that the withdrawal period is horrible.
6. It is possible to make a joke about anything. Anything. However, most of us lack the ability to either execute or appreciate such a joke. The possibility helps us heal and move on; the recognition of our limitations in that facility keep us from being complete jackasses.
7. The European Union is not arthritic because of its models of the welfare state. It has problems because of a structure that gives veto power to each member and the divergence of culture and interests within the community. Centralization and effective execution of Europe-wide domestic economic reforms and effective foreign policy will require an external threat. The Soviet Union is gone, and America, while criticized, is never seen as a credible threat. Therefore, barring a dramatic change, we have witnessed the peak of EU power for our lifetimes.
8. Anthropogenic global warming is almost self-evident in its correctness given a fairly basic level of physics - or it is according to my understanding of the science. If you studied and understood quantum mechanics, you would understand why carbon dioxide and water vapor are relatively opaque in the infrared (rotational modes). This means it doesn't radiate away nicely - it gets somewhat trapped and leads to a higher temperature than if the atmosphere were transparent. If you understand where the oil came from, and appreciate some basic conservation of mass (with corrections for chemical reactions), then it makes sense that industrialization and deforestation are tied with an increase in CO2. Therefore, if burning fossil fuels, making concrete, and cutting down trees releases lots of CO2 and restricts its reuptake, and if CO2 is opaque in the infrared, and if that leads to higher surface temperatures and different weather patterns, then what the hell is the controversy?
9. Even so, we will not be able to stop global warming and climate change. Mitigation efforts will be needed. A lot of people will die, indirectly, because of this. It will be a tragedy, but spread out over so much time, and with enough other sources of blame (war, persistent poverty, greed, bad luck, religion) that the tragedy will be diluted into accepted normality. But mitigation companies will be well poised to be a spectacular growth field.
10. Australia's lifestyle, civil structure, and comedy are among the finest in the world. A shame it is also characterized by an intense hatred of boat people and aboriginals. I could consider living there for a large chunk of my life.
11. Engineers and lawyers make particularly difficult friends/partners, because the rules-based thinking contaminates area of lifestyle that are not well negotiated by rules-based systems (or at least rules-based systems with relatively complex levels of subordinate and superodinate "goods" - which I've never seen implemented particularly effectively by anyone).
12. Most social changes in civil rights are generational. People don't change their minds quickly, if at all. Laws and customs change when old people die.
13. I can't count.
Sunday, September 18, 2011
Admittedly armchair economics - taxes and jobs
Tax policy should always be on the table. I'm tired of listening to people who admittedly have the job of fighting tax increases. I'll do my job, and dig past the repeated boilerplate about taxes killing investment and hiring.
American business have practically zero interest rates and historically low tax rates. And yet businesses are (perhaps rationally) not hiring. No wonder - the customer that represents 25% of the economy said it is tightening their belt, and probably going to fire a bunch of employees and close many positions held by current retirees. (That's the government - local, state, and federal.)
Let's step aside from the somewhat artificial government/private sector separation. Lewis Black put it best here (starting around 0:41): whether it's government, or the private sector, there are people who do the job, and there are rules that are either followed or broken.
So let's ditch whether a job is public sector or private sector for a second. Fiscal tightening is probably going to be bad for employment in the near to mid-term, whatever its impact longer term on the economic health of the country.
I'm wondering if it's possible to construct a tax that incentivizes hiring and capital investment now, rather than later. I'm going to avoid changing taxes on earned income, and explore policies to move money that is sitting in cash/short-term bonds.
Let's say, hypothetically, I'm a major company in America, continuing to make significant profits and sitting on a pretty hefty cash reserve. Policy is enacted such that my effective cost to hire and buy equipment will increase next year and stay higher. This gives me an incentive to do as much purchasing and hiring this year as seems reasonably prudent. Maybe there's equipment that I need. Maybe I need to hire to replace retiring employees.
How would this be done? There are carrots, and there are sticks.
Carrots are gifts above and beyond what is currently given. It might be a direct tax break for hiring or captial spending. It might be targeted subsidies for industries that can scale up quickly (construction, as opposed to, say, advanced research).
Sticks would involve taking away existing breaks, or imposing completely new taxes. It could involve ending the current tax credit for hiring new employees. It could be an increase in Medicare contributions to apply to new hires after a certain date, or an increase in sales tax. It could be a change in depreciation rules for capital purchases. It could be a change in environmental or labor regulations that will exempt those hired before a certain date.
Naturally, it wouldn't make sense to make the trigger date too soon. For example, if the sticks came with hiring in one week, there wouldn't be time to really increase hiring and purchasing before the cost of hiring/purchasing increased, which could, indeed, hinder recovery. But it wouldn't make sense to make it so far into the future that the change was discounted - actuarily as well as psychologically - to the point that it didn not change behavior. One to three years seems reasonable; perhaps over a longer period and involving increases over a period of time.
Carrots require more government spending and breaks, and probably more deficits. It's a bit odd that the party most concerned with government spending wants more work on one side of the ledger, and in a way that could potentially increase deficits.
I'm not exploring the moral fairness angle, or the effectiveness long-term of such policies. I'm also not exploring the political tractability of such a proposal (though it might be better than it seems at first glance, if one chooses to fight for it). I'm just wondering how it could be done.
Too often the focus is on changes on taxes on earned or unearned income. But if the goal is to change the behavior of companies that have cash on hand, then the tools used have to operate on that cash, and not only on the promise or reality of future profits.
Would love some informed, well-reasoned thoughts on this.
American business have practically zero interest rates and historically low tax rates. And yet businesses are (perhaps rationally) not hiring. No wonder - the customer that represents 25% of the economy said it is tightening their belt, and probably going to fire a bunch of employees and close many positions held by current retirees. (That's the government - local, state, and federal.)
Let's step aside from the somewhat artificial government/private sector separation. Lewis Black put it best here (starting around 0:41): whether it's government, or the private sector, there are people who do the job, and there are rules that are either followed or broken.
So let's ditch whether a job is public sector or private sector for a second. Fiscal tightening is probably going to be bad for employment in the near to mid-term, whatever its impact longer term on the economic health of the country.
I'm wondering if it's possible to construct a tax that incentivizes hiring and capital investment now, rather than later. I'm going to avoid changing taxes on earned income, and explore policies to move money that is sitting in cash/short-term bonds.
Let's say, hypothetically, I'm a major company in America, continuing to make significant profits and sitting on a pretty hefty cash reserve. Policy is enacted such that my effective cost to hire and buy equipment will increase next year and stay higher. This gives me an incentive to do as much purchasing and hiring this year as seems reasonably prudent. Maybe there's equipment that I need. Maybe I need to hire to replace retiring employees.
How would this be done? There are carrots, and there are sticks.
Carrots are gifts above and beyond what is currently given. It might be a direct tax break for hiring or captial spending. It might be targeted subsidies for industries that can scale up quickly (construction, as opposed to, say, advanced research).
Sticks would involve taking away existing breaks, or imposing completely new taxes. It could involve ending the current tax credit for hiring new employees. It could be an increase in Medicare contributions to apply to new hires after a certain date, or an increase in sales tax. It could be a change in depreciation rules for capital purchases. It could be a change in environmental or labor regulations that will exempt those hired before a certain date.
Naturally, it wouldn't make sense to make the trigger date too soon. For example, if the sticks came with hiring in one week, there wouldn't be time to really increase hiring and purchasing before the cost of hiring/purchasing increased, which could, indeed, hinder recovery. But it wouldn't make sense to make it so far into the future that the change was discounted - actuarily as well as psychologically - to the point that it didn not change behavior. One to three years seems reasonable; perhaps over a longer period and involving increases over a period of time.
Carrots require more government spending and breaks, and probably more deficits. It's a bit odd that the party most concerned with government spending wants more work on one side of the ledger, and in a way that could potentially increase deficits.
I'm not exploring the moral fairness angle, or the effectiveness long-term of such policies. I'm also not exploring the political tractability of such a proposal (though it might be better than it seems at first glance, if one chooses to fight for it). I'm just wondering how it could be done.
Too often the focus is on changes on taxes on earned or unearned income. But if the goal is to change the behavior of companies that have cash on hand, then the tools used have to operate on that cash, and not only on the promise or reality of future profits.
Would love some informed, well-reasoned thoughts on this.
Tuesday, March 10, 2009
blogs and expertise
(Comments are based on an email I sent out recently to COMM 566 alums at Cornell)
I came across a blog post on the Economist that might be germane to our class discussions on how to build and maintain a technical blog.
I came across a blog post on the Economist that might be germane to our class discussions on how to build and maintain a technical blog.
Saturday, December 6, 2008
Sometimes, I hate the media
Ok, I admit, I'm a media junkie. Every morning, I try to read Bloomberg, the NYTimes, the Financial Times, and the Washington Post. (The Wall Street Journal is still subscription based, so I'm hosed on that one.) I subscribe to breaking news from the FT, CNN, and MSNBC. I will occasionally read MSNBC articles, Seekingalpha, Minyanville, and a few financial blogs. I'm also reading blogs at the Council on Foreign Relations, and even watch C-Span whenever i want to see members of Congress go medieval on the whipping boy of the moment. (Maxine Waters v. Hank Paulson and Richard Shelby v. Mullaly/Wagoner/Nardelli were particularly brutal.)
And I realize that the media needs to sell - "If it bleeds, it leads" makes a whole lot more sense when I learned more about how journalism works in a flat-ish world. (Thanks go to Bruce Lewenstein of Cornell's Communications department for an excellent class - COMM 566: Science Communication.)
But goddamnit, it's not $7 trillion dollars!
Let me explain. Bloomberg ran a story on Nov 24* that the total federal outlays for the purpose of rescuing/repairing/bailing out the American financial system could total $7.76 trillion dollars. (By comparison, US GDP is about $13 trillion (2006), the US 2009 Federal Budget (pdf) is $3.1 trillion, total national debt is $10.64 trillion, and debt held by the public is $6.4 trillion.) Alternatively, it's equal to 155 trillion kg of nickels (1 nickel = 5.00 g), roughly equal to 40 times the total mass of all oil produced in 2001. (I love wikipedia... for some things.)
* Sorry, original article appears to be gone - copy comes from the oh-so-appropriately-titled Conspiracy Cafe.
Ever since Bloomberg ran the story about the $7.6 trillion, I've seen that figure splashed everywhere. And while expansionary fiscal policy (read: printing money) may be in the cards, there is nowhere near $7 trillion in expected liability to the American taxpayer.
If you read their analysis carefully, you see that the total reflects all of the funds deployed by the Fed and the Treasury, the vast majority lent against collateral. Now, we can speculate on what the collateral is worth, but it is most likely not zero. Forget mark-to-market; part of the reason some of these assets have been pledged is because the markets for them are illiquid at prices near to those listed on the banks' books. (You can get price discovery, as Merrill did when it unloaded some $30 bn in MBSs at 22 cents on the dollar. This, however, would probably lead to most large banks not being in compliance with Federal regulations on reequired Tier 1/Tier 2 capital ratios, and, more importantly, a complete collapse in faith in the banks.)
This bugs me because the political pressure to avoid further government action will increase. People are already pissed about the unfortunately-termed bailout, as well as Paulson's necessary but politically inept handling of the TARP program.
It makes for a great headline, but it's a huge distortion of the facts. And the more pressure is put to avoid ANY government countercyclical fiscal policy, the more likely we will have a long, protracted recession with ever-more job losses.
By all means, do your job and throw light on the stinking carcass of our financial system. Transparency will help. But don't you dare contribute to an implosion of confidence by writing misleading headline - you're putting jobs and livelihoods at risk.
And I realize that the media needs to sell - "If it bleeds, it leads" makes a whole lot more sense when I learned more about how journalism works in a flat-ish world. (Thanks go to Bruce Lewenstein of Cornell's Communications department for an excellent class - COMM 566: Science Communication.)
But goddamnit, it's not $7 trillion dollars!
Let me explain. Bloomberg ran a story on Nov 24* that the total federal outlays for the purpose of rescuing/repairing/bailing out the American financial system could total $7.76 trillion dollars. (By comparison, US GDP is about $13 trillion (2006), the US 2009 Federal Budget (pdf) is $3.1 trillion, total national debt is $10.64 trillion, and debt held by the public is $6.4 trillion.) Alternatively, it's equal to 155 trillion kg of nickels (1 nickel = 5.00 g), roughly equal to 40 times the total mass of all oil produced in 2001. (I love wikipedia... for some things.)
* Sorry, original article appears to be gone - copy comes from the oh-so-appropriately-titled Conspiracy Cafe.
Ever since Bloomberg ran the story about the $7.6 trillion, I've seen that figure splashed everywhere. And while expansionary fiscal policy (read: printing money) may be in the cards, there is nowhere near $7 trillion in expected liability to the American taxpayer.
If you read their analysis carefully, you see that the total reflects all of the funds deployed by the Fed and the Treasury, the vast majority lent against collateral. Now, we can speculate on what the collateral is worth, but it is most likely not zero. Forget mark-to-market; part of the reason some of these assets have been pledged is because the markets for them are illiquid at prices near to those listed on the banks' books. (You can get price discovery, as Merrill did when it unloaded some $30 bn in MBSs at 22 cents on the dollar. This, however, would probably lead to most large banks not being in compliance with Federal regulations on reequired Tier 1/Tier 2 capital ratios, and, more importantly, a complete collapse in faith in the banks.)
This bugs me because the political pressure to avoid further government action will increase. People are already pissed about the unfortunately-termed bailout, as well as Paulson's necessary but politically inept handling of the TARP program.
It makes for a great headline, but it's a huge distortion of the facts. And the more pressure is put to avoid ANY government countercyclical fiscal policy, the more likely we will have a long, protracted recession with ever-more job losses.
By all means, do your job and throw light on the stinking carcass of our financial system. Transparency will help. But don't you dare contribute to an implosion of confidence by writing misleading headline - you're putting jobs and livelihoods at risk.
Wednesday, December 3, 2008
Roland Fryer on the Colbert Report
Roland Fryer, economist at Harvard, talks with Stephen Colbert about cash incentives for good grades in schools.
It's a hilarious interview - unlike a lot of people who come on this show, he is absolutely ready for Stephen's antics. He's too cool for school (Harvard, anyway). I'm starting to believe the observation that Harvard never tenures its assistant professors, thereby preserving its competitive advantage in stodginess and ossification. (Not really - I'm just mad they rejected me twice.)
More seriously, the question of incentives for good grades touches upon the idea of incentives in general in areas where the primary social structure is based on norms and not free-market capitalism (at least on the face of it). It's an interesting idea, and I hope it works. I'll be writing more about this later - in particular, when you attempt to create a bonus incentive scheme, there is a presupposition that the principal-agent relation is limited by motivation on the part of the agent. Is this an issue of motivation, or of capacity? To what extent can the added motivator effectively change capacity over any reasonable time period? What are the lessons to be learned from areas in the service sector where financial incentives are applied in situations where actors may be governed by social-welfare utility functions? And finally, what are the potential implications for the parent-child relationship - if external actors are seen as providers of material well-being, will this further erode the family, or simply offer a superior alternative and success model for children in families with failed parents?
Saturday, November 15, 2008
A Few Good Bailouts
http://www.inpaulsonwetrust.com/2008/11/cummings-asks-is-kashkari-a-chump/
Wow. Comment 12 is possibly one of the funniest things to come out of the collapse of the financial system. It might just be worth the crisis.
Reproduced from inpaulsonwetrust.com:
A FEW GOOD BAILOUTS
Mr. Kashkari: You want answers?
Congressman Cummings: I think I’m entitled to them.
Mr.Kashkari: You want answers?
Congressman Cummings: I want the truth!
Mr. Kashkari: You can’t handle the truth! Son, we live in a world of bad business decisions. And the executives making those bad decisions have to be paid. Who’s gonna do it? You? You, Rep. Kucinich? I have a greater responsibility than you can possibly fathom.
You weep for tax payers and you curse the Treasury. You have that luxury. You have the luxury of not knowing what I know: that the taxpayer’s loss, while tragic, probably saved jobs. And my existence, while grotesque and incomprehensible to you, saves cushy jobs…You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me in that Treasury. You need me in that Treasury.
We use words like credit,securities;capital. we use these words as the backbone to a life spent defending something. You use ‘em as a punch line. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very debt I provide, then questions the manner in which I provide it! I’d rather you just said thank you and went on your way. Otherwise, I suggest you pick up a checkbook and start signing. Either way, I don’t give a damn what you think you’re entitled to!
Congressman Cummings: Are you a chump?
Mr. Kashkari: (quietly) I did the job congress ask me to do.
Congressman Cummings: Are you a chump?
Mr. Kashkari: You’re damn right I am!!
Wow. Comment 12 is possibly one of the funniest things to come out of the collapse of the financial system. It might just be worth the crisis.
Reproduced from inpaulsonwetrust.com:
A FEW GOOD BAILOUTS
Mr. Kashkari: You want answers?
Congressman Cummings: I think I’m entitled to them.
Mr.Kashkari: You want answers?
Congressman Cummings: I want the truth!
Mr. Kashkari: You can’t handle the truth! Son, we live in a world of bad business decisions. And the executives making those bad decisions have to be paid. Who’s gonna do it? You? You, Rep. Kucinich? I have a greater responsibility than you can possibly fathom.
You weep for tax payers and you curse the Treasury. You have that luxury. You have the luxury of not knowing what I know: that the taxpayer’s loss, while tragic, probably saved jobs. And my existence, while grotesque and incomprehensible to you, saves cushy jobs…You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me in that Treasury. You need me in that Treasury.
We use words like credit,securities;capital. we use these words as the backbone to a life spent defending something. You use ‘em as a punch line. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very debt I provide, then questions the manner in which I provide it! I’d rather you just said thank you and went on your way. Otherwise, I suggest you pick up a checkbook and start signing. Either way, I don’t give a damn what you think you’re entitled to!
Congressman Cummings: Are you a chump?
Mr. Kashkari: (quietly) I did the job congress ask me to do.
Congressman Cummings: Are you a chump?
Mr. Kashkari: You’re damn right I am!!
Friday, August 1, 2008
Nineteen Eighty-Four
In accordance to the principles of Doublethink, it does not matter if the war is not real, or when it is, that victory is not possible. The war is not meant to be won. It is meant to be continuous. The essential act of modern warfare is the destruction of the produce of human labor. A hierarchical society is only possible on the basis of poverty and ignorance. In principle, the war effort is always planned to keep society on the brink of starvation. The war is waged by the ruling group against its own subjects. And its object is not victory over Eurasia or Eastasia, but to keep the very structure of society intact. Julia? Are you awake? There is truth, and there is untruth. To be in a minority of one doesn't make you mad.
Tuesday, April 15, 2008
FT: The Global Food Crisis - Interactive Media
Sunday, January 20, 2008
"What Could Stave Off A Recession" - my comments
Businessweek contains an interesting article, titled "What Could Stave Off A Recession". The main point is that government spending targeted at education and health care would be a more effective way of using countercyclical Keynesian policy in order to put the skids on a shrinking economy.
I've got some thoughts about this, and also in response to reader comments.
My comments on article:
Businessweek is correct that health care and education (especially the former) are projected growth areas. One issue of concern - both primarily cater to domestic individuals.
The quality of emergency health care in this country is still very good, though there are obvious issues with its cost, an incentive structure that discourages preventative care, and general individual lifestyle/education issues that compound American health, quality of life, and life expectancy. But the growth will primarily come in geriatrics - in which those who can afford to pay, will, and those who can't, will depend upon Medicare/Medicaid for long-term care. Though we might add more jobs in elder care, it may come at the cost of additional federal expenditures, since even with Medicare/Medicaid, community care facilities have an average -7.2% pretax margin. (“The Most and Least Profitable Businesses to Start”, Forbes, 18 Jan 2008)
Impact:
- Care primarily focused on Americans
- No major effect on trade imbalance
- Neutral/Negative on national debt/Medicare unfunded liability
Education faces similar issues, partly because the advantage the United States has in higher education is decreasing with renewed efforts on the part of national efforts to develop top-tier domestic institutions. This will take a while longer for Europe, India, and Asia to develop - unless these nations choose to use their recent commitments in areas of R&D to focus their educational institutions around specific fields and subfields. While the Ivy League may remain on top for a while, it might not be surprising to find in the not-too-distant-future a large number of Singaporean medical/drug researchers, Indian systems engineers, and European materials scientists that will carve away certain sectors of the educational advantage once held by the United States. When they stop coming here to study, we will lose their tuition money and their long-term contribution to American research, industry, and cultural/social intangibles.
Responses to reader comments
(in order from past to future - I would have included them here, but I'm a bit uncertain about the copyright law in this area)
Mike:
An economy supported by war spending is an example of Keynesianism (specifically, military Keynesianism). Keynesianism only suggests that the government spend money to increase employment - it does not require that the employment be particularly useful, productive, or moral. Many of the alphabet-soup programs initiated by Roosevelt during the 1930s did improve the infrastructure of the economy, but many programs could legitimately be called "make-work". The key is to keep employment as low as possible, and enough money in the economic system to avoid a decrease in demand.
Jayendra:
It is precisely that fear that led to a breakdown of the classical model. A rational individual will stuff their money in a mattress (c. 1930s) or commodities/money market funds (c. 2007) because of fear of further downturns. However, when A LOT of rational individuals do this, you get a classically "irrational" result - that is, a feedback effect where each drop in consumption/investment spending leads to increased fear and more money effectively taken out of the system (mattresses, gold, and euros). I'm not saying you should spend money just to keep the economy afloat - only the government has the resources, incentive, and - for now - a sufficiently large line of credit to do that.
Hugo van Randwyck (and Phil Owen):
A "sin tax" on gas, coupled with a lump-sum transfer (tax rebate) could work to reduce American dependence on foreign oil, which in the long run might be healthier for the environment and the economy.
Additional spending It might provide the economic incentive to fund increased R&D. However, research-grade scientists already have near-zero employment - you would need to increase the supply of researchers, which would take many years to train, and many years of economic conditions still making it valuable to pursue advanced degrees in engineering, materials science, operations research, and basic science.
Timeframes are important. If gas hits $6 a barrel through a tax, what will happen to a large number of commuters who can't absorb the cost? In my native Los Angeles, many people commute over an hour and a half precisely because their budgets are pressed so far that they cannot afford housing closer to their home. Substitution goods - public transportation - are not as well funded as that found in many European cities. Even if the tax on gasoline were used to fund new public transportation, it would take a considerable amount of time to mount such a campaign. Meanwhile, you have rapid inflation of everything from foodstuffs to big-ticket items, which could lead to a period of extremely painful stagflation (decreasing GDP + inflation).
There is also an issue in which China has been reluctant to float its currency, precisely because they want to keep a positive trade balance. The issues are more complex than I understand, but appear to be well articulated in the January/February issue of the Atlantic Monthly.
Rakesh Mehra:
One problem with this is that overseas profits are, for the first time ever, responsible for the majority of many firms' profits. These firms, which do pay taxes (we can argue if they pay enough), do face competitive pressures from overseas. A unilateral effort on the part of the US Government to stop outsourcing could, in the short-term, reduce badly needed tax revenues, and, in the mid- to long-term, erode American companies' market share in the international markets, leading either to decreased revenue (and decreased taxes), and/or layoffs of domestic workers.
Outsourcing is an issue - the US would do well to look into beefing up its Trade Adjustment Assistance program and seriously consider restructuring its education programs and government procurement priorities. But a general tax on outsourcing would not help, and could do much harm.
Chandra SR and Jayendra Sai Chelluri:
This article pointed out that the financial sector has not added a large number of jobs since 2000 - though one could argue that there might be a multiplier effect as these white-collar employees spend in their local community.
Subprime is exacerbating a correction in the housing market that may have started a couple years ago. It is a symptom of a business cycle change meeting poor decisions at all levels - individual, corporate, and national.
I agree that it is tough to find buyers when people are pessimistic about the future - and sellers are unwilling to sell their houses at market values (insisting that they at least recoup their original purchase price. (See NYTimes article "A reality Checl for Home Sellers, NYTimes Sept. 23, 2006) In Southern California, I've got anecdotal evidence (sorry, no hard data) that property value increases had been driven, in part, by wealthy Taiwanese/Chinese immigrants. This may help in the short-term with a decrease in housing value (though the impact might be small), but is separate from adjusting the issues stemming from an artificial situation of low savings rates, consumer debt, and low inflation and interest rates, all sustained by external debt and wagers on future productivity increases.
Shelley Mizener:
Agreed. But I think there's room for all people - local and national - to chip in. I agree it'd be ridiculous to wait for it from the top, but individual responsibility and action will find a greater opportunity for success if policies at the national level can facilitate both micro initiative/change and macro stability.
David Esrati:
Your ambitions are noble, and I wish you the best for your election. But I would add a cautionary tale by one of the better American presidents. JFK found, prior to and during his term, that he needed to recognize the importance of Wall Street firms and "big corporate interests" in providing jobs. The provision of jobs is based on the profit motive, yes, but also on a reasonable assessment of the mid-term future prospects. Implied in this is a sense that some sense of stability is needed in order for businesses to keep people employed.
Yes, policy can change the way individuals do business, especially if done with a popular mandate and in a non-combative fashion. But the near term requires coordination - or at least dialogue - with the Nation's businesses, large and small, and an understanding that no one wins if we deviate from the key issues and problems.
Li:
Keynesianism isn't focused merely on spending money that we don't have. There are two key points - first, to avert a downturn, the government increases spending to improve the economy. After recovery, the government decreases spending and pays down the debt through budget surpluses.
It is fair to argue that it's not politically realistic to expect a party taking control during a recovery to decrease spending. It is also fair to argue that the basic model may not accurately account for various firms and individuals pricing in government intervention, to the point where deficit spending is less effective than predicted.
I've got some thoughts about this, and also in response to reader comments.
My comments on article:
Businessweek is correct that health care and education (especially the former) are projected growth areas. One issue of concern - both primarily cater to domestic individuals.
The quality of emergency health care in this country is still very good, though there are obvious issues with its cost, an incentive structure that discourages preventative care, and general individual lifestyle/education issues that compound American health, quality of life, and life expectancy. But the growth will primarily come in geriatrics - in which those who can afford to pay, will, and those who can't, will depend upon Medicare/Medicaid for long-term care. Though we might add more jobs in elder care, it may come at the cost of additional federal expenditures, since even with Medicare/Medicaid, community care facilities have an average -7.2% pretax margin. (“The Most and Least Profitable Businesses to Start”, Forbes, 18 Jan 2008)
Impact:
- Care primarily focused on Americans
- No major effect on trade imbalance
- Neutral/Negative on national debt/Medicare unfunded liability
Education faces similar issues, partly because the advantage the United States has in higher education is decreasing with renewed efforts on the part of national efforts to develop top-tier domestic institutions. This will take a while longer for Europe, India, and Asia to develop - unless these nations choose to use their recent commitments in areas of R&D to focus their educational institutions around specific fields and subfields. While the Ivy League may remain on top for a while, it might not be surprising to find in the not-too-distant-future a large number of Singaporean medical/drug researchers, Indian systems engineers, and European materials scientists that will carve away certain sectors of the educational advantage once held by the United States. When they stop coming here to study, we will lose their tuition money and their long-term contribution to American research, industry, and cultural/social intangibles.
Responses to reader comments
(in order from past to future - I would have included them here, but I'm a bit uncertain about the copyright law in this area)
Mike:
An economy supported by war spending is an example of Keynesianism (specifically, military Keynesianism). Keynesianism only suggests that the government spend money to increase employment - it does not require that the employment be particularly useful, productive, or moral. Many of the alphabet-soup programs initiated by Roosevelt during the 1930s did improve the infrastructure of the economy, but many programs could legitimately be called "make-work". The key is to keep employment as low as possible, and enough money in the economic system to avoid a decrease in demand.
Jayendra:
It is precisely that fear that led to a breakdown of the classical model. A rational individual will stuff their money in a mattress (c. 1930s) or commodities/money market funds (c. 2007) because of fear of further downturns. However, when A LOT of rational individuals do this, you get a classically "irrational" result - that is, a feedback effect where each drop in consumption/investment spending leads to increased fear and more money effectively taken out of the system (mattresses, gold, and euros). I'm not saying you should spend money just to keep the economy afloat - only the government has the resources, incentive, and - for now - a sufficiently large line of credit to do that.
Hugo van Randwyck (and Phil Owen):
A "sin tax" on gas, coupled with a lump-sum transfer (tax rebate) could work to reduce American dependence on foreign oil, which in the long run might be healthier for the environment and the economy.
Additional spending It might provide the economic incentive to fund increased R&D. However, research-grade scientists already have near-zero employment - you would need to increase the supply of researchers, which would take many years to train, and many years of economic conditions still making it valuable to pursue advanced degrees in engineering, materials science, operations research, and basic science.
Timeframes are important. If gas hits $6 a barrel through a tax, what will happen to a large number of commuters who can't absorb the cost? In my native Los Angeles, many people commute over an hour and a half precisely because their budgets are pressed so far that they cannot afford housing closer to their home. Substitution goods - public transportation - are not as well funded as that found in many European cities. Even if the tax on gasoline were used to fund new public transportation, it would take a considerable amount of time to mount such a campaign. Meanwhile, you have rapid inflation of everything from foodstuffs to big-ticket items, which could lead to a period of extremely painful stagflation (decreasing GDP + inflation).
There is also an issue in which China has been reluctant to float its currency, precisely because they want to keep a positive trade balance. The issues are more complex than I understand, but appear to be well articulated in the January/February issue of the Atlantic Monthly.
Rakesh Mehra:
One problem with this is that overseas profits are, for the first time ever, responsible for the majority of many firms' profits. These firms, which do pay taxes (we can argue if they pay enough), do face competitive pressures from overseas. A unilateral effort on the part of the US Government to stop outsourcing could, in the short-term, reduce badly needed tax revenues, and, in the mid- to long-term, erode American companies' market share in the international markets, leading either to decreased revenue (and decreased taxes), and/or layoffs of domestic workers.
Outsourcing is an issue - the US would do well to look into beefing up its Trade Adjustment Assistance program and seriously consider restructuring its education programs and government procurement priorities. But a general tax on outsourcing would not help, and could do much harm.
Chandra SR and Jayendra Sai Chelluri:
This article pointed out that the financial sector has not added a large number of jobs since 2000 - though one could argue that there might be a multiplier effect as these white-collar employees spend in their local community.
Subprime is exacerbating a correction in the housing market that may have started a couple years ago. It is a symptom of a business cycle change meeting poor decisions at all levels - individual, corporate, and national.
I agree that it is tough to find buyers when people are pessimistic about the future - and sellers are unwilling to sell their houses at market values (insisting that they at least recoup their original purchase price. (See NYTimes article "A reality Checl for Home Sellers, NYTimes Sept. 23, 2006) In Southern California, I've got anecdotal evidence (sorry, no hard data) that property value increases had been driven, in part, by wealthy Taiwanese/Chinese immigrants. This may help in the short-term with a decrease in housing value (though the impact might be small), but is separate from adjusting the issues stemming from an artificial situation of low savings rates, consumer debt, and low inflation and interest rates, all sustained by external debt and wagers on future productivity increases.
Shelley Mizener:
Agreed. But I think there's room for all people - local and national - to chip in. I agree it'd be ridiculous to wait for it from the top, but individual responsibility and action will find a greater opportunity for success if policies at the national level can facilitate both micro initiative/change and macro stability.
David Esrati:
Your ambitions are noble, and I wish you the best for your election. But I would add a cautionary tale by one of the better American presidents. JFK found, prior to and during his term, that he needed to recognize the importance of Wall Street firms and "big corporate interests" in providing jobs. The provision of jobs is based on the profit motive, yes, but also on a reasonable assessment of the mid-term future prospects. Implied in this is a sense that some sense of stability is needed in order for businesses to keep people employed.
Yes, policy can change the way individuals do business, especially if done with a popular mandate and in a non-combative fashion. But the near term requires coordination - or at least dialogue - with the Nation's businesses, large and small, and an understanding that no one wins if we deviate from the key issues and problems.
Li:
Keynesianism isn't focused merely on spending money that we don't have. There are two key points - first, to avert a downturn, the government increases spending to improve the economy. After recovery, the government decreases spending and pays down the debt through budget surpluses.
It is fair to argue that it's not politically realistic to expect a party taking control during a recovery to decrease spending. It is also fair to argue that the basic model may not accurately account for various firms and individuals pricing in government intervention, to the point where deficit spending is less effective than predicted.
Sunday, April 22, 2007
Comments on the Cornell Bus Pass issue
This post is in reference to a Cornell Facebook group post on the anticipated end of free bus passes for incoming and first- and second- year graduate students students.
I don't think a protest will accept policy, especially because of the fairness issue highlighted by another post in this group.
If you want to get free bus passes, it would probably be a good idea to make a case for the cause based on economic as well as environmental impact. Cornell grads are pretty smart, know how to handle simple formulas in excel, conduct decent surveys, and do literature reviews.
To make the case, a few questions have to be asked:
If the Cornell bus pass is revoked...
1. how many grad students will decide not to purchase a bus pass?
- could probably do an electronic survey, with control group more senior grad students (confounding variable: effect of classes on need for frequent transportation to campus)
2. how many grad students would try to drive to campus instead?
- could probably do an electronic survey, with control group more senior grad students (confounding variable: effect of classes on need for frequent transportation to campus)
- important because of parking crunch, carbon emissions from cars;
3. How would this affect the price that TCAT can charge local businesses for its advertisements?
- a significant downturn in public transit usage would mean a smaller audience for bus ads, making them less valuable to local businesses/charities that advertise on the bus
4. How would this affect the frequency and range of bus routes?
- if the impacts were geographically or temporally localized, certain bus routes would close
- this could lead to secondary effects along the lines of (1), (2) and (3)
5. Using (1) and additional statistics on distance to campus of grad student residences and properties of cars typically owned by grad students (e.g. MPG), how much additional greenhouse gas (GHG) and other emissions would result?
- mitigated somewhat if certain bus lines close
- could quantify by assigning a somewhat arbitrary anticipated market rate for GHG emission per ton
6. Using (2), and possibly estimates of the increased wear and tear on cars and maintenance costs, how would the decrease in disposable income of grad students affect certain sectors of the local economy?
- gas stations and mechanics would benefit
- consumer retailers might lose slightly
- I doubt the elasticity of demand for these goods has been measured for grad students; can you generalize from studies of regional/national consumer behavior?
7. What is the cost of the Omnibus pass for the university for each graduating class?
- important to compare with the costs outlined above
Calculate all of these, and probably a few other things. Either the cost-benefit analysis will come out in favor of the free bus pass, or it won't. Even if it doesn't you could make an argument about certain externalities that haven't quite been internalized, such as
- damage to Cornell's reputation for being green
- damage to student-administration relation
- damage to school's reputation in community
- increased financial pressure for some members of the graduate community (e.g. humanities students more impacted than the engineers/scientists)
- lost productivity from grad students taking time away from research to organize, petition, conduct a cost-benefit analysis, negotiate with the administration...
Ok, what other options? Those listed on the website include -
picket
petition
A petition is easy, though I'm pessimistic about the ability of it working. It's better than nothing though - someone volunteer to draft the text, and someone be responsible for consolidating the petitions into one document after they have about 10 signatories each, vetting them for repeats.
A picket could happen, though my experience with protests is that (1) if you don't get enough people, they look really, really sad; (2) even if you get a lot of people, they tend to have credibility if the cause is (a) universal in its impact, and (b) have a clear opponent, (c) avoid the taint of self-interest, (d) are attended by individuals with credibility.
Weber cites three sources of legitimacy - charismatic, institutional, and traditional. The student protest depends heavily on the first, where charisma is understood to be a combination of passion and rationality (i.e., a Nobel Laureate is often better than a convicted felon). By their nature protests are not institutionalized, though the existing institutional framework may exist through a set of established advocacy/environmental organizations. Legitimacy from tradition has also been hindered because of the failure of the protest to become as part of student culture as it was during the Vietnam war, its perceived powerlessness to stop the Iraq war, and a culture (vis a vis France) that prefers the security of rule of law to the liberty and risk of frequent labor/student protests.
Quite frankly, if you can find someone who has the ability to get a crowd worked up about bus passes without coming off as self-serving or quixotic, such a talent is squandered in graduate study and should be readily employed in resurrecting American populism. With roughly one-half to two-thirds of the graduate community not standing to lose from this policy, it will be short work to exploit that division to give the appearance that the protesters are self-serving first- and second-year students. Therefore, I would conclude that charismatic legitimacy will be absent from a protest.
So what do you do? Barring insurgency, which at some level could have been reflected in the Redbud Woods 2005 incident, I believe you are left to operate within the system. Organize a coalition of businesses and community interests likely to be impacted, as determined from the analysis outlined above. Then go to President Skorton and the Board of Trustees to make your case. I would assume that most of this analysis has been done internally; the student case will be to claim that certain costs were not accounted for in the economic analysis, and that these are sufficient to warrant a change in the policy.
My two cents. I'm not a policy analyst, or even a particularly competent student of organizational behavior. I'm actually a burned-out volunteer who got tired of seeing people protest and go home, or let ego interfere with a cause or mission, instead of working toward long-term, incremental changes in culture and valuations through the creation of institutions and the painstakingly slow process of winning hearts and minds. Best wishes on your efforts.
I don't think a protest will accept policy, especially because of the fairness issue highlighted by another post in this group.
If you want to get free bus passes, it would probably be a good idea to make a case for the cause based on economic as well as environmental impact. Cornell grads are pretty smart, know how to handle simple formulas in excel, conduct decent surveys, and do literature reviews.
To make the case, a few questions have to be asked:
If the Cornell bus pass is revoked...
1. how many grad students will decide not to purchase a bus pass?
- could probably do an electronic survey, with control group more senior grad students (confounding variable: effect of classes on need for frequent transportation to campus)
2. how many grad students would try to drive to campus instead?
- could probably do an electronic survey, with control group more senior grad students (confounding variable: effect of classes on need for frequent transportation to campus)
- important because of parking crunch, carbon emissions from cars;
3. How would this affect the price that TCAT can charge local businesses for its advertisements?
- a significant downturn in public transit usage would mean a smaller audience for bus ads, making them less valuable to local businesses/charities that advertise on the bus
4. How would this affect the frequency and range of bus routes?
- if the impacts were geographically or temporally localized, certain bus routes would close
- this could lead to secondary effects along the lines of (1), (2) and (3)
5. Using (1) and additional statistics on distance to campus of grad student residences and properties of cars typically owned by grad students (e.g. MPG), how much additional greenhouse gas (GHG) and other emissions would result?
- mitigated somewhat if certain bus lines close
- could quantify by assigning a somewhat arbitrary anticipated market rate for GHG emission per ton
6. Using (2), and possibly estimates of the increased wear and tear on cars and maintenance costs, how would the decrease in disposable income of grad students affect certain sectors of the local economy?
- gas stations and mechanics would benefit
- consumer retailers might lose slightly
- I doubt the elasticity of demand for these goods has been measured for grad students; can you generalize from studies of regional/national consumer behavior?
7. What is the cost of the Omnibus pass for the university for each graduating class?
- important to compare with the costs outlined above
Calculate all of these, and probably a few other things. Either the cost-benefit analysis will come out in favor of the free bus pass, or it won't. Even if it doesn't you could make an argument about certain externalities that haven't quite been internalized, such as
- damage to Cornell's reputation for being green
- damage to student-administration relation
- damage to school's reputation in community
- increased financial pressure for some members of the graduate community (e.g. humanities students more impacted than the engineers/scientists)
- lost productivity from grad students taking time away from research to organize, petition, conduct a cost-benefit analysis, negotiate with the administration...
Ok, what other options? Those listed on the website include -
picket
petition
A petition is easy, though I'm pessimistic about the ability of it working. It's better than nothing though - someone volunteer to draft the text, and someone be responsible for consolidating the petitions into one document after they have about 10 signatories each, vetting them for repeats.
A picket could happen, though my experience with protests is that (1) if you don't get enough people, they look really, really sad; (2) even if you get a lot of people, they tend to have credibility if the cause is (a) universal in its impact, and (b) have a clear opponent, (c) avoid the taint of self-interest, (d) are attended by individuals with credibility.
Weber cites three sources of legitimacy - charismatic, institutional, and traditional. The student protest depends heavily on the first, where charisma is understood to be a combination of passion and rationality (i.e., a Nobel Laureate is often better than a convicted felon). By their nature protests are not institutionalized, though the existing institutional framework may exist through a set of established advocacy/environmental organizations. Legitimacy from tradition has also been hindered because of the failure of the protest to become as part of student culture as it was during the Vietnam war, its perceived powerlessness to stop the Iraq war, and a culture (vis a vis France) that prefers the security of rule of law to the liberty and risk of frequent labor/student protests.
Quite frankly, if you can find someone who has the ability to get a crowd worked up about bus passes without coming off as self-serving or quixotic, such a talent is squandered in graduate study and should be readily employed in resurrecting American populism. With roughly one-half to two-thirds of the graduate community not standing to lose from this policy, it will be short work to exploit that division to give the appearance that the protesters are self-serving first- and second-year students. Therefore, I would conclude that charismatic legitimacy will be absent from a protest.
So what do you do? Barring insurgency, which at some level could have been reflected in the Redbud Woods 2005 incident, I believe you are left to operate within the system. Organize a coalition of businesses and community interests likely to be impacted, as determined from the analysis outlined above. Then go to President Skorton and the Board of Trustees to make your case. I would assume that most of this analysis has been done internally; the student case will be to claim that certain costs were not accounted for in the economic analysis, and that these are sufficient to warrant a change in the policy.
My two cents. I'm not a policy analyst, or even a particularly competent student of organizational behavior. I'm actually a burned-out volunteer who got tired of seeing people protest and go home, or let ego interfere with a cause or mission, instead of working toward long-term, incremental changes in culture and valuations through the creation of institutions and the painstakingly slow process of winning hearts and minds. Best wishes on your efforts.
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