Wednesday, June 20, 2018

The Lump That Begot Trump

I don't want to pretend that this explains everything. But it is "another brick in the wall," so to speak, if not the keystone. In January 2015, Senator Jeff Sessions produced an "Immigration Handbook for the New Republican Majority," written by his communications director, Stephen Miller.
Miller's analysis in the handbook is just the sort of thing that economists would denounce as a "lump-of-labor fallacy." Curiously enough, few did. They were much too busy snatching pensions from future old folks on the pretext that older people working longer wouldn't "steal jobs" from youth.

Here are a few representative arguments from the handbook:
The last four decades have witnessed the following: a period of record, uncontrolled immigration to the United States; a dramatic rise in the number of persons receiving welfare; and a steep erosion in middle class wages. But the only “immigration reforms” discussed in Washington are those pushed by interest groups who want to remove what few immigration controls are left in order to expand the record labor supply even further.
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No issue more exposes the Democrats’ colossal hypocrisy than their support for an immigration agenda pushed by the world’s most powerful interest groups and businesses that clearly results in fewer jobs and lower wages for Americans.
Here are the findings from a poll of likely U.S. voters commissioned by GOP pollster Kellyanne Conway:
  • 77% of respondents said jobs should go to current U.S.-born workers or legal immigrants already in the country—instead of bringing in new workers to fill those jobs
  • 88% of conservatives, 78% of moderates, 78% of independents, 71% of Democrats and 62% of liberals says current U.S. workers should get jobs preference
  • 80% of respondents said businesses should recruit the currently unemployed instead of expanding the labor supply with new workers from other countries
  ---------------------
How are any members of the Democrat caucus going to explain why they are determined to provide instant work permits to every illegal immigrant and visa overstay in the country? How are they going to explain why they want to double the number of guest workers when we don’t have enough jobs for the workers here right now? How are they going to explain why they voted for legislation that will surge the labor supply at a time when wages are down and a record number of Americans can’t find work?
As I mentioned above, these are precisely the kinds of arguments that economists routinely denounce as being based on a lump-of-labor fallacy. In fact, although he didn't use that phrase, Walter Ewing of the American Immigration Council countered the handbook's claims with one of the fallacy claim's stock surrogates -- the "not a zero sum game" rebuttal:
Employment is not a "zero sum" game in which workers compete for some fixed number of jobs. Immigrant workers spend their wages in U.S. businesses—buying food, clothes, appliances, cars, etc. Businesses respond to the presence of these new workers and consumers by investing in new restaurants, stores, and production facilities. And immigrants themselves are 30 percent more likely than the native-born to start their own business. The end result is more jobs for more workers. The economic contributions of unauthorized immigrants in particular would be amplified were they given a way to earn legal status.
This is all very well and good... except for one problem: Miller's and Sessions's handbook cited an actual "zero sum" of net employment growth for U.S.-born workers:
...according to the BLS, all net employment gains since the recession have gone to foreign workers while 1.5 million fewer U.S.-born Americans hold jobs today than did then—despite the total population of U.S.-born adults increasing by 11 million over that same time.
Well, as the economist says, that may be true in practice but is it true in theory?  There is indeed a gap between what the evidence shows and what it proves. There is no guarantee that if "foreign" workers didn't take those jobs, they would still be there for U.S.-born workers. Miller and Sessions fill that in with pure supposition. However...

However, in a contest between suppositions based on peoples' perceptions and suppositions contrary to those perceptions, who do you suppose wins? As I have pointed out repeatedly, the "no zero-sum game" rebuttal, the lump-of-labor fallacy is a red herring. Sometimes there are empirically zero sums and there doesn't have to be a "fixed amount of work" for the actual amount of work to be deficient. As tendentious as Miller's and Sessions's argument may be, Walter Ewing's rejoinder is no less tendentious -- and loaded down with hollow promises and empty platitudes to boot.

See also Sessions, Krugman, DACA and the Lump-of-Labor Fallacy

Sunday, June 17, 2018

Remembering George Leighton

George Leighton, a crusading civil rights lawyer and later a judge, died earlier this month at the ripe age of 105.  He was given an admiring obit in the New York Times.  As stirring as it is, the recap of his life left out one of his longstanding passions: chess.

Leighton was a fixture for many years in the Chicago chess scene.  He was rated an “A” player—not a high flyer like a master or grandmaster, but strong enough to beat the majority of amateurs who play in occasional tournaments.  I played him once in an open event.  To be honest, the game was rather one-sided.  Leighton defended the black side of a Stonewall formation, with black pawns on c6, d5, e6 and f5.  He never got much going on the kingside, and meanwhile I infiltrated on the queenside, took over the center and won in a walk.  I don’t have the score, but my memory is clear; the game was played back in my hippie days and I was a bit apprehensive playing a judge.

But I also remember Leighton himself, his calm demeanor and respectful treatment of the scruffy kid, a fraction of his age, sitting across the board.  And gravitas—I don’t think I’d every experienced gravitas like that before.  I thought to myself, if I ever find myself in front of a judge, I hope it’s someone like him.

This was almost 50 years ago.  I can list only a handful of the hundreds of players I encountered back then, but George Leighton is on that list.

"Deeply Disturbing"

It's not a crime if you brag about it on T.V. In fact, it's hardly worth mentioning.

What is this about?

“We don’t know the answer, but we hope the inspector general will find out.”

Does Greg Mankiw Know the History of U.S. Trade Policy?

Greg offers us a nice speech by Saint Reagan. While Ronald Reagan preached free trade, Jeffrey Frankel notes that his actual record was rather protectionist. The discussion is an excellent account of how Republicans have been protectionist since 1854. But the really weird thing in Reagan’s discussion was how he claimed the U.S. has been a free trade nation since 1776. Of course Congress passed the Tariff Act of 1789:
One of the major early actions of Congress was the passage of the Tariff Act of 1789, which was designed to: raise revenues for the new government by placing a tariff on the importation of foreign goods (averaging more than 8 percent); encourage domestic production in such industries as glass and pottery by taxing the importation of those products from foreign sources.
Someone at Harvard’s history department should visit Mankiw’s office.

Wednesday, June 13, 2018

The Singapore Deal

I have refused to forecast what two unpredictable leaders will do, and I shall continue that, other than to say I do not believe North Korea will denuclearize.  Otherwise, well, the written deal was mostly aspirations while there seem to be disagreements about the verbal deals.  DPRK says US has agreed to lift sanctions but US says no.  As it is, at least it happened and there will be more talk, according to the paper agreement. As some famous person said (forget who), "Jaw jaw is better than war war."

So, let me make people aware of a useful source, which has been putting out things either ahead of regular media or even in disagreement with it recently.  This is North Korean Economy Watch at https://www.nkeconwatch.com . Here are some tidbits.

They were the first to report that Chinese-DPRK trade began increasing after Kim Jong-in met with Moon Jae-in at the DMZ.  "Maximum pressure" has been over for some time already.

A further sign that max pressure off is that there were stable prices in DPRK in the month of May, no noticeable shortages.

A group that Kim Jong-in may be paying attention to is the elite in Pyongyang who now have higher incomes and access to western goods.  They would like more.  The rest of the population does not matter to him.

ROK companies are hot to get into DPRK.

ROK has a plan to engage in infrastructure investment in DPRK, much of this for transportation, focusing on three corridors, all of them going north-south: one in the west going to China, one in the center focusing on between the two Koreas, one in the east focusing on reaching Russia at Vladivostock (I have seen commentators unaware that DPRK and Russia have a common border, if just a small one).

Finally, all the talk of DPRK opening up and liberalizing looks overblown, at least in the near term. Just before the summit a major meeting there involved strong statements that there will be no opening up or moves to more marketization, probably to dampen down expectations of most of the population given how much foreigners are talking about it. The ROK companies may need to wait awhile.

Oh, and as a further point, in recent global hacking competitions, North  Korean teams have won.

Barkley Rosser

Is Strengthening Labor Good for Development?

Servaas Storm, who’s always worth reading, has posted on the INET website a summary of a new working paper he coauthored.  This issue goes way back with me—I first started looking into and writing about the labor rights/wage/trade/development nexus back in the 1980s.  Working on my own, I had a lot of false starts, and I’m happy to see others digging much more deeply today.

I won’t comment on the substance of this paper, but I think an important piece is missing: how dual economies articulate, and in particular the role of clientelism.

Countries in which formal sector jobs are highly valuable but scarce, in a sea of abundant but unremunerative informal employment, have to have some mechanism for allocating them.  Some classic economic models to the contrary, it never happens through lotteries.  My hypothesis, based on what I’ve seen and read, is that the predominant mechanism is clientelism.

A brief digression: Most of the literature on clientelism appears in political science, where it refers to the exchange of votes for personally targeted services or transfers by politicians.  I use the term to refer to a much broader phenomenon, the exchange of personally targeted benefits in return for the performance of loyalty between patrons and clients.  Patrons have access to resources from which they can supply benefits to clients, while the extent of client loyalty is a determinant (but not necessarily the only one) of how many resources a patron can command.  Conceptually, the client-patron relationship is a dyad, although clientelist systems are constellations of such exchange relations across whole populations: many dyads, multiple levels (patrons are clients of higher-level patrons), competing networks.

A large gap between formal and informal employment increases the tendency for clientelism to expand as an allocative system.  Clientelism is not all bad—it can moderate frictions that market or formal administrative processes generate—but to the extent it replaces these “modern” alternatives it reduces social efficiency.  For instance, allocating scarce formal sector jobs through client-patron exchanges is relatively harmless if the people getting the jobs are no less qualified than those left out of the system, stuck in the informal sector.  If clientelist networks override formal qualification (administrative) or competitive performance (market) criteria, however, they degrade outcomes.  It’s a matter of degree.

From this perspective, the most important point about labor regulation in a developing country is that it should not exacerbate imbalance, increasing the gap between the formal and informal sectors and loading more weight on clientelist mechanisms.  The best forms of regulation are either universal or written to apply at least as strongly at the bottom of the labor market as at the top.  I’ve written a bit about how that can be done in the realm of health and safety, and there’s no reason it can’t also guide policy in wage regulation, union rights and all other aspects of labor policy.

For instance, take minimum wages.  By definition, these apply only in the formal sector, and if the effect of raising them is to intensify the formal-informal gap, that can be a problem.  But there’s a way to avoid this: for every increase in the minimum wage, pair it with an increase in income transfers or similar social protection measures for those outside minimum wage coverage.  Hold the gap constant or reduce it.  It’s not impossible once you know what you’re aiming at.

My personal experience is that, once you’ve trained your eyes to see clientelism, you notice it everywhere.  It’s not confined to low income countries or economic goods.  It isn’t necessarily harmful, although, when it metastasises and displaces other social and economic arrangements, it can be deadly.  I suspect it is the main factor in differences in x-efficiency, and if true, this makes it one of the main determinants of the wealth of nations.  I find it incredible that organizations like the World Bank could dispense reams of development advice without considering how its proposals will pan out in a clientelist world.

Monday, June 11, 2018

Backstabbing Over Cows

What is it with cows?  I mean their flatulence does add to global warming, but they seem so benign, chewing their cud while producing milk and meat.  Why is it that national leaders get into fits of backstabbing over them, or especially over all that milk they produce?

Well, of course, that is it; they produce a lot of it, and a variety of products come from the milk, which sometimes markets do  not want as much of as some of the other products. This is probably the main reason that in international trade agreements, where highly protected and subsidized agriculture is always a difficult topic, dairy products are often at the top of the list.  For years, the predecessor of the EU, the EEC had "butter mountains" from all the excess butter governments bought to stabilize the market and keep the Danes and the  French from stabbing each other in the back too viciously.  The US also  had a butter mountain problem for a long time, much of it stored in Madison, Wisconsin where it caught fire back in 1991 and burned for 8 days.  Yes, we must protect those Wisconsin Dairy State cows as Trum is struggling to dop!

Back in 1972, when I was a grad student at U of Wisconsin, then Wisconsin Senator William Proxmire thought briefly of running for president (he didn't in the end) and showed up at the econ department one time to give a speech.  For those who do not know, he was very popular and although a Dem had a bipartisan appeal.  A major part of this was a reputation he had for being very clean and not taking money from special interests.  He had an image of saving taxpayers money as he handed out "golden fleece" awards to people or entities he determined were wasting public funds.  So, of course, in his speech "The Prox" went on and on about all his money saving efforts.  At the end one prof asked him, "Senator Proxmire, if you are so much for efficiency and saving money, why do you support dairy import quotas?"  To this The Prox just smiled and said, "Well, after all, I am the senior senator from the state of Wisconsin."

As it has been in Europe, so between the US and Canada since NAFTA a handful of commodities have off and on been the center of trade disputes, with restrictions holding on both sides.  Lumber and dairy have probably been at the top of the list, althought technically dairy is outside of the NAFTA.  As it is, both sides have heavily subsidized and protected dairy in various ways.  Nevertheless, based on rising exports of ultrafiltered milk that can be used to make yogurt and cheese from the US to  Canada, the US has managed to build up a $400 million annual surplus in dairy products trade.  Last year the Canadians reacted to that and engaged in a reclassification of that type of milk and made changes in their internal pricing, which has led to a decline of exports of this product from both New York, home of Senate Dem leader Schumer, and from Wisconsin, home of House Speaker Ryan.  Ah ha, even thought the US dairy trade surplus remains substantial, this is clearly a stab in the back!

So now Canada is the worst enemy of the US and its leader deserves to go to hell, although the now heart-attack-stricken Lawrence Kudlow suggested that perhaps Trump engaged in his tough rhetoric and refusal to sign the G-7 communique after he left to show Kim Jong-In he is a tough guy, able to beat up on the oh so polite Trudeau who refused to buckle while protecting his cows.  Oh, once again those apparently benign beasts have shown us how truly dangerous they are, weapons of mass destruction for sure.

Barkley Rosser

Robert J. Samuelson Also Exaggrates Social Security Problems

Not really a surprise, after all, it is Monday, and RJS has been at this for quite a long time at his post at WaPo.  But the recent release of the Trustees' Report has not only gotten the Associated Press all bent out and shrieking "insolvency," but I think with the push coming from the recent massive tax cuts that are swelling the budget deficit, the usual old gang of "cut the entitlements!" VSPs are out in force and raging pretty hard.  So Samuelson is denouncing "The Cowardice of the political class," just unwilling to cut those benefits like they should, darn them, and calling for us "to rewrite the contract between the generations," even thought about the only new thing in the report is that indeed Medicare is looking more financially troubled, and it has always been in much bigger trouble than Social Security.  But it and Medicaid involve medical care, and we know that is a political nightmare, so time to go  after those Social Security benefits in the name of helping out those young people by cutting their future SS benefits now, because otherwise they might get cut later.

Dean Baker has an excellent post on this today (I am never abler to link to him for some reason) at Beat the Press, and makes lots of valid and excellent points about how totally misguided RJS is, which I shall not repeat here.  I shall simply pound the point in more with some further observations.

One is that while RJS starts out going on about the Trustees report as if it is telling us something new, it really has no new news about Social Security.  While he hyperventilates quite dramatically, late in the column he admits that "The trustees' reports don't help us much, because they focus on the minutiae of various trust funds rather than fundamental questions about the proper role of government" (which should not be to help old people so darned much!).  Darn.  The "us" here, of course is all these ranting VSP ninnies who keep crying out that the sky is falling so the benefits must be cut, but the report simply does not say anything of the sort or particularly support such a push.

Also near the end, RJS does admit that "Yes, taxes have to go up..." but that is it on the tax issue, with not a whisper about the massive tax cut we just had.  No, undoing that nonsense is not the priority, it is cutting those darned benefits now! Maybe we could have cut the benefits more gradually if we had started way back when the VSPs started all their whining about this, but no, now only drastic action will forestall SS recipients in 2034 receiving real benefits equal to what they do now (no, RJS has never heard of the Rosser equation, poor thing).

As it is, he does admit that the art of all this that is rising the fastest is the medical care part, but he does not even nod at doing anything about that, because cuts in Medicare or Medicaid get borne by doctors and hospitals.  Of course, Dean has long pointed out that patents on drugs and the forbidding of doctors to immigrate are major contributors to the outlandish medical care costs we face in the US, but RJS has nothing to say on this.  That out doctors get paid twice what those in other high income nations do?  Not a problem, instead to insure their high incomes we need to cut Social Security benefits, and the sooner the better!

Finally, of course, these hysterical ninnies never compare what is going on in the US with what goes on in other high income nations.  Of course the medical cost situation is simply an outrage, with us far above them for much poorer health outcomes, but that cannot be touched.  But even on Social Security, US demographics, including the retirement ager he wants to see further raised, look good compared to other high income nations.  Many of them pay more than we do, have their people retire younger, have longer life expectancies (RJS is very upset that people are living longer in the US, oh no!), lower birth rates, and lower immigration rates (or used to), but somehow these other nations have managed to pay their old people what they promised them, and with most of their economies not exactly falling totally apart. Again, after the baby boomers finally get fully retired by the mid-2030s or so, the increase in SS payments will only amount to about 1% of the US GDP, not exactly an overwhelming amount, although RJS like others prefers to throw around scary raw numbers rather than a percentage that shows what the order of magnitude of what is involved here really is: not that big of a deal, and certainly not worth all his moaning and wailing and gnashing of teeth.

Yes, the US political class is cowardly, but not because it is afraid to go after Social Security.  I do not think I have to list the many ways they are cowardly that are far worse.

Barkley Rosser

Saturday, June 9, 2018

The Wage[s]-Lump Doctrine -- still dogma after all these years

"The wage-fund doctrine was the quintessential product of what Marx termed vulgar political economy; a dogma concealing real economic relations, on the one hand, and justifying them, on the other. It was a transparent effort to disarm the working-class movement, and an attempt (largely successful) to rally public opinion behind bourgeois resistance to the demands of working people for a better life. It was the principal ideological weapon in the arsenal of capital in its disputes with labor over the level of wages." -- Kenneth Lapides, Marx's Wage Theory in Historical Perspective
The lump-of-labor fallacy CLAIM is the wage-fund doctrine in disguise. The fallacy claim's conclusions about the ultimate futility of workers' demands are indistinguishable from the doctrine's conclusions.. Only the premise from which those conclusions are deduced has been altered. Instead of asserting a certain quantity of work to be done, the fallacy claim attributes that fixed assumption to a designated scapegoat: workers, unions, populists. The claimants' own assumptions are left undefined, as an amorphous "in reality."

That undefined "reality" is a given amount of capital for employing workers that can only be increased or decreased as a result, respectively, of a decrease or increase in the cost of labor. That is to say, a wage-fund lump!

The wage-fund doctrine was debunked in 1826 by Sir Edward West. It was "recanted" in 1869 by John Stuart Mill. The lump-of-labor fallacy CLAIM was shown to rely on the discredited fixed wage-fund assumption by Charles Beardsley in 1893. So why do economists (& CEOs) still cling to this dogma?

Because it conceals real economic relations, on the one hand, and justifies them, on the other.

Because it disarms working-class movements and rallies public opinion behind bourgeois resistance to the demands of working people for a better life.

Because it is the principal ideological weapon in the arsenal of capital in its disputes with labor over the the hours of work.

Wednesday, June 6, 2018

AP Exaggerates Social Security Problems

Dean Baker at Beat-the-Press has pointed out (sorry, not able to link to it) that Associated Press put out a tweet that presents an essentially hysterical story about future prospects for Social Security following the recent release of the Trustees.  This report says that as of 2026 Medicare and as of 2034 Social Security will face a "shortfall."  However, the AP tweeted that what they face is "insolvency."  Needless to  say, "insolvency" is much more serious than "shortfall" and simply feeds the overblown hysteria that so many think about these programs, feeding political pressures to mess with them. 

The new report provides the latest update on what would happen if the forecast happens and nothing is done.  Given that the projection is that Social Security benefits are set to increase by about 20% by 2034, if somehow nothing were done and benefits were set to be reduced so that they could be paid by expected tax revenues, the benefit would be cut back by about that amount to about what they are now in real terms.  In short, this is not the hysterical crisis AP suggested or that so many think is out there. We have seen this nonsense before.

of course, Dean accurately points out that by law the benefits must be paid. This may also be a time to remind everybody that the US is really in much better shape demographically in terms of life expectancies, retirement ages, and expected population growth rates than most other high income nations, with such cases as Japan and Germany in much worse shape than the US.  However, all these nations are making their public old age pension payments.  In the case of Germany the payments are higher than in the US, but the payments are being made, and its economy is humming along very well.  There simply is not basis for any of this hysteria in the US regarding the future of Social Security.

Barkley Rosser

Friday, June 1, 2018

Rejoinder To Rauch's Response To Me On The Happiness Curve Overhyped

On May 15 I posted here on "Overhyping the Happiness Curve," a critique of the recent book by Jonathan Rauch, The Happiness Curve: Why Life Gets Better After 50. After it was linked to on Marginal Revolution, author Jonathan Rauch wrote a Response to my post on May 25, which was also linked to on MR. I did not immediately reply as I was in Santa Cruz and did not have my copy of the book. I shall now comment on his reply.  He makes three main points.

The first is that he says I made a false dichotomy between unadjusted and adjusted studies of the age-happiness relation, and that I failed to recognize his discussion on pp. 69-75 of how factors besides age affect happiness.  Certainly he recognizes that other factors impact happiness, even as his focus is on the particular effect of age, which requires focusing on adjusted relations taking account of the impact of those other factors. He cites Blanchflower and Oswald (the apparent originators of the U-curve idea and among its strongest advocates) to the effect that going from age 20 to 45 reduces happiness by as much as a third of what becoming unemployed does, which is a lot.  Some other studies along such lines are cited.  Then a formulation from psychology is brought in that says that happiness is a function of one's "set range" (basically one's general happiness propensity), of circumstances not under one's control, and of things under one's control.  While he cites Martin Seligman, this argument has been widespread in psychology, with a common finding being that 50% is the set range, 10% is circumstances, and 40% is under one's control, although Rauch does not mention this finding.  As it is, he proposes time as a separate variable, although offhand it would seem to fit in the category of those things we cannot control, "circumstances."  (I have some serious questions about what is under our control and what is not, but let us leave that aside.)

This is all well and good, more or less, but it does not deal with the point I made that a quite a few of these other things that can impact happiness tend to be pushing one towards being happier in middle age than not, which can easily lead to a finding that age makes one unhappy in middle age when one pulls out the estimated effects of these other variables.  Again, we are talking about employment, income, marital status, health, and broader social relations, among others.  Rauch simply never notes this, although it is implicit in his contrasting a global finding that shows unadjusted happiness tending to gradually rise from 20 to 64 with a global finding adjusting for non-age factors that shows the U-curve bottoming at 50.  So, yes, he talks about how other factors are important, but he never addresses their own relationship with age, which is what makes this so difficult to parse out.

The second is that he is unhappy that I said he "cherry picked" studies.  Let me withdraw this term as I recognize that it suggests something worse than what he has done.  Bad cherry picking involves taking a container mostly containing raspberries with just a few cherries, and then  picking out only or mostly cherries and declaring, "Ah hah!  I have container full of cherries!"  This is not what he has done.  What he has done is more like taking a container that is 85% cherries and 15% raspberries, and only picking out maybe 1% raspberries so as to be able to say, "While there may be a very few raspberries, it is nearly all cherries!"  Indeed, he accuses me of cherry picking because I mentioned only one study that questioned his findings, Steptoe, Deaton, and Stone in The Lancet.  But as he admits there are indeed more, although he dismisses them as being "few" and "mostly old," and so on.

I agree that the number of studies that find a U-curve with age in high income nations after adjusting for other variables way outnumbers those that do not.  But, in fact Rauch in his response partly mischaracterizes Steptoe et al, which is quite recent.  He says they do no adjusting for other variables, but in fact they do, although not for as full a set as other studies do.  They mostly adjust for health, which is not surprising given that The Lancet is one of the world's leading medical journals.

As it is, some of those other doubting studies are also by some prominent figures in the field, aside from Nobel Prize winner Deaton.  Probably the most prominent of all is a figure Rauch quotes and discusses, while never mentioning his views on this matter of the age relation: the father of happiness economics himself, Richard Easterlin, whose paper on this was published in 2006 in the Proceedings of the National Academy of Sciences. Here is the irony. I largely accept the argument that there is a U-curve with age in high income nations after adjusting or other variables (and in many even with no adjusting).  I have even argued for it with Dick Easterlin in person about  a year and a half ago.  I was struck by how strongly he disputed the proposition, although indeed he was doing so on the basis of the unadjusted relation.  It is probably the case that what really lay behind my complaint on this matter was a feeling that I needed to channel somewhat the views of Easterlin unreported in the book.

The third response involves the matter of country comparisons, with him citing more recent work by Blanchflower and Oswald on groups of countries supposedly showing the U-curve holding after adjustment.  I do not wish to get into a detailed discussion of their findings other than to note that these relations varied quite a bit across the groups and some did not seem to be as strong as they claim in their summaries, although mostly it seems to be there.  This was indeed the issue where I dragged in Steptoe et al, who failed to find U-curves in some places that Rauch claimed to find them (or he did not mention).  On the particular case of Latin America he uses Carol Graham, who I think is more expert on Latin American data than is Angus Deaton, although again these studies vary on which measure of happiness one is using, time periods, precise nations, and which other variables are being adjusted for and how.  The U-curve shows up, so the argument for a "tendency" has genuine basis (which I granted in my original post), but Rauch has tended to downplay the amount of questioning or disagreeing studies, not wishing to distract readers with how unsettled much of this still is.

Let me close with two comments.  The first is that as I said I think he is basically right on a carefully stated tendency to a U-curve in many nations, and the fact that I argued with Dick Easterlin on signals my basic agreement.  So really my main complaint has been that there was insufficient caveating of all this in the book, although there was some ("Don't be Russian!").  I get it that this messes up the story, but I really think it would not have been that hard to recognize more these contrasting studies, even if this was largely confined to the endnotes.  I realize this may make me seem like Will Ferrell in the old Saturday Night Live skits of recording music where he would always say, "More cowbell!"  Here I am saying "More caveating!"

The final point is that I really do think it is an excellent and well written book.  It has a broad perspective, and the discussions in the later parts are wise and useful.  I did not and do not criticize them.  Indeed, while visiting family I discussed this with a daughter who is a psychiatrist in a VA hospital and who is very interested in this topic.  I strongly recommended the book to her.  So, maybe it could have used more cowbell, I mean caveating, but it is largely a worthy and admirable work.

Addendum:  In private communication with the parties mentioned in this post, David Blanchflower informs me that he and Andrew Oswald have convinced Richard Easterlin that there may be a U-curve related to age in some countries, even for unadjusted data, and is for adjusted data in many others.  It is my observation that Easterlin's concern relates to policy, in particular strong evidence that nations that seem to have declining age-happiness curves have poor social safety nets for old people, and that when those are put in place, happiness for older people improves and one starts to see more of a U-curve, with China perhaps being a recent example.

Barkley Rosser
June 1, 2018

Wednesday, May 30, 2018

When Big Sur Met Silicon Valley: Remembering The Santa Cruz Nonlinear Dynamical Systems Collective

I spent Memorial Day weekend with extended family members in Santa Cruz, near where many of them live, but with none of them right there  It was most pleasant, but explaining the nature of the place and the University of California branch there led me to think more deeply about its real meaning and foundation.  I am not aware of anybody else saying this before, but it struck me that Santa Cruz is a place where some decades ago Big Sur met Silicon Valley.

The place remains a very pleasant Northern California beach town, where tourists like to go and long have.  It was fully crowded this past weekend, difficult to get to the Wharf and Boardwalk downtown and Natural Bridges State Park.  All of this has little to do with these other matters.  But sharp local  observers note that there is an "old" and a "new" Santa Cruz.  The old is symbolized by older wooden houses, some with funky sculptures in the yard and funny, often leaning, mailboxes. This all has a touch of Big Sur somewhat further south along the coast.  One can run into Air Bnb landlords who are cameramen for the Dalai Lama and talk about how well they knew Timothy Leary and own 41 acres in Big Sur and so on.  Yes, really.

The new Santa Cruz is symbolized by newer more expensive places, some with funky mailboxes, but they are not falling over.  Many of these people often earn their substantial money over the Coast mountain range in Silicon Valley a half an hour away.  Big Sur may have been there first, but Silicon Valley is fully there now, and the place is gentrifying fast,.

As it was, from the time that Silicon Valley first got itself going in the 1960s and 1970s, there was a parallel development in Santa Cruz that both fed off of that and in its own way fed into it, if not as much as Stanford University did.  This was the founding in 1966 and subsequent early history of UC-Santa Cruz, sitting on top of a hill northwest of the center of town.  From the beginning it combined an ideal of innovative and progressive education with a highly mathematical, scientific, and technical focus with much emphasis on computers, perfect for its proximity to the developing Silicon Valley.  The former fed off the nearby Big Sur with such places as the Esalen Institute, which was always about serious intellectual and philosophical matters (and still is) as well as the more famous artistic and beat/hippie carryings on there.  On the technical side a curious aid for UCSC upfront was the propitious proximity of the Lick Observatory on Mount Hamilton, then second only to Mount Palomar in size, which helped attract top astronomers, who helped bring in the physicists and the mathematicians and computer scientists.

This curious confluence had a special period in the late 1970s and early1980s, one of those serendipitous agglomerations.  Four physics grad students showed up who would had similar interests and would come to form the Santa Cruz Nonlinear Dynamical Systems Collective, also known as the Santa Cruz Chaos Cabal.  First in the door was Robert Stetson Shaw in 1975, who would receive a MacArthur Fellowship in 1988.  He was at the Institute for Advsanced Study in Princeton for awhile. In 1984 he published the book, The Dripping Faucet as a Model  Chaotic System.  According to James Gleick in his 1988 (pb in 2008) Chaos: Making a New Science, which has one of the longest discussions of this group available, Shaw was not just the first in the door at UCSC, but was the real intellectual star of the group.  However, googling him pretty thoroughly shows him basically disappearing after about 1988, no publications, no places of work, although it appears he is still alive, with a younger brother, Chris, a prominent documentary filmmaker.  I have never met him.

The rest of them came in around two years later.  Two already knew each other from high school in New Mexico, with J. Doyne Farmer, probably the best known of them and the one who has done the most work in economics and finance, a prominent econophysicist and co-founder of the journal, Quantitative Finance.  He is also the one I know the best and has by far the longest Wikipedia entry of the four, with many projects and activities under his belt.  After UCSC he would do a post-doc at the Los Alamos nuclear lab before moving to the Santa Fe Institute, where he remains an external professor, although now mainly based  at Oxford University in the math department where he runs the Complexity Economics Center associated with the Institute for New Economic Thinking (INET). He has also been more involved in various business enterprises than the others.

His old school friend is Norman Packard, now at the Center for Complex Systems Research at the University of Illinois and also maintaining a connection with the Santa Fe Institute. Illinois has long had among the most powerful of supercomputer systems of any university in the US, and Packard has been a major developer of cellular automata and artificial life modeling as well as coining the term "edge of chaos." He also spent time at the Institute for Advanced Study in Princeton and has worked a lot with Stephen Wolfram of Mathematica. He has been involved in some of the econophysics modeling of financial markets with Farmer, as well as some of his business enterprises. While I have not met him, I know much of his work well.

The final  of the four students is James P. Crutchfield, who would go to the physics department at UC-Berkeley after finishing at UCSC.  In the late 1990s he moved to the UC-Davis physics department where he established and leads the Center for Complex Modeling, and he also maintains a relationship with the Santa Fe Institute.  I have met him.  Although officially a physicist, much of his most influential work has involved modeling complex evolutionary dynamics as well as questions of computational complexity. I have probably drawn on his work more than that of these other three in my own work, a big fan of it I am.

Before they became the Santa Cruz Dynamical Systems Collective, they were Eudomaenic Enterprises.  (There is a book about this effort, The Eudomaenic Pie.) They set out to, and succeeded, in developing a system to beat roulette wheels in Las Vegas.  This involved carrying portable computers and a mechanism to measure subtle vibrations of the tables. However, despite a couple of successful trips in which they beat the House by 20% on average, they could not make serious money due to casino security people catching on to them.  Some of this would feed into the main company that Farmer founded, with Packard in tow, the Prediction Company, that did financial market investing.  He sold it in 1999 to the Swiss bank UBS. He has formed or been involved in several other companies since.  I have long found it interesting that while people often say to economists, "If you are so smart, why aren't you rich?" this dictum is taken seriously by the more serious econophysicists, including Didier Sornette and Jean-Philippe Bouchaud, who have also done very well with their own trading companies.

They had two professors who abetted their efforts and helped them get through UCSC to their PhDs, although at the time the physics department at UCSC really did not know how to handle them or fully appreciated what they were up to. The main person who got them through their dissertations was Michael J. Burke, who had been a student of Richard Feynman at Cal Tech and had some interest in nonlinear dynamics. He died in 1996. 

However their main intellectual mentor was a math professor, Ralph Abraham, now 82 years old and emeritus at UCSC, one of the giants of the field of nonlinear dynamics, chaos theory, and complex systems, still active.  He coined the terms "chaotic hysteresis" and "chaostrophe," among numerous other ideas, with his work influencing mine more than any of these others. He was very into visualizing through computer simulations multi-dimensional strange attractors, and some of those he discovered/invented have ended up on tie-dye t-shirts.  He looks like Jerry Garcia, and more than any of these others he is the one with the most serious Big Sur and counterculture connections, with these being encouraged by his even hipper brother, Fred, who wrote Chaos Theory in Psychology and runs the Blueberry Brain Institute in Vermont.  I know and deeply respect both of these brilliant and innovative intellectuals.  In any case, it may be that with his array of interests and discoveries and influence, Ralph Abraham may be the central figure in this weird but creative confluence of Big Sur and Silicon Valley that came to fruition in the late 1970s and early 1980s in Santa Cruz.

Barkley Rosser

Tuesday, May 29, 2018

Projection and Disavowal

I don't believe in intellectual property... I don't believe in compound interest...

Nobody believes in the lump-of-labor fallacy. Mr. Nadella is engaging in a game of projection and disavowal that is as old as capitalism. He is affirming the reality of an event that only happens in the imagination -- the production of something out of nothing. To perform this usurious hat trick, one must assume something one knows is not true -- that money is fertile. The attribution of a bogus "fallacy" to others is a device for distracting attention from the deception involved in simultaneously fetishizing and disavowing the "productivity" of a mere formal claim to entitlement.

Some Say the Earth Is Flat, British Austerity Edition

The New York Times has a mostly insightful article on the effect of almost a decade of austerity on economic and social conditions in England.  It focuses on Liverpool and provides example after example of savage cuts to the programs and institutions people have depended on all their lives: the National Health Service, income support, libraries, parks and recreation, police and fire departments.  It’s an important story, well told.

Except that it flubs the single most important piece, why austerity was imposed in the first place.  Not willing to take a side, the article quotes some Labour-identified people as saying austerity was a political choice and a bad one, while Conservative politicians get to argue that it was a simple matter of arithmetic.
“It’s the ideology of two plus two equals four,” says Daniel Finkelstein, a Conservative member of the upper chamber of Parliament, the House of Lords, and a columnist for The Times of London. “It wasn’t driven by a desire to reduce spending on public services. It was driven by the fact that we had a vast deficit problem, and the debt was going to keep growing.”
These are presented as equally valid perspectives, and the matter is set aside as an unresolved dispute.

But the economics of the situation is one-sided: governments facing a slump always have the option to borrow, at least if they can borrow in their own currency and have a central bank to support their bond issuance.  Both of these boxes are checked for England, so there is no validity at all to the Conservative position: it’s a pseudo-argument, good enough only for those who lack an introductory comprehension of economics.  Granted, that’s a large mob and obviously includes quite a few journalists, but we’ll never make progress unless we hold journalists accountable for a higher standard of performance.

Of course, just because a government can borrow doesn’t mean it should.  There are judgments to be made about the benefits of public programs, how much national income can be sustained through deficit spending (fiscal multipliers), and how large government debts can be before their sustainability is threatened (fiscal space), so I’m not saying economics mandates only one set of policies.  But not every argument is sound, and the argument that denies the very possibility of debt finance in the face of a recession doesn’t make the cut.  False equivalence is just bad journalism.

Monday, May 28, 2018

AIDS and the World of Work: A Global Report


What do I have to show for my sabbatical?  Among other things, this report on the economic and social impact of AIDS I prepared for the International Labor Organization.  It’s just been posted on their website, so it’s yours for the perusing.