The Death Grip of Savings Mania on Mainstream Democrats

Bob Frank is a smart guy with progressive instincts. His take on economic policy today is probably what we will see in a Democratic administration in 2009. That’s why it’s worth pointing out that the conventional wisdom he channels is politically and intellectually bankrupt.



He wants us to raise taxes because of “the deficits”, conflating the government’s fiscal deficit with the country’s current account deficit. Aside from sewing the sort of confusion that educators should be pledged to dispel, this argument recycles the discredited “twin deficits” hypothesis of the 1990's. Our external deficit, according to this view, is the product of our lack of savings, particularly public savings. (The fiscal deficit is a deduction from our national savings account.)

Been there, disconfirmed that. Over the course of the 90s the fiscal balance went from negative to positive, but the current account balance went down, down, down. Here’s how it looked:



Both the fiscal and current account balances are expressed as percentages of GDP, with bigger deficits pushing south. Except for a few years in the early 2000's, the two balances move in opposite directions. Shrink the government deficit (or squeeze out a surplus) and watch the current account drop. Of course, simple correlations like this are just the beginning of the story, but even fancy manipulations don’t turn this negative relationship into a positive one.

As I’ve argued before and at greater length, while everything affects everything else, the current account determines savings to a far greater extent than the other way around. The trade deficit is a drag on incomes, made up by the borrowing we do when the money comes back to us in the capital account. That transmission mechanism is obvious and visible. What about the effects of savings on trade?

There are only two routes. Either low savings leads to higher GDP (Keynes) and therefore a higher trade deficit, or it raises interest rates, which boosts the value of the dollar, which feeds the trade deficit. The first is empirically marginal at the present time: the US trade deficit is not driven by faster growth rates here compared to abroad. Even if it were otherwise, fixing trade by inducing a recession is curing a disease by killing the patient. The second route is counterfactual at two crucial points: domestic savings (low) do not drive interest rates (low) in the US, and interest rates do not drive the value of the dollar. Both are controverted by the willingness of foreign central banks and sovereign investment funds to buy dollar assets, thus far without limit.

So there is no compelling economic argument for obsessing on savings.

The political case is even weaker. The Democrats have become the party of sacrifice. They worry about Social Security (yes, that’s mentioned in Frank) because it will become a net draw on savings ten years out, so we have to “fix” it. We have to raise taxes because the fiscal deficit (currently within the Maastrict limit imposed on the Eurozone) is bad for savings. It’s all about savings, and it’s all wrong.

My suggestions: (1) Deal with the current account directly. If we cannot get international cooperation on the dollar, create a system of tradeable import permits. Take urgent action to cut the demand for petroleum, good for our trade balance and the earth’s carbon balance. Take an honest look at industrial policy. (2) Accept a fiscal deficit of 2-3% of GDP, as long as it makes sense as a national income stimulant, and as long as a substantial portion of public spending goes to investment in people and technology. (3) Finance large increases in public investment and energy transition by drastically cutting military spending. With a more modest military we could make more alliances, fewer wars and enjoy greater true security.

Pharmaceutical Crackup?

The Wall Street Journal has a great article about the big players in the pharmaceutical industry, showing how it is dealing with its lack of progress in developing new drugs -- by more intensive marketing, taking over smaller, more innovative companies, and laying off workers. Even so, Wall Street is looking forward to lower profits. Here is the article & another on the layoffs.



Martinez, Barbara and Jacob Goldstein. 2007. "Big Pharma Faces Grim Prognosis: Industry Fails to Find New Drugs to Replace Wonders Like Lipitor." Wall Street Journal (6 December): p. A 1.

"Over the next few years, the pharmaceutical business will hit a wall. Some of the top-selling drugs in industry history will become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67 billion from top companies' annual U.S. sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies' combined 2007 U.S. sales."

"At the same time, the industry's science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones like Lipitor, Plavix and Zyprexa."

"The coming sales decline may signal the end of a once-revered way of doing business. "I think the industry is doomed if we don't change," says Sidney Taurel, chairman of Eli Lilly & Co. Just yesterday, Bristol-Myers Squibb Co. announced plans to cut 10% of its work force, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants by 2010."

"Between 2011 and 2012, annual industry revenue will decline, estimates Datamonitor, a research and consulting firm. That would be the first decline in at least four decades.'

"Once it hits the market, however, the patent-protected drug is highly profitable: Typical gross margins are 90% to 95%.'

"The rise of generics wouldn't matter so much if research labs were creating a stream of new hits. But that isn't happening. During the five years from 2002 through 2006, the industry brought to market 43% fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending."

""There haven't been any new therapies that are proven to reduce death and disability for atherosclerosis since the introduction of the [cholesterol-lowering] statins" in the late 1980s, said Richard C. Pasternak, vice president of Cardiovascular Clinical Research at Merck. Atherosclerosis, a buildup of arterial plaque, is a major cause of heart disease."

"Biotech drugs are especially appealing because they face no competition from generics: No regulatory pathway yet exists in the U.S. for bringing to market generic biotech drugs. So until Congress creates such a pathway, no generic threat will exist to the $4,400 a month that Genentech Inc. charges for its cancer drug Avastin, or the $200,000 a year that Genzyme Corp. gets for Cerezyme to treat Gaucher disease. And biotechnology products tend to target specialized areas of medicine that don't require mass advertising or armies of salespeople."

"So big pharmaceutical companies have spent nearly $76 billion since 2005 to buy biotech companies, according to Health Care M&A Information Service, a unit of Irving Levin Associates Inc., a Norwalk, Conn., research company. While in 2005 there were 33 deals amounting to $16.5 billion, in the first nine months of this year there were 49 deals totaling $28.7 billion, including AstraZeneca PLC's $15.6 billion acquisition of MedImmune, which followed a bidding war against Eli Lilly, among others."

"The dearth of new products has led the industry to invest heavily in marketing and legal tactics that squeeze as much revenue as possible out of existing products. Companies have raised prices; the average price per pill has risen 63% since 2002, according to Michael Krensavage, Raymond James analyst. Companies raised advertising spending to $5.3 billion in 2006 from $2.5 billion in 2001 and since 1995 have nearly tripled the number of industry sales representatives to 100,000."

"The industry spent $155 million on lobbying from January 2005 to June 2006, according to the Center for Public Integrity, on "a variety of issues ranging from protecting lucrative drug patents to keeping lower-priced Canadian drugs from being imported." The industry also successfully lobbied against allowing the federal government to negotiate Medicare drug prices, the center said. The lobbying has drawn fire from politicians, doctors and payers, and damaged the industry's public image."

==========

Loftus, Peter and Sarah Rubenstein. 2007. "Bristol-Myers Cuts Jobs, Plants to Shore Up Profit." Wall Street Journal (6 December): p. D 6.

"Bristol-Myers Squibb Co. is the latest big pharmaceutical company to announce a restructuring in the face of looming generic competition and pipelines with few potential blockbusters. The New York drug maker said it will cut its work force by 10%, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants in a plan to save about $1.5 billion by 2010 and boost profitability."

"Bristol-Myers Chief Executive James Cornelius told investors that the company faces a "patent cliff" early next decade, when its popular antiblood-clotting drug Plavix will lose U.S. market exclusivity."

Does Wall Street Lead to Socialism?

It is fun to push Brad Setser's words to suggest that socialism (not real socialism, but the way the public understands it -- public ownership) may be the ultimate outcome of finance capital.

Brad Setser (December 06, 2007)
http://www.rgemonitor.com/blog/setser/230793

It wasn’t all that long ago that Wall Street -- Citi bankers included -- were scouring the emerging world for state-owned companies that could be sold to private investors in the US and Europe. Now the world’s investment bankers seem to be scouring the US and Europe for private assets that can be sold to government investment funds and state-owned companies in the emerging world.

Privatization is out. Selling private companies – or big chunks of a private company -- to another country’s government (partial renationalization?) is in.

Fatal Truck Crashes: A Publishing Opportunity for Economists

From the Pump Handle comes this. I’m too busy to turn these findings into an economics journal article, but I’ll tell you how to do it so you can pad your own CV.


First you need a theoretical model. You can show that, with a fixed salary and positive barriers to mobility (for instance in a searching/matching model of the labor market), truck drivers are unable to optimize on their relative preferences for money income and safety. This welfare loss can be overcome by the payment of piece rates. Now each truck driver can locate his or her own personal optimum in wage/risk space. (We abstract from the welfare benefits/costs of the direct effects of amphetamine use.) But there is also a potential externality, in that other drivers or pedestrians may be killed or maimed in truck accidents. The solution is a nonlinear wage schedule that reduces effective hourly pay by the expected cost of the externality according to increasing effect of work hours on accident rates. If you want to get even fancier, you could throw in the principal-agent dimension and put your solution in the context of optimal contract theory.

For the empirical section you would need the raw trucker data. It would be very simple, really a spreadsheet exercise, to impute the marginal value of an extra hour’s work from the piece rate schedule, and to calculate the marginal increase in the probability of a fatal accident. From this you could determine the VSL (value of a statistical life). The required level of analytical foggery could be achieved by testing for baseline effects, income and substitution effects, lots of stuff.

One thing that would not go into the article would be the observation that all of the above smiles on personnel practices that kill truckers.

It’s really a shame that they don’t let me supervise Ph.D. theses.

Mark Perry and Greg Mankiw Say Bill Gates Can Afford Gasoline

I’m not sure why Greg Mankiw choose to peddle the latest be happy spin from Mark Perry:

Gas today, even at $3, is relatively affordable and is actually cheaper than the decades of the 1940s, 1950s, 1960, 1970s and 1980s, when the price of gas is measured relative to our increasing household wealth. Goldilocks can handle $3 gas.

Fine – Goldilocks, Warren Buffet, and Bill Gates can afford gasoline but what about the average Joe who has little wealth and must live paycheck to paycheck? Perry does compare gasoline prices over time to disposable income per capita. Looking at mean incomes (not median) and ignoring all those deferred tax bills from the Federal fiscal irresponsibility of this Administration, we are in the same relative place as we were in the mid-1980’s. OK, but one has to wonder if this were done relative to median income with those deferred taxes factored into the calculation of disposable income how this spin that Mark Perry puts forth and Greg Mankiw endorses would actually look.

Destroying Science in a Helium Balloon

A few years ago I published a book The Perverse Economy: The Impact of Markets on People and Nature (NY: Palgrave, 2003), which included a short discussion about the dangers created by the right wing of obsession about privatizing helium. The Wall Street Journal just published an article confirming my speculations, that the privatization represents a major threat to science. Campoy, Ana. 2007. "As Demand Balloons, Helium Is in Short Supply." Wall Street Journal (5 December): p. B 1.

http://online.wsj.com/article/SB119682793344314212.html


What follows is first the extract from my book, and then the article itself:




Helium

No matter that present values are generally illusory. Present value calculations serve a vital purpose for economic theory. Once the world is reduced to present values, economists can treat the world as if the future does not exist: each decision becomes a once-and-for-all choice without any regard for the future other than what the price system was already signaling.

Concerns about resources have no place within this framework. If a real danger of resource scarcity were looming on the horizon, markets would recognize that fact. The price structure would induce firms to take action by economizing on the resource and by developing alternatives.

The treatment of the national helium reserves illustrates this troubling relationship between discounting and scarcity. Helium is a remarkable substance. Because it is inert, it does not combine with other substances. Because of its perceived military importance in dirigibles, during the 1920s the United States began to collect helium under a federal monopoly.

Helium has properties other than being lighter than air. No other element can reach the low temperature of liquid helium. This property makes it useful in a broad array of high-tech industrial, research, and medical technologies, such as fiber-optic cables and magnetic-resonance imaging systems (National Research Council 2000).

The government later established a facility in Texas to store crude helium (National Research Council 2000). The Texas location is not accidental. Although atmospheric helium is plentiful, it is dispersed. Extracting this helium from the air is a very expensive proposition since only minute quantities of helium exist within a fairly large volume of air.

The sedimentary rocks that form the gas carry about one part per million of uranium. According to Kenneth Deffeyes, "During the slow decay to lead, each uranium atom spits out six to eight alpha particles. An alpha particle in physics is identical to the nucleus of a helium atom in chemistry. The helium gas that we put in party balloons is simply used alpha particles" (Deffeyes 2001, p. 66).

In contrast to its dispersion in the atmosphere, helium in natural gas deposits is relatively concentrated. Some natural gas deposits have helium concentrations as high as 8 percent, making them the most economical source of this element (National Research Council 2000, p. 40). Separating helium from natural gas costs only about 1/1000 as much as obtaining it from the atmosphere (Koopmans 1979).

In 1960, Congress amended the Helium Act, which had originally authorized the helium depository. This new legislation eliminated the federal monopoly of helium, although the Bureau of Mines continued to collect helium. Several companies in the United States entered the market to collect and sell the gas. These companies sold their excess helium to the federal government, which stored it in the National Helium Reserve in Texas.

Private consumption of helium reached a low point in the 1970s, even though private production was still vigorous. As a result, the government continued to accumulate more helium in the reserves until around 1980. With the build-up of federal stockpiles, conservatives singled out the helium reserves as a particularly egregious example of government waste (see Stroup and Shaw 1985). Christopher Cox, the California Congressman who led the fight to privatize helium labeled the reserve: "The poster child of Government waste" (Verhovek 1997).

In 1996, Congress eliminated the National Helium Reserve, leaving the management of helium to the free market and the likes of Enron, Exxon, and Panhandle Eastern Corporation. Well, not exactly, the free market. The law required that the government dispose of its helium over a couple of decades to prevent privatization from decreasing the price that the private producers charge. The promised cost savings have yet to appear.

The American Physical Society, a prominent group of physicists, has warned that the privatization plan is dangerous, because it has no requirement that a large stockpile will be maintained (Verhovek 1997; Powell 1996). Helium demand is now increasing at about 10 percent per year. The supply may be largely depleted by 2015, the date by which Congress proposes to phase out the reserve.

Indeed, a federal report says that the current trends indicate that shortages will appear within less than 20 years, unless private business develops new technologies. However, these experts are confident that business will somehow meet the challenge, although they give no indication of what this new technology might be (Natioal Research Council 2000).

Discounting Helium

The helium story is interesting in several respects, especially, taken in conjunction with the role of natural gas. As is well known, natural gas is probably the least environmentally destructive fossil fuel. Of course, the consumption of natural gas is not without problems, over and above the damage involved in moving it from its natural state to the place where it is ultimately burnt. In addition to obvious costs of the depletion of the gas itself and the contribution to global warming, the careless consumption of natural gas causes the dissipation of helium.

In this sense, the helium story brings us back to the theme of extraction versus production, but with a twist. Ironically, this same helium, which is being squandered because of the inattention to storing it for the future may well prove to be a vital part of high technology that could possibly lead to significant savings in energy, including natural gas.

In addition, the helium story serves as a useful reminder of the complex pathways of cause and effect typical of most environmental systems. Push in any direction and unexpected consequences crop up. In contrast, the contemporary profit system works with an appallingly simple mindset. Here is a resource that can benefit some corporations. Give it to them to exploit without much thought about the ultimate consequences.

The economist who may have given the most attention to the question of helium is the late Tjalling Koopmans, whom I noted in the discussion of hyperbolic discounting. Koopmans was a distinguished theoretical economist and winner of the 1975 Nobel Prize in economics. He proudly associated himself with the study of pure economics. He violently denounced those economists who relied on empirical data, without first carefully situating it in abstract theory (Mirowski 1989b). He was so fanatically committed to abstract economic theory that he even "seriously opposed ... fine writing in economics, not a common crime in our field. According to his code of scientific honor, mere elegance must not give ideas an unfair boost" (Samuelson 1989).

In 1978, Koopmans delivered the presidential address to the American Economic Association (Koopmans 1979). His lecture concerned the difficulties that economists had in communicating with natural scientists. Koopmans was not speaking out of ignorance of the ways of natural science. In fact, he had earned a degree in quantum physics. Koopmans explained to a meeting of the American Physical Association in 1979 that he initially decided to switch from physics to economics because he "felt the physical sciences were far ahead of the social and economic sciences" (cited in Mirowski 2002, p. 251).

By the time that he gave his lecture, Koopmans seemed to think that economics had advanced to the point where he could confidently recommended that scientists learn to accept the economists' approach.

In effect, harkening back to Adam Smith's account of the complex production process behind the appearance of a single coat, Koopmans attributed a superiority to economics over natural science. Whereas a scientist might be inclined to think of a helium policy in terms of the use or the production of helium, the economist uses monetary values to capture the systemic ramifications of a helium policy. In Koopmans's words:

In the present context, an important trait of the neoclassical (economic) model is that it does not postulate one sole primary resource, be it labor, energy or any other, whose scarcity controls that of all other goods, and which thereby becomes a natural unit of value for all other goods. [Koopmans 1979, p. 7]

Instead, as Lionel Robbins observed in his influential study of economic methodology, the economy is a "complex of 'scarcity relationships'" (Robbins 1969, p. 19). Within this context, prices take into account a wide array of factors, rather than a single objective, such as the conservation of helium.

In his address, Koopmans related his experience working on the report to the Helium Study Committee of the National Research Council. Most of Koopmans's discussion of helium merely dealt with technical questions regarding the supply and the extraction of helium. The one point that Koopmans kept returning to was the scientist's insistence that "Btu's are the same everywhere and at all times" (Koopmans 1979, p. 8). Koopmans wanted to teach the scientists that discounting future benefits, which lay behind the calculations justifying privatization, was rational.

Even if you grant the importance of discount rates, nobody knows how to select the appropriate discount rate for determining whether or not responsibility for collecting and storing helium should be privatized. Some discount rates would have been consistent with privatization. Other lower rates would not. Koopmans never mentioned how to decide on the correct discount rate. Nor did Koopmans indicate that he had any inkling of the possibility of hyperbolic discounting. In fact, the absence of an adequate theory of discounting represents a major challenge that stands in the way of the scientific aspirations of economists.

Tjalling Koopmans, the National Research Council, and most economic and political forces aligned themselves against those who express any concerns about sustainability. Presumably, if a problem occurs, they proposed that the resulting profit opportunities will create sufficient incentives to generate a solution. Their proposed solution is not sustainable, but instead an outcome in which the system efficiently maximizes discounted present values. Unfortunately, they did not have a clue as to what that discount rate should be.

======
Syracuse University physicist Gianfranco Vidali spends most of his time studying how molecules are made in outer space, but a couple of months ago he abruptly dropped his interstellar research to address an earthly issue: the global shortage of helium.

The airy element best known for floating party balloons and the Goodyear blimp is also the lifeblood of a widening world of scientific research. Mr. Vidali uses the gas, which becomes the coldest liquid on earth when pressurized, to recreate conditions similar to outer space. Without it, he can't work. So when his helium supplier informed him it was cutting deliveries to his lab, Mr. Vidali said, "it sent us into a panic mode."

Helium is found in varying concentrations in the world's natural-gas deposits, and is separated out in a special refining process. As with oil and natural gas, the easiest-to-get helium supplies have been tapped and are declining. Meanwhile, scientific research has rapidly multiplied the uses of helium in the past 50 years. It is needed to make computer microchips, flat-panel displays, fiber optics and to operate magnetic resonance imaging, or MRI, scans and welding machines.

The technology explosion is sucking up helium supplies at dizzying rates. U.S. helium demand is up more than 80% in the past two decades, and is growing at more than 20% annually in developing regions such as Asia.

"We've not seen the supply and demand at this imbalance in the past. We're running on the edge of the supply-demand curve," says Jane Hoffman, global helium director for Praxair Inc.

Supplies in the world's largest helium reserve near Amarillo, Texas, are expected to run out in eight years. Finding and developing new helium sources will take years and millions of dollars in investment.

Glitches at some of the world's biggest helium-producing plants have put a further pinch on supplies in the past year. As supplies have tightened, prices have surged in recent months. For one New York laboratory, prices have increased to $8 a liquid liter, from close to $4 at the end of the summer.

The upshot: Helium users -- from party planners to welding shops -- are having to do with less. Large industrial manufacturers are better able to weather the helium shortage, taking steps like installing equipment that can recycle the gas. So it is the nation's cash-strapped scientific community that is getting the worst of the crunch.

Soaring helium expenses could shut the doors of some independent labs, many which have produced important research over the years, and slow down work at bigger research centers. Helium is used in research to find cures to deadly diseases, create new sources of energy and answer questions about how the universe was formed.

Helium is essential to cool the magnets in nuclear magnetic resonance, or NMR, instruments used to map the chemical structure of molecules. Dale Ray, from The Cleveland Center for Structural Biology, an association that groups researchers from several institutions, says he is considering selling or shutting down two machines at the NMR lab he manages. The increase in helium prices is making it unaffordable to run the equipment, which is used to study proteins responsible for Alzheimer's disease, among other things.

Physicists are particularly affected by the helium shortage because their equipment requires more frequent helium refills. After experiencing interruptions in his helium deliveries, Moses Chan, a physicist at Penn State, launched a poll among his colleagues to find out how widespread the problem was. The results: the majority of helium users at 26 different institutions experienced canceled deliveries at least once, as well as price increases, some of them as much as 100%.

Myriam Sarachik, a physicist at City University of New York, might have to shut down her research. Among other things, Ms. Sarachik studies new materials that could bring a quantum leap in computing capabilities. Helium now absorbs most of her lab's budget, leaving little extra for everything else.

"I'm going to retire. That's the handwriting on the wall," says Ms. Sarachik, who has been doing experiments with helium for more than 40 years.

For one project, Ms. Sarachik and her students use 150 liters of liquid helium a week to cool the inside of a four-feet-high metal vessel to temperatures close to zero degree Kelvin, or about minus 459 Fahrenheit. Inside, they place tiny samples of materials mounted on chips and send electric currents to measure their properties. Without the helium, it would be impossible to monitor how the electrons respond because their behavior is masked by heat vibrations.

The National High Magnetic Field Laboratory, home of the world's strongest magnets, also is being affected. Hundreds of scientists travel from all over the world to Tallahassee, Fla., to use its magnets. They use the lab free of charge, but pay for their helium consumption. Many of them are on a very tight budget. To keep them coming, lab director Greg Boebinger will allocate $300,000 of his own tight budget to offer free helium.

"They need whatever relief we can provide," he says. "If they stop coming we're dead in the water."

There are a few helium projects scheduled to come on line in the next couple of years, but experts predict supplies will remain tight in coming years. Despite its higher prices, helium isn't expensive enough yet to warrant projects devoted to its extraction, so it must piggyback on investments made by natural-gas producers.

Additionally, the biggest helium reserve in the world, which is operated by the U.S. government, is in steady decline. Stored in a depleted natural-gas cavern known as the Bush Dome near Amarillo, it supplies 35% of the helium consumed in the world. The government started the reserve in 1925, but by the mid-90s decided to sell it to pay off debt it incurred from stockpiling helium over the years.

Under law, the entire contents of the Bush Dome should be sold by 2015. Helium is very expensive to store because, like a stranded party balloon, it floats up and disappears into the atmosphere. As a result, there is little storage capacity for the gas. Virtually all helium is processed and shipped to its final user as soon as it is extracted from the ground. Once the Bush Dome reserve is gone, there will be no stored helium to supply the market in case of disruptions at production facilities, making for even spottier deliveries and higher prices.

Experts predict this situation will eventually price out many helium users, who will find substitutes or modify their technology. Some party balloon businesses are filling balloons with mixtures that contain less helium. Some welders are using argon. Industrial users are installing recovery systems. In places where helium isn't easily available, like India, scientists already focus on experiments that can be done using liquid nitrogen, says Michael Cuthbert, a sales manager for Oxford Instruments, a company that sells scientific instruments all over the world.

Reem Jaafar, a researcher at Ms. Sarachik's lab at CUNY, says she will go into another area of physics if helium prices stay at their current levels. "If you have a fixed amount in a grant, and you have to spend it all on helium, you don't have anything left over," she says.

Happy 100th Birthday, Old Man!

Today is the 100th birthday of my late father, John Barkley Rosser, Sr., who died on September 5, 1989. One can learn from his Wikipedia entry that he was a famous logician who proved a generalization of Godel's Incompleteness Theorem, invented "Rosser Sentences," helped prove the Church-Rosser Theorem in computability theory, to discover the Kleene-Rosser Paradox in same, as well as the Rosser Theorem in prime
number theory. He was also involved in the study of rocket ballistics, which led to him advising the US military during World War II, and continuing this later, eventually serving as Director of the US Army funded Mathematics Research Center (1963-73) at the University of Wisconsin-Madison, which was bombed on August 24, 1970 by the anti-Vietnam War "New Year's Gang," resulting in the death of Robert Fassnacht, an anti-Vietnam War physics grad student.

I was a student there in those days, and while I have always disapproved of violence in protesting wars, I came to have strong political disagreements with my father, which ended up being reported in local newspapers ("the irony"), as well as eventually in books (_Rads_, Tom Bates, 1989, Harper Collins). However, later we reconciled personally, while continuing strong political disagreements. I always respected his intelligence and integrity, and this encourages me that it is possible to maintain civil discourse in this world across deep political divides, as long as mutual personal respect can be maintained.

The Khamene'i Fatwa: Or, Why I Was Right About Iranian Nukes

The commentariat and many politicians have been unhappy about the prospect of war with Iran, while almost universally they have repeated the mantra that "Of course there is a problem with Iran getting nuclear weapons," somewhat similar to the mantras about social security being "in crisis" that are also widely repeated. I have for some time denied that there was an Iranians nuclear weapons program, on this blog, on Maxspeak, and in comments elsewhere, often to derision and skepticism.

The reason for my argument I learned from Juan Cole, something barely reported on in the US media, and usually to immediately stated skeptical addenda. This was that on August 9, 2005, Head of State, Supreme Jurisprudent and leader of Iranian Shi'i Muslims, and Commander-in-Chief of the Iranian military, Ayatollah Ali Khamene'i, issued a fatwa against nuclear weapons, while supporting a civilian nuclear power program. People who claimed that President Ahmadinejad was in charge were warmongering hysterics, ignorant of their real relationship, and that Ahmadinejad's party got whomped in the last local elections. Although the US media and politicians did not do so, this fatwa was and is to be taken seriously, and it is now clear that it was issued in the wake of the late 2003 cessation of what had been an active nuclear weapons program, almost certainly to cement in that decision.

NAFTA Suits Against Governments

This article supports the NAFTA clause that lets foreign firms sue the US governments for redress of trade wrongs. The story is especially interesting because it shows how down and out people may enjoy punishing corporations. The author obviously sympathizes with the Canadian firm, but the story of the trial is entertaining. The Canadian firm was totally outlawyered and maybe even treated unfairly, but if it wins, the precedent will be terribly destructive.



"Nafta Meets the American Torts Process: O'Keefe V. Loewen."
George Mason Law Review, Vol. 9, No. 1, pp. 69-98, Fall 2000

Contact: MICHAEL I. KRAUSS
George Mason University School of Law
Email: mkrauss@gmu.edu

http://ssrn.com/abstract=271265


ABSTRACT: The systematic bias against out-of-state defendants in American tort law is acutely illustrated in the important Mississippi case, O'Keefe v Loewen. This case, which resulted in the bankruptcy of the Canadian defendant, has itself become an international cause celebre because of the NAFTA challenge it has spawned. In this article, the factual backdrop of the case is described, the NAFTA challenge analyzed, and the implications of the challenge for tort reform are discussed.

Bush and Cheney Blocked NIE Report on Iran Nukes for Over a Year

Gareth Porter reports that the NIE had the news about no Iranian nuclear weapons program over a year ago in 2006, but that Cheney and Bush fought to have it revised and kept it suppressed until after they could get summary statements of particular findings blocked in late October this year (which allows for unexamined claims of previous nuke weapons programs to remain in the NIE), being unable to shake the findings of the more independent members of the intelligence community. Apparently John Negroponte was forced out as Director of National Intelligence last year because he refused to go along with this fraudulent scheming by Bush and Cheney, and the earlier NIE also disagreed with the claim that Iran was arming Shi'i militants in Iraq.

Porter's report can be accessed at http://www.ipsnews.net/news.asp?idnews=39978. Juan Cole today also provides lots of interesting and relevant related material on this shocking (if not ultimately surprising) set of lies and manipulations by Bush and Cheney.

On the proper way to learn economics

vi: "We have not succeeded in answering all our problems. The answers we have found only serve to raise a whole set of new questions. In some ways we feel we are as confused as ever, but we believe we are confused on a higher level and about more important things."

Posted outside the mathematics reading room, Tromse University

Oksendal, B., 2007. Stochastic Differential Equations (New York: Springer).

Bush Lies About Iranian Nukes

President Bush lied in his press conference just over a half an hour ago. He stated that he first learned that Iran was not pursuing a nuclear weapons program just last week. However, the front page story on the Washington Post reports that he first learned of it months ago, most particularly, PRIOR to his incendiary remark about how if Iran got a nuclear weapon, this could lead to World War III.

The Elite Universities Play Pacman with the Educational System

Continuing with the discussion of elite universities, Business Week reports on the difference between elite universities and the rest. With massive endowments and donations from the wealthy, these schools can poach the most promising or famous faculty with bloated salaries, while Stanford can provide a nice stable for students to keep their horses and Princeton can build a luxurious mansion/dorm. At the same time, public universities fall further behind.



"It's only fitting that Whitman College, Princeton's new student residence, is named for eBay CEO Meg Whitman, because it's a billionaire's mansion in the form of a dorm. After Whitman (Class of '77) pledged $30 million, administrators tore up their budget and gave architect Demetri Porphyrios virtual carte blanche. Each student room has triple-glazed mahogany casement windows made of leaded glass. The dining hall boasts a 35-foot ceiling gabled in oak and a "state of the art servery." By the time the 10-building complex in the Collegiate Gothic style opened in August, it had cost Princeton $136 million, or $272,000 for each of the 500 undergraduates who will live there."

"Whitman College's extravagance epitomizes the fabulous prosperity of America's top tier of private universities. Princeton and its "Ivy Plus" peers (the seven other members of the Ivy League, plus Stanford University and Massachusetts Institute of Technology) have long flourished as elite institutions, both socially and academically."

"The gilding of the Ivies offers a striking manifestation of the contemporary American tendency of the rich to get much richer."

"Fancifying campus living isn't the half of it. The Ivy Plus schools also are investing huge sums to enlarge their central role in research. Harvard, Columbia, and the University of Pennsylvania are developing whole new science-centric campuses, and Yale just acquired one ready-made, buying a 30-building complex from pharmaceutical giant Bayer. The schools are adding more top-notch faculty members and shrinking class sizes. And they are increasing financial aid outlays for lower-income students who otherwise couldn't afford to attend."

"... the increasingly plush Ivy Plus model casts into sharp relief the travails of America's public institutions of higher learning, which educate 75% of the country's college students. While the Ivies, which account for less than 1% of the total, lift their spending into the stratosphere, many public colleges and universities are struggling to cope with rising enrollments in an era when most states are devoting a dwindling share of their budgets to higher ed. "Policymakers seem to have concluded that flat funding is all that public higher education can expect from the state," says Ronald G. Ehrenberg, an economist who directs Cornell University's Higher Education Research Institute."

"Even the most prestigious of public universities are increasingly hard-pressed to repulse richly financed Ivy Plus raiding sorties seeking to steal distinguished faculty members and their research grants. Public schools are being drained for the benefit of the ultra-elite, says Robert J. Birgeneau, chancellor of the University of California at Berkeley. "The further you project into the future, the more frightening it becomes"."

"It's unlikely that more money has ever been lavished on the education of so few. Even as Ivy Plus budgets have spiraled upward, the schools' enrollments have barely budged. From the 1997-98 academic year through 2006-07, graduate enrollment at the 10 institutions inched up by 10%, to 55,708, while the number of undergraduates actually fell by 1.4%, to 68,492."

"Meanwhile, the wealth gap between the Ivies and everyone else has never been wider. The $5.7 billion in investment gains generated by Harvard's endowment for the year that ended June 30 exceeded the total endowment assets of all but six U.S. universities, five of which were Ivy Plus: Yale, Stanford, Princeton, MIT, and Columbia. Ivy dominance extends to fund-raising. A mere 10 schools accounted for half the growth in donations to all U.S. colleges and universities last year. All of the top five on the list were Ivies, led by Stanford, which set a record for higher education in 2006, collecting $911 million in gifts."

"During 2006-07, the Ivy "Big Three"-Harvard, Yale, and Princeton-collectively spent $6.5 billion on operations, up over 100% from a decade ago. This was more than double the 41% average budget increase for all U.S. colleges and universities over this period and quadruple the 26% rise in the consumer price index. The Big Three sank a further $1.2 billion into new construction and other capital spending last year. "Yale is wealthier now, so we can add resources in almost every dimension," says its president, Richard C. Levin."

"Stanford spent $4 million to restore the Red Barn, a Victorian-era structure that's part of the university's equestrian center and now provides a place for undergraduates to house their own horses at a cost of $500 a month. Seven employees groom and feed the steeds and clean their stalls."

"The $106,496 average salary earned by full professors at PhD-granting public universities in 2006-07 amounted to just 78% of what their counterparts earned at private universities, according to the American Association of University Professors. This figure was 91% in 1980-81."

"One of the many academic areas in which Yale has brought its financial muscle to bear is physics, which until recently was chaired by Ramamurti Shankar. "Yale told us: Let's go after who you want. We will make it happen,'" says Shankar, who is particularly proud of having bested several other top private schools to lure the quantum mechanics expert Steven M. Girvin away from Indiana University, a Big Ten public stalwart. "There was a huge war," Shankar says. "Everybody wanted him." Shankar declines to disclose the price he paid for Girvin in 2002, but says that the going annual rate today for theoreticians of his caliber is $400,000 to $600,000, which includes salary and research support. This is for an assistant professor, the level at which Yale does most of its hiring. The price tag for top experimentalists, who have far more extensive laboratory needs, is $1.5 million to $2 million, according to Shankar, who remains on the Yale faculty."

"To house their enlarged faculties, the Ivies have turned their campuses into continuous construction zones. Each now boasts a new science facility that is its most expensive structure ever. At Stanford, the distinction belongs to the $140 million "Bio-X" building. Designed by the famed British architect Norman Foster, the glass-walled center provides offices and labs for 30 faculty members whose research combines cutting-edge subspecialties in biology and medicine. Over the next few years, says Stanford President John L. Hennessy, the school plans to invest an additional $600 million to put up five more buildings at an astronomical cost of $800 per square foot on average. Under President Amy Gutmann, Penn is launching its expansion onto 24 acres adjoining its Philadelphia campus by building three high-tech medical research facilities at a total cost of $682 million. Harvard is beginning work on a $1 billion complex that includes a new stem cell institute, the first stage of a planned 200-acre adjunct campus in Allston, Mass."

"The research productivity of elite private universities is roughly twice that of their public counterparts, according to a recent study of America's 102 top research universities by economists James D. Adams and J. Roger Clemmons. The study measured volume of academic papers and citations during 1981-99. "You are going to have an edge in research if you have great students, but not too many students; freedom from bureaucratic and political meddling; and generous alums who are more interested in academics than the football program," says Adams, acting head of economics at Rensselaer Polytechnic Institute, a private college in Troy, N.Y."

Bianco, Anthony. 2007. "The Dangerous Wealth of the Ivy League." Business Week (29 November).

National Debt Grows $1 Million a Minute

A lefty friend of mine sent me the following article [and I'm testing to see if I can finally get the formatting right on Econospeak messages].

National Debt Grows $1 Million a Minute
By TOM RAUM, AP

WASHINGTON (Dec. 3) - Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day - or nearly $1 million a minute.

One problem we have on the left is that we like the idea of crisis so much that we sometimes fall under the influence on non-crises that are disguised as crises. This is one of them.



The national debt is $9.13 trillion, about $30,000 for every person in the U.S. The total is worrisome because interest payments on the debt strain government resources -- and things could get worse if the economy slows down, as some economists predict.

It should NOT be called the "national" debt. It's the _government's_debt and about 75% of it is owed to people in the U.S. So 75% percent of it should be considered part of the nation's assets. If you don't see this, please e-mail me and I will give you my home address -- so you can mail me your government bonds. If they're such a burden, I'll take them off your hands.

The interest payments on the _government's_ debt do represent a problem in the government's budget. (But remember that about 75% are paid to people inside the U.S.!) The problem of interest payments is not a problem in the short run, even if a recession hits, because the Federal government can and does run deficits -- it does not have to balance its budget. Smart economists and politicians don't force a budget balance in a recession, since they know it makes matters worse.

Over the long haul, the economy grows, generating more & more tax revenues for the government. These (along with tax hikes or spending cuts) allow the government to pay interest. The problem occurs only if the government debt grows _faster_ than the economy for several years, so that the government debt to GDP ratio rises. But last time I looked, the government debt was not at its previous peak (67% of GDP in 1996, for gross debt). It was far below its previous peak (122% of GDP) at the end of WW2. It's like 66% now. Note that the US economy did very well during the 1950s, despite the debts left over from WW2.

The government's debt is going to be more of a problem in the future if the medical-cost inflation problem isn't solved (because the Federal government's Medicare costs rise with those of the private sector), if the Bush tax cuts for the rich are not allowed to lapse, if the Iraq war is allowed to continue and grow, and if the "alternative minimum tax" problem (which is pushing more and more middle-class people into rich-people tax brackets)is fixed without compensating tax hikes.

Even so, the government's deficit would not be a problem if the borrowing went to do something productive, i.e., that promotes the growth of the economy. Examples include fixing New Orleans and investing in public health and education. Of course, the government squandered the borrowed money on tax cuts for the administration's rich friends, and the effort to conquer Iraq.

Instead of worrying about the government's debt, worry about:

1. the way the government has wasted its borrowings (see above).

2. the severe debt loads that private consumers have -- and they, unlike the US government, are likely to go bankrupt.

3. the increasing deficits of state and local governments, most of which are forced by law to balance their budgets.

4. the deficit of services that are needed but the government does not provide.

5. global warming.

6. etc.
--
Jim Devine

Has Obama Pulled Back on his Attack on Social Security?

Watching the news I have seen nothing out of Obama lately on social security, and a quick googling shows nothing visible since mid-November, when he went after Hillary on the question, only to get Krugman and a lot of the rest of us on his case. Did he learn to lay low on this, or even maybe change his mind? Or is he still hoping to pander to ignorant youths who think that the probability of seeing a UFO is greater than receiving a social security check? Krugman was on his case on Nov. 30 about the incompleteness of his health care proposal coverage of the population, and compared it to his blunder on social security. All of this has been too bad, given his more reasonable record and position on foreign policy than Hillary or Edwards, if not Richardson.

Again, for the record, anyone who wants to see how totally ignorant American youth is, in this case undergrad econ majors, check out the survey I did with three colleagues up on my website at http://cob.jmu.edu/rosserjb, entitled "Student Ignorance about Social Security." A very serious question is just how did we get into such a situation where American youth has been so badly misled into such extreme and pathetic ignorance on this important issue.?