In recent election cycles the term "populist" has been applied to such varied figures as John Edwards, Mike Huckabee, Patrick Buchanan, and Ross Perot, arguably sharing a sort of economic nationalism for the poor. Originating in anti-aristocratic agrarian movements in Europe, especially the Russian Narodniki of the late 1800s, the movement in the US attempted to encompass the urban working class as well, as symbolized by the rural Scarecrow marching along with the urban Tin Woodman on the Yellow Brick Road to defeat the Wicked Witch of the East, with populist heroine Dorothy and the Cowardly Lion stand-in for fundamentalist and anti-imperialist populist William Jennings Bryan, he of the "Cross of Gold" speech, in Baum's populist fantasy novel. The movement would be partly absorbed by the later Progressive and New Deal movements.
The movement has always had a deep divide, with race the central issue. So, on the one hand we have the progressive wing, symbolized by the remnant Democratic-Farmer-Labor Party of Minnesota and the presidential candidacy in 1948 of FDR's former Ag Secretary, Henry Wallace for the Progressive Party. On the other, in the Deep South, we got "Pitchfork" Ben Tillman in South Carolina, whose follower, Strom Thurmond, would run as the "Dixiecrat" in the 1948 presidential campaign. Today, this divide most clearly shows up in the struggle over immigration.
Wednesday, December 19, 2007
Summers: Increase Aggregate Demand Now
When Angrybear introduced me as a ProGrowthLiberal, he speculated that I tended to agree with Lawrence Summers on macroeconomic policy. So one might wonder if I agree with his latest:
I’ve been calling for a more expansionary monetary policy for while, but I have also been calling for long-term fiscal restraint. So do I agree with Larry’s recent call for fiscal stimulus?
When it finally became evident to most economists that we were in the midst of a business investment led recession back in 2001, this Rubinesque Bear suggested that we have a redux of the 1993 Clinton fiscal philosophy – a little short-term fiscal stimulus with a commitment that we would gradually move to long-term fiscal restraint. The hope was that a mix of short-term interest rates – which the Greenspan FED gave us in spades – combined with an acceleration of public and private consumption but the promise of higher national savings in the out years might help reverse the investment and general aggregate demand slump. What we got from the Bush White House was very little in short-term fiscal stimulus and a virtual guarantee that we would have long-term fiscal irresponsibility. It has always been my view that this upside fiscal policy was one reason why long-term interest rates took much longer to decline and why the business investment slump lasted so long. Sure, residential investment rose back then – but that only partially offset the dismal performance of business investment - as well as the export slump.
Today, business investment is stronger but residential investment has plummeted. If Dr. Summers is dusting off the 1993 Clinton fiscal philosophy, which was also what Robert Rubin had convinced a few moderate Republican and Democratic Senators to advocate back in late 2001, then I agree with him 100 percent. And maybe this time – the President might also work towards passing the recommended policy package rather than undermining at every turn like he did six years ago.
Hat tip to Mark Thoma.
Former Treasury Secretary Lawrence Summers, once a fiscal hawk among Clinton Democrats, said the government should consider a $50 billion to $75 billion tax-cut and spending package to stave off a deep recession. Mr. Summers, now a Harvard University professor and investment-fund manager, also urged the Federal Reserve to take more aggressive action to ensure that its rate cuts actually reduce consumers' interest charges and stimulate spending.
I’ve been calling for a more expansionary monetary policy for while, but I have also been calling for long-term fiscal restraint. So do I agree with Larry’s recent call for fiscal stimulus?
When it finally became evident to most economists that we were in the midst of a business investment led recession back in 2001, this Rubinesque Bear suggested that we have a redux of the 1993 Clinton fiscal philosophy – a little short-term fiscal stimulus with a commitment that we would gradually move to long-term fiscal restraint. The hope was that a mix of short-term interest rates – which the Greenspan FED gave us in spades – combined with an acceleration of public and private consumption but the promise of higher national savings in the out years might help reverse the investment and general aggregate demand slump. What we got from the Bush White House was very little in short-term fiscal stimulus and a virtual guarantee that we would have long-term fiscal irresponsibility. It has always been my view that this upside fiscal policy was one reason why long-term interest rates took much longer to decline and why the business investment slump lasted so long. Sure, residential investment rose back then – but that only partially offset the dismal performance of business investment - as well as the export slump.
Today, business investment is stronger but residential investment has plummeted. If Dr. Summers is dusting off the 1993 Clinton fiscal philosophy, which was also what Robert Rubin had convinced a few moderate Republican and Democratic Senators to advocate back in late 2001, then I agree with him 100 percent. And maybe this time – the President might also work towards passing the recommended policy package rather than undermining at every turn like he did six years ago.
Hat tip to Mark Thoma.
Green Gas Emissions, Risks and Uncertainty: When Kenneth Arrow Speaks – Just Listen
Kenneth Arrow explains the general issue thusly:
While Arrow notes that the critics of the Stern Report cite the role of uncertainty as their rational for taking no action, he fires back with his own analysis of the roles of uncertainty and risk.
Two factors differentiate global climate change from other environmental problems. First, whereas most environmental insults – for example, water pollution, acid rain, or sulfur dioxide emissions – are mitigated promptly or in fairly short order when the source is cleaned up, emissions of CO2 and other trace gases remain in the atmosphere for centuries. So reducing emissions today is very valuable to humanity in the distant future. Second, the externality is truly global in scale, because greenhouse gases travel around the world in a few days. As a result, the nation-state and its subsidiaries, the typical loci for internalizing externalities, are limited in their remedial capacity. (However, since the United States contributes about 25% of the world’s CO2 emissions, its own policy could make a large difference.)
While Arrow notes that the critics of the Stern Report cite the role of uncertainty as their rational for taking no action, he fires back with his own analysis of the roles of uncertainty and risk.
There is greater disagreement about how much to discount the future simply because it is the future, even if future generations are no better off than us. Whereas the Stern Review follows a tradition among British economists and many philosophers against discounting for pure futurity, most economists take pure time preference as obvious. However, the case for intervention to keep CO2 levels within bounds (say, aiming to stabilize them at about 550 ppm) is sufficiently strong to be insensitive to this dispute. Consider some numbers from the Stern Review concerning the future benefits of preventing greenhouse gas concentrations from exceeding 550 ppm, as well as the costs of accomplishing this. The benefits are the avoided damages, including both market damages and non-market damages that account for health and ecological impacts. Following a “business as usual” policy, by 2200, the losses in GNP have an expected value of 13.8%, but with a degree of uncertainty that makes the expected loss equivalent to a certain loss of about 20%. Since the base rate of economic growth (before calculating the climate change effect) was taken to be 1.3% per year, a loss of 20% in the year 2200 amounts to reducing the annual growth rate to 1.2%. In other words, the benefit of mitigating greenhouse gas emissions can be represented as the increase in the annual growth rate from today to 2200 from 1.2% to 1.3%. As for the cost of stabilization, estimates in the Stern Review range from 3.4% of GNP to -3.9% (since saving energy reduces energy costs, the latter estimate is not as startling as it appears). Let’s assume that costs to prevent additional accumulation of CO2 (and equivalents) come to 1% of GNP every year forever, and, in accordance with a fair amount of empirical evidence, that the component of the discount rate attributable to the declining marginal utility of consumption is equal to twice the rate of growth of consumption. A straightforward calculation shows that mitigation is better than business as usual – that is, the present value of the benefits exceeds the present value of the costs – for any social rate of time preference less than 8.5%. No estimate of the pure rate of time preference, even by those who believe in relatively strong discounting of the future, has ever approached 8.5%.
Tuesday, December 18, 2007
History Note: Chico Plane Hijacked to Arkansas
My home, Chico, California, is not often seen as the center of the world, but we do have some distinctions. For example, the first airline hijacking on US soil occurred here. It may also be the only time that anyone ever hijacked a plane to Arkansas.
http://blogs.ocweekly.com/navelgazing/main/another-california-first-hijac/
http://blogs.ocweekly.com/navelgazing/main/another-california-first-hijac/
Monday, December 17, 2007
Blood for Oil in Iraq Achieved! Now We Can Come Home!
Great news! As of this past week or so, for the first time oil production in Iraq has exceeded what it was under Saddam Hussein before the US invaded, a whopping 2.3 million
barrels per day!! For a country with the world's second largest oil reserves, this is a great achievement!!! Clearly, our goal there has been achieved, so now our troops can come home!!!
barrels per day!! For a country with the world's second largest oil reserves, this is a great achievement!!! Clearly, our goal there has been achieved, so now our troops can come home!!!
Sunday, December 16, 2007
Radio Interview Today
I was interviewed today on KPFK Los Angles on Ian Masters' Background Briefing for the last 20 minutes of his show. I did not get to discuss the Confiscation of American Prosperity very much because the publisher neglected to send him a copy.
http://64.27.15.184/parchive/mp3/kpfk_071216_110100bbriefing.mp3
http://64.27.15.184/parchive/mp3/kpfk_071216_110100bbriefing.mp3
Friday, December 14, 2007
Transfer Pricing Enforcement in China- the IRS Should Be Paying Attention!
On my long list of statements from tax officials that strike me as incredibly short sighted comes this:
The IRS was indeed very successful in arguing that some of the profits that British based Glaxo made on US sales of Zantac were attributable to the marketing efforts of Glaxo’s US subsidiary. But mind you that the tax planners for US based pharmaceutical companies with foreign marketing subsidiaries took notice of the IRS theory to successfully argue that some of the profits from US created drugs belonged offshore under arm’s length pricing. So if the Chinese are about to argue that distribution subsidiaries deserve a large share of the profits – wouldn’t this hold for US entities distributing products manufactured in China. Last year – the US exported only $55 billion of goods and services to China, while China sold almost $288 billion in goods in services to the US. Unless there existed no intangible profits from Chinese exports to the US and there were substantial intangible profits when US manufacturers sold goods to the Chinese, something tells me that China's State Administration of Taxation could come up with the short end of this stick.
It would seem that the Indian tax authorities successfully made a similar argument in a tax dispute with Rolls Royce. If this argument is turned on US based companies selling into India, let’s keep in mind that the India exports twice as much to the US as we export to them. With the US as a net importer of goods, any argument that the local distributor deserves a large slice of the profits is something the IRS should look forward to making in a bilateral way!
The China's State Administration of Taxation, emboldened by the Internal Revenue Service's result in the GlaxoSmithKline case, is directing its auditors in appropriate marketing intangibles cases to apply the residual profit split method to recompute royalty income.
The IRS was indeed very successful in arguing that some of the profits that British based Glaxo made on US sales of Zantac were attributable to the marketing efforts of Glaxo’s US subsidiary. But mind you that the tax planners for US based pharmaceutical companies with foreign marketing subsidiaries took notice of the IRS theory to successfully argue that some of the profits from US created drugs belonged offshore under arm’s length pricing. So if the Chinese are about to argue that distribution subsidiaries deserve a large share of the profits – wouldn’t this hold for US entities distributing products manufactured in China. Last year – the US exported only $55 billion of goods and services to China, while China sold almost $288 billion in goods in services to the US. Unless there existed no intangible profits from Chinese exports to the US and there were substantial intangible profits when US manufacturers sold goods to the Chinese, something tells me that China's State Administration of Taxation could come up with the short end of this stick.
It would seem that the Indian tax authorities successfully made a similar argument in a tax dispute with Rolls Royce. If this argument is turned on US based companies selling into India, let’s keep in mind that the India exports twice as much to the US as we export to them. With the US as a net importer of goods, any argument that the local distributor deserves a large slice of the profits is something the IRS should look forward to making in a bilateral way!
Thursday, December 13, 2007
how does Mankiw's right differ from liberals and the left?
Wednesday, December 12, 2007 [by Greg "I worked for Dubya" Mankiw]
How do the right and left differ?
The conclusion of today's ec 10 lecture:
In today's lecture, I have discussed a number of reasons that right-leaning and left-leaning economists differ in their policy views, even though they share an intellectual framework for analysis. Here is a summary. [I replaced his asterisks with "GM," while my comments are labelled "JD."]
JD: first of all, I should note that Mankiw is only talking about one dimension of the political spectrum. I'd define left vs. right in terms of class, with the left siding with the poor and working classes and the right siding with Mankiw's employers. This left vs. right mostly coincides with democracy vs. dictatorship. There's also a centralized vs. decentralized spectrum, which is what Mankiw mostly describes. Finally, there's the tradition vs. modernism spectrum.
GM: The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.
JD: Mankiw implicitly assumes that taxes "distort" markets, i.e., that the markets were "perfect" ahead of time. He assumes, for example, that no deadweight loss arises from the business sector. But even in the simplest neoclassical theory, it can do so: monopolies and monopsonies impose deadweight losses.
GM: The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.
JD: This might be right, i.e. that the difference is empirically-based. But it should be mentioned that the right also likes to use methodological fiat to rule out the role of an important class of externalities, the pecuniary ones. They'd like to ignore such events as towns being destroyed economically when the major employer shuts down its operations, along with the Keynesian multiplier effect and the like.
GM: The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.
JD: This defines the "left" as antitrust liberals. It ignores those of us who want to replace the capitalist monopoly on political power (unless we make a big noise) with real democracy, both in politics and in the economy.
GM: The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.
JD: The right's notion of "rationality" is close to tautological: rationality involves people doing what they want to do. Individual preferences are taken for granted and unexplained. A heroin addict is "rational" according to the right-wing economists. Further, "rationality" is totally an individual thing that can be expressed only in markets. This forgets the role of social values, which typically cannot be expressed through markets (no matter how rational they are) but can be expressed via democracy.
GM: The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.
JD: Again, this "left" is the liberals. It ignores the left which wants to end the artificial distinction between the state (government) and the "market" and to subordinate both of these to democracy.
GM: There is one last issue that divides the right and the left -- perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.
JD: Is it a "market-based distribution of income"? Not according to the standard economics which Mankiw professes to profess. Standard neoclassical economics starts with the distribution of _assets_. Then the market results reflect that distribution (along with differences in preferences).
At this point, we should bring in non-standard economics: those with the most assets benefit most from the market. This allows them to accumulate more assets, so that they benefit even more from the market.
This kind of snowballing inequality of asset-ownership (and power) can be seen happening during the last 27 or so years of US economic history. This is now being admitted by mainstream economists. See the interview with Frank Levy in the current issue of CHALLENGE.
Jim Devine / "The conventional view serves to protect us from the painful job of thinking." -- John Kenneth Galbraith
How do the right and left differ?
The conclusion of today's ec 10 lecture:
In today's lecture, I have discussed a number of reasons that right-leaning and left-leaning economists differ in their policy views, even though they share an intellectual framework for analysis. Here is a summary. [I replaced his asterisks with "GM," while my comments are labelled "JD."]
JD: first of all, I should note that Mankiw is only talking about one dimension of the political spectrum. I'd define left vs. right in terms of class, with the left siding with the poor and working classes and the right siding with Mankiw's employers. This left vs. right mostly coincides with democracy vs. dictatorship. There's also a centralized vs. decentralized spectrum, which is what Mankiw mostly describes. Finally, there's the tradition vs. modernism spectrum.
GM: The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.
JD: Mankiw implicitly assumes that taxes "distort" markets, i.e., that the markets were "perfect" ahead of time. He assumes, for example, that no deadweight loss arises from the business sector. But even in the simplest neoclassical theory, it can do so: monopolies and monopsonies impose deadweight losses.
GM: The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.
JD: This might be right, i.e. that the difference is empirically-based. But it should be mentioned that the right also likes to use methodological fiat to rule out the role of an important class of externalities, the pecuniary ones. They'd like to ignore such events as towns being destroyed economically when the major employer shuts down its operations, along with the Keynesian multiplier effect and the like.
GM: The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.
JD: This defines the "left" as antitrust liberals. It ignores those of us who want to replace the capitalist monopoly on political power (unless we make a big noise) with real democracy, both in politics and in the economy.
GM: The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.
JD: The right's notion of "rationality" is close to tautological: rationality involves people doing what they want to do. Individual preferences are taken for granted and unexplained. A heroin addict is "rational" according to the right-wing economists. Further, "rationality" is totally an individual thing that can be expressed only in markets. This forgets the role of social values, which typically cannot be expressed through markets (no matter how rational they are) but can be expressed via democracy.
GM: The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.
JD: Again, this "left" is the liberals. It ignores the left which wants to end the artificial distinction between the state (government) and the "market" and to subordinate both of these to democracy.
GM: There is one last issue that divides the right and the left -- perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.
JD: Is it a "market-based distribution of income"? Not according to the standard economics which Mankiw professes to profess. Standard neoclassical economics starts with the distribution of _assets_. Then the market results reflect that distribution (along with differences in preferences).
At this point, we should bring in non-standard economics: those with the most assets benefit most from the market. This allows them to accumulate more assets, so that they benefit even more from the market.
This kind of snowballing inequality of asset-ownership (and power) can be seen happening during the last 27 or so years of US economic history. This is now being admitted by mainstream economists. See the interview with Frank Levy in the current issue of CHALLENGE.
Jim Devine / "The conventional view serves to protect us from the painful job of thinking." -- John Kenneth Galbraith
Now that's a free ride!
It's that time of year again, time to make the donuts....er, grade final exams. I had a question on the Principles exam asking whether a tunafish entrepreneur - Charley "The Tuna" Sharkspear by name - who knew that consumers value safe dolphins more than the added cost of fishing in a dolphin-safe fashion could make money providing the dolphin-safe tuna. The idea I wanted them to get was that the safety of the dolphins, if accomplished, is a public good. From one student I learn that:
"People will continue to buy a cheaper tuna and still 'free-ride' on the dolphins that Charley is saving."
That sounds like fun. Back to work!
"People will continue to buy a cheaper tuna and still 'free-ride' on the dolphins that Charley is saving."
That sounds like fun. Back to work!
Wednesday, December 12, 2007
CNN Caught Mimicking Faux News with Iran Nuclear Weapons "Speculative Documentary"
CNN was to air today a "speculative documentary" entitled "We Were Warned - Iran Goes Nuclear" with actors playing real officials and hyperventilating on the now discredited non-data about Iran's nonexistent nuclear weapons program. The program has been postponed for now, given the recent NIE report. This shows how CNN has been under pressure to imitate the war hysteria of Faux News. An old friend of mine, who is quite progressive, was involved in helping make this, and had been bamboozled by briefings from unnamed national security officials. Details on this story are available from Bill Gallagher at http://www.niagarafallsreporter.com/gallagher344.html, and if this is not right, you can find it by linking through today's posting by Juan Cole.
Credit Crunch and Sudden Stop: Can We Avoid a Perfect Financial Storm?
Credit markets are all a-jitter again. No one knows how many assets will be nonperforming, which ones they will be, how much total value is at stake. We also know that there has a been a sudden stop, a complete cessation of net long-term private capital inflows to the US; nearly all of the financing burden of the US current account deficit has to be shouldered by central banks and sovereign wealth funds. These two events are related.
It is US debt, mortgage items but perhaps not only, whose quality is in doubt. This is why there is little appetite for such goodies among private investors. But if enough liquidity is pumped in to dissuade investors from wholesale dumping, and if the CB’s continue to do what it takes to keep the dollar afloat, we may continue to muddle through.
The risk is that the two dangers will interact. The Fed and its partners can support asset values by buying into these markets, as they have indicated they will. But if for any reason this effort falls short, it is possible that default risk and currency risk could spiral upward in tandem. Fear of default could push private capital flows into the red; this would ramp up the pressure on the dollar, increasing currency risk, and so on. It is not beyond the realm of the possible that this nasty synergy could erupt within the time frame of a few hours or even minutes. It would be sudden and unexpected: one morning you could go online to scan the headlines and find out we were already in the thick of it.
I’m not saying that a crisis is inevitable, but I’m not saying it can’t happen either.
It is US debt, mortgage items but perhaps not only, whose quality is in doubt. This is why there is little appetite for such goodies among private investors. But if enough liquidity is pumped in to dissuade investors from wholesale dumping, and if the CB’s continue to do what it takes to keep the dollar afloat, we may continue to muddle through.
The risk is that the two dangers will interact. The Fed and its partners can support asset values by buying into these markets, as they have indicated they will. But if for any reason this effort falls short, it is possible that default risk and currency risk could spiral upward in tandem. Fear of default could push private capital flows into the red; this would ramp up the pressure on the dollar, increasing currency risk, and so on. It is not beyond the realm of the possible that this nasty synergy could erupt within the time frame of a few hours or even minutes. It would be sudden and unexpected: one morning you could go online to scan the headlines and find out we were already in the thick of it.
I’m not saying that a crisis is inevitable, but I’m not saying it can’t happen either.
All We Are Saying is Give Peace a Chance
My view on Iraq was: (a) we never should have started this stupid war, and (b) once we did, we should have declared victory and come home a long time ago. For those who get their “news” from Faux News, it would seem the Iraq war is no more. And now David Brooks says we’ve gotten past this idiotic episode as well:
Including the title, I counted five instances where Mr. Brooks used the word “postwar”. There is only one problem, which Greg Mitchell articulates:
Hawks like Brooks and Beinart were over-hyping the treat of Saddam Hussein as they underestimated the potential costs of invading Iraq back in 2002 and early 2003. So why is Greg surprised that these pundits are at it again with their dismissing the fact that this failed and very destructive adventure continues? Brooks does have not the courage to do what Paul Harvey did in 1970 when Mr. Harvey told President Nixon that the Vietnam War was a mistake that should be ended immediately. As a kid, I had to endure the fact that my parents made me watch Mr. Harvey’s conservative rants on a daily basis. As an adult, I miss the old fashion conservatives. No, having to endure hacks like David Brooks is so much worse.
But the more comprehensive difference between a wartime election and a postwar election is that there is a shift in values. In wartime, leadership traits like courage, steadfastness and ruthlessness are prized. Voters are willing to vote for candidates they distrust so long as they seem tough and effective (Hillary Clinton, Rudy Giuliani). In a postwar election things are different. When Wall Street Journal/NBC pollsters asked voters what qualities they were looking for in the next leader, their top three choices were: the ability to work well with leaders of other countries; having strong moral and family values; bringing unity to the country. Those are cooperative qualities, not combative ones. They require good listening skills, openness and the ability to compromise.
Including the title, I counted five instances where Mr. Brooks used the word “postwar”. There is only one problem, which Greg Mitchell articulates:
Postwar? Peace? Try telling that to the soldiers in Iraq, and the families whose kids are still coming home minus a limb or part of their brain. Last I checked we were still spending billions of dollars a month Over There and I haven't heard about any bases, or the grand embassy, being dismantled. A new Gallup poll (see below) disputes the notion, anyway. Is the issue a little less "hot"? Surely. But to say it is over is an obscenity. With rose-colored glasses still in place, Brooks takes a world tour, finding more reason to relax about Iran, Pakistan (?), even the Palestinian question. My favorite line then follows: "The world still has its problems." Gosh, you think? Later he admits, "Something terrible could happen in the world" to change the hopeful mood. As if little terrible is happening now. This all started last week with Peter Beinart’s self-serving column in The Washington Post -- Brooks cites it today -- which flatly called the war a "non-story." He took as his main evidence that questions about the war were not being asked all that much at the Democratic and Republican debates. The fact that all of the Democrats are much in agreement against the war, and all of the leading Republicans in agreement in support of the venture, apparently did not occur to Beinart as an explanation. Of course, if any of the Democrats faced off against any of the Republicans right now, is there any doubt what would be the hottest issue? But Beinart – an original hawk on the war, like Brooks – had good reason to downplay the disaster he helped cause.
Hawks like Brooks and Beinart were over-hyping the treat of Saddam Hussein as they underestimated the potential costs of invading Iraq back in 2002 and early 2003. So why is Greg surprised that these pundits are at it again with their dismissing the fact that this failed and very destructive adventure continues? Brooks does have not the courage to do what Paul Harvey did in 1970 when Mr. Harvey told President Nixon that the Vietnam War was a mistake that should be ended immediately. As a kid, I had to endure the fact that my parents made me watch Mr. Harvey’s conservative rants on a daily basis. As an adult, I miss the old fashion conservatives. No, having to endure hacks like David Brooks is so much worse.
Tuesday, December 11, 2007
Where Does John Edwards Stand on Social Security?
Barkley accuses John Edwards of drinking the Kool Aid, while Phillip Elliot praises Mr. Edwards for “real leadership” thusly:
The last quip seems to confirm Barkley’s suggestion that Mr. Edwards has fallen for the GOP spin that the Social Security system is in imminent danger. We in more of an imminent danger of a mushroom cloud over Manhattan from an Iran nuke that a Social Security meltdown.
But I’m going to try to be fair to Mr. Edwards by asking what he means by this alleged very clear statement of what he would do. It would seem his policy position is basically status quo with the exception that he’d lift the payroll caps. That’s it! And Phillip Elliot calls this leadership? Fine – Senator Clinton hasn’t exactly stated where she’d change the status quo either. OK, the GOP debates are incredibly stupid on just about every issue- but if this is all we Democrats have got, maybe I should go back to watching my Atlanta Falcons pretend to pay football. Ho-hum!
But to be fair – I’m sort of a status quo bear when it comes to this issue. Next topic – please?
Democrat John Edwards yesterday criticized rival Hillary Rodham Clinton, saying candidates who seek the White House should take strong, clear stands on difficult issues like Social Security. Clinton has said she doesn't want to put forward a specific plan now to shore up Social Security, but would wait for recommendations from a bipartisan commission because any plan will need the support of Democrats and Republicans to be enacted. Asked about her stance at an AARP-Divided We Fail lunch on health and financial security, Edwards told seniors: "If you want to be President of the United States, you should lead. Leadership means taking clear, strong positions for the American people. ... I've said very clearly what I would do, not said I'm going to wait and figure this out later."
The last quip seems to confirm Barkley’s suggestion that Mr. Edwards has fallen for the GOP spin that the Social Security system is in imminent danger. We in more of an imminent danger of a mushroom cloud over Manhattan from an Iran nuke that a Social Security meltdown.
But I’m going to try to be fair to Mr. Edwards by asking what he means by this alleged very clear statement of what he would do. It would seem his policy position is basically status quo with the exception that he’d lift the payroll caps. That’s it! And Phillip Elliot calls this leadership? Fine – Senator Clinton hasn’t exactly stated where she’d change the status quo either. OK, the GOP debates are incredibly stupid on just about every issue- but if this is all we Democrats have got, maybe I should go back to watching my Atlanta Falcons pretend to pay football. Ho-hum!
But to be fair – I’m sort of a status quo bear when it comes to this issue. Next topic – please?
Is Kos Drinking Social Security Kool Aid?
Continuing an old tradition from Maxspeak, let me dump on Daily Kos. I just noticed a long post there about "leadership" among Dems and Dem candidates in particular. Much of it was anti-Hillary and mostly focused on her war views. On those, I join in criticizing her. However, this "lacking leadership" is the line being handed out previously by Obama and more recently very loudly by Edwards in attacking her on not proposing changes to social security. I confess that I am not sure what Kos's views on social security are, but at least rhetorically, he, or they, are adding to the rhetoric of those who have drunk the kool aid of "Social Security is in Crisis and we must do Something!"
Sunday, December 9, 2007
thoughts on the Prisoner's dilemma.
While trying to teach my students about the (non-repeated) "Prisoner's Dilemma" (PD) game, I had the following thoughts. I hope some of them are vaguely original -- or at least interesting.
The usual view of this "game" is that it turns Adam Smith's "Invisible Hand" (IH) on its head (or on its heel). In the Greatest Economics Story Ever Told, the IH says that in exchange, individual greed leads to the production of mutually-beneficial gains for all (or almost all) people, especially when organized by a competitive market. On the other hand, in the PD story, individual greed (possessive individualism) leads to mutual destruction of the prisoners. This occurs even though there exists a mutually-advantageous solution for them (collusion, cooperation, conspiracy, other "c" words).
There's another way of looking at the PD. The problem is that the police have set up a special social structure that pushes the prisoners to hurt each other. They aren't allowed to talk to each other. They have to make their decisions (rat[*] on each other or keep quiet) simultaneously (in effect). The cops create incentives that push each prisoner to rat. Thus, the prisoners both "defect" and suffer.
(For simplicity, I'm ignoring degrees between "ratting" and "staying mum." I'm also ignoring the honor among thieves, which can encourage tacit collusion, so that both refuse to "rat" on the other.)
This might be thought of in terms of "transactions costs" which make it extremely expensive for the prisoners to get together and strike a deal. But that would be misleading.
The problem is that exchange can also be like a PD game. Orthodox economists don't tell you that in the act of exchange, the two "players" are colluding to not rob each other. If we drop this usually-covert assumption, we see four possible choices. (Again, the choice is binary, ignoring intermediate choices between the extremes. Again, the two "traders" are assumed to embrace possessive individualism.)
1. Cain and Abel swap their goods with each other, with mutually-beneficial effects (collusion, IH result).
2. Cain slays Abel, stealing his goods. Cain gains in a big way (getting both sets of goods) while Abel obviously suffers.
3. Abel slays Cain, reversing the roles.
4. Both fire their weapons at each other, so both die (both defect, the usual PD result).
As in a PD game, the incentive is there for Cain to kill Abel. Naturally, Abel will fear this event and find that he has an incentive to preempt Cain's dirty deed (done dirt cheap). So Cain may react by shooting first. Mutual destruction ensues...
What's the solution to this mess? Orthodox economics (Orthonomics?) simply assume it away. More seriously, the English political philosopher Thomas Hobbes advocated bringing a very Visible Hand, the Leviathan, the unified state which monopolizes the means of violence. This prevents mutual destruction. It sets up incentives for the two traders to cooperate.
Another English political philosopher, John Locke, naturally enough didn't trust the state. His solution was to advocate merging the propertied class (what we would call the capitalists) with the state. The former should dominate the latter, to the maximal possible extent, natch. In this scenario, Cain and Abel _are_ the state, colluding to prevent the odious option #4.
An incentive problem still exists, however. Suppose that we see trading between the two brothers. Cain could see the benefits of having both of the guys' goods rather than simply getting Abel's goods in exchange for his own. He might then cheat or rob or kill Abel. This unhinges the collusion (or turns the game into a one-person affair, which I'll ignore).
But Locke had a solution: he proposed that people accept each others' property rights as "natural." If they accept this fiat, then trading can occur and both can benefit. It's as if he were proposing that the "honor among thieves" that allows real-world prisoners to collude in real-world dilemmas should apply to all property owners. They should see themselves as a community, with common interests.
Though Hobbes and Locke were a little silly (seeing imaginary "social contracts" as providing insight into what's happening in the real world), they captured the two main elements of what allows the IH to work, at least some of the time. These are the coercion of the state and the generally-accepted legitimacy of property rights.
The latter element, I believe, needs a lot of shoring up. After all, if profits are to be made, why accept the ideology of "natural" property rights? But there are two reinforcing elements that Karl Marx might suggest. The property owners cling to the ideology of natural property rights because it unites them against those who lack significant property rights (capital). The ideology helps maintain ruling-class solidarity. Second, if the capitalists believe it, or at least generally act as if they did, then it's easier to teach to the underclasses.
This analysis says that the mutually-beneficial exchange of the IH story is just as artificial as is the mutual destruction of the PD case. Both are based in human-made institutions. For one, the IH, the structure is created allowing collusion, while for the other, the PD, it's set up to encourage defection.
Those in power decide which activities fit in which box. For example, for you hemp-heads out there, the capitalist state in the US has decided that pot sellers belong in the PD box, while alcohol purveyors belong in the IH box.
To choose a less heady example, the social structure puts purely private goods in the IH box, while purely public goods are in the PD box. (The "public goods problem" is a version of the PD game, with a large number of participants. The "rats" are called free-riders.) Of course, in the real world, almost no products are purely public or purely private.
BTW, if this story is revealing, that indicates (once again) that game theory can say something about the world, as long as we don't obsess with equilibrium situations (Nash or otherwise).
[*] This is unfair to rats. Recent research indicates that those cute and furry creatures are more cooperatively-minded than the stereotypes say.
--
Jim Devine
The usual view of this "game" is that it turns Adam Smith's "Invisible Hand" (IH) on its head (or on its heel). In the Greatest Economics Story Ever Told, the IH says that in exchange, individual greed leads to the production of mutually-beneficial gains for all (or almost all) people, especially when organized by a competitive market. On the other hand, in the PD story, individual greed (possessive individualism) leads to mutual destruction of the prisoners. This occurs even though there exists a mutually-advantageous solution for them (collusion, cooperation, conspiracy, other "c" words).
There's another way of looking at the PD. The problem is that the police have set up a special social structure that pushes the prisoners to hurt each other. They aren't allowed to talk to each other. They have to make their decisions (rat[*] on each other or keep quiet) simultaneously (in effect). The cops create incentives that push each prisoner to rat. Thus, the prisoners both "defect" and suffer.
(For simplicity, I'm ignoring degrees between "ratting" and "staying mum." I'm also ignoring the honor among thieves, which can encourage tacit collusion, so that both refuse to "rat" on the other.)
This might be thought of in terms of "transactions costs" which make it extremely expensive for the prisoners to get together and strike a deal. But that would be misleading.
The problem is that exchange can also be like a PD game. Orthodox economists don't tell you that in the act of exchange, the two "players" are colluding to not rob each other. If we drop this usually-covert assumption, we see four possible choices. (Again, the choice is binary, ignoring intermediate choices between the extremes. Again, the two "traders" are assumed to embrace possessive individualism.)
1. Cain and Abel swap their goods with each other, with mutually-beneficial effects (collusion, IH result).
2. Cain slays Abel, stealing his goods. Cain gains in a big way (getting both sets of goods) while Abel obviously suffers.
3. Abel slays Cain, reversing the roles.
4. Both fire their weapons at each other, so both die (both defect, the usual PD result).
As in a PD game, the incentive is there for Cain to kill Abel. Naturally, Abel will fear this event and find that he has an incentive to preempt Cain's dirty deed (done dirt cheap). So Cain may react by shooting first. Mutual destruction ensues...
What's the solution to this mess? Orthodox economics (Orthonomics?) simply assume it away. More seriously, the English political philosopher Thomas Hobbes advocated bringing a very Visible Hand, the Leviathan, the unified state which monopolizes the means of violence. This prevents mutual destruction. It sets up incentives for the two traders to cooperate.
Another English political philosopher, John Locke, naturally enough didn't trust the state. His solution was to advocate merging the propertied class (what we would call the capitalists) with the state. The former should dominate the latter, to the maximal possible extent, natch. In this scenario, Cain and Abel _are_ the state, colluding to prevent the odious option #4.
An incentive problem still exists, however. Suppose that we see trading between the two brothers. Cain could see the benefits of having both of the guys' goods rather than simply getting Abel's goods in exchange for his own. He might then cheat or rob or kill Abel. This unhinges the collusion (or turns the game into a one-person affair, which I'll ignore).
But Locke had a solution: he proposed that people accept each others' property rights as "natural." If they accept this fiat, then trading can occur and both can benefit. It's as if he were proposing that the "honor among thieves" that allows real-world prisoners to collude in real-world dilemmas should apply to all property owners. They should see themselves as a community, with common interests.
Though Hobbes and Locke were a little silly (seeing imaginary "social contracts" as providing insight into what's happening in the real world), they captured the two main elements of what allows the IH to work, at least some of the time. These are the coercion of the state and the generally-accepted legitimacy of property rights.
The latter element, I believe, needs a lot of shoring up. After all, if profits are to be made, why accept the ideology of "natural" property rights? But there are two reinforcing elements that Karl Marx might suggest. The property owners cling to the ideology of natural property rights because it unites them against those who lack significant property rights (capital). The ideology helps maintain ruling-class solidarity. Second, if the capitalists believe it, or at least generally act as if they did, then it's easier to teach to the underclasses.
This analysis says that the mutually-beneficial exchange of the IH story is just as artificial as is the mutual destruction of the PD case. Both are based in human-made institutions. For one, the IH, the structure is created allowing collusion, while for the other, the PD, it's set up to encourage defection.
Those in power decide which activities fit in which box. For example, for you hemp-heads out there, the capitalist state in the US has decided that pot sellers belong in the PD box, while alcohol purveyors belong in the IH box.
To choose a less heady example, the social structure puts purely private goods in the IH box, while purely public goods are in the PD box. (The "public goods problem" is a version of the PD game, with a large number of participants. The "rats" are called free-riders.) Of course, in the real world, almost no products are purely public or purely private.
BTW, if this story is revealing, that indicates (once again) that game theory can say something about the world, as long as we don't obsess with equilibrium situations (Nash or otherwise).
[*] This is unfair to rats. Recent research indicates that those cute and furry creatures are more cooperatively-minded than the stereotypes say.
--
Jim Devine
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