"Dagny Taggart Would Smile."

A better way to run a railroad? Altas shrugged:

"The train derailed early Saturday morning, causing explosions and a fire that officials say killed at least 13 people, forced the evacuation of 2,000 residents and destroyed about 30 buildings. In addition, about 50 people remain unaccounted for." -- Globe and Mail

Edward Burkhardt, CEO of Rail World Incorporated, was hailed 15 years ago as an Ayn Randian "achiever" in "A Better Way to Run a Railroad," originally published in the May 1998 issue of the Atlas Society's Navigator magazine:

Inevitably, the success of Wisconsin Central attracted the animosity of those who resent achievement. The vultures were ready to pounce whenever misfortune struck. And they did pounce in the aftermath of a train derailment caused by a broken switch in the small community of Weyauwega, Wisconsin, in March 1996. Thirty-five cars derailed, almost half of them containing liquefied petroleum gas. One car exploded, but the heroic efforts of the train’s conductor minimized the extent of the fire. No one was injured... 

... Over 97 percent of the affected residents and businesses settled with the railroad within months. All but one of the remaining cases were settled out of court.  

But the Wisconsin newspapers climbed all over the railroad, sensationalizing its safety record and operating practices. The politically reflexive Federal Railway Administration picked up the cue, sending a small army of inspectors to the property to examine all aspects of the railroad’s operation. Fines were levied against the railroad, primarily for nit-picking violations of regulations whose impact on safety was questionable. For example, Wisconsin Central had been experimenting with a one-man crew on certain trains, a common practice in New Zealand and Europe. As part of the resulting “agreement” with the FRA, that experiment had to be suspended. Recently, the Wisconsin legislature passed a law prohibiting one-man train crews in the state.

  UPDATE: From the Globe and Mail:

This is not Mr. Burkhardt’s first experience of the disaster of derailment. 

While he was at the helm of Wisconsin Central, a train jumped the tracks at 5:50 a.m. on March 4, 1996, in Weyauwega, Wis., releasing hazardous material that caught fire and consumed rail cars loaded with liquefied petroleum gas and propane. The derailment, according to a U.S. National Transportation Safety Board report, consumed a mill and forced the evacuation of thousands. 

"There were no injuries directly attributable to the derailment, but three persons suffered minor injuries during the evacuation," the NTSB said, blaming the derailment on improper maintenance "because Wisconsin Central management did not ensure that the two employees responsible for inspecting the track structure were properly trained."

Will There Be A Major Chinese Crash?

Maybe. 

We have seen substantial volatility in the past in Chinese financial markets.  In particular the stock markets suffered sharp declines in both 2007 and 2011, with the former large enough to possibly even be called a "crash."  However, neither of these or earlier hiccups and declines slowed the real economy noticeably.  As it is, Chinese real growth has been slowing, which certainly reduces expectations of future income flows from Chinese financial assets.  The stock market has been declining since April, with that decline now more than 20%, the usual cutoff for a bear market.  The question is whether this decline is a period of distress following a peak in a larger scale adjustment that will be followed eventually by a much larger panic and crash that could then feed back on the real economy, slowing it much more dramatically with serious implications for the world economy.

Something that makes the current situation more disturbing is that we are finally seeing this decline  emanating significantly from the financial sector, particularly banking, which has long been known to be riven with corruption and bad loans, with overvalued properties in danger of sharply declining adding to the problems they face.  The peak came in April with a sudden spike of overnight interest rates up to  25%, following a massive surge of broad-based debt.  We know that the Chinese system is different from others and has many powers.  So, they may be able to overcome all this.  But the situation seems much more  dangerous  than previously, with this being beyond the control of the Chinese government authorities.

The depths of  the problems of the financial and particularly banking sector in China is summarized in an amazing sentence from near the end of an article on July 1 in the Financial Times by Robert Chancellor, in a column titled, "China crunch shows financial fragility."  Referring  to how  possible  investors in Chinese bank  stocks might view possible further purchases:

"They may note the  numerous indicators of financial fragility, including excessive credit growth; moral hazard arising from the belief that the state has underwritten all financial risk; related-party lending between state-controlled banks and state-owned enterprises; loan-loss forbearance; de facto financial liberalisation (accompanying the growth of the shadow banking system); extreme asset-liability mismatches created by WMPs [wealth management products] and interbank lending; elevated bank leverage hidden by off-balance sheet exposures; contagion risk posed by undercapitalised credit guarantee networks; and a financial system plaguedby Ponzi finance practices and contaminated with corruption and fraud."

The late Hyman P. Minsky could not have  put it better.

Social Security Stupidity from MoneyWatch

Suppose you wanted to take a couple of months off relying on those funds you accumulated in our savings account? Can you bank tell you that your can’t pay your current bills using the funds in your savings account? Jonelle Marte must think this is right:

“Long-term deficit? We can hardly afford our bills today. … In 2010, the Social Security Administration began collecting less revenue in taxes than it needs to cover benefit payments, forcing the agency to tap its $2.7 trillion trust fund sooner than some had expected. It was the first time since 1983 that expenditures had exceeded noninterest income

With this beginning, you might wonder whether it is worth your time to read the rest of the post. Save your time and don’t bother. I hope Jonelle has saved up funds in a bank that is reasonable as this post was so incredibly dumb – one has to wonder how long she’ll keep her current job. Or am I overestimating the standards at MoneyWatch?

Glenn Greenwald Shout Out to Dean Baker

"So the last point I want to make is that one of the things I set out to do and I think that Mr. Snowden set out to do and that I know the people at The Guardian set out to do was not simply to publish some stories about the NSA. It was to really shake up the foundations of the corrupted and rotted roots of America’s political and media culture. And the reason I say that is that there is an economist Dean Baker, who yesterday on Twitter wrote that he thinks the stories that we’re doing are shining as much light on the corruption of American journalism as they are on the corruption of the National Security Agency. 

"I think that is true for several different reasons. Number one is if you look at the 'debate' over—the charming, very endearing debate over whether or not I should be arrested, prosecuted and then imprisoned under Espionage Act statutes for doing journalism—What you find is that debate is being led by other people who are TV actors who play the role of journalists on TV. They’re ones who are actually leading the debate and the reason they are doing that is they purport to be adversaries of political power or watchdogs of political power but what they really are servants to political power. They’re appendages to political power."

Increases in Certain Price Over the Past Ten Years

Paul Krugman provided us certain information on the price of bread and milk as a reaction to a rant from Erick Erickson:

The rest of America is nervous about where their next meal and paycheck are coming from, how they are going to afford to bail their kids out of crumbling schools, and the price of a gallon of milk and loaf of bread that keep going up though Ben Bernanke tells them there is no inflation.

I’m a little surprised that this rant failed to mention the price of gasoline so permit me to provide a similar chart for that. Paul’s graphs (plus ours) show that these prices are volatile but haven’t had much of an upward trend over the past 5 years. But I guess one could say they have risen a bit over the past 10 years. Mik prices as of May 2013 were 28% higher than they were as of May 2003, while bread prices rose by 40% over the same period. And gasoline prices have risen by 135% over this 10-year period. But let’s break this into the period from May 2003 to May 2008 (a period where Federal Reserve policy wasn’t that expansionary) versus the period from May 2008 to May 2013 (where the Federal Reserve has increased the monetary base substantially). Milk prices rose by 40% over the earlier period and have moderated since. Bread prices rose by 37% over the earlier period with the increase over the past 5 years being just over 2%. Gasoline prices are even more fun given how Republicans tried to argue that Obama has doubled gasoline prices as they focus on the change since December 2008 ignoring the fact that this followed a major dip from its height in May 2008. If we use our 5-year period (May to May), gasoline prices soared by 144% during the earlier period and have basically moderated since. Correct me if I’m wrong but I don’t recall Mr. Erickson complaining about hyperinflation when George W. Bush was President.

The Minions of Marginal Revolution

Pour yourself a cup of coffee (or tea if you're like me), pull up a chair and have a look at the comments to a question posed by Tyler Cowen, "Who is the most influential public intellectual of the last twenty-five years?"  Hint: "intellectual" is interpreted rather broadly.

"Ned" Snowden: Hedge-Levellers, Frame-Breakers and Whistleblowers

In a comment a couple of weeks ago at Juan Cole's Informed Comment blog, Warren Lunsford called Edward Snowden a "Luddite":

In this Snowden disclosures it appears we are finding standard Marketing Science applied to National Security and Federal Criminal Investigations of Enemies of our County. I would think Snowden is a Luddite. Just as a group of early 19th century English workmen destroyed laborsaving machinery as a protest, we find Snowden attempting the same activity against the application of Modern Technology for National Security.

Lunsford was right but for the wrong reasons. There is indeed an important parallel between Snowden's actions and the frame-breaking of the Luddites (as well as the hedge-levelling of the commoners resisting enclosure). But Lunsford got his chronology backward.

The enclosures of the commons and the mechanization of industry were usurpations that disrupted long-established regimes of property and legality. The real innovation here was the criminalization of protest against actions that previously would themselves have been regarded as violations of acknowledged rights.

The law doth punish man or woman
That steals the goose from off the common,
But lets the greater felon loose
That steals the common from the goose.

Nicholas Blomley (2007) wrote about "the consequential and often contradictory role of material objects in producing enclosure" emphasizing "the important work that hedges did, physically, symbolically and legally, in the dispossession of the commoner." I would argue, as did Marx, of course, that machinery performs a similar function of physical, symbolic and legal dispossession of labor power from the worker as does information technology dispossess citizens of their privacy.

This is not to say that machines or IT, any more than hedges, are culpable for the dispossession. That would be to reduce them to their physical aspect alone. Rather it is the interaction of this physical aspect with its symbolic and legal interpretations that resulted and results in dispossession.

The Infernal Errors of Dan Brown

Just finished reading Dan Brown's Inferno while in Italy.  I know I should not bother correcting stuff, but for this book he declares at the beginning, "All artwork, literature, science, and historical references in this novel are real."  So, he is inviting closer scrutiny than in earlier books, where he definitely stretched and invented and distorted lots of books, but avoided such claims.  Here are some errors of fact in this book (which is a fun read anyway, although formulaic).

p. 95: "To this day, modern banks use the accounting method invented by the Medici - the dual-entry system of credits and debits."  Wrong.  It was first used in Pisa where I sit at this moment a good two centuries prior to the Medicis getting into banking. BTW, the oldest continuously existing bank in the world is also here in Tuscany, the now-troubled Monte dei Peschi di Siena, where its HQ still is since it was founded in 1472, which is the period of the Medicis.  [Correction:  Double entry accounting was not invented in Pisa, but in Florence.  However, it was initially done by merchants in the late 1200s prior to the Medici, although they may have been the first to use it in banking.  Brown is not as far off on this matter as I initially suggested.]

p. 96:  "You can't get into the [Boboli] gardens from here.  The entrance is way over by the Pitti Palace.  You'd have to drive through Porta Romana and go around."  False.  From where they were standing just outside of the Porta Romana, southern entrance to Old Florence, there is an entry to the gardens just to their right, a few meters away, not requiring going through the Porta Romana.

p. 103 (and related pages):  A graph of world population is shown starting 2 million years ago, which, with this scale highly magnifies recent growth while not really showing that the growth rate of world population has been decelerating since the mid-1970s.  It is repeatedly declared, including by a character with an IQ of 208, and never questioned, that it is a "mathematical certainty" that exponential population growth is simply continuing at a constant rate with no mention of the slowdown.  It is mentioned that world population might reach 9 billion by 2050.  The latest estimates are that this level might be reached later and might be the maximum world population will ever reach.  Population growth is almost certainly going to go negative before the century is over due to the spread of falling birth rates across more and more countries, which is happening.

p. 106: "If we head northeast, we'll reach the palace."  From where the characters were at that point (having entered Boboli Gardens by jumping over a wall near the southern entrance), the palace is northwest, not northeast.  The error of the location of the palace is repeated throughout the coming pages.  It is on the northwest end of the gardens, not the northeast.

p. 136: an even more ridiculous figure with rates of growth of various variables stuck on top of each other so that they all appear to converge at a point at the right end of the figure.  Some of these are extremely misleading.   Thus, one is the rate of growth of the demand for fresh water.  Yes, that is growing, but the rate of growth of the supply of clean fresh water has been growing more rapidly as a rising percentage world population  obtains clean water.  I will note that some of the variables do reflect real problems, such as species extinction and overexploited fisheries.

pp. 141-142:  He has the Vasari corridor starting at the northeast end of the Boboli Gardens and going east across the Arno River.  It is at the northwest corner (near the palace) and goes basically north and a bit west across the Arno.

pp. 144-145: "A quick Internet search led him to  information about a prominent nineteenth-century mathematician and demographer named Thomas Robert Malthus, who predicted a global collapse dut to overpopulation."  I do not think anybody has ever described Malthus as a mathematician, although arguably he was a demographer.  In any case, besides being a minister, he was the first Professor of Political Economy in Britain, and he did not predict "global collapse."  He did predict ongoing poverty and stagnation due to overpopulation, but not this more dramatic outcome.  That would come with some of his followers, particularly in the 1970s, when this book would have been more timely.

There are numerous repetitions later of the inevitably of  global collapse due to overpopulation, accompanied by such statements as "The mathematics is indisuputable" (p. 214).  Nowhere does Brown ever let any character remotely bring up the numerous well known issues questioning this that are mentioned above.

p. 294: "In the 1940s, Nazi scientists had dabbled in a technology they'd dubbed eugenics..."  The term was invented decades before the Nazis and was highly respected and supported by many progressives in the US and elsewhere.  It was the Nazi embrace of this already dubbed and established eugenics that made it become a disrespected movement.

p. 324: "Architectrually speaking, the word basilica defined any eastern, Byzantine-style church erected in Europe or the West."  The first buildings to which the term was applied were built in Rome during the Roman Empire period, prior to the Byzantine period.  The term moved east initially, and more generally is a church term tied to having a saint buried or strongly associated with the building
[Addition: The first basilica was built in 184 BCE in Rome by Cato the Elder.  They were originally public building located in the forum of a major  Roman city.  Their crucial architectural  detail was the presence of colonnades in the interior to create separate spaces, not a dome, although some do have domes.]

Border Security as Militarized Keynesianism – Outsourced

I think we have found a proposal to increase government purchases that Republicans like:

Leahy said a proposal drafted by Sens. Bob Corker (R-Tenn.) and John Hoeven (R-N.D.) “reads like a Christmas wish list for Halliburton.” The amendment requires implementation and activation of $4.5 billion in technology and equipment to achieve full surveillance of the U.S.-Mexico border. “I am sure there are federal contracting firms high-fiving at the prospect of all of the spending demanded by some of our friends on the other side in this amendment,” Leahy said on the Senate floor. Leahy criticized the GOP-sponsored language for waiving standard federal contracting rules. “That is a potential we must watch out for — for waste and fraud,” he said.

Normally – this kind of largesse for military contractors should be roundly condemned by those who care about fiscal responsibility and/or efficient allocation of resources. But we are far below full employment and this seems to be the only form of stimulus we can expect from the modern Republican Party.

Robert Reich and Life of "Pie"

AFL-CIO: "The rich keep getting a bigger share of the economic pie while everyone else’s share keeps shrinking. What should be done to reverse this trend?"

Sandwichman: "Stop growing "the pie." Restore the commons instead."

Bob Reich: "They go together. Economic growth doesn't have to result in more consumption of material goods. It can also result in a better environment, better public health, better education. All growth does is create the economic capacity to do these things. How we use growth -- either for more consumer goods of for more public goods (the commons) is a political choice."

Sandwichman: "There is a very large literature that disagrees with that assumption, Bob. A good place to start would be with Jonathan Rowe's "Our Common Wealth" or the 1995 Atlantic Magazine article on the GDP Jonathan co-authored. Also the commons is not just another term for public goods. See Elinor Ostrom's Nobel Prize winning work on the commons."

Megan McArdle: As the Lump Crumbles...

At the Daily Beast, Megan McArdle tries to defend herself from charges that she has committed the dread Lump of Labor Fallacy (Why Aren't We Creating Enough New Jobs?) -- but wants to have it both ways.

Last Friday, I wrote a piece about When Work Disappears. On twitter, by email, and in the comments, I got pushback. Wasn't I committing the Lump of Labor Fallacy, assuming that the jobs that were disappearing meant permanent unemployment? 

No, but I can see why people were worried. Let me explain.  

For starters, let me define the Lump of Labor Fallacy for those who don't fill their spare hours by reading classical economics texts. Or rather, let me let The Economist define it for you.

After citing the "one of the best known fallacies" BS from The Economist's Economics A to Z, Ms. McArdle asks: "Is that what I am worrying about? Am I under the delusion that when we lose 10,000 steelworker jobs, that necessarily means 10,000 fewer people working?"

McArdle then answers her own question: "No, not at all. Nonetheless, I am worried about unemployment at the bottom of the economy..."

It doesn't dawn on McArdle that she is no exception. If she is not guilty of the alleged Lump of Labor Fallacy (and I agree with her that she isn't), then on what basis does she assume that the fallacy claim is valid for other people? Maybe if instead of relying on The Economist's Lump of Labour hackery, Ms. McArdle would consult a peer-reviewed economic journal article...

"Why Economists Dislike a Lump of Labor"

"The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it."

Theodore Kaczynski's TED Talk

There is, of course, no such thing.

Fred Hiatt Outs Self As Total Social Safety Net Hysterian

In (now yesterday's) Washington Post, editorial page editor Fred Hiatt makes it clear that he is one of the most out there of Washington "liberal" social safety net hysterians, totally obsessed with cutting benefits for Social Security and Medicare, no matter what.   Dean Baker duly takes him to task on various fronts, including that taxes could be raised (and even Republicans are willing to do so to avoid cuts in those programs), defense could be cut more, and there is no guarantee that if liberals go along with cutting those benefits, the money will go to discretionary non-defense spending as Hiatt wants rather than yet another round of tax cuts for the rich See http://www.cepr.net/index.php/blogs/beat-the-press/fred-hiatt-is-holding-head-start-hostage-until-liberals-support-cuts-to-social-security-and-medicare .  I have a few additions to Dean's worthy screed on this.

One is the matter that Hiatt seems particularly incensed that Congressional liberals have not jumped on Obama's proposal for a chained CPI for COLA adjustments to Social Security.  Hiatt completely ignores that there is an alternative CPI for the elderly that shows substantially higher rates of price increases for goods purchased by the elderly than the non-elderly, with the still rapidly rising medical care costs a main reason for this, even if that rate of increase is decelerating.  A chained version of that is probably conceptually the best one to use.  As it is, Hiatt simply does not care what is fair or reasonable.  He just wants to have those future benefits cut now, blankety blank, no matter what the rationale.  After all, if we do not cut the future benefits now, we might have to cut them in the future!!!

Like many other VSPs who regularly pat each other on the back, such as Bowles and Simpson, he is clearly upset that the recent declines in the budget deficit have taken the pressure off for a grand bargain of tax increases and spending cuts, with social safety net cuts the centerpiece of this.  What is funny is that he fails to notice that this recent decline in the deficit is in fact partly the result of what is effectively a grand bargain that has now been struck, although admittedly a pathetic and stupid one and not done so in any coordinated way: the ending of the Bush tax cut for the rich and the ending of the Obama fica tax cut for the middle class and poor along with the spending cuts mandated by the inane sequestration.  Sure, this is not what these good government goo goo VSPs think should be done, but they are living in la la land if they think this totally dysfunctional Congress is at all remotely able to have any sort of sensible negotiation on this matter, if indeed such were really needed, which is highly questionable in the current situation.  They would rather blame Obama anyway, even though he caved to the VSPs and offered the chained CPI for SS, only to have everybody in both parties in Congress shoot it down, well aware that the public does not like it at all.

Something that is important is that Fred Hiatt is an especially influential VSP, much more so than most, who only rarely surfaces in such a public way as he does here and whose role is probably not that well known by the broader public.  His influence on the editorial WaPo page is certainly why few columnists there go against his arguments, with Harold Meyerson being about the only one I can think of who does so on any regular basis.  While some simply ignore the topic, several other supposedly nominally liberal columnists there parrot the line of Hiatt, including Robert J. Samuelson and Ruth Marcus.  And, of course, all their conservative columnists also agree that Social Security and Medicare should be cut, period, the sooner and greater, the better.

What remains to me a bit mystifying is how he and some of these others managed to get themselves so obsessed and in such conniption fits over this.  I suspect that it dates back to the 90s when Clinton was pushing the issue, with much talk of setting up private accounts then and of course under Bush as well.  I attribute much of the original push to pressure coming from Wall Streeters like Robert Rubin who saw lots of money for their companies if such accounts were set up.  That has largely fallen out of the discussion, but this consensus among Washington insiders that formed then, has simply remained ("Everybody knows Social Security is in crisis," said Robert Schieffer to John Kerry and George W. Bush during their third presidential debate back in 2004), even though it is clear that this view is highly unpopular with the public, and many of the arguments that these people make have been repeatedly discredited over a long period of time.  This is clearly the general phenomenon, but why somebody like Hiatt is so particularly obsessed himself to the point of writing such a silly column as this one, which is simply crawling with false or distorted "facts," more documented by Dean Baker and his commenters, is something of a mystery to me in the end.

John Taylor’s Flip-Flop on Federal Revenue Sharing

Paul Krugman compared John Taylor’s testimony in 2009 that Federal revenue sharing was only committed to reducing state government debt versus Taylor’s latest:

Janet Yellen blamed the slow recovery in part on the fact that “State and local governments were cutting spending…” As a matter of national income and product accounting, it is true that cuts in state and local government purchases subtract from GDP, but these cuts are mainly an endogenous consequence not an exogenous cause of the weak recovery.

His latest is the claim that state governments with balanced budget constraints are forced to adopt austerity during recessions. But isn’t this the reason we adopted Federal revenue sharing in the first place. OK, Taylor has resigned from the community of honest economists to join Team Republican but can we point out one consistency in his 2009 testimony and his latest:

Consider the following two charts. The first shows how state and local government purchases have been essentially flat in nominal terms in the past few years.

He also graph nominal purchases back in his 2009 testimony. Odd – don’t macroeconomists normally talk about real purchases, which is how our graph is drawn? In real terms, state and local government purchases have fallen after 2009. They were also showing stagnation in 2008 as the recession got started but they showed a bump in 2009 when ARRA implemented its temporary Federal revenue sharing. Oops – doing this in real terms sort of undermines what Taylor was trying to claim.

Thomas Schelling Gives The Bottom Line On Why We Did Not Blow Ourselves Up So Far In A Nuclear War

For as good account as will probably ever be given on how we are still alive and not having had a nuclear war since 1945, from the man as responsible for this good outcome as any on the planet, see

http://www.youtube.com/watch?v=BFE7gw7bEdQ .

I have no further comment on this, which speaks for itself totally.