I am not against compromises. I am against compromises that don’t know, or have forgotten, that they are compromises.
(This is the first in an occasional series of aphorisms.)
Wednesday, January 7, 2015
Dynamic Scouring II: Cold War, Hot Planet
NSC-68 proposed a vast rearmament program to be financed through a "dynamic expansion of the economy" such that "the required resources could be obtained by siphoning off a part of the annual increment in the gross national product." This dynamic expansion "might itself be aided by" the military buildup.
As the above letter from President Truman to National Security Council Executive Secretary James Lay indicates, Truman was concerned about the "probable cost of such programs" and consequently"the effect of these Conclusions upon the budgetary and economic situation." He therefore directed that the Director of the Bureau of the Budget, Frederick J. Lawton, the Chairman of the Council of Economic Advisers, Leon Keyserling and the Economic Cooperation Administrator convene to consider those budgetary and economic implications of the report. According to Keyserling, Truman would not have been aware that it was Keyserling himself who had advised the NSC-68 author, Paul Nitze, regarding the notion of "siphoning off" part of the increment in GNP generated by the arms build-up to pay for the arms build-up.
In the wake of NSC-68 (and, incidentally, the Korean War) U.S defense spending increased from $13 billion in 1950 to $50 billion in 1953. Presidential candidate Eisenhower, in a scheduled September 23rd speech he never gave (it was preempted by Nixon's Checkers Speech), condemned both the inflationary and foreign policy implications of the Truman administration's national security strategy:
In other words, the strategy failed so good that much more of it needed to be done: continental defense, civil defense, the development of flexible multi-purpose forces... In short, "these programs for defense of the United States against atomic attack constitute new and distinct requirements and that resources additional to those now programmed should be made available to meet them."
It is in this context that the urgency and stringency of Bureau of the Budget Circular No. A-47 -- issued on New Year's Eve, December 31, 1952 -- becomes comprehensible. Budget Circular A-47 addressed the standards and procedures for developing budget estimates for water resources projects. Item 8, which dealt with "benefits to be included in evaluation" stipulated that "Until standards and procedures for measuring secondary benefits are approved by the Bureau of the Budget, the evaluation shall be based mainly upon primary benefits." Short shrift for the consultant panel's Report on Secondary or Indirect Benefits of Water-Use Projects.
Coincidentally, that report had specifically addressed the crowding-out of public works projects imposed by heavy defense spending:
Let's return in closing to that earlier formulation of a "dynamic expansion of the economy" such that "the required resources could be obtained by siphoning off a part of the annual increment in the gross national product." The contention was that the massive increase in military spending "could be accomplished without a decrease in the national standard of living." The incoherence of this claim may be concealed by its obtuseness. Paul Samuelson's explanation from a 1950 article on "Evaluation of Real National Income" may help to clarify:
So much for the "Cold War" in the title. What about the "Hot Planet" bit? Recall Samuelson's remark about "an index of useful things that might be produced in better times." There's a catch.
As the above letter from President Truman to National Security Council Executive Secretary James Lay indicates, Truman was concerned about the "probable cost of such programs" and consequently"the effect of these Conclusions upon the budgetary and economic situation." He therefore directed that the Director of the Bureau of the Budget, Frederick J. Lawton, the Chairman of the Council of Economic Advisers, Leon Keyserling and the Economic Cooperation Administrator convene to consider those budgetary and economic implications of the report. According to Keyserling, Truman would not have been aware that it was Keyserling himself who had advised the NSC-68 author, Paul Nitze, regarding the notion of "siphoning off" part of the increment in GNP generated by the arms build-up to pay for the arms build-up.
In the wake of NSC-68 (and, incidentally, the Korean War) U.S defense spending increased from $13 billion in 1950 to $50 billion in 1953. Presidential candidate Eisenhower, in a scheduled September 23rd speech he never gave (it was preempted by Nixon's Checkers Speech), condemned both the inflationary and foreign policy implications of the Truman administration's national security strategy:
The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism...
Now the weakness of the Democratic Party for 'cheap' or 'soft' money is well known. For the last 20 years, it has practiced this policy faithfully. Of late, it has given it a new twist: it is now called 'controlled inflation.' But this name does not mean what it says.
It really means inflation plus controls.
The way this policy has worked out is easy to describe. With one hand the Administration has been turning up the water pressure at the hydrant, while with the other hand it has been trying to check the water's flow. The Administration's controls over prices are nothing but weak stop-gaps...
There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.Candidate Ike's proposed alternative to arms spending was... tax reduction. "Tax reduction is a way to boost consumer buying power and to let the people spend their own money instead of the government spending it for them." Soon after Eisenhower's election, President Truman wrote to him:
Washington, November 6, 1952.
Top Secret
Dear General:
Following up my telegram of yesterday afternoon, I had a consultation with State, Treasury, Defense and Budget.
There are some really fundamental things pending before the United Nations that must be met in a positive manner. I wish you would suggest somebody, in addition to the person who is to talk to the Budget Director, to discuss these matters authoritatively with the Secretary of State, the Secretary of the Treasury, and the Secretary of Defense....
...
There is a National Security Council problem pending regarding the allocation of resources. A preliminary report is due November 15th.
All these things are vital policy matters which can only be decided by the President of the United States but I would prefer not to make firm decisions on these matters without your concurrence, although the decisions will have to be made. These things affect the whole American policy with regard to the free world.
If you could designate someone to act authoritatively for you, or come yourself to sit in on these meetings, it would be the proper solution to the problem.
Sincerely yours,
Harry TrumanOh, and, Ike, about that "National Security Council problem pending..." If you liked NSC-68, you'll love NSC-141, the Truman administration's "last will and testament" to its successor. Historian John Lewis Gaddis described NSC-141 as "in one sense an admission of failure… But it was also a staunch reaffirmation of the essential correctness of the Truman administration's strategy."
In other words, the strategy failed so good that much more of it needed to be done: continental defense, civil defense, the development of flexible multi-purpose forces... In short, "these programs for defense of the United States against atomic attack constitute new and distinct requirements and that resources additional to those now programmed should be made available to meet them."
Coincidentally, that report had specifically addressed the crowding-out of public works projects imposed by heavy defense spending:
For an indefinite time ahead, the prospect is one of heavy defense outlays, but with a diminishing strain on the construction industry, and a high average level of employment, with fluctuations ranging from moderate recession to full employment and inflation. With this goes very high taxes, both on personal and business incomes. The impact of the present high business taxes has not so far shown itself in reduced private investment -- the defense-stimulated demand and high profits have seen to that -- but it means that any particular increment of investment has to show a very high marginal return before taxes, in order to show a modest rate after taxes.... If the defense stimulus lessens, while taxes cannot be reduced more than a little, taxes may become a substantial handicap to high-level employment. One remedy is deficit-spending, with inflationary potential. In this setting, inflation and high taxes are alternative evils, which may combine. In the present phase of this situation, public works bear an unusually heavy burden of proof.To use the glib expression from NSC-68, the required resources for further expansion of defense outlays called for by NSC-141 could be obtained by "siphoning off" funds that might otherwise have been spent on civilian public works projects. The economic rationale for A-47 was thus not so much fiscal conservatism as it was about offsetting military-industrial profligacy with austerity elsewhere in the federal budget.
Let's return in closing to that earlier formulation of a "dynamic expansion of the economy" such that "the required resources could be obtained by siphoning off a part of the annual increment in the gross national product." The contention was that the massive increase in military spending "could be accomplished without a decrease in the national standard of living." The incoherence of this claim may be concealed by its obtuseness. Paul Samuelson's explanation from a 1950 article on "Evaluation of Real National Income" may help to clarify:
Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times.That is to say, the "dynamic" increment in GNP resulting from the military buildup could only serve as an index of the extent to which the standard of living would not have been decreased if it weren't for the wasteful spending on war goods. Yes, and if we had some bacon, we could have bacon and eggs -- if we had some eggs. At the conclusion of his article on national income (in which he also criticizes the Kaldor-Hicks-Scitovsky criterion) Samuelson offers "one last warning": "to define what is feasible involves many arbitrary assumptions, some of them of an ethical nature."
So much for the "Cold War" in the title. What about the "Hot Planet" bit? Recall Samuelson's remark about "an index of useful things that might be produced in better times." There's a catch.
Coop Finance
This is the season for blog posts about What I Learned at the ASSA Meetings. Maybe the single most important takeaway for me occurred in the URPE panel on worker cooperatives. Chris Gunn gave a report on Equal Exchange, which is structured as a worker coop, and how it is financing its relatively rapid expansion. This definitely set my neurons firing, and I’d like to share some thoughts here.
First, however, a word of background. Coop finance is one of biggest and oldest controversies in the field. There are two issues actually, startup finance and finance for expansion. Why it matters: on the one side, the whole point of cooperation is to democratically vest control of the enterprise in the workforce, and ownership is a principal vehicle (though not the only one). On the other, one of the chronic weaknesses of worker coops is undercapitalization, which has made their share of the overall economy smaller than it would otherwise have been. Those who emphasize democracy want to rely primarily on member capital contributions and retained earnings; those who want more rapid growth in an increasingly competitive world look to debt. Each side thinks the other is a threat to the future of the movement. (Slightly exaggerated.)
Meanwhile, another classic issue is asset diversification. A longstanding criticism of worker coops is that they force members to hold assets whose value moves in tandem with their earnings as workers. In particular, if a coop fails, workers lose their wages and their investments in the firm. The Mondragon coop conglomerate went a long way toward solving that problem by making a diversified portfolio of firms the unit of finance, while each member firm is (mostly) controlled by its own workforce in the conventional coop manner. But the problem with the Mondragon model is that it is difficult to replicate: it works because the system is actually large and diversified, with many producer coops supported by a bank, a university, a social insurance system, etc. Can you, the small, struggling isolated coop far from the Basque world, get there from here?
Enter the Equal Exchange solution. This coop has financed itself by issuing preferred (nonvoting) stock. It’s different from debt because, as equity, it can be encumbered in ways that debt can’t. Specifically, investors in this stock can’t redeem within five years without accepting a significant penalty, and the shares can’t be sold to third parties—no secondary market. They carry a fixed nominal interest rate at a fixed term. So who buys this stuff? Equal Exchange markets primarily to its own partners, such as retailers like food coops. They are successful at this and have financed most of their expansion through this vehicle.
So here are my thoughts:
1. This is an ideal solution to the debt financing conundrum. Preferred stock approximates debt from a financial perspective, but it yields far less influence. Maybe both sides in the more democracy versus more capital debate can be happy.
2. Cross-ownership via preferred stock can be a vehicle for dispersed coops to replicate the Mondragon model, at least on a financial level. You might think it’s a disadvantage to not have the collective goods that Mondragon provides its member firms, and you would be right, but this also means you don’t have to set up the large, costly superstructure to enjoy the advantages of asset diversification. Meanwhile, it raises new questions about how much of the member’s contribution should be in the form of a voting share in their own firm and how much in the firm’s preferred stock investment fund, balancing incentive against diversification interests. That’s a great thesis project for someone. (I’m assuming that some portion of a coop’s preferred stock investments are financed directly by members, some by retained earnings, and some by issuance of their own preferred stock. A lot of the cross-ownership is simply a swap.)
3. Of course, a portfolio should not consist solely of debt-like, lower-risk, lower-return investments. From a finance point of view, coop equity should include a component that has higher returns over time but experiences more earnings fluctuation. The obvious answer is a venture capital fund to which coops could contribute and which would be managed by a Mondragon-like second-level entity. (There would not need to be much organizational structure for this; a representative supervisory board plus a watchdog unit should be enough.) Such a fund would address the other finance issue, startups, by supporting new coop formation. Again, there is a portfolio balance problem to solve: how much for the preferred stock fund and how much for venture capital?
Veterans of debates over labor-managed economies (many with Cornell degrees) will know I have bypassed a number of issues in this post, but my goal is not to devise a complete solution, just to put some general ideas on the table. And thanks to Chris for telling the Equal Exchange story—and for his decades of service to the cause of worker-managed enterprises.
First, however, a word of background. Coop finance is one of biggest and oldest controversies in the field. There are two issues actually, startup finance and finance for expansion. Why it matters: on the one side, the whole point of cooperation is to democratically vest control of the enterprise in the workforce, and ownership is a principal vehicle (though not the only one). On the other, one of the chronic weaknesses of worker coops is undercapitalization, which has made their share of the overall economy smaller than it would otherwise have been. Those who emphasize democracy want to rely primarily on member capital contributions and retained earnings; those who want more rapid growth in an increasingly competitive world look to debt. Each side thinks the other is a threat to the future of the movement. (Slightly exaggerated.)
Meanwhile, another classic issue is asset diversification. A longstanding criticism of worker coops is that they force members to hold assets whose value moves in tandem with their earnings as workers. In particular, if a coop fails, workers lose their wages and their investments in the firm. The Mondragon coop conglomerate went a long way toward solving that problem by making a diversified portfolio of firms the unit of finance, while each member firm is (mostly) controlled by its own workforce in the conventional coop manner. But the problem with the Mondragon model is that it is difficult to replicate: it works because the system is actually large and diversified, with many producer coops supported by a bank, a university, a social insurance system, etc. Can you, the small, struggling isolated coop far from the Basque world, get there from here?
Enter the Equal Exchange solution. This coop has financed itself by issuing preferred (nonvoting) stock. It’s different from debt because, as equity, it can be encumbered in ways that debt can’t. Specifically, investors in this stock can’t redeem within five years without accepting a significant penalty, and the shares can’t be sold to third parties—no secondary market. They carry a fixed nominal interest rate at a fixed term. So who buys this stuff? Equal Exchange markets primarily to its own partners, such as retailers like food coops. They are successful at this and have financed most of their expansion through this vehicle.
So here are my thoughts:
1. This is an ideal solution to the debt financing conundrum. Preferred stock approximates debt from a financial perspective, but it yields far less influence. Maybe both sides in the more democracy versus more capital debate can be happy.
2. Cross-ownership via preferred stock can be a vehicle for dispersed coops to replicate the Mondragon model, at least on a financial level. You might think it’s a disadvantage to not have the collective goods that Mondragon provides its member firms, and you would be right, but this also means you don’t have to set up the large, costly superstructure to enjoy the advantages of asset diversification. Meanwhile, it raises new questions about how much of the member’s contribution should be in the form of a voting share in their own firm and how much in the firm’s preferred stock investment fund, balancing incentive against diversification interests. That’s a great thesis project for someone. (I’m assuming that some portion of a coop’s preferred stock investments are financed directly by members, some by retained earnings, and some by issuance of their own preferred stock. A lot of the cross-ownership is simply a swap.)
3. Of course, a portfolio should not consist solely of debt-like, lower-risk, lower-return investments. From a finance point of view, coop equity should include a component that has higher returns over time but experiences more earnings fluctuation. The obvious answer is a venture capital fund to which coops could contribute and which would be managed by a Mondragon-like second-level entity. (There would not need to be much organizational structure for this; a representative supervisory board plus a watchdog unit should be enough.) Such a fund would address the other finance issue, startups, by supporting new coop formation. Again, there is a portfolio balance problem to solve: how much for the preferred stock fund and how much for venture capital?
Veterans of debates over labor-managed economies (many with Cornell degrees) will know I have bypassed a number of issues in this post, but my goal is not to devise a complete solution, just to put some general ideas on the table. And thanks to Chris for telling the Equal Exchange story—and for his decades of service to the cause of worker-managed enterprises.
Monday, January 5, 2015
Dynamic Scouring
Mark Thoma and Edward Kleinbard both have op-eds about Republican proposals for "dynamic scoring" of tax cut legislation. It would be helpful to point out that dynamic scoring is a euphemism for "secondary and indirect benefits" -- particularly those arising from what is known as the Keynesian multiplier.
Sandwichman has been documenting the controversy over secondary and indirect benefits in the early 1950s that eventually resulted in their virtual exclusion from standard cost-benefit analysis, as per Bureau of the Budget Circular A-47. Implementing dynamic scoring for tax cuts would, in effect, declare "multipliers for me but no multiplier for thee."
As the panel of consultant's report from 1952 outlined in excruciating detail, there are limits to the usefulness and transparency of incorporating secondary and indirect benefits in a quantitative cost benefit analysis. There are also huge pitfalls in disregarding these difficult or impossible to quantify outcomes. Familiarity with the panel's discussion could inform deliberation over the dynamic scoring proposal.
I have so far posted Parts I and II of the report. I have scanned in and proof read Part III but its considerable length poses some formatting challenges for posting on the blog.
Part IA. Instructions of Michael W. Straus, Commissioner, Bureau of Reclamation, to Panel of Consultants on Secondary or Indirect Benefits
Part IB. Summary Response to the Commissioner's Instructions
Part IIA. Conclusions and Recommendations: Introduction
Part IIB Conclusions and Recommendations: Summary of Principal Recommendations
Part III. Several Principles, and Some of Their Consequences
Sandwichman has been documenting the controversy over secondary and indirect benefits in the early 1950s that eventually resulted in their virtual exclusion from standard cost-benefit analysis, as per Bureau of the Budget Circular A-47. Implementing dynamic scoring for tax cuts would, in effect, declare "multipliers for me but no multiplier for thee."
As the panel of consultant's report from 1952 outlined in excruciating detail, there are limits to the usefulness and transparency of incorporating secondary and indirect benefits in a quantitative cost benefit analysis. There are also huge pitfalls in disregarding these difficult or impossible to quantify outcomes. Familiarity with the panel's discussion could inform deliberation over the dynamic scoring proposal.
I have so far posted Parts I and II of the report. I have scanned in and proof read Part III but its considerable length poses some formatting challenges for posting on the blog.
Part IA. Instructions of Michael W. Straus, Commissioner, Bureau of Reclamation, to Panel of Consultants on Secondary or Indirect Benefits
Part IB. Summary Response to the Commissioner's Instructions
Part IIA. Conclusions and Recommendations: Introduction
Part IIB Conclusions and Recommendations: Summary of Principal Recommendations
Part III. Several Principles, and Some of Their Consequences
Sunday, January 4, 2015
About that memo, Professor Summers...
Let this be the year when we put a proper price on carbon is the theme and headline of an op-ed by Lawrence Summers at the Financial Times. There is indeed a compelling case for a carbon tax, as Summers argues. The case could be even more compelling were it not for the persistence of an "impeccable economic logic" that never was.
That "impeccable logic" made a cameo appearance in an infamous World Bank memo that went out over Summers's signature some 23 years ago: "the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable." Take it as given that Summers did not write the memo, that the infamous passage was taken out of context and that the intention of the author, Lant Pritchett, was ironic and not making a serious proposal.
And yet... Satire has an object. The full memo is a chapter-by-chapter commentary on the outline for the 1992 World Bank publication, "Global Economic Prospects and the Developing Countries." Chapter 3 of the outline was presumably the target of the infamous excerpt. Note that chapter 3 in the final version is titled "Interlinkages, human capital and export competitiveness" and has nothing to say about pollution. In fact, the entire document has nothing to say about pollution.
Where is the rest of the infamous memo? Pages one and five of the original memo are posted on the internet but searching phrases from those pages turns up nothing. Daniel Hausman and Michael McPherson used the provocative toxic waste passage as exhibit "A" in their Economic Analysis, Moral Philosophy and Public Policy. But they are silent on the broader context of the full memo and the Global Economic Prospects outline.
Hausman and McPherson do, however, delve into the matter of cost-benefit analysis, which they conclude "is not a scientifically valid or value-neutral procedure for social decision making." This is sort of the argument I have been making here but not entirely. My argument, though, is that the "economic logic" is extraordinarily "peccable" -- its logical fallacy concealed behind an impenetrable veil of incongruity.
Whether conventional cost-benefit analysis is merely "not scientifically valid or value neutral" or is downright incongruous and "unacceptable nonsense," the Interagency Working Group on Social Cost of Carbon relied on it in 2010 to estimate the social cost of carbon to be $21 per ton of CO2 (in 2007 dollars). If Summers is serious about "letting this be the year when we put a proper price on carbon," perhaps he could nudge things along a bit by showing that the "impeccable economic logic" of not doing so is an abysmal sham and a swindle.
That "impeccable logic" made a cameo appearance in an infamous World Bank memo that went out over Summers's signature some 23 years ago: "the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable." Take it as given that Summers did not write the memo, that the infamous passage was taken out of context and that the intention of the author, Lant Pritchett, was ironic and not making a serious proposal.
And yet... Satire has an object. The full memo is a chapter-by-chapter commentary on the outline for the 1992 World Bank publication, "Global Economic Prospects and the Developing Countries." Chapter 3 of the outline was presumably the target of the infamous excerpt. Note that chapter 3 in the final version is titled "Interlinkages, human capital and export competitiveness" and has nothing to say about pollution. In fact, the entire document has nothing to say about pollution.
Where is the rest of the infamous memo? Pages one and five of the original memo are posted on the internet but searching phrases from those pages turns up nothing. Daniel Hausman and Michael McPherson used the provocative toxic waste passage as exhibit "A" in their Economic Analysis, Moral Philosophy and Public Policy. But they are silent on the broader context of the full memo and the Global Economic Prospects outline.
Hausman and McPherson do, however, delve into the matter of cost-benefit analysis, which they conclude "is not a scientifically valid or value-neutral procedure for social decision making." This is sort of the argument I have been making here but not entirely. My argument, though, is that the "economic logic" is extraordinarily "peccable" -- its logical fallacy concealed behind an impenetrable veil of incongruity.
Whether conventional cost-benefit analysis is merely "not scientifically valid or value neutral" or is downright incongruous and "unacceptable nonsense," the Interagency Working Group on Social Cost of Carbon relied on it in 2010 to estimate the social cost of carbon to be $21 per ton of CO2 (in 2007 dollars). If Summers is serious about "letting this be the year when we put a proper price on carbon," perhaps he could nudge things along a bit by showing that the "impeccable economic logic" of not doing so is an abysmal sham and a swindle.
Friday, January 2, 2015
Mario Cuomo
The three time governor of my state and the father of our current governor has passed away. Mario – you will be missed. My tribute is to link to his 1984 speech in San Francisco known as the Tale of Two Cities:
But the hard truth is that not everyone is sharing in this city's splendor and glory. A shining city is perhaps all the President sees from the portico of the White House and the veranda of his ranch, where everyone seems to be doing well. But there's another city; there's another part to the shining the city; the part where some people can't pay their mortgages, and most young people can't afford one; where students can't afford the education they need, and middle-class parents watch the dreams they hold for their children evaporate. In this part of the city there are more poor than ever, more families in trouble, more and more people who need help but can't find it. Even worse: There are elderly people who tremble in the basements of the houses there. And there are people who sleep in the city streets, in the gutter, where the glitter doesn't show. There are ghettos where thousands of young people, without a job or an education, give their lives away to drug dealers every day. There is despair, Mr. President, in the faces that you don't see, in the places that you don't visit in your shining city. In fact, Mr. President, this is a nation -- Mr. President you ought to know that this nation is more a "Tale of Two Cities" than it is just a "Shining City on a Hill."These words apply even 30 years later. Mario – rest in peace!
Wednesday, December 31, 2014
Perceptions of incongruity: when is a "dollar" not worth a dollar?
Bruner and Postman (1949):
The Walrasian numéraire is incongruous. It is not money. It is, as Orléan explained. "a purely technical device, introduced simply for the purpose of making exchange values [in a barter economy] explicit." It is, in other words, a red six of spades. What Bruner and Postman called the dominance reaction leads the subject to perceive the numéraire as good old dollar-in-the-pocket money. But it is not money because in the model real money does not exist. This incongruity produces "a bit of economic sophistry." (Clark) "unacceptable nonsense," (Little) "a still thicker and more terrifying smoke-screen," (Chipman and Moore) and "rubbish that prevents the flowering of new theory," (Minsky).
Isn't it about time to call a red spade a red spade?
Generally speaking, there appear to be four kinds of reaction to rapidly presented incongruities. The first of these we have called the dominance reaction. It consists, essentially, of a "perceptual denial" of the incongruous elements m the stimulus pattern. Faced with a red six of spades, for example, a subject may report with considerable assurance, "the six of spades" or the "six of hearts," depending upon whether he is color or form bound. In the one case the form dominates and the color is assimilated to it; in the other the stimulus color dominates and form is assimilated to it. In both instances the perceptual resultant conforms with past expectations about the "normal" nature of playing cards.The full title of Bruner and Postman's 1949 article is "ON THE PERCEPTION OF INCONGRUITY: A PARADIGM." In The Structure of Scientific Revolutions, Thomas Kuhn referred to the research as "a psychological experiment that deserves to be far better known outside the trade."
The Walrasian numéraire is incongruous. It is not money. It is, as Orléan explained. "a purely technical device, introduced simply for the purpose of making exchange values [in a barter economy] explicit." It is, in other words, a red six of spades. What Bruner and Postman called the dominance reaction leads the subject to perceive the numéraire as good old dollar-in-the-pocket money. But it is not money because in the model real money does not exist. This incongruity produces "a bit of economic sophistry." (Clark) "unacceptable nonsense," (Little) "a still thicker and more terrifying smoke-screen," (Chipman and Moore) and "rubbish that prevents the flowering of new theory," (Minsky).
Isn't it about time to call a red spade a red spade?
Tuesday, December 30, 2014
Pipe Dreams and Paradigms
On Democracy Now, December 12, 2014, Amy Goodman spoke with Sean Sweeney of the Cornell Global Labor Institute about claims that the Keystone XL pipeline would create 250,000 jobs. The transcript below is from the part of the interview that starts at around time 00:55 on the embedded video.
So what are we left with? Exclusion of indirect benefits from cost benefit analysis of public works projects coupled with systematic exaggeration of indirect benefits from private investment. But wait. There's more. Those private investments have social costs that just happen to be estimated according to a formula that discounts future benefits and costs in addition to excluding secondary benefits from current carbon abatement. From "More than Meets the Eye: The Social Cost of Carbon in U.S. Climate Policy, in Plain English" by Ruth Greenspan Bell and Diane Callan:
The D.I.C.E. are loaded. Not once. Not twice. But three times.
AMY GOODMAN: ...You have been involved at a high level when it comes to Keystone XL and providing the numbers for President Obama around it, is that right?
SEAN SWEENEY: That’s correct, yes, the job figures.
AMY GOODMAN: What have you found?
SEAN SWEENEY: Well, the jobs debate has been severely distorted by TransCanada Corporation and the American Petroleum Institute. They put forward numbers that really cannot stand up to serious scrutiny, based on normal research practices and methodologies. The numbers are far, far higher than it actually—real. The numbers submitted to the State Department were far, far lower. And this is borne out with the State Department’s environmental impact statement.
AMY GOODMAN: Did you brief President Obama yourselves?
SEAN SWEENEY: No, but we know that the president read the report — it was called "Pipe Dreams: Jobs Gained, Jobs Lost [by] the Construction of Keystone XL pipeline" — because he made reference to the figures.
AMY GOODMAN: Because that is the issue that’s raised so often, that environmentalists are killing jobs by killing the Keystone XL. Explain how you arrive at your numbers. And how many jobs would be lost or gained?
SEAN SWEENEY: Well, in many respects, the numbers were submitted by TransCanada to the State Department, and we simply interrogated the claims of the multiplier effect, which wonky researchers understand is the jobs that—indirect and induced jobs that would be created by a certain amount of dollars spent on a project. The numbers, you’ll notice, Amy, have not gone down with the jobs, even though the project is half-completed. So, the numbers that they originally claimed three years ago have not gone down at all, but at least—or almost half of the pipeline has actually been constructed. [emphasis added]The point Sandwichman has been trying to make over the last couple of months -- beginning with this post on Public Works, Economic Stabilization and Cost-Benefit Sophistry -- is that secondary or indirect benefits have been excluded from cost-benefit analysis for public works projects. By itself, this exclusion introduces the possibility of undervaluing the benefits of public works projects. However, as the Report of Panel of Consultants on Secondary or Indirect Benefits of Water-Use Projects makes clear, such indirect benefits are "so ramifying, involved and conjectural that the attempt to compute them... cannot properly be regarded as 'measurement'," (see also part 2).
So what are we left with? Exclusion of indirect benefits from cost benefit analysis of public works projects coupled with systematic exaggeration of indirect benefits from private investment. But wait. There's more. Those private investments have social costs that just happen to be estimated according to a formula that discounts future benefits and costs in addition to excluding secondary benefits from current carbon abatement. From "More than Meets the Eye: The Social Cost of Carbon in U.S. Climate Policy, in Plain English" by Ruth Greenspan Bell and Diane Callan:
In the calculation of costs, benefits, and the social cost of carbon, the choice of discount rate has enormous impact, influencing whether economists recommend to invest today or much later. From the policy perspective of the economists who value this calculation, the higher the discount rate, the less significant future costs become.In 2010 the U.S government's Interagency Working Group on Social Cost of Carbon (IAWG) presented its estimate of the social cost of carbon "to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that have small, or 'marginal,' impacts on cumulative global emissions." The IAWG's central estimate for the social cost per ton of CO2 in 2010 was $21 in 2007 dollars, based on a 3% discount rate.
The D.I.C.E. are loaded. Not once. Not twice. But three times.
The Price Of Oil And The Environment In the Late Twenty-Teens
In my post yesterday on Looking Forward To The Late Twenty-Teens, I said I would not forecast the price of oil. I shall not do so too precisely, but I think I will comment on likely effects of possible trajectories of it. Indeed, I think the general trajectory is well known,with only bottoms, tops, and timing unknown. In short, the price of oil will almost certainly decline some more, hit a bottom, and eventually go back up again, although with the unknowns I just mentioned. For a highly informed analysis of the supply and demand factors I recommend the recent post on this by the highly knowledgeable Jim Hamilton at Econbrowser, who tells the scenario I just said, but also very carefully eschews making even short-term forecasts or anything about timing.
So, much of what I have to say should be boilerplate, although I have seen many denying parts of it. The lower the price goes and the longer it stays there, the more this will help global economic growth over the next half decade, even though oil exporters will be hurt. They are outnumbered by the oil importers, and such a scenario might even alter the prospects for the currently gloomy Euroland and Japan, both major oil importers, even temporarily overcoming their depressing demographics.
OTOH, this will hurt getting us off fossil fuels, which we need to do in the longer run to save the world from global warming. Ironically, however, in the short run, both China and the US economies are mildly aided by continuing warming, as has been projected by most models, with gains for about another degree or so of warming. Why? The gains from reducing winter heating costs will outweigh the losses from all the other welI known damages, which will eventually start outweighing those gains after that degree or so. Of course there are many areas, particularly poor, low-lying nations, who will suffer nothing but damage from near term warming.
I see many saying that a lower price of oil will not slow the shift to alternatives, but, sorry, it will if it goes low and stays there. Indeed, this is partly why the Saudis are letting it go down. They are at the bottom of the world supply curve, and they want to punish and eliminate various high cost competitors, some of whom they do not like (Russia, Iran), and some of whom they are friendlier with (US with all its new shale oil). But they also do not mind getting Americans out there buying those gas-hog SUVs again and just generally getting everybody back under their thumbs again. And, if anybody thinks the Saudi royal family is about to get overthrown soon, well, not in the next five years I predict. Sa'ud al-Faisal has been foreign minister since the mid-1970s, by far the longest seving such person in the world, and I predict he still will be in 2020.
That said, I do think that King Coal is dead in the US, once and for all, no matter what happens to the price of oil. Natural gas is just that much cheaper now, and will remain so for a long time.
So, a lower price of oil will help global economic growth in the next half decade or so, but threatens to make the global climate situation worse in the longer run.
Barkley Rosser
So, much of what I have to say should be boilerplate, although I have seen many denying parts of it. The lower the price goes and the longer it stays there, the more this will help global economic growth over the next half decade, even though oil exporters will be hurt. They are outnumbered by the oil importers, and such a scenario might even alter the prospects for the currently gloomy Euroland and Japan, both major oil importers, even temporarily overcoming their depressing demographics.
OTOH, this will hurt getting us off fossil fuels, which we need to do in the longer run to save the world from global warming. Ironically, however, in the short run, both China and the US economies are mildly aided by continuing warming, as has been projected by most models, with gains for about another degree or so of warming. Why? The gains from reducing winter heating costs will outweigh the losses from all the other welI known damages, which will eventually start outweighing those gains after that degree or so. Of course there are many areas, particularly poor, low-lying nations, who will suffer nothing but damage from near term warming.
I see many saying that a lower price of oil will not slow the shift to alternatives, but, sorry, it will if it goes low and stays there. Indeed, this is partly why the Saudis are letting it go down. They are at the bottom of the world supply curve, and they want to punish and eliminate various high cost competitors, some of whom they do not like (Russia, Iran), and some of whom they are friendlier with (US with all its new shale oil). But they also do not mind getting Americans out there buying those gas-hog SUVs again and just generally getting everybody back under their thumbs again. And, if anybody thinks the Saudi royal family is about to get overthrown soon, well, not in the next five years I predict. Sa'ud al-Faisal has been foreign minister since the mid-1970s, by far the longest seving such person in the world, and I predict he still will be in 2020.
That said, I do think that King Coal is dead in the US, once and for all, no matter what happens to the price of oil. Natural gas is just that much cheaper now, and will remain so for a long time.
So, a lower price of oil will help global economic growth in the next half decade or so, but threatens to make the global climate situation worse in the longer run.
Barkley Rosser
Kansas Courts Rule Education Cuts Violate Their Constitution
The Wichita Eagle reports on something conservatives might find abhorrent but I find rather delightful:
A three-judge school finance court has ruled that current funding of schools is inadequate under the state Constitution. Acting on earlier direction from the state Supreme Court, the Shawnee County District Court panel concluded that current funding falls short of what are called the “Rose standards,” a multi-part test for adequacy of school spending outlined in a Kentucky case and adopted by courts across the country ... The state could increase base state aid per pupil to $4,654 from its current level of $3,852 and also increase weightings in order to meet the constitutional requirement. Or it could leave the weightings untouched and raise base aid to $4,980. These fixes would cost between $548 million and $771 million a year, Robb said. “I think they’re just telling the Legislature that if you do this, the problem will go away.” Robb praised the ruling as a great victory for Kansas kids and said that it confirms that a decades-long problem of underfunding schools continues to persist ... Gov. Sam Brownback said in a statement that he was “still digesting the full implication of the district court’s 116-page ruling. I continue to believe that restructuring the school funding formula and implementing education policy reforms is critical not only to getting more money into our classrooms but also improving student achievement. I will be working with legislative leadership to address the best path forward. Of course Brownback’s tax cuts have led to rising deficits as Kansas’s recovery has lagged that of the rest of the nation. Bill McBride has been leading the discussion on state fiscal austerity including this from a few months ago:
the public sector has declined significantly since Mr. Obama took office (down 657,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level … A big question is when the public sector layoffs will end. It appears the cutbacks are over at the state and local levels in the aggregate, but it appears cutbacks at the Federal level have slowed.If we look at real government purchases at the state and local level, they fell dramatically in the aggregate from 2009 to 2012 but showed a modest turnaround in 2013. But real spending on education continued to fall in 2013. Education is the largest component of state and local budgets followed by public order and transportation. Table 3.15.6 from the BEA provides Real Government Consumption Expenditures and Gross Investment by Function in 2009$. From 2009 to 2012, real purchases on education by state and local governments fell from $820 billion to $771.3 billion, while their combined spending on public order and on transportation from $532 billion to $505.1 billion. The good news is that the latter rose to $517.9 billion in 2013. But spending on education dropped further to $757.5 billion. I am not an expert on what is Constitutional in each state but I do get that cutting education spending is both bad short-run macroeconomics in a still weak economy and horrible for long-term growth.
Looking Forward To The Late Twenty-Teens
Yes, at midnight on December 31, we shall be at the midpoint of this decade, going from the early twenty-teens to the late twenty-teens. While celebrating half decades is not something done particularly, indeed for some decades we do not distinguish their halves. Thus the late 90s was an economic boom period, the early 90s were not. The late 60s became dominated by hippies and anti-war movement that split the Dems, while the early 60s was about New Frontier and Great Society, which split the Dems a different way as the South did not like civil rights legislation. But people wore suits and thin ties rather than tie dye shirts. The early 40s was WW II while the late 40s were postwar. But few bother making a big deal about the early 80s versus the late 80s, even if I can argue that there were important differences between them after the fact now.
A century ago, the middle of the decade brought to an end "the long 19th century" as WW I broke up the order that was established a century earlier in the mid-eighteen-teens at the Congress of Vienna after Napoleon was finally defeated at Waterloo. This may not be the end of a "long 20th century," but who knows? Maybe it is. In any case, I shall do a little looking forward, hopefully bringing in some larger movements.
Many observers seem to be pessimistic about economic prospects, both in the near term and the longer time horizon. Many speak of secular stagnation, whether due to demographic, technological, or sociological reasons. One of the secular stagnationists, Tyler Cowen, is also pessimistic about the coming year, except for the US and India. Paul Krugman in his interview with Ezra Klein actually talks about the next five years, but only in terms of income inequality, which he does not seem optimistic will be overcome. While I think Krugman is probably right about that, I may be not quite as pessimistic as Cowen or some of these others, despite not having a ready explanation for how to overcome the drags from falling birth rates, a lack of obvious growth-enhancing new technologies, or the heavy weight of severe income inequality. Nevertheless, I think many are too gloomy about the next half decade, even if Cowen proves right that this coming year is full of dangers and several nations fall into recessions (some almost certainly will, e.g. Russia).
So, the past half decade has been dominated by the hangover from the Great Recession, which most Americans say is still going on, even if it technically stopped early in the half decade. We know this is due to stagnant real wages and slow job growth, even in the more rapidly growing US. However, indeed it does seem that the US is growing more solidly now. Will it offset the negative trends in other major countries, including China and much of Europe? I do not know, but I suspect that over the next half decade, we shall come out of the Great Recession's hangover, even if what goes on does not turn into an outright boom, at least globally. Let me look at some trends around the world.
The most depressing scenarios seem to be for Europe and Japan, both of them dragged down by demography. Abenomics seems to be stalling out, and the reappearance of crisis in Greece seems to threaten a revival of the recessionary euro crisis. It may well be that neither of these are going to join in any serious growth scenario, but I think chances are good that neither will drag the world back into global recession. Japan has been stagnant for a quarter of a century now, but it has not actually declined in any serious way. There is no reason why it may not continue as it has, stable in its pleasant stagnation (life is mostly pretty good in Japan), not contributing to major world growth, but also not dragging it down. Likewise in Europe, we may not see much growth, although maybe Eastern Europe will return to growth after falling behind Western Europe during the Great Recession. But the many who have forecast a blowup and end to the euro have so far proven wrong. The euro politicians are really committed to keeping it going and will cut deals to make it do so. It may look now like Greece will blow things up, but while it triggered a crisis four years ago, it failed to end the euro, and I do not see it doing so again. Even if Greece exits the euro, I do not see why that should necessarily spread to others in the eurozone. It might just be the best solution.
Anyway, the sources of growth would seem to need to come from elsewhere. Pessimists talk of a "middle income trap," and see the BRICS and some others falling into that. But, I do not see what the mechanism of such a trap is. Why cannot these nations follow the East Asian tigers who have grown to very high real per capita income levels? That many are stalled out right now does not mean that they have to remain stalled out.
While Cowen forecasts stagnation for next year for Brazil and Mexico, I do not see a necessary reason why either of them, or Latin America more broadly, should remain stalled out. Deceleration of growth in China has been pointed to as a source of this stalling out, but if the US can continue to grow, it may be able to provide that engine to get them going, and they may be able to stimulate each other and grow together.
Another area where we may see acceleration of growth is Africa. Much of Africa is growing rapidly right now, including some unexpected nations such as Mozambique. Clearly Africa has many problems, from tribalism, religious war, corrupt Big Men leaders, and epidemics. But while some areas will probably remain mired in these over the next half decade, with the uber poverty-stricken Sahel zone of Niger, Chad, Central African Republic, and South Sudan, presenting an especially severe challenge. But, with rising populations and hopefully rising inter-African trade, we may see more and more nations coming to resemble Mozambique and embark on sustained growth. There are good chances that Africa will increasingly become a growth engine of the world economy.
I am not going to make any overly specific forecast for China. For both demographic and Gerschenkronian catchup reasons, I think it is likely that China's growth will continue to decelerate. But it may well maintain fairly high growth rates despite some slowing down, at least for the next half decade. Certainly the development of the balance between the US and China will be an enormously dominating theme for this period, whatever is going on in other parts of the world (and I shall stay away from forecasting about Middle Eastern religious war or what will happen with Russia and the rest of the world, much of which will be strongly influenced by the difficult-to-forecast price of oil)..
In the US, I am thinking that a major change may be less broadly demographic and more to do with generations. The Greatest Generation will not totally die out, but effectively they are done for, with the retirement of the last WW II vet from Congress, John Dingell, who served there longer than anybody ever, symbolic. He and G.H.W. Bush and Bob Dole may still be alive five years from now, but they and their cohort will be exercising essentially zero influence by then. Their numbers are rapidly dwindling, and they are all going to be very old, over 85 and more. To the extent that this milestone coming up marks the end of a long 20th century, it may be in the final passing of any influence of this generation.
Also, while few speak of them, the Silent Generation will pretty much be retired by then, although still around in numbers. They often get ignored as the more numerous ones surrounding them have dominated the picture, but they have been a curiously stabilizing force in US society probably underappreciated. But they will turn into retired geezers, if not ready for the nursing homes like the remnant of the Greatest Generation.
The noisy and pompous baby boomers will, of course, be retiring in droves, although the highwater mark of that wave of retirements will only be hitting at the end of the half decade, after the peak cohort born in 1957 hits 62 in 2019 and into the next half decade. The majority of baby boomers will still be working at the end of the half decade, but most of the front end crowd will be retired, if inevitably likely to still be as noisy and attention-demanding as they are now, even if they find others less willing to grant them the attention they think they so richly deserve.
The Gen-Xers are already pretty much all into middle age, although many of them still under 40 may be denying it. By the end of the half decade, they will no longer be able to deny it. They will become our dominant middle aged group, and given what we know about age and happiness, they will be probably be so miserable they will not be able even to be ironic anymore.
Which brings us to the rising millennials, those children of the baby boomers whom they both resemble and resent. I find it funny when I read of people in Washington who are 36 or 37 claiming to be millennials. Are they? I kind of think they are just late stage Gen-Xers who are in denial and trying to be in with the cooler young millennial crowd. Of course, this brings out that these generation boundaries are somewhat fuzzy, but I guess that certainly people in their early 30s are millennials, and clearly they are going to become an increasingly important and influential group over the next half decade, for better or worse. On the better side, it may well be that their large numbers and rising skills will be the driving force that will overcome the stagnation that so many are prophesying, whether it is due to coming up with those growth-generating technical innovations or just through sheer energy and enthusiasm.
Which brings me up to a question and point almost nobody is talking about: who is the next generation? I have seen these datings of generations, and some have the millennials petering out in terms of birth years around 18 years ago or so. By some measures, this year's freshmen in colleges are not millennials, but the next generation. Are they Gen-Z, if the millennials are Gen-Y? Are they the post-millennials? We do not have a name for them yet, and they do not yet seem to be forming an identity for themselves either. But I am reasonably certain that current undergrads are probably the last round of the millennials. If current freshmen are not the front end of the next generation, those in high school are, and those in middle school and elementary school will certainly be fully part of it.
So, I forecast that a major development during the next half decade is that the successor generation to the millennials will emerge and begin to stake out their own identity, whatever that is, and I shall make no effort to forecast what that will be or what they will do. But, perhaps they too will contribute to overcoming secular stagnation and keeping the world economy going.
And that is enough prophesying from this old front end baby boomer for now. Good night and happy new year and happy new half decade, everybody, :-)!
Barkley Rosser
Update: I shall add one more item to my quasi-optimistic scenario: Indonesia, world's fourth largest nation in population, about which few comment. It had a democratic power transfer this past year to a moderately populist new president and is growing at a reasonably steady pace, which might well continue. It may help be one of those steady anchors in the world over the next half decade. I also note that it is the world's largest Muslim nation, and its moderate political regime may yet offer a model to that part of the world eventually.
1/1/15 Update: Another decade that was sharply split in US history was the 1860s. This year will be the final year of recognizing the sesquicentennial of the US Civil War, with that decade obviously sharply split over that event..
A century ago, the middle of the decade brought to an end "the long 19th century" as WW I broke up the order that was established a century earlier in the mid-eighteen-teens at the Congress of Vienna after Napoleon was finally defeated at Waterloo. This may not be the end of a "long 20th century," but who knows? Maybe it is. In any case, I shall do a little looking forward, hopefully bringing in some larger movements.
Many observers seem to be pessimistic about economic prospects, both in the near term and the longer time horizon. Many speak of secular stagnation, whether due to demographic, technological, or sociological reasons. One of the secular stagnationists, Tyler Cowen, is also pessimistic about the coming year, except for the US and India. Paul Krugman in his interview with Ezra Klein actually talks about the next five years, but only in terms of income inequality, which he does not seem optimistic will be overcome. While I think Krugman is probably right about that, I may be not quite as pessimistic as Cowen or some of these others, despite not having a ready explanation for how to overcome the drags from falling birth rates, a lack of obvious growth-enhancing new technologies, or the heavy weight of severe income inequality. Nevertheless, I think many are too gloomy about the next half decade, even if Cowen proves right that this coming year is full of dangers and several nations fall into recessions (some almost certainly will, e.g. Russia).
So, the past half decade has been dominated by the hangover from the Great Recession, which most Americans say is still going on, even if it technically stopped early in the half decade. We know this is due to stagnant real wages and slow job growth, even in the more rapidly growing US. However, indeed it does seem that the US is growing more solidly now. Will it offset the negative trends in other major countries, including China and much of Europe? I do not know, but I suspect that over the next half decade, we shall come out of the Great Recession's hangover, even if what goes on does not turn into an outright boom, at least globally. Let me look at some trends around the world.
The most depressing scenarios seem to be for Europe and Japan, both of them dragged down by demography. Abenomics seems to be stalling out, and the reappearance of crisis in Greece seems to threaten a revival of the recessionary euro crisis. It may well be that neither of these are going to join in any serious growth scenario, but I think chances are good that neither will drag the world back into global recession. Japan has been stagnant for a quarter of a century now, but it has not actually declined in any serious way. There is no reason why it may not continue as it has, stable in its pleasant stagnation (life is mostly pretty good in Japan), not contributing to major world growth, but also not dragging it down. Likewise in Europe, we may not see much growth, although maybe Eastern Europe will return to growth after falling behind Western Europe during the Great Recession. But the many who have forecast a blowup and end to the euro have so far proven wrong. The euro politicians are really committed to keeping it going and will cut deals to make it do so. It may look now like Greece will blow things up, but while it triggered a crisis four years ago, it failed to end the euro, and I do not see it doing so again. Even if Greece exits the euro, I do not see why that should necessarily spread to others in the eurozone. It might just be the best solution.
Anyway, the sources of growth would seem to need to come from elsewhere. Pessimists talk of a "middle income trap," and see the BRICS and some others falling into that. But, I do not see what the mechanism of such a trap is. Why cannot these nations follow the East Asian tigers who have grown to very high real per capita income levels? That many are stalled out right now does not mean that they have to remain stalled out.
While Cowen forecasts stagnation for next year for Brazil and Mexico, I do not see a necessary reason why either of them, or Latin America more broadly, should remain stalled out. Deceleration of growth in China has been pointed to as a source of this stalling out, but if the US can continue to grow, it may be able to provide that engine to get them going, and they may be able to stimulate each other and grow together.
Another area where we may see acceleration of growth is Africa. Much of Africa is growing rapidly right now, including some unexpected nations such as Mozambique. Clearly Africa has many problems, from tribalism, religious war, corrupt Big Men leaders, and epidemics. But while some areas will probably remain mired in these over the next half decade, with the uber poverty-stricken Sahel zone of Niger, Chad, Central African Republic, and South Sudan, presenting an especially severe challenge. But, with rising populations and hopefully rising inter-African trade, we may see more and more nations coming to resemble Mozambique and embark on sustained growth. There are good chances that Africa will increasingly become a growth engine of the world economy.
I am not going to make any overly specific forecast for China. For both demographic and Gerschenkronian catchup reasons, I think it is likely that China's growth will continue to decelerate. But it may well maintain fairly high growth rates despite some slowing down, at least for the next half decade. Certainly the development of the balance between the US and China will be an enormously dominating theme for this period, whatever is going on in other parts of the world (and I shall stay away from forecasting about Middle Eastern religious war or what will happen with Russia and the rest of the world, much of which will be strongly influenced by the difficult-to-forecast price of oil)..
In the US, I am thinking that a major change may be less broadly demographic and more to do with generations. The Greatest Generation will not totally die out, but effectively they are done for, with the retirement of the last WW II vet from Congress, John Dingell, who served there longer than anybody ever, symbolic. He and G.H.W. Bush and Bob Dole may still be alive five years from now, but they and their cohort will be exercising essentially zero influence by then. Their numbers are rapidly dwindling, and they are all going to be very old, over 85 and more. To the extent that this milestone coming up marks the end of a long 20th century, it may be in the final passing of any influence of this generation.
Also, while few speak of them, the Silent Generation will pretty much be retired by then, although still around in numbers. They often get ignored as the more numerous ones surrounding them have dominated the picture, but they have been a curiously stabilizing force in US society probably underappreciated. But they will turn into retired geezers, if not ready for the nursing homes like the remnant of the Greatest Generation.
The noisy and pompous baby boomers will, of course, be retiring in droves, although the highwater mark of that wave of retirements will only be hitting at the end of the half decade, after the peak cohort born in 1957 hits 62 in 2019 and into the next half decade. The majority of baby boomers will still be working at the end of the half decade, but most of the front end crowd will be retired, if inevitably likely to still be as noisy and attention-demanding as they are now, even if they find others less willing to grant them the attention they think they so richly deserve.
The Gen-Xers are already pretty much all into middle age, although many of them still under 40 may be denying it. By the end of the half decade, they will no longer be able to deny it. They will become our dominant middle aged group, and given what we know about age and happiness, they will be probably be so miserable they will not be able even to be ironic anymore.
Which brings us to the rising millennials, those children of the baby boomers whom they both resemble and resent. I find it funny when I read of people in Washington who are 36 or 37 claiming to be millennials. Are they? I kind of think they are just late stage Gen-Xers who are in denial and trying to be in with the cooler young millennial crowd. Of course, this brings out that these generation boundaries are somewhat fuzzy, but I guess that certainly people in their early 30s are millennials, and clearly they are going to become an increasingly important and influential group over the next half decade, for better or worse. On the better side, it may well be that their large numbers and rising skills will be the driving force that will overcome the stagnation that so many are prophesying, whether it is due to coming up with those growth-generating technical innovations or just through sheer energy and enthusiasm.
Which brings me up to a question and point almost nobody is talking about: who is the next generation? I have seen these datings of generations, and some have the millennials petering out in terms of birth years around 18 years ago or so. By some measures, this year's freshmen in colleges are not millennials, but the next generation. Are they Gen-Z, if the millennials are Gen-Y? Are they the post-millennials? We do not have a name for them yet, and they do not yet seem to be forming an identity for themselves either. But I am reasonably certain that current undergrads are probably the last round of the millennials. If current freshmen are not the front end of the next generation, those in high school are, and those in middle school and elementary school will certainly be fully part of it.
So, I forecast that a major development during the next half decade is that the successor generation to the millennials will emerge and begin to stake out their own identity, whatever that is, and I shall make no effort to forecast what that will be or what they will do. But, perhaps they too will contribute to overcoming secular stagnation and keeping the world economy going.
And that is enough prophesying from this old front end baby boomer for now. Good night and happy new year and happy new half decade, everybody, :-)!
Barkley Rosser
Update: I shall add one more item to my quasi-optimistic scenario: Indonesia, world's fourth largest nation in population, about which few comment. It had a democratic power transfer this past year to a moderately populist new president and is growing at a reasonably steady pace, which might well continue. It may help be one of those steady anchors in the world over the next half decade. I also note that it is the world's largest Muslim nation, and its moderate political regime may yet offer a model to that part of the world eventually.
1/1/15 Update: Another decade that was sharply split in US history was the 1860s. This year will be the final year of recognizing the sesquicentennial of the US Civil War, with that decade obviously sharply split over that event..
Monday, December 29, 2014
Indirect and Incorrect Tests of Ricardian Equivalence and Supply-side Economics
The latest garbage from Stephen Moore on what Paul Krugman allegedly said and on tax revenues during the 1980’s got me thinking oddly about an alleged test of Ricardian Equivalence by Paul Evans . But let’s start with this whooper from Moore about Art Laffer’s cocktail napkin:
It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer ... This was the first real post-World War II intellectual challenge to the reigning orthodoxy of Keynesian economics, which preached that when the economy is growing too slowly, the government should stimulate demand for products with surges in spending.I guess Moore has never heard of the Friedman-Phelps model and how combining it with rational expectations started the New Classical challenge to Keynesian economics. This all started well before this dinner and Gerald Ford’s stupid WIN buttons. But our current post is about the 1980’s when some classical economists were predicting that the Reagan tax cuts will lead to less national savings and higher real interest rates thereby crowding-out investment and lowering long-term growth. Proponents of Ricardian Equivalence, however, suggested that tax cuts not associated with permanent reductions in government spending would be entirely saved, which meant there would be no effect at all. Evans ran a regression of interest rates and the Reagan deficit to argue that the traditional effect was not consistent with empirical evidence. While some argued that non-fiscal macroeconomic factors could be lead to a negative relationship (recessions lowering interest rates and tax revenues), Evans noted he was indeed capturing a period of strong fiscal stimulus. But note during this period, consumption did rise as did real interest rates. What Evans captured was a decline in nominal interest rates from the steep decline in inflation. In a way Moore’s latest commits the same two sins inherent in the Evans regression equation. First it is only an indirect test- which we will get back to. Secondly, it confuses nominal with real as Paul explained:
I have a suspicion that the Post forced him to include the inflation-adjusted number, rather than let him get away with the gee-whiz nominal number, which is, um, inflated by the relatively high rate of inflation that prevailed even in the later Reagan years. In any case, however, Moore offers no context, leaving the impression that this was an extraordinary achievement. So I looked at real federal receipts over a longer periodIn an update, Paul noted:
I actually should have used total federal receipts, not just taxes. When you do this the pattern is weaker but basically the same: Real revenue growth 36 percent in the 8 years before Reagan, 26 percent under Reagan, 28 percent in the years following.In a way, this mea culpa may have been unnecessary. Moore wanted us to believe that the income tax cuts led to more tax revenues but he included in numbers the receipts from the increase in the payroll tax. I noted the importance of this:
The usual line is that Federal tax revenues almost doubled from $517.1 billion in 1980 to $1032.0 in 1990. The inflation-adjusted part comes from the fact that the GDP deflator rose by 50.3% over this period so in real terms revenues rose by 32.8% over the entire decade. But there is another serious problem with this that anyone who followed the various tax policy changes during the Reagan years should know. Yes income tax rates were cut in 1981 but there were various tax rate increases that followed including a significant increase in payroll tax rates in 1983 ... Payroll taxes rose from $157.8 billion in 1980 to $380 billion in 1990. Yes, a 140.8% nominal increase and a 60.3% increase in real terms when this tax rate was increased. All other Federal taxes therefore rose by only 20.8% in real terms over the decade.But isn’t supply-side economics about the alleged benefit to output growth rather than tax revenues? To put this in context, had there been no damage to economic growth from the 1981 tax cut, output would have grown by 3.5% per year or by more than 40% during the decade. However, we got something on the order of 3% output growth per year or less than 35% during the decade, which is why income taxes rose by less than 21%. Payroll taxes rose by 60% precisely because that tax rate was increased. But maybe it is best to simply turn the microphone over to Dean Baker:
Moore likes to have the world begin in 1982. This was the trough of the steepest downturn in the post-war era. Economies typically bounce back from steep downturns with steep upturns (not in the most recent one, because that was the result of a collapsed bubble). For this reason the recovery is primarily a measure of the severity of the downturn. The more honest way to measure an economy's performance is comparing it to the prior business cycle peak. By this measure, the 1980s had slower growth then high tax days of the 1970s and much worse growth than the higher tax days of the 1960s. The world looks a bit better if we start at 1982, but that is not a serious way to assess the Reagan performance. This reminds me of a time when I was on a radio show with Moore. Then too he was touting the wonders of the Reagan boom. I pointed out that the 1970s had better growth than the 1980s and offered Moore a $100 bet on the topic. Moore accepted and then touted the 1982 to 1989 growth rate. When I pointed out that the 1980s began in 1980, Moore got upset. Unfortunately for Moore and other Laffer-Reagan backers, the 1980s still begin in 1980.
Sunday, December 28, 2014
Spoiler Alert: Correcting The Imitation Game
Spoiler Alert. I am going to point out historical inaccuracies in the otherwise excellent movie, The Imitation Game, about the life of mathematician-cryptanalyst-computer scientist, Alan Turing, who was the most important person in the Ultra Project at Bletchley Park in UK during WW II that led to the important breaking of the German Enigma machine's codemaking system, and, perhaps more importantly, the father of the successful effort to use this intelligence without revealing that they had done so with their bombe computer. Indeed, it was only in 2012 that the two papers written by Turing with I.J. Good ("Jack") on how this Bayesian statistical method worked were finally declassified. So, if you have not seen the movie and do not want anything given away, do not read this any further.
Let me note, that while I shall be focusing on distortions and elisions, the movie is much closer to being historically accurate than A Beautiful Mind about John Nash. Of course, they both appeal to a broader audience by emphasizing problems faced by the protagonists, Turing's tragic position as a genuine gay martyr (the logo for Apple, Inc. is a partly bitten apple, memorializing the cyanide-laced apple Turing bit when he committed suicide in 1954 following his chemical castration for being convicted of "indecency" in 1951). Nash suffered from being poorly treated for his paranoid schizophrenia.
Despite its deviations from reality, The Imitation Game is an excellent movie (as is A Beautiful Mind), fully worthy of the 5 Golden Globe nominations it has received, including for Best Picture, Best Actor (Benedict Cumberbatch playing Turing), and Best Actress (Keira Knightly playing Joan Clarke). So, on to correcting it.
What is most wrong with the overall plot?
The main problem is overstating and misrepresenting Turing's role in what happened at Bletchley Park, including his relations with his co-workers, although he was indeed massively socially inept. He is presented as coming in and being completely alienated from all of them, with one of them, chess champion Hugh Alexander, the leader of the Hut 8 group he was in, and angry with him. The others are all making unproductive efforts at cracking the Enigma code in real time, whereas Turing supposedly has the idea of building a machine to beat the machine. All the others are shown as viewing this as rank insanity as well as by those above them. Turing is seen as going around all of them to appeal successfully to Winston Churchill, who initially provides funding and support and eventually puts Turing in charge over Alexander and the others. They eventually come around to helping and supporting him, although pretty much all the crucial insights are seen to be by him.
This is mistaken on several grounds. The first is that those running the Government Code and Cypher School (GC&CS) operation already knew that they wanted to build a machine to beat Enigma, this having been decided when GC&CS got their enigma machine from Polish intelligence in July, 1939, with the Poles already having developed a primitive machine to decode it. Turing was consciously hired to improve this machine, based on his famous writings on computers already out there, and not only was he not reviled and ignored, he was initially in charge of the operations at Hut 8, remaining so until late 1942, when he was replaced by Hugh Alexander, his deputy up to that point, who had been running the day to day operations anyway. Needless to say, showing it the movie's way heightens the drama, not to mention the daring heroism of Turing.
Who is Most Misrepresented?
John Cairncross, the Soviet spy in Hut 8. He was not in Hut 8, but in Hut 6 and worked as a translater and linguist, not as a cryptanalyst. His widow claims he did not even know Alan Turing, although that is not certain. But he certainly did not work with him.
It is true that Cairncross was a Soviet spy, as is recounted in his memoir from 1993, The Enigma Spy. He is even more famous for having been allegedly the Fifth Man of the "Magnificent Five" Soviet spies in Britain, led by Kim Philby, all of them idealistic communists recruited at Cambridge University in the 1930s. He was the last caught and may have provided more useful intelligence over his career than any of them, serving on a Treasury committee that oversaw the Defence budget in the late 1940s. At Bletchley Park he sent apparently sent useful information to the Soviets during the Battle of Kursk, and after the war he reported to them on British plans to build nuclear weapons.
Besides that he did not work with Turing and was not in the same hut, and was not a cryptanalyst. Another error is that he is presented as having been consciously put in there by MI6 Director, Sir Stewart Menzies, to feed selected information to the Soviets. There is no historical evidence of this, and that he operated for a long time after the war without being caught is the best evidence that this is not historically accurate. However, in the movie, it made Turing's role even more dramatic in that he is put into the position of having to determine what got fed to Cairncross to feed to the Soviets, although in fact they may not even have known each other, the place being highly compartmentalized. I cannot leave this without noting that Cairncross had a moderately well known development economist brother, Alec Cairncross.
Intermediately misrepresented.
Hugh Alexander has already been mentioned, although in general he comes off pretty well, even if the precise facts of his relationship with Turing are off, with him replacing Turing as Hut 8 head rather than the other way around. Also, when Turing made his appeal to Churchill for more assistance in October, 1941, it was jointly with Alexander and two of his chess champion friends, both of them operating as cryptanalysts out of Hut 6, Sir Stuart Milner-Barry and Gordon Welchman. In fact, it was Milner-Barry who carried the letter to Churchill and who would in 1992 lead the effort to prevent Bletchley Park from being torn down (it is now a museum). (Another chess champion friend of Alexander's there was Harry Golombeck, a famous chess commentator after the war.) While in Hut 6 (which dealt with German army and air force enigmas, while 8 focused on naval ones, apparently more challenging), Welchman worked with Turing on building the bombe, and was the person who suggested the speed increasing diagonal wiring that is presented in the movie as being suggested by Hugh Alexander. However, neither Milner-Barry nor Welchman a(nor Golombeck) appear in the film, even if their fellow Hut 6 member, Cairncross does. A curious detail is that Alexander, Milner-Barry, and Golombeck were all participating in a chess olympiad in Buenos Aires when WW II broke out in 1939, immediately leaving for England to join GC&CS.
As for Hugh Alexander, he would join the successor to the GC&CS, the General Communications Headquarters (HCGQ) in 1949 as its Director of Cryptanalysis, which he did for 20 years until 1969. This removed him from publicly playing chess, although he reportedly defeated later world champion, the Soviet Mikhail Botvinnick, in a game played by radio. GCHQ is the UK equivalent of the US's NSA.
I.J. ("Jack") Good has already been mentioned above as working closely with Turing. This continued after the war, and Good was also working in the same computer science lab at the University of Manchester that Turing was when he was arrested in 1951. In short, in reality, Turing may have been intellectually closer to Good than any of the others. However, in the movie, he is shown treating Good with little respect. There is some truth to this in that when Good first showed up, Turing caught him sleeping on the floor (something one would expect of Turing actually) and was very angry. But he eventually came to appreciate Good's goodness very much. In later life Good, who also worked for awhile at GCHQ in the late 50s, would move to the US, ending up on the faculty of Virginia Tech, dying in Radford, VA in 2009 at the ripe old age of 92.
Peter Hilton is the youngest of the Hut 8 group shown in the movie, and he was indeed only 18 when he first started working there. That is accurate. However, it is Peter Hilton who was the one who had the dramatic insight about looking for "Heil Hitler"in the messages to decode that is attributed to Turing in one of the movie's most dramatic scenes, which happens in a tavern, in this regard replicating a similarly fallacious scene in A Beautiful Mind, when Nash supposedly discovered the Nash equilibrium in a bar, although the game described there is the Blonde in the Bar game, not precusely what Nash wrote about. Hilton's having this idea was partly due to his knowing German very well as well as being an excellent cryptanalyst.
Hilton was a successful mathematician after the war, and I even knew him during 1962-63 after my late father hired him to join the math department at Cornell University, where Hilton stayed for many years, even though we moved away in 1963. I can attest that he was a very witty and interesting man,whom I enjoyed being around. He was expert in homotopy and homology theory.
On the latter he co-wrote a book in 1960 with Shaun Wiley, perhaps the most important missing person from the movie, and claimed by some to have been second only to Turing himself in terms of importance to the whole project of breaking the enigma code and also in Hut 8. Wiley taught at Oxford for a few years after WW II, but became Chief Mathematician for GCHQ in 1958, although he later re-emerged to continue an academic career. Among others, one of his PhD students was E. Christopher Zeeman, an important catastrophe theorist, and the first to apply catastrophe theory to economics in a 1974 paper on stock market crashes. I met Wiley once in 1963 through my late father, and found him to be even wittier and livelier than his coauthor, Hilton. He died in 2009 at age 96.
Who was not misrepresented?
Joan Clarke,the woman friend of Alan Turing. I thought her complicated quasi-romance with Turing was made up, but on checking the internet, I found this was not so. She is portrayed very accurately, being a wrangler in math at Cambridge, feeling discriminated against for her gender, and proposed to by Turing. Apparently she in fact was not fazed when he confessed his homosexuality to her, and it was he who withdrew from the engagement. She would work at GCHQ after the war for the rest of her career and did marry a coworker. Apparently she was a brilliant cryptanalyst, and much of what she did remains classified.
I note that my connection with this runs through my late father, J. Barkley Rosser, (Sr.), who was a PhD student of Alonzo Church, as was Alan Turing. They never met, my father leaving Princeton in 1934 while Turing arrived in 1936, leaving in 1938. But their work overlapped substantially, and they knew many of the same people. However, I did not figure out until I saw the credits at the close of the movie that I actually had met some of their associates.
Barkley Rosser
Update: An interesting link is the British Alan Turing scrapbook where one can find how to get at his declassified papers with Good and also a link to a program where Shaun Wiley, Joan Clarke, and Jack Good all spoke back in 1990. Turing personally recruited Wiley, whom he had known as a grad student at Princeton. Recent papers on the Good-Turing stuff are by Freer, Roy, and Tenenbaum and by Favoro, Nipoli, and Teh.
Another update: Lones Smith has made me aware of a claim by Rob Janoff to Holden Frith that the Apple logo had nothing to do with Turing's apparent suicide, but has the bite in it to distinguish it from a cherry. According to this, the widely reported story I repeated appeared after an earlier film, "Enigma," appeared in 2001, screen written by Tom Stoppard. I note that there is a more recent theory that Turing died of an accidental ingestion of cyanide (he definitely died of cyanide poisoning), but that it was not from biting the bitten apple found by him. As it was, he died on June 7, 1954, one day after the tenth anniversary of the D-Day landings.
Let me note, that while I shall be focusing on distortions and elisions, the movie is much closer to being historically accurate than A Beautiful Mind about John Nash. Of course, they both appeal to a broader audience by emphasizing problems faced by the protagonists, Turing's tragic position as a genuine gay martyr (the logo for Apple, Inc. is a partly bitten apple, memorializing the cyanide-laced apple Turing bit when he committed suicide in 1954 following his chemical castration for being convicted of "indecency" in 1951). Nash suffered from being poorly treated for his paranoid schizophrenia.
Despite its deviations from reality, The Imitation Game is an excellent movie (as is A Beautiful Mind), fully worthy of the 5 Golden Globe nominations it has received, including for Best Picture, Best Actor (Benedict Cumberbatch playing Turing), and Best Actress (Keira Knightly playing Joan Clarke). So, on to correcting it.
What is most wrong with the overall plot?
The main problem is overstating and misrepresenting Turing's role in what happened at Bletchley Park, including his relations with his co-workers, although he was indeed massively socially inept. He is presented as coming in and being completely alienated from all of them, with one of them, chess champion Hugh Alexander, the leader of the Hut 8 group he was in, and angry with him. The others are all making unproductive efforts at cracking the Enigma code in real time, whereas Turing supposedly has the idea of building a machine to beat the machine. All the others are shown as viewing this as rank insanity as well as by those above them. Turing is seen as going around all of them to appeal successfully to Winston Churchill, who initially provides funding and support and eventually puts Turing in charge over Alexander and the others. They eventually come around to helping and supporting him, although pretty much all the crucial insights are seen to be by him.
This is mistaken on several grounds. The first is that those running the Government Code and Cypher School (GC&CS) operation already knew that they wanted to build a machine to beat Enigma, this having been decided when GC&CS got their enigma machine from Polish intelligence in July, 1939, with the Poles already having developed a primitive machine to decode it. Turing was consciously hired to improve this machine, based on his famous writings on computers already out there, and not only was he not reviled and ignored, he was initially in charge of the operations at Hut 8, remaining so until late 1942, when he was replaced by Hugh Alexander, his deputy up to that point, who had been running the day to day operations anyway. Needless to say, showing it the movie's way heightens the drama, not to mention the daring heroism of Turing.
Who is Most Misrepresented?
John Cairncross, the Soviet spy in Hut 8. He was not in Hut 8, but in Hut 6 and worked as a translater and linguist, not as a cryptanalyst. His widow claims he did not even know Alan Turing, although that is not certain. But he certainly did not work with him.
It is true that Cairncross was a Soviet spy, as is recounted in his memoir from 1993, The Enigma Spy. He is even more famous for having been allegedly the Fifth Man of the "Magnificent Five" Soviet spies in Britain, led by Kim Philby, all of them idealistic communists recruited at Cambridge University in the 1930s. He was the last caught and may have provided more useful intelligence over his career than any of them, serving on a Treasury committee that oversaw the Defence budget in the late 1940s. At Bletchley Park he sent apparently sent useful information to the Soviets during the Battle of Kursk, and after the war he reported to them on British plans to build nuclear weapons.
Besides that he did not work with Turing and was not in the same hut, and was not a cryptanalyst. Another error is that he is presented as having been consciously put in there by MI6 Director, Sir Stewart Menzies, to feed selected information to the Soviets. There is no historical evidence of this, and that he operated for a long time after the war without being caught is the best evidence that this is not historically accurate. However, in the movie, it made Turing's role even more dramatic in that he is put into the position of having to determine what got fed to Cairncross to feed to the Soviets, although in fact they may not even have known each other, the place being highly compartmentalized. I cannot leave this without noting that Cairncross had a moderately well known development economist brother, Alec Cairncross.
Intermediately misrepresented.
Hugh Alexander has already been mentioned, although in general he comes off pretty well, even if the precise facts of his relationship with Turing are off, with him replacing Turing as Hut 8 head rather than the other way around. Also, when Turing made his appeal to Churchill for more assistance in October, 1941, it was jointly with Alexander and two of his chess champion friends, both of them operating as cryptanalysts out of Hut 6, Sir Stuart Milner-Barry and Gordon Welchman. In fact, it was Milner-Barry who carried the letter to Churchill and who would in 1992 lead the effort to prevent Bletchley Park from being torn down (it is now a museum). (Another chess champion friend of Alexander's there was Harry Golombeck, a famous chess commentator after the war.) While in Hut 6 (which dealt with German army and air force enigmas, while 8 focused on naval ones, apparently more challenging), Welchman worked with Turing on building the bombe, and was the person who suggested the speed increasing diagonal wiring that is presented in the movie as being suggested by Hugh Alexander. However, neither Milner-Barry nor Welchman a(nor Golombeck) appear in the film, even if their fellow Hut 6 member, Cairncross does. A curious detail is that Alexander, Milner-Barry, and Golombeck were all participating in a chess olympiad in Buenos Aires when WW II broke out in 1939, immediately leaving for England to join GC&CS.
As for Hugh Alexander, he would join the successor to the GC&CS, the General Communications Headquarters (HCGQ) in 1949 as its Director of Cryptanalysis, which he did for 20 years until 1969. This removed him from publicly playing chess, although he reportedly defeated later world champion, the Soviet Mikhail Botvinnick, in a game played by radio. GCHQ is the UK equivalent of the US's NSA.
I.J. ("Jack") Good has already been mentioned above as working closely with Turing. This continued after the war, and Good was also working in the same computer science lab at the University of Manchester that Turing was when he was arrested in 1951. In short, in reality, Turing may have been intellectually closer to Good than any of the others. However, in the movie, he is shown treating Good with little respect. There is some truth to this in that when Good first showed up, Turing caught him sleeping on the floor (something one would expect of Turing actually) and was very angry. But he eventually came to appreciate Good's goodness very much. In later life Good, who also worked for awhile at GCHQ in the late 50s, would move to the US, ending up on the faculty of Virginia Tech, dying in Radford, VA in 2009 at the ripe old age of 92.
Peter Hilton is the youngest of the Hut 8 group shown in the movie, and he was indeed only 18 when he first started working there. That is accurate. However, it is Peter Hilton who was the one who had the dramatic insight about looking for "Heil Hitler"in the messages to decode that is attributed to Turing in one of the movie's most dramatic scenes, which happens in a tavern, in this regard replicating a similarly fallacious scene in A Beautiful Mind, when Nash supposedly discovered the Nash equilibrium in a bar, although the game described there is the Blonde in the Bar game, not precusely what Nash wrote about. Hilton's having this idea was partly due to his knowing German very well as well as being an excellent cryptanalyst.
Hilton was a successful mathematician after the war, and I even knew him during 1962-63 after my late father hired him to join the math department at Cornell University, where Hilton stayed for many years, even though we moved away in 1963. I can attest that he was a very witty and interesting man,whom I enjoyed being around. He was expert in homotopy and homology theory.
On the latter he co-wrote a book in 1960 with Shaun Wiley, perhaps the most important missing person from the movie, and claimed by some to have been second only to Turing himself in terms of importance to the whole project of breaking the enigma code and also in Hut 8. Wiley taught at Oxford for a few years after WW II, but became Chief Mathematician for GCHQ in 1958, although he later re-emerged to continue an academic career. Among others, one of his PhD students was E. Christopher Zeeman, an important catastrophe theorist, and the first to apply catastrophe theory to economics in a 1974 paper on stock market crashes. I met Wiley once in 1963 through my late father, and found him to be even wittier and livelier than his coauthor, Hilton. He died in 2009 at age 96.
Who was not misrepresented?
Joan Clarke,the woman friend of Alan Turing. I thought her complicated quasi-romance with Turing was made up, but on checking the internet, I found this was not so. She is portrayed very accurately, being a wrangler in math at Cambridge, feeling discriminated against for her gender, and proposed to by Turing. Apparently she in fact was not fazed when he confessed his homosexuality to her, and it was he who withdrew from the engagement. She would work at GCHQ after the war for the rest of her career and did marry a coworker. Apparently she was a brilliant cryptanalyst, and much of what she did remains classified.
I note that my connection with this runs through my late father, J. Barkley Rosser, (Sr.), who was a PhD student of Alonzo Church, as was Alan Turing. They never met, my father leaving Princeton in 1934 while Turing arrived in 1936, leaving in 1938. But their work overlapped substantially, and they knew many of the same people. However, I did not figure out until I saw the credits at the close of the movie that I actually had met some of their associates.
Barkley Rosser
Update: An interesting link is the British Alan Turing scrapbook where one can find how to get at his declassified papers with Good and also a link to a program where Shaun Wiley, Joan Clarke, and Jack Good all spoke back in 1990. Turing personally recruited Wiley, whom he had known as a grad student at Princeton. Recent papers on the Good-Turing stuff are by Freer, Roy, and Tenenbaum and by Favoro, Nipoli, and Teh.
Another update: Lones Smith has made me aware of a claim by Rob Janoff to Holden Frith that the Apple logo had nothing to do with Turing's apparent suicide, but has the bite in it to distinguish it from a cherry. According to this, the widely reported story I repeated appeared after an earlier film, "Enigma," appeared in 2001, screen written by Tom Stoppard. I note that there is a more recent theory that Turing died of an accidental ingestion of cyanide (he definitely died of cyanide poisoning), but that it was not from biting the bitten apple found by him. As it was, he died on June 7, 1954, one day after the tenth anniversary of the D-Day landings.
Federal Tax Revenues During the 1980’s
Paul Krugman takes on another aspect with respect to the latest intellectual garbage from Stephen Moore by commenting on Moore’s claim that Federal tax revenues soared from 1980 to 1989:
I have a suspicion that the Post forced him to include the inflation-adjusted number, rather than let him get away with the gee-whiz nominal number, which is, um, inflated by the relatively high rate of inflation that prevailed even in the later Reagan years. In any case, however, Moore offers no context, leaving the impression that this was an extraordinary achievement. So I looked at real federal receipts over a longer period, shown above using a log scale so that the slope of the line represents the rate of growth. If you take the period Reagan was in the White House, 1981:1 to 1989:1, I get an increase of 14.3 percent; I’m not sure why Moore’s number is bigger, but never mind.Paul is debunking a claim that has been made and debunked many times. The usual line is that Federal tax revenues almost doubled from $517.1 billion in 1980 to $1032.0 in 1990. The inflation-adjusted part comes from the fact that the GDP deflator rose by 50.3% over this period so in real terms revenues rose by 32.8% over the entire decade. But there is another serious problem with this that anyone who followed the various tax policy changes during the Reagan years should know. Yes income tax rates were cut in 1981 but there were various tax rate increases that followed including a significant increase in payroll tax rates in 1983. Table B.21 of the Economic Report of the President provides the details on Federal tax revenues. Payroll taxes rose from $157.8 billion in 1980 to $380 billion in 1990. Yes, a 140.8% nominal increase and a 60.3% increase in real terms when this tax rate was increased. All other Federal taxes therefore rose by only 20.8% in real terms over the decade. Since I’m not the first to point this out one would have to believe that Stephen Moore would have seen this often made point before. And yet he can’t be bothered to tell his readers the whole story? Update: When Moore wrote:
close to a 75 percent change (25 percent after inflation)Paul wondered:
I get an increase of 14.3 percent; I’m not sure why Moore’s number is bigger, but never mind.I noted prices rose by 50% during the 1980’s. Moore apparently took the difference between the nominal growth rate and the increase in the price level to get the real increase but this is only an approximation. For large changes one would need to take this difference and divide it by the new price level (1.5). Suppose a worker made $10 an hour in 1980 and enjoyed a $17.50 wage rate in 1990. Since his cost of living rose from $1 per unit of goods to $1.50 per unit of goods, his real wage in 1980$ was $11.67 an hour not $12.50 an hour. But Stephen Moore has always been very bad at basic arithmetic.
Saturday, December 27, 2014
Monetary Policy During the 1974 and 1982 Recessions
Mark Thoma calls the latest from Stephen Moore a joke. First – some of the choice Laughers from this idiotic if not dishonest oped:
It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government’s 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl ... Critics such as economist Paul Krugman object that rapid growth during the Reagan years was driven more by conventional Keynesian deficit spending than by reductions in tax rates.I’ll simply repeat my gut reaction which I posted as a comment over at Mark’s place:
Mark Thoma calls Stephen Moore's defense of the Laugher Curve a joke. I call this line a lie: "Critics such as economist Paul Krugman object that rapid growth during the Reagan years was driven more by conventional Keynesian deficit spending than by reductions in tax rates." More blatant misrepresentations of what Krugman has written. Krugman blamed the 1982 recession (something Moore failed to mention) on tight money and the recovery from it on easy money. Growth under Reagan-Bush41 was only 3.0% per year as opposed to 3.5% before and after this era. Did Moore admit this? No. But what struck me was that 1974 dinner conversation with Cheney and Rumsfeld - who I guess Moore thinks are Nobel Prize winning economists or something. The 1974 recession was a deliberate monetary contraction to WIN (whip inflation now) as Gerald Ford's little buttons described policy. Interest rate went from 7% to 10%. Now when the FED decided to lower interest rates, the economy recovered. Stephen. Your own account properly done shows it was monetary policy and not your vaunted tax cuts that drove the macroeconomy during both of these periods. It is hard to tell. Is Moore too stupid to know this? Or is his doing his usual lying hoping his readers are that stupid?Forgive me if I have been consumed with the role of monetary policy during notable business cycles from the last century. But it does seem that the right wing pretend economists are doing a lot of misrepresentations of our economic history.
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