The Future of Jobs: Recommendations for Action

The Davos World Economic Forum has labored mightily to bring forth a report on The Future of Jobs, which contains the following "Recommendations for Action":

While the implications of accelerating disruptive change to business models are far-reaching—even daunting— for employment and skills, rapid adjustment to the new reality and the opportunities it offers is possible, provided there is concerted effort by all stakeholders. For government, it will entail innovating within education and labour-related policymaking, requiring a skills evolution of its own. For the education and training sector, it will mean vast new business opportunities as it provides new services to individuals, entrepreneurs, large corporations and the public sector. The sector may become a noteworthy new source of employment itself. 

For businesses to capitalize on new opportunities, they will need to put talent development and future workforce strategy front and centre to their growth. Firms can no longer be passive consumers of ready-made human capital. They require a new mindset to meet their talent needs and to optimize social outcomes. This entails several major changes in how business views and manages talent, both immediately and in the longer term. In particular, there are four areas with short term implications and three that are critical for long term resilience...

May I summarize? In point form, then:

• rapid adjustment!
• new reality!
• concerted effort!
• innovating!
• front and centre!
• new mindset (to optimize resilience)!

Executive Summary: new reality! = new mindset! Or, cancelling out the "new" on either side of the equation: reality! = mindset!

Clearly, the future ain't what it used to be.

Paul Krugman, Bernie Sanders, and Medicare for All

The website for Dean Baker's organization, the Center for Economic and Policy Research, is under attack. In light of the urgency of the issue, Dean has asked the management to post this here.

BY DEAN BAKER, CENTER FOR ECONOMIC AND POLICY RESEARCH

Paul Krugman weighs in this morning on the debate between Bernie Sanders and Hillary Clinton as to whether we should be trying to get universal Medicare or whether the best route forward is to try to extend and improve the Affordable Care Act. Krugman comes down clearly on the side of Hillary Clinton, arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system.

Getting universal Medicare would require overcoming opposition not only from insurers and drug companies, but doctors and hospital administrators, both of whom are paid at levels two to three times higher than their counterparts in other wealthy countries. There would also be opposition from a massive web of health-related industries, including everything from manufacturers of medical equipment and diagnostic tools to pharmacy benefit managers who survive by intermediating between insurers and drug companies.  

Krugman is largely right, but I would make two major qualifications to his argument. The first is that it is necessary to keep reminding the public that we are getting ripped off by the health care industry in order to make any progress at all. The lobbyists for the industry are always there. Money is at stake if they can get higher prices for their drugs, larger compensation packages for doctors or hospitals, or weaker regulation on insurers.

The public doesn’t have lobbyists to work the other side. The best we can hope is that groups that have a general interest in lower health care costs, like AARP, labor unions, and various consumer groups can put some pressure on politicians to counter the industry groups. In this context, Bernie Sanders’ push for universal Medicare can play an important role in energizing the public and keeping the pressure on.

Those who think this sounds like stardust and fairy tales should read the column by Krugman’s fellow NYT columnist, health economist Austin Frakt. Frakt reports on a new study that finds evidence that public debate on drug prices and measures to constrain the industry had the effect of slowing the growth of drug prices. In short getting out the pitchforks has a real impact on the industry’s behavior.

The implication is that we need people like Senator Sanders to constantly push the envelope. Even if this may not get us to universal Medicare in one big leap, it will create a political environment in which we can move forward rather than backward.

The other point has to do with an issue that Krugman raises in his blogpost on the topic. He argues that part of the story of lower health care costs in Canada and other countries involves saying “no,” by which he means refusing to pay for various drugs and treatments that are considered too expensive for the benefit they provide.

While there is some truth to this story, it is important to step back for a moment. In the vast majority of cases, the drugs in question are not actually expensive to manufacture. The way the drug industry justifies high prices is that they must recover their research costs. While the industry does in fact spend a considerable amount of money on research (although they likely exaggerate this figure), at the point the drug is being administered this is a sunk cost. In other words, the resources devoted to this research have already been used; the economy doesn’t somehow get back the researchers’ time and the capital expended if fewer people take a drug that is developed from their work.

Ordinarily economists treat it as an absolute article of faith that we want all goods and services to sell at their marginal cost without interference from the government, like a trade tariff or quota. However in the case of prescription drugs, economists seem content to ignore the patent monopolies granted to the industry, which allow it to charge prices that are often ten or even a hundred times the free market price. (The hepatitis C drug Sovaldi has a list price in the United States of $84,000. High quality generic versions are available in India for a few hundred dollars per treatment.) In this case, we are effectively looking at a tariff that is not the 10-20 percent that we might see in trade policy, but rather 1,000 percent or even 10,000 percent.

This sort of gap between price and marginal cost leads to exactly the sort of distortions that economists predict when the government intervenes in a market with trade tariffs, except the distortions are hugely larger with drugs. Companies have incentive to engage in massive marketing efforts, they push their drugs for conditions for which they may not be appropriate, and they conceal evidence suggesting their drugs may be less effective than advertised, or possibly even harmful. They also lobby politicians for ever longer and stronger patent protection, and they use the legal system to harass potential competitors, both generic and brand. Even research is distorted by this incentive structure, with large portions of the industry’s budget being devoted to developing copycat drugs to gain a share of a competitor’s patent rents.

Perhaps the worst part of this story is that the patent monopolies put us in a situation where we might have to say no. The industry’s monopoly allows it to say that it will not turn over a life-saving drug for less than $100,000, $200,000, or whatever price tag it chooses. However, if there was no patent monopoly, we would be looking at buying this drug at its cost of production. That will rarely be more than $1,000 and generally much less. At those prices, it will rarely make sense to say no. (The same issue arises with most medical equipment – once we have the technology, producing an MRI is relatively cheap, as would be the cost of an individual screening.)

We do have to pay for the research, but the way we are now doing it is incredibly backward. It is like paying the firefighters when they show up at the burning house with our family inside. Of course we would pay them millions to save our family (if we had the money), but it is nutty to design a system that puts us in this situation.

We should be looking for a system that pays for the research upfront. There are various mechanisms to accomplish this goal. (Here’s my plan for a system of publicly funded clinical trials.) Obviously overhauling our system for financing drug research is not something that is done overnight, but it is an issue that needs attention. The current system is incredibly wasteful and it needlessly puts in a situation where we have to say no in contexts where the costs to society of administering treatment are actually very low.

This doesn’t mean that we would pay for everything for everybody. There are some procedures that actually are very expensive, for example surgeries requiring many hours of the time of highly skilled surgeons. But we should be trying to design a system that minimizes these sorts of situations, rather than making them an everyday occurrence.

"Degrowth," Economic Myths and a Minimal Bioeconomic Program

«La décroissance est un mot-obus.»

La Décroissance is a "missile" word, a "bombshell" word -- that is to say, it is a provocation. As Serge Latouche put it, "The idea of a contraction-based society is just a way to provoke thought about alternatives." The meaning of the English word, 'degrowth,' has been lost in translation. It is, literally, a double translation whose source has often been misplaced.

In 1979, Jacques Grinevald and Ivo Rens translated into French Nicholas Georgescu-Roegen's 1975 article, "Energy and Economic Myths", along with two articles on bioeconomics in a book titled Demain La Décroissance: Entropie – Écologie – Économie. The second edition omitted Demain from the title. Several authors have incorrectly identified the book as a translation of The Entropy Law and the Economic Process, which it is not.

In Grinevald and Rens's translation, the word décroissance first appears in the text at the end of the penultimate paragraph of a section titled, L' état stable: un mirage à la mode, originally, "The steady state: a topical mirage":

Cela met en évidence un point important quoique inaperçu jusqu'ici, à savoir que la conclusion nécessaire des arguments avancés en faveur de cette perspective consiste à remplacer l'état stationnaire par un état de décroissance.

Here is the original English of the last two paragraphs of the section critiquing the steady state mirage. I have highlighted the sentence that corresponds to the above translation and bolded the word which was translated as décroissance:

The usual arguments adduced in favor of the stationary state are, however, of a different, more direct nature [than equating it with an open thermodynamic steady state]. It is, for example, argued that in such a state there is more time for pollution to be reduced by natural processes and for technology to adapt itself to the decrease of resource accessibility. It is plainly true that we could use much more efficiently today the coal we have burned in the past. The rub is that we might not have mastered the present efficient techniques if we had not burned all that coal "inefficiently." The point that in a stationary state people will not have to work additionally to accumulate capital (which in view of what I have said in the last paragraphs is not quite accurate) is related to Mill's claim that people could devote more time to intellectual activities. "The trampling, crushing, elbowing, and treading on each other's heel" will cease. History, however, offers multiple examples -- the Middle Ages, for one -- of quasi stationary societies where arts and sciences were practically stagnant. In a stationary state, too, people may be busy in the fields and shops all day long. Whatever the state, free time for intellectual progress depends on the intensity of the pressure of population on resources. Therein lies the main weakness of Mill's vision. Witness the fact that -- as Daly explicitly admits -- its writ offers no basis for determining even in principle the optimum levels of population and capital. This brings to light the important, yet unnoticed point, that the necessary conclusion of the arguments in favor of that vision is that the most desirable state is not a stationary, but a declining one. 

Undoubtedly, the current growth must cease, nay, be reversed. But anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history -- which is that of permanent struggle in continuously novel forms, not that of a predictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.

Toward the end of "Energy and Economic Myths," Georescu-Roegen conceded that "The most we can reasonably hope is that we may educate ourselves to refrain from 'unnecessary' harm..." and dismissed notions of "complete protection and absolute reduction of pollution" as "dangerous myths." Acknowledging the impracticality of a "complete renunciation of... industrial comfort," he concluded his article with a "minimal bioeconomic program":

First, the production of all instruments of war, not only of war itself, should be prohibited completely. It is utterly absurd (and also hypocritical) to continue growing tobacco if, avowedly, no one intends to smoke. The nations which are so developed as to be the main producers of armaments should be able to reach a consensus over this prohibition without any difficulty if, as they claim, they also possess the wisdom to lead mankind. Discontinuing the production of all instruments of war will not only do away at least with the mass killings by ingenious weapons but will also release some tremendous productive forces for international aid without lowering the standard of living in the corresponding countries. 

Second, through the use of these productive forces as well as by additional well-planned and sincerely intended measures, the underdeveloped nations must be aided to arrive as quickly as possible at a good (not luxurious) life. Both ends of the spectrum must effectively participate in the efforts required by this transformation and accept the necessity of a radical change in their polarized outlooks on life.  

Third, mankind should gradually lower its population to a level that could be adequately fed only by organic agriculture. Naturally, the nations now experiencing a very high demographic growth will have to strive hard for the most rapid possible results in that direction. 

Fourth, until either the direct use of solar energy becomes a general convenience or controlled fusion is achieved, all waste of energy -- by overheating, overcooling, overspeeding, overlighting, etc. -- should be carefully avoided, and if necessary, strictly regulated. 

Fifth, we must cure ourselves of the morbid craving for extravagant gadgetry, splendidly illustrated by such a contradictory item as the golf cart, and for such mammoth splendors as two-garage cars. Once we do so, manufacturers will have to stop manufacturing such "commodities." 

Sixth, we must also get rid of fashion, of "that disease of the human mind," as Abbot Fernando Galliani characterized it in his celebrated Della Moneta (1750). It is indeed a disease of the mind to throw away a coat or a piece of furniture while it can still perform its specific service. To get a "new" car every year and to refashion the house every other is a bioeconomic crime. Other writers have already proposed that goods be manufactured in such a way as to be more durable. But it is even more important that consumers should reeducate themselves to despise fashion. Manufacturers will then have to focus on durability. 

Seventh, and closely related to the preceding point, is the necessity that durable goods be made still more durable by being designed so as to be repairable. (To put it in a plastic analogy, in many cases nowadays, we have to throw away a pair of shoes merely because one lace has broken.)

Eighth, in a compelling harmony with all the above thoughts we should cure ourselves of what I have been calling "the circumdrome of the shaving machine," which is to shave oneself faster so as to have more time to work on a machine that shaves faster so as to have more time to work on a machine that shaves still faster, and so on ad infinitum. This change will call for a great deal of recanting on the part of all those professions which have lured man into this empty infinite regress. We must come to realize that an important prerequisite for a good life is a substantial amount of leisure spent in an intelligent manner.

"Growth", "Degrowth" and the Critique of Growth

In a post titled "De-growthers in Suits," Peter Dorman dishonestly conflates the objectives of "de-growth" with the outcomes of austerity policy. I use the term dishonestly advisedly. The rationale and the rhetoric of austerity is that it promotes growth. Never mind whether the advocates of austerity are sincere or whether austerity policies are successful in achieving growth. Growth is their mantra.

The term de-growth is the occasion of some consternation among those who might be labeled de-growthers. It became popular as a literal translation of the name of a French political party, Parti Decroissance, whose name was partly tongue in cheek and somewhat of a play on words. That nuance doesn't translate with English neologism.

Let us be quite firm that there is no stumbling in suggesting policies for so-called degrowth. There are many policy outcomes that could result in an improvement in human welfare without adding to GDP. There are even potential improvements that would subtract from GDP.

Horrors! We can't have that kind of thing!

Yes, less crime, less cancer and world peace would diminish GDP. So? So what? Parents being enabled to stay at home to look after young children might diminish GDP compared to making them work (workfare) and arranging commercial child care.

De-Growthers in Suits

This happened in class the other day.  There was a discussion of the anti-growth position taken by some environmentalists.  The assigned reading said that, broadly speaking, there are two theoretical options, to either resist economic growth in the interest of sustainability or prioritize growth but adopt various regulatory and technological palliatives to try to avoid ecological harm.  The authors clearly favored option #1.  The claim was made that, despite its virtues, this option was uniformly rejected by those in power, whose ideological blinders wedded them to never-ending growth.

I raised my hand.  When called on, I pointed out that, while not explicitly motivated by an anti-growth philosophy, those in power have repeatedly adopted policies whose effect is to render growth unlikely or impossible, especially in Europe but to some extent also in the US and elsewhere.  De-growthers stumble when asked what measures to take, but the most powerful instrument is right there in front of them: austerity.

Feelings Invade Evaluation

A cartoon by Robert Mankoff came to mind as I read the introductory chapters of Gregory Zuckerman's 2013 book 'The Frackers' [image below].  It's a publication based on interviews with over 50 key players in the fracking industry.  "As recently as 2006" Zuckerman writes "business and government leaders fretted that America was running out of energy.  By 2013, however, the United States was producing seven and a half million barrels of crude oil each day, up from five million in 2005."  In 2012 America experienced its biggest fossil fuel production increase in the nation's history.

"The wildcatters, entrepreneurs, and hopeless dreamers who took a chance on drilling in shale and other challenging US rock formations have brought clear benefits to the country and possibly the world." Gregory Zuckerman concludes. But then he asks "How much damage have the pioneers created in their pursuit of oil and gas?"  "Less harm than the critics claim" ...but..."It may be years before the full consequences of the drilling and fracking are clear..."

Clearly Zuckerman's feelings have invaded his evaluation; in this case of the fossil fuel industry. Like many individuals the mass acquiescence and euphoria towards the fracking solution to 'peak oil' convinced them that they were right.

Barkley's Surgery

Marina Rosser has posted the news that Barkley's open heart surgery went well, although it took a bit longer than anticipated, so he will have longer recovery time. 

We all wish Barkley well and a soon as possible recovery.

Less Work, More Leisure

Dean Baker at Democracy

The next Administration should make reducing work time a major focus. In addition to mandated paid sick days and paid family leave—proposals that have received some welcome attention thus far on the presidential campaign trail—policymakers should go much further and enact measures aimed at shortening workweeks and work years. Reducing our workweek and work years will lead to a whole host of benefits, including reduced stress and higher levels of employment. ...

Your Tax Dollars Subsidizing Methane Gas Emissions

UPDATE: Five Thirty Eight Politics scooped me on this story.

Well, looky here. On the one hand, the minimum wage has declined substantially over the last several decades in real terms. But on the other hand, federal government subsidies to a small number of cattle ranchers has increased as the gap between the market price and the Bureau of Land Management grazing fees has widened.

According to a report from the Center for Biological Diversity, "fewer than 21,000 — or 2.7 percent of the nation’s total livestock operators — benefit from the Forest Service and BLM grazing programs in the West." Furthermore,

The federal subsidy of the grazing program goes beyond the direct costs and fees. There are vast indirect costs to grazing on federal lands, including the government killing of native carnivores perceived as threats to livestock, wildfire suppression caused by invasive cheat grass facilitated by cattle grazing, and expenditure of U.S. Fish and Wildlife Service funds from protecting other species threatened by livestock grazing. 

And just what comes out the other end of those federally-subsidized cattle? Greenhouse gases... Methane... Farts. According to the Environmental Protection Agency. 26% of U.S. methane gas emissions in 2013 came from "enteric fermentation," The EPA also explains that:

Methane (CH4) is the second most prevalent greenhouse gas emitted in the United States from human activities. In 2013, CH4 accounted for about 10% of all U.S. greenhouse gas emissions from human activities. Methane is emitted by natural sources such as wetlands, as well as human activities such as leakage from natural gas systems and the raising of livestock.

About 70% of that enteric fermentation is done by cattle. So the BLM subsidized cattle ranchers account for about half of one percent (.5%) of U.S. methane emissions annually and .05% of total ghgs from human activities. In effect, taxpayers pay around $100 million in grazing subsidies annually to the cattle ranchers whose cattle emit that greenhouse gas. That subsidy. of course, doesn't include the uncompensated damages the methane contributes to through climate change.

Climate Catastrophe? Not to Worry

Yesterday I roused myself bright and early to take in an 8 am session at the ASSA meetings on “Valuing Climate Change Catastrophes”.  I won’t go into great detail on what I heard, but I thought it would be good to get the word out, so that loyal readers of EconoSpeak can once again get a good night’s rest.

The short of it is that, according to these worthies, the worst case scenarios painted by climate science are small change once the economists get through with them.  We are talking about the shutdown of the ocean thermohaline circulation, the collapse of the West Antarctic Ice Sheet, ocean acidification, and potentially massive changes in the earth’s biomes under a new climatic regime.

Thermohaline circulation: This refers to the planet-wide “conveyor belt” of ocean currents driven by temperature and salinity gradients east-west and north-south.  It is what makes northern Europe much warmer than the regions of middle and northern Canada at the same latitude, for instance.  Suppose as a direct or indirect result of climate change this system were to shut down.  The consequences were assessed by Richard Tol, whose presentation style suggested he is unconcerned with difficulties that have arisen regarding his earlier work.  Tol’s conclusion: by offsetting rising temperatures due to radiative forcing, thermohaline shutdown would actually increase global welfare, but unfortunately this is unlikely to occur because the unique circumstances that caused this to happen at the end of previous ice ages are no longer with us.

The collapse of WAIS:  If this happens, sea level rise will be measured in meters rather than centimeters.  Economic models, however, show that with optimal adaptation measures the economic damages are nearly trivial.   Spread out over many years, the hardening or relocation of coastal infrastructure constitutes a minute portion of global income.  The presenter was Delavane Diaz.

Ocean acidification:  This one was juicy.  Take the worst case scenario, the complete cessation of marine life due to the collapse of the bottom of the food chain.  The economic cost would be the sum of producer and consumer surplus from the global fishing industry, minus the increasing triangles from aquaculture, which is assumed to take its place.  As you can imagine, this comes to a paltry sum, measured in tens of billions of dollars at most, not even rounding error in relation to world GDP.  The presenter was Rob Mendelsohn.

Shifting biomes: Here the idea was to allow the highest carbon emission scenario of the IPCC to proceed until 2300, which would give us 9º C warming.  (I gather this assumes no positive feedback effects, such as through methane releases.)  This in turn would shift the size and location of the world’s major biomes—ecological regimes like tropical forest, savannah and desert.  What would this mean economically?  Step one: based on cross-sectional data, conclude that biome status has no significant effect on economic productivity, with two exceptions, desert and ice sheet, where productivity is zero.  Step two: therefore the only question is how much expansion or contraction will occur in the regions of sand and ice.  By 2300 the net effect is small, constituting an impact on world GDP of 1% or less.  The presenter was Steve Colt.

So there you have it: economics has vanquished the fear of climate catastrophe.  Relax and enjoy.  Have a great 2016, everyone.

Short Stuff

I ventured to the mall last night to see “The Big Short”.  How could I not?  A commitment to watch every film on finance and political economy themes is not very committing.

I’ll get two things out of the way at the outset.  First, the uptempo, jokey, quick-cutting style was effective enough.  I’ll say more about what I think it contributes to the message of the film in a moment, but for now, consider me entertained.  In particular, the Brechtian asides were great and left me wondering why this technique isn’t used more often.  It was a pleasure to watch Dick Thaler explaining synthetic CDO’s.

Second, I don’t worry very much about the factual precision of the film.  It’s not a documentary.  It’s main impact is in firming up some memes or stereotypes and dampening or precluding others.  We’re in the world of pop culture, not podcast lectures.  This means I don’t worry about whether it’s really true that only a handful of traders knew there was a housing bubble in 2005 (it isn’t), nor even how important the threat of financial collapse was in the instigation of the Great Recession or the subsequent Great Nonrecovery.

Here is what matters, in my opinion.

1. Pre-2008 culture was thick with glorifications of money-making as an end-in-itself.  From fund managers to rappers, simply being hosed with cash was presented as glamorous, the ultimate high.  This ethos was called into question by the crash, and one of the more interesting cultural battles has been over the emotional pull of extreme wealth.  The Big Short is ambivalent, more than it probably intended to be.  There are on-screen depictions of early 2000s types, transfixed by the opportunity for a big score; this is exemplified in particular by the two Colorado garage band hedge fund neophytes, in roles that can only be described as inverted Capra.  But there are also morose, disillusioned traders and ex-traders for whom big money has lost its magnetism.  If you had only the script to go on you might call it a draw or even a win by decision for the post-materialists.  But here’s where the style comes in: two hours of jumpy, jokey high adrenalin depictions of high stakes gambling on Wall St. tips the balance back toward hyper-acquisitiveness.  The movie feels like a classic caper flick, with the heroes being the ones who make the final score, no matter what the script says.

2. How to interpret the Big Shorters?  The film presents two narratives of their strategy.  One is the revenge of the nerds: Wall Street and the mortgage industry were in the grips of idiots, and the smart, quantitatively literate skeptics ate their lunch.  Brains triumphed over dull mediocrity.  The other is moral: the financial system had descended into a cesspool of fraud and short-sighted greed, and the shorters were like a sheriff’s posse, out to take down the bad guys.  Interestingly, the film even tells you there’s no need to choose; at a critical moment one of the players says that fraud and stupidity are reflections of one another, and when one of the key shorters (Steve Carell) gives a speech at the end expressing his disillusionment his critique of fraud is that it is doomed to fail.  My response is that this is a fudge: one of the big stories of the post-2008 world is that fraud hasn't been punished, and the really big winners from the entire process, from the takeoff of financial market liberalization in the 70s to the present, still run the world.  The profits of the shorters, measured in tens or even hundreds of millions of dollars, are chump change by comparison.  The ethical critique simply can’t be folded into a narrative about the triumph of the smart guys.  In a way, the film supports this in its concluding (and witty) postscript on how the financial sector avoided any real reckoning, but this comes after two hours of watching what you think at the time is the impending destruction of the ultra-rich.

3. And what’s the larger image of Wall Street that emerges from this film?  Every critique implies an alternative, a counterfactual in which the critique doesn’t apply.  A useful way of assessing the scope and accuracy of a critique is to identify this counterfactual.  What sort of financial system would be immune to the barbs of The Big Short?  You may recall that this was a nagging question in Michael Lewis’ book, which alternated between deep cynicism and a bedrock assumption that most financial market activity was or could be socially productive.  The film adds a visual dimension to the issue.  For instance, when our reverse-Capras wander through a Lehman Brothers trading room after it’s been abandoned, the viewer can’t help but wonder what’s been subtracted from the world by this event.  And the film, true to the book, doesn’t offer any answers.  The deeper questions about the allocation of capital and the relationship between finance and “real” economic activity don’t surface, not even visually.  It’s not clear how Wall Street would be different if it were reformed on the terms implicit in this story.  It would be more honest, yes, but smaller?  Would it recruit and reward its minions on different principles?  And how would such unavoidable concentrations of wealth be redirected to socially productive purposes?  To repeat, I don’t expect a narrative film to answer questions like this, but they illuminate the immense whitespace in a script that encourages an ostensibly skeptical perspective on finance.

For those of us who live from one economics-themed film to the next, the inevitable comparison is to “Margin Call”.  In a way, that’s unfair.  Margin Call was an exceptional movie that could never hope to win the mass audience of The Big Short.  It had a much slower pace, sustaining the illusion that events were taking place in real time.  Its characters were deeper and more contradictory, with less reliance on pop culture stereotypes.  (It also had one very substantial female role for Demi Moore, where The Big Short could give even the magnificent Melissa Leo only an example, not a real human being, to play.)  That said, it also asked bigger questions.  Stanley Tucci’s “I used to build bridges in Pennsylvania” speech problematized the entire enterprise of modern finance, while Jeremy Irons’ final historical sum up superbly crystallized a political economy perspective.  Above all, fraud, which was the central topic in Margin Call, was presented not (only) as an emanation of character but an outcome of the incentive structure of the industry.

So I’m happy I went, and I had a good time.  When the movie ended a guy down the row from me shouted, “Feel the Bern!”

The Green World

The Duckabush River on Christmas Day.

See (many of) you in SF shortly.  (And Barkley, bounce back in full, please.)

Hersh On CIA Vs DIA Over Syria Policy

Seymour Hersh has surfaced after some time with a serious article in the London Review of Books entitled "Military to Military" about debates within the US ruling establishment over policy towards Syria, with the title referring to levels of assitance from the US military to the Syrian military. He recounts in great detail recent history of US policy debates over how to deal with events in Syria.  It turns out that there has been one of the worst splits within the ruling leadership over what to do, with in particular the Chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey (out in 2014), and the Directorof  the Defense Intelligence Intelligence Agency (DIA)  from 2002-2014, Michael Flynn, and the Obama administration along with the CIA.

Basically Obama and the CIA were following in a weaker form the neocon/GOP/Hillary position that the US should try to bring down Bashar El-Assad and support the "moderates" in Syria to bring him down, while Dempsey and Flynn at the DIA disagreed with this, and, accordign to Hersh, basically said the US should support Assad and cooperate with Russia in Syria to crush all the Wahhabist/Salafist opposition, whether al-Qaeda affiliated or Daesh/IS/ISIS/ISIL. In the end, being 2014, Dempsey and Flynn lost and were removed, although more recently the US military has been secretly to some degree aiding the Syrian military against Daesh, hence the title of the article, "Military to Military."

There is much of great interest in this article, including some things that are questionable or biased, but this is a discussion that little of the MSM has talked about except in more general terms.  And the notoriously stupid VSP elite is ignoring it completely, even if some of the more knowledgeable are in on it. But it is not for the public to be involved with.  In Hersh's account, his big focus is Obama vs the Pentagon, with the Pentagon right, and Obama awfully removing Dempster and Flynn, who are obviously (or maybe just maybe) right, with the US now gradually realizing they were right, even as the GOP (except maybe Rand Paul and at moments of all people, Trump), neocons, and Hillary, and VSPs in general, who still mealy mouth about how the US must find those wonderful "moderates."

All this is just fine, but I  want to focus on what even Hersh did not highlight, the serious story in this story. One sign of what is up is that Hersh never quotes anybody from the CIA or those in the admin who disagree with Flynn and Dempster, who are clearly the main sources of his article (although Hersh is very diligent and checks many sources, but there is nobody on the other side in this article). So, the real story here is that we have just had probably the biggest institutional fight within the US intelligence establishment in a lothng time, unsurprisingly unreported, with even the guy reporting it not quite getting it.  The non-DOD CIA has just beaten the DOD DIA in a very serious fight, even though probably the losers were right, which the winners may have figured out by now.

To get to the individuals, Dempster was up for standard rotation retirement, so his disappearance is not a big deal, although the removal of Flynn at the DIA was not so regular.  Anyway, Hersh makes a big deal about especially the removal of Flynn, who apparently made lots of noise and really made it into the big fight, arguing from quite a few years ago that the US failed to fight Daesh/ISIS because it wanted to bring down Assad.  According to him about two years ago there was a really serious showdown, which he and Dempsey and the DOD lost, over supporting or bringing down Assad, and Obama supported bringing down Assad, going along with the CIA/neocon/VSP, etc., me adding those last three.  The funny thing, given how central to all of this it all is, Hersh really says little about the CIA role in this, which is central to the whole business.

The big story here is that there has been a really serious fight within the US intelligence establishment, publicly approved budget according to Wiki about $68 billion for the officially recognized 16 agencies.  So now we get  down to it.  A quarter of a century ago the allocations were that the most secret of the DOD ops got the highest amounts, the NSA and the more secret NRO got about three times as much as the CIA. Now the CIA gets more than them or any other DOD entity.
 I s
The DIA was long the second sister of the CIA, the DOD's attempt to reproduce the CIA.  Now the really serious issue is that the CIA is not what it was and Flynn's DIA has been what the CIA used to be.  The expansion of the budget of the CIA, now well ahead of all the DOD intel agencies, even the still super secret secret National Reconaissance Organization (NRO),  is due to its having acquired a its own "Special Ops"army, not in the DOD, which the CIA is not in.  Prior to 9/11/01 CIA did analysis and their Ops did the usual movie stuff.  But now they have their own military not under the control of the Secretary of Defense., and they now have the largest budget of any of the 16 officially rcognized intel agencies by the US government.

So, CIA has been supporting and arming the "moderates" in Syrian who are at best now affiliated with al-Qaeda against Daesh/ISIS.  They have the money and they have the "boots on the ground,"wsuchich we suppoedly do not have and now that Lindsey Graham is out of the race no presidential candidate in the US claims to support.  Looks like to me that  if it is CIA it is not "boots on the ground," but if it is others, well, although I shall back off this by recognizing that some of the more secrte DOD ops are almost certainly part of these non-books on the ground books on the ground.

 The higher level buraurcratic battle here seems to be have been the Pentagon intel against the non-DOD intel, in short, the DIA against the CIA, and Hersh has revealed how bad this argument over policy and ultimately funds has been in recent years.  Hersh hints that in the face of Daesh/ISIS these differences have become less important at the higher levels of decision-making.

I add a few oddly related items.  such as that at earlier today it was reported that Iran turned over to Russia the vast majority of its enriched uranium, thereby fulfilling the most central portion from their side of the recently internationally agreed to deal.

This point now is at a much lower level. So, among the GOP candidates there has been this list of people who are supposedly "moderate, reasonable."  High on this list although now very  low in the polls and probably not worth this critical comment is Kasich, Governor of Ohio.  I grant that he has more than any of these GOP candidates real experience, and an old friend of mine has favored him for decades, but I have found in the last GOP debate a fatal flaw. Nobody has commented on it because he is nowhere, but in the last GOP debate he took the most extreme position about Iran of any of them, relevant to this post. He declared that the biggest thing was to go after Iran, more important than getting Daesh/ISIS. 

But today Iran turned over its highly enriched uranium to the Russians, making it clear that Obama's nuclear deal with Iran is  for real against so many commentaries on US media.

Barkley Rosser

PS:  I have been posting a lot recently because I shall be a week from now disappearing from cyberspace as well as not making the ASSA/AEA meetings in San Francisco coming up, which I was planning to attend not only for professional reasons but to see my grandchildren who live there. But I shall not be there, and I extend to all my friends who will be there my best regards and a happy new year. I shall not be there because I shall have open heart valve replacement surgery on January 5th, 2016.  So, I shall not be at the meetings, and extend my best regards to all who will attend who were expecting to see me there.  

CREATION LEAPS FROM STAR TO STAR

Carl Snyder was an enthusiastic advocate of Pareto's law of income distribution, arguing that "the wealth, capital, and broad diffusion of comforts in the more highly developed civilizations like those of the United States and Europe, are the product of an extraordinarily small number of men." Any attempt to redistribute income away from the "true creators... the true saviours of our modern world" (such foolish notions being "one of the strongest drives within those vast lower levels of our neolithic population") inevitably leads to "the ruthless destruction of civilization by these barbarian hordes."

Snyder's ecstatic brand of pro-plutocratic faith and rhetoric endeared him to the folks at the Mises Institute, where one can download a copy of his Capitalism the Creator. But even a cursory glance at Snyder's book jacket-featured chart reveals that Snyder didn't solely attribute to capitalistic accumulation "the fruits of this fine flower which we call civilization." Sharing credit for the economic miracle is our old friend, "primary power."

Energy that is. From hydrocarbons (mostly). Fossil fuel.

Virtually the same chart is reproduced inside the book on page 75, titled "VIII. THE SOURCES OF OUR GREAT WEALTH AND INCOME. It shows the value of manufactures, total primary power, an index of trade and production and capital invested in manufacturing. In Chart XII, on page 113, "much the same thing is given in a different form" for the benefit of those many persons (obviously not "true creators") who find "the ordinary charts... difficult to follow." Chart XII once again "compares the amount of capital invested, the 'value added' in manufacture (over the cost of raw materials), and the number of horsepower used in primary power":

A glance suffices to reveal how close is the association, very strongly suggesting, perhaps even proving that increased product in manufacturing can only be attained through the increased use of machinery, of which the amount of horsepower employed is an excellent index. In turn, this increase in use of machinery and of primary power is possible only through the increase in the capital employed. No other conceivable way.

No "decoupling" of output from "horsepower." We'll come back to that.

Meanwhile, it was fascinating to discover that Snyder was as infatuated with Svante August Arrhenius's cosmical physics as he was with capitalism's immaculately-conceived incarnation of Vilfredo Pareto's law of income distribution. Arrhenius is best known today for his 1896 theory that climate may be affected by decreases or increases in the atmospheric concentration of carbon dioxide and other, so-called greenhouse gases.

In addition to his glowing review in the New York Times of Arrhenius's  Das Werden der Welten, the headline of which is reproduced in the lead graphic of this post, Snyder wrote The World Machine -- The First Phase -- The Cosmic Mechanism, a book he described as the "first connected presentation in English" of Arrhenius's ideas:

These ideas formed, as it were, the capstone or the keystone of a view of the world-process which has been slowly growing through the centuries and that must eventually impose upon all who trouble their minds with such matters. 

Getting back to that matter of decoupling output from horsepower, at least, Snyder's "no conceivable way" may turn out to be pretty hard to dispute, after all. The graph below is from Rethinking Economic Growth Theory from a Biophysical Perspective, by Blair Fix. It plots five-year average growth rates for "useful work" and real GDP.

There doesn't appear to be any trend of decoupling here, as there is for the relationship between GDP growth and primary energy consumption. This would suggest that most of past energy savings have come from efficiency gains in the conversion of primary energy to useful work. Fix explains that "this embodied form of technological progress has inherent limits stipulated by the laws of thermodynamics." See also the following presentation by Blair Fix, "Economic Growth as a Power Process" October 27, 2015:

ABSTRACT: Is economic growth a miracle of the free market? According to mainstream theory, growth is best ensured through conditions of ‘perfect competition’. However, economic growth is tightly correlated with the concentration of power in the hands of large corporations. Why? The capital as power framework provides potential answers that turn mainstream theory on its head: growth seems to be intimately related to the formation of hierarchy. Blair Fix is a PhD student at the Faculty of Environmental Studies, York University.

In a roundabout way, Fix's argument brings us back to to the Pareto power law of income distribution, by way of George Zipf (and Zipf mostly by way of Mario Giampietro!). Only this time, the implication is less beneficent than Snyder's notion of the "true creators... the true saviours of our modern world" (Chapter VII of Capitalism the Creator is titled "Capitalism the Beneficent").

But let us not part on a sour note! Here is Carl Snyder's idyllic vision of the future Technology has in store for us all:

We shall not need old age pensions or security laws, because the advance in Technology will not be confined to machinery and to processes; we shall have an equal advance in the technique (very simple and, as we now know, easily attained) of economic and monetary stability, so that we shall have no more business depressions, nor crazy speculation, nor wide unemployment and decline in the production of wealth. And these will be eradicated, not by childish and futile attempts at government fiat, but by the unbelievably simple methods of credit control. That is, we shall learn to understand and run the economic mechanism as smoothly as we do now that of a powerful electro-generating plant, or a Leviathan of the sea; and economics and economists, perhaps, will rise to larger knowledge and a new dignity and sphere of usefulness.

Unbelievably simple? Simply unbelievable.

Who Are The Secular Theists/Creationists?

On today's  Washington Post editorial page, George Will propounds on "Creationists of the Secular Kind," (whom he also calls "Secular Theists") whom he sees as far worse for society and the economy than the "religious creationists."  He is inspired in his discussion by earlier arguments by libertarian/Austrian economist Don Boudreaux, who runs the blog, Cafe Hayek, citing him specifically and largely drawing on arguments made by Boudreaux in several places, with I think Boudreaux coining both of these terms and making the main argument here.  There are two parts to this argument, both of them in Boudreaux's original post (along with some related blogposts by others) as well as in Will's column.

The main argument is garden variety libertarianism: government regulations and efforts to direct the economy will end up strangling economic growth, most specifically slowing useful technological change that emerges from competition in a Darwinian evolutionary manner (Schumpeter argued this, but he does not get cited by any of these people, bad Austrian that he was), with a more general argument for the spontaneous emergence of market order, drawing heavily on arguments made by Hayek in many places, who in turn credited Adam Smith for this idea.  Both Boudreaux and Will criticize "progressives" (Boudreaux) and "presidential campaigns" (Will) for believing in the "fatal conceit" (from the title of Hayek's last book) that government or planners or "the state" can somehow improve on the spontaneously emergent market system.  While this is just old hat laissez-faire libertarianism, it has this spice of emergent order, which Hayek identified with complexity, that supposedly makes it more impressive and undeniable, although this has been around since at least the late 1940s when Hayek first made such arguments.

Of course it can be argued that with respect to the basic argument about technological change, it may be that government actions can help stimulate it, although certainly they can also restrain or block it.  Among actions that may stimulate it are funding for research, properly structured patent systems (arguably not what we have now), and subsidies to support new technologies, although these can certainly sometimes end up being inefficient pork barrel boondoggles.

Nevertheless, this is an area where I think that Will's initial slam on the supposed "secular creationists" as being worse than the religious ones may be seriously wrong.  After all, we have many of these people not only overtly blocking such specific scientific research projects as stem cell research, but also trying to block research on climate change, the effects of gun violence, and many other things, not to mention trying to control our educational system to  insert teaching of indeed "special creation," which is just their efforts to impose their narrow theological beliefs on everybody.  They are far more dangerous to technological change than are most current "secular theists,"although I grant there are some leftists who oppose certain kinds of research, such as on GMOs, not to mention the more recent general movement on many campuses to restrict academic freedom of speech.

While I disagree with them on this, it is the second argument where I think both Boudreaux and Will simply lose it completely.  This part of the argument says that not only are these awful secular theists trying to strangle economic growth with their awful regulations, they also do not accept the idea of the spontaneous emergence of market orders, that they believe that market orders must be created by somebody, which is what their real error or crime of "secular creationism" is.

As Boudreaux puts it:
"Order must, for  secular theists, be the result of a [sic] some higher that designs, intends, imposes, and guides willfully the order that we see about us."

Will's formulation is this:
"Like religious creationists gazing upon biological complexity, secular theists assume that social complexity requires an intentional design imposed from on high by wise designers, a.k.a. them."

Now this is a much stronger argument, with Boudreaux rushing to meet possible objections at the end of the linked post above to dispute any idea that anything like the US Constitutional Convention was such an ordering-from-on-high body, that most of the legal  structure of the US predated it, and so on and so forth.  Curiously, when I looked at the comment thread to his post, I did not see anybody really trying to argue with him on this point.

OK, this is where I am ready to take both of them down hard.  Who are these people they claim believe this argument?  They never name any names, neither one of them nor any of their pals posting on this either.  Boudreaux refers to "progressives," but he names nobody.  Certainly there have been leaders  who at certain moments did things that altered how the economy works (and, of course, command socialist central planners do take control of economies and guide them, but they are the ultimate enemy criticized by Hayek in the socialist planning controversy).  It is not just the US constitutional convention, but such things as Napoleon imposing his legal code (which was drawn heavily on earlier codes) or FDR doing his New Deal, or even something like the Bretton Woods conference that established organizations to oversee the international economy.

But, taking into account that indeed there have been such moments or leaders who have strongly influenced and changed how the market economy works, I am frankly unaware of anybody who denies that in general market economies spontaneously develop through competitive evolutionary processes, even if these are bounded or to some extent guided by organizations or institutions that themselves evolve, if occasionally with a helping hand from governments. But I am at a loss to think of anybody other than full-bore conspiracy theorists who believe anything like the statements I have quoted above by Boudreaux and Will to the effect that all social order has to have been consciously imposed by somebody or other, and this included Karl Marx most especially, who strongly argued that the capitalist economy evolves through competitive natural selection, Marx being one of the very first to openly praise Darwin when he published his Origin of the Species after it was published in 1859.

So, to be very blunt, both Boudreaux and Will are just completely wrong and full of it on this point.  They are fantasizing.  They can argue from a long tradition of libertarian pro-laissez faire schools that free markets may do better than ones heavily interfered with by governments, but trying to add onto this the ridiculous claim that those who think governments might be able to help economies by proper interventions also believe that there is no such thing as a spontaneously evolved and emerged order and that everything we see must have been planned by somebody, well, this is itself a fatal conceit of the worst and silliest kind.

I shall close this by pointing out that Boudreaux himself completely undermines his own case in this original post, linked to above. Among the supposed idiocies of all these secular theists and creationists is that somehow they do not recognize the virtues and successes of the "somewhat deregulated" economies of [South] Korea, Taiwan, and, yes, China.  Oh my.  But the joke is that none of these is remotely his model of libertarian laissez-faire.  He would have had more credibility if he had cited that old libertarian fave, Hong Kong, but no, we have this bizarre trio.  I do not know how ignorant he is on this, but all of these economies have been marked by lots of government intervention and direction by the state.  Taiwan may be the most free market, but it still has much government intervention.  South Korea had vigorous indicative planning during its highest rate of growth phase during the 60s-80s, and China still has such planning, having just announced its 13th Five Year Plan.  Yes, they still have those, indeed are bragging that they have now beaten the old Soviet Union, which only managed to have 12 of them.  Among at least semi-large economies, only Iran still has such Five Year Plans for an overall economy. Even North Korea no longer has them.

As for Will, well, he cribs from Boudreaux and others about various forms of evolutionary emergence such as languages and boat technology, and so on, none of it original.  But, again, just as with Boudreaux, amazingly enough for all the vitriol and scorn being leveled at all these deluded and dangerous secular theists/creationists, he never names anybody, leaving those "presidential campaigns" at just that, just as Boudreaux is satisfied to snipe at nameless "progressives."  Obviously Will is trying to take a broad and long view and perspective for the end of the year with this, but in the end he just falls pompously on his face as he so often does.  He is such a joke, he barely even merits being in that class of absurd observers so many of us ridicule as being the Very Serious People, who heavily populate the editorial page of the Washington Post.

Barkley Rosser

Addenda:

1)  Cuba also  has 5 Year Plans, with a new one adopted just this year, with these having strong command elements, even as the Cuban economy moves more in the direction of marketization.  While North Korea probably still has the most intense command planning, it also has increasing markets, unofficial, especially in agriculture.  Its 5 Year Plans basically broke down during the famine of 20 years ago.  Planning continues but is much more year to year, semi-ad-hoc.  Iran's planning is strictly of the indicative sort.  Turkmenistan continues to have command planning along with a heavily state-owned economy, although it does not seem to have 5 Year Plans.  Ironically while China's central planning is mostly indicative, there do remain command portions in it, making even more of a mockery of Boudreaux'as abysmally nonsensical argument.

Regarding whether there have ever been any serious economists (or social theorists or even just general public intellectuals and commentators)  who really go along with this caricature that Boudreaux and Will put forth about people who believe that all observed social order (or complexity) must somehow be the result of design or higher orders from somebody, well, perhaps the most likely candidates for their accusations might be some of the Old Institutionalists, perhaps John R. Commons and his empahsis on the legal foundations of capitalism.  However, for all his emphasis on the importance of consciously established institutions, especially legal ones, Commons also recognized evolutionary forces to some extent.  Indeed, my wife and I are working on a paper that discusses this very point now, with Old Institutionalist figues as Veblen clearly very strong on evolutionary economics, even if Commons did not go along as much.

Further Addendum, 12/28/15, 4:10 PM

Ah ha!  I have come up with more candidates for this dread category of secular theists/creationists, which might fit the political agenda of Boudreaux and Will along with broader one as well.  Among economists there is the chartalist school of thought in monetary theory that has its current manifestation in the Post Keynesian Modern Monetary Theory (MMT) approach.  In at least one area the MMT view holds that what we see is due to state action and state action pretty much alone, namely the money supply, although that is ultimately endogenous.  In any case, the /chartalist/MMT view is that only governments create money, with particularly what gets paid as taxes counting as "money."  When confronted with spontaneously emerged media of exchange in "primitive" societies such as cowrie shells or even older debt arrangements as discussed by anthropologist David Graeber, these are not "money" by definition because they are not used to pay taxes to a state that established them as such.  Really the most important aspect of money is as a unit of account, and again that unit that defines what one can pay in taxes.

So, this gives a candidate with a strong connection to a progressive presidential candidate, Boudreaux having singled out progressives as prominent among these "secular theists" (although some of the old progressives were Social Christians), and Will whomped down on "presidential camgaigns." So, who is the most progressive of presidential candidates?  None other than good old democratic socialist Bernie Sanders.  And guess who is top economic adviser is? Ah ha!  None other than Stephanie Kelton, a leading advocate of the MMT approach.  We have found them!

Well, I have two observations on this.  While certainly Stephanie sees this very strong role of the state in creating money, I do not think she or any of her main allies such as Randy Wray think that all things in the economy are determined by state action or some other higher order (I could be mistaken, and if either of them or any of their other allies wishes to disagree with me on this, I shall accept it). But I think that while they see strong state influences on market economies, certainly on the monetary side, they do not see every form of order in markets as due to this.  I think that at least they accept that there are competitive evolutionary processes going on in market capitalist economies that drive technological and institutional change over time through market forces with the role of the state in more of a bounding and institutional framework role.  I also think this applies to Sanders, who, after all, when being called out on his socialism in the first Dem debate cited Denmark and went on to praise its policies encouraging small businesses, which are not generally directly run or controlled in market economies, which Denmark is.  So, I really do not think either of them fits the strong claim made about people who think all social order or complexity is determined from above.

Which brings me to my second point that I think involves the heart of how both Boudreaux and Will have made such fools of themselves over this.  I think that they simply do not realize that they are talking about two separate things: advocating a strong and guiding state role in the economy versus saying that even in the most laissez-faire economy there is some higher controlling driving force.  This is  really seen by their dragging in Hayek so insistently, whose critique of "the fatal conceit" of thinking that societies can be "socially engineered" through central planning  they basically cite.  Now neither Kelton nor Sanders even favors central planning, although they certainly do support more government intervention in the economy than most economists or politicians in the US. But such advocacy has nothing whatsoever to do with this second bit about how supposedly all order we see is planned or guided from above.  This is their fundamental error and confusion, thinking these are the same when they are not.  They want to hang this idiotic idea on those who think that government actions might improve the economy, but it remains the case that I cannot think of a single economist of any ideology or period who believes this ridiculous proposition that is the real heart of this silly so-called "secular theism" or "secular creationism."