Obey's Blog

Goodbye friends, enemies, frenemies

2010-09-09T10:38:45Z

Well, there have been enough tearful huggy threads over the past week, so I'll keep it short. This has been a special place for me over the last couple of years. I have discovered some great writers, been inspired by some great ideas, and touched by some great souls. I will miss this forum and dearly hope it comes back in some form in the near future.

In the meantime I will be lurking from time to time around TPM, and I will check the new tpm refugee sites regularly. For anyone who cares, I've got my first reader post up at dagblog. It seems to be going smoothly. I can also be reached at my own posterous blog, which I'll be cranking up again (just leave a comment under any post and I will see it the same day).

p.s. can someone tell me if I already have a disqus account? and if not should I? and if so, how do I do it...?

Bernankology - a brief introduction

2010-07-26T14:30:25Z

Every morning Fed Chairman, loving husband and father, Ben Bernanke wakes up, walks over to the hospital where the economy lies in a coma, and shoots the economy in the face.

No one knows if the economy will apologize to Ben, since it is still in a coma.

But the bigger mystery is why Ben does this. 'Economists', who used to study the behavior of the economy (which has become a bit boring since it went into a coma), have turned en masse to the study of Ben's curious behavior, a burgeoning scientific field dubbed 'Bernankology'. And now, not a day passes without a new Bernankology study.

Methods vary. Some have tried simply asking Ben himself why he keeps shooting the economy in the face. But he merely shrugs and snarls, "fuck off! There wouldn't even be an economy if it weren't for me."

Others have prefered to look at history, and note that other central bankers have in the past also shot the economy in the face - but only did so if the economy had become excitable and started asking for a raise. But since the economy is in a coma, one assumes it has not of late made any such demand. Some say Ben may be worried that the economy could suddenly wake up and spring the question on him, thus warranting pre-emptive facial buck-shot. But others note, rightly, that if he keeps shooting it in the face, it is unlikely to wake up at all, and that his worries sound a bit paranoid.

A new, more promising, school of thought now suggests that the problem is political: it might be too politically controversial for Bernanke to take the measures necessary to stop himself from shooting the economy in the face. In other words, if he were to stop he would be seen as a partisan supporting a Democratic administration which wants the economy to live. Were the Democrats allowed to campaign during the next election next to a living breathing economy, it would provide a transparently unfair advantage. Hence the importance of demonstrating central bank independence by shooting the said economy repeatedly in the face. Only once a future Republican administration is installed can the suspicions of partisanship be lifted, and Ben can finally stop trying to blow its head off.

The controversy continues. Meanwhile onlookers and passers-by are cautioned not to make any sudden movements or loud noises as Ben may mistake you for an economy.

How to make an economist cry in five easy steps (An illustrated blog on the meaning of 'economic growth')

2010-01-14T14:50:41Z

(For my feathered friend)

There is something mildly insane about the current econo-pundit debate on the state of the US economy and what should be done about it. They are discussing to what extent the free-market structure of the economy despite current problems is nonetheless quite broadly a success, and hence to what extent it should be reformed (if at all).

What's strange about this debate is the standard of 'success' that all parties seem to agree on: GDP, or GDP growth. The right claims that US growth has outstripped that of other less free-market based economies, and the left claims that it hasn't. The right somewhat misleadingly points to absolute GDP growth whereas the left points to GDP growth adjusted for population growth (the US population is growing faster than the EU or Japan). On the former measure the US leaves the competition far behind, but on the latter the gap narrows significantly. But on either measure the US comes off looking quite good:

Conservatives point to an economy that has almost tripled in size over 35 years and Liberals point to an economy that has almost doubled relative to its population over that period - more or less in line with other developed countries. In short, the liberal end of the spectrum of respectable opinion is that free-market economics is successful, but just not uniquely so.

So, why should the consensual focus on GDP be 'strange'? The idea behind using GDP is that

1.    GDP constitutes a rough measure of how much stuff a society produces, and
therefore
2.    the more stuff people produce, all other things equal the more they have, and
3.    the more stuff they have, all things equal the better off they are.

Now, the inference (3) here is really a matter of moral philosophy which you can argue over until your head falls off. And the premise (1) about GDP being a decent measure of the value of stuff produced can also be picked apart in all kinds of ways.

But inference (2) is really a pretty basic empirical matter: GDP is only a very approximate indicator of the level of prosperity within a society since a lot of other things factor in, and these 'other things' are very rarely 'equal'. If you want to measure the prosperity of a society, you measure the prosperity of the people that compose the society.

So if you're using the amount of stuff people have as a standard of well-being, you should look at household incomes, which will tell you how much stuff people can buy - or their 'purchasing power'. If you point this out to them, economists will oblige and direct you to look at the evolution of average, or 'mean', household incomes, where things look less impressive:

Over 35 years, American households have seen an average increase of 33% in the amount of stuff it can buy. That's still good, though not quite brilliant. Right-wingers, eager to defend the wild success of this economic model, will point out that this income figure only includes cash income, leaving out non-cash benefits such as health care coverage whose cost in absolute terms has increased exponentially over this period. The partial rejoinder here is that you can measure the value of the said health care services independently of their cost: by looking at the health care systems of other countries with comparable outcomes which price those services at half that of the US system. So if the average household gets 15'000 dollars in health care services, those services are worth only 8'000. It's the relative inefficiencies of the US system that in various ways inflate the price of such services. Moreover, the non-cash 'benefits' in other industrialized countries outside of health care, such as job security, labor rights, and unemployment insurance, are hard to quantify though they are clearly of greater value than in the US (otherwise why do we call them 'social welfare states'?).

But, going back to the broader issue, anyone who remembers their high-school statistics class will at this point be reminded of the difference between averages and medians. To jog your memory: if you put Bill Gates in a room full of Mongolian goat-herders, the 'average' wealth in that room may be very high though most people there are nevertheless very poor. If Gates then goes on to steal all their goats, most people in there are even poorer (and likely pissed off...) though the 'average' wealth remains the same. In short, talking in terms of averages can cover up a lot of iniquity.

To get a picture of the overall level of prosperity in a given group, you need to look at how prosperous an ordinary member of that group is, since the wealth might be concentrated amongst some small subset of the group. You need to look at median household income, which you get by ordering the set of households according to their level of income and picking out the income of the household in the middle of that series. So how much better off is the typical middle of the road middle class American family?

Now things start looking really embarrassing for all those economists across the existing ideological spectrum who all agree that free markets, free trade, and even to some extent low taxes, are supposed to be wonderful engines of prosperity for at least most members of society. A fifteen percent increase in income for ordinary Americans over a 35 year stretch is hardly something to shout about. It's so embarrassing that economists understandably prefer to talk about that nice abstraction they call GDP growth. Nevertheless, in their defence, fifteen percent growth is still better than nothing, isn't it? Whatever the economic elites are doing, they seem on this measure to at least be making things marginally better. And they will tend to say, in their own defence, that this number is actually skewed by the fact that the size of households has shrunk over that time (from 3 people per household to the current 2.5).

So let us grant them that, and turn away from talk of household income. Let us instead look at individual working adults, the median American worker's income, and see how much more they are taking home if they work full-time:

Now you see why I had to use a fancy-pants three-dimensional bar graph: the growth in median wages is pretty much invisible to the naked eye from a horizontal view-point. The median income of full-time workers has not improved at all over the last 35 years: a total of 0.9% in aggregate wage growth. And, no, that's not a typo. The Homer Simpsons of 2007 are making no more than the Archie Bunkers of 1973 (he's the seventies, right...?).

This is pretty shocking. All the increase in income for ordinary families comes from working longer hours. None of the added wealth comes from an increase in the level of wages. Even the Stalinists had figured out how to produce that kind of 'economic growth'.* The fine art of economics was supposed to be about increasing efficiency such that people had more stuff for the same amount of effort. That's what I thought we were paying these people the big bucks for. But all we've got is more stuff through more effort. Not exactly rocket science...

One assumed, or at least I did, that economists - and, on their cue, the media - focused so intensely on GDP numbers because these were a rough but adequate indicator of the level of prosperity in society, that they ignored the actual direct measure of prosperity for ordinary members of society simply because GDP growth approximately reflected the growth in prosperity across society. Sure, you hear every now and then about rising inequality, yet you assume some of those trillions of dollars must 'trickle down'. But these implicit assumptions are wrong. Our 'dismal scientists' actually ignore the real numbers because the real numbers are beyond dismal: they're awful. It's a problem for economists, because they can't keep going around claiming they know what they are doing when they mold society according to the free-market model and show no improvement for ordinary Americans after 35 years of such an experiment. Consequently, they flaunt a number that looks great, yet that number does not reflect what they imply it does. I don't know where these people come from, but where I come from we call that 'lying'.

So the next time you run into an economist, ask him or her whether they think this economic model is a success. And, if so, according to what 'utility function' does

-    throwing another 8 million children under the poverty line**,
-    making a few thousand old white guys insanely rich, and
-    pretty much leaving everyone else where they were,

amount to economic 'success'?

Or, if he prattles on about the virtues of self-regulating markets, labor flexibility, comparative advantage, just work up your best Cuba Gooding Jr. impression and say

Show Me The Money!

(If you're bored, you can stop reading here. If you have some questions about the numbers presented, keep going...)

]]> Coda. - preemptive responses to some possible quibbles with my numbers

When I first heard these numbers, I found them unbelievable. It just seems impossible to have an economy where workers are 50% more productive than 35 years ago***, and see absolutely no wage gains over that time. So I double-checked (see U.S. Census Bureau, Current Population Reports, P60-236, Income, Poverty, and Health Insurance Coverage in the United States: 2008, cf. p. 43 on median full-time worker compensation which gives you a median worker income in 1973 of $42'088 in adjusted 2008 dollars, and a median in 2007 of $42'480)****. In general, all the numbers cited come from this report or from the St. Louis Fed, unless otherwise specified.

Since I find these numbers hard to believe, I'll assume you find them hard to believe too. So let me just clarify what I have been careful to do to avoid distorting the figures and the trend in any way.

Firstly, it's easy to misrepresent a trend with graphs, i.e. you can draw graphs which make a trend look great if you start your series at the bottom of a business cycle - in the trough of a recession - and end it at the top of some subsequent expansion. By the same token, it's easy to make things look overly bad by starting at the top of a cycle and ending your series at the bottom of a recession. To avoid misrepresenting things, I've chosen the top of the business cycle which occurred in 1973 (the median worker income for 1972 and 1974 were both below $41'000) as a starting point, and the top of the last business cycle before the start of the current recession as an end-point.

Yet note that, if the current recession is as bad as the 1974 and 1981 recessions, then median worker (and household) incomes can be expected to fall 6% from the peak in 2007. If it turns out to be worse and more prolonged than those previous recessions, then they could fall up to 10%, to wage levels last seen in the 1960's.

Here is a graph of the trend lines for these GDP and income measures going back to the 60's

Another thing that might distort the picture of wage evolution for American workers is ignoring the possible effect of low-wage immigration, whereby what superficially looks like wage stagnation in fact hides a reality in which ordinary Americans may be seeing wage-increases and are just being replaced by new entrants on the lower end of the wage-scale thus making it misleadingly appear as though there is no progress. So I looked at that as well. If you focus only on the group called 'non-Hispanic whites' in the census figures, you should get numbers independent of this 'immigration effect'. And what do they show? Median household incomes for this group rose 16.9% over the '73-'07 period as compared to 14.5% for the general population, and if you then account for the increase in number of workers per household, you have a still insignificant increase of 3% over 35 years in wages for non-immigrants. So it doesn't look like introducing this 'immigration' excuse into the conversation changes things materially. (There are other ways in which immigration can possibly affect wage levels, but I won't get into that here).

A third point worth making is that I'm using figures for pre-tax income. So if you are to get a figure for median net income - income you can spend on 'stuff' - you need to find out how much less the median family now pays in taxes. I don't have an exact figure for that, though, roughly, payroll taxes have risen and income taxes have fallen. One source asserts that the average net effect of these changes on incomes for the bottom 90% of Americans is a tax cut of only 2% (but, again 'averages' are not 'medians', caveat emptor). So it's possible that changes in levels of taxation do not materially affect the accuracy of the picture I sketch above. But, beyond that, current tax rates are in any case unsustainable given the size of the long-term deficits the government is running. So the marginal improvement that has occurred due to tax-cuts that are not paid for (by a commensurate reduction in government spending) is largely illusory.

A fourth way in which some uncertainty gets injected into these numbers is estimates concerning the inflation rate. Some believe the CPI overstates inflation, as, say, the improvement in our tech hardware (personal computers, mobile phones, cars) is not adequately accounted for - thereby obscuring real increases in wage levels. Others believe the CPI understates inflation, as, say, falling food quality (think faeces-infested hamburger meat or GM corn that causes organ damage) is not adequately accounted for - thereby obscuring the underlying erosion in real wage levels. I have my own half-baked ideas on this, the upshot of which is that the CPI understates inflation for the typical basket of goods purchased by lower-income brackets and overstates it for the typical basket purchased by higher-income brackets. In which case the trend towards greater inequality is worse than it appears.

And finally, if you think that wage evolution in those socialist hell-holes must surely be even worse than in the US, take a look at this graph. It's just anecdotal evidence, but if you look at the particular case of manufacturing wages (production workers, excluding management, etc) you get an inverse relationship in the rate of GDP growth a country achieves versus the rate of wage growth they achieve: the Japanese, who have had the worst GDP growth over the last 20 years, have had the greatest wage growth.

And with that, I bid you good day.

Footnotes.
* To the extent that most Americans have seen economic growth in any tangible way, it's been in the form of Soviet-style economic growth. The USSR in the '50s had an economy that grew at an impressive rate leading Khrushchev to say 'We will bury you' - by which he meant economically outperform us. But that growth came pretty much exclusively from rapidly bringing more people - men and women - into the workforce as a way of boosting production. Once full employment was reached, the economy stagnated. And once more and more of that economy was dedicated to producing stuff like guns and tanks that normal people can't really use, the economy fell apart as the stagnating productivity/production rate combined with less and less of that 'product' going to households to create shortages in household goods. That is what is happening here (or, ahem, at least the first part of that story): median household incomes are up only because there are more workers working more hours in most American households.

** This number reflects the increase in the number of children under the poverty line. The 1973 rate was 14.5%, and it is currently (end-year 2009) running at 21% and rising. 14.5% of 50 million in total child population in 1973 is 7.25 million, and 21% of 75 million children now is 15.75 million children. This gives you an increase of 8.5 million in the number of children in poverty. Of course that does not take into account the cumulative effect of this 35 year trend, which would make the number of children affected over the years much higher. (And, if you were wondering: no, discounting the effect of immigration does not materially affect this trend.) I should however note that the poverty rate for seniors has been almost halved over the same time-span. See graph here for the evolution of the poverty rate for various sections of the population.

*** I.e. there are now roughly twice as many workers producing roughly three times more stuff.

**** More precisely put, I've taken the weighted average of the median male and median female full-time worker compensation: - 1973: 39,581,000 full-time male workers with a median of $48,452 and 17,195,000 females with a median of $27,440. - 2007: 62,984,000 males with a median of $46,846 and 45,613,000 females with a median of $36,451.

101 Damnations - a simplified model of Senate mechanics

2009-12-16T17:29:29Z

Take a hundred and one random pompous old white men and women. (For convenience, I'm counting the VP as a senate member).

Number them from 1 to 101 according to how they think national income should be distributed, such that number 1 (eg. Someone like Sanders) prefers national income to be distributed with maximal equality across the population, and 101 (eg. Someone like ~~Lieberman~~ McConnell) prefers it to be distributed with maximal inequality across the population. Call number 1 the extreme 'left-wing' and number 101 the extreme 'right-wing'.

Put them in a room, call it a 'Senate', and let them decide how to run the country - i.e. determine the laws providing the economic framework by which the national income is distributed.

Let them also decide how to decide how to run the country - i.e. determine the rules by which they determine those laws. (This will be important later)

Then look at their collective preference as revealed by their collective action. Over the last thirty years their collective revealed preference has been an income distribution according to which most of the increase in national income goes exclusively to the richest 1% of the population, inequality has increased exponentially, 50 million people face 'food insecurity', and 44 million people lack adequate health care.

Let us call this collective revealed preference the 'mean senatorial preference'. And let us call the preference of senator number 51 (according to our numbering criterion above) the 'median senatorial preference'.

Now, my question is, why is the 'mean senatorial preference' consistently more right-wing than the 'median senatorial preference'? I.e. the revealed preference of the collective Senate decisions is consistently to the right of the preference of the median senatorial preference. And this is odd, since you would expect the collective decisions, at least in aggregate, to reflect the preferences of senator 51.

You would expect this because, if the senators institute simple majority rule, then in order to get Senator 51's vote any bill must fit his preferences more than the status quo - i.e. more than passing no bill. And in majority rule any bill requires Senator 51's vote.

Equally, if the senators institute supermajority rule (i.e. the current 60 vote convention), then half the time the Senator 60's preferences will have to be met (on all bills preferable to everyone to his left), and half the time Senator 41's preferences will have to be met (on all bills preferable to everyone on his right). Which means that in the aggregate the decisions of the Senate would trend towards reflecting the preferences of Senator 51.

In short, whether the Senators choose majority rule or supermajority rule, it really should not change one's expectations about the revealed collective preference of the Senate.

And yet it doesn't reflect the preferences of Senator 51. I don't think it is realistic to believe that the individuals who have played this role of 'median Senator' over the past 30 years have preferred the economic distribution that the Senate has decided to implement. In my opinion, the economic distribution that the Senate has chosen represents the preference of perhaps Senator 60 or Senator 70. So why is the 'mean Senator' not the 'median Senator'?

What is going on? Here's a quick theory: the above model assumes that the Status Quo is politically neutral. And that is a mistake.

While Liberals like to say that

'Reality has a liberal bias',

I'd personally add somewhat pessimistically that

'The Status quo has a Conservative bias'.

Where, by 'Conservative', I mean 'right-wing' as defined in (re)distributive justice terms above. Why would this be the case? Because any economic framework, unless continually modified, will get undermined by the most powerful individuals in society as they exploit flaws in regulations, etc, driving income distribution upwards. Eg. Financial innovations such as derivatives, SIVs, rendered existing financial regulations obsolete and exploited the absence of new regulations to eventually transfer a vast portion of national income to top income-earners in the financial sector. Equally, in the absence of new Health Care Reform the status quo will trend towards transferring more income from the middle class to top income-earners in the health care sector. Or also, in the absence of legislation providing new revenue, worries about Federal liabilities relating to Social Security will at some point cause a bond market revolt leading in all probability to 'emergency' legislation forcibly defaulting on SS obligations (at least, that is the ostensible 'Starve the Beast' strategy of the right). 'Emergency' legislation passed in a crisis, if you haven't noticed, is always an excuse to transfer income to the rich.

What is the import of this (pretty obvious) point? If you accept that the Status Quo has a big-C Conservative bias, then it changes the model of Senate mechanics, if you have a supermajority system as the present Senate has chosen to use. If the status quo already corresponds to Senator 60's preferred economic outcome, then no bill corresponding to the median senator's preferred economic outcome will pass. In fact, all bills that do pass will have an economic outcome corresponding to Senator 60's preferred outcome. Because no bill to the left of his preferences will for him be preferable to the Status quo trend, and he will prefer merely to block it. The idea that the current supermajority system by turns benefits both wings of the political spectrum - as the alternating minority party is able to block majority decisions - is simply wrong. Supermajority voting always benefits the right-wing, because the Status quo has a right-wing bias.

I grant that even this is pretty obvious. But if it is so obvious, why does the Senate - by a simple majority system - pass, every year, Senate rules that are so structured to have their collective revealed preference to correspond to the individual preference of a relatively right-wing Senator? After all, Senators 1 to 51 all prefer their collective legislative decisions over time to reflect senator 51's preferences rather than senator 60's preferences. And yet, they choose to implement a system where their decisions will reflect the latter.

P.S. I threw this out there a bit quick, so sorry if there is some glaring mistake somewhere. But just wondered what others think the dynamics are here. This blog was inspired by Miguel's excellent description of the (quite different but complementary) dynamics of skewed incentives for political representatives.

P.P.S. And why oh why does my Msft Word spell-check not recognize the word 'blog'?!

Obama's speech and some thoughts on the morality of war

2009-12-10T17:25:29Z

I just watched his speech in Oslo. I was horrified. And as I watched the faces in the crowd, I could see that they as well were desperately waiting for a line they could applaud. How do you go to accept a Peace Prize and use that as an occasion to offer an apologia for war? Not just war of self-defence, not just war of humanitarian intervention, but war as part of the grown-up's toolbox in dealing with that petulant pest of human existence - Evil. How do you accept a Peace Prize by standing on a podium and defending, proudly, your nation's record of war-making - selling, proudly, the idea of 'Peace through War'? Wrong speech for the wrong occasion exhibiting horribly wrong thinking, imo...

War has no justification. Yes, yes, there's the whole venerable 'Just War' intellectual industry, a profession almost as old as prostitution. But it's an industry that has been kept alive across the centuries thanks to the subsidy from dictators and politicians in search of moral innovation - some reason to think they aren't going to hell. And yes, war ideally is a noble matter of grown men voluntarily dressing up in two sets of uniforms that signal to the guys on the other side, "shoot me, it's okay", and then going out into a field and killing each other until the two sides agree on a 'winner'. And I really have no problem with grown men doing so if they want to.

But down on planet Earth, that is not how war actually works. When you decide to go to war, you do so knowing full well that you are going to kill innocent people. It's not just that you risk killing them. You will kill them, and you know it. It's not an occasional and incidental part of war-making, it's essential to its very nature, for a number of reasons which I don't think I need to get into. And however many fine philosophers you pay to make subtle distinctions in notions of 'intention' and 'double effect', that amounts to premeditated murder. To me, it's really that simple.

I realize that there is something dickish about putting the argument this way. I realize that there are soldiers and ex-soldiers among the readership of this site. And I'm not going to pretend that I understand what it is like to go to war, nor do I intend to diminish their sacrifice or service. Morality is messy, and I really don't see the difficulty in being proud or admiring of people willing to put their life on the line for their country while also finding the nation's endeavor of war-making that they are volunteering for unjustifiable.

I also realize that you can achieve good things through war. The Second World War rid the world of National Socialism. The Balkan War and the War in Iraq freed the Kosovars and the Shiites and Kurds, respectively. But there is something wrong with regarding moral justification as a cost-benefit calculus, where one tallies the number of the innocent dead up against the increased well-being of the living. How many innocent people is it okay to kill to free a country from oppression? How many innocent people is it okay to kill to prevent someone else from killing other innocent people? Dogmatic utilitarianism aside, moral calculations just don't work this way except in moments of craven rationalization.

It's easy to make that kind of justifying arguments to yourself in the comfort of your easy-chair But have you tried justifying, say, the Balkan war, when you're sitting across from a Serbian girl who was there, crouching in her Belgrade basement as Americans rained down bombs helter-skelter across the city? (Yes, I'm speaking from personal experience, alas.) Even if, from some cosmic perspective, you think it was ultimately all for the best, in such circumstances basic human decency really requires you to shut the fuck up and rethink things less 'cosmically'.

Now, if you have managed to read this far, you're probably thinking 'Obey, you're an innocent (viz. stupid) idealist with no sense of the hard-headed pragmatism we need in our political leaders'. The pacifism I seem to be advocating is just the kind of self-righteous bullshit spouted by delicate little clean-fingered vegan tree-huggers.

But that's not really what I'm saying. I find justification of war to be not just wrong but an unrealistic proposition. Maybe a strange way of putting it is this: I'm not actually an outright pacifist, but to the extent that I'm not I'm being immoral. I at one point endorsed the Afghanistan war, to the extent that it seemed a viable means to ensuring national security. And even if that assessment had been right, it still wouldn't redeem the deaths of thousands of civilians killed in our name. There is no justification for war and the sins it involves, though there are sometimes excuses ('I was afraid for my country, my loved ones', 'I didn't mean to kill them...'), which don't however absolve you of responsibility for the underlying wrongdoing. One might nevertheless say that excuses do make it humanly comprehensible.

More directly to the point: if you knowingly kill an innocent bystander, even if you do so to save other innocents, you are culpably responsible for that death. And the appropriate - or even: natural - response is to feel the emotion of guilt. There is something strange and unrealistic about expecting a different response. There would be something inhuman about someone running up the numbers on the lives he has taken and the lives he has saved, and feeling redeemed by the positive integer down on the bottom line. Likewise, a statesman may find himself in a position where he sees no choice but to go to war, but it is never an enterprise to be proud of, or somehow - as Obama seems to have done - to brazen it out. It's something to mourn, deplore, regret, and atone for.

The president spoke of keeping one's moral compass - I think he's lost his moral senses.

Questions (and links) on the Ethics of Climate Change

2009-09-25T15:45:42Z

"It is not contrary to reason to prefer the destruction of the whole world to the scratching of my finger." - David Hume (famous philosopher, economist, and ...crazy person)

(Note: the following thoughts are not relevant to those who (a) believe exhaustion of natural resources will bring us back to the stone age before we even have to worry about climate change, (b) believe that climate change is not man-made, (c) all God-fearing people will be raptured away before we (or rather, you) need to worry about climate change. If you are in any of these categories, please ignore this blog).

Some quick questions on what should be done about climate change. Sorry if some of the formulations are a bit opaque. But here goes:

1. Should developed nations move to reduce greenhouse gases even if developing countries do not do so?

- The extent of global warming depends on the amount of greenhouse gases in the atmosphere. If developed nations reduce greenhouse gases by X amount compared to the business-as-usual scenario, that would reduce global warming by a proportional degree. So climate change mitigation policies will still be effective to some degree. The moral argument for inaction seems to be one of fairness, not effectiveness. Which brings us to the further question:

1.1. What is the relevant metric of 'fairness' in climate change mitigation policy? Is it each nation's total contribution to climate change, or per-capita contribution, or something completely different?

- On the one hand, the US and China contribute equivalent amounts of carbon emissions. On the other hand, the US per-capita contribution is four times that of China. Also, Americans have fifteen times the average income of Chinese. Should a 'fair' distribution of sacrifice be proportional to 'ability to pay'?

- Should the relevant metric be 'something completely different', like energy efficiency: the amount of emissions relative to GDP? Or degree of improvement in energy efficiency over time: eg. Increasing energy efficiency by x% each year?

- To what extent should any country worry about fairness as an argument against taking independent action to mitigate climate change?

2. Most measures of the impact of climate change focus on the expected reduction in economic output as compared to the business-as-usual scenario. Is this the correct way to measure it? For instance, it ignores the distribution of impact. If it for instance reduces global output by 2%, but that impact is concentrated in certain developing countries - eg. Reducing their output 50% - does that change the case for climate change? Does it reinforce the imperative to do something about climate change? Does it weaken the imperative (from the point of view of less-impacted developed nations)?

3. Most of the impact of climate change is expected to occur beyond our (or most of our) life-time. It will primarily affect future generations. So it raises the question: what is our duty to future generations? If climate change mitigation slows the growth of our expected income by x%, in order to increase the expected income of future generations by y%, what are the values for x and y that fulfills our duty towards them?

4. Is this framing of the debate - in terms of expected impact (and distribution) of climate change wrong? Should it rather be framed as a question of the value of insuring against catastrophic climate change rendering civilization unviable? If we estimate the chance of catastrophic climate at, say, 5%, what is the price we are willing to pay to insure against extinction?

Some links I found useful:

Estimates on climate change are getting very scary. (Via Kurtz on the TPM front page.)

Climate change mitigation to cost less than 1% of GDP per year.

The US market consequences of climate change - Pew Center.

Brad Delong on ethics of Climate Change.

Matt Yglesias on Climate change and the distribution of impact question.

Lord Stern on China and India's role in climate change mitigation.

Jim Manzi - 'Climate change mitigation policy is Socialism'. (included in the interests of bi-partisanship)

Interesting stats on US greenhouse gas emissions

Myth-busting on climate-change negotiations.

RAND study of cost of renewable energy measures.

CAP on China's efforts to better itself.

Please add useful links (and/or questions) in the comments!

"Who can blame them?" (Death Panels and The latest MSM self-absolution)

2009-08-25T16:57:26Z

"You used to have a rabbit. Beautiful little thing. Do you remember?"
"Flossy."
"That's right. Flossy. Do you remember what happened to Flossy?"
"You shot him."
"That's right. It was the kindest thing to do after he'd been run over by that car."
"Your car, sir."
"Yes, by my car. But even that was an act of mercy when you remember that that dog had been set on him."
"Your dog, sir."
- General Melchett and George (From Blackadder)

The death panel tidal wave has washed over the media and destroyed the whole structure of a slowly and painstakingly constructed national dialogue on the technical and moral underpinnings of health care reform. It's nauseating that one side of the aisle has demagogued an issue that is or should be deeply important to all families. I just don't understand how a whole major party can take end of life issues and treat them with such a lack of respect. And I don't understand how the whole national media could have jumped on this particularly despicable panic-party wagon with such apparent glee.

One of the toughest decisions anyone will have to make in their lives is literally or metaphorically pulling the plug on their parents. Anything that could make these end of life decisions less heart-wrenching just can't be treated in this way; warped out of recognition, caricatured as a monstrous genocidal scheme, and the perpetrators of this outrage treated with respectful kid-gloves in the media.

I spent the last weeks of my father's life at his bedside, keeping one hand on his shoulder all night because it was the only way to calm him enough so that he could sleep, watching him slowly lose his mind due to the meds and the pain, and then finding myself handed the responsibility of deciding to end the brutal treatment that had no chance of saving his life (or perhaps... an ever so slight one...?), with my siblings overseas on the phone wondering whether we shouldn't perhaps let it continue....

Nothing will make such decisions easy, but any discussion of measures that could grant those involved some peace of mind just can't become the center of a national clown-show like what has just happened. I will never cease to be surprised by how low the moral lepers can set the limbo-bar of lunacy and how the media can again and again manage to stoop below it.

The media is not completely blind. They are now involved in their nth cycle of self-reflection as they look on the latest wreckage of their own making. And yet, surprise surprise, they see nothing in that mirror other than a thing of pristine innocence sullied by strange forces quite beyond their control.

After all, they did not push the lies and demagoguery. They merely
- reported what the liars were saying ,
- gave the demagogues a bigger soap-box,
- asked the hard questions, such as "is this tough GOP campaign a good strategy?",

- and then after a couple of weeks decided to check whether the rumors swirling around the village like a tornado were actually founded in fact.

After all, they never ever intended for it to end like this, hysterical gun slinging screamers at town halls, the Hill more and more polarized, two halves of the country convinced the other half are Nazis bent on subverting democracy, the President forced on the defensive...

but GAWD does it make for good TV and flashy headlines.

Anarchy sells, what-are-you-gonna-do...?

This would be less maddening if this moment of reflection actually led to thoughts about how to improve the political discourse. But no. The handwringing concerns primarily their fragile place as an elite that moves and shapes this discourse. The worry issues from a sense that they no longer control things. Oh dear. The poor little big-wigs.

We have Joe Klein whining about the difficulty for the Serious Press in maintaining that sacred convention of giving equal credence to both parties, at a time when one party has become so incredibly stupid. You can almost see him WISH the Democrats would turn into equally pathological liars so that the press could once again appear fair and balanced. "Why oh why do the Dems so want to hurt America with their reasonable fact-based arguments?" Of course, now Klein's piece from five days ago is tucked away in Time's historical archive, and on the front page it's replaced (if it ever was there?) by Joel Stein's half-hearted Millbanky tongue-flapping ruminations on how he'd go about setting up the death panel, entitled " Can I Kill You?". Sickening.

For a couple of weeks, the NYT stroked its collective beard 'questioning' whether these rumors were true, and finally decided, with half the country well-entrenched in a panic about the coming genocide, that they were 'false'. But such head-line illumination was reserved for the tech-savvy readers of the interwebs, leaving the unworthy print-readers still in the dark. Why? Maybe clarity on paper is just irresponsible - someone might whack a wingnut over the head with the solid truth. Pixels just don't have the same effect.

Howard Kurtz of WaPo wails about the MSM's impotence in debunking myths. He lists the various instances where CNN, NYT, WaPo, MSNBC and others had flat out called the various crazy rumors baseless. He of course elides the fact that CNN also loudly trumpets the various lies as the Gospel Truth on prime time with Lou Dobbs. WaPo publishes these rumors as fact every other day with the likes of Krauthammer and Kristol. And as for MSNBC, well they've been long been slapped with the discrediting partisan Liberal tag anyway.

These wheezy self-absorbed media 'critics' sound like Glenn Beck summing up his position in one long breath "Obama IS racist, though I'm not saying he's racist, so why do people say I'm saying that...?". What goes on in the brains of the editors at these outfits? Do they really not know what they're doing when they give people the finger with the right hand and pat them lovingly with the left?

The most heartbreaking read in this periodically refreshed media genre is Ezra Klein's sweeping absolution of the media. I used to love reading this guy. But I'm starting to feel that the WaPo virus is going to his brain. In a first shot at this topic of media complicity/impotence in the madness he attributes some responsibility for not doing a better job of knocking the crazy slander down. But then he comes back and offers the following exculpatory thoughts:

The problem isn't in the particulars. It's in the profession. Namely, it's in the competitive pressures to drift toward sensationalism and hot stories. A smear like "death panels" emerges and catches fire because it's fundamentally interesting. You could write a great thriller, or film a poignant drama, about death panels. Not so about health insurance exchanges. That said, the New York Times would probably never mention the lie if given the opportunity. But after it hits talk radio and explodes onto cable news and rips through the blogosphere, it stops being a lie and begins being a story. [...]

They just get caught following a manipulated conversation, and so being part of the manipulation, part of the machine that focuses on cynical lies like the death panels rather than policy specifics like the exchanges. That's not the fault of an individual reporter, though. It's structural, and it requires a structural response.)

WTF? A lie on cable, on the internet, does not stop being a lie.

The story is not that some people are saying this exciting/scary-if-true thing.

The story is that some very powerful people are lying their pants off on the TV.

THAT is an exciting AND scary story. The story is that the GOP are spreading insanely inflammatory lies about their political opposites. Report it. THAT's your job.

When a republican, famous for nothing but her track record of fear-mongering comes out with an Op-ed peddling death panels, a responsible reporter writes gripping pieces like this, laying out her long trail of toxic slime eroding the political fabric of a country.

When a leading respected politician like John McCain feeds the rumors by mumbling skepticism about whether or not half his long-time Senate friends and colleagues are actually genocidal maniacs, the story should not be

'Respected politician has doubts',

the real story is

'Respected politician has lost his mind'.

The truth in such cases is actually a great story. The problem is that some true, and truly great, stories require a journalist and his editors to have backbone. And perhaps Ezra is right. That is a kind of 'structural problem'. Just not the kind he thinks.

Weekend Pop Ethics Quiz (Cheezeburgers for all correct answers)

2009-08-15T12:29:04Z

Answer one, some, or all of the following four questions, but only insofar as they are morally worthy of answering. (Two points off for answering a bad question)

1. Is access to health care a right ?
- And if so, whose duty is it to provide health care to those who cannot afford it? (What about duties towards the poor in third-world countries?)
- If not, is it still a supererogatory (good, but not required), virtuous act to provide it? And in that case, should the government force people to be virtuous by taxing them?

2. Should rich people be allowed to buy health care superior to that provided to those who cannot afford better?

3. Is there such a thing as a morally reprehensible opinion (eg. 'Poor people don't deserve health care they can't afford', 'Obama is a Nazi')?
- Are we morally responsible for our beliefs?
- Or is it only acting on such a belief that would be reprehensible?
- Or is it the consequences of uttering that opinion that make it reprehensible?
- Or is it the character that the opinion expresses that would be reprehensible?
- What is the appropriate reaction to immoral opinions?

4. What is the ethical justification for 'soaking the rich' (eg. having a higher marginal tax rate on incomes 10x the median income)?
- Is it because it makes them only slightly worse off while making others much better off?
- Is it because it does not make them worse off at all, but actually provides social goods they benefit from disproportionately (eg. an educated, healthy work force, better business-friendly infrastructure)?
- Or is it not justified at all? And in that case, is it unjustified because the rich will stop producing, harming the economy? Or because higher (proportional) taxes on some is unfair?

Optional: watch this video, and listen to this track as you think through your answers. (Report if you chose the option - N.B. no bonus points for choosing it)

Extra Credit: Ask a better question than those offered in the quiz

(The answers will be corrected by a bi-partisan ~~death~~ panel of respected judges comprised of Sarah Palin, Fred Hiatt, Dick Armey and John Mackey.)

Bjorn Lomborg, leading global warming skeptic, changes his mind

2009-08-09T15:26:25Z

I have always hated this man. Because he's a hack. But having one less hack standing in the way of action on climate change is a good thing. From the FT:

Having questioned aspects of climate change science in the past, Mr Lomborg now says "the basic scientific questions [on climate change] have been answered pretty unequivocally".
Therefore the question moves on from not whether to try to tackle climate change but how to do so most cheaply and effectively.

But he still thinks the consensus focus on curbing carbon emissions is wrong, and that we should look at alternative courses of action:

He is concerned that the United Nations-led consensus that a climate treaty must focus on cuts in greenhouse gas emissions from rich countries is mistaken.
"It's a costly way to achieve very little," he said.
Instead, Mr Lomborg argues, there are cheaper ways of halting temperature rises.
These include tackling sources of climate change other than carbon dioxide, such as methane and soot; investing in new technologies; adapting to the effects of climate change; planting more forests; and weighing up whether emissions cuts are cheaper to do now or later.
Governments hope to thrash out a treaty at the crucial conference in Copenhagen this December.
"Getting a deal will undoubtedly be very hard, but if we get better ideas on the table that are cheaper and more efficient [than emissions cuts for the rich] then there is a greater chance that we will succeed," he said.

So he has gone from obstruction to foot-dragging. A step in the right direction, sort of.

The Republicans' New Rhetoric (beyond the Big Lie)

2009-07-31T15:31:39Z

Here's a quick theory of what is going wrong with the health care debate. Standard Rhetorical Theory (SRT) no longer applies.

According to SRT - which I'm lifting from Aristotle's Rhetoric (book II, chapter I), what you do in presenting your case is

(1) try to make the argument of your speech demonstrative and worthy of belief;

(2) make your own character look right, (i.e. that you are someone of good sense, ability, and good will)

(3) put your hearers, who are to decide, into the right frame of mind (in this case, pissed off about corporate give-aways, fearful of losing their jobs and insurance, and pitying of the poor who already have).

I personally think all these three conditions have been met. The arguments are solid, voters trust democrats more than republicans, and are pissed, fearful and compassionate. Meanwhile the Republicans are lying bigger than ever.

Granted, some of their rhetorical tropes may still have some grip on people, and much easier to set up than debunk. There is no easy two-line retort to

"Free markets are more efficient than Government services, so government should stay out of health care".

Sure one could say, "These markets aren't really free, and they cannot be made efficient in the case of health care, because...", but you will lose half your audience at "Because". The same can be said for

"High corporate profits is a sign of a good company, therefore high profits in the health care industry mean the corporations are good at what they do",

and

"These are hard times, so the government must tighten its belt", etc.

But I don't think these tropes are half as convincing as they used to be, especially coming from the enablers of the greatest free-market failure since the Great Depression, and the greatest government bailout of private corporations in history.

The Republicans are mistrusted, their talking points getting stranger and stranger (forced abortion, euthanasia, dieting, nothing can be or should be done for the undeserving hopelessly poor, people need stability not change, this is all a socialist/nazi Kenyan conspiracy), and people are not in a frame of mind to hear them.

But here is a suggestion. They are effective, not despite the fact that they are crazy, but BECAUSE they are crazy. Look at the examples they themselves point to again and again when they argue that government is incompetent: FEMA. The agency that THEY hollowed out and destroyed. Look at their worries about cost-controls and runaway deficits; what comes to mind? The fiscal incompetence of Republicans, the absence of cost-control measures in Medicare Part D. Look at their arguments about government encroachment in people's personal lives; what comes to mind? Gay-bashing, abortion restrictions, religious organizations dictating social policy. Look at their arguments against the complexity of the health care proposal, with their flow-chart grandstanding: WE'RE TOO STUPID TO UNDERSTAND THIS!

What's going on? The Republicans have knocked points (1) and (2) off their Rhetorical checklist. They are no longer trusted, and don't care. And they don't care if you think they are stupid, ignorant, and ill-intentioned. They no longer care if their arguments make no sense. All that matters is putting the audience into a state of fear. And the crazier they seem, the more the audience will feel afraid; Of them. For, when you look at them, you may still believe the best of all possible outcomes may be a Democratic reformed health care service, overseen by Democrats. But the worst of all possible outcomes is a Democratic reformed health care service, overseen by these crazy corrupt idiots. In a nutshell, the Republicans' best argument against health care reform is themselves:

"Look at us, WE could one day be running this program!"

It's the offspring of the old Republican strategy: Run for office arguing that government is incompetent, and when elected prove you're right. Now they have, spectacularly, proven themselves right, and are running hard with that evidence.

So how do you counteract this strategy? Here's my rather Machiavellian suggestion: Argue that Republicans are competent and well-meaning. When arguing with Tommy Thompson, give as an example of well-run government health care his own stellar management of Medicare. When arguing about cost-controls, point to the brain-child of Mitt Romney in Massachusetts, where tweaks to this Republican universal health care plan are fixing the cost-problems that have cropped up. Point to the amazing Republican creation and management of the VA, the finest government-run health-care system in the world. Praise to the high heavens the Republican-inspired IMAC in the current proposal - an ingenious way to do non-partisan cost-benefit analysis. Republicans can run government spectacularly well. Even the present bunch are brilliant, successful, honest public servants who love America.

I say this strategy is Machiavellian, because I have no idea whether any of these claims are true. AND I DON'T CARE. People will only feel comfortable with greater government involvement in health care if they feel more comfortable with the possibility of Republicans running it.

BREAKING: Plato slams administration over handling of financial crisis. Suggests financial reform, democracy.

2009-07-29T23:54:57Z

The usually media-shy Plato, head of the non-partisan Academy think-tank, was back in the spot-light Wednesday with an interview on The Situation Room with Wolf Blitzer. In his remarks he provided a harsh socio-political analysis of the financial crisis and predicted that its poor handling by the administration will inevitably lead to difficult structural adjustments culminating in democracy. He proposed radical financial reforms including limits on leverage and a removal of guarantees on bank liabilities to restrain excessive risk-taking. In response, the White House spokesman Gibbs thanked Plato for his advice, and said the president had extended an invitation discuss the issues over some red wine and olives. Below, the CNN transcript of the interview.

Blitzer: Welcome, Mr. Plato, to The Situation Room - the best political team on television. So, on the occasion of the release of your bestselling book Republic on Kindle, what is its relevance to the present financial crisis?
Plato: Thank you Wolf. Great to be here. Well, if you read my book, I say that the recent decline of our republic into oligarchy was inevitably going to end badly. It was obvious enough, even to a blind man. Oligarchy destroys itself as a result of lack of restraint in the ruling class's pursuit of getting as rich as possible.
Blitzer: Tell me how.
Plato: Because the rulers, owing their power to wealth as they do, are unwilling to curtail by law the extravagance of the young, and prevent them squandering their money and ruining themselves; for it is by loans to such spendthrifts or by buying up their property that they hope to increase their own wealth and influence.
Blitzer: That's just Capitalism, isn'it it?
Plato: What's Capitalism...? Anyway, whatever you call it, it should then be clear that love of money and adequate self-discipline in its citizens are two things that can't co-exist in any society; one or the other must be neglected.
Blitzer: That's pretty clear.
Plato: This neglect and the encouragement of extravagance in an oligarchy often reduces to poverty men destined for better things.
Blitzer: Yes, I guess so.
Plato: Some of them get into debt, some disenfranchised, some both, and they settle down, with hatred in their hearts, to plot against those who have deprived them of their property and against the rest of society, and to long for revolution.
Blitzer: Yes, they do.
Plato: Meanwhile the money-makers [ed. note. - i.e. the financial sector], bent on their business, don't appear to notice them, but continue to inject their poisoned loans wherever they can find a victim, and to demand high rates of interest on the sum lent, with the result that the unemployed and beggars multiply.
Blitzer: A result that's bound to follow.
Plato: Yet even when the evil becomes flagrant they do nothing to quench it, either by preventing people from disposing of their property as they like, or alternatively by other suitable legislation.
Blitzer: What legislation?
Plato: It's only a second best, but it does compel some respect for decent behavior. If contracts for a loan were, in general, made by law at the lender's risk, there would be a good deal less shameless financial shenanigans and a good deal less of the evils I have been describing.
Blitzer: Much less.
Plato: But as it is, the oligarchs reduce their subjects to the state we have described, while as for themselves and their dependants - their young men live in luxury and idleness, physical and mental, and lose their ability to resist pain or pleasure.
Blitzer: Indeed they do.
Plato: And they themselves care for nothing but making money, and have no greater concern for morality than the poor.
Blitzer: True
Plato: Such being the state of rulers and ruled, what will happen when they come up against each other in the streets or in the course of business? [...] Won't the poor conclude that people like this are rich because their subjects are cowards, and won't he say to his fellows, when he meets them in private, "this lot are no good; we've got them where we want them"?
Blitzer: I'm quite sure they will.
Plato: Then democracy originates when the poor win, kill or exile their opponents, and give the rest equal civil rights and opportunities of office.
None of this is surprising. I predicted it twenty-four centuries ago in book eight, chapter six, of Republic. Actually, word for word, just what I said here.
Blitzer: Well, 'kill' is a bit strong [uncomfortable laughter]. But do you think America is ready for democracy? After all, it is a center-oligarchical nation.
Plato: Well, democracy does have flaws. Ideally government should be run by philosopher kings with a good grounding in geometry.
Blitzer: Interesting. With that we have to end this fascinating discussion. Thank you Mr. Plato, and we hope to have you back here soon again.
That was Plato, author of Republic. After the commercial break: Does Bo Obama secretly hate cats? The best political team on television analyses the issue. Don't go away...

Why is Megan McArdle freaking me out?

2009-07-22T15:23:37Z

Let me just say, I don't usually read McArdle. But I wanted to write something about the moral sentiments and the financial crisis, and I figured she might have something helpfully weird and disconcerting to say to kick things off. And she thankfully obliged with the following nugget in her explanation of the claim that there are no villains in this global tragedy:

"When something is common enough, I think it definitionally isn't villanous. It may be a practice that should be fixed--we should all be more careful when starting our cars, I'm sure. But most of us have, at some point in our lives, accidentally stepped on the gas instead of the brake. And in the overwhelming majority of cases, this is not a huge problem, or even a problem at all--we run into the curbstone, or roar out of the driveway a little too fast. We don't punish people merely because, through a fluke of circumstance, the one time THEY did it happened to be fatal. Or at least, we shouldn't."

She puts the widespread anger and outrage down to self-serving externalizing of blame for the catastrophe: 'There simply isn't warrant for blaming big finance for what has happened'. She bases this exculpatory judgment on a few principles regarding moral responsibility.

If enough people are doing it, it isn't blameworthy
If it wasn't intentional, you're not responsible for the consequences
If it's merely a 'fluke of circumstance' that your actions cause the harm, you are not responsible for the harm
There's no evidence the practices that led to the financial meltdown were illegal.

Let's take these points one by one. Serfdom, slavery, apartheid used to be 'common enough', but that hardly means there was nothing wrong with them. A closer, perhaps fairer, analogy would be practices dominant in certain industries. Think of the tobacco industry lying about the addictive and carcinogenic properties of cigarettes. Think of the widespread practice of denying reimbursement without justification in the health insurance industry. If enough players in an industry does something, and no law or government agency is there to stop them, does that make it okay? If an industry burns down all the trees in the forest, and all the regulators are too captured to notice the fire behind the smoke, did it even happen? You would think moral blame would attach more to the degree of harm inflicted than to how fashionable something happens to be.

The second point about intent is even stranger. Most legal and moral systems incorporate the notion of culpable negligence. If a builder skimps on costs and constructs a rickety school in an earthquake zone, nobody is accusing him of wanting to kill school-children. He merely doesn't care whether they die or not. If big finance doesn't bother to consider the possibility of house prices reverting back to their long-term trend, knowing armageddon or a bail-out would ensue, nobody is accusing them of wanting to destroy the financial system, merely that they do not care if they do (remember how Dick Fuld 'could not imagine' Lehman not getting a bail-out). Three to four years of bubble-level bonuses will suffice for a comfortable retirement in any case.

The third point is outright wacky. On the issue of responsibility and the role of chance, it is difficult to know what to say. It doesn't really seem a 'fluke' that fraud on the part of mortgage originators, credit ratings agencies and investment banks (hiding the risks of the assets they were respectively creating, rating or buying) caused the financial meltdown. Could my grandmother just as well have caused the meltdown? Maybe... if she were, say, the CEO of Lehman and had done what Dick Fuld did; i.e. if she were Dick Fuld. But I'm not sure what that has to do with anything

Perhaps McArdle's point is more subtle. Perhaps she is playing that old Jesus card: 'let he who is without sin cast the first stone...'. Well, yes, I once stole some candy from a story as a dare, but I was only eight and impressionable. I also occasionally lied to my mother. But I did not gamble trillions of dollars and lie about the risks to make a short-term profit while putting the world economy in danger. A little introspection is fine. Self-awareness is a good thing. But let's not get carried away.

The fourth point has me worried about McArdle's mental health. Yes, evidence of wrong-doing is so hard to come by. We've got e-mails from credit-rating agencies laughing about the cow-manure they're tagging as AAA. We've got Goldman singing the merits of the MBS they were selling while they held a short position on the self-same securities. We've got evidence they had a history of these snake-oil vendor practices during the 90's, and were condemned in a court of law. We've got evidence the SEC is too incompetent and captured to investigate the Wall Street majors. Maybe not enough for suspicion? If only there were some journalists interested in digging beneath the rubble of the financial system to investigate risk-management, accounting, and trading practices. Someone like the business editor of a major magazine like The Atlantic with resources and clout. Golly, if only McArdle could turn to someone like that...

There's a kind of moral anosognosia going on here. The human mind has an incredible capacity to misunderstand itself. Sometimes paralysis is accompanied by denial and odd excuses ("I can't move it because that isn't my arm at all, it's my husband's, just attached to me"). It's a phenomenon with a broad application. 'Sure, I am perfectly capable of assigning blame and moral outrage, but there's just no reason to, nor is it my job to find out if there is reason to, nor would anything convince me to do so'. Moral paralysis accompanied by fantastical rationalization.

I'm not saying McArdle is a hack, knowingly spouting bullshit for her corporate masters. She's not a socio-path devoid of self-awareness. She doesn't seem like a bad person. She's not in denial out of self-interest. But she's definitely also not making any sense. She's just got a very localized dysfunction in her moral cognitive system. Moral cognition involves among other things 'mental time travel', projecting yourself into hypothetical or real scenarios as you imagine yourself doing the deed or suffering the deed, and see whether you feel respectively guilt (or remorse, or shame) or anger. After you run through enough scenarios you build up a moral theory comprised of principles with more or less general application that justify those sentiments. When you run yourself through the relevant scenarios and feel nothing, but you've got some conspicuous instance of negligence or intent to benefit by harming someone, you can get the strangest explanations attempting to reconcile theory and (absence of) feeling. Enter McArdle, oddly but comfortably numb.

P.S. Am I getting repetitive? Do let me know...

Liars, Anger and Fear... oh my!

2009-07-20T17:32:09Z

Emotions aren't fashionable these days. Cooler heads around here are telling the hotter heads to lower the temperature and play it like the Fonz. Actually, I don't know if they ever were fashionable. Ever since the ancient Mesopotamian gods wiped out humanity in a pique of rage at all the ruckuss the kids were making - and then found that no one was left to feed them with sacrifices and such - people have been blaming their mistakes on emotions. Passions overcome us and make us do all kinds of silly things. Stock markets too high? Just too much irrational exuberance. Stock markets look too low? Too much fear. Steal Achilles slave-girl because she's kind of hot, and then realize you kind of need the guy? Well 'I just wasn't myself, dear friend'. Emotions are a convenient excuse. If we didn't have them, we'd have to invent them. We tend to invoke them only when we (or others) go wrong. And we tend to hold emotions responsible for leading us into error.

The Ancient Greek philosophical schools went so far as to base much of their moral philosophy on the eradication of emotions: they're just disturbances making us all excitable, clouding our thinking; much better off without them. Aristotle thought arousing emotions in political debate was illegitimate - a 'perversion' of the thinking faculties in those one was trying to persuade. The implication is that, if you're in an emotional state, you're not thinking straight.

There's something wrong with this whole picture. Emotions don't just drop out of the sky (or the amygdala or the endocrine glands), and somehow occasionally insinuate themselves into our otherwise pristine linear conceptual thinking. In reality there's no clear line between thinking and feeling in general, and the line disappears altogether when it comes to thinking about things that matter - our cares, concerns, and values. There's no real difference between thinking something is dangerous and feeling fear. There's no difference between thinking something is a grievous loss and feeling grief. And there's no difference between thinking something is outrageous and feeling enraged by it. There's no dividing line between making a hard-headed objective judgment about good and bad, right and wrong, and getting hot and bothered about it. They go hand in hand.

Of course you can stoke or calm people's feelings. But you do so by giving them reason to think a threat is imminent or remote, grounds to hold that a loss is terrible or just 'stuff' that 'happens', evidence that an outrage deeply egregious or nobody's fault really. The reasons given can be good or bad, accurate or misleading, but they remain reasons. And I'm not denying people can be misled in their evaluative thinking, just as they can with plain descriptive theories (eg. the 'Free Market Economy") or mathematical calculations (if a toss comes up heads four times in a row, what are the chances it will be tails next?). But don't pin the blame on emotions, people are just not always that smart in general. Emotions are perfectly reasonable for the most part.

This general 'reason versus emotion' thinking gets up my nose! People blame 'fear' for prolonging the recession; 'consumer confidence just needs to improve', goes the cable TV mantra. All I can say is, how about less 'confidence-promoting' happy talk, and a bit more focus on fixing the enduring risks of an economy teetering on a tight-rope with no safety-net beneath? People blame 'populist anger' at corporate give-aways, fraud, and theft, for being 'unproductive'. It's as though there's more hand-wringing about the anger than about the crimes and injustices which 'the powers that be' would rather paper over and tweak here and there. The moderates in and outside government, serious people dealing with serious issues, would rather avoid any serious action, the assumption being that there really isn't anything seriously wrong with the system...

- Seriously?!

Seventy six years ago a man called Pecora conducted a thorough investigation of the financial crimes and mismanagement that led to the Great Depression, skewering bankers in public hearings, laying out their lies and venality, forcing immediate resignations of executives, and issuing a report that raised public outrage to such a pitch that radical reforms of the system were rammed through despite tough resistance from Wall Street. They lasted almost until the end of the century. Why is such an investigation being so conspicuously avoided this time? Well, the anger it might arouse would be so inconvenient. It might get people thinking...

Frankly, if you're feeling calm, you're not thinking straight!

Empathy for the devil (Diary of a random asshat)

2009-07-16T16:00:44Z

(The Hamptons, July 16, 2009)

Dear Diary,

Just back from the beach. A fine morning ruined by reading the NYT, that liberal rag, again. Now they're celebrating supreme court nominee Sotomayor because she managed not to freak out during the questioning. Talk about a low bar. That is apparently the bar a woman has to pass for the highest judicial position in the land: 'not melt down', as that fine statesman Graham said. He was courteous, naturally, but I think he's right to wonder whether she will pass it. I mean, you can just see her trying to control herself as Sessions and co lay out her blatant racism. Well, you can't really see it, it's not visible on the surface. But she obviously really doesn't like white men. After all, this is a woman who outright told a bunch of impressionable young minority girls that they can grow up to be better at their job than white guys. She's consciously instilling a superiority complex in these kids! If that isn't racism, I don't know what is.

So maybe she regrets those remarks, just momentarily got carried away with her emotions. After all, she's a woman. And ever since Aristotle, serious scientists know women are emotional. You can't say that anymore, but if you just look around it's obvious. Women just can't control themselves. Once I was watching that old movie, Straw Dogs, with my (now ex-) wife, where the hot girl has sex with her ex-boyfriend, forcing her weak-ass Dustin Hoffman husband to man up and defend his honor. I mentioned to her as an aside that I thought the girl was a bit screwed up, leading the ex on, letting him do his thing without minding much, and then displacing her guilt by playing the 'victim'. My (ex-) wife wasn't even able to talk rationally about it. She flipped out. There was this weird mix of horror and rage all of a sudden. It's just a movie, I'm just giving my opinion, honey, c'mon! Relax.

There was a similar kind of thing with the girls at the bank. Once over lunch, I just mentioned the obvious fact that girls aren't constitutionally made for investment banking. They really shouldn't be in this business. Nothing personal - it's just scientific fact. Men's testosterone levels make them more aggressive and competitive. Women just aren't able to take the necessary risks - they lack the proverbial balls. Naturally, the girls at the table were fuming. They didn't say anything, though. I'm their manager. But you could see them losing it. No scientific argument, none of the detachment necessary to a fruitful intellectual discussion. As the guys said at the bar after work, women take everything so personally.

That's what makes this whole empathy criterion so worrying. You can't base judicial reasoning on emotion. As that TV doctor House once said: emotions are irrational, that's why we call them emotions. You've got to base it on legal principles, and abstract from how much a certain decision can hurt certain feelings. In that Ricci case, you've got a bunch of bright, brave, hard-working white fire-fighters losing a promotion just because the test might have been unfair. You can't deny whites what they ostensibly deserve just because the test might be skewed against minorities. If whites do better at a test, you've got to just accept that whites happen to be smarter. But you can't say that, can you? It's frustrating. Even a centrist like Justice Kennedy recognized in his opinion that you need a really 'strong basis in evidence' before you can claim whites aren't intrinsically smarter. And the evidence isn't there. This isn't racist, it's the Supreme Court moderate talking. Sometimes the facts hurt.

Or take partial-birth abortions. Sure, you can feel bad for the woman who is afraid for her health, but just look at the details of the procedure involved - it's really gross. And as Justice Kennedy said, you just can't trust women with such important decisions; studies show they sometimes regret aborting. (As if we didn't already know they are irrational.) Someone's got to help them. Science, legal principle, that is all one should consider in judicial reasoning.

Same thing goes for political decisions. The left is basing all its arguments for socialized health care on emotion. They trot out all these sob-stories about people without insurance getting denied care, or people with lousy insurance getting bankrupted. Sure, it's sad. But you've got to think about the economy. You're going to destroy the profits of the insurance industry and the drug industry. It's just economics 101 - you can't get economic growth without healthy profits and the free markets that provide them. And we plain can't afford it. Resolving the financial crisis is already going to cost a couple trillion by the time all the banks' losses are covered. There's just no money left over for health care. So now of course they are going to take our hard-earned money to pay for it, because we're 'rich'! Like 350G is 'rich'. Have you tried paying two jumbo mortgages, private school and college funds for the kids, on 350G? There's not a whole lot left over.

Everyone is hurting, not just the poor. I have friends forced to put their kids in public school, sell their boat, sometimes even a house. It's traumatizing. And now we're supposed to pay for other people's health care? We don't even have the previous cushion of decent performance bonuses, because the government won't let us pay back the TARP funds they've chained us to. I've worked really hard for that bonus. I deserve it. Trading is boring, stressful, hard work. We don't do this for fun! Even now, without the old bonus levels, we're working hard to ramp up our risk exposure on the back of Fed loans so that we can make enough to get the government off our back. As long as unemployment doesn't get into double figures, we'll make a killing. So if the economy turns around quickly, it'll be thanks to us and our hard work. And if the economy doesn't turn around, well... I haven't tried to run that through our risk models yet.

(*note to self - when back in town, ask Shirley what that downside risk she was bitching about amounted to).

I tried to explain all this to the maid the other day when she was harassing me for her pay, but she took off, saying she had to go to her other night-shift job. These people just can't be bothered to understand economics.

And now the government is throwing another spanner in the works. They're back pushing us into modifying those bad mortgages. Trying to get us to reward petty criminals; many of these are liar loans in the first place. Liar loans! These people were just irresponsible and deceptive. Of course, we knew they were overstating income at the time, and we did puff up their value on our books so we'd get a bump in our bonuses, but that's just part of the game. People get all upset at bankers because we are paid better than others, but they just don't understand how the system works. Too much emotion again. It's just a matter of principle - you can't reward these liar borrowers, or they'll just come back and do it again. It comes down to moral hazard. And you can't cut back on banker bonuses without us cutting back on all the necessary risk-taking. It's a question of motivation - basic psychology. Luckily the boss has been on the phone explaining it all to Geithner, telling him to lay off.

People are getting much too emotional in this time of crisis. They should really do what I do: go to the beach-house, soak up some sun, and talk these hard issues through rationally and coolly with friends over a cock-tail. And then call the girls!

The banks' latest solution to toxic securities: change the wrapping paper

2009-07-09T15:13:58Z

Remember how this (first) financial crisis happened? In one word - 'Securitization'. Banks normally couldn't - or wouldn't - extend too many high-risk loans because under the current rules capital requirements are 'risk-adjusted', which means you have to have higher capital buffers against higher risk loans. To get around this problem - a problem, that is, if you want to make a quick buck on the back of your creditors - the banks turned pools of these toxic loans into 'securities' that they then paid credit ratings agencies to stamp with their approval as 'ultra-safe'. Presto: minimal capital buffers required. What could possibly go wrong...?

So securitization turned out to be a big scam that the tax-payer is now footing the bill for. That seemed the end of securitization, everyone knows it's a scam. Right? ....RIGHT???

And yet, somehow all these banks with all these toxic assets still on the books seem to feel no need for raising capital and are posting bumper profits once again. What's going on? It seems those golden boys have found a wonderful solution to the securitization debacle: REsecuritization.

No, seriously. This isn't a joke. They are taking all those toxic securities in residential and commercial mortgages and repackaging them. Because the credit ratings agencies have had to start to concede the reality that these securities aren't really ultra safe. They are threatening to - horror, shock - downgrade the ratings on this stuff. Downgrades mean the bankers have to raise capital, which would be bad for their stock options (as shares get diluted), and post more in loss provisions, which is bad for profits. So that ain't going to happen. Instead, the banks have decided to transform the toxic securities into new securities that they are paying the ratings agencies to stamp with their oh so credible seal of approval as AAA. What could possibly go wrong?

This is how the banks are doubling down on their bets that the economy will, somehow, magically turn around and these supposedly toxic assets will turn out to be delicious honey. After all, they're not playing with their own money. It's the tax-payer who's guaranteeing all the bank's credit. Meanwhile the bankers get their bonuses and shareholders get their dividend.

This is what happens when you have Geithner, Summers and Bernanke running financial policy: see no evil, hear no evil, speak no evil. When these losses eventually need to be realized, and then socialized, they will give the only reasonable response: whocoodanode???!

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeTzfvEedKpQ
http://www.ft.com/cms/s/0/47403c68-698f-11de-bc9f-00144feabdc0,dwp_uuid=eddfd4e0-4bc3-11da-997b-0000779e2340.html

(N.B. This new scam is just the last addition to the panoply of ways in which regulators are helping banks disguise eventual losses, among them, suspending mark to market accounting, misleading purchase accounting rules, etc.)