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Friday, June 15, 2018

Posters in Casa Padre Brownsville Texas

I am appalled by the Trump administration policy of separating parents and children just because they crossed the border without permission. Like many people I was shocked when the staff of the Casa Padre youth shelter (or jail) in Brownsville called the cops on Senator Merkley when he tried to oversee the (contractors of) the exutive branch. Finally, like many people I was shocked even a bit more to learn that there is a huge poster of Donald Trump on a wall of Casa Padre.

But reading the post, I learned some more. First the shelter (or jail) was operating for a while. I think since the wave of minors who showed up unaccompanied while Obama was president. Most of the residents (or inmates) are there because they arrived at the border without adults not because they were (depravedly) separated (by sadistic subhumans like Sessions). The place is now over crowded, because of the Trump administration policy.

As to the posters (or murals). There are posters of Trump, Obama, Kennedy, Eisenhower, Lincoln and ... Zachary Taylor. I suspect there are many others (Taylor and Lincoln don't fit well together). The Obama poster is accompanied by the quote "My fellow Americans, we are and always will be a nation of immigrants. We were strangers once, too. " and a Spanish translation.

Tuesday, June 12, 2018

In a generally good article on how Trump got nothing out of Kim in Singapore, David Nakamura, Philip Rucker, Anna Fifield, and Anne Gearan make a false claims "Deals reached between Washington and Pyongyang under Presidents Bill Clinton, George W. Bush and Barack Obama collapsed after North Korea conducted additional missile and nuclear tests." This implies in particular that the deal reached between Washington and Pyongyang under President Bill Clinton collapsed after North Korea conducted additional missile and nuclear tests. which is a totally false claim. the deal reached under Clinton collapsed when Bush decided to abandon it, because North Korea had bought centrifuges from Pakistan. Bush said this meant that the fact that spent nuclear fuel contaning plutonium was under seal was irrelevant, since N Korea would just enrich uranium.

Later, after N Korea broke the seals and began extracting plutonium, he declared that N Korean exploration of possibly enriching uranium was no big deal & they were going back to the deal. Then N Korea tested a nuclear bomb.

The known facts are totally consistent with the possibility that the Clinton - Kim Jong Il agreement would have lasted and prevented N Korea from developing a bomb if Bush hadn't treated Clinton as Trump treats Obama.

In any case, the assertion of historical fact made by Nakamura, Rucker, Fifield, and Gearan is undeniably false. It shows a determination to give a Ballanced assessment of Clinton and Bush even if the facts are different -- N Korea detonated at least once nuclear device while Bush, Obama and Trump were president and did not detonate a nuclear device while Clinton was president. This is a relevant fact which is contradicted by their false claim which was clearly made to Ballance the very different cases of Clinton and Bush

update: Unsurprisingly, Jennifer Rubin lies more vigorously. She makes definite specific totally false claims.

in 1994 when “Pyongyang committed to freezing its illicit plutonium weapons program in exchange for aid” and again in 2005 when North Korea “pledged to abandon ‘all nuclear weapons and existing nuclear programs’ and return to the Non-Proliferation Treaty.” The bland statement that Trump obtained seemed almost identical to these past, useless agreements with vows to undertake “complete denuclearization of the Korean peninsula” and commit to a “lasting and stable peace.” That sounds like the same pablum we’ve gotten before.

This is utter nonsense. Following the 1994 agreement, North Korea places spent fuel (containing plutonium) under seal and allowed inspections. No one contests that the effort to make a plutonium bomb was stopped cold. No one denies that, after Bush decided to break the agreement, North Korea made a plutonium bomb. The entire case against the 1994 agreement is taht it is about as easy to make a bomb by enriching uranium as by extracting plutonium. This is absolutely false and utter nonsense. I don't blame Rubin for her scientific ignorance. But I will not let her get away with claiming that the detailed specific enforceable 1994 agreement is at all similar to the one page of pablum written in Singapore.

This is nonsense. Now I understand that columnists are allowed to express their own opinions. Howver, the Post also allows them to invent their own facts. A case might possibly be made against the 1994 agreement, but Rubin's case is based on demonstrably false assertions of fact.

Also George Will claimed that Obama tried to pack the DC appeals court by expanding it -- this is a total falsehood. He attempted to fill normal vacancies caused by normal retirement. If the post were a legitimate journalistic enterprise, they would retract the claim of fact which is absolutely demonstrated falze by the fancy mathamatical trick called "counting". But that's another column on another issue. It is only related because both cases show that, even if they have no respect for Trump, two Conservatives at the Post have little respect for historical fact.

Monday, May 28, 2018

Lost in cyberspace.

Danger Will Robinson danger. I am currently locked out of twitter, which is convinced I may be a 'bot. Twitter machines keep politely telling me that to reactivate my account I should click and they will send a number as a text message to my cell phone and I can tweet once I type in that number. At the same time my evil phone company won't deliver text messages -- I've reached some monthly limit for my data plan even though I never send or receive text messages (problem is I left my phone on while on a car ferry where they provide service charging a huge number of quatloos per minute).

I think this is one of the best things that ever happened to me. I suddenly have huge amounts of time and energy. I assume that no one has been checking my semi defunct blog. (hi no one)

Also twitter is definitely addictive. I recognize withdrawal symptoms (from nicotine addiction) and I am feeling them.

Sunday, May 27, 2018

John Donne, the 1980 Census, and a Journalist whom I wouldst cite if I recalledest his name

I have a fond memory of reading either The Washington Post or the late lamented dead tree Newsweek back in the 1970s. The article discussed that fact, due to times which had been changing, the Bureau of the Census had added a new category "person of the opposite sex sharing living quarters". Kidz theez dayz won't believe that there had been no need to count live in boyfriends and girlfriends back in 1970. Evidently at the Census they immediately started using the acrony POSSLQ (pronounced posselqueue) This lead a journalist (whose genius exceeds my limited memory) to reflect on how the great poets could have benefited, if they had access to this linguistic innovation, & then to rewrite the first stanza of "The Bait" by John Donne as follows (and I fair use both geniuses)

Come live with me, and be my love,

And we will some new pleasures prove

In short there isn't anything I wouldn't do

If you would be my POSSLQ

Friday, May 11, 2018

Trade without trust using block-chain technology

I wrote about this at angrybearblog, but I think I might have joked too much and besides I was ignorant then.

The question is whether there is some feature of blockchains which makes the technology useful if no one trusts anyone else.

I am responding to a brilliant skeptical essay by Kai Stinchcombe. There is an implicit challenge in the essay.

There is no single person in existence who had a problem they wanted to solve, discovered that an available blockchain solution was the best way to solve it, and therefore became a blockchain enthusiast.

I want to try to meet this challenge here in this post. There is a strong hint here (sadly criminal but it doesn’t have to be).

Same with Silk Road, a cryptocurrency-driven online drug bazaar. The key to Silk Road wasn’t the bitcoins (that was just to evade government detection), it was the reputation scores that allowed people to trust criminals. And the reputation scores weren’t tracked on a tamper-proof blockchain, they were tracked by a trusted middleman!

So the challenge is how to have trade without a trusted middleman ?

I think the key aspect of blockchains which is useful for this purpose -- every transaction involves at least three agents, two who contract with each other and a third who makes the block (solving the proof of work problem). This third party is not known to the first two. Furthermore, her claim to have made a valid block is checked by the other blockmakers (called miners in the case of bitcoin). This means that there is a third party who is identified ex post but not when the contract is created and who does not have to be trusted (because her work can be checked). This can be very useful for designing incentive contracts for the other two parties.

Basically, the idea is that if one party asserts that the other has broken the contract or cheated, then the cryptocurrency involved is awarded to the block maker who records that accusation. This makes it possible for each party to punish the other, but does not create an incentive for false accusations -- because the party which gains if there is an accusation is unknown to the accuser so no collusion is possible.

I will describe this in the case of sale of a good or service. Agent A wants to buy the good. The algorithm is:

A describes the good and makes a bid to pay for it listing two dates T1 and T2, three quantities of cryptocurrency which A claims to own X1, X2 and X3, and a fourth quantity X4. T1 is the date the good must be delivered.

Agent A can offer this payment to a specific agent B or can make a general bid that any agent can accept by posting X4.

The bid and acceptance are a tentative draft transaction.

update: They are recorded in the blockchain in the block made by block maker 1 who then owns X2 cryptocurrency end update:

At any time between T1 and T2,Agent A can post a complaint saying the good was not delivered or it was of unacceptably low quality. A complaint is any text which refers to the tentative transaction and includes the word "complaint".

if no complaint is posted by A and T2 has passed, then Agent B can spend X1 and X4 is returned to agent B (the seller), the block maker gets X2, X3 is available again to the to the buyer.

If A files a complaint, then the bid, acceptance and complaint are recorded in the blockchain by block maker 2. The block maker2 owns X1+X3+X4 so the buyer and seller lose all of the posted cryptocurrency.

The quantities X1,X2, X3 and X4 can be positive, zero or negative. Typically X2,X3 and X4 will be small positive numbers. If A has a reputation for not complaining without good reason, then X3 can be zero or even negative (A can propose a contract in which A gets a money back if not satisfied guarantee, it is fairly likely that no seller will accept this offer, but the algorithm allows it).

An alternative parallel use is the advertisement with guarantee. Agent B offers to sell a good for price X1 plus fee X2, deposit required from the buyer X3 and promising to pay additional penalty X4 if the buyer who accepts the offer posts a complaint. If anyone accepts the offer and has X1 + X2+X3 then the contract is just as above. It doesn't matter whether a seller makes an offer and a buyer accepts or a buyer makes a bid and the seller accepts. Again agent B can make the offer to a specified agent A or can make a general offer which can be accepted by anyone who has X1+X3 cryptocurrency

I think this pretty much solves the problem of how can we trade without (much) trust. If the buyer loses an additional X3 for complaining, then the buyer does not have an incentive to file false complaints. I must assume that some peoplea are willing to pay a tiny fee to penalize a seller who doesn't deliver. X3 will be a number worth something like 1 Euro. This means that misbehavior is only punished (by people who pay a small fee to do so) if people get angry when they are cheated. People who don't get angry when cheated can participate in the system, but they are bluffing -- making a threat to complain even though they will never actually complain. People who gain a reputation as wimps who don't complain when cheated will be cheated until they learn to avoid using the techology. That is, agents can develop reputations, and they can be valuable (compared to being a new participant) or costly.

The fee for filing a complaint X3 is freely proposed by the agents. A trusted seller may be able to get buyers after setting a fairly high X3 to prevent nuisance complaints and posting X4 = 0. A trusted buyer can get the good posting X3 = 0 (or maybe even less if really trusted). The 4 parameters make it possible for people to trade even if no one trusts them or to gain an advantage if they are trusted.

The key to the proposal and the reason it must involve blockchains is that penalties are paid to the block maker who records the complaint. The identity of the block maker is not known to the agents until the block recording the complaint is made. Agents have no reason to care about the block maker and no way to collude with the block maker. Since the block maker is just checking public information, the block maker does not have to be trusted. The block makers must check that agents have the cryptocurrency they post (as they currently do for BitCoin etc), that a bid (or offer) was made, that it was accepted, and, in the case of the block maker who records complaints, that a complaint was or was made by a published time T2. As usual, the block makers must also solve proof of work problems.

Throughout I am assuming agents' have a secret key so no one but agent A can file a complaint. I stress that agent A is not required to present any evidence that the complaint is valid. Any reference to the contract which includes the word "complaint" and is sent out by agent A counts as an official final complaint.

The buyer and seller may communicate privately to make sure they agree on what B promises to deliver to A. A sensible seller may wish to do this before accepting a bid. These communications have no effect on the final ownership of cryptocurrency.

The problem with the proposal is that the contracts are potentially vulnerable to renegotiation. A dissatisfied buyer and a seller both lose if the buyer files a complaint so relative to that they gain if the seller gives the buyer some of her money back in exchange for no complaint (this would be a private transaction hidden from the other participants in the system). I do not think this is a problem. The reason is that they buyer can not sign a contract renouncing the right to complain. A dissatisfied buyer may take half her money back then complain being angry both at the poor good or service and the attempt to renegotiate. Also a seller who tries this may get a reputation as a crook.

The problem is the dishonest buyer who theatens to complain and demands a refund or else. This is not likely to be a huge problem as the threat is a bluff. Actually complaining is costly to the buyer. A reputation for making such threats is costly to the buyer. A reputation for giving in to such threats is extremely costly to the seller.

If the buyer can present proof to the seller that the good was no good, then that proof and a threat might cause renegotion. this would not be a problem at all; the block maker would end up with less wealth as no complaint is filed, but the buyer and seller have reached an agreement based on evidence both consider to be convincing.

I think the system works without trust. It does require two things. One is that most people generally tell the truth if they don't have an incentive to lie. The other is that people who genuinely feel they were cheated are angry and willing to pay a small fee to punish the person who cheated them. I think both of these assumptions about psychology are highly plausible and supported by solid experimental evidence.

update2: I think I just rediscovered the concept of a smart contract (note I definitely didn't know what smart contracts are (or will be if none now exist) when I wrote the older post). I think my proposal differs from other smart contract proposals in a few ways which I will now explain.

First, I think the standard idea is that the seller gets X1 if some proof of fulfilment of the contract appears in the blockchain after the block recording the contract. In my proposal, the seller gets X1 if T2 passes without a complaint. In the standard proposed smart contract, a contract recorded in the blockchain without any additional proof of fulfilment works as escrow -- neither party can spend the cryptocurrency until they agree on who owns it. My honest guess is that people won't like a deadline T2 and will not use my proposal. But I think it is useful. The reason is that it limits renegotiation. If a buyer threatens to complain unless she is given a partial refund (and the seller thinks the complaint would be invalid and the threat is an attempt at fraud by renegotiation which I will call "Trumping") then the seller can call the bluff by doing nothing until T2 passes. If control the cryptocurrency is in escrow until the parties reach agreement, then dishonest buyers can Trump (that is do what Donald Trump regularly did). A reputation for threatening to complain and then actually complaining is costly to the buyer (like Trump such buyers will end up dealing only with people who enforce contracts with violence), so I think threats which are bluffs will actually be called.

The other thing that might be unusual about my proposal is that the buyer has final authority to keep cryptocurrency from the seller without having to offer any proof. Block makers just have to check if there has been a complaint. I think this is an important advantage. I think it is essential that it is easy to see if a proposed block is a valid block. Blockchains are maintained not just by the agent who mines the new block and gets a reward, but also by many other agents who verify new blocks and add them to their copies of the blockchain just to keep their blockchain updated so they can keep competing to make the next block. This means it is important that verifying blocks is easy and almost all of the work involved in making a block is solving the proof of work problem. Sellers may collect and communicate extensive information about the production and delivery of the good or service in order to convince buyers that they have done a good job. But there is no need to record this information in the blockchain. I would suggest that, if collected, it be sent privately to the buyer.

Finally, I have payment to seller if there is no complaint. An equally simple proposal would transfer X1 to the seller if the buyer reported satisfaction before T2 (say with a reference to the contract and text including the word "satisfied"). That isn't important. What is important is that they buyer promisees to sacrifice X3 to a block maker in order to penalize the seller for bad performance.

Wednesday, May 02, 2018

The Relative Price of Housing and Subsequent GDP growth in the USA

(pdf of this post available here) The great recession of 2008-9 followed an extraordinary house price bubble. The sluggish was characterized by a very slow recovery of residential investment. Oddly, the extensive revision of macroeconomic models which implied a very low probability of great recessions has not involved a focus on housing. Instead it has focused on financial frictions – essentially it is assumed that the 2008-9 recession was extraordinary because a major financial crisis occurred. Dean Baker dissents (as he often does) arguing that the severity of the recession could have been predicted given the massive decline in housing prices and earlier estimates of the effect of home equity on consumption. This note attempts to being to assess that claim. It also asks if it is possible to forecast GDP growth over the medium term. Finally it is part of the Rip Van Keynes series, because I will use an empirical strategy which has been out of fashion for at least four decades – basically an ad hoc OLS regression (sometimes I even include an exponential trend).

The basic result is that if the relative price of housing is high (compared to an exponential trend) then GDP growth over the following 5 years is low (compared to an exponential trend). Aiming to test out of sample forecasting, I start using 20th century data only.

-7.52 is a fairly impressive t-statistic.

Lnindex L20 is the logarithm of the ratio of the all transactions house price index to the consumer price index lagged 20 quarters. Gdp5 is the growth of the logarithm of real gdp over the past 5 years. Quarter is the calender quarter up to the 4th quarter of 1999 = 1999.75. The data were downloaded from Fred and are described in what might be generously considered a sort of data appendix. One point must be mentioned here – the all transactions house price index is available only starting in 1975, so the first useful observation is growth of GDP from 1975q1 to 1980q1.

The series are quarterly, so the dependent variable is a moving average of changes summed over 20 quarters. In the crudest attempt to deal with this, I calculate Newey West standard errors with 19 lags. These would be valid if log GDP were a random walk with drift (the constant) and trend (growth slowdown).

This regression is at least a hint that 8 years before the great recession began, there was already evidence that extremely high relative price of housing was likely to be followed by low GDP growth. Because the regression is, at best, barely presentable, I focus on out of sample forecasting. pgdp5 is the fitted value which can be considered a forecast of real gdp growth over the following 5 years.

Out of sample the forecasts and outcomes are positively correlated. The correlation of pgdp5 and gdp5 over 2000q1 through 2018q1 is over 0.86. Out of sample forecasts of GDP growth over the following 5 years seem to be quite useful. This may be simply due to the estimated trends. The following regression shows that forecasts of deviations from trend are correlated with deviations from trend.

This is a test of out of sample forecasting performance. It is, to put it mildly, rather more successful than out of sample tests of long term macroeconomic forecasts usually are.

This is a test of out of sample forecasting performance. It is, to put it mildly, rather more successful than out of sample tests of long term macroeconomic forecasts usually are.

The data are, perhaps, more usefully summarized with a graph. Figure 1 (finally) is a scatter of the logarithm of the relative price of housing and GDP growth over the following 5 years.

This ignores even the deterministic trends. Also the whole sample is graphed. Notably while some periods show extraordinarily high relative prices of housing and extraordinarily low subsequent real GDP growth, the GDP growth does not look anomalous. The computer is not surprised by the severity and duration of the great recession given the early 21st century housing bubble.

Here are the time series. L20.lnindexm4 is lnindex lagged 20 quarters – 4.0 (the base years for the all transactions housing price index and the CPI are different).

Notice that the first observation for the index lagged 20 quarters is 1980q1 because the index is available from 1975q1 on.

Here are the series of outcomes and forecasts. The only anomaly is that the great recession was so mild. The computer forecast 5 year gdp growth as low as -10% and it never actually was less than zero. Still this is unusually successful out of sample forecasting of medium term gdp growth.

Robustness Checks

The deterministic trend in the regressions reported above is especially utterly out of fashion. If a time series is integrated (non stationary with a stationary first difference) then there will be spurious mean reversion of deviations from a deterministic trend. T-like statistics from regressions of one integrated series on another do not have a t-distribution. These concerns explain my strong focus on out of sample forecasting. A more standard approach to a nonstationary series is to difference it and hope the resulting series is stationary. So I consider the change in the ratio of the all transactions housing price index to the consumer price index over 5 years index5 = ln(indext /CPIt) – ln(indext-20/CPIt-20). This means that I lose 10 years of data, 5 for the growth of GDP and 5 for the growth of the relative price of housing and the first useful observation is GDP growth up until 1985q1. With a mere 60 quarters of data I get

The out of sample correlation is lower being only 0.37. The scatter is much less impressive (although it does look appealingly like a pouncing cat). Basically, the computer expected a major boom to follow the extreme decline in housing prices from 2006 to 2011.

The decline in the relative price of housing from 2006 on was unprecedented and the simple regression is no more able to forecast the resulting recovery than any other method.

Another robustness check is to use a different series for housing prices. The standard series is the Case-Shiller index, but it is only available from 1987 on making estimates with 20th century data and 5 year lags pointless. Instead, I used an index even cruder than the all transactions house price index. The median price of new homes is available from 1963q1 on. This series can’t be interpreted as a price index as no correction is made for changes in the quality of houses. This makes it much more necessary to include a time trend and much less likely that detrending will really yield a stationary series. That said, the results are similar to those obtained with the all transactions house price index.

lmedian L20 is the log of the ratio of the median price of a new home to the consumer price index lagged 20 quarters.

The correlation out of sample in the 21st century of the predicted 5 year gdp growth and actual 5 year gdp growth is greater than 0.66.

Finally, I consider the growth over 5 years of the log of the ratio of the median new house price to the cpi -- median5

This gives the smallest coefficient and t-statistic, but the computer remains convinced that the variable is hugely important. Again the 21st century correlation of forecasts made using the 5 year difference and outcomes is lower than that of forecasts made with levels and a trend and outcomes. The correlation is just 0.3847 . This is still pretty good for medium term macroeconomic forecasts. Again the problem is that the dramatic decline in house prices from 2006 to 2011 causes the computer to forecast an boom.


It isn’t hard to make at least a plausible guess as to the path from high relative housing prices to low subsequent GDP growth. Housing prices appear to be mean reverting and declining house prices cause low demand through three well known paths. First residential investment depends on the relative price of houses, because the profits of builders depend on those prices. Second consumption is affected by wealth including home equity. Finally, home equity loans relax liquidity constraints.

In fact, there is strong evidence that the relative price of housing is mean reverting and that a reduction is correlated with low contemporaneous GDP growth

In fact the OLS coefficient on lnindex L20 (the 5 year lagged log relative price) is roughly equal to the 2SLS coefficient, suggesting that other pathways might not be too important.


A high relative price of housing is correlated with low subsequent GDP growth over the following five years. This makes it possible to forecast 21st century 5 year growth rates using coefficients estimated with 20th century data. The data suggest the obvious path: mean reversion in housing prices and a negative effect of declining house prices on demand. The extremely simple regression suggests that a great recessin should have followed the extraordinary early 21st century housing bubble. In fact, the model dramatically over estimates the severity of the forecast recession.

Given the extreme ease of forecasting medium term GDP growth, it is odd that so much attention is devoted to models which give useful forecasts only a few quarters out. It is also odd that a huge literature focused on quite different mechanisms was developed after the great recession. But the oddest thing is that, in spite of the very clear evidence, macroeconomists often ignore residential investment and housing prices.

Monday, April 23, 2018

A New Pareto Liberal Paradox (reposted from 2004)

One of the core principles of Liberalism is that there must be equality before the law. The law must not discriminate. In practice, this principle is often restricted to citizens and people are citizens only if they are born in the liberal polity or have the right ancestors. I personally consider this restriction absolutely inconsistent with my core beliefs.

In any case, equality before the law is a core principle. Liberals might consider equality of income very important or not at all important, but we must defend legal equality or else we are not liberals.

I naively imagine that I am pretty utilitarian. Consequentialist enough to accept Pareto improvements anyway. I reconcile my absolute respect for legal equality with my absolute respect for utils ideologically, that is by convincing myself that reality is such that I can hold both moral beliefs. In plain English, I am deeply convinced that legal equality is not just good in itself but also is the most efficient legal rule. I think that hereditary priviledge is not only wrong but also leads to incompetence in key positions.

However, I can imagine an alternative world in which a law which discriminates can cause a Pareto improvement. I am absolutely unwilling to name such a law clearly, because I consider it obscene. I will discuss the issue only in complete abstraction. The reader will have guessed that I am more liberal than utilitarian and would reject the Pareto improvement in the unhappy alternative universe.

The model is a case of the Matsuyama model (QJE 1991 vol 104 pp 617-650) built on the Murphy Shleifer and Vishny big push model and analysed by Herrendorf Valentinyi and Waldmann (ReStud 2000 Vol. 67 no. 2 pp. 295-307). This is a model in which different people leave villages where they farmed and move to cities where they work in industry. It is assumed that different people either face a different moving cost or have different productivity in manufacturing. This means that for intermediate values of the present value of wages in the city, some people move to the city and some stay on the farm.

The interesting dynamic arises because there are Marshallian spillovers or something (in MSV imperfectly competative firms with increasing returns to scale). Thus it is not wise to move to the city if no one else does. In an early draft of HVR 2000 Akos suggested considering congestion as well. In an unpublished draf, for very high urban populations, wages in the city decline as more and more people move to the city creating congestion. The math doesn’t change if this is a non pecuniary disutility of living in a crowded city. In the model all aspects of living in the city today are summarised by the “wage” which is the income which would give the same utility if earned in the villages minus the income which would be earned in the village. Clearly the "wage" is not just a wage. It is, at least, a wage differential.

will further assume that the income of villagers goes up as more people move to the city. This makes sense as simply supply and demand. The key variable which depends on urbanisation (n) is the difference between the income in the city and the income on the farm which first increases in urbanisation then decreases in urbanisation (n). This should be called a wage differential, but I will call it the “wage” to create confusion.

Given the risk of congestion, it might be Pareto improving to restrict migration to the City. The model becomes evil, because it is also assumed that the state is inept and can only do this by choosing an arbitrary inate characteristic of people and restricting migration based on that characteristic. That is, the State can’t say you are allowed in the city if you moved here already because it can’t keep track of it citizens. Also it can’t tax and transfer because its employees are crooks or something.

People die at a constant rate and new people are born in villages so the population is constant. Babies are all somehow born in the countryside, because … well I forget why but it is a model meant to clarify thought.

It changes in a very simple way. For any n, there is a present value of “wages” such that n remains constant. The graph of this is called the ndot =0 curve where ndot is the derivative of n with respect to time. For higher V (above the ndot =0 curve) n increases and for lower V n decreases. At n = 1, the ndot =0 curve goes to infinity. In the example in figure 1 it is horizontal for n close to 1 then becomes vertical.

Recall that the wage is really a differential between the value of income plus non pecuniary amenities in the city minus that in the countryside (randomly called “villages” farm and all sorts of things because this is a blog and I am the editor).

Another key variable is the present value of “wages” V. V changes according to Bellman’s equation, because it is a present value. This means that for any n there is a V such that V does not change which defines the Vdot=0 curve. Such a V is the “wage” dividied by the sum of the real interest rate and the death rate. Importantly present value has the property that if V is above the Vdot = 0 curve V is increasing. That is present values tend to be unstable. This makes perfect sense when you realise that in the present value equation with perfect foresite the future causes the present. (that was a joke).

It is possible for the model to have a steady state which is a “saddle” that is such that n near steady state n can, in perfect foresight equilibrium converge to steady state n (I have corrected figure 1 so that it shows a saddle steady state). This requires exactly the right initial V on the saddle path. Let’s make everything linear near such an equilibrium. Then the saddle path is a line as shown on figure 1. There is also an explosive path which leads away from the steady state. The saddle path is also called the stable manifold and the explosive path is also called the unstable manifold.

Assume that initial n is very slightly above the steady state n of the saddle steady state. A question of interest (to ecotheroy geeks) is whether n must decline to the saddle steady state n or whether it can increase and get to some other steady state. This would be another perfect foresight equilibrium. In the example this second equilibrium would definitely be Pareto better than moving down the saddle path to the saddle steady state.

ne possibility is to move out the unstable line and see what happens. Given initial n near the saddle steady state, this is pretty much the only alternative. Initial n and V minus saddle steady state n and V must be a linear combination of (delta n, delta V) on the saddle path and (delta n, deltaV) on the explosive path (because all vectors are). The equations are all linear for a large region around the saddle steady state in the example so you can think of these to vectors seperately. The one on the saddle path gets smaller and smaller and (n,V) gets closer and closer to the explosive path. Figure 1 illustrates this among other things.

update: In fact it is possible to characterise the lowest explosive path with increasing V in (n,V), that is, the one with lowest V for given n. This lowest path is the one followed if the economy starts on the n dot = 0 line and hence above the Vdot = 0 line. If one starts with higher V, then V is higher for any n, since perfect foresight paths can't cross. If one starts with lower V but still above the saddle path, (n,V) moves up and to the left till it touches the n dot=0 line then up and to the right and passes over n_o above the n dot = 0 line, above the lowest explosive path with increasing V and stays above it. If V is below the saddle path , n goes to 0 and V violates the transversality condition. Figure 2 to illustrate this.

Figure 2 is a closeup of figure 1 near the saddle steady state. The red curve is the explosive path with increasing V which has the lowest V for any n. I have added another path, drawn in purple to show why this is the lowest such path.

Possible paths leading to steady state with higher n must be very close the explosive path. Weird assumptions about the “wage" can be made so that these paths cross the V dot = 0 curve but stay above the ndot=0 curve and are not on the Vdot = 0 curve at n = 1 (see figure 1). If n is not changing because everyone is in the city, V must be on the Vdot = 0 curve. Otherwise the transversality condition is violated.

No equilibrium with high n is possible because people don’t stop going to the city when the possible equilibrium path hits the V dot = 0 curve. Let’s say this happens at n =0.9. This good steady state can be reached, at the end of a perfect foresight equilibrium path, if one tenth of people chosen at random are forced to stay in the country side. The equilibrium is better than the saddle steady state for them too, because the relative price of food is high. The unspeakable policy causes a Pareto improvement.

OK all this depends on the figure which I will feebly try to explain. The red curve is the lowest curve whith increasing V for initial n n_0. The very key Vdot = 0 curve is hard to see. It slopes up from 0 to s as more people in the city help each produce (s for Solow or standard or something because after that, for a while nothing weird happens). At g the “wage” jumps up. This is like the late 90s in the US somehow with a growth spurt. G is for Greenspan or Glassman or Gilder or anyway someone who thought the tech bubble would last. At meverything begins to go wrong and society starts to collapse in the city. This is named Mathus or Marx or anyway someone gloomy. So the Vdot =0 curve slopes up, goes flat, slopes up steeply then slopes down very steeply. If congestion problem went critical very suddently, the V dot curve could jump down and wouldn’t be continuous. In this case the saddle path to the saddle steady state (low n steady state) could be the only equilibrium.

The blue curve is the n dot = 0 curve with the discriminatory policy. The policy is descigned so that it stops urbanisation just before (or just after) congestion kicks in. It makes the red curve an equilibrium path. The new blue ndod=0 curve and the old black ndot = 0 curve should be superimposed when they are horizontal. The policy shifts the ndot =0 curve n/10 to the left because 10% of migration is banned.

Tuesday, April 17, 2018

Thoughts on Capehart on Kagan

I ├Č'm reading the Washington Post and note one very outstanding op-ed by Catharine Rampell which you should just read. She links to excellent summaries of social science research and notes that Republicans don't listen to experts and aren't reality based.

But I want to write about a dumb op-ed by Jonathan Capehart. I'm picking on him partly to explain what is so extraordinary about Rampell. The op-ed is a summary and review of a speech by noted neoconserviative Robert Kagan. Writing it did not involve googling. Capehart is, more or less, reporting a speech. He didn't check claims of fact with various competing published sources. Now I don't work enough to complain about his work effort. I really just want to stress that it is amazing how much Rampell taught me.

I also want to discuss Kagan. Kagan notes that the post WWII liberal world order is an aberration. Such a period of near peace with so many once rival countries working together is extraordinary. His valid and important point is that we should not assume it is the natural order of things and assume it will last. He argues that US engagement is necessary to preserve the (relatively) peaceful order and that America first isolationism is unacceptable.

Oddly, the op-ed doesn't identify him as a neoconservative. This is, I think, highly relevant context. As briefly summarised Kagan doesn't explain how he thinks the US should engage. In practice he has advocated invading countries. Does his respect for the world order require the USA to submit to the rules imposed on other countries ? What does he think of foreign aid ? How about global warming ?

I think Capehart is trying to unite anti-├╣Trumpers, bury hachets and refrain from grinding old axes. He presents Kagan as an idealistic internationalist and doesn't get around to discussing whether he is a hawk or a dove. On reflection, I think this is good strategy and will post this post only because almost no one will read it.

Kagan's version of recent history and the rise of neo-isolationism includes

But after the end of the Cold War, Kagan says, “A lot of Americans increasingly [began] asking, ‘Why are we doing this?’” The question got louder as the United States began ongoing wars in Iraq and Afghanistan in the early part of the last decade and as the economy collapsed in 2008.

I object to lumping together Iraq and Afghanistan. I think that, while the longest US war in Afghanistan with no hint of victory in sight is very frustrating, that it would not have caused a neo-isolationaist public reaction. The decision to invade is as close to unanimous as is possible with 340 million people. It is still rarely questioned. In contrast, at least with the benefit of hindsight, invading Iraq seems insane.

Furthermore, the invasion of Iraq was a break with the previous 58 years of US foreign policy, and was presented as such by advocates. Advocates of invasion treated stability as a dirty word. I think that 2003 was the breaking point, and neoconservatives did every thing they could to break the old order. It would be uncharitable to suggest that Kagan bears as much of the blame for the current situation as his limited power allows and to suggest that he might consider shutting up forever. I am feeling uncharitable.

But what is even odder is that he basically leaves two rather important countries out of his discussion of the late lammented liberal world order -- the USSR and the People's Republic of China. He decides that japan and Germany finally became peaceful because of the extraordinary virtue of the USA. The possibility that the peaceful coexistence and then close alliance of ancient adversaries had more to do with a common enemy than a common ally is barely mentioned. The cited phrase "cold war" is literally the only hint.

I too am a nationalist, but the excessive credit Kagan gives the USA is absurd. This is actually relevant. He must argue that the USA played an essential role *and* that we can do so again even though Putin and Xi are only moderately terrifying. If the relative near peace since 1945 was based on a balance of power between super-powers, deterrence and mutual assured destruction, it will be harder to recreate it with good intentions.

Anyway I just wanted to get that off my chest here where almost no one will read it.

Sunday, April 01, 2018

Matt Bruenig Tries to Figure out Harry Potter from op-eds

So it turns out that Noted commentator Matt Bruenig has an almost unique perspective because he can read but hasn't read any Harry Potter books. So Elisabeth Bruenig interviewed him trying to find out what he could figure out about Harry Potter based on Harry Potter references in political commentary.

It is actually very interesting.

Matt Bruenig is a total hero, because he is willing to display total ignorance on a topic where many (most) people are well informed. He is especially a hero, because the actual content of the interview will not be helpful to his causes.

Bruenig is notably a leftist (no he's not old, his twitter avatar is a photo of John Rawls). His view of Harry Potter is largely based on a Ross Douthat collumn and he, oddly, assumes that Douthat is more or less fair to JK Rowling (who is also a leftist even if Bruenig seems unconvinced).

There are two interesting misconceptions. Bruenig guesses that Voldemort is the dean of Hogwarts & can't figure out what Dumbledore is doing in the book. And Bruenig assumes that wizards don't just segregate themselves from muggles but also act as a ruling class (not just death eaters and in book 7 but all of them starting in book 1).

I think it is mildly interesting that Bruenig assumes the bad guy is in power at the beginning of the series. Listening to the podcast, I am struck by the importance of the very first chapters of the first book in which the Dursley's abuse Harry Potter. After that, it is not easy to think of muggles as an oppressed under-class.

Bruenig denounces the good guy wizards and Rowling for segregating. He sure doesn't believe in separate but equal. But the point is that no one (successfully) communicated to him that the Harry Potter books are set in the contemporary UK with parliament and prime ministers and such. He doesn't consider the possibility of separate but equal as fantasy. It might be that Douthat was being mischievous and trying to portray the leftist Rowling as an elitist & Bruenig just assumed that things were as insinuated by Douthat. It is certainly true that the premise of the books is not plausible (for example, magic would be even more widely abused -- oh and magic doesn't really exist -- that's implausible too).

I am now reading the Douthat column. I must admit that "For the six readers who have never read the Potter books but who have stuck with the column thus far nonetheless:" is a good line. By that point, however, Douthat had left no doubt that he considers Rowling a political enemy -- she will not be forgiven by a never Trump Republican for unfavorably comparing Trump to Voldemort. Rowling is quite left wing, but it would be nice if one conservative left politics out of it once, just to see what it's like. Oh and it would also be nice if one ever accepted that non-conservatives don't reject all thoughts of conservatives out of tribal hostility (and projection ?).

Douthat honorably notes that he got his idea from someone who uses the pseudonym Spotted Toad. Mr Toad doesn't make much sense. He says the appeal of Rowland is to people who are loyal to a school like Hogwarts. Uh Spotted (can I call you spotted) if Rowland appealed only to people loyal to elite educational institutions, she wouldn't be so rich. There aren't enough such people to buy a book onto the best sellers list (notably there are lots of people, including Douthat, who are ostentatiously disloyal to the elite educational institution without which they would not be prominent). On the other hand, Bruenig's belief that muggles are an underclass is based on ignoring Douthat's clear explanation "Muggles are non-magical folks, the billions of regular everyday human beings who live and work in blissful ignorance that the wizarding world exists. " which is actually also a good line -- a very brief very clear summary of a point that Bruenig missed. Douthat does insist that, in real life, Hogwarts graduates rule the world & that this is a problem. This is forcing the discussion to the home territory of an pseudo anti-elitist member of the elite of the elite. This may have confused Bruenig, but it wasn't a trick. In contrast, Douthat did assert that Hogwarts is coterminous with the wizarding world & the challenges to Hogwarts come from inside the school which explains why Bruenig thought Voldemort was at Hogwarts and had no idea that there is a Ministry of Magic in the books.

I think we do actually learn something about Bruenig from the fact that he seems to assume that power will be abused, so even the nicer wizards rule over muggles. It is certainly true that the Rowling idea of wizards hiding, even though they have the power is not plausible.

But the very alarming thing is that Bruenig proposes violent overthrow of wizards followed by something along the line of genocide -- he conceeds that Harry Potter seems to be a nice guy so it would be OK to just sterilize him. But he has the idea that there can't be peace and equality with some people so much more capable than the rest of us.

I have to admit that he might be right -- disbelief in the possibility that wizards generally hide their skills can be suspended, but disbelief sure makes a good bit of sense. But the idea that rough equality of ability must be achieved by sterilization and a sort of egalitarian eugenics does sound a good bit like a right wing parody of the left.

I suppose, the open mindedness based on not reading the books and suspending disbelief has its advantages. I do wonder what humanicy could do with the extreme inequality of ability of wizards and muggles (this is also a big theme in the generally underappreciated Marion Zimmer Bradley Darkover novels).

Thursday, March 08, 2018


I am so thrilled that I cyber-know two of the four finalists in THE GARY COHN MEMORIAL NEOLIBERAL SHILL BRACKET --- that I wrote a fight song

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

Face to face, out here to tweat

Hangin' tough, stayin' hungry

They stack the odds 'till we beg them to tweet

For the kill with the skill to survive

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

Rising up, straight to the top

Had the guts, got the glory

Went the distance, now the're not going to stop

Just two men and their will to survive

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

i of the tiger

i of the tiger

i of the tiger

i of the tiger

Monday, March 05, 2018

In the middle of a very courteous, diplomatic, and insightful post about Modern Monetary Theory Simon Wren-Lewis recalls his student days "I was told as a student that neoclassical economics was fundamentally flawed, and would soon be replaced in some kind of Kuhnian revolution. I know how easy it is to follow your political instincts and thereby miss out on so much important and useful knowledge." I first thought "exactly what important and useful knowledge" and "odd that he assumes that rejection of neoclassical economics is based on "political instincts" and not evidence. But now I want to focus on "Kuhnian".

I'd say that, since I was a student, microeconomics has changed fundamentally, but that there hasn't been a Kuhnian revolution at all. Back then courses were mostly theory with occasional empirical examples (which don't come to mind). The key features were well defined utility functions and rational utility maximization. Only later (in then current research) was there a mix of purely theoretical articles (which are still being written) and empirical work. The empirical work would rely on a lot of theory, including typically dubious assumptions needed to identify parameters of interest. Referees and discussants would note that among there interesting critiques there would be the standard questions about identification.

Some economists whom I had the fortune to meet, were looking for natural experiments. They argued that a valid instrument which captured a tiny fraction of the variance of the explanatory variable was more useful than an invalid instrument which gave smaller standard errors and biased estimates.

The point of this post (if any) is that this was not a revolutionary storming of baricades. Each article which used good instruments justified by common sense was uncontroversial. Exactly because the theory needed for identification was plausible and simple -- easily explained to non-specialists who would find the argument convincing and unintimidating -- it wasn't controversial within the profession either. A paper about the effect of unemployment insurance cost of living adjustments on unemployment duration was threatening to no one. The new empirical economics whose (always necessary) theoritical assumptions were plausible and obvious infiltrated and took over. I can't even say when it happened -- it appears as a trend not a break.

OK so I just googled [Noah Smith empirical revolution] and got the perfectly titled "A paradigm shift in empirical economics?"

There is the phrase made famous by Kuhn "paradigm shift" . My answer is maybe yes. I would be better able to answer if I had a clue what people mean when they write "paradigm," but there clearly wasn't a scientific revolution. The field evolved into something almost unrecognizably different. I suspect that this may be the rule rather than the exception. I think the example of the quantum revolution in physics is roughly as extraordinary as it seems to be. Trying to think of other examples, I come up with plate tectonics aka continental drift. Also, I guess, Darwin (and the three independent co-discoverers of evolution by natural selection) were revolutionary.

But now I want to type about Kuhn and "paradigm". I think the very best part of "The Structure of Scientific Revolutions (later editions)" is the afterword in which Kuhn apologises for his abuse of the word. He says he used it with many different meanings in the main body of the book and that he should have stuck to the original definition which is based on the paradigm of a paradigm -- illustrations in texctbooks. This (potentially useful term) shows bow important typical illlustrative examples are to our understanding of theories and the world to which they attempt to correspond. So Special relativity have implications for everyday life which are almost identical numerically, but the typical example of motion in modern introductory textbooks is relative motion of about half the speed of light where they are very different. The revolution triumphs when the typical example is something which had been new and strange. This is a useful point. Sadly this potential useful use "paradigm" was permanently blocked by Kuhn and his many fans. I think it is best to just talk about "the illustrations in textbooks" preferably with examples (paradigms of paradigmatic paradigms).

But the point (if any) of this tangent is that Kuhn was rewarded for his mistake. In fact, he became a super star scholar exactly because of it. His carely abuse of "paradigm" made it possible for others to impress the impressionable by using an oddly spelled word which came to English from Greek not mere Latin or merer German. The vagueness forcess me to use another technical term (which has bovine not Greek origins) Bullshit. Megatons of bullshit.

Which Kuhn regretted (not that he minded being a star).

You're so Vain Thou Probably Thinkest this Song is About Thee

Showing my age, I am remembering Carly Simon's "You're so Vain" when it was new and constantly played on the radio.

I was 11 years old then (really showing my age exactly. I was born November 9 1960 the day after Kennedy was elected). I was very confused by the refrain "You're so Vain. You probably think this song is about you." It seemed to my logic infatuated mind that, whomever might be the referent of "you", the song was about him.

My sister (not then when she was --- uh look she's cool but you just don't blog women's ages) has a theory that the point is the song isn't about the guy, and is about Carly Simon's learning to appreciate and assert herself.

I had another thought just now. Maybe there are many jerks like that in Hollywood (very safe assumption) and Simon guesses that each assumes he is The vain one who angered her enough to inspire a song. Thus the problem that you != you is solved using old fashioned English.

You are (all) so vain that thou (in particular) probably thinkest this song is About Thee makes sense. There are lots of you when zero would be plenty, and each and every single one of you thinks that he and he alone is the special one who has earned by special contempt. This makes logical sense.

On the other hand, I realize there is a more elementary solution. "You probably think this song is about you" does not logically imply that the song isn't about you. It might be that the less rythmic lyric would be "You probably correctly assume that this song is about you, but you don't know that, you are sure of your (correct) guess because you're so vain". It does make sense. If the referent of "you" is such an arrogant asshole that he is sure that he is most arrogant asshole ever to be involved with Carly Simon, and in fact he is, then he must be pretty damn vain.

Do click the link above. It was huge on AM radio, but it's a very good song.

Sunday, March 04, 2018

In which I agree with Jonah Goldberg and the World Didn't end (if you are reading this)

@JewishCoffeeH tweeted

The part that's not a joke is that he thinks lifetime presidential terms are desirable, whether he was referring to China or everywhere. Trump is the first president who openly disdains basic American Constitutional values.

The part that's not a joke is that he thinks lifetime presidential terms are desirable, whether he was referring to China or everywhere. Trump is the first president who openly disdains basic American Constitutional values.

Jonah Goldberg (author of "liberal Fascism") responded

I think Trump is hostile to, and ignorant of, the Constitution. But Woodrow Wilson openly disparaged and dismissed the Bill of Rights.

I Should only say that I never called Woodrow Wilson a liberal (segregation is not a liberal policy by any of many definitions given to the word over the centuries)

But I write that Goldberg is correct and that I can think of a few other examples off the top of my head

1) George Washington acting as President of the Constitutional Convention very openly disdained the constitution of the day -- the Articles of Confederation. That constitution had procedures for amendment that were ignored. The writing and ratification of our current Constitution requrired treating an earlier constitution as irrelevant.*

2) John Adams

a) Signed the Sedition Act which declared it illegal to "Rail against any Just act of Congress". A more direct attempt to repeal freedom of speech and the press by mere legislation is not possible.

b) ordered a US Naval vessel to fight French ships in the Caribbean ignoring Congress's exclusive authority to declare war or issue "letters of Marque and Reprisal" which words must have been clearer to the delegates at the Convention than they are to me.

3) Thomas Jefferson fought an undeclared war involving an attack on Tripoli (some things never change).* Also he (and contemorary Democrats) introduced the concept of nullification in response to Adams's attack on the constitution which almost destroyed the whole thing.*

4) James Madison *

5) James Monroe *

6) John Quincy Adams made a deal to defeat the winner of a plurality of votes and electoral votes. Constitutional but offensive to the spirit (he's basically #1 constitution respecter so far)

7) Deprived the Cherokee's of their property (and for a while liberty) & also (may have said) Justice Marshall has made his decision, now let him enforce it. which would be a direct rejection of constitutionality of any kind (and even if he didn't say it out loud he acted as if he believed it). *

8) Martin Van Buren I don't know watch "Amistad"

9) William Henry Harrison didn't violate the constitution during his 1 month presidency which he spent dying.

10) James Tyler was actually extreme given his conflict with Congress but I don't remember what he did.

11) Francis Polk ordered US army troops to enter disputed territory previously recognized to be part of Mexico (before that part of the Spanish Empire) without requesting a declaration of war (which was declared with the Mexicans fought back).

12) Zachary Taylor commanded the troops mentioned in 11). *

13) Millard Filmore ran as a candidate of the Native American Party after holding the office of President as a Whig.

14) Franklin Pierce (I remember the name but nothing else)

15) James Buchanan actually may have respected the Constitution of the Union he very nearly destroyed.

16) Abraham Lincoln suspended the writ of Habeas Corpus almost immediately. Imposed a draft. Basically ignored much of the Constitution to save any of it. Did what he had to do, much of which was unconstitutional.

17) AndreW Johnson completely rejected and fought the 14th amendment. His ingtense conflict with Congress was the second greatest threat to the Constitutional order (after the recently ended Civil War).

Skipping ahead

18) Yeah Woodrow Wilson didn't respect the Constitution

19) Warren G Harding (see W.H. Harrison)

20) Coolidge undeclared war on Nicaragua

21) Hoover (see 20)

22) Roosevelt ordered the incarceration of thousands of US citizens because of their national origin. Authorized fire bombing (or at least the buck stopped there) violating the Geneva Convention which was ratified by the US Senate and, therefore, US law.

23) Truman (see 22 but this time it's atomic) and tried to draft steel workers as "commander in chief in war UN approved mission time.

24) His justice department prosecuted someone for simply being a member of the Communist Party directly assaulting the first amendment. Sent "military advisors" to Vietnam without a declaration of war.

25) Kennedy approved warrantless wiretaps of, among others, Martin Luther King (OK so his little brother did but the buck still stopped there). Invaded Cuba without a declaration of war. see 24

26) Johnson sent the regular US military to Vietnam based on the Tonkin Gulf resolution which he promised as it was being debated did not amount to a declaration of war. Invaded the Dominican Republic without a delaration of war.

27) Nixon invaded Cambodia without a declaration of war. Oh come on, don't make me try to list Nixon's crimes against the constitution.

28) Ford -- Maybe OK

29) Carter did not disdain the Constitution which is part of why he is disdained.

30) Reagan Embezzled US funds to give them to the Contras. Invade Grenada without a declaration of war (not that I'm against doing that).

31) H.W. Bush undeclared war on Panama (see 30 above)

32) Clinton undeclared war vs Serbia. Bombed a TV station (civilian target). Disdained the 8th amendment when governor (ordering the killing of mentally incapacitated Ricky Ray Rector).

33) W. Bush first see Nixon above. When caught wiretapping without warrants he declared himself to be above the law, the law being the Patriot Act which he signed into law. He claimed the ability to declare a US citizen arrested in O'Hare airport an enemy combatant and hold him indefinitely incommunicado without trial. A more direct assault on the 5th and 6th amendments is inconceivable. Claimed the authority to establish a whole new kind of court by executive order without even pretending to name which act of Congress he was pretending to execute. Asked the CIA to see if tough interrogation methods worked violating the Geneva Conventions and the 8th amendment George Bush 2nd President of that name claimed powers not claimed by George Hanover third king of that name. Was an absolutist, that is, a consistent and determined enemy not just of the US Constitution but the whole idea of limited government.

34) B. Obama never openly disdained the constitution, but did mildly, moderately, humbly order the killing of US citizen Anwar Awlaki without a trial and even if he was "far from any combat zone" (quoting from memory of a leak). Sent troops to Syria without a declaration of war. Now these are arguably allowed under the September 2001 authorization for the use of military force with Awlaki a combatant (it's not like killing a prisoner). Syria is a stretch as Daesh is not al Qaeda, and they are in fact fighting al Qaeda along with most of the rest of humanity. Obama did not the Constitutional problem and asked Congress to do something about it.

OK so some have respected the Constitution (one at least partly because he was busy dying) but it is very much the exception not the rule.

*He deprived his slaves of liberty without due process of law (the Constitution was totally hypocritical on this point clearly allowing slavery and pretending to establish a right to due process)

Saturday, February 10, 2018

Contra Mannheim

First rules of blogging. I type as I please.

I haven't read anything by Karl Mannheim but I think he wrote the phrase "social construction of truth". I think that is a bad phrase and all use of it or similar phrases should be criticized.

My reason is simple. I think anything true which can be said including the phrase "social construction of truth" can also be said using "social construction of belief". I think that all such valid claims amount to the assertion that our beliefs develope as part of a process of interaction with other people. I don't think many people have noted that beliefs are socially constructed, because the fact is so obvious that it (almost always) goes without saying.

Rather, the reason I vaguely remember that some German guy wrote "social construction of truth" is the assertion that there is no truth other than belief. It is an assertion of idealism -- that all that exists are minds and ideas. Now I don't have a problem with idealists (I disagree but I do not denounce). I do have a problem with blocking arguments by redefining words.

If "truth" is redifined to be a synonym of "belief" it is impossible to assert that beliefs are true if and only if they correspond to an external reality. It may be that this assertion (called realism) is incorrect, but I think it is very bad to redefine words so that a view with which one disagrees can't be stated.

One can assert that "truth" vs "belief" is a distinction without a difference, but it is better not to redefine "truth" so it is a distinction without a distinction.

In particular, I think the appeal of "social construction of truth" is that the meaning is ambiguous. When it must be defended from criticism it is interpreted to mean "social construction of belief" which is an assertion too obvious to make clearly. When it is not subject to criticism, it is defined as implying there is no external reality -- nothing but opinions, no atoms and no void.

I think it relies on an equivocation and is invalid reasoning.

----------------------------------------------------------------------------------------------------- OK now a bit of borderline xenophobia and nationalism. Mannheim's first language was German. I don't speak any German but I do speak Italian and have become painfully aware that the Italian word "verita" does not translate the English word "truth". A closer translation is "realta". The points are that I now have a larger vocabulary, because I learned Italian and discovered that Italian words are not exact translations of English words, and, also, that there a lot of confusion is caused by semi translated words.

Very often I find what I believe to be incorrectly translated French mixed in the English. I recognise it, because it makes sense as incorrectly translated Italian. I am very sure that this is a more irritating problem for people whose native language is anything but English, as the flow of semi-translation is mainly from English to every other language.

Wednesday, February 07, 2018

Drum goes easy on Goldberg

It is progress that hack conservatives are bothsidesing now. Jonah Goldberg correctly notes that the problem isn't just Trump but also broader extreme partizanship. He asserts that both parties are to blame. He seems to know he can't defend this assertion and declines to try. I think he may be sincere -- the extreme partisanship of Republicans means that in the Conservabubble it was generally agreed that Obama exceeded his authority. Many of the conservative attacks on Obama were due to the progressive insanity of the conservative movement. Goldberg has noticed that Trump is extreme and a threat to the Republic, but he won't bother to re-examine what he thought back when he was an orthodox conservative.

Liberals roll their eyes at the claim that President Obama violated democratic norms or abused his power. But putting aside the specific arguments, conservatives saw plenty of abuses and violations, from the IRS scandals and Benghazi to the Iran deal. Obama said many times he couldn’t unilaterally implement the Deferred Action for Childhood Arrivals program because he wasn’t a “king.” Then he did it anyway.

Kevin Drum is very hard on Goldberg.

Yeah, OK, except that we really can’t put aside the specific arguments here. We know now that the IRS “scandal” was a minor screwup that affected both parties, and certainly had nothing to do with Obama anyway. Benghazi was a tragedy, but not a scandal in any reasonable sense of the word. The Iran deal was…the Iran deal. And getting new legal advice on DACA is hardly some unprecedented norm violation. It’s up to the courts to decide if an executive order is legal, and so far no court has even taken up the question of DACA, let alone ruled against it.

It is indeed offensive that Goldberg wrote "putting aside the specific arguments" before stating his conclusions on those specific topics. He is saying that he demands that his claims be accepted (as an effort to avoid extreme partisanship) even though he won't bother to defend them.

However, Kevin Drum is not hard enough. He lets plainly false claims about DACA pass. I guess Goldberg was sincere. His claim about Obama and DACA is 100 % false, but conservatives generally agreed that it's true. When Drum asserts Obama got "new legal advice". There is absolutely no evidence that this is true. Goldberg's argument is entirely based on ignoring the difference between deferred action (within the authority granted by the Immigration and Naturalization ACt to the executive and comprehensive immigration reform which Obama consistently said he did not have the authority to impose by executive order.

My long comment.

You are much too charitable to Goldberg. His claim "Obama said many times he couldn’t unilaterally implement the Deferred Action for Childhood Arrivals program because he wasn’t a “king.” Then he did it anyway." is 100% false. In particular the word "Then" is totally false. Obama said he couldn't implement Comprehensive Immigration Reform because he wasn't king. He said that *after* the DACA was implemented. Also, formally, Obama did not issue a DACA order "DACA is based on a June 2012 memorandum issued by Janet Napolitano, then-Secretary of the Department of Homeland Security."

The denunciation of Obama for allegedly claiming to do what he admitted he couldn't do did came after DAPA (deferred action for parents of Americans) an order issued long after DACA and after comprehensive reform was blocked by Boehner (and Boehner alone there were the votes in the House). DACA was not especially controversial.

But the key thing is that DAPA (although much larger in scale that DACA) was *not* comprehensive immigration reform (that is Economic Opportunity, and Immigration Modernization Act of 2013). Note 2013 which came after 2012. It was during the 2013 debate *after DACA* that Obama asked Congress to do that whiich he said he didn't have the authority to do. The difference is the the gang of 8 reform included a path to citizenship. Obama has consistently held the position that under existing law, the executive can order deferred action and grant work permits and can *not* grant legal status (green cards) or a path to citizenship.

. People also repeatedly confuse the content of DACA and the very different content of the DREAM Act (another different thing, the first chronologically, which was blocked by a filibuster in the Senate). The Dream act (and the gang of 8 comprehensive reform) included paths to citizenship.

It is that which Obama said he didn't have the authority to do by executive order. DACA does not include a path to citizenship. It does include deferred action, which clearly falls under prosecutorial discretion, and granting work permits (but not green cards). It is precedented. George H.W. Bush issued an executive order based on the exact same claim of authority.

Only by eliding all reference to granting citizenship can Goldberg claim Obama did what he said he couldn't do. This is totally false. It is bullshit. It depends on asserting that different policies are the same and that citizenship doesn't matter. It is true that, although DAPA has the exact same legal justification as DACA, it's legality was controversial. People generally sympathetic to Obama said that it seemed that the GOP might have a point this time. Then you talked to experts on immigration law who said that Obama clearly had the authority.

I quote you "I confess that I’ve been a little surprised by what I’ve discovered. As near as I can tell, both liberal and conservative legal scholars—as opposed to TV talking heads and other professional rabble-rousers—agree that Obama has the authority to reshape immigration enforcement in nearly any way he wants to."

note the date 2014 (DAPA) not 2012 (DACA). Although they differ only in scale, DACA was no where near as controversial and never blocked by a Court

Note also the DAPA injunction does not address the question of whether Obama had the authority to order deferred action and work permits

"But when those programs [DAPA] were temporarily enjoined by the district court in Texas, it was not on constitutional grounds, Kalhan said, "but rather based on a conclusion that Obama administration should have instituted the policy using notice and comment rule-making, rather than using the more informal guidance document that it issued.""

The entire argument depends on equating deferred action + work permits (within his authority) and green cards and a path to citizenship (Obama consistently said he didn't have the authority to grant that).

Saturday, December 09, 2017

DeLong & Krugman vs Mankiw and Mulligan III

I thought it was all so absurdly simple after all that I could explain to the many readers over at AngryBear. But I am so bad at expressing myself that even my very trivial explanation of the controversy was a mess. so I brought it here. Now I have to add paragraph breaks by hand

There has been a very odd debate among very smart economists in which Brad DeLong and Paul Krugman are convinced that Greg Mankiw made a silly algebra mistake and Greg Mankiw is not convincedade a silly algebra mistake [update oh my Prof Mankiw appeared in my comments noting that he didn't say anyone made a mistake & just wrote that he hadn't. Sorry about that].

I have struggled to understand the disagreement, which, again is elementary algebra and geometry. There is no point in trying to make sense of my efforts to understand. I am now quite sure I understand the disagreement. I am also quite sure that none of the three made a silly algebra mistake.

Mankiw's question is here

He assumes a small open economy (with something making adjustment gradual) so the after tax return on capital must be equal to the world interest rate r*. then he asks a very odd question: what is the ratio of the long term gain in wages due to a (small) reduction in the capital income tax to the short term loss of revenue. There is no particular reason to ask this question, except that it has an oddly elegant answer. That ratio is 1/(1-t) where t is the initial tax on capital income.

Brad's latest effort to explain is here

Just click the links. I finally understand that Brad too is asking a very similarly odd question. The only difference is that Brad considers a tax on capital (tau)k not on capital income (t)f'(k)k. This makes the difference.

The reason is that changing t by delta t (delta t <0 so this is a cut) has three effects on revenues. First there is the immediate loss (delta t)f'(k)k (this is what Mankiw calls the static cost and I think that's standard terminology). Second there is the additional revenue because the tax cut will cause higher investment (t+delta t)(delta k). Third and critically there is a gradual reduction in tax revenue per unit of k due to the decline in f'(k) equal to (t+delta t) f''(k) (delta k) so this causes a loss of revenue equal to (t+delta t) f''(k) (delta k)(k+delta k) or, to first order

tf''(k)(delta k)k

This means that the change in revenue per unit of capital is (to first order) (delta t)f'(k) + t f''(k)(delta k). Now imagine that new capital is due to entry of new firms, so I can talk about revenue collected from old capital. that changes by

(delta t)f'(k)k + t f''(k)(delta k)k

if delta t is negative, delta k is positive. f''(k) is negative so the second term is an additional cost to the treasury of cutting t. It taxes at a lower rate and the profits earned by the old firms are lower bcause of the competition from the new firms.

wages paid equal f(k)-f'(k)k so the change in total wages is (always to first order)

f''(k)(delta k) k.

OK as noted by Brad, the after tax returns on the old capital are always kr* so the reduction in revenue collected on old capital must be equal to the gain in wages (to first order in delta t)

(delta t)f'(k)l + t f''(k)(delta k)k = f''(k)(delta k)k


(delta t)f'(k)l = (1-t)f''(k)(delta k)k

Oh look that's Mankiw's short term loss in revenue equals (1-t) times the long term gain in wages. The long term loss of revenue from taxes on income of old capital is equal (to first order) to the long term gain in wages.

Now consider a tax on capital Tau if it is changed by delta Tau then there are only two effects on revenue. A short term loss of (delta tau)k and a gain of (tau +delta tau)(delta k). the long term effect on revenues from taxing old capital is just (delta tau)k.

The long term effect on after tax income from old capital is zero again, so the long term effect on wages is, to first order (delta tau)k. So again the ratio of the long term gains to wages and the long term reduction in revenue from old capital is 1.

But now the long term reduction in revenue from old capital is equal to the short term reduction in revenue from capital. So now the ratio of long term wage gains to short term revenue losses is 1 not 1-t.

Now I think the actual lesson here is that it makes no sense to look at a long term change divided by a short term change.

But no one has made an algebra mistake. Taxes on capital and capital income are different. The effect of changing them on revenue collected from old capital is different if the change in the taxes affects the pre-tax return on capital.

Now something is gained by drawing the figure (see Brad's figure). It makes it very clear that the gain to workers is equal to the loss of revenues collected on old capital (plus the little triangle which is second order in the changes in taxes).

DeLong & Krugman Vs Mulligan & Mankiw II

Below, I tried to understand why Brad DeLong and Greg Mankiw were having so much trouble understanding each other. The story so far: Delong and Paul Krugman think that Mankiw and Casey Mulligan made an elementary algebra mistake. Mankiw and Mulligan think that DeLong and Krugman made a math mistake.

I think they are all wrong and that none of the four made a mistake.

update: I also now think that I was wrong about what Brad wrote when I wrote the silly post below. Like Mankiw, he was considering the ratio of the long term effect of a tax cut on wages divided by the short term effect on tax revenues. The difference is entirely that DeLong and Krugman consider a tax on capital and Mankiw and Mulligan consider a tax on capital income. Short run revenue effects changes in such taxes differ only by a constant (the initial marginal product of capital). Long run changes in tax revenue per unit of capital and of wages differ by an further factor 1-t explaining the different results. end update: Mankiw considers a reduction in the tax on capital income in a small open economy. He assumes that the after tax return is equal to a constant world rate of return r* (in the long run although he doesn't clearly state that he doesn't think this holds in the short run). He looks at the "static" cost to the Treasury of a tax cut. Here he assumes that the pre-tax return doesn't change quickly, so he assumes that, in the short run, the after tax return is greater than r*. Then he looks a the long run increase in total wages paid (the wage bill).

He notes that the ratio (long run)/short run = (1/(1-t)) where t is the initial tax rate.

DeLong scolds Mankiw very harshly for using the word "static" with a different definition that the JCT. I personally wonder why Mankiw thinks anyone should be interested in a (long run)/(short run) ratio.

First I think I understand the communication problem (update I didn't understand it end update). Mankiw is no more able than I to write the symbol for a partial derivative on the web.

He wrote "We cut the tax rate t. Because f '(k)*k is the tax base, the static cost of the tax cut (per worker) is

dx = -f '(k)*k*dt."

he means partial x/partial t = -f'(k)k. by "static" he means "holding k constant" that is taking a partial derivative. Now if k were constant, then wages and production would be constant so profits gross of taxes would be constant and the return on capital would be greater than r*. In Mankiw's example, the only thing which changes (other than taxes once) is k. You can't change t, keep k the same and keep (1-t)f'(k) = r* constant.

update 3: All that follows is my confusion. I can get to a model in which there is a short run wage gain equal to the short run revenue loss. However, it isn't Brad's model at all. Like Mankiw his is looking at long run wage gains vs short run revenue losses dw/dtau/(partial x/partial tau). The difference is that Brad considers a tax on capital not on capital income.

Everything that follows is irrelevant to the discussion and just an example of how one can get any result one wants out of an economic model by fiddling the assumptions.

end update 3

Brad *insists* on another definition of static -- one which he knows is used by the JCT to score tax reforms and generate the ultra important $ 1.5 trillion. In this defintion, prices may change (and accounting tricks definitely change) but actual production doesn't.

So in Brad's static calculation, k stays the same but the pre-tax return on capital falls so (1-t)(pretaxreturnoncapital) = r* stays the same. This can only happen if wages go up. The net of tax income of investors is (by assumption) fixed so the gain to workers is exactly equal to the loss to the Treasury.

Brad's static analysis is a bit odd. He assumes k is fixed *and* that wages and the pre tax return on capital change. He writes that it is very important to defer to the JCT. I agree with him about that as a matter of political economy. But I want at least a story for how w and pretaxreturnoncapital can change without k changing.

The story follows. Capital is like clay. Once it is assembled, the production function is Leontief so there is no way to substitute capital and labor. Output is firms choose a technology with a given capital labor ratio from a menut that looks like an ordinary production function, but, once chosen, the ratio is fixed.

In contrast w is not determined by the technology. It is determined so the after tax return on capital is r*.

If w is too low the return is higher than r* and foreigners send in capital and hire a worker (taking w as given). There would be excess capital so the return would be zero. Uh oh. if w is too high domestic investors send all their savings abroad. Then One tiny bit of capital deprciates and there is surplus labor and wages fall to zero.

So wages and pretaxreturnoncapital adjust instantly.

New capital is installed with a higher capital labor ratio (because wages are suddenly high in the USA). So as the old capial is replaced by new capital, demand for labour slowly changes.

Capital as clay makes it possible for prices to change quickly and quantities to change slowly. This is what Brad assumes, presumably following the JCT.

Mankis is assuming a smooth production function in which substitution of capital and labor is alway possible. His short term calculation is in the short term, k is the same so w = f(k)-kf'(K) is the same so the ratio of gain to workers to loss to the treasury is 0. not 1/(1-t) not 1, but exactly 0.

DeLong, Mankiw, Krugman, Mulligan and Cochrane Argue About Elementary Economics

I think you should read this post by Brad DeLong to understand the issue and the very grave condition of the discussion in which academic economists try to contribute to the policy debate.

The TL:DR version is that Greg Mankiw blogged a little exercize in which he asked the interested reader to calculate the ratio of two effects of cutting the tax on profits. The ratio was the long run increase in wages divided by a very short run loss of revenues to the Treasury.

The point was that this ratio is 1/(1-t) where t is the initial tax rate. I have no doubt that, as a partisan Republican, Mankiw was eager to lead people to a ratio greater than 1.

Brad DeLong objected that Mankiw incorrectly called his extremely short run analysis a static analysis. The exact definition of "static" matters, because it appears in the rules of the Senate which determine if a bill can be filibustered.

In Mankiw's extremely short run, the capital stock is fixed and so are wages and prices. This is a perfectly standard Keynesian short run. In static analysis as conducted by the CBO, the OTA and the JCT, wages and prices are assumed to adjust (and all accounting tricks are used).

Astonishingly, there is a heated debate about this. I think it can be resolved if Mankiw says he didn't use static in its Senatorial sense and should have written "extremely short run". I also think he should, but definitely won't, note that his calculation is just a calculation with no policy relevance at all (it would have none even if the super simple modeling assumptions were the truth, the whole truth, and nothing but the truth).

Oh crap my summary for those who find DeLong's post TL is Too Long too. Just click the link.

My interest is in totally pointless theory. (no JCT no CBO). Why, in the model, does the long run take a long time to arrive ? What assumption is made which prevents K from jumping ?

I can think of 3

1. What Mankiw really has in mind. The economy is a closed economy. higher after tax interest implies higher saving and capital accumulation (there is a substitution effect but Ricardian equivalence means there is no income effect). The economy converges to a new steady state with after tax interest equal to the rate of time preference (1-t)f'(k) = rho. But this is hard, so (like the Tax Foundation as denounced by Krugman) he semi shifts to an open economy, but just to say that the after tax interest rate reaches a constant in the long run.

But then, if there are no installation costs and domestic and foreign goods are perfect substitutes, then domestic K will jump. Oooops. One needs one or the other. Krugman has very wonkishly done imperfect substitutes here.

so I will whip out Q. To avoid Krugman's insanely wonkish math (and replace it with other insanely and pointlessly wonkish math) I assume that domestic and foreign goods are perfect subsitutes (with no transportation costs either). This means that there is alway perfect purchasing power parity and current account deficits can jump up and down. This good can be consumed or assembled to make capital. I use its price as numeraire. It really just means I am setting the after tax rate of interest to a constant r*.

I will assume that labor input is constant and L=1. So I can write production as f(K) = F(K,1) and talk about derivatives. Capital income gross of taxes is Kf'(k), investors get (1-t)Kf'(K), the IRS gets tKf'(K) and workers get f(K)-Kf'(K). Here notice that I assume that reinvested profits are taxed -- no expensing investment here.

Now I will intoduce an installation cost. The cost of increasing K by dK is dk+dk^2 . The second term is called an installation cost. This means that the value of a unit of capital is not necessarily one unit of the final product. The ratio of the prices is called Q.

The convention is to call the dk increase I (investment) and not explain where installation costs appear on profit and loss statements. I assume that the installation costs are counted as investment not expenses for tax purposes (this is also conventional). I am just insisting that the tax collected is equal to tKf'(K) no matter how much or little firms invest.

The Standard results now are that

1) Q = 1+2I

2) r*Q = (1-t)f'(K) + dQ/dt

so in steady state r*=(1-t)f'(K) . There is math behind the equations, but they make sense. The marginal cost of capital is 1+2I so equation 1 just means that there is no arbitrage opportunity based on building new capital and selling it. Equation 2 says the return on ownership of capital is equal to r*. In other words, there is no arbitrage opportunity based on borrowing, buying some capital, operating it for a while collecting after tax revenues then selling it for a capital gain or loss.

Now what happens quickly if t is suddenly cut by dt ?

K can't jump. production can't jump. The real wage doesn't jump. real profits gross of taxes don't jump. This short term is Mankiw's extremely short term. There is no need for wage or price stickiness.

The variable Q jumps up (owners of capital are richer -- that is the actual point of the whole operation even if Republicans won't admit it).

OK I haven't proven this (and have no intention of doing so) but the transfersaility condition and the budget constraint imply that K will converge to a new steady state where r* ( 1-t+dt)f'(K), dK/dt = I = 0 and Q = 1. So Q has to head back down (K,Q) moves down a saddle path.

This means that the dQ/dt term is negative. This means that Q jumps up to a level lower than (1-t+dt)/(1-t).

Well that was almost exactly pointless. The only tiny point is that I have a model which has been fully worked out (I didn't here -- it's in the literature google [Q theory hayashi]) in which the very short run is exactly Mankiw's very short run.