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Sunday, December 28, 2008

Major category error from Harvard Philosophy concentrator.

Matthew Yglesias writes

"Given what we’ve learned about the risks of catastrophic climate change, it [] seems like a concept that’s been somewhat overtaken by events. A carbon tax, or a cap on greenhouse gas emissions with auctioned permits, would constitute a tax on gasoline among other things. And there’s no particular reason that burning fuel in a car should be disfavored versus other carbon-intensive activities."

via Kevin Drum

The fact that there is a reason to tax both coal and petroleum consumption does not mean that "there is no patricular reason that burning fuel in a car should be disfavored compared to other carbon-intensive activities." A newly understood problem with petroleum consumption doesn't eliminate that many excellent longer understood reasons to limit petroleum consumption. It can't. A newly discovered problem with burning gasoline and other things can't eliminate the case that burning gasoline is worse. A positive number plus a constant is greater than 0 plus a constant.

Those of us who are roughly twice Yglesias's age remember the original logic of a gasoline tax, which was designed to reduce dependence on foreign oil. That argument is, for some reason, out of fashion, but it is much more compelling now than it was then.

The fact that we have a new concern -- global warming -- which will be partially addressed by a gasoline tax isn't and can't be a reason why burning fossile fuels in cars isn't particularly bad. The case for a carbon tax as opposed to a carbon tax plus a gasoline tax is that there is no problem with gasoline consumption except for global warming.

It is odd that criticism of this nonsensical position from the author of dozens of "peak oil" posts is so measured.

A gasoline tax will reduce global warming, reduce depletion of petroleum reserves and cause the price of petroleum to fall. It is fairly likely that the cost will be entirely born by oil exporting countries and not at all by -- well us.

If one opposes a gasoline tax, one should logically advocate aid for Kuwait Saudi Arabia and Russia. If that sounds crazy then so is the current minimal US gasoline tax.

Wednesday, December 24, 2008

John Emerson Comments on a post by John Quiggin

John Emerson 12.22.08 at 12:18 pm

The GFC [global financial crisis] was caused by excessive optimism result from drug use.[1]

Modern pharmacology leads people to light far too goddamn many candles and forget to curse the darkness, even when the darkness desperately need cursing.

[1] I didn’t specify that the drugs may have been legally prescribed. And besides amphetamines, anti-depressants were almost certainly involved. Negative thinking can be your friend.

This vaguely reminds me of something Andrew Sullivan wrote. His theory was that the productivity speedup was due to prozac *and* that most Americans didn't grasp the awfulness of Clinton because we were on prozac.

Please don't take offense John. I used the word "vaguely" to avoid accusing you of innumeracy.

Tuesday, December 23, 2008

Time for my favorite photo again.

Binyamin Applebaum reports in the Washington Post that

A senior federal banking regulator has been removed from his job after government investigators concluded that he knowingly permitted IndyMac Bancorp to present a misleading picture of its financial health in a federal filing only months before the California thrift was seized by regulators.

The Office of Thrift Supervision removed Darrel Dochow as director of its western region, where he was responsible for regulating several of the largest banks that failed or were sold in the past year, including Washington Mutual, Countrywide Financial, IndyMac and Downey Savings and Loan.

banking regulators and bankers

Saturday, December 20, 2008

David Rose has an important article in Vanity Fair about Torture

He argues, at very convincing length with extensive specific evidence, that statements extracted by torture are completely unreliable -- what the tortured person thinks the torturers want to hear.

He definitely claims that José Padilla's alleged dirty bomb plot was made up by Abu Zubaydah while Abu Zubaydah was being tortured. That was the issue which caused Bush to decide that the Bill of Rights and the Magna Carta were obsolete.

I have written fairly often about the hypothesis that the torture of Ibn al-Shaykh al-Libi contributed to the US decision to invade Iraq (not to convincing Bush of course but to convincing so many people to agree). Rose claims the same is true of the torture of Abu Zubaydah based on the claims of two anonymous sources.

The tribunal president, a colonel whose name is redacted, asked him: “So I understand that during this treatment, you said things to make them stop and then those statements were actually untrue, is that correct?” Abu Zubaydah replied: “Yes.”

Some of those statements, say two senior intelligence analysts who worked on them at the time, concerned the issue that in the spring of 2002 interested the Bush administration more than almost any other—the supposed operational relationship between al-Qaeda and Iraq. Given his true position in the jihadist hierarchy, Abu Zubaydah “would not have known that if it was true,” says Coleman. “But you can lead people down a course and make them say anything.”

Some of what he did say was leaked by the administration: for example, the claim that bin Laden and his ally Abu Musab al-Zarqawi were working directly with Saddam Hussein to destabilize the autonomous Kurdish region in northern Iraq. There was much more, says the analyst who worked at the Pentagon: “I first saw the reports soon after Abu Zubaydah’s capture. There was a lot of stuff about the nuts and bolts of al-Qaeda’s supposed relationship with the Iraqi Intelligence Service. The intelligence community was lapping this up, and so was the administration, obviously. Abu Zubaydah was saying Iraq and al-Qaeda had an operational relationship. It was everything the administration hoped it would be.”

Within the administration, Abu Zubaydah’s interrogation was “an important chapter,” the second analyst says: overall, his interrogation “product” was deemed to be more significant than the claims made by Ibn al-Shaykh al-Libi, another al-Qaeda captive, who in early 2002 was tortured in Egypt at the C.I.A.’s behest. After all, Abu Zubaydah was being interviewed by Americans. Like the former Pentagon official, this official had no idea that Abu Zubaydah had been tortured.

“As soon as I learned that the reports had come from torture, once my anger had subsided I understood the damage it had done,” the Pentagon analyst says. “I was so angry, knowing that the higher-ups in the administration knew he was tortured, and that the information he was giving up was tainted by the torture, and that it became one reason to attack Iraq.”

Thursday, December 18, 2008

Preading Influence of Yglesias

update 2: The tile was meant to be "Spreading Influence of Yglesias". This was an honest typo, not a joke. I have no idea why I capitalized the P after missing the S

Matthew Yglesias is widely (universally) acknowledged to be very smart and very eloquent. He seems to have become the informal leader of a group of very young and scary smart DC based blogger types.

Now his influence seems to have spread so that people who are roughly twice his age have adopted one of his the characteristics of his style -- the homonym typo.

So we have Prof. Mark A. R. Kleiman writing

("hatred" because most people here "Stalinist" when they hear "Marxist," and foolish because the Social Gospel was about as far from Marxism as you could possibly get)

(he gets extra points for typing two different words when drawing a parallel)

and Prof. J. Bradford DeLong writing

First, there were an awful lot of people who knew in the summer of 2001 exactly what Paul Krugman knew, .... But they didn't say what they knew. And know they feel very guilty.

Which, as far as I now, doesn't even sound right even when pronounced in California.

update: Prof. Kleiman aslo appears to be influenced by Sue Schmidt "More reflections on Rick Warren
by Mark Kleiman

3. It's not just a big diss to gays and women and a diplomatic insult to Iraq,"

update 3: Steve Benen two

"imagine the Obama White House were to host an inter-faith dialog on the great moral issues of the day. President Obama and his team want a lively discussion with a variety of competing ideas, and invite a wide variety of pastors, including Warren, to participate. There may be some who would say this is wrong -- that Warren's conservative believes should necessarily disqualify him from being invited to the White House."

Monday, December 15, 2008

Muntadar al-Zaidi the Journalist Who Threw Shoes at Bush

"could receive a maximum jail sentence of seven years for insulting the nation's leader."

I think that law should be changed immediately. For one thing, it doesn't seem to be based on the shoes as opposed to the verbal insult. People in free nations have the right to insult the nation's leader such as the depraved idiot George Bush and Silvio Berlusconi (I'm not quite sure what nation I'm legally in right now). Technically I can't legally say that the spineless wimp Giorgio Napolitano is responsible for the insane policies of the Berlusconi government (I just broke two laws typing that). However, I'm not quaking in my shoes.

Look that was a simple assault -- a misdemenor. Even though I would like the law to tread "the nation's leader" like any other person, I recognise that some exceptions must be made for practical reasons. I have no problem with the law which makes it a felony to threaten to kill the President. However, the two shoes were an expressive gesture via illegal means not an attempt to kill or maim. I'd say let him off with a warning or, if you must, a sentence of one month.

I happen to be very very irritated with mr Al-Zaidi as he has put me in the very uncomfortable position of agreeing totally with what Bush said on the topic. In fact, I actually felt proud of Bush's performance in the press conference in Iraq. I will not forgive Al-Zaidi for this, but I don't want him in jail.

So George Bush -- good at dodging and talking about thrown shoes. He had to be good at something.

Sunday, December 14, 2008

Mark Kleiman asks where did the Madoff money go ?

This is the 50 billion Ponzi scheme.

He writes

What isn't clear (to me) is where the $50B went. It must have been some combination of outright theft, trading losses, and expenses (commissions, salaries, etc.). If it was stolen, then it must still be somewhere; Madoff could hardly have spent any noticeable fraction. It's also hard to see how expenses could have accounted for much of that sum. Did he really manage to lose most of 50 gigabucks? Shouldn't that be hard to do? Roughly as hard as making that much? After all, every trade has a counter-party, so what Madoff lost someone else gained.

That's simple. It was a Ponzi scheme. For years Madoff paid investors 8 to 10 % year after year. That's where the money went. In a Ponzi scheme, the money invested by new investors is used to pay the old investors. In this way it seems Madoff's firm managed to build up $ 50 billion in debt mostly by sending money to investors.

Now it seems someone warned the SEC what was going on but couldn't get taken seriously for some reason. He wasn't named Mark-up-a-loss but he is named Markopolos.

update: Thanks for the link prof. Kleiman. Also I notice that lots of people are googling "where did the Madoff money go" so I'm getting a good bit of traffic (by my standards) by quoting him in my title.

One point I was going to add (which I just notice was also noted by anonymous in comments) is that the $ 50 billion figure sure seems to be exagerated since Madoff only claimed to have 17 billion in assets under management. I don't see how if one claims 17 billion one can be overstating by 50 billion. I will just call the amount missing X where X could be $17 billion or $590 billion or something in between.

The other point is that much of the money was never anywhere. Madoff did not collect X from investors. Some of the money he promised them was money he claimed to have made investing. He was claiming 8 to 10 % returns for years. If he was getting average returns of say 5%, there would be a whole lot of made up money which never existed in any way anywhere.

In my original post, I assumed that he sent the fake returns to investors as dividends. It is much more likely that he just added the numbers to their accounts. Of the X which is missing, some would be money paid in by investors, some would be the actual returns that Madoff got and some would neither be nor have been ever.

I'd guess most of the ever really existing money was paid to investors who cashed in their accounts taking their money, the returns on the money and much more out (why is taking money *out* cashing *in* ???). Madoff probably paid a lot to himself. He probably didn't spend all of that, is not personally bankrupt, and will have to give his personal wealth to investors to cover civil fraud liability. Also his accountants probably weren't wasn't cheap given that he too might well end up in the slammer. Plus I would guess a good bit of semi-bribes and quite possibly pure and simple bribes.
‘Hard Lessons: The Iraq Reconstruction Experience’

The Iraqi Inspector General's Draft Report as Leaked to the New York Times.

I know all about that. I mean this is an official (draft) report by a Bush appointee. Can't be worse than I imagined possible can it ? Seems like time to test the DeLong hypothesis that the Bush administration is worse than you imagine possible even after you take into account the fact that it is worse than you imagine possible.

I haven't gotten to the actual invasion yet, but my jaw has already dropped. Remember Jay Garner ? The guy with the responsibility to relieve and reconstruct Iraq but no authority ? Who played that trick on him ? I mean what's this retired general dressed in an open neck shirt doing over there ? Damned if I know. I don't feel bad though. I'm not the only clueless one.

Page 56

"I pointed out to the President and to Dr Rice," Secretary Powell said "that they authorized and set up two chains of command." "They said 'no we didn't'" but then "checked and realized that that's what they had done."

To set up one chain of command for the occupation and reconstruction of Iraq may be excused as a result of bad intelligence, but to set up two looks like carelessness.

To set up 2 competing chains of command without noticing that one has done so is worse than I imagined possible.

Brad DeLong has developed the most empirically solid hypothesis in the social sciences.

update: The bit about "bad intelligence" was, of course, ironic as Bush clearly decided to invade Iraq in spite of the lack of evidence of WMD and links to active terrorists. However, US intelligence was shockingly bad. I mean bad beyond belief

CIA briefings on public services and ministry functions were of limited use. "Nobody could tell how many ministries currently existed in the Iraqi government," nn OHHA official said. Garner kept asking "Where is my list of ministries ?"

update II I can't keep up. Basically from page 61 on it's one jaw dropper after another. Did you know that Garner had to use a commercial e-mail account and couldn't send or receive classified documents ?

Saturday, December 13, 2008

Matthew Yglesias is so broad that he even writes about things I know something about

The Inequality Cycle

Achievement gaps in the US education system are an important cause of economic inequality, which is especially unfortunate when you consider that economic inequality is also a leading cause of achievement gaps in the US education system. Chad Alderman writes about the latest TIMSS results:

Despite this progress, the biggest difference in the scores of US students is not between countries, but rather remains within our own. In fourth grade math, the effect size of US students attending high-income versus low-income schools is 1.4 times as large as the difference between US students and the highest performing country. In science, the effect size by income is three times what it is between the US and the leading nation. Income gaps continue to persist at levels higher than all others, and that should be the real story out of these results.

In Finland, by contrast, they’ve happily gotten themselves onto the good equilibrium. Relatively low levels of background inequality and poverty make it relatively easy to deliver fairly egalitarian educational outcomes. Add to that a determination to target in-need students with a degree of extra resources, and this becomes even more the case. And those relatively egalitarian educational outcomes help maintain a relatively egalitarian distribution of wealth and income. Lather, rinse, and repeat. The United States, by contrast, is becoming more-and-more of a class-bound society in which parental SES dominates other factors in determining economic opportunities, helping to reinscribe patterns of inequality over and over again.

I comment

Excellent point. The striking fact about the USA from earlier versions of the study was the extraordinary variance of scores.

Click this link for the gruesome details.

Oddly your wide ranging blog has hit upon one of the very few topics on which I am expert. I have discussed the issue with the heads of the US TIMSS team. They described the experience of discussing their results in Miami. This was not fun, although Miami schools did rank above South African Schools. I would have been irritated discussing them at the self proclaimed "Worlds best School district" which is near Chicago (North Shore or somethind) probably still bragging about TIMSS (plus high school teachers there get paid more than college professors here in Italy).

By the way, the acronym TIMSS originally stood for "Third International Math and Science Study" but the acronym took over so they had to decide it stood for "Trends In International Math and Science Study". Otherwise you would be blogging about FIMSS (notice I don't have to reveal my ignorance as to whether it is the fourth or fifth except I just did).

Seriously though, it is very clear that to fight inequality in the USA the Obama administration has to equalize at least budgetary differences with federal money. Calling it a measure to improve average performance is the way to sneak it past Southern reactionaries (whose constituents will benefit). Actually, they are showing some rationally egoistic regionalism in standing up for Toyota vs GM, so they *might* accept the cash.

Thursday, December 11, 2008

Greenhouse Gas Offsets

OK so the Reality Based Community won't be collective Energy Secretary, but I still have an open discussion with James Wimberley on greenhouse gas offsets.

Roughly, I am ecstatic that some greed heads managed to make a killing by finding a Chinese refrigerator plant which didn't have freon scrubbers (or something).

I think I have a proposal which James will like. IIRC the current system allows increased greenhouse gas emissions in Europe if they are offset by abatement elsewhere (provided that some bureaucrat can be convinced that the events elsewhere wouldn't have occured without a subsidy). I think it would be better to cap European emissions and pay cash for such abatements based on the current price of permission to emit a ton of C02. Note "based." I'd multiply it by a factor less than one to account for inevitable slipping in stuff which would have happened anyway. In actually existing Europe, such a scheme would have to have a fixed budget, so offset entrepreneurs would have to bid against each other and the best projects would be funded (I'd get the money from auctioning the emission permits to European firms of course).

The question is should abatement elsewhere increase the amount of greenhouse gasses Europe chooses to emit ? This depends on how Europe should choose how much to emit. There are two reasons that this is less than unregulated emissions and more than zero 1) the benefits of reduced emissions decline as the reduction gets global emissions out of the disaster zone.
2) the cost of reducing emissions further increases as emissions go to zero (at zero people in Europe would not be allowed to breath, which would really get on my nerves after about 30 seconds).

I think it is clear that the more important convexity is number 2 (the second derivative of cost is much much greater than the absolute value of the second derivative of benefit). It's not like global warming will be stopped cold by the Euro cap and a bunch of abatement elsewhere subsidized from Europe.

The cap should be chosen at the point where the rapidly rising cost of further reductions of emissions reaches the almost constant cost of a bit more global warming.

That means the optimal amount emitted from Europe should not increase mcuh at all if good ways to reduce emissions elsewhere are found.

It's not optimal to offset emissions with extracommunity emissions, it is close to optimal to fix European emissions *and* pay for foreign abatement.

Needless to say, my thoughts have nothing to do with policy in really existing Europe which is way better than US or Chines policy already.
Cool man Reaall cool

Seems Obama ignored my advice to name the reality based community collective energy secretary (except for its found Mark Kleiman who would be the official drug bizarre). Instead he named the coolest dude on the planet -- Steven Chu who "won the Nobel Prize for Physics in 1997 for his work in the 'development of methods to cool and trap atoms with laser light.'"

Huh cooling with lazers ? Yeah the idea is that atoms absorb light of exactly the right freequency. If you shine a lazer whose freequency is slightly too low to be absorbed at atoms, the photons are only absorbed by atoms from the point of view of which they are blue shifted, that is by atoms moving towards the lazer. With such lazers pointing from all sides, atoms can be stopped cold -- reall cold -- by far the closest anyone has gotten to absolute zero.

This is not related to global warming, but Chu (known by rappers as Helium ice) apparently has shifted his interest to much higher temperatures and keeping them from going much much higher.

I think that Chu will be the first Nobel laureate secretary if his nomination isn't stopped cold by a red shifted senator.

Wednesday, December 10, 2008

Kevin Drum on the kids these days

THE KIDS THESE DAYS....PART 476....Here's the latest international report card on how American kids are doing in science and math. Short answer: not badly, really. According to the latest TIMSS report, eighth grade Asian kids outscore everyone, and American kids outscore nearly everyone who's not Asian (only Hungary, England, and Russia do slightly better). The story in science is about the same. TIMSS doesn't conduct their tests in every country, but among the countries that do worse than the U.S. are Australia, Sweden, Italy, Norway, and Israel.

Full results here.

I comment.

I'm delighted.

However, I do have to note that the TIMSS test is mostly a multiple choice. Students in the USA have practice with the format. I teach in Italy and I can assure you that Italian students just don't know how to deal with multiple choice questions. It is a specific skill and not really related to knowledge about or understanding of math and science.

Also, in the past, the USA had extraordinary inequality in TIMSS scores. Not surprising given decentralized budgets and curricula, but a huge national problem.

Stil great news.

As to the incomprehensible graphs, I can assure you that about the most intellectually difficult task I ever attempted was figuring out how the TIMSS people processed the data.

update: background on TIMSS and other international studies of student achievement here.

The word I hear about the kids these days is that they are just frighteningly knowledgeable, hard working, polite, self confident and well rounded (and must sleep 4 hours a night).

As to our generation (I am 48) I think we were totally like wasted by the aftershocks of the 50s. I personally enjoyed a good bit of experimental progressive education (I mean in school) which might braden the mind but is not good for TIMSS scores. Also marijuana. I once discussed SAT scores with a fellow high school student. I argued that the decline was meaningless (I forget my argument). He said "I think it is real and happened for 2 reasons marijuana and TV." Maybe with cable, parents can get kids to watch the less stupid channels (some parents not me).

update: Kevin Drum requested more details on Italian tests

There is no Italian equivalent of the SAT. Students are admitted to a degree program (say economics or philosophy) not to the University so entrance exams are field specific. More importantly, they didn't exist until realtively recently (there was open admission for students with a high school degree).

I have two daughters and they never took multiple choice tests. I also have examined University students using multiple choice tests (not my idea). They were totally hopeless about, for example, checking for "d) all of the above" and not marking a) because it was true. I mean it was grim.

The difference is more extreme than you can imagine or believe. The tradition in Italy is that most exams are oral (I am not kidding). Also students seem to have been taught to recite the 5 pages from the textbook which are most related to the question they are asked.

On US vs Italian high schools, obviously Italian high schools are more rigorous (I mean US high school is very exceptional as is the fact that most people in the US completed high school way back in the 20s). However, there was a comment by Italian students who were in the US on an exchange program that with multiple choice tests one has to think. Compared to learning by rote and reciting that is really true.

So what do I mean by "rigorous". It is very simple ... total hours of work required to pass (in school plus homework). Rigor is not reduced if the hours are totally wasted memorizing facts which will be forgotten rather than actively using facts to test theories (that way students learn how to reason and also remember the facts).

I have more information from an interview of an actual Italian student, my younger daughter. She is sure she has answered multiple choice questions on tests (I thought otherwise)and regularly does them on homework (although these are mostly true false questions). However, she also had only one written test per semester per subject !?!? the rest of evaluation was based on oral exams (called interrogazioni). The word "test" in Italian means "entrance exam". Such "tests" are by multiple choice, because no matter how much one detests multiple choice exams, if one has thousands of exams to grade one choses a multiple choice test.

Now rigorous also refers to how advanced the curriculum is. My 11 year old daughter is solving problems with 2 linear equations and two variables in 6th grade. Not her father's basic math education.

Now the problem Italian students have with multiple choice questions might very well be that you can't BS your way through them *and* it might be that some thought is required and parroting memorized text doesn't fill in the right oval. That is, I think that my students have been taught in the wrong wrong wrong way (for one thing I have to re-teach university students studying economics how to solve 2 linear equations with 2 variables). However, the TIMSS tests might underestimate their knowledge, because they include a lot of multiple choice questions (about 2 out of 3 questions IIRC).

update: Pulled back from comments

I wonder if there are not other factors at work here
1. drop out rates
2. number of subjects (this test was just on maths and science).
# posted by Blogger reason : 10:04 AM

OK first TIMSS aims to avoid sample selection due to dropping out. They test students who are young enough that they are required to be in school. Another testing effort -- PISA -- tests people age 16, just before they are allowed to drop out.

This raises another concern. My impression is that the real relatively low study effort in the US is in high school. In other countries (except maybe Canada) high school attendance was very far from universal until relatively recently. Thus the concept was academic education for the elite. Now in most countries attendance is roughly up to US levels (so that not getting a higher seconday degree is the exception not the rule) but the programs remain demanding.

In Italy, the fraction of current cohorts who complete upper secondary education is still around 50% (it's up around 80% in France IIRC). This is just not at all like graduating from high school. There is a very serious final exam with outside examiners -- teachers in an Italian high school equivalent are not the final judges of whether they have taught their students.

On fields, this is a problem. However it is very very hard to make an internationally comparable test in humanities -- OK lets not be pretentious -- reading comprehension. Basically translating the passage to be read, the multiple choice question and the proposed answers is impossible. It is not enough that the original and the translation have the same meaning -- it is necessary that it is equally difficult to understand this meaning.

Translating a reading comprehension test is roughly as difficult as translating poetry -- that is roughly impossible.

Now any international test on history or literature or whatever is just impossible -- different countries have different views on which literature is great and which history is important (also opinions differ on e.g. who won the war of 1812 and why it was fought). the M and S in TIMSS are based mostly on the fact that people agree on math and science.

Tuesday, December 09, 2008

I made a bad suggestion

I proposed the Reality Based Community as a collective secretary of energy. I shouldn't have. Mark Kleiman is needed as Drug Czar *and* the title should be changed, following his suggestion, to "Drug Bizarre."

Now if Prof. Kleiman were named official Drug Bizarre I would enjoy reading the news more than I have since Frank Zappa was (briefly) named Czechoslovakian Ambassador Plenipotentiary to the USA (appointment vetoed by the then US drug bizarre).

On the other hand he seems to think that the US built up the Taliban during the Soviet occupation of Afghanistant (aka Rumsfeld's howler). No. The Taliban did not exist during the occupation. The US built up the Peshawar 7 resistance groups which formed a coalition and developed a new approach to Urban renewal when the Hezb bi Islami soldiers of the prime minister (Hekmatyar) shelled Kabul while fighting the (small) militia of the President (Rabbani) and the large militia of the defense minister (Masoud).

The Taliban appeared, suddenly, as an army of extremely well armed seminary students well after the Soviet Union had left Afghanistan and, indeed, IIRC ceased to exist. While individual taliban (means Koran student) fought in the 7 US financed armed Islamic groups (and more fought in the separate Saudi financed Wahhabite resistance group) the organization which calls itself the Taliban did not exist during the period of US financing.

It wasn't that long ago.

I call the error Rumsfeld's howler, because a Rumsfeld memo in which he referred to Hekmatyar as a "taliban" was leaked. Oh and taliban is plural. On of the taliban or a member of the Taliban would be a talib.

Now on current issues, I agree with Prof Kleiman that there is a 10% chance that President Zardawi will go down in history as a world historic statesman.
Urgent message for Brad

I have found that posting things here is more effective than commenting on his blog which is more effective than e-mail.

Brad is live at Cato.

He makes Weiner Schnitzel of a Neo-Austrian. In fact the analysis is brilliant. It is based entirely on dollar quantities.

However, there are typos.

First in three, Brad switched "present" and "future".


Liquidity Discount: The cash flowing to capital arrives in the *present* rather than the *future*, and people prefer—to varying degrees at different times—the bird in the hand to the one in the bush that will arrive in hand next year. Fluctuations in this liquidity discount are a third source of fluctuations in global capital wealth.

Second Brad changed the numbering of 3 and 4, but in the text refers to time preference as 4) and default risk as 3. (too many cases to list).

Below non urgent comments.

Also why do you call time preference liquidity preference ? They aren't the same. Active traders want liquid assets so they don't lose on bid/ask spreads. That has nothing to do with their time preference. This is important as the liquidity of assets can change quickly. For an asset to be liquid it must be either cash or there must be high volumes of trade for reasons other than rationally expected returns (you proved this in high school unless you were in junior high). Since we don't have a good model* for noise traders, we can't predict changes in market thickness. This is what has changed. Liquidity preference which is different from time preference.

You have two anomalies and one idiotic assumption. You assert that the intertemporal elasticity of substitution of consumption is between 0.5 and 1. Based on what evidence ??? Empirical estimates are from 0.1 to 0.5. It is just a rule among mainstream economists that one must assume it is between 0.5 and 1 no matter what the data say. Then there is the equity premium puzzle. To be mainstream you must assume that the coefficient of relative risk aversion is between 1 and 2 (corresponds to intertemporal elasticity of consumption between 0.5 and1). Therefore the equity premium is a big mystery. If you accept a reasonable intertemporal elasticity of substitution such as 0.25 both mysteries become less mysterious. Where the hell did you get your "estimate" of the intertemporal elasticity of substitution in consumption ?

Obviously when highly leveraged banks take a hit, there is an increase in default risk.

* We do, however, have a bad 18 year old model which will work fine. We need to modify DeLong et al 1990 to add investors who have information on next periods noise. Their problem is that they don't know next periods mu (share of people who are noise traders.

My capsule summary is that investment banks and hedge funds were making a killing fleecing the sheep -- tricking uninformed investors into betting against them. The housing bubble bursting was an event so big that noise traders realized that they were better off holding only safe assets or holding the market (I don't know which). The financial operators took losses (not huge but painful) and wanted to de-leverage a bit. They discovered that they couldn't find suckers to buy their risky assets and sell them assets to cover their risky short positions. Thus the whole system collapsed. The Freezing up and melting down and other metaphorical phase transitions can be understood as a decline in the fraction of money traded by uninformed investors.

Update: Nick Rowe (who has learned how to log in to blogger comments see comment below) was on this before I was.

update 2: pulled back from comments.

What I want to know is why he can write a persuasive comment on the current crisis without talking about balance sheets, bankrupcy, agency or international finance. That tells me where the holes in macro-economic theory are.
# posted by Blogger reason : 12:02 PM


Check my post along similar lines:
You do a good job of explaining WHY liquidity declined (I didn't try, except to offer evidence that it had in fact declined.

Nick Rowe
# posted by Anonymous Anonymous : 2:38 PM

Dear Nick

I saw your post more or less copied over at economists view. I seriously considered commenting "I said that too". Thoma found this post without my help.

I think Brad is channeling Keynes. I'm sure Keynes conflated time preference and liquidity preference. Also it made more sense to conflate them when talking about finance back before Black and Scholes (most things about finance made more sense before Black and Scholes).

Reason, I too found it odd that he didn't talk about balance sheets etc. They are left as part of increased perceived risk. This doesn't work so well, since he distinguishes risk aversion and fear of default and the new risk is that financial counterparties will default.

I would also mention that, for the editor of evisceration weekly, he is very very polite. I mean that Fannie Freddie argument is blatant nonsense, yet he manages to critique it gently.
# posted by Blogger Robert : 2:47 PM

I agree with what you say about Keynes. A lot of Cambridge (UK) seem to have been very shaky on time preference; I wonder if any of them had ever seen an Irving Fisher diagram, because the preference side is missing from all of the UK end of the Capital Controversy. I don't see how Black-Scholes changes this though?

My next task for myself is to try to understand better what determines liquidity. First stab: if someone is trying to sell me a used car cheap, is it because it's a lemon, or is he really leaving the country next week? Liquidity is determined by the ratio of ex-pats to lemons.

Nick Rowe (I must learn how to log in properly, or maybe I've succeeded?)
# posted by Blogger Nick Rowe : 4:07 PM

The logic, such as it is, of my reference to Black and Scholes is as follows.

I think that this is mostly a verbal tick (like calling Ukraine "the Ukraine". That is, the old UK English definition of liquidity preference = time preference was, OK in its time until people began to value liquidity for its own sake.

I don't know about Keynes but he seems to have assumed that the only reason one would want to liquidate assets would be to consume with the resulting cash. Roughly, his model of investing seems to be that one saves, buys an asset and holds it unless and until one wants to consume (or for a firm invest in fixed capital or pay workers or suppliers).

Today's huge volume of trading is new.

Black and Scholes presented a model in which one can make money without risk if an option is miss-priced. They assume 0 bid ask spreads and the hedging strategy requires constant trading. A huge number of people make (or made) excellent incomes applying their insight to cases in which their assumptions didn't hold. For such traders, liquidity is very important even though they are not buying goods or services.

Now ask how much *should* decreased liquidity reduce the value of assets. I would say very little. Let's assume that everyone is rational and that all assets are traded (no risky labor income, no accidents). In such a model everyone should buy and hold the market. If they are saving, they are buying and if they are dis-saving they are selling, but there is not huge rush.

With current bid ask spreads, they either have to forgo a few days or maybe weeks of interest or pay an expected loss and bear the risk on the order of two bid ask spreads for the period between saving and dis-saving. That just doesn't amount to 3.3% per year. It shouldn't add up to 0.3% per year. Maybe 0.03% per year but I doubt it.

Now there are untraded assets. People might want to liquidate assets, because they lost their jobs, or might want to buy more because they won the lottery. Roughly gross flows of saving and dis-saving are greater than they would be in a simple life cycle model. This gets us up to maybe 0.1% per year.

In theory they might want to hedge their labor income risk (but I mean, really, obviously no one does that).

So if all investors are rational, liquidity shouldn't matter much at all.

Now the active traders who suddenly don't want assets because they are illiquid might be rational. However, that would imply miss-pricing *and* people willing to take the other sides of their trades. That requires irrational investors (or absurd assumptions about non traded assets).

My claim is that liquidity shouldn't matter much. If people care a lot about it, either they are irrational or they are taking advantage of irrational people or, most likely, both.

This is of some interest because defenders of financial engineering (innovative assets) say they are good because they increase liquidity which is good, because it is useful for rational active traders who drive prices towards fundamentals.

I don't think financial operators tricking less sophisticated people out of their money is a good thing. I also think that said operators are clearly irrational themselves. And the idea that higher trading volumes are associated with prices closer to fundamentals requires the idea that the fundamental value of the S&P 500 changes by a few percent a day.
# posted by Blogger Robert : 9:03 PM

Sunday, December 07, 2008

"Are you saying, then, that the market is not the best determiner of value, especially when it comes to salaries? Or that there should be another component to determining value other than straight financial benefit?
Fraud Guy"

In a word both. Actually, in the post I just said the market wasn't a perfect determiner, but I do think that there should be another component to determining value.

I tend to guess from the nickname that Fraud Guy agrees with me, but in the heat of the moment, I assumed he didn't. Thus this long reply to pseudo-Fraud Guy.

Look Fraud Guy, the market thinks that cocaine is very valuable. if you think that drug smugglers have earned their money, you are consistent. If you don't you agree with me. If you think the market is perfect except totally absolutely wrong and the opposite of what it should be for heroin and cocaine, then you have to explain the discontinuity. From "money 100% earned" to "confiscation of everything that can be confiscated and a jail sentence earned" is a big jump.

In answer to your question, I obviously don't think that the market is the best judge of value. For one thing, the strongest claim for the market is that market outcomes are Pareto efficient -- not welfare maximizing. This means utils are weighted inverse to the marginal utility of consumption. Second, the claim for the market requires
1) rationality
2) price taking behavior (no market power)
3) no externalities
4) 3 means among many other things people must be assumed to be divided into groups (families) which are totally selfish.
5) symmetric information
6) complete markets

Now I have been talking about financial innovation a bit. You should know that the claim that markets are efficient is based on the assumption that there is no possibility of profitable financial innovation.

But somehow it seems shocking or odd that an economist doesn't thinks that "that the market is not the best determiner of value." I mean when did you drop out of economics 101 ?

Look the market keeps changing its mind about the value of the S&P 500. The right price is changing on the order of 1% a day. How can you have such faith in the judgment something which keeps changing it opinion ?

Oh and actually my claim in the post copied by rdan was just that the market is not a perfect determiner of value. I did not then claim that a better way of determining value is feasible.

I will do so now. A better way of determining value is feasible. It defaults to the market, but if an overwhelming majority of people think a correction is an improvement then it is implemented. This is our current system (overwhelming to defeat a filibuster in the Senate). I am absolutely sure that the outcome with public redistribution is better, more just and a more efficient generator of happiness than the market.

Saturday, December 06, 2008

When is a constitutional monarch worth more than a bucket of warm tradition ?

James Wimberly writes

George III was a constitutional monarch: an executive constrained by laws and institutions. For the most part, the so-called constitutional monarchs of today are in fact symbolic. Except when there's a hole in the constitution; then the ghost of past power re-emerges and Kings, Queens and Governors-General of Canada or Australia actually get to decide something, like a president of Italy or Germany.

The live case is when a government loses its majority in the legislature. New election, or try to form a new government under a different prime minister?

In the United Kingdom, the only authoritative guidance is, believe it or not, offered by an anonymous letter to The London Times in 1951 by the King's Private Secretary, Sir Alan Lascelles. Lascelles reckoned that the monarch should try the second option. But it hasn't happened yet.

ah bei tempi passati. The president of Italy was an important person when elections didn't put any particular limit on who should be prime minister. Thus the President's authority to ask someone to try to find a majority was very important.

Now, sad to say, the electoral law has been changed, so that the current President, Giorgio Napolitano, a very moderate (actually a stuffy boring establishement) communist, had no choice but to invite Silvio Berlusconi to check whether is automatic majority was automatic.

Basically, the head of state of a parliamentary country is symbolic if there is one and only one clear majority in parliament and very powerful if different coalitions can find a majority.

Even the mother of parliaments had to listen to a mere king in 1929.

Now Italy is a relatively serious country. Over here, we read the constitution and not anonymous letters to the editor. It is very clear that the President of the Republic is only supposed to call an early election if it is impossible to find a majority in the current parliament.

Oh but wouldn't the world be a much better and more democratic place if Sir Alan Lascelles had written his letter to The Sun ?
Why didn't Obama hire Stiglitz ?

Someone asked this question (someone very very young, terrifyingly smart and progressive so I guess Klein or Yglesias). My reply is that Stiglitz is not a team player. The proof is here.

Stiglitz is terrifyingly smart and progressive. So what's the problem ? First it is politically costly to be associated with him in any way, because he is antipatico (this is hard to translate -- unlikable is a bit weak and loathsome is a bit strong).

He writes

"For those of us who always claimed some connection to the Keynesian tradition, this is a moment of triumph"

Did he write that ? Did he suggest that he feels great, because the unregulated market has caused huge suffering ? Does he feel great, because the unregulated makert has caused huge suffering ?

Damned if I know, but I can answer the following question easily.

Do you want to be associated in any way with someone whose worst enemy can ask such questions without feeling ridiculous ?

Answer is "Professor Stiglitz, I really think that you can contribute more to human well being as an academic. For one thing you have done great things as an academic already. For another, I don't want anyone to hold me responsible for anything you say."

Next "The misguided policies that resulted – pushed by, among others, some members of President-elect Barack Obama's economic team – had earlier inflicted enormous costs on developing countries."

Or, in other words

"yep, I'm still settling decade old scores. Wasn't it shocking how slowly East Asian countries recovered in 1997 ? My don't we just shake our heads in wonder at what the hell happened to Korea and Taiwan. Also, obviously, President Obama doesn't give a damn about Indonesia. He probably has no idea where it is and certainly has no friends or half sisters who are Indonesian. In any case the main point is that I am way better than Larry Summers.

Look smart young guy: YOu want Stiglitz outside of the tent pissing in not inside of the tent pissing in. He is a genius and his aim is excellent, but you can hope that if he is outside the tent he will miss he opening.

update: looks like I picked the wrong week to try to guess which smart young blogger I disagree with.

Tuesday, December 02, 2008

What does "Earn" mean

I read

Ad Man: " Those of us who sit above the $250k income threshold are too small in numbers to affect his appeal. What I do resent is that under an Obama administration, money we've work hard to earn (through the meritocracy system we put ourselves through) suddenly gets redistributed to those who did not earn it. I worked three jobs to put myself through college. I EARNED everything I've got. "

I assume ad man works in advertizing.

ad man, I think I don't use the word "earn" the way you do. I'd say money can be earned only by doing something socially useful. The fact that money was won in a fair competition does not, in my view, mean it was earned. One might argue that society owes you money because you have given society something. It doesn't make sense to say society owes you money, because you made intense efforts to get money. By your nickname, I guess that I wouldn't be convinced that you have been obtaining money in exchange for socially useful work.

OK now I am going to risk being rude. I will make an anology. What about criminals ? Some of them put great effort into their crimes and take enormous risks. Does that mean they have earned their wealth ? I'd say of course not. So is there a sudden jump from efforts that are so bad that we seize all the gains we can and send the actors to jail to efforts which are all equally good so the resulting wealth is equally earned if the same effort was put into obtaining it ? I hasten to add that I'm sure your income has only legal sources and more power to you. However, so is the wealth of someone who won the lottery. Your effort puts sociiety in your debt only to the extent that society benefited from it. Oh and if you say in the market society pays proportional to social benefit then you have to argue that drug kinpins are making a huge contribution to human welfare.
Why McCain lost

For some strange reason I find myself commenting on an old Brad post on why McCain was going to lose the election.

He wrote, among other things,

Yellow-dog Republicans I know who are... shall we say... familiar with what they call the spin machine and I call the Slime Machine are... bewildered.

George W. Bush was not a friendly guy you would like to have a beer with, they say--but we had no trouble getting the media to paint him as one. Al Gore was not a serial liar, they say--but we had no trouble getting the media to paint him as one. John Kerry was not a flip-flopper and was a genuine war hero, they say--yet we had no problem getting the media to paint him as a flip-flopper and to spend hours and hours talking about how maybe the swift-boat crazies were right. By contrast, they say (not me), John McCain is a genuine and honorable war hero who at every stage does what he thinks is right for the country no matter what partisan allegiances are, and who lets the chips fall where they may--yet the media story on McCain is, they say, that he is a befuddled old man who has let unscrupulous and dishonorable Republican sleazebags seize control of his campaign. By contrast, they say (not me), Barack Hussein Obama is an inexperienced blank slate on whom all of the different factions of the Democratic Party have projected their fantasies--yet the media present him as the cool thoughtful smart moderate one when they should be presenting him as the risky one who just happens to give a good speech.

my comment

I'd say your Republican friends have forgotten the wisdom of their parties first winning candidate: "You can fool all of the people some of the time, and you can fool some of the people all of the time, but you can't fool all of the people all of the time."

The evidence that the contemporary Republican party is unfit to govern has become so overwhelming that it can overcome strong prejudices.

Also two subsidiary points.

Obama gives a good speach *and* good interviews. This makes him very very different from Mondale, Dukakis, Gore and Kerry. Someone (Jamison Foser I think) has been arguing for years that it's not that the Democrats insist on nominating unlikeable candidates time after time, it's that the media declare Democratic candidates to be unlikeable. I think 2008 proves him wrong. So did 1996. The media were out to get Clinton (I don't think they even deny it). They failed.

John McCain is a war here. So were George McGovern (flying cross) and John Kerry. Is there any evidence that this matters to voters anymore ? I mean evidence collected after I was born (the day after Kennedy was elected). Since I was born we have booked 1 victory by a war hero (Bush Sr) and 3 losses by war heroes (Bush Sr, Kerry and McGovern). In my lifetime no candidate who served in the military has defeated a candidate who never served.

update: As anonymous mentions in comments. I forgot Bob Dole. Look do it for your country -- do it for the cause -- don't do it because you think it's a ticket to 1600 Pennsylvania Avenue.

Thursday, November 27, 2008

Damn ! What the Hell ! I'm Pissed


We guess is written by a man (59%), however it's quite gender neutral.

Genderanalyzer just questioned my masculinity.


Heeey this is not working. I figured I'd add some 4 letter words and try again and instead I got more androgenous

We guess is written by a man (54%), however it's quite gender neutral.

You female bloggers out there evidently don't use my momma's vocabulary.

update: Oh my god this is wonderful. Via strangedoctrines, of course.
Elisabetta Addis Explains how to make turkey palatable.

She is shocked, shocked that Ezra Klein proposes braising.

I dont remember ever having braised just turkey in my life...!!! If it is just turkey, there is no doubt that your ONLY choice is to broil. I do it "porchettato" which is very similar to the person who broils it after a massage with butter and herbs. The idea is to bone it, to fill the inside with a conspicuous amount of lard or un flavoured bacon chopped up very thinly together with a lot of fresh sage thyme laurel and rosemary, salt and pepper, make a roll, all tied up with the turkey skin out , rub the skin with olive oil, and cover it with a powder made up of sea salt, dry herbs same as above plus some cumin and coriander. Then broil, broil, broil till the skin is crispy and the inside is all white but still juicy, which you know by testing, i.e. pricking with a fork and check the amount and color of the outcoming juice. Can be done with an upper leg, with a breast, and even with a whole turkey. Can be done without boning, but it does not come out well unless you fill the cavity with some moistenable material, like for example unseasoned bread crumbs mixed together with the herbs and pork fat above, and some pre-boiled potatoes, or even oranges or non-sweet apples.
Even then, it is barely edible, come on, it is turkey!!! do you know why they call a dumb person turkey? Because it has no taste!!!!
Braised turkey alone is not fit for human consumption, even if it is braised with wine and herbs. Chunks of turkey meat broiled together with onions and peppers, or onions, potatoes and carrots, plus white wine and herbs, maybe...but still, one does it because turkey is cheap and nutricious, not because of the great taste, come on!!! Tell the blogosphere.

Elisabetta Addis
Do You Love the Rule of Law More than Chocolate Itself.

In "No New Torture Probes" J Goldsmith argues

"the greater danger now is that lawyers will become excessively cautious in giving advice and will substitute predictions of political palatability for careful legal judgment."

Odd I thought he was talking about the legal advice given by John Yoo and David Addington, but he suddenly changes the subject to "careful legal judgment". He is concerned that if the advice of Yoo and Addington is not allowed to over-rule the law, then lawyers might conclude that careful legal judgment is good enough.

For this to happen, those lawywers would have to overlook the difference between those opinions and careful legal reasoning.

I think a bigger danger is that if the advice of Yoo and Addington is not allowed to over-rule the law, then people will stop eating chocolate, because they will note that the advice of Yoo and Addington was not good enough and overlook the difference between the advice of Yoo and Addington and chocolate.

I think it is just about as likely that someone will mistake their legal advice for chocolate or conjugation or Antarctica as for "careful legal reasoning".

Wednesday, November 26, 2008

A Sign that the end times are nigh

Mark Kleiman criticizes Barack Obama

Mark Warner has now sent out an email to his list asking for contributions for Jim Martin's Senate campaign in Georgia. Kudos to Warner.

Barack Obama has yet to send out a similar message to his list. WTF?

I second the motion. People are wasting time worrying about cabinet secretaries. The game is get to 60 in the Senate and Obama is chickening out.

His problem, so long as he plans on spending a whooooole lot of time with Olimpia Snowe and Susan Collins.

I guess it could be strategy. McCain won in Georgia and Georgians don't necessarily cotton to Yankees (or Hawaiians) telling them how to vote. Still, you know, the money machine would come in handy.

Oh, and, by the way, donate to Jim Martin. He's excellent and Chambliss is horrible and never say never and it aint over till it's over.
In the Airport series.

"I picked the wrong year to quit smoking" -- Barack Obama

Tuesday, November 25, 2008

I can't figure out how to embed the video here so I will just give you a link to video at Economist's View.

Larry Summers argues that, maybe we shouldn't count on the financial industry to explain what went wrong and how to prevent it as they have some egg on their faces. Good point.

Then he criticizes luddites who blame financial engineering by noting that bad things have happened without fancy financial engineering. He didn't mention World War II or the plague, but I have no idea why.

This isn't an argument about the role of financial engineering in the current crisis.
Jonathan Zasloff is being very interesting over at the Reality Based Community.

I guess I should give permalinks although they are consecutive posts.

In random order, he asks who should be on the energy team. I have already expressed my view on this issue. I think the Reality Based Community should be the energy team.

He asks "Where is Joe Stiglitz ?" I add what about Paul Krugman. Look the problem is simple, Stiglitz is not a team player. You ask and Summers is he a team player ? The answer is clear -- yes if the team is an administration. If you hire Stiglitz he *will* embarrass you later by resigning and criticizing you.

OK now the big one. Appealing to evangelicals and reducing the abortion rate. Here, I think, Zasloff creates a false dilemma.

Consider Gilgoff's prescription:

For Obama to break the overwhelming Republican dominance of evangelicals in 2012, he’d likely have to deliver on a classic evangelical issue — for instance, pushing legislation aimed at reducing demand for abortion.

Maybe. Congressman Tim Ryan of Ohio has sponsored an act that would work to reduce ... abortions by providing better prenatal care and adoptions services to pregnant moms. Several observers, most notably EJ Dionne, have praised the bill and said that Obama should support it (which I think he will).

But the problem is that that might not be the best way to reduce abortions.

If one if to believe the Alan Guttmacher Institute, which studies these things (although it also has a strong pro-choice bias), the most effective way to reduce abortions is the provision of contraception. The government could for example ensure that contraception is covered under Medicaid, or even mandate that it be part of any health insurance policy.

So ? Why do we have to choose ? The Ryan bill provides assistance to people in need. Even if one were not just pro-choice but pro-abortion one should support it. One should not allow the best to be the enemy of the good (and lose votes too).

Most importantly, there is no need to put all abortion reduction regulation into one bill. Increased access to contraception can be presented as a public health issue (for condoms) and a gender justice issue (for all other contraceptives).

The religious right will be against it in any case. There is no way to convince them by noting that the policy will reduce the number of abortions.

So a bill to help mothers sold as a measure to reduce abortions and used to win evangelical votes and a separate bill sold as a public health/women's rights issue which will also reduce the number of abortions if it is passed over the objections of prominent evangelicals (although I would guess supported by most evangelicals whose reproductive rate shows that they would expect to personally benefit if they think you can take from insurance companies with no problem as I bet they do).

Sometimes you can build a coalition by joining policies each of which is supported by one group. Sometimes its better to build two coalitions by pretending that closely related policies are separate.

I'd say that, this time, it is a no brainer.
I have been flattering myself by attempting to engage in a debate with the great Nate Silver.

update: Ahhh now I understand. Silver has explained things so that I understand the logic of his analysis. The key point is that all challenged ballots are counted as non-votes until the challenge is resolved. This means that if a campaign challenges a decision by the local judge to count a ballot as a vote for their opponent, the tentative count is made assuming that this challenge is successful, while if a campaign challenges a decision that a ballot is not a vote for their candidate, the tentative count is made assuming that the challenge is unsuccessful.

Silver estimates that a larger fraction of Coleman's challenges are of type 1. This means that Franken will gain on Coleman compared to the tentative count if all challenges are rejected, if all challenges are accepted or if challenges are accepted with any probability uncorrelated with the type of the challenge.

The "analysis" below is obsolete, because it was based on my not thinking rationally about the way the tentative count was calculated.

For what it's worth, I wrote:

He is, of course, analyzing the Minnesota recount. I dabbled in that myself.

He has posted most recently here and with an important post here. I have posted here.

Quick summary of basic facts

After ballots were counted by optical scanners
Coleman (R) was 206 votes ahead of Franken (D) out of 2.4 million cast. By law there is a hand recount in which people are required to attempt to determine voter intent from ballots where the scanners found 0, 2 or more votes for senator *and* to check for no-nos on ballots which the scanners counted.

If the representative of one or more campaign disagrees with the local election judge a ballot is "challenged" and a state wide canvasing board has to decide what it means.

Surprisingly the number of unchallenged votes (count so far) for each candidate has declined as more scanner counted ballots are challenged than scanner non counted ballots are counted. This number is being reported in real time and each campaign has an incentive to challenge clearly valid ballots.

In the first days of the recount, the gap was narrowing so that extrapolation would imply a really tiny margin when the issue goes to the state board. However, since then the lead has widened and is now 210, larger than it was before the recount started according to the Minneapolis Star Tribune as of 11:23 pm EST November 24.

It is clear that the real action is in the ballot challenges. Franken supporters might hope that the Coleman campaign is making a larger number of frivolous challenges aiming to have the lead when the issue goes to the state board. This would put maximum pressure on the board to conclude that Coleman won. Now simple calculations do not support this hypothesis. The Coleman campaign has only challenged 35 more ballots than the Franken campaign.

The assumption that all challenges are frivolous implies that the best estimate of the final count is 185. 77% of votes have been recounted, so, *if* the recount continues this way, then Senator Coleman will be re-elected.

Silver has analyzed precinct level data (my second link to his important post) and found that Franken gained in precincts with no challenges and lost in precincts with many challenges. The very odd thing is that Franken's gain was negatively correlated with challenges by the Franken campaign. This is odd as it is possible to take a vote from one's opponent with a frivolous challenge.

How can this happen ? One possibility is that some precinct level election judges are being unfair to Franken and not counting ballots which should be counted for Franken, so the Franken challenges are legitimate, while other judges are fair and Coleman challenges are frivolous. Frankly that doesn't sound likely to me. I don't assume all Minnesotans are totally honest, but I would guess some are biased this way and some that way and most are just trying to be fair.

Another possibility is that what varies is the number of frivolous Coleman challenges and that the Franken campaign responds with a smaller increase in frivolous challenges. If so, the Franken response is separate information about Coleman campaign frivolity aside from the number of Coleman challenges which has something to do with the actual ballots. (yes I'm miss-using the word "frivolity" as a joke).

Is there evidence that the Coleman campaign has been more aggressive in some precincts than in others ? There sure is. Rock solid proof in fact. The reason, as noted by Silver, is that the rate of challenges has increased enormously and especially the rate of Coleman campaign challenges has increased enormously. There is no reason to think that the fraction of dubious ballots has increase. It is very possible that the difference across precincts is picking up change over time.

Silver's latest graph sure does seem to show increasing aggressiveness by the Coleman campaign and a less increase by the Franken campaign. The tenfold increase in the rate of challenges by the Coleman campaign is very hard to explain without the assumption that, at least recently, the vast majority of challenges are frivolous.

I'd add a time trend to the regression of precinct level data.

Monday, November 24, 2008

A Republican-generated effort to get out the vote for the Dec. 2 runoff election has hit a snag as thousands of requests for absentee ballots have been denied because the applications were not signed.

Many of the unsigned requests came in the form of cards printed by the Republican National Committee and mailed to voters. Republican U.S. Sen. Saxby Chambliss is in a tight battle to retain his seat by beating Democratic challenger Jim Martin.

The signature line on the RNC cards is easy to miss since it appears after an entry asking voters to enter an address different from their permanent one.

Sunday, November 23, 2008

Beating the numbers. Extreme case. In an article by Shannon Brownlee, with Ezekiel Emanuel, there is a really really blatant attempt to use the Rhetorical trick of multiplication to argue that two similar numbers are very different.

Update: The appalling arithmetic abuse is now an op-ed in the Washington Post.

The authors attempt to convince us that one number is much bigger than another by the simple expedient of saying that savings over 10 years are much larger than savings over one year. I wouldn't be surprised if an apples to apples comparison showed that the savings they deride as not "a lot" (just 124 billion per year on an optimistic estimate) are greater than the savings they describe as 1.4 trillion over ten years. They don't note how much of those savings are the derided reduction in private insurance administrative costs.

I excerpt

Myth 3

"3. We would save a lot if we could cut the administrative waste of private insurance.


Let's just say that we could wave a magic wand and cut private insurers' overhead by half, to what the Canadian government spends on administering its health-care system -- 15 percent. How much would we save? Not as much as you may think. Private insurers pay a little more than a third of what we spend on health care, which means that we'd cut a little more than 5 percent from our total budget, or about $124 billion. That's not peanuts, but it's not even enough to cover everybody who's currently uninsured.

now refuting myth 5.

Two: Even moderate reform of the delivery system would improve care and save money. The Lewin Group's analysis shows that a bill proposed by Sen. Ron Wyden, an Oregon Democrat, calling for a more comprehensive overhaul of the health-care system than either McCain's plan or Obama's could actually insure everyone and save $1.4 trillion over 10 years. More reform is cheaper.

There is no comparison of savings by eliminating un-necessary treatements vs savings due to eliminating un-necessary insurance companies. Wyden would do both. They present no no evidence on the relative importance of the two sources of savings.

Also the approach of setting up straw men to knock down is irritating.

However, Wyden is wonderful and should always be praised, so I can link to his ad

all via Ezra Klein
In Which Robert Waldmann boldly goes where Nate Silver says number crunching is pointless and wins a big downer has since arrived to a different conclusion.

Update: The last bit of my original post was an amazing howler noted by Tom Bozzo (thanks).
Nate Silver has now analysed the numbers and came to a conclusion very different from mine. I attempted to extrapolate assuming that all precincts are the same and that Coleman challenges are very different from Franken challenges, but are symmetric -- roughly that challenges by a campaign are likely to be frivolous and equally likely to be frivolous. I conclude that, under those assumptions, the probability of a Franken win is very low. I *hope* that the precincts assumption is false.

In total contrast, Silver analyzes the data available so far without either assumption. In fact, he argues that it might not matter much which campaign issues the challenge (I assumed all were claiming that a ballot counted as a vote for the other guy was no vote). He does *not* assume this. Instead he estimates the effect of challenges by Franken and Coleman on Franken's gain by precinct. Then forecasts by taking fitted values for zero challenges.

So Silver is using way more data than I did (precinct level data) and making much different and generally weaker assumptions.

Now it is very important to note that Silver assumes that there are important differences in the behavior of local elections judges. I really assumed that the differences across precincts would be in the behavior of the campaigns as they are challenging more and more with time.

Silver's key assumption is that the best prediction is the fitted value for no challenges. How might that be true ? It could happen if some local elections judges are incompetent and, therefore, challenged a lot. If the final decision is like that of competent judges, then Silver's analysis is valid. However, it is possible that there are challenges because voters in some precincts cast incomprehensible ballots. If it is about the voters, not the judges, I don't see any reason why the central board will behave systematically different from the local judges. I think that Silver is also, implicitly, assuming that the Franken campaign behaves similarly in each precinct, that is a large number of Franken challenges indicates odd behavior by the local judge, not the Franken campaign representatives. I can imagine another possibility which explains the odd result that Franken gains less in precincts where his campaign challenges more. If the results are going against Franken, his representatives get pissed and become more combative. This means bad performance for Franken (just due to chance) implies a high number of Franken challenges. Clearly, I have to assume that the Coleman campaign isn't like that, that they always push as hard as they can say. If that which varies is the rate of frivolous challenges by the Franken campaign, then Silver's analysis is invalid.

In the end, I think to justify Silver's analysis, one has to assume that, compared to the final judgement, local election judges are biased against Franken and that Coleman's campaign is more frivolous explaining the roughly equal number of total challenges. Variability in local judges bias against Franken (relative to the final judgement) explains variability in challenges across precincts. In particular, local judges in Hennepin County (including St Paul) must be very very biased against Franken. Hmmmm well guess we have to wait and see.

Can Franken catch Coleman in the recount ? The most recent news is very bad for Franken. He is now definitely not on pace to pass Coleman before ballot challenges are judged.

Silver argues that the high number of ballot challenges means that there is no way to put odds on the final outcome. I'm afraid I disagree.

The Strib site gives data on challenges too (I used data as of 00:12 EST November 23). Coleman's campaign has only challenged 28 more ballots than Franken's. As an extreme hypothesis, suppose all challenges are ruled frivolous. Then we get Franken will gain 63 not 35 votes out of those precincts for which preliminary results are reported. With 68% of votes recounted, I don't see how one can avoid placing the probability of Sen Franken near 50%. (no I don't see how 206-35 = 180 either, I guess that the strib had the post recanvass Coleman lead at 215 for some reason).

Most strikingly have been almost exactly equal numbers of challenges by the campaigns in Hennepin county so far 254 and 252 thus the ratio of Franken challenges to Coleman votes is significantly higher than the ratio of Coleman challenges to Franken votes.

Now the Coleman challenges might be more frivolous on average. However, it is hard to give a story about first time voters or whatever that implies that there are systematically more Franken ballots that were missed by the scanners yet systematically more Coleman ballots that can be legitimately challenged.

If the distribution frivolity of the challenges by the two campaigns is similar, further upswings in challenge rates are clearly wholly frivolous challenges ,and if the 2 thirds recounted were typical of the whole state (which they aren't but I don't see any patters to who gains where) then one can calculate odds.

So far there are 1982 challenges. Change + challenges equals number of votes where the optical scanner recorded no vote which are at least debated now. so 635 new possible votes detected. I think the assumption that gives probabilities of victory closest to 50% is that these are two seperate sets of ballots (all challenges are of ballots counted by the scanners).

Forecasts assuming that the remaining third have the same distributions as the currently counted 2 thirds. 318 new votes detected on ballots where the scanners reported no vote and a total of 2973 challenges (not counting the extra challenges from increasingly furious frivolity beyond the current level of frivolity which I assume will be rejected out of hand).

Expected Franken gains at end of recount 95 (just 1.5 times gains so far). Maximum possible variance of number of challenges rejected about 743 (for each challenge has a 50 50 chance and I assume that all challenges are between for Coleman and no vote or between vote for Franken or no vote). Maximum possible variance of "newly detected vote is for Franken minus newly detected vote is for Coleman" less than 318 (this is if there are no newly detected votes for 3rd candidates). so total variance of change 1061 so standard error about 10 and Franken is over ten standard errors short of the Senate.

Update: OOOOOOOOOOPPPS standard error around 33 so three standard errors. How embarrassing. Thanks to Tom Bozzo in comments.

Franken's hope depends on systematic differences between re-counted and non recounted precincts and systematic differences in the degree of frivolity of challenges. No pattern is apparent in vote changes by county. The rate of challenges is similar by campaign.


Saturday, November 22, 2008

Robert Waldmann

is old enough that I automatically associate the name Ziegler with Richard Nixon's press secretary. That identification is no longer operative. I am writing about John Ziegler who designed and interpreted a poll of Obama supporters conducted by Zogby.

Zogby reports and interprets the results here.

Substantive discussion addresses the claim that two of the questions were biased -- that the answers counted as correct are arguably not correct, but rather expressions of anti-Obama opinion, and that one, testing knowledge about Biden was very obscure. In particular Nate Silver and Carl Bialik at the Wall Street Journal. and, uhm John Zogby all criticize Ziegler and un-named Zogby employees. Also Silver, Bialik and Zogby note that it is unfair to quiz one candidates supporters without quizzing the others. I will talk about this some, but I am interested in close analysis of clumsy rhetoric.

I am interested in Mr Ziegler's use of and views on the English language.

The post has gotten long and readers might not want to waste their valuable time. I will bring my most nearly interesting point up here.

Carl Bialik on a Wall Street Journal blog writes

On the fifth question about older events, “Which candidate said their policies would likely bankrupt the coal industry and make energy rates skyrocket?”, more voters named McCain than Obama. However, Obama’s cited comments — made in January in a meeting with the San Francisco Chronicle editorial board — referred to bankrupting new coal plants, not the industry. He was speaking about a cap-and-trade system for emissions, something that McCain also has supported.

“We wrote ‘likely’ because of that very caveat,” Ziegler told me. “We had to simplify it, and I stand by the simplification of the question.”

Oh my. Ziegler just said that a false claim can be made true by adding a standard weasel word, evidently just about anywhere in the claim. Bialik's complaint was about the difference between a new coal fired power plant (big) and the coal industry (bigger). He didn't mention whether Obama used the word "skyrocket" or whether that might not correspond exactly in meaning to whatever Obama said. Ziegler clearly asserts that a modification of the allegedly asserted probability of an event (down to likely from unqualified and evidently certain) is a valid response to the observation that Obama's statement was about a different event.

I've never seen a franker assertion of the belief that one can get away with making a false claim by inserting a weasel word. Now here, I think, Ziegler probably thinks he is being, basically, honest. He thinks that cap and trade will bankrupt the coal industry. He has the vague impression that Obama, more or less, admitted that he agrees. He hears a claim that it will make new coal fired plant unprofitable but won't bankrupt the industry. He tones his claim down to "likely bankrupt the coal industry." Ooops he forgot, his question is not about what is true about cap and trade and the coal industry but what Obama said about cap and trade and the coal industry. Generically weakening an innaccurate paraphrase does not make it an accurate paraphrase. In fact, IIRC, the word "likely" makes the paraphrase less accurate as Obama expressed no doubt in the interview.

I think the example is of some interest as it seems to me to be a very frank description of the editing of the question. I think I should be able to understand something from this example. That is Ziegler's statement leaves me totally mystefied. How could someone think that adding "likely" changes a coal plant into the coal industry ? How can someone not understand that a statement can be innaccurate in ways other than being too strong, so that toning it down doesn't make it true ? Why did this guy set himself up for so much ridicule ?

Ziegler reports on the results in a post with the same headline used by Zogby "Survey finds most Obama voters remembered negative coverage of McCain/Palin statements but struggled to correctly answer questions about coverage associated with Obama/Biden"

Try to imagine you don't know who Obama and McCain are and re-read that sentence There is clearly a comparison here, but the structure is not symmetric. First, of course, only Obama voters were tested. It is well known that people prove to be astoundingly ignorant in polls. Quizzing someone's supporters on (alleged see below) facts is clearly not a friendly act.

More strikingly, there appears to have been no negative coverage of Obama Biden or no non negative coverage associated with McCain. Ziegler and the zogby staffer(s) insert their claim that the coverage of McCain was "negative" (used a pejorative term in contemporary political coverage as opposed to "critical" which is neutral) and does not characterize the questions about Obama/Biden (which were all critical). Furthermore he asserts that the criticisms of Obama and of Biden are "correct" and does not assert that the negative coverage of McCain and of Palin is correct.

Would Ziegler and the Zogby staffer(s) have been equally likely to write correctly answer questions about coverage associated with Obama/Biden">"Survey finds most Obama voters answered questions about coverage associated with McCain/Palin statements but struggled remember negative coverage of Obama/Biden" ? I don't think so either.

Or how about we remove all words which depend on the survey results and leave only that which Ziegler and Zogby inc brought to the data

"Survey finds most Obama voters ... negative coverage of McCain/Palin statements but ... about coverage associated with Obama/Biden" To mee that seems to suggest that the media were biased against McCain, yet it has nothing to do with input from anyone not employed by Zogby except maybe Ziegler.

Ziegler and the Zogby staff were unable to achieve formal balance, by using the same words for negative coverage of McCain and negative coverage of Obama. I conclude that they are not very skilled at rhetoric.

OK now some textual analysis of the questions.

"Which candidate won their first election by getting all of their opponents kicked off the ballot" Allegedly correct answer -- Barack Obama. The ignorance of Obama supporters of a ballot challenge in a long past Illinois election is not surprising. Ziegler admits that his result may have been partly due to the obscurity of the events in Obama's and Biden's lives. My point, however, is that the question and proposed answer amount to an opinion not a fact. It is a fact that, on Obama's initiative, all of his opponents were kicked off the ballot in his first election. It is not a fact that this was necessary for his win. The word "by" implies causation. The question and answer assert that the ballot challenge caused the victory, that is, assert the counterfactual claim that if any of the other candidates had remained on the ballot Obama would not have won.

Also "Kicked off" is a dead metaphor which measn "removed." It doesn't imply actual physical violence by means of a foot, but it is charged language which makes Ziegler's bias more obvious than it was before (if that is possible).

"Which candidate has clothes that their political party reportedly spent $150,000 on"

Hmm which sentence contains at least 2 grammatical errors ? I know don't get stoned in glass houses, but a preposition isn't the sort of thing you should end a sentence with. Also "candidate" is singular and "their" is plural. Clearly her gender has to be supressed to get correct answers below 100% (only 86.3% got it right -- some Obama supporters really have been hiding under a rock) but "his or her" is gender neutral and singular while "their" and "his and her" are gender neutral and plural.

"Which candidate said that they could see Russia from their house ?"

Oh my, Bialik told me this, but I didn't believe it. The answer which is marked correct is "Palin." The correct answer is "none." Tina Fey and Palin look alike, but they are technically two different people (plural) not one person (singular, that would be one very very singular person indeed).

OK so don't know much about Rhetoric (my interest). Don't know much about grammer (like I could care less). Overestimate Sarah Palin's ditziness !!!!!!!!!

Thursday, November 20, 2008

Told You So

Mark Kleiman notes that "The two health-insurance trade groups have now endorsed an individual mandate for health insurance coverage."

This Prof Kleiman expected this to happen. He explains why.

I too expected this, at least since July 8 2008 (same explanation).

Best of all, I recently tried to explain it to Paul Krugman (I mean via a blog which he doesn't read).

Matt Yglesias told you so too.
Worthwhile Federal Budget Accounting Reform

Matt Yglesias quotes the CBO

Consistent with the budgetary treatment of financial assets purchased under the TARP, the federal budget would record the cost of such loans using procedures similar to those specified in the Federal Credit Reform Act, with an adjustment to account for market risk. On that basis, CBO estimates that the expected cost of the proposed loans would be roughly 70 percent of the aggregate face value—or about $17.5 billion. That estimate takes into account the current financial condition of firms that would qualify for loans—as demonstrated, for example, by current market interest rates on outstanding
debt—and reflects historical data on defaults and subsequent amounts recovered

The procedure is to assume that the Treasury should be exactly as risk averse as the private sector. This is totally insane and, in fact, has it exactly backwards. If a market tanks we *want* the deficit to grow (That's called an automatic stabilizer).

Why the hell does the CBO assume that an agent which benefits from taking risk away from the private sector should be risk averse ? I think the reason is clear. If publicly owned assets were valued in a half way rational way major purchases of, say, common stock would be counted as gains for the Treasury (reducing net debt etc). That is, it would suggest that the US government should invest in index funds. Now we can't have that. That can't be a good policy. So we have to make the totally nonsensical assumption that we want the deficit to be constant rather than high in recessions and low in expansion in order to not conclude that such a policy would have an effect on national welfare similar to finding $ trillion worth of goods under a rock.

Obviously I think the social security trust fund should be invested in index funds. The case agains is that if we assume it is very important that the deficit be constant and not counter cyclical then such a policy would be no better than current policy. I can't imagine a weaker policy argument.

I say public sector assets should be valued by the expected payments discounted at the current T-bill rates. No correction for risk. Now really, the Federal Government should be risk seeking, but I am willing to compromise. This does imply that the public sector can profit (reduce it's net indebtedness) by investing in risky assets.

In particular I betcha the Treasury profits from its loan to Goldman Sachs *and* I think that the outcome in dollars gained or lost is an unbiased estimate of what we should care about which has no public sector risk aversion (rather the opposite but I am willing to compromise).
A Comment on Andrew Sabl

I can't log in to comment on the RBC. I don't know why.

Mark Kleiman proposed "A Populist Substitute for Farm Subsidies."

in brief

Through whatever mechanism, reduce the amount of subsidy paid (e.g., by finally putting an enforceable upper limit on how much any individual, family, firm, or group of firms can collect). For each county where subsidies were paid, total up the reduction and divide that amount by teh population of the county.

Pay out 125% of that amount to each resident of the county in the first year, 120% in the second year, 115% in the third year, and so on.

Andrew Sabl argues that Kleiman doesn't know what populism is writing

Mark proposes replacing agricultural subsidies with cash grants, of steadily decreasing amounts every year, to residents of rural areas. His plan sounds unimpeachable in terms of efficiency, equity, environmentalism, etc., and he wonders why nobody's discussed it.

Short answer: they haven't discussed it because it's un-American. Agricultural subsidies involve paying people for doing What Decent People Do: that is, work—and most particularly, work at growing stuff and raising sources of future barbecue. Cash payments given out regardless of the work done by their recipients involve, well, welfare.

Sabl is wrong about Agricultural subsidies. Subsidies have long been paid for Not working.

Mounting surpluses and increased costs of government programs led to the enactment of a flexible price support program (1954) and of the Soil Bank program (1956), which provided for direct payments to farmers in return for reducing their acreage of major supported crops and required that they leave fallow the land removed from production.

Now Sabl is certainly partly right. His main point is the following

When Mark calls his scheme "populist," he's falsely implying that populism has something to do with equity or distributive justice. But in fact, populism--wherever it has existed, though it's much stronger and louder in the U.S. than in, say, Western Europe--is, above all, producerism. It's grounded in a moral distinction between those who do Real Work (agricultural, or, grudgingly, urban but physical) and those who use their abstract intelligence to exploit the real workers through useless tasks like finance or politics.

This is, or once was, true. However, according to Sabl populists ought to hate Sarah Palin who increased the cash given to each citizen of Alaska for doing nothing.

While recognising that Sabl is absolutely right about the ideology of the original populists (the people's party in the USA) I think he over-estimates the extent to which current US self proclaimed populists really mean "give the money to me" and oppose say AFDC, because it is money going to others not to people like them. Taht is populists can and have been bought off.

That is, I think that Sabl is right and Kleiman is wrong about the best definition of the word "populist," the definition which applies to the most self declared populists in history, I don't think that populism as he correctly defines it is really such a strong force in the USA.

Frankly, I think that current self declared populists have more in common with the Democratic party pseudo populists like pitchfork Ben Tilmann (perfect name for a populist showing his ancestors were Northern European plowmen by the way) than the original populists. I believe that most of them use the rhetoric of populism to dress up interest group politics, regionalism, and racism. I'm sure they can be bought off.