Wednesday, March 28, 2012

Did Antonin Scalia just save the Affordable Care Act ?

Scalia's conduct today (Wed) was outrageous. I'm so ignorant that I'm not even sure if it amounts to misconduct which would justify impeachment (judges don't have to break the criminal code to be impeached). I will never know, but I dearly dearly hope that Justice Kennedy is as appalled as I am. I wish I could believe that the outrageous contempt for the Constitution displayed by Scalia convinced Kennedy to uphold the mandate. That would be very silly of him, but it is clear that Supreme Court Justices are being silly.

Scalia ordered Congress and the President to change the law in this exchange

"When Solicitor General Donald Verrilli explained that “we’ve obligated ourselves so that people get health care,” Scalia replied cooly: “Well, don’t obligate yourself to that."”

Among other laws, Verrelli was referring to the EMTALA which mandates emergency care until the patient is stabilized without regard for the patients ability to pay or for whether the patient could have afforded health insurance and chose not to buy it. The bill was passed by a Senate with a Republican majority and signed into law by Ronald Reagan. Today, Scalia ordered Reagan to not do that. Note he didn't argue that EMTALA is unconstitutional. He demanded that it not be enacted, because he generally disapproves of it. Of course he really denied that it has been enacted, because to him, the constitution and existing laws are whatever he wants them to be.

Scalia "admitted that he'd like to see the whole law fall if the mandate is ruled out of bounds." Shockingly, he argued that the court should repeal the whole law and not rewrite it, because rewriting it would be too much work

JUSTICE SCALIA: Mr. Kneedler, what happened to the Eighth Amendment? You really want us to go through these 2,700 pages?

JUSTICE SCALIA: And do you really expect the Court to do that? Or do you expect us to -- to give this function to our law clerks?

Is this not totally unrealistic? That we are going to go through this enormous bill item by item and decide each one?...

JUSTICE KAGAN: I mean, we have never suggested that we were going to say, look, this legislation was a brokered compromise and we are going to try to figure out exactly what would have happened in the complex parliamentary shenanigans that go on across the street and figure out whether they would have made a difference.

Instead, we look at the text that's actually given us. For some people, we look only at the text. It should be easy for Justice Scalia's clerks.


MR. KNEEDLER: I -- I think -- I think that -

JUSTICE SCALIA: I don't care whether it's easy for my clerks. I care whether it's easy for me. (Laughter.)

Scalia made a materially false statement of fact from the bench claiming that the bill wouldn't have passed without the Cornhusker kickback

"If we struck down nothing in this legislation but the -- what's it called, the Cornhusker kickback, okay, we find that to violate the constitutional proscription of venality, okay?" asked Scalia, talking to Paul Clement. "When we strike that down, it's clear that Congress would not have passed it without that.

In fact the bill did pass without the cornhusker kickback and does not include any special treatment for Nebraska.

Scalia displayed total disinterest in fact and law. His view clearly is that Supreme Court justices can do whatever they want.

I really wish I could believe that Roberts and Kennedy find this attitude so distasteful that they are reluctant to agree with Scalia even in part.

I'm not totally joking when I consider that this is just barely possible.
Supreme ACA ack

Enough about yesterday. What about the soliciter general's terrible performance the day before yesterday. He argued that the 2.5% payroll tax or fixed amount whichever is greater used to implement the mandate isn't a tax. He did this to dodge an 1867 law which forbids courts from evaluating the constitutionality of a tax which has not been collected. I think the law is clearly unconstitutional (in my view Congressional authority to decide which cases the Federal Courts can hear was revoked by the bill of rights -- it seems to me to go without writing that Congress shall pass no law blocking courts from interpreting and applying amendments which begin "Congress shall pass no law"). But I don't recommend making that argument.

Rather I think the point should be that the tax is obviously constitutional and no one claims otherwise. The plaintiffs have a problem with the tax credit side of the mandate -- the provision that the tax is not collected if people have health insurance. The 1867 law doesn't say anything about judging the constitutionality of tax credits does it ? So there. It's a tax and a tax credit.

This approach would have the additional advantage of explaining why the ACA is obviously constitutional. There are many tax credits and deductions designed to encourage this or that activity. No one (with standing) has contested their constitutionality.

In fact, there are other tax credits in the ACA. The subsidies for purchase of insurance on exchanges by low and moderate income individuals and by small firms are formally tax credits. This is because Congress wanted to say it was giving people tax cuts not subsidies (for the same reason it called the 2.5% payroll tax a mandate not a tax). The plaintifs do not contest the constitutionality of these subsidies. They contest the constitutionality only of the credit of 2.5% of payroll income (or a fixed amount whichever is more) for everyone who has insurance no matter what their income is and no matter whether they bought it on the individual market or receive it as a benefit from their employer.

The issue before the court is whether one tax credit is constitutional and another isn't. They can decide this now, because Congress didn't think of trying to prevent people from suing to block a tax credit which no one had received yet.

Also, obviously if they are not total ideological fanatics and Republican hacks they must conclude that the law is constitutional. But we knew that already.

Tuesday, March 27, 2012


Things are getting out of hand. In the dread second Tuesday of November 2004, there was extensive discussion of the first wave of presidential exit polls (long before polls closed). Later, we learned that Democrats were earlier risers that day.

Now there is extensive discussion of a blog post (a link to the post is in this post) posted while the Supreme Court was still hearing oral arguments about the constitutionality of the HCR individual mandate. People weren't willing to wait for later oral arguments (including especially leading questions by justices) in the same day.
I note much anxiety over the Supreme Court and the ACA individual mandate

Roberts and Kennedy asked questions which made some fear that they would declare the mandate unconstitutional. Scalia made it clear that he has no respect for precedents set by Scalia (basically he thinks the commerce clause can be used to prosecute pot heads without regard to interstate commerce, but not to expand the welfare state). This link is over trafficked (also it is a report of a court session in progress with slightly different impressions later).

Alarming enough that I offer incompetent legal advice.

First the EMTALA often cited by opponents of health care reform to claim that health care is currently available to all. Hospitals which take Medicare money must treat emergency patients regardless of their ability to pay. This isn't an alternative to the ACA and not just because it is only for emergencies, since the hospitals can and do bill such patients. But it makes health care legally different from roughly everything else, as it is not now legally treated just a service we might want but a matter of legal entitlement (only under narrow conditions pre ACA implementation). If some Justices feel the need to argue that health care is different from other sectors, they have it. This is not precedent (if they followed precedent they would declare the ACA constitutional with no hesitation) but it seems to appeal to Kennedy and Roberts.

Another point is that the mandate isn't very mandatory. There is a tax, but the IRS can't use normal methods to force people to pay. This absurd feature (not bug anymore) was added at the last minute to get votes for cloture. But it means that there is very little for the court to strike down. They can block the Federal Government from doing anything but reminding people that they should get health insurance or pay the penalty. That sure seems to satisfy any possible constitutional concerns. Also Congress has already done this.

Also the second Militia act. if they cared about the original intent of the founders, they should care that G. Washington who had something to do with the founding, signed a bill with a mandate much more invasive that the ACA mandate.

Of course, the issue is absurd as the mandate is exactly equivalent to a tax on all combined with the current subsidies plus giving the tax back to people who get insurance. This is clearly constitutional. The reformers of health care are potentially in trouble, because they wanted to avoid the word tax (they call subsidies tax cuts and the flat 2.5% payroll tax on all given back to those who get health insurance a penalty), but here we are.
Most absurd use of "Most"

Two of the bees in my bonnet are the Headline writer(s) and the abuse of the word "most." In a bit of a shift*, I complain about the headline

"Most Americans Oppose Health Law, Poll Finds"

I clicked the link and read "In the latest poll, 47 percent said they oppose the law while 36 percent approve, with the rest having no opinion. "

OK lets go slow. 47<50 therefore 47%<50% therefore 47% is not most.

I don't like the word most because it ambiguously means "more than half" and "approximately all." It is a 4 letter automatic equivocation.

I add that the article has changed since the first time I read it (the New York times has always updated within the day -- the newspaper of record becomes the record at midnight). In the older draft (trust me) the 47% = most was in the first paragraph.

Interestingly the new first paragraph notes that two thirds of respondents want the Supreme Court to declare parts of the law (mostly the mandate I guess) unconstitutional. This shows how much the US pubic hates judicial activism. Think of how few must have the view that laws which they don't like shouldn't be overturned by unelected courts.

*The reason is I am on a computer I rarely use, so doesn't consider me to have read my 20 free articles.

Friday, March 23, 2012

The guy was presenting a paper and he had energy to consider other presentations. How many brains do you think are in that skull. I guess at least three.

3 Separate Comments

3) on Mamelukes. Huh ?!?!? What about Egypt ? Yes it is mostly desert, but the people live in the Nile valley -- ground zero for extracting taxes from agriculture. This is where excess grain beyond that needed to feed the farmers was produced. This was where farmers couldn't run away and farm somewhat less valuable land under another lord (or no lord). Or maybe ground zero was Mesopotamia. The Ibn Kaldun hypothesis makes less than no sense. It is a common story for the Arabian Peninsula on the one hand and Egypt and Mesopotamia on the other. But clearly they are the most nearly opposite ecologies in the old world. Egypt has been under central control or a province of an empire longer than any other place. Saudi Arabia competes with Afghanistan as the area where empire feared to tread (or didn't bother). The idea of a border (along with the first geometry) came from Egypt. Saudi Arabian borders were not defined on maps drawn in my lifetime. The places to look to test Erich Chaney vs Ibn Kaldun are Egypt and Iraq not Iran. 50 years hah. The experiment is well under way.

1) Stock Watson and Blinder together say a drop in aggregate demand has about the same effects no matter what the cause. Keynes would not be surprised by this. It is a problem for newKeynes (have I mentioned that I think that newKeynes seems to have more to learn from Keynes than vice versa ?). To the extent that the dynamics are similar, there is evidence that money isn't so very special after all. This isn't just trouble for Friedman but for all of his followers, that is all mainstream macro-economists.

2. Gauti et all I like your insistence on fiscal not monetary policy. Many of my critical comments on this blog were comments on posts in which you discussed useful things the Fed could legally do. But I didn't disagree 100% then and so I don't agree 100% now. The Fed can irreversibly expand the money supply if it buys a huge amount of illiquid assets. This is not good strategy for an investor as one loses huge amounts of money that way. Ah yes loosing money is irreversibly supplying money. If the Fed manages to have more liabilities than marked to market assets, then it can't retire the liabilities. Now this means using open market operations to give money to financiers. I'd much prefer giving it to ordinary people by cutting T. I also prefer increased G to reduced T. But the Fed can commit by trading very badly.

To be serious. If the Fed buys risky assets there are two benefits. One is the one you have been stressing since 2008, that the supply of risky assets to the private sector is too high and this is the root of the problem. But the other is that if things go bad, the monetary expansion can't be reversed (can't retire liabilities if your assets aren't worth that much). So the Fed commits to an irreversible monetary expansion if things go badly. The fact that it transfers its mark to made up balance sheet profits to the Treasury but the Treasury doesn't give the money back, makes it easy for the Fed to gamble -- win for a while and then get stuck so it can't reduce the money supply when it finally looses.

The problem is that if the economy tanks, then the Fed can't avoid creating high inflation expectations (because it will not be able to retire the huge pile of money). Is this a bug or a feature ?

This approach is within the Fed's current legal authority. What's the problem ?

Thursday, March 22, 2012

on Chait writes

on Chait writes

there’s not really a growing consensus that tax reform is good. The consensus has existed among economists forever.

where he defines tax reform as closing tax deductions and loopholes and lowering rates.

I comment

Consensus among economists ? You must be joking. I am an economist and I absolutely oppose lowering rates whether or not loopholes are eliminated.

As to loopholes, well it depends. Should we eliminate the mortgage interest deduction ? Sure (but not yet -- and not quickly -- low housing investment is a problem now). The deduction for charitable contributions not so much. Tax employer provided health insurance when the Republicans stop trying to kill Obamacare (that is on the first of never). Eliminate the R&D tax credit ? Why ? Are you nuts ? Eliminate the investment tax credit ? Why tax reinvested profits at all ?

No one like tax expenditures in the abstract (as almost everyone dislikes high government spending in the abstract). It is impossible to get a consensus once one discusses which deductions to eliminate (Chait went on to note this in the post).

Chait has long supported broadening the base and lowering rates (he was a passionate enthusiast for the 1986 tax reform). The economists who basically agree with Paul Ryan have long supported tax reform. Most non Randian economists do to. But many of us don't.

If you want to claim there is a consensus, show me a poll. Also one on just what should capital gains tax rates, tax treatment of capital income and top income tax rates. On the second set of questions, I am willing to bet a small amount of money at even odds that most members of the American Economic Association disagree with Ryan about the direction in which policy should change.
Beyond Etch a Sketch ?

In a demonstration of inverted political genius Mitt Romney has decided to argue that Bush, not Obama, prevented Great Depression II.
Thus he broke rule number one for Republicans which is to never admit that George W Bush is now or ever has been ( unless they have to, and really if you can deny the existence of global warming this Spring, you should have no trouble denying the existence of G.W. Bush).

Also he admitted that the economy could be much worse. Also he praised the much loved TARP and reminded people that Obama didn't sign the main TARP bill. Finally, he stressed the difference between TARP and the ARRA aiming to prevent people from conflating them. It seems that no one explained that exactly that possible misconception is his lottery ticket to the White House (lottery ticket because he might or might not win unless he keeps making it clear that he prefers bailouts for bankers and laying off teachers to tax cuts for the middle class and infrastructure projects).

Is the latest effort a better or worse move than the etch a sketch simile ?
How I Read

I was thinking about skimming. I can recall back in High School being warned that, in college, so much reading would be assigned than it would be impossible to read every word. There was the suggestion that one could read the first and last sentence of each paragraph (written in a book). I found that I couldn't do this easily. If I forced myself to skip sentences, I saved no time as the time required to pull away and then find the beginning of the last sentence of the paragraph was greater than the time required to read the middle sentences of the paragraph.

Ah youth. Now I find that, when I am supposed to read something, I can't help skimming. I won't make any more specific confession.

On the other hand, when I enjoy reading something, I re-read the sentences which I found especially enjoyable. I have the sense that I rarely read every word once, that I either skip words or read some words twice. My guess is that 95% of the time, I read each word once, but that I notice the exceptions, because I have some silly sense that reading each word once is the normal way to read.

So why do I re-read sentences ? Partly, it is just because, if I enjoyed it once, I expect to enjoy it again, and I don't want to defer that gratification. In this sense, well written sentences are like potato chips, reading a well written sentence jut once is like eating just one potato chip.

Here you see that, while I appreciate good writing (mostly good prose, I am insensitive to poetry) I can't write well to save my life. The potato chip metaphor leads (me) irresistably
to "reading a well written sentence just once is like eating a potato chip just once" writing which makes one think of vomiting and ... OK when apologizing for my vomitious* writing I shouldn't make a bad sentence worse.

But also, I think, there are different joys in the first and second reading. This is especially true if the excellence of the sentence is based on a surprising development (so it is partially a joke). there is pleasure in seeing the trap set for the unwary reader and knowing it will be sprung. Re-reading good sentences is a way to enjoy the experience of having written them without the ability to write well.

The non skimming reader will also note that appreciation for good writing can coexist with indifference to correct spelling. I wasn't always this way. When I was younger, was positively opposed to correct spelling -- I thought English should be reformed to make it phonetic. Orwell wept.

*yes that is a word. In 1985 heard Professor Larry Summers use it when talking to Professor N Gregory Mankiw.

Wednesday, March 21, 2012

Mitch a Sketch

update: Now with the etch a sketch

All shook up to learn he hired a fool. Might want to Fihre him.

I know etch a sketch is black and grey, but I like it better in color than this
Someone at Act One had a brilliant idea here

First, they are trying to inform people what a small share of the US federal budget is foreign aid. In polls the median guess is off by a factor of ten or more. I think that it is hard to fight such missconceptions with mere facts, but it is worth trying. For one thing the massive overestimate of aid spending must cause people to think aid is ineffective, since the third world is still poor.

The brilliant part is that when I went to the site I was asked to post the link on my facebook page and to tweet it. Of course. Oh watch out, if you click the link they will ask for your e-mail address. It's not too bad, they send about one e-mail a month.

Personally, I get practically spam levels of e-mail from obscure Democratic politicians who lost a close race against some especially extreme Republican 6 to 12 years ago (before I decided that my small dollar donations were the kiss of death).
Lead crime and teenage pregnancy.

There is a very impressive time series and cross country correlation between lead exposure in early childhood and violent criminal behavior in ones late teans and early 20s if one is male or getting pregnant in one's teens if one is female ( the teenage boys are probably involved in that too ). There is also a clear correlation between lead in kid's hairs and impulsiveness and anger management issues. How about data for more than 1 person but less than a whole country ?

The lead hypothesis suggests that the rise in crime in the US in the 60s and the decline in the 90s should be concentrated in big cities where there are lots of cars per acre and high concentrations of lead (or maybe lead where food is grown is what matters ???). I definitely have the impression that this pattern is seen in the data.

A competing explanation is drugs with the crime wave due to the heroin then the crack epidemics. Epidemics affect many people in one area and pass (here immunity comes from seeing the damage done). A change in the geography of crime miight follow a change in the geography
of easy access to addictive drugs. There is a difference between plant products and synthetic meth. Also drugs used to be snuggled mostly mixed with legal goods so they entered in big port cities. Now(I think) they mainly enter empty border regions with few drug sniffing dogs per acre. How to control for this ? I think overdose deaths are not a good measure as emergency treatment improved and it helps one's chances to be within a mile of an emergency room with naltrexone.

Still if not a fruitful area for actual research, this seems to me to be an excellent area for uninformed speculation.

Tuesday, March 20, 2012

I can't believe I am typing this, but I got information from the Washington Post which I couldn't find on Talking Points Memo. The issue is the new Ryan plan for Medicare. I know that Ryan still wrote about people getting vouchers whose value would grow much slower than medical costs. I also know that the new plan has a public option to stay on Medicare. So far, it sounds like Medicare advantage all over again, that is, no threat to Medicare as we know it and with no budgetary savings. But then I read this by Rosalind S. Helderman and Lori Montgomery.

"In reaction to Democratic criticism that the plan “ends Medicare,” Ryan has tweaked that proposal: He now aims to preserve traditional Medicare as an option, though seniors could be required to pay significantly more for Medicare coverage if the program proved to be more expensive than the private plans."

Ahhh that's it. It is a plan to phase out Medicare as we know. Update: booboo here (Medicare premiums would grow at the difference between the cost of health care and the consumer price
index.) Medicare would cease to be a program which pays for healthcare and become a mere public option (which would clean the floor with private insurance because it is more
effiicient). Many people over 65 would be unable to pay the premiums and

lose health insurance.

The limit is total Medicare spending grows at GDP + 0.5%. this is way low as the populstion ages. Obamacare achieves low Medicare growth by reducing cross subsidation of care for the uninsured with Medicare. Ryancare won't do that.

Calling Senator Wyden on the white discourtesy phone. Why why why did you trust Ryan enough to let him link your name with his. Also calling Alice Rivlin.

And I thank Rosalind S. Helderman and Lori Montgomery one of whom I have criticized with some vigor on this blog.

Monday, March 19, 2012

A brief History of "Atoms"

The quotation marks aren't scare quotes. I do believe in atoms, but I want to talk about the history of the idea and paraphrase thinkers (from memory).

Disclaimer: The Wikipedia is not reliable. Don't trust the Wikipedia. The Wikipedia once included the claim (since corrected) that if there is Ricardian equivalence, then a temporary increase in government spending won't cause increased nominal demand. But the Wikipedia is a whole hell of a lot more reliable than this blog.

Once there was a hypothesis that matter is made of atoms. Now everyone familiar with the data is convinced that atoms just plain exist the same way, say, Australia exists. I think that most people don't know roughly when the concept of atoms shifted from being a useful concept in a useful model to a (perceived to be) plain fact. Please guess now.

As far as I know, the concept dates back to Democritus who wrote something along the lines of "All that exists are atoms and the void." This was a bit too extreme for Socrates. It was a pure guess. The properties of "atoms" were that there can't be 2 of them in one place, they are indestructible, they cling to each other in solids, and they fly around separately in gasses. importantly a (somewhat contradictory) second principle is that there are universal natural laws (something like "I would raterh discover a natural law than be King of Persia"). So really there are atoms, the void and universal laws. This is key. It means that to guess where an atom will go, we don't need to know of what whole it is a part. It means that the properties of large things made of atoms can maybe be deduced from teh properties of the atoms (solids are solids because they are made of atoms with loops and hooks like velcro) but not vice versa.

The atomic wild guess consists of materialism (matter can be understood without brining gods, minds or ideas into the discussion) and reductionism (parts can be understood without knowing of what whole they are a part). This has been a rather successful approach. Rather more successful, I would say, than any other human effort.

I might add that, along the way, each of the original guesses (which I ascribe to Democritus based on no evidence at all) has proven false. Atoms are destructible. They are not elementary particles (the modern translation of the Greek atom could be "electron, Quark, Gluon or who knows what all else). The elementary particles are all destructible (by anti-particles if by nothing else). The current view is that one atom isn't in one exact place at one time (Heisenberg and all them) and that two can be identical provided the sum of neutrons plus protons plus electrons is even. Finally, molecules not atoms are believed to fly around in gasses. So now atoms refer to something which is not elementary, indestructible and the only occupant of one space. But it also refers to something which, scientists claim, has been observed.

Faith in the actual existence of atoms as a fact not a useful concept is quite new. The question was very definitely open in 1900. One of the people who convinced other scientists that atoms really exist was Einstein who noted that Brownian motion (spores on water jiggle around) can be explained if there are a finite number of molecules of water so the law of large numbers does not apply to their collisions with very small things. This places the water is made of particles hypothesis on roughly the same plane as the light must be considered (in some ways) to consist of particles hypothesis.

In retrospect, the insistence of many that the concept of an atom was useful, but it was unscientific to assert that the just plain exist seems odd. What about Lavoisier ? What about Avogadro ? What about Maxwell, Boltzman, Arrhenius et al ? Well they had equations which fit the data and which could be elegantly explained with drawings of atoms. But that fits the useful concepts view doesn't it ?

I think part of the issue was extreme attachment to scientific rigor (not at all like mathematical rigor) so that all statements are translated to statements about data as in "the data are consistent with a model in which ..." or observations are as if this model were plain true. This view is, of course, irrefutable. The data are consistent with they hypothesis that I am not a butterfly dreaming I am an economist. But no one is really open minded about the actual existence of, say, Australia*.

Boltzman tried to explain thermodynamics as the consequence of the laws of probability applied to complex systems consisting of many many atoms. He managed to fit the data. Some of his contemporaries said roughly "so what, we already knew of the laws of thermodynamics based on observation. Tell us something we don't know already. Not having a scanning tunneling electron microscope at hand, Boltzman despaired.

OK off to Wikipedia (for the first time really)
"Only a couple of years after Boltzmann's death, Perrin's studies of colloidal suspensions (1908–1909), based on Einstein's theoretical studies of 1905, confirmed the values of Avogadro's number and Boltzmann's constant, and convinced the world that the tiny particles really exist."

* I am paraphrases a character in "A Clergyman's Daughter" by Orwell (a book which he hoped had ended up down the memory hole). The character asks the clergyman's daughter "but do you really believe in Hell in the same way you believe in, say, Australia." Overall, the novel is a very bad novel, but it does have its high points. That is one. Another is the page where a character in the novel is described as ""like a character in a bad novel" In my heart I am sure that Orwell meant to communicate to any actual reader that he knew perfectly well that it was a bad novel (written because he was broke and no one paid squat for short stories of which there are several good ones glommed together in the bad novel). He also knew that editors, publishers and reviewers would not read the novel (he also worked as a book reviewer) and type setters wouldn't care, so he could sneak the confession past the people who paid him to the innocent readers if any (and there are many as many of us read every surviving word he wrote including the war time BBC propaganda which he clearly really counted on ending up in the memory hole).
Fighting Malaria with Mosquitoes

Rick Santorum campaigned in Puerto Rico with the focus group tested brilliant strategy of saying they better speak English if they want to be a state. This post is not an effort to find an even less popular policy proposal. I am totally serious. I think that Malarial countries should be inundated with mosquitoes.

The point is that only one genus of mosquito -- the anopheles mosquito -- carries malaria. One approach to fighting malaria is to try to drive it extinct. Considerable progress was made with DDT in the past (ending either with DDT resistance either among anopheles mosquitoes or well intentioned people depending on who you ask). This is the wrong approach. The way to drive a genus extinct is to introduce a competing genus -- Darwin noted that species are threatened by similar species not by say predators. (Yes as you guess, I thought they were a species then Wikipediad and partially corrected but I can't rewrite Darwin who didn't write the Origin of Genuses or whatever the correct plural may be).

The worst threat to a mosquito species is another mosquito species.

Now just imagine how enthusiastic people in a malarial region will be about planes dropping billions of mosquito eggs into every pond.

OK also non-reproductive sex (back to Santorum). One approach to eliminating populations of insects is to catch a lot of males, sterilize them and release them. The combination of birth control and innate monogamy leads to females laying sterile eggs. If the insect hotties fooled around, this wouldn't work, but they are only interested in reproduction and have sex only once (per batch of eggs ? or ever ? I don't know).

Friday, March 16, 2012

Organic Chemistry

Not modern organic chemistry, but the original meaning of the phrase. Living things include extremely complicated molecules which are hard to synthesize. The original hypothesis called "organic" was that this is impossible. The claim was that atoms and molecules followed different laws of motion if the were parts of living things. This hypothesis was holistic -- the idea was that particles can't be understood unless you know of what they are parts. The alternative is that particles obey universal laws so you can understand what they do knowing only which universe they are in. Another way of putting it is that the original organic chemists believed in a force different from gravity and electromagnetism which only pushed things inside living things around. They called it, well mostly some German word which is translated as "vital force".

As an aside, many passages from long ago which we tend to read as metaphors were meant more literally than it we tend to imagine ( that sentence is. So hedged that it tends to be meaningless).

Then this German organic chemist synthesized urea and was pissed. Big deal you say, since you do that every day, but he synthsized it in a test tube. I guess it tooK a while, but this convinced chemists that the original organic chemistry hypothesis was all a big misstake. It is now mostly forgotten, but a view which dominated a field for a while is really genuinely gone, discarded on the ash heap of intellectual history.

The word organic with its holistic conotations survived in the social sciences.

Disclaimer:I really had no idea that I was going to write the last sentence of this post when I wrote the first.

I mention old organic chemistry just to note that the tree of knowledge has, or has had, branches which bear no fruit (that one has been pruned). Regular readers can guess that I am thinking of contemporary economic theory, and in particular, about the effort in the past 39 years to provide microfoundations for macroeconomics. An analogy is clear -- the claim that this simply can't be done is like old organic chemistry. It is the claim that whole economies can only be understood as wholes. This is not the analogy I have in mind. No one claims that macro can't ever be micro founded. The harshest critics of the effort to microfound macro think that the problem is partly shortcuts to easy but false links from micro to macro (like the representative consumer) but mostly that standard micro theory is psychology and in particular very bad psychology based on assertions about individual behavior which have been tested and rejected by the data.

No the analogy I have i mind is that the 39 year long effort might be a fruitless branch like organic chemistry. The difference is that there seems to be no empirical failure (like urea) which causes the adherants of the school to question their basic core hypotheses. So I think that recent research in macro theory (definitely including my own current research projects) isn't worth piss.

Thursday, March 15, 2012

Inflation Floodgates All Wet

Simon Wren-Lewis notes that Central Bankers feel that a little inflation is dangerous as it can spiral out of control. The analogy is opening flood gates a crack. He also notes that this view (which actually seems a bit shared by ordinary people in a survey) doesn't fit the facts.
I note that the fears of inflation hawks correspond to my favorite model of expectations so I have inflation hawk egg on my face.

Well score one for the credibility of independent central banks. Yes inflation expectations rose above the target, but not enough to set off Stagflation.

Also score one for pretty much rational expectations (no one takes it literally).

In contrast an own goal for my favorite behavioral model of expectations. I just realized that it corresponds exactly to the floodgates hypothesis. Psychologists including Anreasson and Krause have found that people presented with a random walk make forecasts as if the data were generatged by a broken trend. So generally they predict mean reversion, but a few increases in a row and they decide the variable is trending up, so they extrapolate.

This behavior corresponds exactly to expectations which are currently anchored, but also to floodgates which can open. I think it is reasonably clear that actual central bank policy has something to do with believing in this behavioral model (as I generally do) along with ideas that inflation is sinful and so on.

Anyway, my favorite model of expectations failed this time.

Tuesday, March 13, 2012

The Bounds on What we are Likely to Learn by Considering Boundedly Rational Learning

Mark Thoma and Simon Wren-Lewis both responded to a complaint about the rational expectations assumption by noting that they had colleagues who study boundedly rational learning. I see a third alternative -- giving up.

more here

As before, if Mark Thoma links here I send you off to

Simon Wren-Lewis gets me going again

He wrote

Rational expectations do not prevent us understanding sustained periods of deficient demand when an inflation targeting central bank hits a lower bound. Indeed they help, because with rational expectations inflation targeting prevents inflation expectations delivering the real interest rate we need, as I have argued here.


The traditional Phillips curve has always seemed to me to be an advertisement for the dangers of not doing microfoundations. It seems plausible enough, which is why it was used routinely before the rational expectations revolution. But it contains the serious flaw noted above, which almost destroyed Keynesian economics.

I wrote two very rude comments (in anti chronological order)

You write (suspected typo elided) "inflation targeting ... delivering the real interest rate we need." I note that the ECB has consistently targetted inflation (at least you are willing to give inflation targetting credit for events in 2005 and 2006. You must conclude that the Eurozone has the real interest rate we need.

But the Eurozone suffered a severe recession, currently has extremely high unemployment and appears to be headed for a second dip.

I think you meant to qualify the claim with "with the right inflation target, assuming (for some reason) that the target is credible ..."


I too have semi defended the rational expectations assumption recently. However, the basic advantage I see is that the assumption of rational expectations makes it more difficult (not impossible) for people to tell stories about how their preferred policies are good, because (it is assumed rather than argued) they will influence expectations in a desirable way.

Briefly, I think the point is to exorcise the confidence fairy. Less briefly, my reasoning was that, if one is not required to assume rational expectations, one can argue that cutting spending will cause increased growth by increasing business confidence. A model in which businessmen with rational expectations increase investment and production because of a spending cut is not easy to write. My guess is that it would be a model with sunspot equilibria, so anything can change investment. If so the case for expansionary austerity would be identical to the case that what we need is to burn incense to the flying spaghetti monster (which claim is consistent with the rational expectations assumption on models where sunspots can matter).

The key question, I think, is not rational vs irrational. It isn't even rational vs adaptive. It is whether we should treat expectations as a policy variable imagining that policy makers can control them as they control, say, the federal funds rate.

Then I thought "same for the people who think that expected inflation is just like the federal funds rate" and here we are. I might add, I also thought "this time I won't be very rude in comment" really honestly. But, as I see it, you leave me no choice.

Look why not just talk about a monetary authority which targets real yearly GDP. To a million pounds per capital You are simply assuming that a central bank can get the inflation expectations it wants. That rational people will believe its dynamically inconsistent promises.

Oddly the last time I remember defending rational expectations was when I tried to explain (to Matthew Yglesias) why Paul Krugman was skeptical about the effectiveness of monetary policy right now.

I note again that you have not identified one advance new Keynesians have made beyond Keynes. The alleged examples include speculation about UK consumption some of which, you note, is not incorporated into new Keynesian models yet and none of which has yielded an improved prediction and, of course, the old Phillips curve. The only connection between the old Phillips curve and Keynes is that he warned against believing in it as clearly as anyone could writing before Phillips.

You contest Krugman's claim that those who seek microfoundations have had no successes since the critique of the old Phillips curve yet you go back to that again and again. I see no trace of a justification for your disagreement with Krugman in this post or in any other post of yours which I have read.

Monday, March 12, 2012

Anatomy of very rude comments

Adam Smith looks at the anatomy of this recession here

He adds employment in goods production and government and notes that the sum hasn't increased since the trough. He discusses the importance of credit conditions. I am extremely rude in comments.

If you want to look at credit sensitive sectors you really should not add government workers to the goods producing workers. As you note, government employment is extremely insensitive to credit conditions, because state a local government access to credit is legally restricted.

Employment in goods production is recovering. The decline was (of course) much more severe than in the last two recessions, but the recovery has started much sooner after the trough.

Earlier inflation fighting recessions have a very different pattern exactly because those downturns depended on credit conditions which were very tight during the recessions deliberately created by the Fed. and then suddenly looser.

You note that construction is very different from manufacturing. So I looked at manufacturing employment. This time it is very different from the last recession, since it declined less and is recovering.

How about durable goods (which would depend on credit conditions more than non durable goods). Compared to last recession same absolute decline (greater proportional decline). This time recovery. Last time continued decline

It's construction this time.

For this graph I am going to start in 1970, because I notice something. The delay from the peak of construction employment to rapid growth of construction employment has been similar in the four peaks before the latest and should be coming to an end for the latest case around now (and employment has begun to increase).

I didn't know this. I know the economy boomed back after the second dip of the double dip Volcker recession, but I didn't think that this was after a long period of low construction employment. Also I remember the 1974-5 recession lasting a long time, but hey I was only 1 when it ended and not looking at disaggregated data back then. I knew about Bush mush recoveries, but I was very inclined to consider them extraordinary. It all fits an industry which takes a while to get going either because of excess stock because of overbuilding or because uh Rome wasn't built in a day (and Romulus spent a century just getting planning permission and hiring an architect)..

Sunday, March 11, 2012

I guess someone somewhere is interested in reading what I think about rational expectations

(if that doesn't prove that at least one person doesn't have rational expectations I don't know what could).

update: There he goes again. Proving that I don't have rational expectations, Mark Thoma linked to this so I send you over to Angrybearblog for this post.


You kids probably don't remember what life was like before google, but back in the stone age we used search engines which found keywords and put the sites in which the key word(s) appeared most often at the top. Thus I kept ending up, just for hypothetical example, at pages which had a block of text "DSGE DSGE DSGE ..." hundreds of times or "free hot microfoundations free hot microfoundations free hot microfoundations ..." The examples are purely representative (that is lies). If you are less than 20 years younger than me, you know what sites I am talking about, because you've been there and don't deny it.

The more honest of the scumbag search engine flaw exploiters would add a heading "the following is for search engine purposes only." Evidently, they assumed that their sites' visitors were too dense to notice the pattern and scroll down to get tricked into paying for "free" DSGE micro foundations if you get my drift.

Anyhoo that is all an introduction explaining the following section.

For link trolling purposes only. This post is a contribution to an interesting debate among bloggers each of whom gets much more traffic in a day than I will get in my life. They are
Paul Krugman (of course) these

Mark Thoma (also here and here).

Simon Wren-Lewis (note each name is clickable)

Noah Smith

Angry Bears (OK I'm one of them, but sometimes embarrassed to self link)

James Brad DeLong

David Glasner

Thursday, March 08, 2012

Clash of the Titans meets test case.

One of my rules is never quarrel with Glenn Greenwald. People who do end up looking stupid, but it doesn't matter because they don't dare look in the mirror. On the other hand, one shouldn't mess the Jon Chait either. So how is this going to work out ?

Greenwald’s penchant for telling bold truths that the corrupted partisans are too blind to see, in a manner that in no way is sanctimonious, is an inspiring example for us all. But he does tend to struggle with other aspects of his job, such as reading comprehension.

J Chait.

Oh yes be still my heart. Is the game on ? Please guys. I know you are busy, but the Republican campaign is just sad and I really need a good flame war.

over in comments, I note that the title should be "NY Times symposium beats a dead straw-man" and that "symposium" is classical Greek for wankfest.

Millenia have passed, but, in the end, we all come together.

Monday, March 05, 2012

update: sorry to bother you but please click here for the post. My fellow bears get angry if I hog Thoma links.

Sunday, March 04, 2012

P.s. When in a rush Paul Krugman whipped out a nominal graph. I did not monopolise the very rude comments. Here I barbarically deflated government expenditures by the gdp deflator before calculating the annual growth rate


Does anyone know how the hell to use with an iPad ?

Saturday, March 03, 2012

Populist he aint

Morgan Stanley managing director William Bryan Jennings arrested for stabbing cab driver following an argument about the fare (which he could afford).

William Jennings Bryan is turning over in his grave.

But the trial could be even more fun than the monkey trial.

via Atrios
Modern Macroeconomic Methodology

Modern Macroeconomic Methodology (MMM) rests on two pillars: Milton Friedman's methodology of positive economics and the Lucas critique. The problem is that an alternative possible title for "Econometric Policy Evaluation: A Critique" is "The Methodology of Positive Economics: A Critique." One of the pillars consistgs essentially of the claim that the other is unsound.

How can two opposite claims both support the same theoretical edifice ? I think it is very simple, Friedman's methodology for me, the Lucas critique for thee.

Below I argue my claims.

A nickel version of Friedmans methodology of positive conomics start with models can be useful even if they are not true (even if they are false by definition). This is universally agreed. This implies that we shouldn't treat models as hypotheses to be tested , so we are not necessarily interested in every testable implication of the model. Instead we should care about the implications of the model for the variables which matter to us. The reason is that if the model fits the data on those variables we can reasonably use it to forecast those variables.

The Lucas critique argues that a model can fit but not be useful for conditional forecasts. Following Marschak and many others (as cited in the paper which includes the text "no claim of originality") Lucas argued that the forecasts which most interest us are forecasts of how things will be different if policy is changed, but a model might fit the data for one policy regime and not for another. To get this far, it is enough to note that correlation isn't causation. A model in which fluctuations in A cause B can fit data generated by a world where B causes A exactly until a policy maker begins to manipulate A (for example hoping to influence B).

In particular, Lucas (and his followers and leaders) focus on how expected future policy affects current behavior. The true objective mathematical expected value of future policy variables conditional on current data depends on the policy rule. Unless there is no connection between what is likely to happen and what people think is likely to happen, the link between data and expected policy must change when the policy changes. One way to force oneself to consider this is to assume that agents know the true objective probability distribution of everything -- that they have rational expectations. Lucas ordered economists to so assume and the vast majority have obeyed.

But note that Lucas's argument is exactly that an model can fit past data and yet yield misleading forecasts, and, in particular, mislead us about the effects of policy reforms which are exactly the most important forecasts. It seems to me that Friedman's methodology and the Lucas critique are not just logically inconsistent but basically opposite -- that the substance of Lucas's paper is a critique of Friedman's.

I have to put the key example which mattered somewhere so I will put it here. Lucas and Friedman agreed on something very important. They agreed that it was unwise to trust the Phillips curve. Phillips innocently noted a very simple pattern relating wage inflation and unemployment in the UK over a century (he is not to blame for the use made of his scatter plot). Some people decided that this showed a menu of options open to policy makers who could choose high inflation and low unemployment or low inflation and high unemployment. Friedman (and separately Phelps) argued that this made no sense. That if the inflation rate increased 1% and remained at that level forever, firms and workers would eventually incorporate 1% more expected price inflation when negotiating wages. So the effect of a permanent increase of inflation should be temporary. This is the key example which illustrated the Lucas critique. It is, in fact, the key reason macroeconomists decided in the 70s that they had been barking up the wrong tree. The Phillips curve was augmented so that the unemployment rate was related to actual inflation minus expected inflation (not just inflation alone). It is very hard to believe (OK impossible) that expected inflation is exogenous. Inflation depends on policy and so should expected inflation (note I have not assumed rationoal expectations just not totally dumbe expectations). The view became that the problem is that expected inflation, a key variable, which changes and which depends on policy, just happened to not change much in the UK during the century studies by Phillips. If you just look at the data and are an accidental theorist, you make assumptions which you would never make if you thought about them.

I promise the reader fortunate enough to not know economists that the claim that the two papers are the foundation of MMM (and a lot of modern microeconomic methodology too) is not controversial. How can this be ?

Friedman's argument is used whenever the realism of assumptions is questioned. The conclusion of the discussion is (in my experience) that the models might be useful and we should check if they are and not dismiss them. But it is also argued that it is essential for an economic model to have agents with well defined objectives maximizing, at least, the subjective expected values of their objectives. In practice, rational expectatoins are almost always assumed. Specifically it is almost universally agreed that we don't have rational expectations (I can recall one economist once claiming he thought we did but I think he was joking). Yet it is still often argued that models with agents with rational expectations might be useful and that we must assume rational expectations or our conclusions will be proven invalid in advance by Lucas.

The claim that rational expectations must be assumed is not as common as it was in the 80s. Many argue that one can assume rational expectations or some kind of boundedly rational learning such that agents can't be tricked by policy makers into always making expectational errors of the same sign. I think it is easy to prove that no such model can be tractable in the sense that expectations are a tractable function of available information.
Proof: If we can handle a model of boundedly rational learning and figure out agents' expected value of policy variable X as a function of lagged information, then the policy maker can figure it out then set X to that expected value plus one. So, in practice, fear of the Lucas critique forces people to assume rational expectations (not immediately, it might take some a while to come up with the not so hard proof above, but soon and for the rest of their lives).

I think the last paragraph is the only thing I have written so far which might be controversial.

The problem is that the reasoning is a logical falacy. The logic is that if we don't assume rational expectations and instead assume some other tractable expectations, then our work is definitely vulnerable to the Lucas critique. The conclusion is that if we assume rational expectations it might not be. That is if P implies Q then not P implies not Q.

It is absolutely not sufficient to make assumptions about tastes and technology then have agents with the tastes use the technology rationally to avoid fitting the past and totally failing to forecast the effects of a change in policy. It would be fine to use the model if the model were the truth (then the forecasts would be the best possible). It would also be fine if we knew it were approximately true (which just means that the forecasts will be close to the best possible). It is not at all enough to know that it fits available data.

An example. One model of interest to macroeconomists is the model of a representative consumer. The idea is that aggregate consumption is (about) what it would be if (for example) we were all identical and rationally maximised a utility function whcih depends on the stream of consumption. In the simplest version, it is assumed that the utility function is the sum of a term which depends on consumption and a term which depends on everything else (so consumption saving decisions are separate from all other decisions) Also in the oldest version the utility function is assumed to be time seperable -- the sum of terms each of which depends on consumption in one period. Typically pleasure now is an unchanging function of consumption now and the consumer maximizes the stream of pleasure discounted exponetially due to impatience. In

It is very common (OK universal in fact and for relatively good reason) to assume utility functions in a parametric class called constant elaasticity of substitution. So we can try to fit the data estimating as few as two parameters the impatience factor and the intertemporal elasticity of substitution of consumption. Embarassingly estimates of the intertemporal elasticity of consumption are tiny (about 0.1) . Here is a model which fits the data not horribly (badly enough to be rejected against alternatives) but which gives implications which no one takes seriously -- that the rate of growth of consumption would increase by 0.5% if after tax real interest rates permanently increased 5%.

One way in which some economists deal with this problem is to assume that the utility function is not time separable due to habit formation (as discussed by Keneys among others). The idea is that low consumption is particularly painful to people who have had high consumption (the manner to which he/she has become accustomed). One way to think of it is that consumption is addictive. This is absolutely consistent with full rationality. It can cause a low estimate of intertemporal elasticity. However the long run effect of a permanent increase in the real interest rate is not tiny.

But see what has happened here. Writing down an optimizing model and fitting it to the data gave parameter estimates which imply terrible long term predictions. A variable (the degree of addiction to consumption) which is exogenous was not considered or, at least, was considered exogenous when it is exogenous. This is just like the case of expected inflation in the old expectations unaugmented Phillips curve.

Notice I have assumed throughout that there is a representative consumer with rational expectations.

I conclude that if you look at the data and then try to analyse them with a tractable model , you risk making assumptions which you don't believe (really its a certainty not a risk) and which are critical to your predictions. I think no problem is or could be elminated by putting some utility maximization between the assumptions and the implications which are confronted with data from the past then used to predict the future.

I think all of our models and hypotheses will be vulnerable to the Lucas critique. This is true just because we have to make assumptions which matter, in order to think about the world. When I wrote "our" I referred to us human beings not just us economists.
Damnedest if they do damnedest if they don't.

Chris Cillizza wrote

Republican politicians are doing the damndest to distance themselves from Limbaugh. House Speaker John Boehner called Limbaugh’s comments “inappropriate” . Carly Fiorina, a 2010 candidate for Senate in California and now the vice chairwoman of the National Republican Senatorial Committee, described Limbaugh’s remark as “insulting”. Of Limbaugh, former Pennsylvania senator Rick Santorum said: “He’s being absurd, but that’s you know, an entertainer can be absurd. He’s in a very different business than I am.”

Boy if that's their damnedest, I like Democrats' chances. "inappropriate" ouch -- that's got to leave a mark.

But my point, if there is one, is that the three are presented as typical when they aren't. For example, it appears that at press time, Mitt Romney was still doing his damnedest to dodge the question. Since then he has done his darnedest (well maybe just his drattest) to distance himself going so far as to say that those are not the words he would have used.

Also (see post below) Cillizza changes policy on anonymous quotes in the middle of his article writing both " said one senior party strategist granted anonymity to speak candidly out of wariness of crossing Limbaugh publicly" and "the amount of discussion on birth control had many senior GOP strategists nervously wringing their hands and wishing privately that the presidential candidates would get back to talking about the economy." Cillizza neither named those senior GOP strategists nor explained why he granted them anonymity.
I ask the Washington Post a question.

As a comment on this article, I posted

In this articles sources are quoted without being named "Sources say", "a Republican aide", "Both Democrats and Republicans say that those votes suggest", "another Republican aid", and "Democrats counter."

My understanding was that it is Washington Post policy to grant anonymity only for good reason *and* to always describe the reason anonymity was granted. When was the policy changed ? Could you Rachel Weiner provide a link to the new policy which explains why this article doesn't blatantly violate Washington Post policy as that policy is described to the public ?

I note that "both Democrats and Republicans" were granted anonymity so that they could express their shared theory as to why Senators voted as they did. Since sources granted anonymity were talking about what the data "suggest" (your word) it is hard to see how they could be characterized as whistle blowers. Would thinking on the job really cause them to risk being fired ?

To be frank, I think the Washington Post has decided to lie to its readers claiming to have one policy when it has a completely different policy. Of course if I missed the announcement that the policy has been completely utterly 100% changed, I apologize.

OK now that it's posted, I will google.

This is pretty recent. It gives no hint as to what the Washington Post policy is (it refers to the policy but does not provide a link).

I go back from Romanesko to Washington Post Ombudsman Andrew Alexander.

Staff-written news blogs are replete with violations of The Post's long-established and laudable standards governing confidential sources. These unnamed sources often are cited without providing readers with even a hint of their reliability or why they were granted anonymity.

This makes it clear that the alleged policy requires explaining why they were granted anonymity.

Obviously the true policy includes no such requirement as is dramatically demonstrated by, you guessed it, The Washington Post ombudsman (not Alexander but the newer Patrick Pexton)

"And, I, too, see cautionary notes about Vargas that might have led to Brauchli’s decision. He left behind a reputation in The Post’s newsroom for being tenacious and talented but also for being a relentless self-promoter whom many colleagues didn’t trust. Editors said that he needed direction, coaching and constant watching."

I got this from Romanesko who got it from Adam Penenberg.

Thursday, March 01, 2012

Don't blame God Duncan, blame Huntsman. Atrios figures God must hate him, because Bob Kerrey decided to run for the senate from his old cornhusker hustings. I think he should blame John Huntsman.

Huh ? OK there were two Senate surprises, Kerrey is running and Snowe is not. Snowe mentioned options outside of the Senate. Jon Chait ( presumably among others) suspects that she means running for President nominated by Americans Elect (they wish) the new cyberparty filling the yawning gap in opportunities for mega rich financiers to influence politics. Americans elect has a rule that their Presidential and vice Presidential candidates must be from different parties. Obviously it can be a bit tricky to find someone willing to eatrubber chicken in a no hope attempt to be second dog.

David Boren, who liked to piss me off by pretending to be a Democrat just declared his love for America's elect sorry, I mean Americans Elect ( shhhh it's not as if anyone didn't guess but you're not supposed to type it where the riff raff can read it. So that's one many temr reprehensative willing to pretend to hope to be VP. Suddenly Kerrey is available for Senate duty and Snowe isn't.

With neither evidence nor doubt, I am sure that Americans Elect tried to recruit Huntsman, Obama's ambassador to the PRC, Utah governor for Gay rights, too modeerate for Republicans and rabidly in favor of tax cuts for the rich. But he and Kerrey couldn't agree who would top the ticekt so we will have a chance to mainly not vote for Snowe Boren.

No evidence but look me in the eye your screen and tell me that you doubt it.

Or if you want more tinfoil, do you really think it is a coincidence that the Egyptian genersls just let Republican sect of transportation Ray LaHood's son leave the ocountry ? Why were they messing with a cabient secretary. I'm not suggesting that American's elect would resort to threatening to arrest a worker for the internstional Republican institute as part of their effort to end the two party sytem and their desperate search for a VP candidate. That would be crazy