Brad Mourns the Early End after a Promising Start
of applied lefty evolutionary economics which occurred, for some strange reason, at about the time he and Larry Summers moved to Washington.

I had hopes thirty years ago that evolutionary game theory and related ideas could be used to reformulate ideas in the New Industrial State and the General Theory in ways that would have more rhetorical force within economics. Building on Larry Summers's key insights that markets are dominated not by the rational but by the wealthy, that rational individuals maximize expected utility while wealthy individuals maximize expected wealth, and that risk drives a wedge between those two allowed us to achieve some success in mathing-up some ideas in the "State of Long-Term Expectation" chapter of the General Theory:

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Noise Trader Risk in Financial Markets," Journal of Political Economy 98: 4 (August 1990), pp. 703-738 http://www.j-bradford-delong.net/movable_type/archives/000603.html

But I was never able to get any farther in that research program.

June 01, 2007 at 10:55 AM in Current Affairs, Economics: Economists, Economics: Finance, Economics: Macro, Sorting: Front Page, Sorting: Things of Enduring Value | Permalink | Co

Uhm Brad 30 years ago, you were in High School (good thing he doesn't claim all agents have rational expectations).

ON a slightly constructive note, Elisabetta Addis and I did attempt to correct a standard use of pseudo evolutionary arguments in favor of laissez faire here

Market Selection of Discriminators


Elisabetta Addis and Robert Waldmann

Università di Sassari and
Università di Roma “Tor Vergata”


If employers derive positive utility from employing workers of some type, and are self employed owner-managers of small firms, then market selection can increase, rather than eliminate, discrimination due to taste.

*.pdf file available in an e-mail box somewhere.


It was rejected based on a referee report by a referee who was sure the result was wrong and could not give a coherent argument as to why.

So what happened to DeLong and Summers in DC ?

I think this partly fits Atrios's argument that economists are open to all sorts of heterodoxy in economic research but fall back to economics 101 the instant they start talking to non-economists (Larry Katz yes Larry Katz objected that Al Gore refused to "think like an economist). Not to mention Brad's argument that Paul Krugman has spent most of his academic career finding exceptions to the rule that protection is bad for the protecting country and had (at the time which was *not* 30 years ago) spent most of his career in public advocacy arguing that protection is bad for the protecting country. Perhaps most tellingly, in his first column on the California energy crisis, when he explained that capping the price can cause increased supply if competition is imperfect he warned that the argument was dangerous and not to be over used (bet he thought twice before sharing it with NY Times readers).

It is also important that D, S, S & W are strongly contrarian. In DC Summers debated non economists, at Harvard Andrei Shleifer sure wasn't at Chicago and at Berkeley, well someone had to escape into cyber space to be reliably on the left (cyberspace has since moved left fast wonder where he will go next ?).

Excellent news from Baghdad

Sunni Insurgents Battle in Baghdad
Residents of Western Neighborhood Join Groups' Fight Against Al-Qaeda in Iraq

By John Ward Anderson
Washington Post Foreign Service
Friday, June 1, 2007; Page A11

BAGHDAD, May 31 -- Sunni residents of a west Baghdad neighborhood used assault rifles and a roadside bomb to battle the Sunni insurgent group al-Qaeda in Iraq this week, l

[snip]

The Baghdad battle is evidence of a deepening split between some Sunni insurgent groups and al-Qaeda in Iraq, which claims allegiance to Osama bin Laden. Although similar rebellions occurred in Diyala province earlier this year, the fighting this week appears to be the first time the conflict has reached the streets of Baghdad.

Abdul Khaliq said he hoped U.S. forces would stay out of the fight. "But if the Americans interfere, it will blow up, because they are the enemy of us both, and we will unite against them and stop fighting each other," he said.

Is that clear enough Mr Bush ? Of course it isn't, but any non idiot should be able to understand that the US occupation is the only thing saving Al Qaeda in Iraq from destruction.

Matthew Yglesias is especially brilliant and ruthless in this skewering of Bob Shrum
"Shrum and Dumber
Memoirs of the man who thrice saved us from a Democratic presidency"

Shrum advised Gore, Kerry in losing bids. I think the "thrice" refers to his speech writing for Kennedy in 1980. Yglesias is not the first to argue that Democratic campaign consultants are entrenched and very powerful. Nor his he the first to argue that poll driven campaigns are seen as such by voters who elect politicians who convince the voters that they care about something other than winning elections.

He does show just how little Shrum seems to care about policy.

To a remarkable extent, Shrum still appears to stand by absolutely every criticism the Kennedy campaign ever made of Carter—that his Afghanistan policy risked plunging the world into nuclear war, and that wage and price controls were the solution to America’s late-1970s economic woes

Tumble forward into 2004, where three of the four leading Democratic presidential contenders—Gephardt, Kerry, and Edwards—were all Shrum clients. What’s more, on the most important moral and political issue of the day, they all broke the wrong way, supporting the 2003 invasion of Iraq. Shrum concedes that he urged his clients to do this, going so far as to say that he prevailed upon Kerry and Edwards to opportunistically endorse a war they knew was wrong. Most astoundingly, he clearly regards this claim as something that will be helpful to the politicians in question, a misjudgment that would seem to speak volumes about the difficulty his clients have had in winning presidential elections.

A telling example is Shrum’s recounting of how during the 2000 campaign “Gore was determined to give a blunt speech on global warming, and to do it in Michigan.” Shrum and the rest of the staff talked Gore out of it,

So give no aid to anti Soviet mujahedin in Afghanistan, but do invade Iraq, and impose wage and price controls to fight moderate inflation, but do nothing about global warming. It seems that the man hasn't thought about the issues much.

On Iraq Yglesias writes with 20/20 hindsight, but with a sentence that is less complete than.

Indeed, in retrospect what’s shocking about the miscalculation on the war vote is less its simplistic nature—the war authorizing resolution was high-profile and popular, so Shrum advised his clients to vote for it.

less than what Mr Yglesias ? I love to find grammer boo boos in the Atlantic.

But neither Kerry nor Edwards was in a tough 2002 reelection battle. It didn’t matter whether or not the resolution was popular. A politician who took a stand against it would have two years to wait for events to vindicate his view. As, indeed, the skepticism about the war that Shrum attributes to Kerry and Edwards was vindicated by election day 2004. Which might have done them some good had they actually made the right call. The view that good policy is good politics sounds sappy and naive, but on this kind of issue it’s true—the first thing you need to ask yourself when trying to decide whether or not backing some invasion will be politically savvy is what you think will happen if the invasion actually takes place.

I can almost claim that I understood this, since I said to someone who asked me in fall 2002 if Bush would be re-elected "well I think we are going to war with Iraq and so it depends on how the war goes". If the war is considered a success in 2004, having voted to allow Bush to do it will not count for much in a race against Bush. If it is considered a failure, it would be better to have voted against it. Only in the second case is the probability of victory large enough to matter much.

However, Shrum could have been more cynical. He could have told Kerry to vote no and Edwards to vote yes and then managed the campaign of the one whose choice was more popular in 2004. I guess he is not all powerful and or not absolutely cynical.

Some comfort.

Possible desirable effects of irrational exuberance

Gross 2007 argues that bubbles may be a good thing. Many people have read Gross 2007. I am not one of them, so maybe
I will repeat his arguments or maybe say something new.

There are clear cases of sectors where there was a huge amount of entry and investment and many firms went bankrupt. The classic
case is railroads in the 19th century and current interest is from the excess of fiber optic cable laid towards the end of the 20th. Gross probably
argued that, although a lot of investors lost their shirts, the country got a railroad system and an information superhighway. I am thinking about translating
the argument into math and considering irrational exuberance in the context of growth models.


This is a natural argument because endogenous growth models do not have the features which imply an irrational boom will lead to a crash. The argument against exuberance is that it leads to investment in unsound projects which is largely lost when they are scrapped. This is based on the idea that there are a limited number of socially efficient investments to be made at any given time. While models rule out silly investments for convenience, endogenous growth models do not have a natural limit on socially useful investment pretty much by definition.

In the oldest endogenous growth model (Rome 86, Arrow 62 some other guy in the 50s) capital has decreasing private returns to the investing firm but constant social returns, because of Marshallian spillovers of knowledge obtained by learning by doing. In this model, a period of irrational overinvestment due to over-estimates of the private return to capital will cause a growth path of capital and output which permanently stays above that of the rational expectations equilibrium. This causes increased welfare, since, due to the spillover, socially optimal investment is higher than privately optimal investment.

A similar simple result occurs in models of endogenous growth due to research and development. In this case innovation provides social benefits above private benefits because innovators are monopolists but can't price discriminate. Over-optimistic inventors cause an increase in growth and welfare.

This much is obvious. I think there are more interesting arguments.

The first concerns the phase after an invention when immitators jump into the market. This phase is preceded by a shakeout when all but a few firms go bankrupt. Such a pattern can occur even if everyone is rational as a position as a surviving firm in a growing market is valuable enough to balance the high risk of bankruptcy. Irrational entry of firms into a sector which is a natural monopoly can bring the price temporarily closer to marginal cost which contributes to efficiency. I think it is more important that after the shakeout, the monopolist (or oligopolists) will not find it optimal to scrap capacity which they would not have found it optimal to build. Thus there can be a long lasting effect on the price of the good or service lowering it towards the socially efficient competetive level. If the monopolist does not allow the capacity to depreciate (because a railroad with one rail is worthless say or one with a gap in the tracks) the effect can be permanent. This effect is different from and less obvious than the ones discussed above.

It is also possible that irrationally excessive entry can have permanent benefits if the temporary period of very low prices during the shakeout is useful to other innovators (say web content innovators benefiting from desparate need of hosts for content any content free please) . This can also occur, but to a lesser extent, if everyone is rational. the benefits can include increased welfare as well as increased growth as argued above.

If entrepreneurs underestimate the difficulty of an engineering problem, they may invest in R&D which proves fruitless to them. This may have a beneficial spillover due to increases in general non rival non excludable knowledge. It is generally agreed that pure R&D should be subsidised (that is what the NSF is for not to mention what DARPA used to do before the Bush administration). It is good to have useful pure research financed by irrational managers who think it is applied research.

Finally totally unsuccesful efforts at innovation (there are many like the superconducting supercomputer and the atomic airplane). ) show what not to do to rational innovators. This can be useful as a subsidy to other innovation.

Soak the Rich II dollars and no cents. Thousands, Millions, Billions and Trillions.

More information on what I mean in terms of dollars (and no cents I round)

The median household income according to the census was $46,326 in 2005 (Nationally, 2005 marked the first year since 1999 in which real median household income showed an annual increase.)

The 80th percentile was between 92,000 and 92,500

About 3% of households report income over $ 200,000.

Both facts from this *.pdf

the census does not give information on the richest 1.8% of households because their highest category is "over $250,000". They do this to preserve anonymity as otherwise it might be possible to guess who the respondents are given a specific very high income and all the other
information they collect (it's not just a rule it's an obsession).

To get information on the richest 1% one has to look at tax returns, which means one sees income after the rich have hidden some using tax shelters
The best source for such data is the web page of Emanuel Saez at UC Berkeley
It also means that one looks at families not households (unrelated room-mates are in the same household but not the same family
the census has a lovely category person of the opposite sex sharing living quarters (posslq) for girl(boy)friend) there are more families and, of course, less income per family.

He (and co-author Thomas Piketty) report that the richest 1% of families got 17% of total reported income in 2005 (total was about $ 6.8 Trillion)
and that the richest 0.1% got 7.45% or about 500 billion total. Confiscating all income over the threshold that puts one in the top 0.1 % (1.3 million) would give about 300 billion if one ignores the supply side incentive effects (which would be huge for confiscation come on).

The cutoff for getting in the top 5% of families is $ 130,000 of reported income. That is where I would begin to soak. I know some of you live in families with such income and don't think you are rich, but you are.
all information from the first link marked "new" in red on the web page (if I click it to get the URL it invokes excel instead).

you know I went to wikipedia first so I might as well admit it. This is the link

the $130,000 is the top 5%. The reason the number is low is that it is based on tax returns not the CPS and so unrelated individuals sharing housing and living expenses count as separate units. I'd say they are rich. I didn't say how hard I planned to soak them (because I don't know) but I certainly didn't imagine anything confiscatory (that would be dumb).

The idea would be to eliminate the income tax on the lower 50% have marginal tax rates slightly higher than currently up to the 80th percentile but low enough that they gain from having income up to median income taxed at 0 and then raise marginal tax rates from $130,000 on up to balance the budget.

People who make $131,000 aren't going to get hammered as only the top 1,000 is taxed at the high rate.
Effective tax rates (average not marginal) are 30% for the top 1% (incomes above roughly $300,000) going up to 35% for the top 0.01 % the rates are calculated on reported income (that is post much tax sheltering).

The top 1% of tax units (roughly families) get around 17% of reported income which was about 6.6 trillion in 2005 so they get over 1.1 trillion. raising the average effective rate on them from 30% to 55% would eliminate the 2006 budget deficit if there were no behavioral response (as of course there would be).

If the tax increase were applied only to incomes above the top 1% that would mean an increase in the effective marginal rate from around 30% to very roughly 67% always assuming no behavioral response (this calculation is from the cutoff for the top 1% is about half the average income from 99th percentile to the 99.9th and the 0.1 percentile is about 13 times the cutoff or stuff which I don't remember and I have been up all night.

To me that means that paying for the tax cuts for the non rich and balancing the budget and paying for more social spending etc etc means taxing families in percentiles 95-99 too.

I have only mentioned the income tax. Increases in the capital gains tax and the inheritance tax have a role too.

News From Newark

Mr. McCarthy has instructed commanders in the city’s four precincts to take on so-called quality-of-life offenses like public drinking and loitering
[big snip]

Tauron Hinnant and Angelo Montalvo, rookie beat partners, are reluctant to arrest teenagers who are violating the city’s 11 p.m. curfew, or toothless alcoholics with open pints of Thunderbird.

“Everyone drinks and a lot of these people have no place to go,” Officer Montalvo said one night after shooing a group of men from the front of a bodega. “My feeling is that if you arrest them, they might lose their job and then they turn to something worse.”

[snip]

They often function as much as social workers as crime fighters, offering advice to women who have been beaten up by boyfriends or lecturing teenagers about their blatant gang attire.

Now why is talking to women victims of aggravated assault a job for social workers not police officers ? It seems that in the Newark PD there is disagreement about whether to arrest "toothless alcoholics with open pints of Thunderbird" but all agree that a little assault and battery between boyfriend and girlfriend is no reason to bother a judge.

Guess it doesn't affect the quality of life.

Meet the new Republican candidates Same as the old Republican candidate.

Excellent article by Peter Canellos in the Boston Globe (via TPM).

Canellos notes that the top 3 Republican candidates for president are following the Bush deception plan of implying that we are fighting Bin Laden's followers in Iraq.

He quotes without comment a particularly dumb effort to explain what McCain meant so that the sophisticated don't think he is deceiving the rubes

A McCain spokesman said the senator did not mean to suggest in his debate comments that bin Laden was in Iraq. But aides to Romney and McCain, in interviews, insisted that the candidates are not exaggerating when they speak of bin Laden and the link between Al Qaeda and Iraq.

"The larger point shouldn't be in dispute," said Randy Scheunemann , McCain's foreign policy adviser. "If there's a territory where Al Qaeda is left unmolested, free to plan, conduct, and train for operations, they will do so."

Can you say "Northern Waziristan" Mr Scheunemann (can you say "Mr Scheunemann" Mr Waldmann ?) ? Remember the tribal area which the Pakistani military has agreed not to molest, where tribal leaders may or may not have had disagreements with al Qaeda but certainly haven't washed any of that dirty linen in public. And what exactly is the chance that, if we leave, al Qaeda will be left "unmolested" anywhere in Iraq. Shouldn't McCain's guy argue that, if we leave, there will be a civil war, which would tend to molest everyone ? Has he not noticed that Iraqi Sunni Sheiks have turned against al Qaeda ? Does he just completely dismiss everything he hears from Pundits the MSM and the US government (not necessarily such a bad idea unless you come up with even more obviously ridiculous nonsense on your own as he does) ?


Canellos shows some bloggers were over sophisticated when they objected to Romney's absurd statement

Former Massachusetts governor Mitt Romney identified numerous groups that he said have "come together" to try to bring down the United States, though specialists say few of the groups Romney cited have worked together and only some have threatened the United States.

"They want to bring down the West, particularly us," Romney declared. "And they've come together as Shia and Sunni and Hezbollah and Hamas and the Muslim Brotherhood and Al Qaeda, with that intent."

Canellos notes that Shia and Sunni are Islamic denominations not terrorist organizations and that Romney was suggesting that all Moslems (except maybe Alawites and Druze) are terrorists. The much much too sophisticated Matthew Yglesias noted that the Moslem Brotherhood is not a terrorist organization. That impressed me (I had thought that the Syrian Moslem Brotherhood was (in particular responsible for seizing the grand Mosque in Mecca) until Havez Assad killed them and everyone else within miles of them in Hama). But really Matt, the American people need to have it pointed out that "Shi'ite and Sunni" are not necessarily terrorists.

Of course it is also worth making the point that Shi'ite and Sunni terrorists are currently coming together only to kill each other. The idea that terrorists have come together "as Shi'ite and Sunni" is crazy, totally aside from the sloppiness of not explicitly noting that some Shi'ites and some Sunnis aren't terrorists (I hasten to add that many Mormons (for all I know all Mormons) aren't terrorists either).

John at Ezra's place writes
writes

if he writes a chapter in his book where he goes over, in great detail, the historic and modern day problems with concentrations of great wealth and power, he'll be caricatured as a Cultural Revolution-era Maoist.

So as much as I'm enjoying the book, for the first time I really do think Gore's being entirely sincere when he says he doesn't plan to run. I think it's probably the only way he'd feel quite liberated enough to write the book he has.

I'm sure that if one "writes a chapter in his book where he goes over, in great detail, the historic and modern day problems with concentrations of great wealth and power, he'll be caricatured as a Cultural Revolution-era Maoist." but I am also sure that the voters want a more progressive tax system. They say so in every poll. I think the first politician who ignores the pundits and gets his money on the internet (or out of his pockets if he is a class war traitor) and runs on "soak the rich" will transform American politics.

Don't ask me, ask Gallup http://www.pollingreport.com/budget.htm
(search for "upper income people") since Gallup first asked in 1992, they haven't done a poll in which fewer than 63% of people say that "upper income people" pay "too little" in taxes. Since '04 they have asked about "corporations" with at least 69 % of people saying corporations pay "too little".

The American people are making their views clear. Why won't politicians listen ? The furious accusations about class war would only tell the people which candidate agrees with them on the issue.

full data stolen from polling report.

"As I read off some different groups, please tell me if you think they are paying their fair share in federal taxes, paying too much, or paying too little. How about [see below]?"


."Lower-income people"

_Fair Share_ Too Much_Too Little_Unsure___
_________%___ %____ %___ %___
_4/2-5/07_ 34___ 45___ 17___ 4___
4/10-13/06 36___ 46___ 12___ 6___
_4/4-7/05_ 36___ 51___ 10___ 3___
___4/04___ 35___ 49___ 12___ 4___
___4/03___ 36___ 49___ 12___ 3___
___4/99___ 34___ 51___ 11___ 4___
___4/96___ 40___ 48___ 9___ 3___
___4/94___ 43___ 42___ 12___ 3___
___3/93___ 37___ 51___ 9___ 3___
___3/92___ 32___ 57___ 8___ 3___

.
___"Middle-income people"______
_ Fair Share_Too Much_Too Little_Unsure___
_4/2-5/07_ 44___ 47___ 7___ 2___
4/10-13/06 50___ 43___ 5___ 3___
_4/4-7/05_ 52___ 41___ 4___ 3___
___4/04___ 47___ 46___ 4___ 3___
___4/03___ 51___ 40___ 7___ 2___
___4/99___ 35___ 59___ 4___ 2___
___4/96___ 34___ 58___ 5___ 3___
___4/94___ 39___ 57___ 3___ 1___
___3/93___ 39___ 54___ 5___ 2___
___3/92___ 36___ 57___ 5___ 2___

.
___"Upper-income people"______
_ Fair Share_Too Much_Too Little_Unsure___
_4/2-5/07_ 21___ 9___ 66___ 4___
4/10-13/06 21___ 8___ 67___ 4___
_4/4-7/05_ 22___ 7___ 68___ 3___
___4/04___ 24___ 9___ 63___ 4___
___4/03___ 24___10___ 63___ 3___
___4/99___ 19___10___ 66___ 5___
___4/96___ 19___ 9___ 68___ 4___
___4/94___ 20___10___ 68___ 2___
___3/93___ 16___ 5___ 77___ 2___
___3/92___ 16___ 4___ 77___ 3___
_________________

.
___"Corporations"______
_ Fair Share_Too Much_Too Little_Unsure___
_4/2-5/07_ 19___ 5___ 71___ 5___
4/10-13/06 18___ 5___ 70___ 7___
_4/4-7/05_ 21___ 4___ 69___ 6___
___4/04___ 19___ 5___ 69___ 7

update: More information on what I mean in terms of dollars (and no cents I round)

The median household income according to the census was $46,326 in 2005 (Nationally, 2005 marked the first year since 1999 in which real median household income showed an annual increase.)

The 80th percentile was between 92,000 and 92,500

About 3% of households report income over $ 200,000.

Both facts from this *.pdf

the census does not give information on the richest 1.8% of households because their highest category is "over $250,000". They do this to preserve anonymity as otherwise it might be possible to guess who the respondents are given a specific very high income and all the other
information they collect (it's not just a rule it's an obsession).

To get information on the richest 1% one has to look at tax returns, which means one sees income after the rich have hidden some using tax shelters
The best source for such data is the web page of Emanuel Saez at UC Berkeley
It also means that one looks at families not households (unrelated room-mates are in the same household but not the same family
the census has a lovely category person of the opposite sex sharing living quarters (posslq) for girl(boy)friend) there are more families and, of course, less income per family.

He (and co-author Thomas Picketty report that the richest 1% of families got 17% of total reported income in 2005 (total was about $ 6.8 Trillion)
and that the richest 0.1% got 7.45% or about 500 billion total. Confiscating all income over the threshold that puts one in the top 0.1 % (1.3 million) would give about 300 billion if one ignores the supply side incentive effects (which would be huge for confiscation come on).

The cutoff for getting in the top 5% of families is $ 130,000 of reported income. That is where I would begin to soak. I know some of you live in families with such income and don't think you are rich, but you are.
all information from the first link marked "new" in red on the web page (if I click it to get the URL it invokes excel instead).

you know I went to wikipedia first so I might as well admit it. This is the link

the $130,000 is the top 5%. The reason the number is low is that it is based on tax returns not the CPS and so unrelated individuals sharing housing and living expenses count as separate units. I'd say they are rich. I didn't say how hard I planned to soak them (because I don't know) but I certainly didn't imagine anything confiscatory (that would be dumb).

The idea would be to eliminate the income tax on the lower 50% have marginal tax rates slightly higher than currently up to the 80th percentile but low enough that they gain from having income up to median income taxed at 0 and then raise marginal tax rates from $130,000 on up to balance the budget.

People who make $131,000 aren't going to get hammered as only the top 1,000 is taxed at the high rate.
Effective tax rates (average not marginal) are 30% for the top 1% (incomes above roughly $300,000) going up to 35% for the top 0.01 % the rates are calculated on reported income (that is post much tax sheltering).

The top 1% of tax units (roughly families) get around 17% of reported income which was about 6.6 trillion in 2005 so they get over 1.1 trillion. raising the average effective rate on them from 30% to 55% would eliminate the 2006 budget deficit if there were no behavioral response (as of course there would be).

If the tax increase were applied only to incomes above the top 1% that would mean an increase in the effective marginal rate from around 30% to very roughly 67% always assuming no behavioral response (this calculation is from the cutoff for the top 1% is about half the average income from 99th percentile to the 99.9th and the 0.1 percentile is about 13 times the cutoff or stuff which I don't remember and I have been up all night.

To me that means that paying for the tax cuts for the non rich and balancing the budget and paying for more social spending etc etc means taxing families in percentiles 95-99 too.

I have only mentioned the income tax. Increases in the capital gains tax and the inheritance tax have a role too.

Untimely Ripped comments on my post below

This was over at dailykos where the post and comments are long buried.


Actually, I think Jefferson's ideal ... (0+ / 0-)

... would have been to have everybody's slaves be free.

And I doubt that either you or Drum can persuade me otherwise.

But that's by the by.

Others have observed that "rational" does not equal "good". If you want some more brilliant writing, I recommend to you the works of John Ralston Saul.

Over a series of books, Saul argues that there are a half dozen essential human qualities, which drive our individual and social existence. These qualities include Memory, Common Sense, Imagination, Ethics, Intuition and Reason. He goes on to argue that we have subordinated the first five of these to the last one, with predictably disastrous results for humanity.

Start with The Doubter's Companion.

I am further of the opinion that the President must be impeached and removed from office!

by UntimelyRippd

I concede

My claim about Jefferson's preferences was based on knee jerk economics think. I think he would have preferred all slaves to be free than to be the one last slave owner. Partly I think you are noting the same point made by Midland (see above). Mostly, I think it has something to do with our sense of shame, which is much much weaker if lots of other people are doing it too.

Personally, I don't own slaves, but I do drive an automobile. If everyone else bicycled or used public transportation (or even everyone other than parents with young children, the elderly, the physically handicapped and pregnant women) I would be too ashamed. Also I speed and (occasionally) run lights that have just turned red.

Also, as you will have guessed, I don't work very hard. In the USA this caused me great pain. I now "work" in the Italian public sector and feel much much better.


Actually, I have a better explanation of our shared guess that Jefferson would have preferred abolition of slavery to slaves just for him. Jefferson, a profound thinker and supporter of the constitution and the bill of rights understood the importance of clear simple rules, bright lines and avoiding slippery slopes.

Slavery is evil and illegal except if you are Thomas Jefferson is not a line that can be held for long. I now am convinced that, although he didn't free his slaves, he would have said no, if he had been given a chance to be the only remaining slave owner.

Kevin Drum attempts to explain economics to economists.

I must be ironic right ? I'm not suggesting that this guy with a degree in communications* from Long Beach State has a better understanding of economics than most economists am I ?

I am.

The man is a genius but makes it easy to miss this because his genius lies not only in his understanding but in his ability to make things obvious.

He argues two things that don't need to be argued.

Rational is not a synonym for good.
Is he really suggesting that economists sometimes forget that ? He is and we do.

Sometimes people make better choices about what should be done with other people's money than with their own, because when deciding whether to give their money to, say, the hard working poor, they have, uhm, a conflict of interest.

Surely the possible problem that I have a conflict of interest when I am deciding whether to keep my money or use it to help humanity can't be news to anyone ?

Sure it can. It is a shocking idea to economists.

Drum does not understand how devastating his critique is (answer totally devastating). Neither did I, until Brad DeLong explained it to me.

Imagine we care about other people but not as much as we care about ourselves (shocking thought eh well a very very radical departure from standard assumptions in economics). This means that we might care a lot about a transaction or transfer which has no effect on our consumption, leisure or wealth. I am very glad that Bill and Melinda (and Warren) gave so much money and did it in such a very intelligent way (although I still hate windows). This is what we call in the biz an "externality" and it implies that the market outcome is not efficient. I don't especially like to pay taxes. I really really like the fact that rich people pay taxes to support social welfare programs (war in Iraq ? no thank you). Both desires count to a utilitarian. It means that an outcome enforced through the coercive power of the state can make everyone happier than the free market outcome, because of the externality due to altruism.

To consider with Drum the case of Thomas Jefferson, without anything odd (dynamic inconsistency) the position as a slave owner who advocated abolition of of slavery can be perfectly rational. The slave owner might hate slavery, but not hate the enslavement of his own slaves as much as he loves living in luxury off the sweat of their brows. His ideal outcome would be to have all slaves but his own free. A rational anti slavery slave owner knows he's not going to get away with that. Second best would be abolition of slavery -- the desire to free everyone elses slaves outweighs the desire to keep his own. Third would be continued slavery. Finally the outcome he likes least would be to free his own slaves and live in relative poverty in a slave owning country.

Perfectly clear. So why is it that my "explanation" of Drum is ugly and unclear while his essay was clear and brilliant ?

update: The last sentence was not a *deliberate* parody of bad writing. I didn't write "So why was my "explanation" of Drum ugly and unclear, while his essay was clear and brilliant ?" because it is a fact that being an over wordy writer is one of the aspects of being Robert Waldmann, who tends to be wordy.

update I.5: update 1 is corrected so that it no longer claims I wrote what I wished I had written but didn't write. Alright ?

update II: Tim Haab (who is not a jerk) definitely gets Kevin Drum's point as he clearly understands the fundamental difference between a) advocating policy which causes people to internalize externalities and b) listening to kids in the back seat squabble for hours. Also he doesn't own any slaves which puts him a big one up on Thomas Jefferson.

Further commentary here and right here.

An interesting example of rational co-operative behavior which is not in the public interest is link begging, where bloggers attempt to reward other bloggers for links by linking back. Not as repulsive as self linking, but the first sometimes enables a rational egoist to trick Google, while the second is just pathetic.

Update III:

Over there in comments calmo recommends a re-rewrite, so update 1 is now

I wrote "So why was my "explanation" of Drum ug and unclear, while his essay was clear and brilliant ?" because it is a fact that being an over word writer is one of the aspects of being Robert Waldmann, who tends to be word.

he (or she) kind wrote

your perfect[] serviceable and occasional[] brilliant prose. (Works well, but could use some lubricatin libation.)[Which is so much better than 'works well but needs constant supervision and revision.' or 'works well but is gravely offended by any criticism that improvement is possible.']

emphasis added.

And why don't you just take that adjective and shove it up your adverb.

*Drum specializes in communications on the internets.

Update CLXXXVIII "one hand" deleted (ouch).

Update no number an update without a number

From Gmail

I thought the three of you might be interested in this comment upon Kevin's post on rational behaviour. I think he rather proves Byan's point (but then being a bleeding heart classical liberal of course I would):

http://timworstall.typepad.com/timworstall/2007/05/the_myth_of_the.html

I don't know who the other two are or if Tim Worstall thinks I am one and three like, you know, That Guy.

Worstall criticizes Drum effectively. Mostly he argues that the minimum wage should be replaced by an increased EITC . I think the efficiency costs of the minimum wage were much over estimated in early research. More recent research suggests they are actually very small. However, I certainly agree with Worstall that the EITC is a better program than the minimum wage and that voters are irrational (look who's in the White House). I also think that economic agents act irrationally in the merketplace. The argument that we should use the coercive power of the state to eliminate the externality due to altruism has nothing to do with whether the coercive mechanism is the minimum wage or taxes used to fund the EITC. In either case threats which, if it comes down to it, are enforced with violence, can make everyone happier because the will of each can never be the will of all if there are externalities.

Also note in comments

We're born with a built-in conflict between our self interest and our interest in helping the group survive. I'd write a book about it if I could ever find a publisher.
http://makethemaccountable.com/balance/

Carolyn Kay
MakeThemAccountable.com

I assume that Worstall and Kay are responding to my thoughts on the externality due to altruism and not to anything I wrote in update III, but I can't help but note that they know my URL, and that I just linked to them and that, in principle, I oppose link begging but that ... come on do I have to spell it out ?

Big Surprise. I agree with an SUV Driver on Something

Via Mark Thoma
"Tim Haab at Environmental Economics explains why he drives an SUV:"

I'm packing up my big honkin' SUV tomorrow with my oversized family of 5 and driving 280 miles (one-way) to Lake Cumberland, Kentucky to visit with friends from Atlanta--who will be driving their oversized family of 5, 330 miles (one-way) in their big honkin' SUV. Based on the paltry gas mileage we will get--about 18 mpg--I'm figuring our family will consume about 31 gallons of gas.

At $3.50 a gallon that's $109.
[snip for "fair use"]

So I ask myself, am I willing to pay $6 per hour to have my 3 kids separated by 2 feet each--two in the middle row, one in the back--rather than be touching each other the whole trip.

Ummm...can I get a big 'Hell Yeah'?

*For those of you wondering who will pay for the externalities I create, that's an easy one...YOU. That's why they're called externalities. Voluntarily internalizing my own externalities would ruin my faith in rationality and cause me to have to completely reinvent economics. I'm just too lazy for that right now. Yes, I'm a jerk.

Mr Haab has a point there (no not the last statement he is just an ordinary person).

Unsurprisingly, I agree with Matthew Yglesias and many others that Gas in the US is waaaaay to cheap, although (rubbing my eyes with disbelief) I do believe it currently cost more than half as much in the USA as in Italy.

The crazy SUV driving is not taking energetic Kids on long trips. It's commuting to work in one. I've seen single occupant SUVs in Italy (recall roughly $7 a gallon) and the idea of a very large, very heavy vehicle being driven by someone who is clearly insane makes me very very nervous.

I even saw a canary yellow hummer twice last Wednesday, at least I assume that it was the same canary yellow hummer. I mean there will be two canary yellow hummers in Rome the day before doomsday and it was Wednesday. I didn't sleep through the apocalypse did I ?

Pelosi is a Peloser

I'm sad to say. Everyone knows that congress caved and gave Bush an Iraq supplemental with no timelines. I was also disappointed by the ethics bill. Pelosi also caved in to the crook caucus of Democrats who don't want to have to wait 2 years to cash in as lobbyists. This is revealed in paragraph 7 of a generally enthusiastic article by Elizabeth Williamson in the Washington Post

Democratic leaders and some watchdog groups hailed yesterday's bill as the most sweeping ethics package since the post-Watergate era. Even so, it lost proposals such as disclosure of "grass-roots" communications campaigns orchestrated by lobbyists and an extension from one year to two of the time lawmakers must wait between leaving their jobs and lobbying former colleagues. Instead, the bill would require that lawmakers interviewing for private-sector jobs publicly recuse themselves from issues involving their prospective new industry.

The extension from one year to two was the point of disagreement between Pelosi and greedy democratic congresspersons. Politics is indeed the art of the possible, and I think it is all too possible that Steny Hoyer is taking over, because he is so uhm flexible.

"The legislative process is the process of the possible, not the perfect, and this is a bill that is going to pass," said House Majority Leader Steny H. Hoyer (D-Md.).

Now I think 2 years is totally inadequate. This bit about "interviewing for private -sector jobs" is beyond pathetic. Clearly lobbyists and crooked congressmen get down to the details of compensation etc only after years of deniable hints about how the firm considers the congressman a friend and likes to hire people who ... well frankly who are collecting bribes with a delay.

The rule should be that legislators can never take a job with any firm that benefited from their legislation. Giving ex legislators pensions generous enough to make the job attractive anyway would be cheap compared to letting them take bribes so long as they are called salaries.

I Blame the Democrats

Democrats said this week they would have jeopardized their fall bargaining position if they had insisted on keeping withdrawal timelines in the current supplemental spending bill (HR 2206). Persisting now would likely have resulted in another veto and would have handed Republicans talking points for the Memorial Day recess about which party supports the troops in the field.

Democrats were particularly worried about the prospect of Bush declaring at wreath-laying ceremonies that "Democrats have stopped resources for the troops," said Rep. Artur Davis, D-Ala.

"The problem is that we have to provide money for the troops, and if we don't, the Democrats will be blamed," added Rep. James P. Moran, D-Va., a war opponent. "Bush has the bully pulpit, so he will define who is responsible."

via Matt Staller at my dumb democrats

A Critique of Critical Criticism
or
For a ruthless critique of the ruthless critique of everything existing.

A tenet of liberalism is that all beliefs should be subject to criticism and evaluation in the light of brute and raw experience. I think that liberalism must condemn itself as it's central dogma is based on a utopian view of debate, discussion and discorsi (and like hell I'm gonna pretend that discourse is an English word).

First what do I mean by liberalism ? I write about liberalism it's own self, an ideology so pervasive that there seems to be no need to name it leading to absurd reinterpretations of the word. I mean the belief that free is, in general, not only good in itself but a means towards good ends and, in particular, the belief that free debate leads us towards the truth. I do not refer to the modern English usage that defines liberalism as follows: liberal is to leftist as pink is to red. And I certainly do not accept the continental defition that liberalism is the pro-market ideology defined as follows: Neoclassical economic theory is liberal ideology formalized. That is liberal means pro-laissez faire (don't try to convince me that the use of French to describe the ideology that dominates economic policy in English speaking countries isn't a deliberate joke).

As a liberal, I have deep faith that debate leads towards true belief and that all beliefs should be ruthlessly examined. Unfortunately, my ruthless examination of my liberal faith has caused me to lose it. I think that debate and discussion are not ... (can't finish the sentence it hurts to much). I think some things don't bear looking in to and some convictions should remain unexamined.

I believe that torture is wrong. I don't like the question of what I would do if there were a ticking atomic bomb and I had my hands on the person who knows where it is. There is another question which I like much much less. What if there is a ticking atomic bomb in New York, I am able to send video to the terrorist who knows where it is (I know what TV channel he is watching) and I have in my hands his much beloved totally innocent two year old child ?

Just a perfectly hypothetical situation in which I have done no more than note a possible situation. Notice I did not discuss any possible courses of action. I think that writing what I wrote was wrong, that people should not be encouraged to think about such situations. That such reflection is bad. That the partially unexamined life is worth living and better than the alternative.

After that, this discussion of "pluralistic ignorance" AKA "group think" is a bit pallid. The fact is that discussion does not always bring people closer to the truth. This has been demonstrated empirically by psychologists. Group average opinion is excellent compared to individual opinions provided that the group is not allowed to discuss and seek consensus (see Quarterly Journal of Economics vol. 111 pp 21-40 (February 1996) and references. People exposed to groups are so inclined to conform that they deny the evidence of their own eyes (Chico Marx should have asked "who are you going to believe us or your lying eyes ?").

Take a group of people. Poll them on a matter of fact. Quite often their ignorant errors will average out. Put them together so they can share information and discuss and debate. Their views will converge. They converge on the view of the most eloquent and confident and outspoken members of the group. Usually the average opinion after the discussion is further from the truth than the pre discussion average. The liberal ideology has been falsified by experimental evidence.

The internet makes it possible for people to assort in groups of like minded ideologues. It has made free speech and a free press a reality not an ideal. It has made a thousand flowers bloom and a thousand schools of thought avoid the need to contend. We have real freedom now. We use it to be free from debate.

Since I think debate is a bad thing, that's fine by me.

Spencer Ackerman All Wet

Trying to grasp a can made of soda

I get Shrill with Ezra Klein

Klein wrote

David Brooks gets this analogy right:

Harvard is tough to get into. To be admitted to a school like that, students spend years earning good grades, doing community service and working hard to demonstrate their skills. The system has its excesses, but over all it’s good for Harvard and it’s good for the students beginning their climb to opportunity.

The United States is the Harvard of the world. Millions long to get in. Yet has this country set up an admissions system that encourages hard work, responsibility and competition? No. Under our current immigration system, most people get into the U.S. through criminality, nepotism or luck. The current system does almost nothing to encourage good behavior or maximize the nation’s supply of human capital.

Our immigration system is unaccountably weird, relying, as it does, on family ties and lotteries. Just about all the discussion over the immigration bill has focused on the guest worker and citizenship programs, but the conversion to a points-based immigration system wherein applicants are judged across metrics of talent and economic potential is huge. Expect that system to expand in the House bill, where Silicon Valley Democrat Zoe Lofgren runs the relevant committee, and will undoubtedly jack up the allowance for high-skills visas.

I reply

That is actually the only thing about the bill which I don't like (yes I like the guest worker program *because* I assume the guests will overstay and become undocumented aliens without risking their lives in the Arizona desert). I think the USA can afford to train it's own high skilled technicians and professionals and shouldn't go out of its way to selectively admit those trained by poorer countries.

I think part of the appeal of the points based system is the sense that something valuable (an immigration visa) should be awarded on the basis of merit, because that is more fair. I don't think so. Harvard admitting people who demonstrate that they are smart and have served the community is fine as Harvard students have a high chance of being powerful and we have plenty of selfish powerful idiots (I did zippo for the community before going to Harvard and am totally powerless but hey even Byerley hall isn't perfect). That is, Harvard's admissions process has a sensible utilitarian basis totally aside from the question of whether someone deserves to be admitted.

The utilitarian effect of a points based visa system is that it takes from poor countries and gives to the USA. I think that is a terrible thing. I believe that highly trained people have the right to emigrate, but I don't think we should specifically aim to admit them and not their less advantaged country people.

I think Brooks's argument is useful, because it shows just how bogus arguments about incentives really are. Does Brooks really think that US immigration policy will have a significant effect on world wide "hard work [and]responsibility" or that Harvard's admissions policy has a significant effect on hard work, responsibility and community service in the USA (right now try to guess what fraction of American high schoolers understand that given financial aid at a university where middle class students are relatively poor they can afford to go to Harvard). This is nonsense. Brooks believes hard work and responsibility should be rewarded as a fundamental moral principle, not as a means to achieving useful incentive effects.

He's also clueless about the relative importance of hard work and responsibility and choosing the right parents, but that is not my point.

Brad please check your e-mail at delong@econ.berkeley.edu. Please please ignore tojbd.pdf which I wrote overnight on a bet (with you although you may not have noticed the bet in comments on your blog). I currently think tojbd2.pdf is fine.

Others. This is the only way I can get his attention. Sorry to bother you, but I was really really embarrassed by this.

Excellent article on Columbia's Truth Commission by Juan Forero in the WAPO

Former commanders of the extremely violent right wing paramilitary AUC confirm that they were supported by generals, businessmen and elected officials. Not a surprise but it could be important.

I particularly liked the 4th from last paragraph which I believe to be a deliberate parody of the balance fetish. It has to do with the tiempo of the assertions.

Perhaps Mancuso's biggest impact came when he said that two current ministers in Uribe's government, Vice President Francisco Santos and Defense Minister Juan Manuel Santos, met with top paramilitary commanders in the 1990s. The two men, cousins in an influential family that owns El Tiempo, Colombia's most influential newspaper, had acknowledged long ago having met with the paramilitary members. Both said they did so to further peace in Colombia, not as part of a sinister plot, as Mancuso alleged.

Mancuso's allegations have prompted some commentators to note that the commander has besmirched as many people as possible while still falling far short of accounting for all of the crimes he has committed. "The strategy behind three days of testimony that tainted people, institutions and business must be understood," said El Tiempo in a Sunday editorial. "If the whole county is responsible, then no one is responsible."

Just a coincidence that Forero told us that el Tiempo is owned by a family two of whom are implicated by Mancuso immediately before reporting (for balance) that el Tiempo is, surprise surprise, unimpressed by Mancuso's testimony ?

yeah sure.

Handicapping the Iraqi Presidential Elections

McSweeney’s Internet tendency has already done the USA

Abdul Aziz al Hakim

Pro: Has well armed and extremely violent militia. Has the Bobby Kennedy “I’m doing it for my assassinated big brother” sentimental appeal

Con: believes that politicians should submit to clerics. Limited appeal of his moderate Islamic fundamentalist mass murderer persona.

Grand Ayatollah Sayyid Ali Husaini al-Sistani

Pro: Once listed as most trusted person in Iraq. His photo on carried anti graven images slate to victory. Sometimes seems to be actually sane.

Con: Believes clerics should stay out of politics. Campaigning limited by refusal to leave his residence for past 30 years. Is Iranian and 300 years old.

Abu Musab al Zarqawi
Pro: 90 virgins willing to stuff ballot boxes
Con: Jordanian and dead

Iyad Allawi
Pro: once killed ax weilding Ba'athist agents with his bare hands
Con: Lost votes he needs, since only Ba'athists support him.

Jalal Talebani
Pro: Is currently President
Con: Things not going so good.

Moqtada al Sadr
Pro: famous name with appeal in Sadr city. Kicked US butt.
Con: Flip flopping between search for sectarian genocide and national unity.
Poor hair-style.

Ahmed Chalabi
Pro: Has had strong support from various allies including George Bush and Moqtada al Sadr. Has united Iraqi people.
Con: They all hate him.

Saladin:
Pro: Arab nationalist hero for defeating crusaders
Con: Dead for centuries. Actually a Kurd.

Ehud Olmert
Pro: more popular in Iraq than in his native country
Con: Native country is Israel.

I am glad to say that I have always considered astrology ridiculous but
how else to explain the fact that Mark Kleiman and Matthew Yglesias have the same birthday, genius and command of the English language.

Also Kevin Drum got married on Matthew Yglesias's 10th birthday.

If I find that Bush and Nero were born on the same day I will just have to give up.