Wednesday, December 31, 2008


Here is an interview with James M. McPherson concerning his latest book, Tried by War: Abraham Lincoln as Commander-in-Chief. I really enjoyed his book Battle Cry of Freedom which was a history of the Civil War.

The Civil War is Not Over?

Mark Thoma has a blog called Economist's View which provides a wonderful running account of economic thought. Here is a piece that he has pulled out of the Washington Post and edited down to the key points. Very interesting stuff, and I love the catchy bit about Lehman aid!

The Big Bailout Lessons, by Harold Meyerson, Commentary, Washington Post: Two things we learned about our ... economy in 2008: Lesson One: If it's big and you don't regulate it, you end up nationalizing it. ...[U]nregulated and underregulated capitalism ends up confronting democratic governments with a subprime choice: Either let a major institution go down and watch as chaos follows (the Lehman option) or funnel gobs of the public's money into such institutions to avoid such Lehman-like chaos. ...

When the American financial industry came tumbling down this year, the laissez-faire ideologues of this most ideological administration indulged their ideology just once, allowing Lehman to go under. Thereafter, as one giant institution after another tottered under the weight of dubious deals, the administration tossed ideology out the window and funneled money to the banks.

Laissez faire be damned, the ideologues concluded: When handed a Lehman, make Lehman aid.

The lesson for 2009 couldn't be clearer: To avoid nationalization, you need regulation. Or, the lesson's ideological corollary: To avoid socialism (to whatever extent throwing public money at banks is socialism), you need ... the willingness to restrain capitalism from its periodic self-destruction...

Lesson Two: In matters economic, the Civil War isn't really over. ...Abraham Lincoln ... might detect in the congressional war over the automaker bailouts a strong echo of the war that defined his presidency. Now as then, the conflict centered on the rival labor systems of North and South. Now as then, the Southerners championed a low-wage, low-benefits system while the North favored a more generous one. And now as then, what sparked the conflict was the North's fear of the Southern system becoming the national norm. ...

Over the past century, of course, the conflict between North and South has been between union and non-union labor. The states of the industrial Midwest and the South ... developed two distinct economies. Residents of the unionized north enjoyed higher ... paychecks and ... higher public outlays on health and education, than did their counterparts in the union-resistant South.

But, just as Lincoln predicted, the United States was bound to have one labor system prevail, and the debate over the General Motors and Chrysler bailout was really a debate over which system -- the United Auto Workers' or the foreign transplant factories' -- that would be. ...

Tuesday, December 30, 2008

The Ghosts of Christmas Past

Dan Froomkin's blog at the Washington Post lays out the lies and deception that went into the infamous torture policies from on high in the Bush admin:
Yesterday's bipartisan Senate report on the abuse of detainees in U.S. custody at Guantanamo, Abu Ghraib and elsewhere doesn't just lay out a clear line of responsibility starting with President Bush, it also exposes the administration's repeated explanation for what happened as a pack of lies.

"The abuse of detainees in U.S. custody cannot simply be attributed to the actions of 'a few bad apples' acting on their own," the report finds. "The fact is that senior officials in the United States government solicited information on how to use aggressive techniques, redefined the law to create the appearance of their legality, and authorized their use against detainees. Those efforts damaged our ability to collect accurate intelligence that could save lives, strengthened the hand of our enemies, and compromised our moral authority."

The report notes that in early 2002, not long after the Defense Department legal counsel's office started exploring the application of the sorts of abhorrent practices later documented at Abu Ghraib, Bush signed a memo exempting war-on-terror detainees from the Geneva Conventions. "[T]he decision to replace well established military doctrine, i.e., legal compliance with the Geneva Conventions, with a policy subject to interpretation, impacted the treatment of detainees in U.S. custody," the report states.

And the report concludes: "The abuse of detainees at Abu Ghraib in late 2003 was not simply the result of a few soldiers acting on their own. Interrogation techniques such as stripping detainees of their clothes, placing them in stress positions, and using military working dogs to intimidate them appeared in Iraq only after they had been approved for use in Afghanistan and at [Guantanamo]. Secretary of Defense Donald Rumsfeld's December 2, 2002 authorization of aggressive interrogation techniques and subsequent interrogation policies and plans approved by senior military and civilian officials conveyed the message that physical pressures and degradation were appropriate treatment for detainees in U.S. military custody. What followed was an erosion in standards dictating that detainees be treated humanely."


In a May 18, 2004, interview, Bush told an Iraqi journalist: "I want to know the truth, too. . . . [Y]ou've just got to know that I'm interested in the truth, as well, just like you're interested in the truth."

And by April 6, 2006, after seven soldiers had been convicted, Bush made it clear that his quest was over: "I'm proud to report that the people who made that decision are being brought to justice, and there was a full investigation over why something like that could have happened."

By contrast, yesterday's Senate report suggests that those responsible for the abuse have emphatically not been brought to justice, and that there's more investigating to be done. Among the issues still to be addressed: the CIA interrogation program, which even more overtly included techniques commonly considered to be torture, such as waterboarding. There's also the obvious question that comes to mind after considering the sequence of events: How are these not war crimes?

Read the whole blog entry. It is well worth your time.

Food of the Gods

Here's a nice video from Boing Boing dedicated to my favourite food item... chocolate.

I love the fact that chocolate contains theobromine, a name derived from Theobroma, the name of the genus of the cacao tree, (which itself is made up of the Greek roots theo ("God") and brosi ("food"), meaning "food of the gods". According to Wikipedia: theobromine was put to use by 1916, where it was recommended by the publication Principles of Medical Treatment as a treatment for edema (excessive liquid in parts of the body), syphilitic angina attacks, and degenerative angina. The American Journal of Clinical Nutrition notes that theobromine was once used as a treatment for other circulatory problems including arteriosclerosis, certain vascular diseases, angina pectoris, and hypertension. In modern medicine, theobromine is used as a vasodilator (a blood vessel widener), a diuretic (urination aid), and heart stimulant. In addition, the future use of theobromine in such fields as cancer prevention has been patented.

Enough technical stuff... now watch this:

Economics Simpified

If you love to learn from those infamous "XXX for Dummies" series, you will appreciate this quick education in economics Yoram Bauman, a real PhD in Economics and a Masters in Comedy:

Monday, December 29, 2008

America and Torture

The NY Review of Books has a review by David Cole of three books on torture. The key book is Philippe Sands' Torture Team: Rumsfeld's Memo and the Betrayal of American Values. Here is a tidbit from the article:
The story of America's descent into torture in the wake of the terrorist attacks of September 11, 2001, has been told now by many writers. Mark Danner, Jane Mayer, and Ron Suskind have written brilliant expositions of the facts, showing how the drive to prevent the next attack led the administration's highest officials to seek ways around the legal restrictions on coercive interrogation of suspects. After the abuses at Abu Ghraib came to light, the military itself commissioned three detailed investigative reports, including highly critical ones by Major General Antonio Taguba and by a panel led by former defense secretary James Schlesinger. Among other factors, they blamed ambiguity in the standards governing interrogation—an ambiguity ultimately attributable to the attempts at evasion directed from the top. Congressional committees have held numerous public hearings into the use of coercive interrogation tactics at both Abu Ghraib and Guantánamo. The Center for Constitutional Rights, the ACLU, and the NYU Center on Law and Security have each published collections of official documents, which effectively indict the government using its own words.

But undoubtedly the most unusual and deeply revealing take on the subject is the work of the British lawyer and law professor Philippe Sands. As Alexis de Tocqueville showed long ago, sometimes it takes the eyes of an outsider to show us ourselves. Sands, a leading international lawyer and a professor at University College London, took it upon himself to conduct his own personal investigation of one aspect of the torture policy—the Army's adoption of coercive tactics to interrogate suspects at Guantánamo. This policy was not the worst of the post–September 11 abuses. As far as we know, no one has been waterboarded at Guantánamo, as some were at the CIA's secret "black sites," nor have any suspects been killed in interrogation, as happened on several occasions elsewhere. No one we know of has been rendered from Guantánamo to another country to be tortured, although some prisoners who were earlier subject to rendition and torture have since been transferred to Guantánamo.

Falling off the Edge of the World

Poor Iceland is one of the biggest victims of this financial crisis. Here's a Wall Street Journal report that peeks into the lives of a few Icelanders to help you understand the crisis and how it has affected the people. Looking behind the story being produced, it is a beautiful country and the people seem marvelous. If tourism is the best hope for Iceland to get out of its travail, this video is a good promotion:

Brad DeLong on Bush

DeLong pretty well nails it:
A Word from the Soon to Be Ex-President

from Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal by Brad DeLong

George W. Bush:

  • Think Progress: BUSH; Well, I have obviously made a decision to make sure the economy doesn’t collapse. I’ve abandoned free market principles to save the free market system. I think when people review what’s taken place in the last six months, uh, and put it all in one, in one, (sigh), you know, in one package, they’re realize how significantly we have moved...

Or realize how wrong Bush and his sycophants were in the first place.

If adhering to free market principles leads to an economic collapse, perhaps free market principles aren't a good idea? The old-style Keynesians had a name for something that was a good idea: the mixed economy.

Stupidest man alive.

Fifty Herbert Hoovers? Oh My God!

Paul Krugman in his latest NY Times op-ed, entitled "Fifty Herbert Hoovers", takes on the idiocy of US state laws which require balanced budgets, a marvelously anti-Keynesian action in the face of a recession:
An educated population is a national resource. Why, then, is basic education mainly paid for by local governments, which are forced to neglect the next generation every time the economy hits a rough patch?

And why should investments in infrastructure, which will serve the nation for decades, be at the mercy of short-run fluctuations in local budgets?

That’s for later. The priority right now is to fight off the attack of the 50 Herbert Hoovers, and make sure that the fiscal problems of the states don’t make the economic crisis even worse.

Sunday, December 28, 2008

Christmas Cheer

Here a catchy tune that seems timely...

The Secrets of Happiness, the Harvard Version

Here's Dan Gilbert, one of my favourite psychologists, giving a talk at a TED conference in July 2005. His book Stumbling on Happiness is an excellent book. He nails the secret of happiness. The bad news is that we don't always understand our own irrationality, and the good news is that we are hard-wired to enjoy our life no matter how miserable it is.

Carl Zimmer's "Microcosm: E. coli and the New Science of Life"

This is an excellent book. Lots of interesting details. It covers E. coli from discovery in 1885 up to today's synthetic biology which uses the techniques developed with E. coli to develop manufactured life, new microbes that use amino acids not in nature's list of 21 but 80-some that researchers have now developed and learned how to encode and get synthetic microbes to build upon.

Not only is this a wonderful biography of the researchers and their thoughts. It present lots of ideas that are new to me. I particularly enjoyed:
  • Microbes like E. coli "age". They have done experiements that trace the splitting of microbes and can show that those with the oldest half of the split shows signs of aging and die before those that are younger. So aging is built-in even before you get to large multi-cellular organisms.
  • There is a gene, microcephalin, that can be traced to Neanderthals, that has spread widely throughout modern humans: 70% of all moderns. But this is a gene that clearly is not from the line of descent of modern humans. It entered through sexual contact with Neanderthals and because of its benefits -- playing a central role in the development of the brain -- it has spread quickly in modern humans.
  • Infamous microbes that cause diarrhea, such as Shigella, end up being strains of E. coli.
  • There are wonderful details of E. coli O157:H7 which is a strain of E. coli that is harmless to cattle, but has toxins that cause great harm to humans. There are 5.5 million base pairs in O157:H7 while K-12, a harmless E. coli, has 4.6 million. So there are vast differences between these two E. coli strains.
  • He provides an excellent discussion of the ethics of genetic engineering that points out that the issues are complex and that there is no basis for drawing a line that limits "ethical" experiments to some God-given demarcation of species. As he points out, there is natural process of horizontal transmission of genes by viral infection that does not respect species "boundaries". In the microbial world, horizontal gene transmission plays a very large role. In multicellular organisms it plays a much smaller role, but it still exists. All this is contrary to the simplistic arguments of those who protest Frankenfoods or transgenic experiments.

Update 2009mar03: Here's a nice video book review for this book:

Saturday, December 27, 2008

Telling it as it Is

The Bush/Reagan era is coming to a close. In an article entitled "Mr. Obama's Stimulus Plan Must Air for Long-Term Results", Lawrence Summers -- Clinton's Secretary of Treasury and now Obama's head of the National Economic Council -- lays out some blunt facts:
When President-elect Barack Obama takes office, he will face what may well be the bleakest economic outlook since World War II. Economic forecasts have been revised significantly downward over the past several months; today, many experts believe that unemployment could reach 10 percent by the end of next year and our economy could fall $1 trillion short of its full capacity -- which translates into more than $12,000 in lost income for a family of four.
Some argue that instead of attempting to both create jobs and invest in our long-run growth, we should focus exclusively on short-term policies that generate consumer spending. But that approach led to some of the challenges we face today -- and it is that approach that we must reject if we are going to strengthen our middle class and our economy over the long run.

Economics as Drama

Robert Skidelsky has written a grand piece of economic history as an article for Prospect Magazine for January 2009. Here is a nice presentation of the ebb and flow of political and economic though as cycles in history. The article has broader scope -- and is well worth reading -- but this part caught my attention:
Historians have always been fascinated by cyclical theories of history. Societies are said to swing like pendulums between alternating phases of vigour and decay; progress and reaction; licentiousness and puritanism. Each outward movement produces a crisis of excess which leads to a reaction. The equilibrium position is hard to achieve and always unstable.

In his Cycles of American History (1986) Arthur Schlesinger Jr defined a political economy cycle as "a continuing shift in national involvement between public purpose and private interest." The swing he identified was between "liberal" (what we would call social democratic) and "conservative" epochs. The idea of the "crisis" is central. Liberal periods succumb to the corruption of power, as idealists yield to time-servers, and conservative arguments against rent-seeking excesses win the day. But the conservative era then succumbs to a corruption of money, as financiers and businessmen use the freedom of de-regulation to rip off the public. A crisis of under-regulated markets presages the return to a liberal era.

This idea fits the American historical narrative tolerably well. It also makes sense globally. The era of what Americans would call "conservative" economics opened with the publication of Adam Smith's Wealth of Nations in 1776. Yet despite the early intellectual ascendancy of free trade, it took a major crisis—the potato famine of the early 1840s—to produce an actual shift in policy: the 1846 repeal of the Corn Laws that ushered in the free trade era.


In the 1870s, the pendulum started to swing back to what the historian AV Dicey called the "age of collectivism." The major crisis that triggered this was the first great global depression, produced by a collapse in food prices. It was a severe enough shock to produce a major shift in political economy. This came in two waves. First, all industrial countries except Britain put up tariffs to protect employment in agriculture and industry. (Britain relied on mass emigration to eliminate rural unemployment.) Second, all industrial countries except the US started schemes of social insurance to protect their citizens against life's hazards. The great depression of 1929-32 produced a second wave of collectivism, now associated with the "Keynesian" use of fiscal and monetary policy to maintain full employment. Most capitalist countries nationalised key industries. Roosevelt's new deal regulated banking and the power utilities, and belatedly embarked on the road of social security. International capital movements were severely controlled everywhere.

This movement was not all one way, or else the west would have ended up with communism, which was the fate of large parts of the globe. Even before the crisis of collectivism in the 1970s, a swing back had started, as trade, after 1945, was progressively freed and capital movements liberalised. The rule was free trade abroad and social democracy at home.

The Bretton Woods system, set up with Keynes's help in 1944, was the international expression of liberal/social democratic political economy. It aimed to free foreign trade after the freeze of the 1930s, by providing an environment that reduced incentives for economic nationalism. At its heart was a system of fixed exchange rates, subject to agreed adjustment, to avoid competitive currency depreciation.

The crisis of liberalism, or social democracy, unfolded with stagflation and ungovernability in the 1970s. It broadly fits Schlesinger's notion of the "corruption of power." The Keynesian/social democratic policymakers succumbed to hubris, an intellectual corruption which convinced them that they possessed the knowledge and the tools to manage and control the economy and society from the top. This was the malady against which Hayek inveighed in his classic The Road to Serfdom (1944). The attempt in the 1970s to control inflation by wage and price controls led directly to a "crisis of governability," as trade unions, particularly in Britain, refused to accept them. Large state subsidies to producer groups, both public and private, fed the typical corruptions of behaviour identified by the new right: rent-seeking, moral hazard, free-riding. Palpable evidence of government failure obliterated memories of market failure. The new generation of economists abandoned Keynes and, with the help of sophisticated mathematics, reinvented the classical economics of the self-correcting market. Battered by the crises of the 1970s, governments caved in to the "inevitability" of free market forces. The swing-back became worldwide with the collapse of communism.

A conspicuous casualty of the swing-back was the Bretton Woods system that succumbed in the 1970s to the refusal of the US to curb its domestic spending. Currencies were set free to float and controls on international capital flows were progressively lifted. This heralded a wholesale change of direction towards free markets and the idea of globalisation. This was, in concept, not unattractive. The idea was that the nation state—which had been responsible for so much organised violence and wasteful spending—was on its way out, to be replaced by the global market. The prospectus was perhaps best set out by the Canadian philosopher, John Ralston Saul, in a 2004 essay in which he proclaimed the collapse of globalisation: "In the future, economics, not politics or arms, would determine the course of human events. Freed markets would quickly establish natural international balances, impervious to the old boom-and-bust cycles. The growth in international trade, as a result of lowering barriers, would unleash an economic-social tide that would raise all ships, whether of our western poor or of the developing world in general. Prosperous markets would turn dictatorships into democracies."

Today we are living through a crisis of conservatism. The financial crisis has brought to a head a growing dissatisfaction with the corruption of money. Neo-conservatism has sought to justify fabulous rewards to a financial plutocracy while median incomes stagnate or even fall; in the name of efficiency it has promoted the off-shoring of millions of jobs, the undermining of national communities, and the rape of nature. Such a system needs to be fabulously successful to command allegiance. Spectacular failure is bound to discredit it.
In a different article entitled "This is a Crisis of Deviant Economics", Skidelsky explore a different theme: how the foundations of economic analysis are flawed when they assume rational agents and develop theories based on an "efficient market hypothesis". He notes that economists tried to "fix" this problem with the notion of asymmetric information:
In 1970, George Akerlof published a famous paper called The Market for Lemons. His main example was a used-car market. The buyer doesn't know whether what is being offered is a good car or a "lemon". His best guess is that it is a car of average quality, for which he will pay only the average price.

Because the owner won't be able to get a good price for a good car, he won't place good cars on the market. So the average quality of used cars offered for sale will go down. The lemons squeeze out the oranges.
Another well-known example concerns insurance. This time it is the buyer who knows more than the seller, since the buyer knows his risk behaviour, physical health and so on.

The insurer faces "adverse selection", because he cannot distinguish between good and bad risks. He, therefore, sets an average premium too high for healthy contributors and too low for unhealthy ones. This will drive out the healthy contributors, saddling the insurer with a portfolio of bad risks -- the quick road to bankruptcy.
But this fails since this branch of economics is still flawed:
The theorists of asymmetric information occupy a deviant branch of mainstream economics. They agree with the mainstream that there is perfect information available somewhere out there, including perfect knowledge about how the different parts of the economy fit together.

They differ only in believing that not everyone possesses it. In Akerlof's example, the problem with selling a used car at an efficient price is not that no one knows how likely it is to break down, but rather that the seller knows well how likely it is to break down, and the buyer does not.

And yet the true problem is that, in the real world, no one is perfectly informed. Those who have better information try to deceive those who have worse; but they are deceiving themselves that they know more than they do.
And his bottom line is that the foundation of economics must be changed to reflect reality:
Rather than dealing with asymmetric information, we are dealing with different degrees of no information. Herd behaviour arises, Keynes thought, not from attempts to deceive, but from the fact that, in the face of the unknown, we seek safety in numbers. Economics, in other words, must start from the premise of imperfect rather than perfect knowledge. It may then get nearer to explaining why we are where we are today.

Friday, December 26, 2008

What is to be Done? The Financial Edition

Edge is an interesting group of "digital literati" who use the web to discuss big ideas. I enjoy their stuff. But the latest posting is a bit much. A group of them has put together this latest issue of Edge entitled "CAN SCIENCE HELP SOLVE THE ECONOMIC CRISIS?" By Mike Brown, Stuart Kauffman, Zoe-Vonna Palmrose and Lee Smolin. There is a lot of lively discussion pro and con. I do enjoy the attack by complexity theorists on traditional economics. But in the end, I come down with the naysayers. There are number of these with very perceptive comments. Among them is an economist, Paul Romer of Stanford, who makes what I believe is a very constructive suggestion. Actually he is only fronting for a fellow economist from MIT:
Andrew Lo from MIT, someone who actually studies financial markets as his day job, suggested in testimony before Congress that we create a system that would do for each financial crisis what the National Transportation Safety Board (NTSB) does for each plane crash: collect evidence on what actually happened.

To be successful, a Capital Markets Safety Board (CMSB) would require both funding and careful attention to incentives. Like the NTSB, a CMSB should be truly independent from the government agencies that are responsible for crisis prevention and crisis management. It should also be protected from influence by firms in the financial sector. In its data collection efforts, it should not rely on university researchers who are themselves susceptible to influence by the interested government agencies or the private sector players. Nor should it use academics who have a personal or professional stake in any particular view about what caused a crisis. It's the soft corruption of lobbying and regulatory capture that should worry us, not ideology. Institutionalized transparency is the best antidote.

A CMSB could have its own staff of talented, neutral researchers. It could have the power to compel testimony and to inspect and summarize (but not reveal) confidential data from private and public sources. It might even be able to mandate data collection systems analogous to the black boxes required in commercial aircraft. To the extent possible, its evidence about individual actions should not be accessible to the authorities responsible for regulatory, criminal or civil proceedings, or God help us, members of Congress looking for headlines. A CMSB should have no responsibility for proposing laws, regulations, or institutional reforms. Like the NTSB, its only job should be to establish a reliable body of evidence about what happened during each crisis and make it available for others to use.
Read the whole of the web posting. Lots of interesting intellectuals with lots of interesting points of view. It's well worth your time!

The Secrets of Business Revealed!

The latest blog entry by Robert X. Cringely looks at consumer electronics. First he notes how manufacturers manipulate us:

The consumer electronics industry is built on the idea of every few years getting us to throw away everything we own and replace it with something entirely new. In home audio the transition was 78/33/8-track/cassette/CD. In home video it was Beta/VHS/DVD/Blu-Ray. Each time we not only had to buy new equipment, we generally had to purchase again our audio and video libraries. And we did, much to the joy of the music and movie industries, though the jury is still out on Blu-Ray (more on that in a couple days).

Unlike automobiles, where there is a robust second-hand market, the consumer electronics food chain is simple and clean: whatever we invested in before is suddenly worthless. But for these technology transitions to be truly successful we ALL have to switch, which doesn’t always happen. Many people never owned an 8-track player, for example, or even a cassette deck, jumping straight from vinyl to CD. But that jump to CD’s, since it was an all-in 100 percent market transformation, was enough to power the audio business to record profits for more than a decade even without a lot of new hit songs. That’s how the Beatles still make $100+ million per year even though the group disbanded in 1970.

Then he notes how hopeless they are at delivering the goodies we want at a good price:

If this simple change were to take place the cost of 5.1 and 7.1 audio equipment would drop and consumers could more easily enjoy the true potential of their new TVs. The result for the consumer electronics industry would be even more profound, though – a 50 percent increase in net profit per TV sale. That’s HUGE.

So why doesn’t it happen? That’s because these bozos, as they have shown us time after time, can’t bring themselves to agree on a new technical standard without first enjoying a bloodbath in the market.

There are chipsets available right now to achieve everything I have described. The one I am most familiar with comes from Eleven Engineering in Canada, maker of high-end wireless audio technology for customers like Bose. But there are alternatives to Eleven. All the consumer electronics industry has to do is choose one – ANY ONE.

I love reading Cringely's articles. He combines a savoir faire with a baleful eye at the foibles of human nature. OK, translate that as: he knows what he is talking about and he makes it fun to read!

Lessons from the Past

There is an interesting article in the LA Times by Tom Lewis that looks at Eisenhower's Interstate Highway System as a lesson for Obama in planning an economic stimulus:
Eisenhower was the first Republican to occupy the White House after Herbert Hoover, who in the 1950s still wore a mantle of shame for his role in the market crash of 1929 and its aftermath. Eisenhower had an almost pathological, but healthy, fear that he might be blamed for allowing the nation to fall into another depression. ...

Eisenhower wasn't afraid to create a huge public works program, and unlike today's presidents, he wasn't afraid of taxes. (He even vetoed his Republican Congress' repeal of a 20% federal admission tax on motion pictures.) The 1956 highway bill levied a tax of 3 cents on each gallon of fuel -- equal to 24 cents today. The revenue went into a dedicated highway trust fund. Though it wasn't enough to support the entire program, it was a start. And the tax proved to be a Mobius strip of money. Each gallon of fuel pumped helped to create more highways, which enabled more cars to drive more miles -- and use more gas, which generated yet more money for the trust fund. ...

In 1956, Eisenhower likely didn't fully realize that he was creating not just a public works program but an economic and social blueprint for the next 50 years. Now, along with every other aspect of our infrastructure, the interstates are crumbling. Irresponsible legislators rail against the current federal highway tax of 18.4 cents a gallon -- far less in today's prices than Eisenhower's 3 cents. Seduced by easy money, governors consider leasing parts of the highway system to foreign companies.

So the lessons for Obama are clear: Don't be afraid to propose bold -- and often expensive -- programs that improve the nation's infrastructure and peoples' lives, and don't be afraid to pay for them with taxes.

It is said the 44th president is taking office at a Lincoln moment and a Roosevelt moment. True enough, but it can be an Eisenhower moment as well.

Thursday, December 25, 2008

Walking the Line

Paul Krugman looks at the current economic mess and write an op-ed in the NY Times telling Obama that he needs to achieve what FDR managed to achieve:
How did F.D.R. manage to make big government so clean?

A large part of the answer is that oversight was built into New Deal programs from the beginning. The Works Progress Administration, in particular, had a powerful, independent “division of progress investigation” devoted to investigating complaints of fraud. This division was so diligent that in 1940, when a Congressional subcommittee investigated the W.P.A., it couldn’t find a single serious irregularity that the division had missed.

F.D.R. also made sure that Congress didn’t stuff stimulus legislation with pork: there were no earmarks in the legislation that provided funding for the W.P.A. and other emergency measures.

Last but not least, F.D.R. built an emotional bond with working Americans, which helped carry his administration through the inevitable setbacks and failures that beset its attempts to fix the economy.

The Counter Reformation

When it comes to deeply held beliefs, you don't give them up easily. Think of the religious wars of Europe. Well, the US is about to get a mini-version of this as the corporate elite prepare to do battle to resist change. Here is a bit from an excellent blog entry by Robert Reich, Clinton's Secretary of Labor:
... Goldman Sach's CEO Lloyd Blankfein, who says the firm's business strategy doesn't need to change.

What? Goldman got $10 billion of taxpayer money precisely because it and other big banks were so over-leveraged they threatened the whole financial system. I can understand why Blankfein doesn’t want to change. He took home $54 million last year. (He has foregone a bonus this year and is taking home a piddling $600,000.) But the public expects real reform for its $10 billion at Goldman and tens of billions more in other major banks.

Blankfein isn't alone. I've heard the same thing from CEOs and directors all over the Street. They see the problem as cyclical, not structural. "The economy stinks," they tell me, "but it'll turn around in 18 months, and then we're back to the same business."


Right now, Wall Street and Detroit are willing to say whatever they need to say to keep the taxpayer money coming. But when the economy begins turning up, my betting is that their Washington lobbyists will push back hard against any major restructurings the government wants to impose on them. New regulations of Wall Street will be watered down and circumvented; new requirements on the Big Three for green technologies will be resisted.

Yet the bailouts have been sold to the public as means toward fundamental change in finance and autos. If the bailouts are to do what they're supposed to – stop Wall Street from wild risk-taking with piles of borrowed money, and push the auto industry into making fundamentally new products that conserve energy -- Washington will not only have to set strict standards now and in the months ahead when the bailout money flows, but also hang tough when the economy begins to revive.
Here is a blog entry by Robert Reich called "Democracy and Greenspan" which looks deeper into the politics of lobbying to understand how the corporate elite manage their affairs:
The ideology of a perfectly self-correctly free market has given way to what might be described as a raid by America’s biggest banks and corporations on the public purse, supposedly justified by benefits to the broader public which seem never to materialize. What happened to the ideology? On closer inspection, it turned out to be something of a cover all along.

During the same years Greenspan called for deregulation of financial markets, Wall Street was accelerating its bankrolling of the U.S. Congress. Securities and investment firms contributed larger and larger amounts of money – not just to conservative Republicans who might expect such support but also to Democrats who had never been so graced before. According to Center for Responsive Politics, Wall Street firms dramatically increased their contributions to both parties during these years. Their share of total donations to the Democratic Senatorial Campaign Committee, for example, rose continuously, from 5 percent during the 1999-2000 election cycle to 15 percent by the 2007-2008 cycle.
Robert Reich is one smart cookie. Too bad he is not a real "player" in US politics shaping the future. Instead he appears to be on the left shouting out his ideas and encouragement while the scrum of politics is a messy confusion where the right may just snatch victory from the hands of the centre-left Obama camp.

Sticking with Stiglitz

I like Joseph Stiglitz. He is an economist that tells it straight. I put him up there with Paul Krugman and Brad DeLong.

Stiblitz, a Nobel prize winner in economics, has published an opinion piece
in the Daily News: Egypt's only Independent Newspaper in English. (Right, not the NY Times, not the Washington Post, no the LA Times, but in an Egyptian newspaper. What's with that? Oh... he published it under Project Syndicate, but I guess there aren't a lot of US media outlets interested, so it gets published in Egypt as a "major outlet" for the academics under the aegis of Project Syndicate.)

Read the whole thing, but here is the key point:

...even if Obama and other world leaders do everything right, the US and the global economy are in for a difficult period. The question is not only how long the recession will last, but what the economy will look like when it emerges.

Will it return to robust growth, or will we have an anemic recovery, à la Japan in the 1990’s? Right now, I cast my vote for the latter, especially since the huge debt legacy is likely to dampen enthusiasm for the big stimulus that is required. Without a sufficiently large stimulus (in excess of 2 percent of GDP), we will have a vicious negative spiral: a weak economy will mean more bankruptcies, which will push stock prices down and interest rates up, undermine consumer confidence, and weaken banks. Consumption and investment will be cut back further.

Many Wall Street financiers, having received their gobs of cash, are returning to their fiscal religion of low deficits. It is remarkable how, having proven their incompetence, they are still revered in some quarters. What matters more than deficits is what we do with money; borrowing to finance high-productivity investments in education, technology, or infrastructure strengthens a nation’s balance sheet.

And this bit from earlier in the article is well worth pondering:

Economists are good at identifying underlying forces, but they are not so good at timing. The dynamics are, however, much as anticipated. America is still on a downward trajectory for 2009 — with grave consequences for the world as a whole.

For example, as their tax revenues plummet, state and local governments are in the process of cutting back their expenditures. American exports are about to decline. Consumer spending is plummeting, as expected. There has been an enormous decrease in (perceived) wealth, in the trillions, with the decline in house and stock prices. Besides, most Americans were living beyond their means, using their houses, with their bloated values, as collateral. That game is up.

America would be facing these problems even if it were not simultaneously facing a financial crisis. America’s economy had been supercharged by excessive leveraging; now comes the painful process of de-leveraging.

Excessive leveraging, combined with bad lending and risky derivatives, has caused credit markets to freeze. After all, when banks don’t know their own balance sheets, they aren’t about to trust others’.

The Bush administration didn’t see the problems coming, denied that they were problems when they came, then minimized their significance, and, finally, panicked. Guided by one of the architects of the problem, Hank Paulson, who had advocated for deregulation and allowing banks to take on even more leveraging, it was no surprise that the administration veered from one policy to another – each strategy supported with absolute conviction, until minutes before it was abandoned for another. Even if confidence really were all that mattered, the economy would have sunk.

To ARMs! to ARMs! ye brave!

To arms! to arms! ye brave!
Th' avenging sword unsheathe,
March on! march on! all hearts resolved
On victory or death!
- Claude Joseph Rouget de Lisle, French soldier and song writer, author of Marseillaise (1760 - 1836)

Well, this is a different kind of ARM, and the NY Times has an excellent article about how "taking up ARMs" has led to disaster. The article is entitled "Once Trusted Pioneers, Now Pariahs" and features the story behind Herbert and Marion Sandler who founded World Savings Banks that pioneered the ARM (Adjustable Rate Mortgage).
Known as an option ARM — and named “Pick-A-Pay” by World Savings — it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.

Pick-A-Pay allowed homeowners to make monthly mortgage payments that were so small they did not cover their interest charges. That meant the total principal owed would actually grow over time, not shrink as is normally the case.

Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.
The article features a video where you can see how they trained their agents to sell these ARMs. For me, the killer bit is the following:

Marion Sandler, now 78, was a Wall Street analyst in the early 1960s when she and her husband decided to buy a bank that took only savings deposits and made mortgage loans — a thrift, or savings and loan, in banking shorthand — and run it themselves.

Mr. Sandler, now 77, was a lawyer in Manhattan who grew up poor on the Lower East Side, the son of a compulsive gambler whose earnings were consumed by loan sharks.

Terms like "savings and loan" and "compulsive gambler" should give you a frisson d'horreur.

Greed is Good -- Gordon Gecko

Here is a blog entry from Barry Ritholtz pointing out that the SEC seems to have eased back on fraud investigations during the Bush years. Isn't that odd. You have a financial meltdown and a $50 billion Ponzi scheme during this same period of "self regulation" which the Republicans boasted would re-vitalize the American economy and lead to fantastic wealth for everyone as this new idea of downsized government unleashed the "entrepreneurial spirit":
Security Fraud Prosecutions Down 87% Since 2000

from The Big Picture by Barry Ritholtz

Some toothless watchdog:

This year, the S.E.C. has brought the fewest number of securities fraud prosecutions since 1991. That’s according to the data that the Transactional Records Access Clearinghouse (TRAC), a research group at Syracuse University, has amassed.

Soft on White Collar Crime, by the Numbers:

• 2008 had 133 prosecutions for securities fraud (thru Dec 1) versus 437 cases in 2000, a 70% drop. Form the peak of 513 in 2002, prosecutions are down by 74%;

• S.E.C. investigations that led to Justice Depart prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a decline of 87%.

• Non criminal prosecutions (i.e., fines) for white collar crimes increased – from 503 in 2000 to 636 in 2008 – a 26.4% increase.

• “Deferred prosecution agreements” — essentially an agreement not to prosecute, so long as the accused stays out of further trouble;
Check out the entire blog entry. Ritholtz points you to a source article in the NY Times.

Handing out Christmas Presents

Here is Dean Baker going apoplectic over the kind of goodies that the corporate elite give themselves and how "the media" seem nonchalant about while that very same media is a raging pit bull about paying workers a decent wage. In the spirit of Christmas cheer, read on...

Part-Time Government Employees Earn $160,000 a Year

It's good work if you can get it. The Washington Post reports that Fannie Mae announced its new 10-person board of directors today. The article reports the members will get $160,000 each, with the chairperson getting $250,000. Heading a committee can get you an additional $25,000.

The remarkable part of this story is that the Washington Post reporter could not find a single person who thought that paying part-time workers $160,000 a year was a bad idea. There is absolutely no one cited in this piece who raised a question about the compensation levels for the board.

Keep in mind that this is a newspaper that is absolutely apoplectic over autoworkers getting $27 an hour. If we assume that the board members on average will devote 500 hours a year to their board duties, this puts their pay rate at $320 an hour.

If this board kept the mortgage giant from doing really stupid things, like taking on risky real estate loans in the middle of a housing bubble, then perhaps they would be worth this pay. But none of the new members were especially visible among those warning of the housing bubble, and several board members are carryovers from the prior board, which apparently slept through the housing bubble and Fannie's collapse.

Given the amount of ink that the Post has devoted to the question of whether autoworkers at the Big Three are overpaid, it is incredible that this issue was never even raised in this piece.

--Dean Baker
Ah... the leadership out of Washington! No wonder the US is on such a strong path of recovery. It takes this kind of insider deal-making to ensure the health of the country. With this level of honesty at the top, is it any wonder that the US has avoided a financial meltdown, that there are no frauds reported, that people are well fed and happy and secure in their jobs, and that there are no homeless people wandering the street. Yes, I tell you, the streets are paved with gold in America! With tongue very much planted in my cheek, I now turn to the happy news of how Canada, the mouse, is flattened economically as a consequence of the elephant down south is twitching.

Hey! If you liked the above blog entry by Dean Baker, you will probably enjoy this one called "Getting Rich Helping the Poor". For me the zinger is this line:
Part of his story is that such salaries are necessary to get good people. While I'm sure that there are good people who earn high salaries, I've never been fortunate enough to meet such a person.
Here's a bit from the plea by Nicholas Kristof in the NY Times to let this charitable mover-and-shaker keep his dough because of all the "good" he is doing:
But Mr. Pallotta’s company wasn’t a charity, but rather a for-profit company that created charitable events. Critics railed at his $394,500 salary — low for a corporate chief executive, but stratospheric in the aid world — and at the millions of dollars spent on advertising and marketing and other expenses. ...

In the war on poverty, there is room for all kinds of organizations. Mr. Pallotta may be right that by frowning on aid groups that pay high salaries, advertise extensively and even turn a profit, we end up hurting the world’s neediest.
It is really over-the-top for Kristof's article to be entitled "The Sin in Doing Good Deeds". Really? Well, it must be a "forgivable" sin because it comes from the charity of "entrpeneurial giving", you know, the kind where you dig into the other guy's pocket and announce how wonderful you are for helping to spread "the wealth" while you skim the collection plate to enable you to live in a McMansion.

Wednesday, December 24, 2008

Quantitative Easing, the Picturebook Version

For those who don't want to read, here is the visual version that explains quantitative easing, i.e. the "fix" that the US Federal Reserve is undertaking to avert the impending great depression:

Meditation on Newton

Olivia Judson's latest blog entry is a meditation on celebrating Christmas as Newton's birthday. That big doesn't interest me. But this bit caught my interest:
Some 530 million years ago, when animals like the trilobites were skittering around, days had less time. Back then, a day was only 21 hours, and a year was about 420 days. In another 500 million years, perhaps a day will be 27 hours, and a year fewer than 300 days. Because of the friction exerted by the moon, the Earth is slowing down. Indeed, already the days are a tiny bit longer than they were 100 years ago.
I know that the moon is slowly receding from earth as the tidal friction slows the dance the two objects do around their common gravitational point. Things change. They change monumentally over geologic time. Our little messy lives mean so little in the greater fabric of the universe.

A Voice From Christmas Past

Here is a good article by Martin Wolf of the Financial Times. I've marked in bold bold the part that I think is most important:
The ghost of John Maynard Keynes, the father of macroeconomics, has returned to haunt us. With it has come that of his most interesting disciple, Hyman Minsky. We all now know of the “Minsky moment” – the point at which a financial mania turns into panic.

Like all prophets, Keynes offered ambiguous lessons to his followers. Few still believe in the fiscal fine-tuning that his disciples propounded in the decades after the second world war. But nobody believes in the monetary targeting proposed by his celebrated intellectual adversary, Milton Friedman, either. Now, 62 years after Keynes’ death, in another era of financial crisis and threatened economic slump, it is easier for us to understand what remains relevant in his teaching.

I see three broad lessons.

The first, which was taken forward by Minsky, is that we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”.

The second lesson is that the economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.

Father Knows Best

Geesh! The world has sure changed from when I was a kid watching the TV sitcom Father Knows Best. In the "good old days" parents were responsible and kids respected their elders. But in the brave new world of today, parents sell their kids to raise ready cash and those good old religious values seem more mercenary than they were in the past. Here's my proof. A report in the Telegraph of the UK...
Saudi court rejects plea to annul 8-year-old girl's marriage to 58-year-old man

A Saudi court has rejected a plea to divorce an eight-year-old girl married off by her father to a man who is 58, saying the case should wait until the girl reaches puberty.


The father had agreed to marry off his daughter for an advance dowry of 30,000 riyals ($8,000), as he was apparently facing financial problems, they said.
OK, some of you are going to argue that the media are biased. Where are the stories about 67 year old women in India marrying 6 year old boys? Where is the story about that Christian sect that allows plural marriages, you know, the sect where one woman gets to marry an entire football team so long as they take an appropriate purity promise. I want balance. I want a media that isn't under the heel of Liberal bias which insists on telling me news I don't want to hear. Where are the stories about little girls getting puppies for Christmas? Where are the stories about homeless people being hired for $10,000/hour gigs in the fashion industry because thin is in? When have you heard a good heart-rending story about a mayor announcing a change of heart for New Year and making a firm resolution tostart the New Year by stopping the old practice of taking bribes, you know, like that governor in Illinois?

In case you think "Oh, this is just the kind of crazy stuff that happens elsewhere." Here is an example of rather frightening behaviour a little closer to home. This is from Houston Press:

Police Get The Wrong House In Galveston, Allegedly Assault 12-Year-Old Girl

Wed Dec 17, 2008 at 12:37:01 PM

It was a little before 8 at night when the breaker went out at Emily Milburn's home in Galveston. She was busy preparing her children for school the next day, so she asked her 12-year-old daughter, Dymond, to pop outside and turn the switch back on.

As Dymond headed toward the breaker, a blue van drove up and three men jumped out rushing toward her. One of them grabbed her saying, "You're a prostitute. You're coming with me."

Dymond grabbed onto a tree and started screaming, "Daddy, Daddy, Daddy." One of the men covered her mouth. Two of the men beat her about the face and throat.

As it turned out, the three men were plain-clothed Galveston police officers who had been called to the area regarding three white prostitutes soliciting a white man and a black drug dealer.

All this is according to a lawsuit filed in Galveston federal court by Milburn against the officers. The lawsuit alleges that the officers thought Dymond, an African-American, was a hooker due to the "tight shorts" she was wearing, despite not fitting the racial description of any of the female suspects. The police went to the wrong house, two blocks away from the area of the reported illegal activity, Milburn's attorney, Anthony Griffin, tells Hair Balls.

After the incident, Dymond was hospitalized and suffered black eyes as well as throat and ear drum injuries.

Three weeks later, according to the lawsuit, police went to Dymond's school, where she was an honor student, and arrested her for assaulting a public servant. Griffin says the allegations stem from when Dymond fought back against the three men who were trying to take her from her home. The case went to trial, but the judge declared it a mistrial on the first day, says Griffin. The new trial is set for February.
You can get more information from the complaint filed on behalf of the girl.

War is Hell, the Funny Bits

Here's some good Christmas Cheer brought to you by Scott Adams, the guy who draws that goofy Dilbert cartoon:

Defeating Terrorism

We won!

To defeat terrorism, specifically the most impressive attacks, you must cut off the terrorists' sources of funds. Mission accomplished. In fact, thanks to the mortgage meltdown, we cut off everyone's funding.

I heard on 60 Minutes that Saudi Arabia needs oil to be at $55 a barrel just to pay the bills. With oil near $40 a barrel they are in trouble. I assume other oil producing countries are in the same leaky boat.

When oil prices were high, most people assumed prices would stay high. So oil rich countries started investing and spending like crazy, getting their citizens and friends addicted to higher standards of living. When those countries need to pull back on that spending, where do you think they will cut first? I think it will be hard to fund terrorists when you can't afford to pay the garbage man. And keep in mind that a successful terrorist attack on U.S. financial infrastructure could further lower the demand for oil.

I'm overstating the case, as I like to do, but I have to think it is becoming clear to everyone that a frail U.S. economy is bad news for everyone who would prefer driving a car over riding a camel.

On a related note, you haven't heard much bravado from Chavez and Putin lately.

Merry Christmas You Whinny Ass Liberal

Here's my favourite Christmas anthem. I'm playing it again and again this Christmas to keep up the cheer of the season. Roy Zimmerman sings "A Merry American Christmas". There's more at

Nightmare on Elm Street, Part 13

Here's something to put shivers up your spine. First the ghoulish voice of David Attenborough. Then the lurid scenes of the deep, of slashing death, of cruel violence, and grisly sex. Meet the real Freddie Kruger, or more precisely, meet Madame Kruger. Behold the monster of the deep...

For those who can't get enough of slimy, filthy sex and the degrading aspect of using ropes in a sex act and depraved sexual entanglements, here's the horror of hermaphroditic sex. And, yes, that's Attenborough whispering his sweet nothings in your ear to stimulate your reception of his "message" about this most unnatural of natural sex...

Tuesday, December 23, 2008

How to Get Rich Without Even Trying

If you held a job during the Great Depression you saw your relative income and wealth rise as the currency depreciated. It is happening all over again. Here is Dean Baker pointing this out in his blog:

Suppose Real Wages Rose by 15 Percent and No One Noticed

Well, you don't have to suppose. In the last three months, real wages did in fact rise at a 14.8 percent annual rate, and no one in the media noticed, or if they did, they didn't bother mentioning it.

The basic story is simple. Nominal wages have continued to grow at a modest 3.2 percent annual rate. Meanwhile prices have plunged, mostly importantly the price of oil. This implies rapidly rising real wages. That is very good news for the folks who still have a job.

Reporters should have been talking about the surge in real wages, but they seem to have largely missed it. Here's a column I wrote on the topic.

--Dean Baker

The Emperor has no Clothes

For years I argued in vain with those who absorbed the economic fads of the 1980s and 1990s. It good to see that with this Great Recession the scales have fallen off people's eyes and the great paragons of economics in this era, the Chicago School of economics, has been shown to have feet of clay. Here is Barry Ritholtz taking them to task. His experience echoes mine:

I first encountered the Chicago theory in law school. The Chicagoists somehow read into law a market efficiency component that was never there. I recoiled against it — not because of the libertarianism, which I embraced. Rather, it seemed a backdoor way to circumvent democracy, and force into the legal system rules that were never debated, voted on, or agreed to by a representative government. I found the extremist legal theories of Judges like Richard Posner and Frank Easterbrook intellectually repulsive. They were undemocratic, anti-representative government. When I told a professor that the law and economics movement was an attempt at a political coup, he laughed and said, try to stop it.

I disliked the neoclassical price theory. It was authoritarian, a worship of a form of mob rule outside of the usual legal channels. The view that regulation and other government intervention is always inefficient compared to a free market has now been made laughable. Its always the extremists that seem to control a discipline or school of thought. If I have any dogma, its extremism in all forms is undesirable (I know, radical, huh)

Ritholtz's whole blog entry called "RIP Chicago School of Economics: 1976-2008" is well worth reading.

Monday, December 22, 2008

Naming Names

Time to issue the subpoenas, call in the suspects, and demand that they name names. Here's Barry Ritholtz in a blog entry taking the usual suspects to task for playing with words to protect their ideological worldview:

Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives!

What bullshit. ...

What a terrible sham the no “regulation cry” has been. It is really a vote for no rules against illegal and/or criminal behavior . . .
Ritholtz points out that language is a tool and the misuse of language is a well-honed art to mislead the gullible:

One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing in 1984, and why the language in the novel was degraded to phrases like “double plus good.” All nuance was dismissed. He who controls the language controls the political economy is what Orwell was saying. In modern times, its done not with boot-jacks and guns, but with catchphrases and clever marketing. Its not as heavy handed, its just more insidious.

When we discuss “Regulations,” we are talking about regulating human behavior. And that behavior can range from following misplaced incentives to falsifying accounting data to overtly legal but destructive actions — like putting people into loans they knew (or reasonably should have known) were likely to default.

What's Old is New

When I was a kid the generation raised in the 30s and 40s became the conformists of the 50s and 60s. But my generation, raised in the 50s and 60s, were supposedly rebels dancing to their beat. But Stanley Milgram created a famous experiment to show how the great majority of people are deeply conformist, to the point of torturing their fellow humans if the situation seemed to demand it.

This experiment has been redone with the kids of the Millennial Generation, and guess what? They are just as conformist as the kids of the 60s. Here's an article in The Mercury News by Lisa M. Krieger reporting that Jerry M. Burger, a psychologist at Santa Clara University, has replicated the results. Here's a snippet. The whole article is worth reading. And if you want to have have an in-depth understanding of this phenomenon, then read The Lucifer Effect: Understanding How Good People Turn Evil by Philip Zimbardo:

Replicating one of the most controversial behavioral experiments in history, a Santa Clara University psychologist has found that people will follow orders from an authority figure to administer what they believe are painful electric shocks.

More than two-thirds of volunteers in the research study had to be stopped from administering 150 volt shocks of electricity, despite hearing a person's cries of pain, professor Jerry M. Burger concluded in a study published in the January issue of the journal American Psychologist.

"In a dramatic way, it illustrates that under certain circumstances people will act in very surprising and disturbing ways,'' said Burger.

The study, using paid volunteers from the South Bay, is similar to the famous 1974 "obedience study'' by the late Yale University psychologist Stanley Milgram. In the wake of Nazi war criminal Adolf Eichmann's trial, Milgram was troubled by the willingness of people to obey authorities — even if it conflicted with their own conscience.

Sunday, December 21, 2008

Reich on the Choice Confronting Americans

Here is an excellent blog entry from Robert Reich laying out Greenspan's role in the financial crisis, the role of Congress, and the stark choice facing Americans. The whole article is worth reading. But for those for whom speed dial is too slow, here are the crucial bits...

On Greenspan:
Barely two months ago, when Greenspan appeared before Congress to explain what had happened to the economy, Representative Henry Waxman asked him pointedly: "Were you wrong?"

"Partially," Greenspan responded. "This crisis has turned out to be much broader than anything I could have imagined."

It might be argued that Alan Greenspan’s failure of imagination was not just about the scale of the crisis. More basically, his ideology had made it difficult for him to imagine what could happen when financial markets are left to themselves. He had supposed that the interplay of millions of self-seeking individuals would make government regulation unnecessary – except to prevent outright fraud or theft. To Greenspan and others like him, the global financial market represented the almost perfect form of the free market, because buyers and sellers were could gather almost unlimited information about one another, at almost instantaneous speed, at very low cost. Not only would the financial market be self-correcting, but it would automatically give us everything we might reasonably wish from it.
On the corruption of politics and the role of Congress:
During the same years Greenspan called for deregulation of financial markets, Wall Street was accelerating its bankrolling of the U.S. Congress. Securities and investment firms contributed larger and larger amounts of money – not just to conservative Republicans who might expect such support but also to Democrats who had never been so graced before. According to Center for Responsive Politics, Wall Street firms dramatically increased their contributions to both parties during these years. Their share of total donations to the Democratic Senatorial Campaign Committee, for example, rose continuously, from 5 percent during the 1999-2000 election cycle to 15 percent by the 2007-2008 cycle.

The money was accompanied, and often raised, by Wall Street lobbyists who pushed Congress in the same direction Greenspan urged – blocking regulation of derivatives, weakening oversight of subprime mortgage lending, and preventing the Securities and Exchange Commission from doing its job.
On the choice confronting Americans:
The real choice ahead is between democratic capitalism and authoritarian capitalism. China is perfecting the latter. But unless we are careful we – the citizens of democratic capitalist nations – will discover that our form of capitalism has become more authoritarian than democratic.

The Right Marches off into the Political Re-Education Gulag

Greg Anrig at TPM Cafe has discovered the right wing signing up for self-criticism and political re-education. He has a dozen excellent quotes. Here my favourite:
P.J. O' Rourke, The Weekly Standard

An entire generation has been born, grown up, and had families of its own since Ronald Reagan was elected. And where is the world we promised these children of the Conservative Age? Where is this land of freedom and responsibility, knowledge, opportunity, accomplishment, honor, truth, trust, and one boring hour each week spent in itchy clothes at church, synagogue, or mosque? It lies in ruins at our feet, as well it might, since we ourselves kicked the shining city upon a hill into dust and rubble.
Each of these pundits should hang their essays around their necks and wear them as a ritual of self-mortification, a kind of Right Wing cilice.

Krugman Skewers Wall Street

Paul Krugman has an excellent op-ed in the NY Times this week. He looks at the corruption of the Madoff ponzi scheme and then goes for the jugular:
But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.
Read the whole article. It is well worth your time.

Tom Friedman's "Hot, Flat, and Crowded"

I used to be a big fan of Thomas L. Friedman, but lately I've decided I got him wrong. At one time I thought he was insightful and enjoyed his bombastic statements. But now I've watched him hop from topic to topic rattling off some "sound bytes" and pontificating then running off to another topic before his mistakes catch up to him.

I don't mind somebody being a "personality" or using "sound bytes". What bothers me is getting analysis wrong and never going back to figure out what made you mistaken. I don't like guys who are instant experts on topics but when reality starts to pop through the busted seams they quickly decamp to set up their soapbox in another fertile field. I've decided that Thomas L. Friedman isn't selling ideas. He's selling himself as selling ideas. Having ideas and selling them doesn't bother me, but recklessly selling ideas which -- when they go bad -- you don't take the time to examine and learn but instead run off and expostulate in a new field and ignore the mistakes. Well, that downright puts me off. I'm tired of Thomas L. Friedman. I gave him his 10 minutes of fame. He needs to get off the stage and stay off the stage because his unwillingness to self reflect and self correct means he isn't worth paying attention to anymore.

This latest book is full of "flash analysis" that I no longer trust. He says silly things like:
Indeed, I believe history will record that it was Chinese capitalism that put the last nail into the coffin of the postwar European welfare state. France can no longer sustain a thirty-five-hour workweek or Europe its lavish social safety nets, because of the rising competition from low-wage high-aspiration China and India. It is hard for France to maintain a thirty-five-hour workweek when China and India have invented a thirty-five hour workday. (pp. 57-58)
This is wrong for so many reasons:
  • It creates a false dichotomy: either you recklessly pursue wealth and qualify as a "real capitalist" or you will be crushed. That's not true. Europe has never followed the US's rampant consumerism-based capitalism but it hasn't been crushed. They have successfully built a capitalism within a social democratic political system.
  • It disrespects his own culture in favour of an illusion: Friedman has written off the Europeans in the past because they didn't emulate the Americans. Now Friedman writes off his own culture because it hasn't embraced a mindless desperate capitalism of China. He is setting up the frenzied two-tier capitalism of China as an ideal, but most working class and middle class American would not embrace the Chinese system as a better future. Sure the US is in tatters and bankrupt because of the crony capitalism rampant in the US under Bush and the ideologues of the Republican party, but most Americans wouldn't give up their present for the idiotic belief that China is a glimpse of a "glorious future". Friedman overlooks the fact that China is a Communist state, a police state where there are no real rights and where the elite that is in charge has no concept of democracy or any vision of a political system that accepts social justice or human rights.
  • His bombast is insulting: No Chinese or Indian is working a "thirty-five-hour day". This kind of Stakhanovite theory of economic development is ridiculous. Stalin pushed this on his credulous (and imprisioned) people. Friedman wants to do the same to Americans?
His graphs on pages 97-100 represent his "analysis" of how "freedom" is inversely related to the price of oil. First, he uses the notorious Canadian Fraser Institute for his measure of "freedom". First, this is a right wing think tank that is fast and loose with the truth. Second, these graphs purportedly show the price of "oil" from graph to graph, but the scales differ and when you try to line up the rises and falls you come away thinking Friedman is playing fast and loose with facts. On page 97 oil from 1995-2003 rises, falls a bit, then rises again. But on page 98 oil from 1998-2005 rises with no slump in price. On page 99 oil from 1986-2005 wiggles up and down with no clear trend until 2003 when it starts a stratospheric rise. On page 100 oil from 1980-2003 shows a dramatic drop in price until 1995 when it start a straight upward rise. Whoa! How can oil dance these different dances to different beats of the drum to satisfy Friedman's desire to show a nice inverse relationship with "freedom". The only freedom I see here is the freedom to invent facts to support an argument.

Stay away from this book. Stay away from Friedman. He takes himself far too seriously and he no longer practices responsible journalism, a kind of journalism that respects truth and which admits errors and honestly tries to dig into the truth to get at the real story.

One thing I dislike about the class of people who tell you what you need and what you should do and what you are, they sneer at their followers. Jim Jones had his followers drink Kool-Aid. Friedman wants to tell his followers that if they don't follow his jet set lifestyle, then they aren't fully human:
To go through life without being able to smell a flower, swim a river, pluck the apple off a tree, or behold a mountain valley in spring is to be less than fully alive. Yes, one supposes, we would find substitues, but nothing that could compare with the pristine bounty, beauty, colors, and complexity of nature, without which we are literally less human. (p. 142)
If you want to be a true devotee of "green energy" you need to jet set. Yes, that is the formula that Friedman has followed:
Over the past decade, I have traveled with Glenn to some of the world's biodiversity hot spots and other endangered regions where CI [Conservation International] is working -- from the Pantanal wetlands in southwestern Brazil to the Atlantic rain forest on Brazil's coast, from Guyana Shield forest wilderness in southern Venezuela to the Rio Tambopata macaw research station in the heart of the Peruvian jungle, from the exotic-sounding highland of Shangri-La in Chinese-controlled Tibet to the tropical forests of Sumatra and the coral-ringed islands off Bali, in Indonesia. For me, these trips have been master classes in biodiversity, as were my own travels tothe Masai Mara in Kenya and the Ngorongoro Crater in Tanzania and the vast Empty Quarter of the Saudi Arabian Desert and -- before I had kids -- a rappelling trip inside the salt domes of the Dead Sea. (pp. 145-6)
If we all bought tickets and did this trek, there would be no biodiversity left. We would choke the planet. But it is nice that Friedman has taken time from his travels to tell us how much carbon he has expended in "learning" the lesson that we should not waste carbon because it will overheat the planet. I put Friedman up there with hypocrites like Tim Flannery, author of The Weather Makers, who had his epiphany that we need to cut down on consumption and carbon emission while jetting over the Indian subcontinent and seeing all the twinkling lights from the tens of thousands of Indian villages. He took this "insight" on the road and jetted around the world -- and wrote a book -- telling us all to not do as he does, but to do as he says: stop consuming, cut back, use less carbon. I'm always amazed how the rich and powerful love to lecture the little guy about "cleaninug up your act". The utter hypocrisy galls me. Friedman is a charter member of this group of elect.
Here's an example of his jet-set "green" revolution:
Once you've seen a tropical rain forest in Sumatra framed by lush green rice paddies and garlanded by trumpet flowers, which look just like their name -- pink flowers shaped like trumpets hanging down from every branch of a large bush -- you'll want to save it. Once you've seen the sun rise on the Masai Mara in Kenya and a parade of giraffes walking single file by your camp at dawn, as you shave in the mirror, you'll want to save it. Once you've tramped through the Amazonian rain forests of Peru, dodged by wild boar, and fed macaws from your shoulder at your breakfast table, you'll want to save it. (pp. 315-6)
This is nutty beyond belief. Currently there are maybe 40 million cultural "wanna be" tourists who tramp through museums, palaces, and churchs in Europe. Friedman is calling for 7 billion green "wanna be" tourists to tramp through the wild places. Nutty! First, what's the point of getting 50 mpg on your subcompact car if you are going to jet off to the far corners of the planet and burn more carbon in one trip than you expend a whole year living you disgraced "non-green" suburban life? Friedman is a fool. Sure, things have got to change, but I suggest the first thing to change is the hypocrisy of the elite telling the poor to "cut back" while they jet set around to shed tears over the eco destruction of the world spewing greenhouses gases on their grand tour. Nutty!

Here is another example of the idiocy that Friedman is selling. He reminds me of the hippies of Esalen selling their vision of laid back meditation as the "cure" for modern ills. Nice concept, but for the bottom half of the population struggling to put food on the table it was a slap in the face:
When your mind-set shifts to outgreening, said Dov Seidman, "you stop thinking about accumulating more than someone else and you start thinking about innovation." (p. 326)
First, most people I know are not into "accumulating more than others". They are into "accumulating enough to have a comfortable, secure life". It is the yuppies like Friedman who are big on accumulating more than others. And this philosophy he is pushing is just one more example of thumbing his nose at others to say "see, I'm one step ahead of you" and "if only you were as enlightened as me, then you could be as green as I am". Second, you will never have more than 1% or 2% of the population seriously into "innovation". It takes special skills and a certain level of wealth to have the leisure and resources to "invent". This paragraph, like a lot of the book, is just pure malarky.

Howlers & typos: Authors & publishers don't proof-read or fact-check books these days:
  • Page 135: "...unprecedentedly heavy rains in Iowa caused the Cedar River to flood and overwhelm downtown Cedar Rapids, rising well above thirty feet over sea level -- far, far above whe anybody had ever seen or expected." Odd. Cedar Rapids is 810 feet above sea level according to Wikipedia.

Update 2009jan12
: Here is an excellent -- and viciously critical -- review of Friedman's writing by Matt Taibbi. Here's a tidbit where he talks about the previous book The World is Flat:
The book's genesis is conversation Friedman has with Nandan Nilekani, the CEO of Infosys. Nilekani causally mutters to Friedman: "Tom, the playing field is being leveled." To you and me, an innocent throwaway phrase level the playing field being, after all, one of the most oft-repeated stock ideas in the history of human interaction. Not to Friedman. Ten minutes after his talk with Nilekani, he is pitching a tent in his company van on the road back from the Infosys campus in Bangalore:

As I left the Infosys campus that evening along the road back to Bangalore, I kept chewing on that phrase: "The playing field is being leveled."

What Nandan is saying, I thought, is that the playing field is being flattened... Flattened? Flattened? My God, he's telling me the world is flat!

This is like three pages into the book, and already the premise is totally fucked. Nilekani said level, not flat. The two concepts are completely different. Level is a qualitative idea that implies equality and competitive balance; flat is a physical, geographic concept that Friedman, remember, is openly contrasting ironically, as it were with Columbus's discovery that the world is round.

Except for one thing. The significance of Columbus's discovery was that on a round earth, humanity is more interconnected than on a flat one. On a round earth, the two most distant points are closer together than they are on a flat earth. But Friedman is going to spend the next 470 pages turning the "flat world" into a metaphor for global interconnectedness. Furthermore, he is specifically going to use the word round to describe the old, geographically isolated, unconnected world.