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This is the type of seminal insight that simply cannot be ignored nor praised too highly. From the Chronicle

So I would argue that the answer to the first question above, as to whether new approaches such as blogging constitute scholarly activity, is an emphatic yes. Which leads us to a more problematic question: How should we recognize it?

. . .

It’s a difficult problem, but one that many institutions are beginning to come to terms with. Combining the rich data available online that can reveal a scholar’s impact with forms of peer assessment gives an indication of reputation. Universities know this is a game they need to play—that having a good online reputation is more important in recruiting students than a glossy prospectus. And groups that sponsor research are after good online impact as well as presentations at conferences and journal papers.

Institutional reputation is largely created through the faculty’s online identity, and many institutions are now making it a priority to develop, recognize, and encourage practices such as blogging.

More seriously. It is certainly the case that blog reputation is a big deal for a University’s overall reputation and amazingly work in the traditional way.

One of the most surprising things I have noticed about blogging is the number of students who have offered to do work for me for free because of it. Given the infrastructure right now I can’t even adequately handle them all.

Given that tangible result its hard to see how blogging over time doesn’t attract the best graduate students and that is presumably the foundation of University reputation.

Moreover, I tend to think its just a better intellectual world when everything is open and instantly accessible from top to bottom.

In economics in particular you have journalists writing about the things people care about. Some economists taking those pop questions and turning them into economic questions. Others, framing theories and arguments about them. Others applying data to the argument. Other synthesizing the findings and reporting them back out to the Journalists.

Thus there is a complete loop between the larger world and the academic world, ensuring that the things academics work on are not only based on things people care about but circle back to influence the general state of knowledge.

Not only that but the format lends itself beautifully to intellectual history. At relatively low cost the entire academic blogosphere could be recorded and stored as a fully functional web with timestamps, links and everything else.

This in theory allows us trace the evolution of an idea almost precisely and possibly to understand better how and why certain ideas win out over others.

HT Robin

Like Will Wilkinson I found John Gray’s review of Jonathan Haidt’s, The Righteous Mind, entertaining if not particularly enlightening.

This is not my main point but I can’t help to note that Gray seems to think little of Haidt’s philosophical sophistication, yet in that same review pens paragraphs such as this

In his diary recording the persecution he suffered in Nazi Germany, Victor Klemperer reports on tradesmen and neighbors occasionally slipping him and his wife food and chocolate. Against the background of pervasive hatred and cruelty that Klemperer experienced, these fitful expressions of kindness must qualify as moral behavior. But they are in no sense “groupish.” Quite the contrary: they show people setting aside group identities for the sake of human sympathy. Those who helped Klemperer and his wife were violating the group-centered racist morality of Nazism—along with the morality that had in the past sanctioned persecution of Jews—in order to show concern for individuals. In effect, they were choosing between good and bad moralities.

Taken as a whole, these eloquent words don’t quite fall to the level of nonsense, but its certainly far from clear what meaningful statement Gray is making here and it does of course smack of appeal to emotion.

The larger point, however, is that I don’t see any fundamental tension between the work that Haidt is doing and moral philosophy. Gray writes

IT IS RATHER LATE in his argument that Haidt offers anything like a definition of morality, but when he does it is avowedly functionalist: “Moral systems are interlocking sets of values, virtues, norms, practices, identities, institutions, technologies, and evolved psychological mechanisms that work together to suppress or regulate self-interest and make cooperative societies possible.” Haidt recognizes that this is an entirely descriptive definition. He acknowledges that, if it were applied normatively, “it would give high marks to fascist and communist societies as well as to cults, so long as they achieved high levels of social cooperation by creating a shared social order.”

That is an implication of Haidt’s analysis about which he should be seriously concerned. But Haidt seems not to grasp the depth of the difficulties that he faces. There is a slippage from “is” to “ought” in nearly all evolutionary theorizing, with arguments about natural behavior sliding into claims about the human good. It may be true—though any account of how precisely this occurred can at present be little more than speculation—that much of what we see as morality evolved in a process of natural selection. That does not mean that the results must be benign. Freud tried to develop a view of human nature in terms of which morality could be better understood; but he accepted that much that comes naturally to humans—such as sexual predation and other types of violence—had to be repressed in the interests of a civilized life. Civilization sometimes requires the repression of natural human traits, including some that may be sanctioned by prevailing moral codes. The moralities that have emerged by natural selection have no overriding authority.

It is quite true that no description of the evolution of human morality tells us what we “ought” to do, but such descriptions in general and Haidt’s work in particular are incredibly useful to the moral philosopher.

For example, a significant chunk of moral philosophy could be understood as an attempt to divine what the following sentence is all about:

Sally said that eating meat is morally wrong, but I disagree.

Assuming that Sally did in fact utter the words “eating meat is morally wrong” what, if anything, am I disagreeing with?

Without diving too deep, let’s just say it is far from clear. However, Haidt is potentially offering us a clear first step.

According to Haidt I can understand that sentence as the following:

Sally said that eating meat violates either the principle of care, fairness, loyalty, respect, sanctity or liberty, but I disagree.

Importantly, if Haidt is right then my view of morality, projectivist anti-realism is seriously called into question. Indeed, taking Haidt seriously enough is grounds for accepting a full throated moral-realism.

So, I am deeply interested in the potential success of Haidt’s project.

Where I am confused by Haidt is his suggestion that of the six foundational values, conservatives see all six, libertarians see four and liberals only three.

Why should this be?

Are we suggesting that liberalism for example is a form of color-blindness; that liberals simply lack the cones to see three of the foundational moral values?

If this is the case are we to understand the growth of liberalism over time as the rapid spread of a genetic mutation? Is it the result of some sort of nutritional deficiency or environmental pollutant?

Moreover, it really seems like people are able to become more liberal or conservative as a result of primarily mental experiences. What is that all about?

Now I want to be clear that I am open to these possibilities. I am just not sure if that’s what Haidt means because he seems to suggest that through experience and intermingling liberals and conservatives can learn to put aside their differences.

However, doesn’t this suggest that liberals can in fact see all six foundational values?

Daniel Neman reviews Tyler Cowen’s An Economist Get’s Lunch

Don’t go into a restaurant with many beautiful women in it, says economist Tyler Cowen. Those places attract a lot of men, and although they may be popular for a few months the quality inevitably will soon diminish.

. . .

What these and other statements from the esteemed economist should teach us is that, in general, we shouldn’t listen to what economists have to say about restaurants. They don’t look at life the same way as you and I. And they certainly don’t consider situations that do not fit into their preconceived theories.

For instance, what if you are yourself a beautiful woman? What if you are a beautiful woman who wants to dine out with a number of your beautiful friends? According to Mr. Cowen, you shouldn’t go to whatever restaurant you happen to go to.

Perhaps what it teaches us is that we shouldn’t listen to esteemed Food Critics when it comes to deduction reasoning.

Having accompanied many such diners facing this apparent dilemma, the solution is obvious. Travel in small groups. Find a place first. Don’t tell anyone about it. And, if they do find out move on to another place while relentlessly bad mouthing the first place, until it losses it social status. Rinse and Repeat.

Replying in part to me Daniel writes

It seems to me that secular ethics distinguishes itself by recognizing the fundamental pluralism of society, and that while these community-level constructions of the world are useful for getting along in the world, in a community – they don’t quite reach a standard of justification they claim for themselves. So we need a broader, more pluralist ethics and Douthat is right – that often consists of dismissing the justificationist, foundationalist project itself. Why? Because an ethics that you can get by writing a poetic book and waiting a couple centuries for it to gain mystical significance does not seem like a very laudable ethical code. You’ll get some gems from that approach, of course. We humans learn how to get along with each other, and that is going to be distilled in these various books. But it’s not a very strong justification. What much of the world has converged on is that since within-community justifications don’t work outside of the community, we need to come up with an ethical orientation that allows the coexistence of multiple potentially contradictory communities, justification and foundation be damned.

I don’t mean the following in any dismissive way but simply to articulate my understanding. Daniel seems to be making three statements to me

  1. Secular Ethics is Pluralistic Cultural Politics
  2. Hurrah for Pluralistic Cultural Politics!
  3. I am not interested in playing ethics-game

I understand the pull of this approach. I find this unsatisfying because, like Daniel I assume, I see limits to coexistence. As a contemporary practical matter for example, are we willing to accept, acceptance of human trafficking as a within-community ethical standard that should be tolerated, without even protest or disapprobation?

And, if you do think that we should attempt to morally press a community which accepts human trafficking, not to do so, are you not at minimum initiating a neutron-bomb moral assault. Where in this case you hope to leave the actual human participants unharmed, but to obliterate the underlying ethical standard.

And, if you do then what calculus do you use to decide when such an assault is warranted? This, I think, leads us back to playing ethics-game.

Ross Douthat writes

. . . much of today’s liberalism expects me to respect its moral fervor even as it denies the revelation that once justified that fervor in the first place. It insists that it is a purely secular and scientific enterprise even as it grounds its politics in metaphysical claims. (You will not find the principle of absolute human equality in evolutionary theory, or universal human rights anywhere in physics.) It complains that Christian teachings on homosexuality do violence to gay people’s equal dignity—but if the world is just matter in motion, whence comes this dignity? What justifies and sustains it? Why should I grant it such intense, almost supernatural respect?

This seems largely correct to me. A coherent secular morality is a tricky problem in and of itself. One that makes absolute claims even more so, and one that makes absolute claims absolutely seems well beyond our grasp. And, I say this as a secularist who is very much concerned with ethics or what, to make the point, I have often been forced to call the-ethics-game.

For example, the claim that slavery is fundamentally wrong in all cases is not controversial among secularists but it is far from clear how one justifies this except by asserting it. And, then of course what is one to say to people who deny it?

Intending no disrespect to the underlying issue, the argument seems to devolve into “na-na na-na boo-boo.” Which is to say, simply refusing to accept the denial as valid.

There are various claims which amount to saying the human faculty of reason endows us with certain inalienables. Not only does this strike me as blatant post hoc speciesism, but it seems to suggest that there is some mental threshold below which a person could fall in which not only enslaving them would be fine but also violating any of the other rights which are asserted to stem from self-ownership. In short treating the person as an animal.

Attempts to reconcile this problem back people into corners such as asserting that the well-being of an adult pig is as important as the well-being of a newborn baby.

At least some of the confusion over this comes from the assumption that lacking the same ethical grounding as Christians, secularists either will not behave morally or cannot make moral demands.

The first I think just misunderstands how people behave and gives too much credit to critical reasoning and justification. For the most part secularists behave morally for the same reason just about everyone else does, because they would feel bad if they did not.

The second I am increasingly tempted to say conflates cultural politics with the ethics-game. If you ask on what grounds do I accuse rapists of having done wrong, then the authentic answer is that a world with rape displeases me and this is a tool I can use to get society to impose sanctions against it.

That in my mind is quite different than the ethics-game. The ethics-game is an attempt to answer the question, what moral stance “should” I adopt. It is in the ethics-game that we pay careful attention to metaphysical coherence, consistency and an attempt to tease out what we really believe.

What Douthat appears to be saying is that the ethics-game is hard for secularists, and that is correct.

So, despite my repeated attempts to drill a deep pessimism into my readers lots of my commenters still take my attitude about the future as Cassandra-ism.

Indeed, it’s the exact opposite. If I had to yoke with someone more famous I would pick Camus, though – and perhaps you laugh – I find much of his words a quasi-optimistic copout.

Suicide is fully rationally and consistent with our (the black-black existentialist) stated views on absurdity. One can embrace simply by saying: I am viscerally afraid to die. I viscerally long for the morrow. None of this makes any sense.

Yet, when I open my eyes the question “So, what now” is imposed on me by simply being a conscious being. And, so we love the moments not because there is any sense to it or because we have escaped or transcended absurdity in anyway, but simply because we are therefore, why not.

Still, if not rebellion per se we can seek insight. Again, for no other reason than that we are and we wish. And, yes formal ethics is a game we choose or choose not to play. I prefer the terminology, table we wish to sit at or not, because I do not like the English language connotation of “game.”

As I said to Bryan Caplan in our debate, there simply is no response to “I don’t want to play this game”  That is, to say if you don’t wish to sit at this table then that’s the end of the conversation. We can and Bryan and I did, go for drinks.

In any case, to the events of the day.

Understanding that things won’t work out in the end helps you take a more level headed approach to things that are happening now.

For example, both Megan and Kelly were taken aback at my attitude on long run fiscal issues. There are a lot of levels of disagreement, different with each, but key is that I push this line of reasoning:

  1. That we cannot as individuals or as a state afford everything we would like is simply scarcity and is the furniture of our world.
  2. If we are lucky we will have the choice to kick-the-can-down the-road.
  3. Kicking-the-can-down-the-road is of its nature preferable because bad things now are worse than bad things later.
  4. There is some price to can kicking but before I endorse increasing the suffering of actual existent people I would need at least an argument as to why that price is high.
  5. “Being responsible” is not an argument. Its an attempt to display high status
  6. In actual fact the claims of long term calamity are overblown. Calamity usually comes swift by its nature and for reasons I can go into later.

My case in point on this is Greece. Greece’s “insolvency” was handled extremely poorly. Its an example of folks choosing policy that makes almost everyone poorer and the poor relatively.

Nonetheless, lets see what happened when sudden austerity comes clamping down.

At least 45 buildings were burned, including one of the capital’s oldest cinemas, while dozens of stores and cafes were smashed and looted.

The stench of tear gas still hung in the air on Monday morning, choking passers-by. More than 120 people were hurt in the rioting which also broke out in other Greek cities. Authorities said 68 police needed medical care after being injured by gasoline bombs, rocks and other objects hurled at them, while at least 70 protesters were also hospitalized.

Police arrested at least 67 people, while in several cases they had to escort fire crews to burning buildings after protesters prevented access.

This is not exactly civilization ending stuff.

The precautionary principle has yet to show its merit.

Ordinary Optimal Control still wins the day.

As a note, I know some people will find this all confusing because you can’t tell whose side I am on. My point is beyond all that.

My point is that the entire paradigm is wrong. There is no “we just have to” either for reigning in spending or maintaining the welfare state. Nor have there been any consequences so discontinuous as to be approximated by “we just have to.”

What do you think you want to do?

That’s the public finance question.

My growing sense is that the core intellectual struggles surrounding the Great Recession have been practically resolved.

There were three core things that needed to be understood.

1) That the near term future of capitalism could only be secured by hurling huge sums of money at the US banking system in 2008-2009. That was done.

2) That a perhaps not cataclysmic but nonetheless horrific second global financial crisis could only be secured against by hurling huge sums of money at the European banking system in 2011. That was done.

3) That the global downturn is a phenomenon of Aggregate Demand in general and liquidity/collateral constraints in particular. As such it would be alleviated by the easing of credit and the transferring of liabilities from the liquidity constrained to the liquidity free.

Though too little was done in time, this point has more or less been ceded by a critical mass of the intelligentsia. Furthermore, in the US, per-capita depreciation is proceeding at such a rate that the liquidity free would be induced – against their individual risk tolerance and rate of time preference – to procure large quantities of capital.

The attempt to do this will transfer purchasing power to the liquidity constrained and will thus alleviate the crisis.

And, there are enough people with strong enough voices who understand and are communicating this to keep efforts at stopping at bay.

More could be done policy wise, but I do not think at this point more is likely to be forth coming simply because we talk about it. Too much is riding on the opinions of people who are not interested in the conversation.

So, as a practical intellectual matter the Great Recession is done.

It is time to move to other things.

Here are three that I think are important to get to next.

Reason and Economic Policy

I used to believe that the disagreements in the economics/policy/elite journalism world were founded on attempts to seize the zeitgeist through intellectual intimidation. That is people pretended to be arguing over policy issues but instead were try to push the political culture towards their preferred answers to meta-questions of policy.

For example, is providing lots of assistance to the poor something society should embrace. Is letting people keep what they earn something society should embrace.

Everything else, I thought, was window dressing.

Yet, watching the blogosphere I have come to doubt this. For example, there were strong pushes to adopt policies which would make almost everyone poorer and the poor relatively poorer. Who supports this outcome?

For sure, there is disagreement on values but I don’t think in translates into that much disagreement on policy. There is also bullshit, properly defined, but I think it is of a derivative order. The bullshitters are attempting to prop a policy view that has genuine support.

So, I think “being genuinely wrong” is a more important problem than I originally realized.

The thing is, everyone is looking at roughly the same evidence. So the problems here have to be problems with reason and interpretation.

Listening to people debate I think the biggest problem is reason. In some cases one could replace the words “progressivity” with “jam” or “growth” with “blueberry muffins” and the arguments would be no more or less sensible. That is to say, the disagreement is not even semantic.

This is one reason why I encourage my colleagues to be gentle rather than mean. Another – so that we my be honest – is that I am, obviously, viscerally uncomfortable with meanness.

Nonetheless, if people are making errors of reason yelling at them is not likely to help them because being yelled at makes it more difficult for people to focus. It is also not likely to put readers in a mode where they are more open to reason. Instead they are likely to view this as a sporting match and try to determine who is and is not on their team.

GDP is Dead

I wanted to make my first mention of this funnier, but its better just to get something down.

Its understandable that before the internet, fast search and laptops capable of handling huge data files folks would want the best summary statics of the economy they could get.

The concept of GDP is a good attempt at a consistent representation of the total economic output of a region.

However, in the modern era we don’t really need it for most purposes. Maybe some sort of historical and cross country record keeping where the data is incompatible.

In the US, however, we have much more direct measures of the variables of interest. Indeed, we have access to many of the addends which are used to create GDP in the first place and there is no reason I know of that we couldn’t lobby to make all of them available.

Given that, why still focus so much on GDP?

In order to make it consistent and add up correctly we have to make lots of compromises which obscure our understanding of the economy. Why not brush GDP aside and focus on the disaggregated data that we care about.

Indeed, given the way he talks about the issue I wonder if Scott Sumner might be happier with nominal compensation of employees as his stabilization target:

FRED Graph

Here is the trend by the way

FRED Graph

Notice the different dynamics of the two “bubble” recessions.


As I have been talking around for a while there is – what look to me – to be poor intuition concerning physical capital and investment. This is unfortunate because unlike a lot of concepts in economics physical capital is tangible. We can actually go visit the capital.

To make this more clear, here is the simple data


This is important because the blue category is the stuff of everyday life. The red are things we might not interact with everyday but deeply get on a non-macro economic level.

Our daily experience can influence how we think about the capital stock. More importantly, we can relate our daily feelings with our feelings about growth and the US.

For example, when you say this capital gains tax increase will reduce investment and hence growth what you mean is that some developer will decide to build a smaller shopping center. I don’t mean this derisively. One of my biggest complaints is that Cameron Village needs to be expanded and that there is neither a Ross nor a Marshalls Inside-the-Beltline.

Yet, these are the complaints of investment and capital accumulation and we should understand that.

You can also think about how the type of things we debate on a macro level weigh against concerns like: local zoning restrictions or enterprise-ready open source software.


I forgot to note that I included manufacturing facilities in the “Everything Else” category even though they are buildings because most folks don’t regularly interact with a manufacturing plant.

A few people have asked about my debate with Bryan Caplan on the issue of how deserving the poor are. I’ll try to give a sense of the case I wanted, though perhaps failed, to make.

My thesis may be best understood this way:

There is no reason to view emotional or mental deficiencies as different in kind from physical ones. To put it in the harshest of terms, if you think someone who is born blind is deserving of sympathy and support then you should think someone who is born lazy and stupid is deserving of sympathy and support.

Further once you concede that the lazy and stupid are deserving of sympathy then its difficult to construct a set of poor people who are not, since these are among the least sympathetic qualities that could cause someone to be poor.

Thus the vast majority of the poor are deserving of sympathy or support.


As to those attributes. To a wider audience this might be a question, but I had assumed that the audience I was going to speak to at GMU would swallow without objection the notion that IQ is more or less fixed before the age of 12. We can talk about the relative influence of genes, prenatal care, nutrition, early childhood education, lead, etc. However, I didn’t think they would dispute that your IQ is determined before what most people would think of as your moral agency. If so, can it reasonably be your fault that you are stupid?

As it happened I was also debating Bryan Caplan, who I thought and still think, would admit that one’s actual level of conscientiousness is probably genetically determined. And, further that this personality attribute underlies most of what the normal world would call “laziness.”

And so again, if one is sympathetic towards those born blind does it not follow that one should be sympathetic towards those born lazy?


Now, that having been said I recognize that there will be a huge visceral aversion to this line of reasoning. And, so I want to do what I can to calm that aversion.

My point was that the reason we feel so differently about disabilities like blindness as opposed to disabilities like laziness, is that its really difficult to fake being blind. Thus there is much less concern that the blind person is taking advantage of you by lying about their blindness.

Its much more difficult to confirm laziness. So much so that people are hesitant to think of it as not a innate property of the person at all. However, our psychological research strongly suggests that this is not true.

What is true is that someone could claim to be lazy when what they really are is indifferent to your suffering. They could say, “ Holding down a job is especially difficult for me” when in reality they feel “I am simply much more concerned with my own happiness than I am with yours and prefer a state of the world in which you suffer so I don’t have to”

Since from the outside we can’t tell which of those two things is true we reject all claims about laziness as unjustified.

However, we can recognize that this is a product of our limited knowledge and not the world itself. If we could tell who had genuinely low conscientiousness versus who simply claimed to have it in order to pass suffering on to others then we would want to distinguish between the two.

This means that our problem is practical and not moral.

It is not that the lazy are underserving but simply that we lack the technology to distinguish them from those faking laziness.

The irony of this, however, is that if we adopted an economic system that was extremely intolerant of laziness, then everyone who still exhibited laziness would be genuinely lazy.

The authentic thing to say to them then would be: I am very sorry that you were born this way. I wish things were different. Unfortunately we lack the technological sophistication to create a better world.

It would be inauthentic to say: You chose not to work and so you deserve what you get.

Indeed, as economists we can instantly detect the inauthenticity of the last statement by conducting the following thought experiment. Suppose that we took someone who is currently in poverty and told them that on threat of death they will obtain and hold a middle class job as well as save and invest according to middle class norms.

And, suppose the person complies. Would it then make sense to say: congratulations you deserve all the net happiness that comes from these actions? After all, our working assumption as economists is that the net happiness from these actions is negative.

That is, the cost of obeying these social norms exceeds the benefit of obeying them and that is precisely why the person didn’t do it of their own accord.

What does it mean to say that the desert of making hard choices is misery?

I think the natural response here would be to say, very well but how do you know they are miserable. Perhaps they feel the same I as I do but were even happier on the street.

Perhaps, and this goes to the deep question interpersonal comparisons of happiness and suffering. Yet, if we want to stop here and say “we can go no further” then don’t we have to give up on all of our notions of suffering and sympathy?

In the face of the seeming agony of  achild slowly dying of cancer and the parents grieving the creeping loss are we prepared to say: Well I really don’t know if the lived experience of these people is better or worse than my experience of a pin prick and so sympathy is unwarranted here.

My sense is that we do want to admit the meaningfulness of the suffering of others and that we have at least a somewhat workable mechanism at determining what that is. We should then apply this mechanism to those suffering from laziness.

My approach would go as follows. If you see someone who is a beach bum and looks to not have material care in the world you may be able to imagine saying “I wish that I could be as free of material concerns as that fellow.”

We would not deem him to be suffering and so his poverty is not something about which we would have sympathy.

On the other hand, if you observe an individual repeatedly trying to obtain and hold jobs and repeatedly being fired for not showing up on time or screwing off in minor ways, then we imagine saying “I am glad I am not this fellow. He can’t seem to get it together for the life of him.”

We would then deem him to be suffering and so his poverty is something about which we would have sympathy.

Taken all together this says: Even the least sympathetic reasons for being poor stem ultimately from inborn conditions. A person with those conditions faces a high tradeoff between material comfort and emotional distress. I can recognize what it would mean to say the nature of this tradeoff is preferable to my condition or unpreferable to my condition. If it is unpreferable then I can say, this person was born worse off than me and so is deserving of my sympathy.

And, since we find reason to be sympathetic to some of the least sympathetic reasons, for being poor, consistency should lead us to be sympathetic towards almost all reasons for being poor. And, hence we should declare that few if any persons deserve to be poor.

A Few Notes

Why does this matter: Well on one level I simply appeal to the aesthetic. We try to understand our world and our intuitions about it in a consistent way because doing so is beautiful.

In practice I would say it puts an increased focus on the ability of our technology to support the deserving poor without encouraging fakery.

In a very practical sense it might suggests that programs which depend on 1-1 relationships should be given high levels of moral praise as poverty elimination systems. So, that might mean local charities and organizations with the discretion to support individuals or not based on a long history of working with them should been seen as doing a special good.

Isn’t poverty much more complicated than you laid out: For sure. My point is that there are lots of gray areas regarding sympathy and poverty, but rather than getting bogged down in that lets look at the strongest reasons to be unsympathetic and see if they withstand scrutiny.

Is this just more Pity-Charity Liberalism: Yes. And, I think it’s an ethically more meaningful enterprise than getting up in arms about failures of the meritocracy. I don’t know any moral reason why the talented deserve to prosper and the untalented to fail and so the leveling-of-the-playing-field is of purely instrumental importance. It matters if it makes a more productive society or increases personal fulfillment, but it is not a moral cause unto itself.

Kevin Drum replies

So sure, it’s kabuki. All of us who write about politics for a living understand that 90% (at least) of what we do is just shadow boxing. Controversies are invented, then debunked, then invented all over again, and debunked. Sometimes the inventors know perfectly well what they’re doing, while other times they’ve talked themselves into actually believing their own nonsense. In either case, these things are mostly just proxies for the issues that really matter.

But so what? The Reichstag fire was wholly invented too, and look what happened after that. As demeaning as it is, fighting back against bullshit is every bit as important as fighting back against the real stuff.

This is an important point but we should define a line between where the contributions of professional intellectuals end and where the contributions of professional advocates takeover.

If there is genuine misunderstanding then there is a role for intellectuals to say – well actually I think its like this.

However, once an issue simply because a proxy for which team you want to win, this is not our fight. There are good men and women who are paid to do that and they should.

However, our role is the spread of knowledge. Once people are no longer concerned with knowledge but simply scoring points, we should move on.

While I still grasp for exactly how to express my thoughts on the issues of income inequality, social mobility and the meritocratic state, I’ll pass along this video.

Remember that this is not a documentary or commentary but eduprop designed to Americanize a diverse culture.


I should also add that I can sense that a lot of my readers grope for the “point” of many of my posts. In the sense they are looking for, there isn’t one.

The point is to think more about what we really mean when we talk about inequality and mobility? What are the elements of America we care about and why?

And, of particular interest to me: Was there anything fundamentally different about the American economy during the mid 20th century; or are our stylized facts about inequality and growth merely the results of the temporally overlapping effects of urbanization, feminism and the fall of Jim Crow.

I will debate Bryan Caplan on this topic this coming Wednesday.

Bryan’s says

My strategy, as usual, is to use an uncontroversial moral premise to show that the status quo is absurd.  The premise: You are poor by your own fault if there are reasonable steps you could take – or could have taken – to avoid poverty.

Tyler correctly predicts that no one – not least myself – knows for sure which Karl Smith will show up.

Yet other perspectives must be brought to bear.  There is determinism, at differing levels, ranging from “it’s tough to come from a broken home” to “lead poisoning is bad for you” to “what if the universe is a frozen four-dimensional Einsteinian/Parmenidean block of space-time?”  (Ethics does look different when you are traveling at the speed of light.)

There is the view that desert simply is not very relevant for a lot of our choices.  We still may wish to aid the undeserving.

Though it will be tough I will resist the urge to preemptively concede to Bryan on the grounds that desert is a fiction and morality a farce. The only question of any importance is which more unlovely to us: the manners and habits of the poor or the sight, sound and knowledge of their suffering.

Morality – like causality – is a tale told by an idiot. Or, more precisely the left prefrontal cortex. This mass of neurons is tasked with weaving purpose and meaning out of world which has no such things.

When combined with speech this application of narratives to reality allows human beings to operate as a giant hivemind, responding to events they have no direct access to and coordinating behavior in ways that greatly increases the survival rate of their offspring.

All of that having been said, it is lovely to work through the implications of what we believe.

So my basic case is that Bryan’s distinction between utility functions and budget constraints doesn’t correspond to anything that would be relevant to most folk’s well examined sense of morality.

In some cases this is because the distinction is so easily redefined simply by altering the choice set.

Bryan has famously said that the alcoholic is deserves the consequences of his alcoholism because he could have chosen differently. If you put a gun to his head and said don’t drink, the alcoholic could stop.


But, the alcoholic cannot choose the consumption bundle that I chose all the time. That is to not drink and not experience delirium tremors. Putting a gun to his head can’t make him choose that outcome.

I’ll of course go into more detail in the debate but unless you are saying the alcoholic deserves delirium tremors it makes little sense to say that he deserves the poverty that results from his alcoholism. After all poverty is his attempt to better his situation.

I used alcohol because Bryan did but we can keep tracing down the chain to more fundamental properties of people and see that in many cases poverty is an attempt to escape a fate worse than poverty.

Unless you believe that they deserve this worse fate then why do they deserve poverty?

There is a lot that I wanted say about the mobility debate but my views are so far out of the mainstream I wasn’t sure where to start.  This post by Matt Yglesias lets me at least say something.

Washingtonian, like other regional magazines I’m familiar with, does an annual “best restaurants” issue which is different from their “cheap eats” issue. They also have a “best doctors” issue, but there’s no equivalent of the “cheap eats” concept for health care. My best guess is that this reflects the authentic structure of consumer demand. People sometimes want a great big fancy dinner and sometimes want a great deal on a bowl of pho, but on health care what they want to know is who’s the best.

I was in a doctor’s office with a relation and we noticed a sign on the wall that requested patients not wear perfume or scented lotions of any kind. Then there was another sign that requested that you not make loud noises. The doctor was also fidgety, awkward and significantly “goofy looking.”

We had a conversation that I’ll paraphrase like this:

Relation: Maybe he has Fragile X

Me: Doubt it, Fragile X usually implies mental retardation

Relation: He doesn’t seem very intelligent

Me: An IQ of 80 would make it unlikely that he would finish medical school

Relation: I guess that’s right

Which is to say several things.

First, “best” was not a relevant consideration. Can order blood work was his defining characteristic. This is especially true with a primary care physician. Besides being loose with the prescription pad its not always clear what a “good” primary care physician is.

Second, people grossly underestimate the extent to which society is sorted. This leads to people being thought of as stupid who are in fact well into the right of the distribution. In turn, this leads to people underestimating the extent of the meritocracy. What seem like gross violations are on a larger scale minor discrepancies.

That having been said my baseline is that a well sorted meritocracy increases the case for redistribution. The biggest problem with redistribution is that you may upset the sorting.

If the sorting is really tight then you can redistribute a lot and not worry about messing it up.

He writes

Luckily I’ve mostly resisted the siren call of the Googleverse aside from their search engine. But I guess I’m starting to think that I should be more careful even there. Am I just being paranoid? Or should I start using some kind of add-on to prevent Google from tracking my activity? What says the hive mind?

Maybe there is something I am missing here but Google tracking my – and everyone else’s – activity seems awesome.

Now, when it comes to the government I can grant that there are some grand issues associated with privacy and the potential of authorities to abuse that information. Though, if we were to be honest I am not sure this is a serious practical concern.

Not, to be sure, because I don’t think the government would spy on us at every chance if it could. No, instead because for most practical purposes the information in collects is of little value.

My guess – and again I welcome Julian Sanchez to say why I am wrong – is that this extends from a basic instinctual drive for privacy which in turn extends from concerns about being ostracized from the larger group for abnormal behavior.

However, in modern America this is not really a threat. There is virtually no odd behavior that does not have an associated group.

Now that being said there are particular types of information that will be potentially hurtful or embarrassing unless or until we readopt an extremely strict set of social conventions.

However, if Google breaks that information open my guess is that you will indeed see a re-emergence of conventions that explicitly quarantine vice from the rest of professional and personal life

In any case my core point is that its not possible to have a society in which the majority of people have their privacy regularly and publically violated. Such regular violation will simply alter the terms on which people judge each other and therefore what is meaningfully private.

Via Tyler Cowen SoberLook writes

The chart below (last 20 years) shows that non-family households have generally been growing in line with the US population and although dipped in 2008, have since recovered.

Non-family households vs. the US population (thousands, source: US Census Bureau)

The real problem however is found in the family household formation. Family households have completely decoupled from the US population growth since 2008.

Family households vs. the US population (thousands, source: US Census Bureau)

This deviation is quite new.  Family households have been forming at an average rate of 651,000 per year since at least 1947 (when the first annual household data became available). During that whole period the only years showing "negative formation" are 2008, 2010, and 2011 – likely the result of families moving together (parents and grandparents, etc.).

This is my interpretation as well. From causal looks at the data, as well as other anecdotal evidence, it looks as if the percentage of kids moving back in with their parents is at all time high.

I would suspect that we do have some grandparents moving in, but it looks like its mainly the kids.

Moreover, much  of this looks to be driven by a decline in marriage rates. So, we are thinking of a traditionalist family model where the extended family lives together until the kids are married off. The kids are not marrying off and so the family is staying together. If we look at the data we do see a sharp drop in the marriage rates of those with a high school education or less.

The household dynamics are complex, but here is my first blush takeaway. The demand for housing is still essentially “pent up” unless the marriage rate is declining.

It’s not enough for the marriage rate to be low because that alone will not produce a higher equilibrium household size. It will simply time-shift household formation towards a new matriarch formation point.

Now, I don’t know what produces a matriarch in the absence of marriage. Probably not simply death of the old matriarch. There is likely some other dynamic that occurs when a daughter defines her own household even without marriage occurring. What that is I don’t know.

My standard thinking is that it is not really important to think about the men. Its female household formation and evolution that matters. Men will simply become attached or detached from the female stem line but the women are the core of the household and the men can be treated as white noise about that core.

First, Kevin Drum writes

Just out of curiosity, did anyone ever really believe that "don’t be evil" stuff? I mean, Google’s a big corporation. They’ve been a big public corporation for nearly eight years. Big public corporations are in business to make money and enhance their stockholders’ wealth, and that’s that. Google has long been big enough and profitable enough that they could sort of pretend otherwise now and again, but even that was only bound to last as long as their competition remained weak and ignorable. That’s no longer the case, and Google is responding normally.

I don’t think its immediately obvious whether Google is in the business to make money and enhance shareholder value and that’s that.

They are probably not indifferent to making money and Wall Street will do its best to make sure that they are not indifferent to stock price, over the short term. Whether or not buy and hold forever investors are looked after is another matter.

However, Google is an organization and like most organizations is run by a combination of the moral authority of various leaders and the official chain of command.

What the people who sit atop the chain of command or who command respect within the company want is hard to tell. At one point the dominate interest seemed to be in creating an extremely consumer focused product. Slowly the dominate interest seems to have moved towards empire building.

That is, creating a super massive corporation that leads and is involved in as many aspects of the tech frontier as possible.

For large successful organizations it is difficult to resist the latter pole. This is in part because such organizations attract people who want to build empires. So, slowly the moral authority in the organization begins to shift in an imperial direction.

Second, I appear to be the only person in the world who prefers the new Google suite. Especially, now that you can choose compact.

Accepting the absurdity of everything around us is one step, a necessary experience: it should not become a dead end. It arouses a revolt that can become fruitful.

~ Albert Camus

One of my long themes is that people have a natural – and I believe unexamined – attraction to sustaining certain activities.

The CEO wants to keep his company from going bankrupt. The doctor wants to keep his patient from dying. The statesman wants to keep his polity from collapsing.

However, all companies go bankrupt. All patients die. All polities collapse.

Seeking to sustain these things as an end unto itself is absurd.

In contrast, I argue that life and everything in it is an extraction problem:

How can we take more?

How can we get more out of life?

How can we more fully seize the day?

Those three questions have different frames. The first greedy, the third idealistic. Yet, underneath it all is the same question. Time is short. Resources are limited.

How do we use the time we have, to make the resources we have, fit our vision of the best possible world?

We get wrapped up sometimes worrying whether we are signaling that our vision for the world is noble or that our vision is base. Are we doing it for the good of humanity or only for ourselves?

However, in all cases it is our vision. And, some of the worst atrocities in history were committed by people who at the time genuinely believed that they were making the world a better place.

Part of coming to the world honestly is to know that we are extracting. We are imposing. We are here to change what is into what we wish it to be. That’s the beginning and the end.

Then we can come back and more honestly ask, how do we extract in the best possible way. How do we do the best we can with what we have.

And, how would we know if we weren’t?

Paul says

So what the story of Romney and the auto bailout actually shows is something we already knew from health care: he’s a smart guy who is also a moral coward. His original proposal for the auto industry, like his health reform, bore considerable resemblance to what Obama actually did. But when the deed took place, Romney — rather than having the courage to say that the president was actually doing something reasonable — joined the rest of his party in whining and denouncing the plan.

And now he wants to claim credit for the very policy he trashed when it hung in the balance.

He also says

Cowen apparently wants me to make the best case for the opposing side in policy debates. Since when has that been the rule? I’m trying to move policy in what I believe to be the right direction — and I will make the best honest case I can for moving in that direction.

Look, economic policy matters. It matters for real people who suffer real consequences when we get it wrong. If I believe that the doctrine of expansionary austerity is all wrong, or that the Ryan plan for Medicare would have disastrous effects, or whatever, then my duty, as I see it, is to make my case as best I honestly can — not put on a decorous show of civilized discussion that pretends that there aren’t hired guns posing as analysts, and spares the feelings of people who are not in danger of losing their jobs or their health care.

This is not a game.

But, if this is not a game, and if consequences really matter, then why is it wrong or even cowardice for Mitt Romney to Say Anything to be elected.

Lets take this by its smoothest handle for those with Paul’s perspective on things. The conventional wisdom coming into the 2012 was that the economy was going to be in horrible shape and that it was highly likely that President Obama would lose based on “A Time for A Change” thinking.

That is, swing voters would conclude that the Obama administration has failed and vote for the alternative.

Mitt Romney says to himself, well look either I am the alternative or someone else is. I look around me and all of these other guys are freaking nuts. Much better if I am President than if they are. Unfortunately, to get there I have to do some unsavory things.

However, which is more important to me: avoiding sullying my hands with unsavoriness or preventing the country from being run by nuts.

Would it not be selfish to choose the former? Doesn’t Mitt Romney have a moral responsibility to Say Anything to become the Republican Nominee? If congeniality is not a shield against the moral responsibility of allowing millions of people to suffer then why is honesty?

A number of people responded to my posts on Stimulus, Climate and Apple. I will try to respond to a sample. Feel free to comment again if you think your point wasn’t covered.

On Stimulus

Stimulus: Giving money to everyone would be great. Unfortunately, it is a non starter. People are afraid someone else will get more than them. People are afraid it devalues their effort and money. People with money look upon it as an opportunity to prosper at the expense of others and blame them for their situation. When people are threatened in their own situation, they are not amenable to remedying that of others.

My thought is that this why framing it as a tax cut helps. Then you can say, no people just get to keep their money.

On Apple

AAPL is worth its future earnings, plus its cash hoard. Suppose AAPL were to become unprofitable. At that point shareholders could pressure for its dissolution, and, its cash hoard would be distributed– it has no debt, so its assets must be paid to equity holders. Now suppose AAPL remains profitable. Then there is no reason to liquidate, and the company continues to exist, the hoard continues to grow, and shareholders get paid from new shareholders, who in turn have a claim on the hoard. In each case, you have a claim on the cash hoard. Where I think you go wrong is your assumption is that an unprofitable AAPL would maintain a no-dividend policy while losing money, burning through the cash even until debt and liquidation. The current no-dividend policy is maintained by a very profitable company such that investors maintain confidence in management of their cash assets. Were investors to lose that confidence they could always use their votes to change the policy.

I think this is the exact right way to go about the problem. So, the question we would want to ask is how much success will the shareholders have at forcing dissolution. The history of US companies seem to suggest, not much.

Indeed, I am not aware of a major company that went into voluntary liquidation.

More likely it seems to me, is that AAPL would be bought-out and dissolved. However, management can fight this in part by moving their cash hoard into difficult to liquidate assets.

So if we ask, when AAPL is dissolved what is the modal estimate that shareholders will receive, I am guessing the answer is zero. Now, of course the expected value is not zero, but discounting back from the point of dissolution and considering an appropriate amount of uncertainty is likely to give us quite a small number. This should be a source of concern for investors.

Moreover, the larger point is that APPL’s management and staff is opposed to dissolution. At a minimum I think folks should recognize that.

On Climate

Moving to cooler places would likely not work due to difficulties in migration. The world does not currently have an equal population distribution of people over land largely due to constraints by nation-states on immigration. Typically those restrictions have been by the favored restricting the unfavored. There is little reason to expect this would change in the climate change case. Even if it did, as shown in the EU, language knowledge can be a huge barrier to moving even among highly-developed societies without any legal restrictions. While this might not be an issue in large polities such as the United States it’s far from clear to me that many people in the developing nations would have anywhere they could feasible move to in the “too cold” parts of the world.

I think this is good as well. One thing we might be interested in asking, however, is what policy would we advocate if we knew that leaders would adopt our policy. This is by no means the end of the question, but it could help anchor our goals.

Simply based on what we are discussing here it seems like agreement to reduce migration restrictions would be preferable to an agreement to reduce carbon emissions. For one, the immediate effect of the former is to expand global GDP while the immediate effect of the other is to reduce global GDP.

Clearly there are more considerations, but I think the “maybe opening immigration is preferable” argument is a serious one.

I think you are misunderstanding the problem with climate change, because you are focusing on the word “climate” rather than the word “change.” The problem isn’t that hot places will get hotter; it’s that all places will get different. The costs of adapting to change are roughly quadratic in the rate at which the change happens. As climate change accelerates, the costs of adapting to that change will become very high. Under some scenarios, they will become so high that they exceed all our available resources, and our species will become extinct. Under more plausible scenarios, the species won’t become extinct, but the world will just suck, because we’ve spent thousands of years (and more intensively the last couple of hundred years) adapting to a world that was a certain way, and all the benefit of that adaptation will be lost when the world ends up being a different way.

I think this gets to the heart of the matter and helps explain why my position is so weird.

When I read literature on climate change authors make suggestions like: under a worst case scenario our entire civilization could be destroyed within 50 to 100 years.

As some who thinks about capital structure my response is, oh well that’s not so bad. Our entire civilization will have to be rebuilt in 70 years anyway.

The expected useful life on most long lived structures is around 75 years or so to begin with. Expected macro-economic depreciation, however, is significantly faster than that for several reasons.

Maintenance Costs: Over the lifetime of a structure routine maintenance costs will typically exceed building costs by as much as a factor of 3. Thus most of the cost of the structure is not in building it, but keeping it functional. And, even with regular maintenance most structures will no longer be operational or will need major renovations after 75 years.

Population Growth: As the population expands the capital stock is spread over a larger number of people. This means more structures will have to be built anyway to support new people. Indeed, the world population has more than tripled over the last 75 years, meaning that most structures were built for a population size that did not even exist 75 years ago.

Tastes and Technology: As time moves along fashions change and technology changes. People wind up wanting different structures. Often larger and more elaborate than the ones they had before. This implies two things. One, that our built environment is expanding faster than population and so an even greater portion of it is new. Two, that many structures are abandoned, demolished or renovated even before their useful life is up.

Putting all those factors together an effective macro-economic depreciation rate of 10% is not unreasonable. That suggests a half-life of roughly 7 years. Which means that in 70 years we will have gone through 10 half-lives which implies a 99.9% deterioration.

Or to put it another way, within 70 years 99.9% of the value of all of our structures will have come from new construction, repairs, renovations or remodeling that have occurred between now and then.

This is why I suggest that it is not a matter of whether or not we will rebuild our civilization but where.

Add to that the fact that one of our major goals as humanity is to foster growth in the tropics. Which is in large part to say that the current set of structures in the tropics are woefully deficient. Rather than attempt a big build there, why not attempt a big build somewhere else and move the folks to the new place.

Lastly, and most importantly, we have no idea what the end state of global climate change is going to look like. We can only guess and some of those guesses are pretty frightening. There’s a real chance that the CO2 we’re pumping into the atmosphere will eventually cause runaway global warming, an extinction level event for we poor, misguided homo sapiens.

Is this really true though?

During the Paleocene–Eocene Thermal Maximum temperatures were roughly 15C –20C hotter than they are today. Yet, as best we can tell the conditions prevalent at the time were not consistent with a human extinction level event.

Now perhaps things will be different this time. Perhaps it will get even hotter. Perhaps some other dramatic effect will cause the climate to be much harsher. Still, we would want to have some reason for supposing that this is true.

There are many unfortunate things in the world. And, of course, this will all end very badly. There is nothing we can do about that. All that we have is to do the best we can with what we’ve got.

The question before us is: is dramatically curtailing our use of fossil fuels the best we can do?

Dear Shareholder:

We at Apple would like to thank you for standing by us all through the years. To our original investors we owe particular gratitude. If it were not for you, we of course, would not be here today.

I am writing to you because some have expressed concern that despite having $70 Billion in cash on hand Apple has declined to pay a dividend. Allow us to explain our position on this matter.

Paying a dividend would conflict with our core mission here at Apple. That mission is hanging out in Northern California and being AWESOME. We design the most sought after products in the world. We are building the most advanced headquarters in the world. If we meet a man or woman at a bar in Sunnyvale and they ask “So you work for Apple, huh” we can be confident that the evening is going to go our way. This is a dream come true.

Paying a dividend and burning down our war chest would jeopardize all of that.

You see, one day a competitor will come along and cut our core product line out from underneath us. We will need all the cash we can muster to fend them off. When that cash is done, we will mortgage the company. The first several times we may be successful. However, as is always the case, eventually time will get the best of us and we will be unable to meet our creditors demands.

We will go bankrupt. Our creditors will seize the equity and the shareholders will be left with nothing and having made zero return on their investment.

To our original investors, who are truly dear to us, we can only hope that you have long since sold out to some greater fool. If not, please do so at your earliest convenience.

To our newer owners: We hope you have a wonderful day and a pleasant tomorrow.

Always Yours,

The Management and Staff at Apple, Inc

I have heard numerous reports of folks with different insurance being denied at the pharmacy. Which means that a number of people I know are already “off their meds.”

This is not going to be pretty folks. Seriously, someone needs to get on this.


Seem to have ended the year strong but not quite as strong as I might have thought. I was looking for continued gain, up to 13.8M SAAR or so and it doesn’t look like we will see that. The numbers for Honda and Toyota are key as I had expected a stronger rebound from them than we are seeing so far.


Construction ended the year completely as expected, up slightly mainly on residential multifamily. Public construction seems to have stopped falling and this is consistent with my view going forward. We should see sales tax receipts improve for state and local governments and with that a willingness to fund more projects.

Non-residential construction will probably continue to be driven by oil exploration well into 2012. The office market just doesn’t feel ready to come back. Though we might see increased hospital construction. I would have to look more into that.

Fed Policy

It looks like the Fed is building the institutional infrastructure to make a creditable commitment to be irresponsible. Of course, it is couched in terms of the Fed making explicit what it thinks a responsible path for interest rates would be. This is potentially very helpful, but it naturally depends on how bold they are willing to be.


Kevin Drum makes the point that the global economy is energy constrained. I think that is correct and it underlies some of views about US energy policy. I don’t think we are likely to see “many" wild swings in oil prices, though. Such swings generate a huge arbitrage opportunity. To take advantage of it what you need is a place to store excess capacity. Oil – being the accommodating resource that it is – provides that naturally. We call it the ground.

In a world of high prices and tight capacity the smart thing is for folks with shallow wells to actually decrease pumping. This will lead to higher prices sooner, but smaller spikes as you start pumping only during the spike.

Also, its not clear that in the face of very easy money that this has to be contractionary. I’d have to think more about it, but the natural response is to push labor and capital towards energy extraction, conservation and alternative production. What’s key is that high energy prices should make the Fed less hawkish not more.

Growth is Banal

I wanted to do this as post titled “BREAKING: Humans primarily concerned with survival and procreation.”  My point is that Matt Yglesias is right that economic growth is primarily about doing the same old stuff in new ways because quite frankly the range of stuff that most humans want to do is not that wide.

Fruit Tree Recessions

Nick Rowe does business cycles with fruit trees. I should write more on this but if Nick reads the following he probably know what I mean.

If there is uncertainty in this economy then Y will not equal C, properly defined, because some folks will hoard trees and allow the fruit to go uneaten or at least use it in some non-typical way.

Further, the propensity to hoard trees should create a bond market and an interest rate which reflects the desire of folks to tree hoard.

Ron Paul

I take the opposite position as Will Wilkinson and Adam. To quickly get to the heart of my opinion, even if Ron Paul were at some point an out-and-out white supremacist, I don’t think this should be a permanent albatross around his neck.

I have an easy time forgiving these things because I grew up in an environment where homophobia was simply the air that we breathed. The things I have said, and honestly done, bring me to tears when I think about them.

I am forever sorry. I cannot even bare to ask for forgiveness.

Why A Recovery Now

Brad Delong asks why I think the recovery is starting now and how fast it will be. So the short answer is I don’t know how fast. It depends on how fast the natural rate of interest rises and how long the Fed signals that it will keep the overnight rate at zero.

My answer for why now and not before is that what drives of the natural rate of interest in this environment is marginal productivity of capital, which rises as the capital-to-labor ratio falls from depreciation and population growth.

When we think of growth models we usually have something like a factory in the back of our heads but the same thing should apply to household consumption. More folks combined with older cars and no new housing units increases the marginal return to durable goods.

Eventually it rises high enough to push the natural rate above zero. What I was looking for were signs that this was happening which I expected to show up in rents and used car prices. Both were rising through the middle of 2011, telling me that this would likely begin to happen in 2012.

Yves Smith is Not a Smithian.

She rips into Matt Yglesias’s Smithian take on 2012. A couple of things to note.

  • I don’ think the distressing gap tells us much as a predictive device. The short answer is that its not clear which way the gap will close.
  • I don’t think the shadow inventory is hyper relevant as far as my forecast are concerned because if the houses stay vacant the people have to go somewhere – likely apartments. Moreover, these numbers actually aren’t that big when you compare them to the short fall in housing production. And remember a multifamily project can take over a year to complete. So when we are talking 2012 starts we are talking 2013/2014 inventory.
  • The point about the Wicksellian natural rate is not that it is determinate of rates we see but that it tells us whether the prevailing rates are contractionary or expansionary.
  • Lastly, and this is a long conversation, I just don’t think its true that middle class incomes will need to rise for the economy to recover. The quickest road to recovery in my mind would be an inflationary burst that caused middle class debt burdens to erode but real incomes to fall. The set-up of the global economy right now seems to be to shift income shares towards resource extractors and a high earning elite. Monetary policy that makes it difficult for this to happen – by holding down inflation – will slow the recovery.

How Many Conversions Were There?

Dean Baker makes the point that lots of housing units came from conversions of industrial or commercial property and thus aren’t counted in starts. My sense is that they should be counted in new home sales and inventory which track starts pretty closely. We don’t see a lot of new home sales or inventory that never showed up in starts. However, this is an point to look deeper into.

Honey, Flies and Macro

Paul Krugman says that he only treats mendacious idiots as if they are mendacious idiots. The thing is, that its not clear to me that badgering political opponents is an effective strategy for convincing contemporaries or speaking to posterity.

Part of what Paul winds up doing is causing people to resent reasoned analysis or even intelligence generally. This is the opposite of helpful.

Send Me to Siberia

Mike Casey wants to send me to Siberia. I am happy to go. Novosibirsk is nice, in June.

More seriously, moving to the top of the world is an obvious response to a warming world. Its made even more appealing by the fact that in some of the damage models you see negative numbers for Russia and Canada. Its seems natural that this would prompt someone to say – ah, well then we should get more people into Russia and Canada.

Now, I would expect responses along the lines of, yeah we thought of that but here’s the deal . . .

Instead, the – I believe exclusive – response I’ve gotten on Siberia is mocking me for suggesting that people move to North to avoid global warming, implicitly on the grounds that Siberia is cold and barren. Yet, that seems like an objection that certainly doesn’t make sense, no?

A while back Kevin Drum asked

Politicians and corporations engage in meaningless puffery all the time, but to be effective it has to be based on at least a tiny core of truth. . . .

. . . So what’s the strategy here? In the primaries, I assume he’s calculated that it just doesn’t matter.

. . . But what about the general election? Independents aren’t going to go for this stuff. They’ll just shake their heads and wonder what the hell he’s talking about. So is he going to ditch this stuff completely after he’s won the nomination and pretend that he never said it? Or will he keep pressing, literally hoping that if you say anything often enough you can get people to believe it? It is a mystery.

Actually I’ve found the question fascinating from the opposite perspective: why do politicians in particular base so much of their campaign propaganda on things that are arguably truthful?

For corporations, you have the customer disappointment problem. If you make a completely untrue statement AND that statement convinces a person to buy your product you face a disappointed customer who will not only not purchase again but bad mouth you to other people.

Note, that there are a lot of folks who won’t care. They will buy the product regardless. But, then they would have bought the product regardless, so why bother lying?

Its only the marginal customer who will be enticed by the lie and it is her who is most likely to be disappointed.

Note, also that fly-by-night operations do not suffer this problem and so do indeed rampantly lie.

What about politics?

Well, here the ability to judge what you “bought” is far harder. Moreover, I tend to think the marginal voter is not even really interested in what he or she is buying.

The marginal voter is either expressing displeasure with the current state of affairs. This underlies the “Time for a Change” models in political science. Or, he or she is responding to a message.

In the former case, it doesn’t matter much what you say. In the later case its much more important that you be clear about which tribe is which than about any policy details.

So, to bring us back to this example Romney is saying “I am of the pro-capitalist tribe”  Though even that is not really accurate. Romney himself probably does care about capitalism but I doubt the marginal voter does.

He is really saying “I am of the pro-Karma tribe” in my tribe believes that people get what they deserve. Then he describes Barack Obama as wanting to institute a government that defies Karmic Justice. Its completely clear what side Romney is on.

Whether Obama wants to do this is fundamentally immaterial. The voter neither knows nor cares what Obama wants to do. The voter cares about tribal affiliation, and that’s what Romney is offering.

So, the question for me is – why isn’t this par for the course.

Part of it I think is – or at least was – a small fear that the Mainstream media would out and out call Romney a liar. That’s a horribly character tag to have and would cause voters not to want to affiliate with him. If that tag became conventional wisdom it would be damaging.

Perhaps more importantly though, I suspect much of it has to do with building a campaign team. While the average voter might not care how Romney is looked upon by the policy elite, his staff probably does. They would prefer not to associate themselves with someone who has low status in the beltway.

However, as the GOP continues to push back against the MSM, a crop of staffers has growing up who are less sensitive to such things. Thus you don’t have to worry that your entire team is looking at their shoes when you speak.

That I would guess, allows politicians to pursue a more direct strategy of agitprop.

I have a lot of posts I’d like to get up before the New Year, but one thing I’ll  note quickly is how revelatory the blogosphere has been.

One thing that can easily pass you by is the dearth of analytical ability in the world. When you talk to experts you can be confused into thinking that they are sharper than they are because they have been thinking and talking about the same things for a long time.

However, in the fast and furious world of the blogosphere it quickly becomes apparent how shallow much of that understanding is and how widespread the inability to transfer insights between domains is as well.

Obviously I wouldn’t be so crass as to name names but the overall pattern is impressive.

Long time readers know that one of my big questions is why Plutocracy cannot be made to work. In particular, I wonder why society ruled by the owners of land combined with a “no serfdom” condition, doesn’t produce great outcomes.

We can argue over whether “no serfdom” is a stable equilibrium, but in the sweep of history so far all other arrangements are consistently beat out by liberal democracies which are a far, far cry from this.

Most of the standard answers to this I find interesting but unsatisfying, though if folks want to argue for them in the comments feel free.

Increasingly, however, I think it has something to do with the problem Paul Krugman outlines here.

One of the disadvantages of being very wealthy may be that you end up surrounded by sycophants, who will never, ever tell you what a fool you’re making of yourself. That’s the only way I can make sense of the farcical behavior of the wealthy described in this new report from Max Abelson:

Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.

“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”

What I want to know is, how did these people get where they are with such incredibly thin skins? Can you become a Master of the Universe while screaming “Ma, he’s looking at me funny!” at every hint of criticism?

The lesson I would take is as follows. Profit or consumption maximizing incentives are just incredibly weak. We think we see consumption incentives in the general populace but we are really seeing status seeking. Folks earn or consume more in an effort to raise their status relative to others.

However, at very high income/status levels this has odd results. When Jaime Dimon or Leon Cooperman say that what they really want is to be loved, they mean it.

Indeed, twitter was ablaze a few weeks back over the fact that Jamie Dimon objected to his taxes being raised, but thought that he was already paying what Obama proposed raising his tax rate to.

This makes perfect sense if you note that Jamie doesn’t care about his tax rate. He cares about his taxes being raised. He cares about that because it sends a signal to him about how he is viewed in society and that really matters to him.

I see this in lobbying all the time. Because, I am a soulless technician who will faithfully advise anyone and everyone who asks I see the back rooms of opposing lobbyists all the time.

Here at the state level I can safely say that virtually no one has any idea what they are doing. That is, for the most part the lobbyist do not know and indeed are not particularly interested in what is in the best interest of their clients.

Further, this seems to stem from the fact that the clients are not particularly interested in what is in their best interests.

What they are very interested in is whether legislation is pro them or anti them. However, if you begin to talk about the economy as a complex system full of unintended consequences where anti legislation could be in their best interests their eyes glaze over.

Moreover, a very large number of business lobbyists are not even that interested in efforts that are pro or anti their business. They are more interested in legislation that is pro-business in general and that they perceive as being fair.

There are some notable exceptions but I will not name names.

My sense is that there is a huge but odd policy lesson here. I am still working to untangle what it is.

Obits abound. My favorite outtake so far.

“Writing is what’s important to me, and anything that helps me do that — or enhances and prolongs and deepens and sometimes intensifies argument and conversation — is worth it to me,” he told Charlie Rose in a television interview in 2010, adding that it was “impossible for me to imagine having my life without going to those parties, without having those late nights, without that second bottle.”

I plan to do a more complete reply to Brad Johnson, though primarily as a jumping off point to ramble on about a lot of energy and climate change things that I think.

However, I wanted to address a few concerns right now before I have time to write the longer post.image_thumb4

First and most importantly, while I welcome most of his criticism with open arms Brad did commit a most heinous and unforgivable crime. He broke the hearts of geeky schoolgirls the internet over, by posting a most unflattering picture of me.

Much of the damage is sadly irreversible. Nonetheless, I will do what I can to assure all my pre-teen readers that in real life I am as Bieberlicious as I am clever.

What  this implies for my adorability, I leave as an exercise to the reader.

Even less substantively I want to quickly address a few issues that cropped up around the internet.

1) No, that was not satire. Though, thank you for saying so. I genuinely believe that expanding the production of dirty energy is in the best interest of humanity.

2) I do well with puppies, but find kittens cuter. I like babies generally, though strongly prefer my own. And, yes I do love my mother.

3) Surprisingly perhaps, I am actually not utterly ignorant of the issues involved in climate change. Very early in my career I worked on environmental economics and in particular building the kind of computable general equilibrium models that Nordhaus uses. How that led to where I am is an interesting story, but very much unlike other academics, in my intellectual career building computer models and blogging are the two things that have brought me the most acclaim.

4) I am not really in any sense a conservative economist. Some people have called me a progressive though I don’t take that label either. In all seriousness I feel the most solidarity with what might be called Old Whigs. I am deeply and almost obsessively concerned with the plight of the less privileged, but I am a staunch anti-revolutionary, an unabashed elitist and a skeptic of excess democracy. This is a combination of positions rarely held in the 21st century but more common in the 18th.

5) Tail risk is something we should talk about more. I think people are treating this topic too lightly from a intellectual point of view. Its not clear to me that buying insurance against very deep in the tails calamities is a good idea. The utility functions written down to justify that don’t seem to reflect how people actually value things.

6) Deep uncertainty about the future is a big deal. However, as a rule uncertainty encourages dovishness. There are very specific cases when this might not be true, but generally speaking the more uncertain you are about the future the less willing you should be to suffer today for a better tomorrow.

One can think of it this way. On our last day on earth the best advice is always Eat, Drink and be Merry for tomorrow we will die. It’s the increasing assurance that you won’t die that makes this advice less prudent. Similarly as you become terminally ill you should be more reckless, not more careful.

7) Yes, encouraging people to think short-term is a major theme is lots of my posts because it is the biggest policy mistake I see people making but few people pointing out. To wax Hansonian for just a moment I think the core problem is that thinking long-term is a high status thing to do because smart people are better at it. Thus, being a long-term thinker signals that you are smart. However, as we might expect with status competitions this is overdone. And, because policy choices matter this affects the lives of real people negatively.

Megan has an elegant review in the Wall Street Journal of Shinny Objects and Against Thrift, two new books on Consumer Culture and Inequality

A couple of notes. First, its perhaps the highest praise to Robin Hanson that these few lines shocked me

One of the running themes of the economist Robin Hanson’s excellent blog is that arguments like the ones found in these books are actually an elite-status proxy war. They denigrate the one measure of high-visibility achievement—income—that public intellectuals don’t do very well on. Reading "Shiny Objects," you get the feeling that he is onto something.

As I read those lines I had two reactions, the first was “oh yeah I got that from Robin” and the second was, “wait a minute there is some alternative belief system about these things.”

The more substantive comment I want to make though is to note that I have such trouble getting these discussions. It really seems like something is being talked about and its virtually indisputable that the participants are attached to the conclusions that are drawn but I can quite make out what its all about.

For example Megan writes

Like their forebears in this robust polemical genre, neither Mr. Livingston nor Mr. Roberts gets us much closer to answering the essential questions: What makes American consumers spend as they do—and is it a bad thing? For some thoughts on these matters, I’d suggest turning to James B. Twitchell’s "Living It Up" (2002), a wry account of the author’s own complicated relationship with luxury brands that explores the moral and psychological aspects of our free-spending ways without seeming to be a paternalist rant against the folly of BMWs. "The pleasure of spending is the dirty little secret of affluence," says Mr. Twitchell, a professor of English literature and advertising at the University of Florida. "The rich used to do it; now the rest of us are having a go." He is keenly alive to the risks—and occasional risibility—of American-style consumerism. But he never pretends not to understand its undeniable appeal.

What is all this supposed to mean?

First, that a relationship with luxury brands can be complicated – I get this because I see people having strong emotional reactions about these things.

But, what moral and psychological aspects of our free-spending ways? Is there really something to be explained here? We marshal resources with the intent that they should be enjoyed. What would be the point to people constraining their enjoyment of them. Why are we doing any of this then?

And, why should the pleasure of spending be a dirty secret and of affluence, no less? The poor don’t want to buy things? Are we to suggest that people should not shop in public? Is the act somehow obscene?

And, what are the risks of American-style consumerism? Is there a safer form?

I know that people mean something by these things because they keep talking about them and act as if they understand one and even disagree with one another. However, this whole matter is just deeply, deeply bewildering to me.

This post by Don Boudreaux really helps me understand his antipathy towards Paul Krugman’s modern writing.

Essentially, Boudreaux point is that Krugman undermines the long project of getting people to understand how and why free markets increase human welfare. This is because Krugman spends the majority of his time pointing out cases where the free market is a detriment to human welfare.

The concern here is clearly understandable.

It also brings to the forefront a key question: is “defending” the free market the primary role of public economists today.

The issue is that just about all modern intellectual elites are in agreement about the core welfare enhancing properties of the market. Not only economists and policy wonks but the majority of elite economic journalists.

What I take to be the Krugman/Keynes position is that the real threat to the free market comes from succumbing to policies that in practice don’t produce real gains for much of the electorate.

Not only does this result in real human suffering but it undermines public support in the market. For example, when median incomes were rising public support for free trade was high. As they began to stagnate and fall, it fell.


Thus the practical way to get support for free trade is to make sure that median income rises.

This might, for example, mean more aggressive monetary policy than you would otherwise support or more intense redistribution that you would otherwise support.

Some of my favorite commenters were puzzled by my post of the End of History.

Quick notes for those who haven’t followed me all the way on

this multi-year journey

1) The End of History is the notion popularized by Francis Fukuyama that Democratic-Republicanism is the ultimate form of government and that it will be universal in the near future. This represents the End of History in that our basic struggle over political structure of society will be settled.

People push back on this notion on multiple fronts but the front I push hardest on is that Democratic-Republicanism is not likely to be the optimal form of government in the future. Rather than the End of History we are in an odd phase defined by the explosive growth and extensive biological and cultural diversity among humans.  These things are likely to come to an end and produce a society that is stable and has no use for democracy.

2) The second issue which is what the title of this post speaks to, is about how long we expect the human project to go on.

Putting probabilities on our extinction is a hard. However, there are several lines of reasoning that suggest it might not be too far off. The simplest goes like this. If we extrapolate what seems to be clearly possible in terms of economic growth, peace and prosperity generally in the world, then we get a global economy growing at at least 2% per capita for several hundred years.

At that point space travel becomes relatively cheap and I don’t want to go into a lot of detail here but there is strong reason to believe that at least some group of humans will want to devote themselves to space travel and exploration.

Those humans will search out new worlds and come to cover a large portion of our visible universe.

Here is the problem. From the beginning of humanity until this scenario plays out is not very long. This suggests that once sentient life gets started its pretty easy to go out along this path.

So the question is: can we really be the first? Why isn’t our portion of the universe already filled with explorers?

One possible answer is that the process of getting to exploration involves developing technologies that ultimately lead to the destruction of the potential explorers. Its not hard to see what these techs might be: Unfriendly AI, uncontrolled nanotech, highly developed chemical or biological weapons in the hands of terrorists, etc.

Thus, it might be the case that increasing technological sophistication is ultimately self-extincting because the probability of an extinction level mistake becomes very high when your technological sophistication becomes very high.

This is the Great Filter that prevents our universe from being filled with explorers and is why we don’t see any explorers right now. Since no one else has made it past this hurdle its unlikely that we will either. We would have to “beat the odds” as it were.

Another possibility is that the universe is filled with explorers but they are purposefully hiding from us, hoping that we never actually make it off of earth. If we do make it off of earth there is reason to believe they would destroy us. I won’t go deep into that here, but I think the case for destroying potentially rival civilizations is pretty strong.

3) Malthusian stagnation. So the idea, which I feel pretty confident in, is that eventually stagnation will set back in. This is not because we will exhaust all of earth’s resources or something like that. While that could happen I don’t think of it as a serious possibility.

Instead the fundamental problem is that the “Grid of Reality” is discrete and bounded and therefore finite. That is, there are minimum sized particles that interact at minimum distances. Add, to that the fact that at any moment our descendents are bound in a finite region of space by our light cone.

This implies that we are dealing with a finite number of possible configurations of reality. Once, we have mastered the ability to manipulate those configurations there is literally nowhere else to grow.

That is, the possibilities for growth are literally not limitless because there are not an unlimited number of possible configurations for our portion of the universe to be in.

No matter how large that number is – and it is of course very large – a growing economy will hit the max at some point in the future. Thus growth simply cannot be forever.

Thus, even if you could overcome basic entropy problems you still run into the fact that exponential growth means that at some time T we will have mastered all of the configurations within our light cone and we would have to cross the light cone to continue at an exponential pace.  This is impossible.

Knowing this, it becomes the case that each of our decedents at some point will only be able to exercise command over some subset of possible configurations at the expense of some other descendent having command over that subset. This sets up the fundamental Malthusian tension.

Now, it is likely the case that we will hit practical constraints before we hit this “ultimate constraint”, however, knowing that there is an ultimate constraint tells us that no amount of technological progress, innovation or ingenious breakthrough can produce indefinite growth.

I began this post just to share the graphic at the bottom, but got carried away in the lead in.

As a bloodless technocrat I am always unnerved when the people take to the streets.

As I recently told a correspondent: if we are doing our jobs right then people shouldn’t even know that technocrats exist. They should never think about us. They should think about the things they care about; their children, their friends, their love interests, their dreams. If they know about the technocracy then the technocracy has failed.

There is no doubt that these movements – OWS and the Tea Party – are a glaring sign of technocratic failure. We shouldn’t forget that as long as these movements exist. Any moment that a citizen spends thinking about taxes, the economy, lobbyists, the capitalist system, etc is a moment of their lives that we have wasted and that they will never get back.

Time is all that they have, to burn it is to burn their lives away. It is to destroy the very thing we are supposed to protect. If you keep in mind that your ultimate goal is to induce a rational blissful ignorance in your citizens then you I think your ship will always be straight.

Keeping this goal in mind lets us know why totalitarianism in all its forms is the deepest failure of technocracy. The technocracy is everywhere. It pervades people’s lives. It doesn’t matter what you are trying to achieve, if you are achieving it through constant interference in a way that citizens can feel it is an utter failure.

Its also why – from a technocratic point of view – Laissez-Faire practically speaking tends to fail. Rarely, in practice, do people in a Laissez-Faire society go about their day without complaining about the vagaries of the market and the injustice of the system.

The ideal of course would be to provide just enough social insurance that people would go on with their lives: starting businesses, families, churches, etc with the sense that they’ve got a good shot at achieving their goals if they work hard and play by the rules.

It’s a hard – perhaps impossible – balance to strike, but understanding that they key is in the experience of the citizen, not numbers about inequality, tax burdens or even GDP, has to be paramount.

And, by the way, here is the graphic I thought was cute:

Occupy Wall Street vs. Tea Party |

You are a centrist New Keynesian Technocrat who is set to become Treasury Secretary during what looks like a replay of the Great Depression and the Japanese Depression.

However, Ben Bernanke is the Chairmen of your Central Bank. You are used to an environment where the Chairman exercises his full moral authority and moves the entire Federal Reserve. Ben Bernanke is personally an expert on the Great Depression and was highly critical of the Bank of Japan’s failure to act during its crisis.

You also see your Chairman swiftly moving to create  innovative facilities to prevent contagion from spreading in financial markets.

What are you likely to conclude?

  1. Your primary role is to enable the Fed. You have to create an environment where the Fed can enact the type of policy your Chairman advised Japan to enact two decades ago. This means in large part bringing down risk spreads in the financial markets. You don’t believe you can do this if banks are afraid of overly aggressive action by the Central Government. Your role is then to stonewall such action.
  2. You are aware that the Fed may need to engage in Quantitative Easing. The Fed will likely receive criticism that it is “Monetizing the Debt” and that the US is becoming a Banana Republic. You need to remove such criticism by staking out a serious position on the US’s long term fiscal situation.
  3. You believe that populist anger is likely to rise up from the Left. This is your sense of the history of these types of situations. The danger of this could take many forms but the most obvious is the empowerment of activists and Congressmen who want to rapidly increase regulation. You need to stand in the way of this.

In short, your mission seems simple. Hold together the centrist neoliberal vision of the relationship between the State and the Economy while the Federal Reserve hits the gas and revives the economy.

You know its only a matter of time before Bernanke makes a credible commitment to be irresponsible, the dollar falls, US manufacturing revives and middle America experiences a mini-boom.

You just have to hold back the lions until that time arrives.

Unfortunately it never arrives and you are left having cut the legs out from underneath fiscal policy that could have revived the economy. You put deficit reduction on the table at exactly the wrong time and you hobbled the only effective counterweight to a massive populist uprising on the Right.

Hindsight is 20/20.

There is a discussion going on, on The Corner about abortion that I like. Even though I think it’s a lot less “serious” than I would prefer its much more serious than most takes I read.

By serious I mean: folks attempting to grapple with the issue rationally rather than simply identify themselves with stances that are sentimentally appealing.

Also, before I get started I want to specifically set aside issue related to “what is the scientific consensus” because that draws us into arguments from authority when we actually have lots of observable information to grapple with.

Lets grapple with that information first before making appeals that “smarter people than you think X.”

The debate was in part kicked off by this pair of posts. I am going to quote liberally.

First from David French

At long last — and against the strong headwinds of the anti-science ideologues — the law is finally catching up to biology. Next week, Mississippi voters will determine whether all human beings in the state of Mississippi are also “persons” under the law. Such a vote is a logical — if belated — concession to well-established science. Indeed, scientists are virtually unanimous in declaring that the result of conception is a human child with a distinct DNA different from his or her parents. This unanimity is the essence of “overwhelming consensus.” 

Given this biological reality, is it logical, reasonable, or remotely moral to characterize some human beings as “persons” and others not? Are we not long past such outright quackery? I hope and expect that Mississippi voters will decisively reject the deniers in their midst and recognize the reality of personhood. After all, it’s a simple matter of science.

In part this is important because we can clearly make theological arguments about the morality of abortion and the notion of personhood. However, its dicey to know what the law should do about that because we have no official church in the United States and churches disagree on this issue.

So, from a legal standpoint it would be nice if there was some sort of secular means of handling this question. Also, for us agnostics and atheists it would be nice if there was a secular way of handling the fundamental morality of this issue.

French is suggesting that there is. After conception we have “a human child with distinct DNA.”

I think human child is not quite right but I don’t really want to quibble over that because I think David really means human being and that I readily concede.

The question is, are all human beings persons?

Robert VerBruggen returns the obvious reply but with a example I usually don’t think of.

David — it is certainly true, as you write, that the result of conception is an embryo with “distinct DNA.”

What’s not clear to me, however, is why “distinct DNA” should be the criterion by which we judge personhood for moral and legal purposes. As Reason’s Ronald Bailey has pointed out, 60 to 80 percent of human embryos — post-conception, with distinct DNA — are naturally destroyed by the woman’s body. Are we to see this as a large-scale massacre of human beings, develop drugs to prevent it from happening, and require all women who have unprotected sex to take them? Certainly, we would be willing to take measures like this if post-birth infants were dying in comparable numbers.

What Robert is getting at here is what I term “revealed morality.” Which is to say look, David, you certainly don’t act like you believe distinct DNA constitutes a moral person.

Otherwise you would see the prevalence of early miscarriages as one the greatest natural tragedies in the world and probably the single most important issue facing the Developed World, if not humanity itself.

The point here is not to call David French a hypocrite, but to force him – and others – to consider what they actually believe. Do you believe that distinct DNA defines a new moral person and thus the prevalence of miscarriages are the most significant human tragedy in the Developed World.

What proceeds at The Corner is the typical devolution of the discussion  once people are made to feel uncomfortable. That is, accusations that Robert is calling people insensitive and qualitatively meaningless undermining of Robert’s data and word choice. However, that’s fine. I am happy that it got this far.

There are other issues that I have with the notion of defining personhood as “distinct DNA.” I treat them lightly and if people are interested we can go into more depth.

First, the obvious issue that once conception is complete we have distinct DNA but we do not know how many people we are going to get. Robert brings up the case in which we get zero born people. This case is nice for highlighting the morality of the post conception loss. However, from a theoretical standpoint there much thornier issues are when we get more than one person and when we get fractional people.

Everyone is aware that it is possible for the egg to divide post conception and produce identical twins. I think most of agree that identical twins are separate people. Thus, there must be at minimum some secondary process of personification, in which the single person becomes multiple people.

How does this take place? Its important because the method in which secondary personification takes place might render the “distinct DNA” theory of personification superfluous.

To be more specific, if something like “secondary personification” always takes place but does not always result in twins, then why are we sure there is some meaning in the “primary personification” that takes place when new human DNA strand is constructed.

Even more gnarly, however, is the case of fractional people. It is possible for two fertilized eggs, each with their own Distinct DNA, to merge into a single born human. The result is a human chimera.

What do we believe is happening here?

Are there two persons in the same body? Are the persons “merged?” Is one person killed in the process? If the later then which one? Again, answering these issues makes the question of primary personification at distinct DNA difficult.

If we believe that there are two persons then how are we to morally deal with what seems to be a single adult. Are the cells descended from one fertilization event morally responsible for the actions of the cells descended from another fertilization event? And, what to make of the fact that the adult seems to insist that he or she is in fact and integrated person?

If the persons are merged then how does the process of “personifactional integration” take place? Like secondary personification, is this an event that always happens irrespective of whether there are two persons? If not how does the mixture of cells induce “personificational integration”? The DNAs are not joined in anyway. The cells are, at a basic level, simply in close proximity to one another.

If one person is killed then which one? How could we tell?

The reason all of  these questions are really gnarly is because perhaps a natural response is to give some sort of “preference” to the person represented by the mind of the adult human and/or to say that twins become separate persons because they have separate minds.

However, obviously if we are going there then having a mind is key point in personification. At a minimum “mindness” induces secondary personification or personficational integration.

Yet, we strongly believe that there is a mind-brain connection.

We can talk more about this but I think even leaving aside any scientific consensus on the issue there are specific observations we can make that should strongly suggest to everyone that the mind and the brain are dually linked.

That is, it is not simply that the brain is the organ through which the mind manifests itself, but that the structure and chemical composition of the brain can be manipulated in ways that influence the mind. Thus the mind-brain connection must go both ways.

The most obvious of these observation is the influence that chemicals introduced into the brain seem to have on the mind of the person. If you ingest even, alcohol for instance, there is the strong sensation that the alcohol is affecting your mind.

Not just weakening the mind brain connection like a paralytic. Ones actual though processes and emotions seem to change. This is an easy experiment to do and almost everyone reports the same results.

Second, there is the problem of mutation. The distinct DNA of conception will mutate over time as cell divide. I am not sure anyone thinks of this as creating new persons. How are we to make the distinction.?

While that issue could probably be patched fairly easily, the need to patch it raises questions over whether or not we should be put particular emphasis on the generation of distinct DNA in the first place.

There are many other issues but the last one that I want to touch on is the connection between humanness and personhood in the first place. Is humanness necessary to being a person?

If we meet sentient aliens are they by definition not persons? If we develop intelligent machines, machines derived from human minds are they not persons? What if they can remember being a person?

Even if you are inclined to answer no to all of these on the grounds that humans are fundamentally specially then the silly sounding but important question arises: how do you know the people you are interacting with are actually humans and not aliens or machines?

This is important because if you can’t tell the difference between a human and an alien who can perfectly impersonate a human then we have to ask whether there is a moral difference between the two. What does it mean to be “really human” if we have no fundamental way of knowing that we are not being fooled.

There are obviously many other issues related to abortion and miscarriage. And, I know for some people’s taste I gave a very generous touch to the Distinct DNA dividing line.

However, I think the personification issue is an important question and a gentle touch is our best hope of coming to some consensus over an issue that naturally spawns strong emotional reactions.

Steven Landsburg suggested that those who want to tax the rich should voluntarily pay more taxes themselves. I disagreed. Tyler Cowen responds

Karl Smith is irritated by the argument, but I don’t see that he offers a good response.  In general the responses I read or hear to this argument show a lot of emotion and not a lot of recognition of the strongest versions of the claim.  Even if this argument has a chance of truth of only 20 percent, that still should have force to alter behavior at the margin.  “There is a twenty percent chance I am morally compelled to give” is a real nudge toward “I should give more now,” if only, say, giving a fifth of what the full argument requires.  So “downgrade and dismiss” — a common rhetorical strategy — won’t work here.  If the argument has any life at all, it should hang like a millstone around the neck of egalitarians.

The best response is to accept the argument and admit one’s partial moral inferiority: “The people who give more, yes, in some important ways they are better people than I am.”

I think Tyler is more or less correct here though I don’t know that we need the probabilistic language.

If you believe there is a moral duty to contribute towards helping the poor and you do not do so, then you bear moral responsibility.

My argument was less powerful than that. I suggest that a rich person can consistently favor taxes on the rich without volunteering to pay such taxes him or herself. The argument is simply that the world in which every rich person pays is preferable to me to the world in which no rich person pays which is preferable to me to the world in which only I pay.

Bryan Caplan pushes further asking under what conditions could someone suggest that there is a moral duty to tax the rich but not a moral duty for each individual rich person to volunteer taxes.

The simplest moral theory I can imagine that would justify Karl’s position says: (a) you’re morally obligated to obey the law, (b) morally obligated to support utility-maximizing laws, but (c) not morally obligated to unilaterally maximize utility.  But just imagine making a populist protest sign consistent with this position.  An egalitarian who defers to the law, does cost-benefit policy analysis, and refuses to go above and beyond the call of duty has become everything he hates.

So the obvious response – though I am not necessarily endorsing it – is that one has the following moral obligations:

A moral obligation to follow the law.

A moral obligation to advocate for laws one would have chosen in the Original Position.

A moral obligation to maximize the health and welfare of one’s family consistent with the law.

This would represent – I think -  the revealed morality of most egalitarians. Is this what they hate?

Niklas says I should call this series “stream of consciousness”.

However, to be clear this is not meant to suggest that anyone I happen to mention is making an unsubstantiated claim but that this is just some things I have been thinking about but haven’t had the time to wrestle with so that I can be even reasonably confident that I am correct.

Nonetheless, I think it can be interesting/useful just to put ideas out there.


Lots of my Austrian Business Cycle Friends (as opposed to more political economy Austrians) I think are confused by believing that Mainstream Business Cycle Macro and Keynesianism in particular are theories about how an economy “prospers”.  That’s a much more general concept than what Mainstream Business Cycle Theory is trying to explain which is the general glut and particular the cyclical glut in unemployment. One could believe that Keynesianism is correct and still believe that policy wise we should not reduce unemployment because the cost to prosperity – whatever we mean by that – are too high.

The Near Term US

I continue to see the fundamentals for the near term US is being good. Indeed, the only negative I see is the overhang of household debt. However, that need not stop an expansion driven by business spending. 

Inflation and Business

If you really think household debt is the problem then inflation is the solution in more ways than one. First it erodes the debt – yes.

But more fundamentally it has the potential to raise the cost of consumption, by lowering the purchasing power of the dollar. This is actually what you want!

You want consumers to buy less crap yet work more. That is the solution to “over-consumption” and a weaker dollar facilitates that.

How Inflation Works Through the Economy

For some of my journalist friends struggling with this. Think about it this way. If we have universal 6% inflation then a Cheeseburger from the McDonalds $1 menu now costs $1.06.

Where does that extra 6 cents go?

If we trace it through the economy it winds up in one of three places basically. It could be higher wages for the workers at McDonalds. It could be higher prices for the material inputs to making a Cheeseburger. Or, it could be higher profit margins for McDonalds.

In the first case we have normal price-wage inflation. Debt burdens for households fall and the standard way economists talk about the world applies.

In the second case we have inflation in material costs. This can be very painful for everyone but the owners of raw materials. Its this type of effect that generates “stagflation”

The question we have to ask ourselves is how realistic is this?

Will the demand for material be that high without a corresponding increase in sales volume? As material prices rise will firms be able to economize of materials by using “relatively” cheap labor.

In the case of energy this can be difficult, but to generate sustained 6% inflation we either need a severe energy shortage or a shortage in other materials.

In the last case of profit margins we will see exploding equity values. We can work out the math but I hope its clear that profit margin have to rise much faster than inflation if they are absorbing inflation. (because they are not 100% of the cost base)

So we get much higher equity values which spurs business investment.

The basic way this can go “bad” is if inflation is absorbed by materials and those materials cannot be produced with or substituted for labor.

I am not sure if anything other than precious metals and oil fit this mold.

The Business Investment Story

I am dismayed by the fact that so little of the blogosphere seem even interested in dissecting what’s going on with Business Investment. I talked to one guy from Investment Business Daily who seems interested in the subject.

This is a big part of the recovery and will be important if growth is to continue.

When I have looked through the data it basically looks like this.

When the recession came businesses cut way back on industrial machinery and transportation. Now it turns out that – sadly or not – industrial machinery is not a big part of the US economy.

However, transportation equipment – cars, trucks, planes, ships – are a huge part of the US economy. These dropped like a rock.

However, investment in computers and software barely took a dent and has actually continued its accelerating pace. Indeed, looking at the data you have to be very careful about how you do the price indexes here because the quantity of investment in *computer power* and *software packages* are exploding through the roof. However, the cost is also collapsing, so netting out the “real investment” can be difficult.

Even still businesses are spending more raw cash on software and computing.

What’s happening now is that transportation spending is recovering. That’s driving the really big numbers. However, total fleets are still older than average so this could potentially last a few more quarter even by just coming back to normal.

Government Sector

The decline in the government sector has been a bigger deal than people realize. Especially since government grew so strongly during the 2000s.

Lots of people think about the Federal government. However, government as an economic producer happens at the State and Local level. That’s where the action is.

Its possible but seems unlikely that State and Local will continue to contract at the rate it did this past 18 months. This brightens our growth and jobs forecast.

Children and Voting

Though this seems like a silly issue to a lot of people its part and parcel of the whole: “are there a such thing as human rights” question.

People often appeal to the immature nature of children. But clearly there are mature children and immature adults. If you draw the dividing line at age then this is a line of convenience.

But, we would we tolerate that in other areas of human rights? Surveillance of Americans would be really convenient for catching criminals and terrorist and in reality few innocent people would probably be prosecuted. Perhaps, even fewer if we had lots of exculpatory data. Yet, are we ok with this?

The why are we ok with rules of convenience regarding children?

The Inequality Debate

In so many ways this entire debate looks jacked up to me. Its not clear what people are trying to prove/demonstrate. I see posts “refuting” the inequality stats that look to  me like they are just providing the mechanism.

I see people jumping to all sorts of conclusions about what this means for the rich and even “tax cuts” that don’t make any sense.

Part of this is that we are confusing the fact that people are upset about the real personal issue of not be able to find the type of job they hoped with this deeper headier issue about inequality.

However, rather than focusing on supporting or refuting inequality, what we need is some sort of schema or topology of inequality. We know some household effects are occurring. How can we decompose that into various other effects. We know this is not occurring by magic. There must be some decomposition.

My Brothers Keeper

Bryan Caplan makes does some really good posts about the welfare state and our obligations to one another. I know they are great because they leave me squirming in my seat.

I obviously want to hear more of what Bryan has to say but I think in the case of the Brother’s Keepers law the key is particular disgust.

So, its unlikely that someone is not going to give significant resources to support a family member in need unless they are particularly disgusted by them.

I am thinking about my own family and large income transfers are trivially done. Indeed, the only case when someone would be unwilling is if they have particular reason to think a family member will do something “bad” with the money.

I imagine that if you said you have to give family members money then the fear is that people would not be able to avoid these bad cases.

Now, perhaps this is also the key issue in redistribution. Some folks see the behavior of the poor and are disgusted. Some are not. This is going to influence how you feel about social redistribution.


Wasn’t the 1MW energy catalyzer supposed to be demonstrated by now. What happened?

US as a Natural Resource Extractor

I think some of my progressive friends should think long and hard about whether or not this is a bad idea. I know there is a reflex against Big Oil.

However, think about the employment of low skilled Americans. Isn’t this exactly the type of work that could raise their real wage?

Also, are we really going to have a major effect on the planet by reducing the amount of resources the US produces? Maybe some agreement will be reached under which the world can agree to consume less.

However, without that you are only going to have people going after more expensive sources for the same thing and low skilled Americans finding little demand for their labor.


My general sense looking at the roadmaps is that solar is the future and is not *too* far off. I think we are talking about the one to two decade scale here. Maybe a little more, probably not a little less.

However, remember that solar replaces coal. We still have nothing with even  the theoretical energy density of hydrocarbons. Hydrocarbons will play a major role for the foreseeable future.

They may be limited to large scale transportation. Particularly Air and Sea.

Virtual Rooms

We normally think of the future as coming with “implants.” So for example, glasses or contacts that project an imagine into your eyes.

However, consider that when you combine motion capture with a standard 3D screen you can create a virtual image that sits anywhere you want in realtion to the viewer.

So imagine a room with three walls that are large 3D projections. Now also imagine motion capture so that imagine depends on where the viewer is looking.

At this point we can make it seem like “anything” is in that room with the viewer and that the room is as big or as small as we want. As long as the ceiling and floor are consistent with the projected image and the view does not turn around to look at the door she came through, we can make the room seem like its anywhere.

We can also put people from different rooms all into the same room virtually. Each person will see and be able to talk to the other people as if they were there.

You just can’t touch them.

This is hardware that already exists. The software probably needs to be made and the cost brought down. Also there are going to be huge bandwidth requirements. Nonetheless, we can do virtual rooms right now.

I think that is enough to really change what it means to “be somewhere”

Karl raises some interesting questions about the morality of bringing someone into existence. These are tough questions, but one group makes it a little easier to narrow the overton window by earnestly putting forth some clearly terrible answers. The group is “Population Matters” and they have some truly egregious views (pdf). For instance consider this argument:

It is also a fact that if two people with two living children have a third child, they will ratchet up the population of the planet, and thus: ratchet up damage to the environment; bring nearer the day of serious ecological failure; and ratchet down everyone else’s share of dwindling natural resources to cope with this. So individual decisions to create a whole extra lifetime of impacts affect everyone else (including their own children) – far more than any other environmentally damaging decision they make. We need to be aware of the ethical implications of having large families; and sex education in schools should include it.

You’ll notice the complete and puzzling lack of productivity in this formulation of scarcity. In this model of the world there is only resources, and they are directly consumed. Imagine, for instance, if your two people with two living children have a third child whose inventions increase the efficiency of solar power by 1%, or increases grain yields, or leads to a new low cost recycling technique. This person coming into existence has clearly increased the amount of output than can be created with the resources on earth. The way Population Matters has formulated the problem of scarcity only makes sense if… well, if you’re determined for some reason to try and argue that more population is a really bad thing.

Another massive problem with their ideas is they’re confused about what coercion means. They state repeatedly they are only for non-coercive policies:

“…the government should state a national goal of stabilising and then reducing UK numbers to a sustainable level, by non-coercive means…”

But when the chair of the group was interviewed here at Grist, he doesn’t shy away from the extremely coercive policy of drastically restricting poor people’s freedom to move to developed countries:

“Half our population growth [in the U.K.] is due to migration, so [we advocate] balanced migration to stabilize that — no more in than out. “

So they don’t want to coerce anyone except when it comes to their decision about where to live. And they’re not for coercive policies except the one that prevent more wealth creation than perhaps any other.

The interview ends with this puzzling appeal to doing things “the nice way”:

“On a finite planet, we know for a fact that indefinite growth in anything physical is physically impossible. So physical consumption of resources per person and the number of consumers will quite definitely stop at some point. It will either be sooner, the nice way, through fewer births, or later, the nasty way, through more deaths. But there is no third alternative.”

One wonders if they are completely blind to the reality that preventing people in poor countries from immigrating to better lives in developed nations is probably not seen as “the nice way” from their perspective. Or are they just that stunningly indifferent to their well-being?

Look at these numbers

Trends in Recognition and Positive Intensity for Herman Cain

I understand the smart person thing to say is that “The Party Decides” and I don’t see how the party chooses Herman Cain. Nonetheless, I really want to see how this ends because barring a major misstep on Cain’s part what do you do against numbers like this.

Even if every Republican who doesn’t know about Cain decides that she hates him he still has a net positive favorability rating. And, that’s seriously unlikely to happen.

Not only that but he has been at every debate and is only getting more popular as he is more well known.

My money still says Obama over Romney 49-48, but again I really want to see how this Herman Cain thing ends because right now I can’t envision it.

Let’s be realistic, probably nothing. But I could be proven wrong by a new film he stars in that has the potential, at least, to raise some interesting ethical questions. Here is the summary from Wikipedia:

In a retro-future when the aging gene has been switched off, people stop aging at 25 years old. However, stamped on their arm is a clock of how long they will live. To avoid overpopulation, time has become the currency and the way people pay for luxuries and necessities. The rich can live forever, while the rest try to negotiate for their immortality.

And here is the trailer:

A frequent argument made in favor of organ markets is that donating a kidney does not lower life expectancy. But is the morality of kidney markets contingent on this fact, and how certain are we of this? I’ve written about this issue before.

The question is, do you object to markets in life years? If so, then it would seem that the argument that kidney donations do not decrease the life expectancy of the donor isn’t just an argument in favor allowing it, but a necessary condition for it.

This raises the importance of this question significantly. Has there ever been a randomized study done on kidney donation?  Clearly there is a selection bias here in that unhealthy people are unlikely to donate. If it turns out that kidney donations do decrease life expectancy, will supporters of these markets (like myself) change their minds? Or does the morality really hinge on whether there is a net increase in lifespan?

Another question about markets in life years is that it is just an explicit version of trade that is already occurring. Miners, commercial fisherman, and others in dangerous occupations already trade expected life expectancy for money.  Does the narrowing of the variance around that expectation increase the immorality of the transaction? Or is there some certainty threshold you cross where it becomes immoral? Surely it isn’t 100% certainty, right?

Anyway, these are the amateur philosophical thoughts of an economist tossing these ideas around. I’m sure more philosophically sophisticated people than I can explain clearly and persuasively the right, wrong, and unsettled of this issue.

One of the things I love about Bryan Caplan is his intellectual fearlessness. It was clearly on display in his series of posts about single mothers.

It says something about both Bryan and myself that I have had many replies to him but none of them were published until Bryan offered me a smoother handle.

He says

b. Sex with birth control, unlike abstinence, does not lead to chronic burning lust.

c. Potentially poor women who delay child-bearing have a high chance of finding a reliable man before becoming infertile.

Both of these statements are wrong.

Baby lust is quite real, almost certainly genetically determined and probably explains a fair fraction of the differences in outcome among women. I don’t simply mean in income but in how one’s life turns out overall.

Second, it almost certainly not the case that potentially poor women have a high chance of finding a reliable man before becoming infertile. In a polygamous society or one that imposed an effective cartel on sex this might be true but this is not even going to come close to being true in modern America. This is because there is a serious dearth of reliable men.

That marriage market naturally clears with a fair number of women unable to find suitable life-long partners is the main driver of social-sexual institutions, customs and taboos.

I should add that Bryan’s prescription of promiscuous birth-controlled sex lowers a women’s rank in the marriage market, meaning that both baby lust and lust lust are going to make things harder for you. This is worsened by the fact that both are likely driven by sensitivity to oxytocin.

On a more general note, I think one of the core differences between Bryan and myself on this issue is my natural assumption that poor single mothers are engaging in utility maximizing behavior.

This implies that the alternatives to being a poor single mother are worse and that people accept this fate because they have low endowments in the marriage market.

For example, Bridget Moynihan commented on the – to her – shocking number of proposals she got when she was left single and pregnant. My response was that she was simply encountering men who were trying to buy an asset they mistakenly thought was available at fire sale prices.

That marriage to Moynihan was not available at fire sale prices tells you a lot about the lack of arbitrage possibilities in the marriage market. People who end up on the outs probably have little chance of ending up anywhere else.

Bob Frank has an essay in the NYT adapted from his new book The Darwin Economy. The thrust of it seems to be that many goods are positional.

When the ability to achieve important goals depends on relative consumption, all bets on the efficacy of Smith’s invisible hand are off. As Darwin saw, many important aspects of life are graded on the curve, and in such cases, individual incentives often lead to mutually offsetting efforts.

The rat race is rent dissipation.

This is an idea I used to push strongly, until Justin Wolfers convinced me otherwise. I used to think happiness was largely zero sum and that the benefits of great wealth came only from the relief of great misery: infectious disease, deformation, major depression, etc.

Yet it seems real happiness does come from greater levels of consumption even if you don’t beat out your neighbors. Still, your neighbors do matter, interestingly enough for things we wouldn’t think of like, longevity.

All of that being said, the larger point I want to make is how evolutionary thinking is taking hold into everything we do.

Sometimes, I read articles from maybe 20 years ago about love or ambition or beauty that are rooted concepts other than in evolutionary psychology. It feels like reading an article on Wicca and its use in treating pneumonia.

As I have mentioned, to me the idea of the firm as some sort of conscious maximizer seems naive if not outright silly. The large scale failure of corporate strategic planning, an obvious inevitability.

No, there is one idea that rules them all – selection. Things are what they are because the world culls out the other possibility. Existence is the art of the possible and science is the study of selection, on one level or another.

The world around us is filled with three kinds of particles, not because there are only three but because the others decay to fast. Molecules “seek” low energy states because in the ever present jostling that is reality they are much more likely to fall from a high place to a low place than the other way around.

Even time itself has the arrow that it does because there are more high entropy states than low ones. Watch long enough and the low entropy ones are bound to dominate your observation.

That’s why I describe the effect in different terms – we will tend to observe those things which are highly observable. To understand our world then is to understand the rules of observation.

What are we likely to be able to see. That is what is likely to be.

I think this can reduce some great mysterious to absolute simplicity. Why for instance are we all alone. How can it be that we are the only intelligent species we know.

How can it be otherwise? There were once many species of homo, now there is but one. The same will be true for intelligent life in general. The average intelligent creature will look out into the world and see only others like her, because for her to exist the others must either have been killed or not have arrived to kill her yet.

Every thing about our world has been selected for. The unstable particles have decayed. The unstable species have gone extinct. And, the unstable economies have collapsed.

There has been a lot of praise about Obama’s jobs speech that he delivered last night, both in style and in substance. I thought the style was just fine, and has set Obama up in a position where he can clearly smack Republicans in the general election should they resort to obstructing the American Jobs Act. And they shouldn’t! It’s a very Republican-friendly plan and I do have to say that I admire many of the different projects on merits, but I can’t help by think that the plan and the subsequent cacophony of commentary is fiddling around the edges while dodging what has been the fundamental problem of the last few years — a problem that only the Fed can remedy — and that is abysmal growth in nominal spending.

The plan broadly consists of three classes of measures, the first is cutting the payroll tax on both the employer and employee side. Along with my co-blogger Karl, I am in favor of this proposal as a measure to remove supply side barriers to new hiring. While Karl’s preferred plan is to cut the payroll tax to zero, this plan is none-the-less fairly bold…however, I am skeptical that it will deliver the amount of new hiring that Obama is promising.

The second measure is tax incentives for hiring specific classes of people. In this case, there is an incentive for hiring veterans, the long-term unemployed, and for giving raises to current employees. I am roundly not in favor of this type of policy, especially the incentive to artificially prop up wages. The last time this was tried as a counter-recessionary measure was the 1933 National Industrial Recovery Act (which subsequently choked off the fastest recovery in American history). Now, it is hardly the case that money wages will jump 20% overnight after the passing of this bill, but if you’re in the business of wanting to to jump-start new hiring, incentivizing higher wages (and thus, necessitating higher productivity) is clearly the wrong way to go about it.

The third part of the plan is direct spending on infrastructure — namely schools and transportation. Sure, great, do it! Real rates are at zero or below all the way out to 10 years…that means (as has been pointed out ad nauseam) it’s cheaper to borrow than to tax now, and defer taxation to the future, when there will presumably be robust growth. I don’t know the specifics, but I’ve heard talk about an infrastructure bank that will provide safe, liquid assets to private investors and provide loans to contractors. It is all well and good that the government maintain infrastructure that is already in the public domain…after all, we’ve already built it, and built our lives around it, might as well maintain it until such a time we devise a different arrangement. My problem is with characterizing infrastructure spending as “stimulus” that will “employ millions of people”. There are plenty of hurdles to jump there, and the spending is slow. Worthwhile “shovel-ready” projects, while much talked about, always fail to materialize at the time they are needed.

Whatever the well-meaning intentions of the designers of these plans, I heard nothing from Obama or anyone else regarding the real issue, depressed nominal spending. Imagine a scenario in which the AJA takes effect, and achieves the maximum spending multiplier ever dreamed up in a model. All of this extra nominal spending (demand) would eventually lead to rising prices, most immediately in sensitive commodities such as food and energy. Now, imagine that the monetary authority views sub-2% inflation as optimal…and is internally pressured to begin unwinding their balance sheet (tightening policy). Rapidly rising prices would be a great cover that would allow them to choke off any good created by the miracle supply-side fiddling that you engaged in with your jobs act. I was disappointed by the prospects of further monetary easing in Bernanke’s Jackson Hole speech. However, there has been a lot of clamoring around the blogosphere (even making it to the WSJ) regarding the actions of the Swiss National Bank. Perhaps I’ll be gleefully proven wrong!

Obama’s plan will succeed to the extent that the Fed allows it…and just for reference, here is the Cleveland Fed’s expected inflation yield curve:

[Click Image to Enlarge]

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