Wednesday, June 30, 2010

Common Sense, Uncommon Stupidity

Here are some bits from a very good article by David Leonhardt in the NY Times:
Governments Move to Cut Spending, in 1930s Echo

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

...

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

...

The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood. In the 1932 presidential campaign, Franklin D. Roosevelt vowed to outdo Herbert Hoover by balancing the budget. Much of Europe was also tightening at the time.

If anything, the initial stages of our own recent crisis were more severe than the Great Depression. Global trade, industrial production and stocks all dropped more in 2008-9 than in 1929-30, as a study by Barry Eichengreen and Kevin H. O’Rourke found.

In 2008, though, policy makers in most countries knew to act aggressively. The Federal Reserve and other central banks flooded the world with cheap money. The United States, China, Japan and, to a lesser extent, Europe, increased spending and cut taxes.

It worked. By early last year, within six months of the collapse of Lehman Brothers, economies were starting to recover.

The recovery has continued this year, and it has the potential to create a virtuous cycle. Higher profits and incomes can lead to more spending — and yet higher profits and incomes. Government stimulus, in that case, would no longer be necessary.

...

The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.

Given this history, why would policy makers want to put on another fiscal hair shirt today?

...

The reasons for the new American austerity are subtler, but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go — laissez-faire economists, Congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.

...

In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that.

Instead, we are left to hope that we have absorbed just enough of the 1930s lesson.
Go read the original to get the full text and the embedded links.

Most of what I read says that despite the lack of stimulus, the US will squeak by with slim to no growth later this year and early next year. But my fear is that the crazies who push the stupid policy of "austerity" are going to push the US back into a second dip and prolong this Great Recession. It doesn't hurt big shots to call for austerity. They have wealth to pad themselves and they are generally secure in high paying jobs, so they don't feel the pinch of unemployment. It is easy to talk about going on a diet when you have a table laden with foods sitting in front of you. But it sure makes no sense to tell the family that can't afford food, let alone housing, that they should "trim" their food purchases!

What is a Neo-Whorfian Cognitive Scientist

Here are some bits from an article in the Stanford Magazine about the researcher Lera Boroditsky:
But Boroditsky, PhD '01, is not a linguist. She is a cognitive scientist—specifically, an assistant professor of psychology, neuroscience and symbolic systems... She is "one of the first to show truly convincing effects of language on cognitive processes," including mental imagery, reasoning, perception and problem solving, says Daniel Slobin, a professor emeritus of psychology and linguistics at UC-Berkeley. Slobin coined the term "thinking for speaking" to describe how the language-specific ways different cultures talk about space and time shape how they think about space and time. He adds that Boroditsky "has taken on some of the major dimensions of abstract thought."

Slobin, like Boroditsky, is often called a "neo-Whorfian" cognitive scientist. The connection between language and thought has long captivated poets, philosophers, linguists and thinkers of many sorts, but the modern debate has its roots in the work of the early 20th-century American linguist Benjamin Whorf and his Yale mentor, Edward Sapir. They thought that the structure of language was integral to both thought and cultural evolution, a notion sometimes called linguistic relativity.
Here's the opposite camp:
However, others—most notably MIT linguist Noam Chomsky—later argued that all languages share the same deep structure of thought and that thought has a universal quality separate from language. (Babies think before they learn to speak, so thought is not dependent on language.) Those scientists believe that languages express thinking and perception in different ways but do not shape the thinking and perception.
Here's the key experiment to disprove the Chomsky assertion:
She [Boroditsky] has shown that speakers of languages that use "non-agentive" verb forms—those that don't indicate an animate actor—are less likely to remember who was involved in an incident. In one experiment, native Spanish speakers are shown videos of several kinds of acts that can be classified as either accidental or intentional, such as an egg breaking or paper tearing. In one, for example, a man sitting at a table clearly and deliberately sticks a pin into the balloon. In another variation, the same man moves his hand toward the balloon and appears surprised when it pops. The Spanish speakers tend to remember the person who deliberately punctured the balloon, but they do not as easily recall the person who witnesses the pop but did not deliberately cause it. English speakers tend to remember the individual in both the videos equally; they don't pay more or less attention based on the intention of the person in the video.
And here's an example of a linguistic difference:
Boroditsky focuses on linguistic features that may inform more fundamental differences in how cultures convey their relationship to concepts such as space, time or gender. "What I'm really interested in are the ingredients of meaning. I don't believe we can explain how we construct meaning without understanding patterns in metaphor and language."

Consider space. About a third of the world's languages do not rely on words for right and left. Instead, their speakers use what are called absolute directions—north, south, east and west. For everything. In Australia, for example, if Tara VanDerveer were giving a basketball clinic to the aboriginal Thaayorre in their native language, she'd have to order her players to dribble up the south side of the court, fake east, go west, then make a layup on the west side of the basket.

This orientation to the compass points affects all sorts of tasks. When speakers of these languages are asked to arrange photographs showing a time sequence, they line them up east to west. English speakers tend to view time-sequence photographs as going from left to right, while Hebrew speakers line them up right to left. The upshot of the need to constantly stay oriented in order to communicate the simplest concept, says Boroditsky, is that in communities of these speakers, even small children can perform phenomenal feats of navigation, and everyone is constantly mentally synchronizing their spatial relationships.
It is a little hard for me to picture "lining up photos east-to-west" because that is a bizarre concept. That means if I'm sitting on the south side of the table I do it from right-to-left, if I'm on the north I do it left-to-right, and if I'm at the east end of the table I do it from bottom-to-top, and if I'm not orthogonal, that means I would organize the pictures along some diagonal. I find that hard to believe. I would need to actually see this to believe this "research result". I'm willing to conceive it is possible and find it fascinating, but I have a hard time believing people would organize photos differently depending on where they sat!

Here's another claim from her research:
Is color perception linked to what we call colors? In another experiment, Boroditsky compared the ability of English speakers and Russian speakers to distinguish between shades of blue. She picked those languages because Russian does not have a single word for blue that covers all shades of what English speakers would call blue; rather, it has classifications for lighter blues and darker blues as different as the English words yellow and orange. Her hypothesis was that Russians thus pay closer attention to shades of blue than English speakers, who lump many more shades under one name and use more vague distinctions. The experiment confirmed her hypothesis. Russian speakers could distinguish between hues of blue faster if they were called by different names in Russian. English speakers showed no increased sensitivity for the same colors. This suggests, says Boroditsky, that Russian speakers have a "psychologically active perceptual boundary where English speakers do not."
This I can understand and find credible even though I haven't experienced it.

And here's one more research result:
Boroditsky also is fascinated with how cultures perceive and communicate ideas about time. Some languages require their speakers to include temporal information in every utterance. In the Yagua language of Peru, there are five distinct grammatical forms of the past tense, for example, to describe when an event occurred: a few hours prior; the day before; roughly one week to a month ago; roughly two months to two years ago; and the distant or legendary past. English is not that precise, but it is true that every time you use a verb in English, you are conveying information about time. Depending on whether something has happened already (I made dinner), is happening now (I am making dinner), or will happen in the future (I will make dinner), the speaker must pick different verb forms. Without the temporal information, the utterance would feel incomplete, ungrammatical. You couldn't just say I make dinner in all three cases.

Not so in Indonesian. Unlike English, Indonesian verbs never change to express time: Make is always just make. Although Indonesian speakers can add words like already or soon, this is optional. It doesn't feel incomplete or ungrammatical to just say, I make dinner.

This led to another fascinating experimental result—and to Boroditsky's opening up a laboratory in Indonesia. A student from Indonesia assured Boroditsky, who was still skeptical, that most Indonesians simply do not bother to mark time when they speak. So she challenged the student to set up an experiment where Indonesian speakers would be shown photographs of the same act in a time progression: a man about to kick a soccer ball, a man kicking a soccer ball, a man who has kicked the ball, which is flying away. Boroditsky and the student made a bet. Is it possible that Indonesian speakers wouldn't mark time progression? If they did not care about time, what would they pay attention to?

The student's hypothesis was proven right. Indonesian speakers, after looking at the three photographs, tended to not only use the same descriptions for each photograph with no time markers—the man kick the ball—but many also said later there was no difference between the photos. Realize that to English speakers, these were not subtle differences—each photograph of the man and the ball was distinctly different.

Moreover, when the researchers mixed in photographs of different individuals kicking the ball, the Indonesian participants were more likely to describe two photographs as similar when the person doing the kicking was the same, regardless of which of the three different actions was being performed. English speakers were more likely to say photographs were similar when the actors in the photos were doing the same action in time.

... Boroditsky's argument is that Indonesians' language structure cues their attention. If you need to figure something out to put it into words, then you pay attention to those details; but if you don't, you don't.
And here is an experimental result which I find to be compelling. This, for me, shows that language makes a difference:
One implication of Boroditsky's research is its relationship to what psychologists call "framing." In a paper due to be published this year, she and her team used the infamous 2004 Super Bowl halftime show in which singer Justin Timberlake seemed to pull off the front of Janet Jackson's costume, revealing her breast. Timberlake later described the incident as a "wardrobe malfunction" (conceptually not unlike that teacup breaking itself). Even when test subjects saw the same video of the event, and even when they had read and heard about the incident prior to the study, Boroditsky reports that when the researchers described the event then asked the subjects to assess a financial liability to Justin Timberlake, their responses were divided. The group that heard an "agentive" description, in which "Timberlake ripped the costume," recommended a much higher fine than the group that was told "the costume ripped." According to Boroditsky, "Linguistic framing affected people's judgments of blame and financial liability in all conditions; language mattered whether it was presented before, after or without video evidence."
Here's my bottom line: Language is a tool and tools affect how we see the world. The joke that "to a man with a hammer, all problems look like nails" captures the same insight. Our tools shape our interaction and understanding of the world. If you have an algorithm for long division, you are willing to consider questions like "I've got 98 pieces of candy and 7 friends, how should I share it?" as a division problem. If you don't have that skill, you might use an algorithm of passing out a piece at a time going round the circle and be surprised, or not, if the sharing is not equal. It isn't all that clear how "metaphysical" we should get about differences in behaviour before and after we learn long division. Sure our tools affect us, but do they put us in contact with a "different reality"? Probably not.

You can get a "feel" for Lera Boroditsky by visiting her research web site. Go ahead, click on it, you will be pleasantly surprised. Especially if you explore a bit and click on this link.

Update 2010aug19: More material here.

Update 2010aug30: A very thoughtful NY Times article by Guy Deutscher (pulled from a chapter of his soon to be published book) goes into far more detail about the subtleties of the neo-whorfian understanding of language.

Update 2011jun16: I have found a delightful book that explains when and how the Sapir-Whorf arose, how it was rejected, and how it is making a comeback in a very modified form. Read my review of Guy Deutscher's Through the Language Glass

Taking Weather Seriously

I've always been fascinated by weather. I love to use webcams and government sites to check weather around the world. One of my favourites is Kimmirut, Nunavut, Canada, a tiny of 400 people in Canada's north. They have a wonderful weather website that features a big picture of the a road from the town leading down to a small bay. It has gobs of data and graphs. They have a satellite view of North America, a lovely graphic for the week's weather prediction from Environment Canada, big charts and graphs for local conditions, a graphic for the phases of the moon and sunrise & sunset, and links to historical data. It is an absolutely stunning site. And when you realize it is a tiny little community of 400 people, you are amazed. Somebody in that town is a first class weather fanatic and wants to share his fascination.

Take a peek: here.

Tuesday, June 29, 2010

Modern Economics as Bloodletting

Here is an excellent post by Paul Krugman on his NY Times blog. He points out that the kind of "reasoning" being used by those demanding that deficits be cut and austerity be put in place is the same kind of reasoning that "physicians" used throughout the Middle Ages in doing bloodletting to cure their patients:
Liz Alderman offers an excellent, if depressing, portrait of Ireland in austerity. To fully appreciate its significance, you want to juxtapose it with what the apostles of austerity are saying. Jean-Claude Trichet:
“As regards the economy, the idea that austerity measures could trigger stagnation is incorrect,” Trichet said, according to an English-language transcript published on the ECB’s Internet site.

“I firmly believe that in the current circumstances, confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.”
Uh-huh.
The key thing to bear in mind about calls for harsh austerity in the face of a a depressed economy is that such calls depend on two propositions, not one. Not only do you have to believe that the invisible bond vigilantes are about to strike — that you must move to appease markets, even though right now bond buyers are willing to lend money to the United States at very low rates; you must also believe that short-term fiscal cutbacks will in fact appease the markets if they do, in fact, lose confidence.

That’s why the Irish debacle is so important. All that savage austerity was supposed to bring rewards; the conventional wisdom that this would happen is so strong that one often reads news reports claiming that it has, in fact, happened, that Ireland’s resolve has impressed and reassured the financial markets. But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.

Of course, I know what will happen next: we’ll hear that the Irish just aren’t doing enough, and must do more. If we’ve been bleeding the patient, and he has nonetheless gotten sicker, well, we clearly need to bleed him some more.
The politicians have gone insane. Right now the stock markets around the world are signaling a "double dip" recession. At the very best, growth may slow to zero and not actually go negative, but the latter half of 2010 and early 2011 are going to be either negative of no-growth months. That means more unemployed. That means more suffering. Why? Because Republicans believe in voodoo economics, an economics of "bloodletting". I never thought I would live to see the day, but sadly I have. The world has gone mad.

Burton Richter on Climate & Energy

Here is a video of Burton Richter talking about climate and energy and promoting his book Beyond Smoke and Mirrors:



I agree that the truth on climate is between the two extremes. I think I'm more toward the denial side than Richter. I'm not convinced the CO2 is that big of a deal. I think water vapour swamps the effect and I think Svensmark's geoclimatology theory trumps the effect of CO2. But I feel I could have a debate with Richter and we could come to an agreement. He isn't a fanatic.

Here's a critique of Burton Richter by LuboŇ° Motl and his comments on his blog The Reference Frame:
Natural gas vs oil

The world's proven reserves of natural gas are 180 trillion cubic meters or so; Russia, Iran, and Qatar (combined) have more than 50% of it.

In the U.S., one cubic meter costs about $0.25 and produces 10.8 kWh of gross heat when combusted.

Various products and ratios may be useful. The price of 1 kWh of gross heat is about 2 U.S. cents, or $0.02, which is, of course, well below the price of electricity in the U.S. around $0.12 per kWh (but don't forget that you can only get a fraction of the energy if you burn the gas, and you must pay many other things).

The 180 trillion of cubic meters in reserves cost $45 trillion at the price I indicated. These proven reserves would produce 1900 trillion kWh of gross heat when burned.

Oil

The world's proven oil reserves are about 1.3 trillion barrels. At the current price of $78 per barrel, the total price of the proven (and revealed) reserves is about $100 trillion - which is twice as much as the price of the natural reserves.

The energy/heat content of one barrel of oil is equivalent to 153 cubic meters of natural gas. So the proven reserves of 1.3 trillion barrels of oil contain as much energy as 200 trillion cubic meters of natural gas.

You can see that this is almost exactly the same amount as the proven natural gas reserves - it is only 10% higher (but the accuracy is much worse than 10% here).

What about the price of one kWh of gross heat? Well, one barrel of oil costs $78 but produces 153 x 10.8 = 1650 kWh of gross heat when combusted. That's almost $0.05 per kWh. So indeed, the energy from natural gas may be by a factor of two or three cheaper if you neglect everything else.

You see that both oil and natural gas are comparably cheap and produce comparable energy per dollar. Well, there are way too many things that may be more important and that go well beyond the price, energy, and reserves.

The world's electricity consumption is 17 trillion kWh per year. I noticed that the natural gas contains 1900 trillion kWh of gross heat. Together with the slightly higher amount from the proven oil reserves, we have 4000 trillion kWh of gross heat.

If there were no losses, that would be enough for 235 years of electricity consumption. ;-) Of course, the electricity consumption is actually not covering all the types of energy we consume.

I didn't know what numbers I would get but if the prices were what they seemed to be and if there were no other major issues, I would agree it is sensible to try to burn the natural gas first because it's cheaper.

The main disadvantages of natural gas are expensive pipelines, extraction side effects, and the toxic nature of the gas. While someone who is only obsessed with the "bare price" or "energy content" or "CO2 emissions" could easily miss all these "more subtle" issues, they are actually behind the fact that the natural gas is replaced by coal or oil in many applications.

So even though the simplest calculations of the energy efficiency (and price) seem favorable for the natural gas, it makes no sense for people with a limited knowledge of these "engineering" issues - e.g. Burton Richter - to dictate what the "right" mixture of energy sources should be.
I find the above conversion estimates very interesting. I agree with Motl that they are seductive. The actual engineering effort & safety concerns & financial feasibility are left out of Richter's viewpoint.

Monday, June 28, 2010

Back to the Moon Base

I remember watching the moon landing in 1969. I was impressed. Only later as I learned more did I realize how truly impressive the technological accomplishment was. The deaths and near-deaths in the Apollo program are a testimony to how cutting-edge this technological adventure truly was.

But for over 40 years the US has done nothing significant in space.

But here come the Japanese!
Japan Plans a Moon Base by 2020, Built by Robots for Robots

America may have eighty-sixed its moon base ambitions, but the Japanese have no plans to let perfectly good lunar real estate go to waste. An ambitious $2.2 billion project in the works at JAXA, the Japanese space agency, plans to put humanoid robots on the moon by 2015, and now official backing from the Prime Minister's office says the Japanese could have an unmanned lunar base up and running by 2020.

Key to all of this, of course, is the robots themselves, and who better than the Japanese to dream up and realize the kind of intelligent, self-repairing, multitasking bots that will be needed to fulfill such a mission.

As currently envisioned, the robots that will land on the lunar surface in 2015 will be 660-pound behemoths equipped with rolling tank-like treads, solar panels, seismographs, high-def cameras and a smattering of scientific instruments. They'll also have human-like arms for collecting rock samples that will be returned to Earth via rocket. The robots will be controlled from Earth, but they'll also be imbued with their own kind of machine intelligence, making decisions on their own and operating with a high degree of autonomy.

Those initial surveyor bots will pave the way for the construction of the unmanned moon base near the lunar south pole, which the robots will construct for themselves. That base will be solar powered and provide a working/living space future robot colonizers, as well as -- presumably -- a jumping off point for future human moon dwellers.

Sound far-fetched? It's certainly an ambitious project given the timeline. But considering Americans put actual men on the moon in a decade span with far inferior technology it certainly seems within the realm of possibility. Moreover, the massive technological fallout from that initial push for the moon was a boon for private industry, seeding some important and amazing technological breakthroughs. Even if Japan falls short of its 2020 deadline, the advances in robotics technology that could fall out of this little project could be as exciting as the moon base itself.
I wish them success!

It looks like a new moon race is heating up. China wants to put astronauts on the moon and now Japan is headed there with robots. I guess the 19th century belonged to the Europeans, the 20th century to the Americans, and the 21st will belong to the Asians.

American Police Put in Another Sterling Performance

Here's an interesting article in the Daily Mail out of the UK:
'Don't taze my granny!' American police accused of using a Taser on an 86-year-old, bed-ridden grandmother

American police have been accused of tasering an 86-year-old bed-ridden grandmother.

Lonnie Tinsley called the emergency services to his home in El Reno, Oklahoma, when he became concerned that his grandma Lona Vernon had failed to take her medication.

But instead of a medical technician, he claims at least a dozen armed police officers answered his call.

When Mrs Vernon ordered the police from her house, officer Thomas Duran allegedly decided she was being 'aggressive' and gave the order: 'Taser her.'

Her alarmed garndson, is then said to have replied: 'Don't taze my granny!'
According to a lawsuit filed in U.S. District Court, Tinsley’s 'obstructive' behaviour prompted the police to threaten him with their tasers.

He was then was assaulted, removed from the room, thrown to the floor, handcuffed, and detained in a police car.

At this point, the heroes in blue turned their attention to Lona.
According to officer Duran’s official report, Mrs Vernon had taken an 'aggressive posture' in her hospital bed.

In order to ensure 'officer safety', one of his men 'stepped on her oxygen hose until she began to suffer oxygen deprivation'.

Another of the officers then shot her with a taser, but the connection wasn’t solid.

A second fired his taser, 'striking her to the left of the midline of her upper chest, and applied high voltage, causing burns to her chest, extreme pain', and unconsciousness.

Lona was then handcuffed with sufficient ruthlessness to tear the soft flesh of her forearms, causing her to bleed.

After her wounds were treated at a local hospital, Lona was confined for six days in the psychiatric ward at the insistence of the El Reno Police Department.
Gosh... talk about disproportionate force. I bet every kid in America, after hearing that tale, will never refuse a spoonful of medicine. We can retire Mary Poppins with her song A Spoonful of Sugar [Makes the Medicine go Down] and just use this story to ensure that little kids don't balk at taking their medicine!

I'm going to have to put this story up there with the Seattle police tasering a pregnant woman for not signing a speeding ticket and the Vancouver RCMP tasering and killing a Polish immigrant lost and frustrated in the "secure" area of the Vancouver airport.

Ah... but the US of A is the land of tasering. Here's the classic tasering event of a student trying to ask John Kerry a question and gets tasered for "taking too long" to ask the question...



What bugs me as much as the police brutality is the stupidity of John Kerry of blathering on and not stopping this ridiculous instance of police violence:
Police [in background]: "Get down!"
Senator Kerry: "Hey officers ... could we ... Hey folks ... I think that if everybody just..."

Police: "Do it now!"

Senator Kerry: "... calms down this situation would calm down. [unintelligible] ...I'll answer his question. Unfortunately, he is not available to come up here and swear me in as President."

Andrew Meyer: "Why are they arresting me? Did someone do something here? Are they arresting?"

Senator Kerry: "Let me just say, because it is a very important question."
I'm sure glad Kerry didn't win the Presidency because he proved by his idiotic response to this incident that he was completely incapable of taking charge in a situation and resolving a minor problem before it became a major tragedy.

How to be Cynical

The world has institutions that are supposed to be working for a better world. Presumably they are neutral on political issues and are simply dedicated to being professionals in their area of expertise. Take the IMF (International Monetary Fund).

Dean Baker see evidence that we should be cynical about the IMF:
If we look at the track record, probably not. After all, where was the IMF when the housing bubble in the United States and elsewhere was building up to ever more dangerous levels? Was it frantically yelling at governments to rein in the bubbles before they burst with disastrous consequences? No, the housing bubbles were no big deal at IMF land.

This would have been worth noting in a Washington Post article that repeats at length IMF recommendations about reducing budget deficits, cutting back on labor market protections for workers, and rolling back pension and health care benefits. After all, any reasonable person would ask when the IMF stopped being wrong about the economy.

Actually, advice from the IMF may compare unfavorably to advice from a random drunk. The drunk will just be incoherent. There is reason to believe that the IMF has political motivations in the advice it gives. At the end of 2001 Argentina defaulted on its debt enraging the IMF. Prior to the default Argentina had been an IMF poster child eagerly embracing the IMF's program.

The IMF's growth forecasts clearly reflected its change of attitude toward Argentina. Prior to the default the IMF was consistently overly optimistic about Argentina's growth prospects projecting much higher growth than Argentina actually experienced. After the default, the IMF was hugely over-pessimistic, projecting much lower growth rates than it subsequently experienced. It is difficult to explain this pattern of errors except by a political motivation.
Right wing nuts have called the UN a "commie organization" for years. But I don't recall any right wing group being concerned about the "political bias" of the IMF. Funny how that works.

Inequality

Here are some slides from a talk entitle "Inequality and crises: coincidence or causation?" that Paul Krugman gave recently at a conference in Luxembourg.

The Answer to the Ultimate Question, Maybe

Here's an interesting post by Natasha Lennard on the NY Times' blog The Opinionator:
In his “Hitchhiker’s Guide to the Galaxy,” the science fiction writer Douglas Adams introduces Deep Thought — a computer the size of a small city, designed millions of years ago by a race of hyperintelligent pan-dimensional beings searching for the meaning of life. The super computer is described as a “so amazingly intelligent that even before the data banks had been connected up it had started from ‘I think therefore I am’ and got as far as the existence of rice pudding and income tax before anyone managed to turn it off …”

We’re a little way off from a handheld Deep Thought, but since life and meaning continue to perplex, a new philosophy application for smart phones might be the next best thing. AskPhilosophers.org — a popular online resource for questions philosophical — has launched an app — AskPhil —for iPhones, iPods and Android phones.

Alexander George, a professor of philosophy at Amherst College, launched AskPhilosophers.org in 2005 (he discusses the site in his post for The Stone, “The Difficulty of Philosophy”). He describes the AskPhil app in an Amherst press release: “When philosophical questions occur to people away from their desks or computer screens they’ll now have the opportunity through their mobile devices to see quickly whether other people have already asked that question and whether it’s received interesting responses.”

AskPhilosophers.org deploys a panel of over 30 professional philosophers to tackle the questions which have vexed mankind for generations, including problems of logic, love and ethics.

Unlike Deep Thought, AskPhil does not deliver, or purport to deliver, definitive answers. Rather the panelists respond with thoughtful clarifications; they introduce concepts and sometimes suggest useful further reading. They address the questions posed as opposed to answering them.

And they do so relatively quickly. Adams’ hyperintelligent beings asked Deep Thought for the Ultimate Answer to Life the Universe and Everything. Deep Thought took but a brief seven and a half million years to respond. Its definitive answer: 42.

As the super computer kindly pointed out, the Ultimate Answer is baffling, because no one actually knew the Ultimate Question of Life the Universe and Everything that it was a response to. And at least there’s now an iPhone app to help with that.

But is this a good thing? Does this sort of merging of handy technology with deep thought (the lowercase, human kind, that is) enrich philosophical activity or does it fragment and devalue it?
I can already predict that 99% of the people who try to use the above "philosophy app" are going to be disappointed, just like the Athenians were disappointed with their walking/talking philosophy app: Socrates. They condemned him to death! Sadly, philosophy doesn't solve puzzles. But it does help you appreciate them better. But that isn't the "help" most people want!

Prosopagnosia

Here is a bit from a post on Prosopagnosia by Vaughan Bell at the Mind Hacks blog:
The condition is often called 'face blindness' but the discussion gives a great illustration of why the label is so inaccurate because Chuck Close is famous for his detailed and evocative portraits of people's faces.

At this point, it's worth saying that there are various forms of prosopagnosia, an acquired version which people get after brain damage, and an inherited form, which Oliver Sacks and Chuck Close have.

You can see Close's portraits online but you really need to see them in real life to experience their impact because they are typically huge (2-3 metres high) and incredibly detailed.

This shows that prosopagnosia is clearly not 'face blindness' - people with the condition can see faces fine - what they can't do is distinguish people by their facial features. Faces just seem all the same - in the same way that you or I might have trouble distinguishing sheep by their faces.

We know a significant part of the difficulty is making sense of the structure of faces rather than their details. Statistically, human faces are very similar, and we have developed a way of perceiving faces that includes their overall layout.

You can demonstrate this process in action by simply by turning faces upside-down and showing that our ability to pick out differences is suddenly markedly reduced.

The Thatcher effect is probably the most striking example of this where changes to the eye and mouth seem hideous when the face is the right way up but when inverted we struggle to notice them.

This is because upright faces engage our perception of face structure into which the details are integrated. With upside-down faces we're left having to do piecemeal feature-by-feature comparisons like a newspaper 'spot the difference' competition.
Go read the whole post and follow the link to the NPR's Radiolab blog site where there is a dicussion about prosopagnosia with Oliver Sacks and Chuck Close.

Update 6sep2010: You can listen to an interview with Oliver Sachs discussing his new book The Mind's Eye at this New Yorker site:
Here Sacks talks with Blake Eskin about the comic and painful situations that arise when one is unable to recognize faces, how he compensates for face blindness, and what public awareness of the condition could do for those who suffer from it.
At 10:48 into this interview Oliver Sacks mentions that 2-3% of the population (i.e. 6-8 million people) suffers from face blindness. That is amazing!

Here's a nice video interview with Oliver Sacks about his book:



Update 7jan2011: Here's a video from the Yonas lab at the University of Minnesota:



And here is an interesting example of a specific person with prosopagnosia. This gives an insight into what it must feel like to be "face blind"...



Update 2011jan18: Here is a bit from an interesting article by Kevin Mitchell in Scientific American which links prosopagnosia with tone deafness & amusia:
Most of us are familiar with people who are tune deaf – these are the people who not only cannot sing in tune but are also unaware of that fact. Individuals with severe forms of this condition, known as amusia, are unable to detect whether particular notes within a melody are out of tune or out of key. Many are also unable to recognise melodies without lyrics or to hold a tune in their heads, even if they have just heard it. These difficulties arise despite normal hearing and also a fairly normal ability to hear the difference between isolated tones. The defect lies in connecting this sensory input with some implicit knowledge of musical structure and contours. Amusia thus falls into a class of conditions known as agnosias, which are characterised by the lack of knowledge of some, often very specific, category of object.

Another, equally curious, example of this class of condition is prosopagnosia – the lack of knowledge of faces. People with severe prosopagnosia may be completely unable to recognise the faces of famous people, friends, loved ones, even their own faces. As with amusia, this reflects a high-level deficit – people with prosopagnosia have normal vision and the ability to distinguish specific facial features, gender, even facial emotions. Both conditions thus seem to reflect the inability to link incoming sensory information (a person’s face or a specific note) with stored, implicit knowledge about that category (the person’s identity or a specific melody or general rules of melodic stucture).

...

This conclusion is strongly supported by the results of functional and structural neuroimaging experiments. In people with congenital amusia, frontal areas are more weakly coupled to posterior auditory areas. These findings thus suggest that the brains of people with amusia can detect discordant notes just fine – the people are simply not aware of it. Their brain knows but their mind does not.

Very similar effects have been observed in neuroimaging experiments of people with prosopagnosia. Normally, the activity of a brain area in response to a specific stimulus (such as a particular face) will decrease with repeated presentations, but will increase again in response to a new example from the same category (a new face). If the brains of prosopagnosics are really unable to discriminate between different faces then the increase in response to a new face should be absent. In fact, the “face areas” of prosopagnosics are still quite sensitive to differences in facial identity. What is different is that these responses are not communicated to areas in the frontal and parietal lobes, where conscious awareness is triggered.

These results are consistent with studies which use galvanic skin responses to detect emotional responses. These studies have shown that even though prosopagnosics may not consciously be able to distinguish a loved one’s face from a stranger’s, they still experience a specific autonomic response when shown a loved one’s face. Again, structural neuroimaging supports the notion that the reason for this failure in communication lies in a structural disconnection – a reduction in the nerve bundles linking these areas.
Go read the whole article. It has a number of interesting tidbits about these conditions and their similarities.

Roger Lowenstein's "The End of Wall Street"


This book is too much story and not enough theory & fact for my taste. If you like your history as a drama with key characters meeting and the author giving a blow-by-blow description of events and "atmosphere". This is the book for you. But I prefer something that provides more data and graphs, something with more discussion of economic theory. I preferred Charles R. Morris' The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash.

If you want a panoramic view of the crash and an introduction to all the players. This book is for you. It thankfully has a 9 page list of all the "key" players. This gives you a sense of how much detail about individuals is in this book.

The book does an fairly good job of apportioning blame. For example:
The grim recession handed the Democrats as golden opportunity to retake the White House -- and also, so the faithful hoped, roll back the credo of laissey-faire. On the campaign trail, Obama stirred hopes of a second FDR, or at least a second New Deal. He artfully blamed the financial crisis on eight years of extreme Republicanism. The truth was muddier. Given how boldly the administration had intervened to save the banks, Bush was no Herbert Hoover. Nor were the Democrats free of blame for the crisis's origins. While Bush-style conservatives had loudly champoined deregulation, Democrats such as Robert Rubin had deregulated in practice. The Democrats had done the most to insultae the mortgage twins, Fannie and Freddie, from demands that they reform and trim their balance sheets. On the other hand, blame for the ineffeictive or tardy response to the crisis rested with the Bush administration and with the GOP naysayers in the House. Obama hung his candidacy on the slogan of "Change," and by November 4, change was what the electorate wanted.

After the election, Obama's financial policy was more moderate than many expected; indeed, it was largely a continuation of the Paulson-Bernanke-Geithner regime. The president-elect ensured a smooth transition by elevating Geithner from the New Your Fed to Treasury secretary. This was a clear signal that any "change" would be incremental.
We all know that "change" was delivered in small doses by Obama who spent the first year and a half of his presidency in trying to find "common ground" with the rabid Republicans whose only goal was to sabotage his presidency. We know that Obama ended up siding with the banks and has done very little to help the average Americans. He got a $700 billion "stimulus" plan through Congress but a big chunk of it was tax reductions and not real stimulus. He has continued the policies of giveaways of taxpayer dollars to the Wall Steet banks to prop them up while only making gestures toward the distress of Main Street and the millions of foreclosed homeowners. His heart may be in the right place, but ideologically he has sold himself to his Wall Street patrons. As a consequence, this Great Recession will last for many, many years.

For those who want to understand the mess, this book is a good starting place. It will help you understand how the "laissez-faire" ideology of the last 30 years created this crash. It helps you appreciate how Greenspan set up the economy for a series of bubbles and crashes. And it gives you insight into why so little is being done to "reform" the financial system.

Sunday, June 27, 2010

Krugman Says Policy Makers are Creating another "Long Depression"

Here is an excellent NY Times op-ed by Paul Krugman. This deserves careful reading and time spent pondering its message. It is the tragedy of our times that "leaders" are inflicting this wholly unnecessary damage on us:
Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
The tragedy is that Obama has people around him that know better, but they are letting him re-create the follies of Herbert Hoover. In Canada and the UK, Conservatives are in power, so we are already in the hands of mini-Herbert Hoovers!

Here is the sad reality:
As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
I foolishly thought that with education more widespread than in the 1930s, this kind of self-defeating economic policy was no longer possible. Well, I now see that I was wrong. The "leaders" refuse to get good economic advice. They use the crazy ideology in their head to "guide" them. It's as if an airplane mechanic refused to look at the maintenance manual and instead insisted on putting a bone through his nose and grabbing some rattles to dance around the plane to "prepare" it for its next flight. Insane!

Interview with the Author of "Hackers"

Here's an interesting interview with Steven Levy talking about the 25th anniversary edition of his book "Hackers". This gives you a glimpse into the odd group of hackers of the early 1960s.

When Politicians "Know More" about Economics than a Nobel Prize Winner in Economics

Here's a bit from an article in The Independent by George Stigler on the UK's new Conservative government's budget:
Osborne's first Budget? It's wrong, wrong, wrong!

Joseph Stiglitz, the Nobel prizewinner who predicted the global crisis, delivers his verdict on the Chancellor's first Budget and tells Paul Vallely it will take the UK deeper into recession and hit millions – the poorest – badly

...

"The old story is still true: you cut expenditures and the economy goes down. We have lots of experiments which show this, thanks to Herbert Hoover and the IMF," he adds. The IMF imposed that mistaken policy in Korea, Thailand, Indonesia, Argentina and hosts of other developing countries in the 1980s and 1990s. "So we know what will happen: economies will get weaker, investment will get stymied and it's a downward vicious spiral. How far down we don't know – it could be a Japanese malaise. Japan did an experiment just like this in 1997; just as it was recovering, it raised VAT and went into another recession."

Then why have we not learned from all that? Because politicians like George Osborne are driven by ideology; the national deficit is an excuse to shrink the state because that is what he wanted anyway. Because the financial market only cares about one thing – getting repaid. And because other European governments are panicking because of the market's wild attack on Greece and Spain, and they don't want to be next.

...

Analysis by the Institute for Fiscal Studies has suggested that the Chancellor's Budget will cost the poor 2.5 per cent of their income, while the rich will lose just 1 per cent. "I've not made an independent study on that point, but cuts in public services will have a disproportionate effect on the poor," Stiglitz says. Osborne's Budget "may be well-intentioned, but it takes an enormous amount of work to make sure that a package of public spending cuts of that magnitude doesn't hit the poor disproportionately".

...

Joseph Stiglitz has come full circle. What the world needs now – developing and developed – is not retrenchment but greater economic stimulus. It is not a message many are in the mood to hear. But they didn't listen to him last time, either. And he turned out to be right, and they were wrong – and at what a cost to us all.
Go read the whole article.

It is tragic when leaders take on the role of "leading" and don't know their own limits and don't seek appropriate advice. It is even worse if they are driven by ideology and not facts & reason. Sadly, the UK, like Canada, has a Conservative government which rules by ideology and not understanding. It looks like the US will join the camp in November when it will re-elect the Republicans, the very people who created the problem, to "lead" the country out of the problem. What a joke!

Social "Activists" as Terrorists

I find it sad that social protest which was mainly a peaceful activity in the 1950s and 1960s that turned violent only when you had bigoted police or racists "locals" who would attack a demonstration. The actual demonstrators were peaceful. They mostly followed the tactics of Gandhi using moral suasion to try and bring the majority to their side. But starting in the late 1960s when the Yippies and the SDS and other crazies got all the attention of the media, demonstrations turned violent. The lingering "activists" from the 50s & 60s took the wrong message. They were convinced that confrontational street theatre brought social change. It doesn't, it hasn't, and it won't. If anything, it hinders real change because it frightens ordinary citizens away from legitimate peaceful protest.

These days, the demonstrations by interest groups, unions, or social activists are quickly thrown into disarray as a bunch of thugs dressed in black, with helmets and facemasks, show up to "demonstrate". That is what has happened at the lastest G8-G20 meeting in Toronto. Wikipedia details the story with broad strokes.

One thing that bothers me is that a lot of these fanatics/crazies claim to be "anarchists". Traditionally anarchists have attracted crazies. But the political philosophy of anarchism doesn't equate to vandalism and disregard for public order. The great historic figures in anarchism were mostly gentle and reasonable people who abhorred the instruments of a state run by and for elites (landed aristocracies, big organized churches, and the new capitalist class). These anarchist used violent terms, but the same way that a firebrand like Patrick Henry Lee was famous for giving a speech saying "Give me liberty, or give me death!".

Traditionally anarchists called to disband the police and empty the prisons because they had a vision of a self-policing society, a society based on peace and understanding, not violent repression. So the cruel joke is that today, those who come to trash urban centres, who use violence, call themselves "anarchists". They stolen the term and turned it inside out.

There was a violent streak in traditional anarchism, led by Bakunin, whose fervor for "the cause" led him to firebrand oratory and a willingness to join in conspiracies. But his fundamental philosophy was not one of "my way or the highway", one of threatening anybody who didn't agree with him. He was interested in convincing you of his vision, not dictating his "answer" to how the world must be, or else! Sadly, the violent types in Toronto are using actions that say "do what I say, or I'll trash your town; I don't want political discourse, I want mindless violence as the tool for social change". It nutty. It suits the agenda of the media and the current governments because it is a message that almost everyone finds abhorrent.

I noticed that some of the graffiti in Toronto had the traditional anti-cop, anti-prison sentiment. But nobody in his right mind would sign up for a political movement that attacks police, burns police cars, smashes shop windows, and loots. That is nihilism. Not a serious political movement. Traditional anarchists were against the police and prisons because these were the tools that authoritarian governments used to squelch social change.

If you live in a democracy, you don't have to fight the police or demand that the prisons be emptied. That is nutty. The police aren't your "enemy" and the prisons are full of liberals who want to change an oppressive authoritarian regime. The prisons are mostly filled with dangerous criminals. Nobody in his right mind wants those people back on the streets a day before their sentences are fulfilled.

Anarchists have a vision of a society in which the community controls itself, i.e. there is no need for cops and prisons. But these crazies hear half the message: get rid of cops & prisons. They don't hear the other half: a community has to police itself. So these thugs are worse than useless. They actively undermine the true political philosophy of anarchism.

My bottom line: I have no love for the black-clothed thugs. I have no love for the riot police. There is no political dialog when these two groups go at each other.

There are a lot of things I hate about capitalism, but there are some things I like about it. Unlike feudal and aristocratic societies, capitalism is deeply democratic, i.e. anybody is allowed to rise up the ranks by creating wealth. That's good for everybody. What I hate about capitalism is the power they wield and how they can buy off the politicians to reshape society to the desires of the new capitalist elites.

I'm all for protests, but I don't understand any protestor who would immediately "walk away" when he sees somebody dressed all in black or anybody trashing anything. This gives protest a bad name. To remain on the street is to implicitly endorse the violence and the disrespect these crazies show toward everybody who doesn't submit their their "value system".

I don't understand how, when you have many thousands of police, you can let a group of one or two hundred break off and go down about 5 city blocks destroying store fronts and burning police cruisers. Seems to me you quickly bottle up those streets and arrest anybody on them.

I appreciate the Canadian Civil Liberties Association for taking on unpopular causes, but I think it is ridiculous for them to claim that sweeping the street of rioters somehow "abridges liberty". You have no rights if you are in a mob or standing near a mob or encouraging a mob that is looting and trashing. You are implicitly part of a conspiracy to destroy, so you should be liable to arrest. But the Ontario Civil Liberties Association is complaining because their "monitors" were swept up with the rioters. My basic rule: if you see unlawful behaviour, immediately leave the area or risk being painted by the same brush. I have no sympathy for people claiming they were "peaceful" and were "swept up" by the police. The police have no way of deciding who did what when a mob is trashing a street. They have to arrest everybody and then try to sort things out later. The need to maintain public order pre-empts "individual liberty". It is the same rule that says that your "liberty" to shout "fire!" in a crowded theatre is trumped by public safety needs.

So... I watch the G8-G20 summit with interest, but I am aghast at the idiocy in the streets and I'm saddened that legitimate protestors have been bullied and pushed aside by the handful of "black bloc" thugs roam the streets. Whatever message might have come out of the other demonstrations or even from the meeting of the leaders, that is drowned out in the media because violence trumps everything else. That is what these thugs brought to Toronto: just another story of nihilistic violence.

This is what passes for "demonstrating":



What does it demonstrate other than a mob taunting the police daring them to restore order? There is no political vision in this mob. There is no reasoned advocacy of social change. This is not demonstrating for an idea or an ideal. This is just thuggery. And... the police respond with their own organized thuggery. What else would you expect?

And this video shows at 1:20 honest protestors trying to step in and stop the thugs from destroying a police cruiser. They are asking "how is this helping us?". Good question...



And this shows the sheer nihilism of the crowd. This isn't a "demonstration" in favour of any political ideal. This is purely destructive rage by rich kids who are bored and want to lash out at the world. This isn't politics, this is idiocy...

Saturday, June 26, 2010

Ritholtz on the Finance "Reform" Bill

Here is a comment on the new finance "reform" bill that gets my attention. The following is a posting by Barry Ritholtz, a Wall Streeter whose blog The Big Picture I read and whose opinion I trust. He condemns the bill as completely inadequate. How often do you hear somebody inside the finance industry complaining that regulation has no teeth?
I cannot help but be struck by one thing in this reform bill:

If it were law since the year 2000, the only part of it that might have prevented, or at least slowed down the crisis, was the new minimum underwriting standards for mortgages. No more “No Doc, NINJA, or Liar loans.” That Lenders must verify income, credit history and job status certainly would have prevented the worst vintages of sub-prime and exotic mortgages from ever being written, or subsequently securitized.

Other than that, there is not a single element of the reform that would have prevented the last crisis. I strongly doubt that anything else in this reform package is going to prevent the next one, either.
This gives me a queasy stomach. The Congress, the administration, and the media are all touting this as a big "breakthrough" and something that causes Wall Street dyspepsia. That sounds convincing. But when an insider publicly states that the new law has no teeth and wouldn't have prevented anything. That is truly scary.

Here's Ritholtz's detailed breakdown of the bill:
This morning, we learned of a huge compromise in regulatory reform. The expectation was that no one was happy with the bill, but the politicians, who all get to go home to the voters and say “Well, at least we passed something.”

Overall, I give this a C minus: There are simply too many Fs to give them a much higher grade. Let’s look at what was passed and grade each section of reform:

TOO BIG TO FAIL: Grade: F

The new regulation does not directly address either the repeal of Glass Steagall or TBTF. The crisis legacy is a financial services sector that is highly concentrated with dramatically reduced competition. The six largest financial firms — combined assets: $9.4 trillion — will still dominate the industry. Too-Big-to-Fail remains the law of the land.

MORTGAGE UNDERWRITING STANDARDS: Grade A

Establishes new minimum underwriting standards for mortgages. No more no doc, NINJA, or Liar loans. Lenders must verify income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans. Of all the regulatory changes passed today, this seems to be the only one that, if in place a decade ago, would have prevented (or at least dramatically reduced) the crisis.

NEW REGULATORY AUTHORITY: Grade: C+

Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts; creates a sector rescue fund from banks with > $50B in assets. The time to assess this fee is before a crisis, not after — when banks need every penny of capital.

LEVERAGE: Grade: F

Inexplicably, all of the new regulations fail to reduce leverage rules today .

FINANCIAL STABILITY COUNCIL: Grade: B-

10-member Financial Stability Oversight Council to address system-wide risks to stability, with the power to break up financial firms. Oh, and about that leverage thingie? Directs them to look into it.

Question: Why not address leverage NOW, instead of kicking it down the road? Is Congress really THAT cowardly?

CREDIT RATING AGENCIES: Grade: F

Sets up a quasi-government entity to address conflicts of interest. Allow investors to sue credit-rating agencies. Establishes new SEC oversight office. Retains Oligopoly; Fails to open ratings to more competition. Considering that the ratings agencies were the prime enablers of the crisis, this failure is shameful.

DERIVATIVES: Grade B+

Moves most derivatives to exchanges, routed through clearinghouses,e etc. Customized swaps remain OTC, but have reporting requirements. New capital, margin, reporting, record-keeping and business conduct rules for firms that deal in derivatives. Failed to overturn CFMA.

VOLCKER RULE: Grade A-

Curbs propriety trading by FDIC insured depository institution. Would not have rpevented this crisis, but addresses the moral hazard of banks in the future due to the bailout.

CORPORATE PAY: Grade F

Give shareholders a non-binding vote on executive pay. No clawback provisions. Does not address imposing liability on management for excess risk taking, corporate collapse or taxpayers bailouts.

FEDERAL PRE-EMPTION OF STATE BANKING RULES: Grade C+

Overturns OCC tool John Dugan Federal pre-emption of state regulations. states to impose their own stricter consumer protection laws on national banks. National banks can seek, and will likely receive exemptions from state laws, undercutting this entire law.

DEPOSIT INSURANCE: Grade B-

Permanently increases FDIC for banks, thrifts and credit unions to $250,000. Fly int he ointment: Congress failed to fund this, although the FDIC will be covered by taxpayers if and when they run out of cash . . .

CONSUMER AGENCY: Grade D+

The new Consumer Financial Protection Bureau is a half decent idea, but the exemption for Auto Dealers — the typical family’s 2nd biggest purchase is a car — is unconscionable. Putting the agency inside the Federal Reserve is beyond idiotic.
Go to the original Ritholz posts to get the embedded links.

Here's an MSNBC media star, Dylan Ratigan, making the same point via a post on Ritholtz's The Big Picture web site:
The same Washington spinsters who have driven our country into the ground seem to be out in full force this morning, claiming that their latest policy “victory” is the most “sweeping change” of our financial regulatory since the Great Depression.

Actually, it is nothing more than window dressing.

The real sweeping change of our financial system took place over the past 20 years. The irresponsible repeal of Glass-Steagall in 1999. The Commodities and Futures Modernization Act of 2000 by Larry Summers and Bob Rubin — the one that legalized the most destructive financial instruments of all, derivatives. The leverage exemption at the SEC in 2004, asked for (in person) and received by Hank Paulson and friends.
There's more, click here to read the whole post and get the embedded links.

DeLong Diagnoses the Need for More Stimulus

Brad DeLong presents the viewpoint of sensible economists who understand the horrors of a depressed economy. DeLong and others point to the nearly 30 years of depressed economic activity in Japan. This is something to be avoided. Unfortunately politicians and ideological economists are ranting about deficits and worry about inflation and are concerned that the US debt burden is too great.

Here are some key bits from the posting:
As the disappointing May job numbers confirm, this is still an exceptional time—a time in which many of the normal rules of the Dismal Science are changed and transformed. It is a time for not normal economics but rather “depression economics.” The terms on which the U.S. government can borrow now are exceptionally advantageous. And because of high unemployment the benefits of boosting government purchases and cutting taxes right now are exceptionally large.

The result is that the costs of borrow-and-spend policies are overturned for the short run—indeed, for as long as the current economic crisis of high unemployment lasts, which may well mean that the short run is not very short.

In normal times, a boost to government purchases or a cut in taxes produces a limited increase in production and employment while adding a substantial increase to the national debt. The increase in debt raises interest rates, which crowds out productivity-increasing private investment spending and, dollar for dollar, leaves us poorer after the effect of the stimulus ebbs.

The borrowing must then must be financed at a significant interest rate, and thus paid for with higher taxes, which reduce incomes by increasing the wedge between the private rewards and the social benefits of expanded production.

It's nasty business.

Normally, only government spending initiatives or tax cuts that promise a high value for the dollar are worth undertaking, but things are different now.

However, right now, as best we can tell, an increase in federal spending or a cut in taxes will produce (in the short run) no increase in interest rates and hence no crowding-out of productivity-increasing private investment. Indeed, government spending that adds to firms’ current cash flow may well boost private investment and so leave us, dollar for dollar, richer after the effect of the stimulus ebbs.

Why?

Because our debt today can be financed at extremely low interest rates—1.83 percent if financed via 30-year TIPS, and even less in expected real interest if financed over a shorter horizon.

In normal times, only government spending initiatives or tax cuts that promise a high value for the dollar are worth undertaking. Now, however, things are very different. Let’s run through the arithmetic.

...

Right now, bad politics is undermining good policy, hurting the American economy and legions of unemployed workers. It is long past time for another stimulus package.
Go read the details. The bottom line is that you can't get back what you lose during a depression. The army of unemployed during the 1930s didn't produce goods that could have been produced. You get an idea of what could have been built by looking at the WPA projects.

Friday, June 25, 2010

Flaws in the Justice System

Here's an experiment to get you warmed up...



Now that you realize that as an "eyewitness" you aren't all that reliable, and even more importantly, that when you are involved in a task you don't always see other things going on...

Consider this:
... we tell the story of a Boston police officer chasing a suspect. When you do that, you're paying careful attention, figuring out where he's going, if he's got a gun or is throwing evidence away. The officer ran past an incident of police brutality taking place close by and later claimed not to have seen it. He went to prison because the jury didn't realise the extent to which focusing on one task makes you unable to see outside that. They decided he lied to protect fellow officers.
At this point you should be horrified at the legal system. An innocent cop was sent to jail because jurors didn't understand how people's brains really work.

The above is from an interview in New Scientist with the Daniel Simons, one of the original investigators in the above "Gorillas in our midst" study. Here is the study.

What worries me is that there are now a number of studies that demonstrate the fallibility of "eyewitness" testimony. But the legal system simply refuses to recognize reality. At the very least, any trial should spend 30 minutes "training" jurors to be aware of biases and blindness and the problems with "eyewitness" testimony. The fact that the legal system doesn't do this is definitive evidence that the system itself isn't interested in justice. It is simply a historical artifact that we are taught to accept as "the way" to run judicial cases. Any right thinking judge or lawyer would be working overtime to overhaul this archaic system!

Update 2010jul02: There appears to be an effort underway to deal with flawed eyewitness testimony. See here:
Mistaken eyewitness identifications are the leading cause of wrongful convictions, playing a role in three out of four DNA exoneration cases to date, according to the Innocence Project. Now, a cutting-edge report commissioned by the Supreme Court of New Jersey recommends major changes to bring the courts into alignment with the current state of the science on eyewitness testimony.

Geoffrey Gaulkin, a retired judge, spent close to a year reviewing three decades of research and taking testimony from experts in a hearing that legal observers describe as unprecedented. His conclusion: About a third of witnesses who pick out a suspect choose the wrong person, and the courts are not keeping up with science to prevent such wrongful identifications in court. Expert witnesses at the evidentiary hearing included John Monahan, law professor at the University of Virginia, Gary Wells of Iowa State University, and Steven Penrod of the John Jay College of Criminal Justice.

The state high court request for a comprehensive probe stemmed from the case of Larry Henderson, who was convicted of manslaughter in 2004 based on a photographic identification procedure.

In his report, Gaulkin recommends far-reaching procedural safeguards, including procedures to assess the reliability of witnesses' identification of suspects. He also proposes that prosecutors, rather than defendants, should bear the burden of proof regarding the reliability of eyewitness testimony, and that juries and judges should be fully informed about the science of eyewitness identification and its fallibility.

Observers say the Special Master's findings of science and law represent a sea change that may eventually serve as a blueprint for other jurisdictions to revamp both their witness identification protocols and their rules on the use of eyewitness evidence in court.
Go to the forensicpsychologist blog site for links to related materia.

Blighted Leadership

I remember the stories of trouble and toil in Britain in the 1970s and early 80s as labour unions refused to be realistic about the future and decided to "take down" the government. People had to suffer with electricity blackouts and a host of other non-existent services as unions flexed their muscle. It was terrible. It was a social war.

The US is going through a social war, but it is from the other end of the telescope. Here's an excellent post by Dean Baker on his CEPR blog:
In discussing the case for extending unemployment benefits a Post editorial tells readers that: "it is possible -- in theory, anyway -- for Congress to be both compassionate and prudent." This makes a great "who's on first," moment.

There is a reason that we have 15 million people unemployed. The people running economic policy -- people with names like Alan Greenspan, Ben Bernanke, Jack Snow, Hank Paulson, Robert Rubin -- thought that an $8 trillion housing bubble was really cool. The Washington Post mostly parroted the words of wisdoms coming from these and other people who expressed the same view. It completely ignored those warning that the housing bubble will burst and reck havoc on the economy when it does. (David Lereah, the former chief economist for the National Association of Realtors and the author of the book, Why the Housing Boom Will Not Bust and How You Can Profit From It, was the Post's most widely cited expert on the housing market.)

Now the boom has bust and wrecked the economy. Remarkably, not one person who was responsible for the policy that brought about this disaster seems to have lost their job. However, millions of factory workers, retail clerks, and school teachers have lost their jobs. These people are unemployed not because their lacked the necessary skills. Nor do they lack the desire to work -- they had been working until the economy collapsed.

Tens of millions of people are unemployed or underemployed because people with names like Greenspan and Bernanke do not know how to run the economy. And the Post wants to show them compassion by extending unemployment benefits.
There has been a thirty year war by the ultra-rich on the middle and lower classes in the US. It started with Ronald Reagan's war on unions with his firing the air traffic controllers.

As with all wars, both sides suffer grievously. It is hard to for people to foresee how badly things will go. Traditionally societies bring out the brass bands and party when a war is called because it is seen as a brief and glorious moment. At the end, everybody is shell-shocked and in despair, broke and suffering because the war's ravages were beyond comprehension.

When I look at Dean Baker's list of people "running the economy", I think of the incompetent generals who going into the field with the troops. Only after many massacres and botched campaigns does the army reorganize and put competent people in charge. I'm still waiting for the US (and Canada) to do the same. In Canada we still have Conservatives in charge. The very party that favours business over all other interests is still running the show. Sad.

Clueless in Washington

The upper middle class bureaucrats (and journalists) in Washington are well insulated from the real world. As Dean Baker points out in this post on his CEPR blog:
In keeping with the policy of fact-free reporting at the Post, David Ignatius touts the economic successes of the last year and proclaims: "much of the necessary repair work has been done, with one nagging exception -- the lack of a credible long-term plan to control the deficit."

Wow, no one told him about 9.7 percent unemployment.
Yep... it is awfully hard to feel the pain and despair of long term unemployment of neighborhoods with 20% and 30% unemployment when you live in Washington suburbia with 2% unemployment that masks itself under "taking personal time off to get my priorities straight". It is sure nice to have the cash cushion to "take time off". Not something that somebody working at or near minimum wage experiences. So, without putting in effort to stretch the imagination, or taking time to spend hours among the hard hit neighborhoods, or having the kind of empathy that gets you outside your happy little yuppie lifestyle. It is awfully easy to overlook 9.7% unemployment.

But can a person call himself a reporter or journalist if they can't see beyond their own nose?

Dean Baker in a related post notes:
The Washington Post reported on the Senate's refusal to extend unemployment benefits. At one point it referred to plans to change the tax treatment of income earned by managers of hedge funds, private equity funds, and real estate funds as a "new tax."

Currently, much of the income of these managers is taxed as capital gains even though it is paid in exchange for work. As a result, many of the richest people in the country are paying a 15 percent tax on their earnings, instead of the 33 percent rate that high earners would otherwise pay (39.6 percent after the end of the year). The proposed change in the tax code would treat some of their earnings as labor income subject to ordinary taxes. It is not clear that change should be described as a new tax.

The article also discusses the additional debt that would incurred if the unemployment extension bill was approved by Congress. It tells readers that the proposal would have increased deficits over the course of the decade by $33 billion. It would have been helpful to note that this is equal to approximately 0.02 percent of projected GDP over this period.
It is cruel to allow people earning hundreds of millions to play the fantasy game of "my income is not earned, it is really 'capital gains'" and get a knockdown of over 50% in the taxes they owe while at the same time playing Scrooge and saying that "the nation cannot afford the onerous cost of unemployement benefits". This kind of cold-hearted cruelty was something I read about in my youth in Dickens and associated with the peculiar cruelties of the early industrial revolution. It is sad to note that the same cruel indifference is practiced in the post-industrial world of today. Or... as Marie Antoinette so eeriely identified the problem and the most apt solution: "let them eat cake!"

Received Wisdom

I read this from the Edge.org site and started thinking:
ANTONY HEGARTY - Singer-Songwriter, Composer, and Visual Artist; Lead Singer, Antony and the Johnsons.

Seven generation sustainability is an ecological concept that urges the current generation of humans to live sustainably and work for the benefit of the seventh generation into the future.
"In every deliberation, we must consider the impact on the seventh generation..." — Great Law of the Iroquois
The Seventh Generation originated with the Iroquois when they thought it was appropriate to think seven generations ahead (a couple hundred years into the future) and decide whether the decisions they make today would benefit their children seven generations into the future. (Lyons O, An Iroquois Perspective.)
That sounds great. That sounds reasonable. But it is like "motherhood". Who could be against it?

Well... if you think a bit, something must have gone wrong. The Iroquois flubbed their encounter with European civilization. They may have had a good line about "seven generations" but they obviously didn't think deep and hard enough to achieve a seven generation response to the emergency that European encroachment caused their civilization. Was this simply a failing of the Iroquois, or is there something misleading about having this "seven generations" motto?

My guess goes along the lines of Ray Kruzweil: we are wired to do linear extrapolations into the future, the reality more often in non-linear. We just aren't equipped to project the future using our unaided imaginations.

Here's where science is of assistance. Science has taught us that we are insignificant compared to the immense size and complexity of the real world. We need to develop models carefully using the best open & competitive ideas of science to address the future. The problem is that our primate brain loves to jump to simple answers. The politicians 'sound bite' is what we are emotionally geared to attend to. Doing the hard thinking of using tools like math and modeling to consider the future is not easy (as the misguided and ideologically-motivated climate 'modeling' proves).

I believe that it is too easy to take a "seven generations" approach and fall into the trap of "back to the land" and "eco-conservatism". Our species has been successful by always coming up with a new technology and a new way to exploit the environment. To throw the towel in and claim "technology is causing us to destroy our own habitat" is foolish. When I was a kid pollution was much worse than today. It took a social movement that worried about the environment to get us to use technology to clean up our act. Current problems will be solved not by "playing turtle" and tucking our head into a shell. We will meet the future only if we exploit the visions of our wisest people and take up the best that technology has to offer. This has been our solution for hundreds of thousands of years. It is time-tested. Doomsayers and pessimists are very attractive, but their message is really one of giving up hope and foreclosing our future.

The Real Agenda of the US Federal Reserve

Daniel Gross has a good article looking at Fed Chairman Ben Bernanke in Slate magazine:
If Federal Reserve Chairman Ben Bernanke had a theme song, it would be Meat Loaf's 1978 classic "Two Out of Three Ain't Bad."

The central bank says it has a trio of missions. The Fed "sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates." Long-term interest rates are near record lows, inflation is under control, and prices are stable, but maximum employment remains a far-off dream. In a speech earlier this month, Bernanke noted that "in all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost nationwide over 2008 and 2009." In another recent speech in Michigan, he acknowledged that "high unemployment imposes heavy costs on workers and their families, as well as on our society as a whole." But he doesn't seem inclined to do anything about it. The Federal Open Market Committee this week stood pat on monetary policy and announced no additional efforts or initiatives to combat persistent high unemployment.

If Federal Reserve Chairman Ben Bernanke had a theme song, it would be Meat Loaf's 1978 classic "Two Out of Three Ain't Bad."
The central bank says it has a trio of missions. The Fed "sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates." Long-term interest rates are near record lows, inflation is under control, and prices are stable, but maximum employment remains a far-off dream. In a speech earlier this month, Bernanke noted that "in all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost nationwide over 2008 and 2009." In another recent speech in Michigan, he acknowledged that "high unemployment imposes heavy costs on workers and their families, as well as on our society as a whole." But he doesn't seem inclined to do anything about it. The Federal Open Market Committee this week stood pat on monetary policy and announced no additional efforts or initiatives to combat persistent high unemployment.

But he's showed no such urgency in grappling with high unemployment. Why?
Go read the whole article to get the answer to this question.

I don't agree with David Gross's conclusions, but I'm sure glad that he has put these plus the more traditional answers (some of which I think explain the behaviour) on the table. People need to think long and hard on why their government officials seem happy to do two-thirds of their job, do the part that keeps Wall Street happy but ignores the needs of "the little people".

Here's the reality of the US Federal Reserve. David Gross nails this:
... expecting this Fed to have a sense of urgency about the unemployment rate may be as futile as looking for a Cadillac at the bottom of a Cracker Jack box.

Thursday, June 24, 2010

Criticizing Bush and Obama

Here is a very well put criticism by Barry Ritholtz pointing out how both Bush and Obama have failed the American people by not rising to a historic occasion with a grand vision and an agenda that would reorganize the country to face the problem:
One of my regular criticisms of George W. Bush as President was, when presented with an opportunity to achieve greatness, he repeatedly failed to rise to the occasion. Indeed, his presidency can be viewed as a long series of missed opportunities:

“Once in a generation, the stars align for a political leader. There is this perfect moment – too often based on some enormous danger of long-lasting consequences for generations to come . . . the perfect combination of leadership and threat, of challenge and response meet. The leader – imperfect, fallible, yet ready to rise to the occasion – grabs the brass ring.”

That was what I wrote following 9/11. There was a moment to transcend politics. Restructure global alliances, refocus military spending away from its cold war footing, force some sort of Israeli/Palestine deal, wrestle structural US deficits to the ground. Rather than dare the nation to rise to the challenge, to make personal sacrifices for the greater good, to step up to greatness, the country was told to . . . go shopping.

Barack H. Obama seems to be following W’s footsteps. He has failed — twice — to is rise to an occasion of great import. In the words of White House Chief of Staff Rahm Emanuel, he has “wasted a good crisis” — for the second time. The financial collapse was a grand opportunity to undo three decades of misguided decision-making and radical deregulation. He chose to focus on . . . Health Care.

Now, we have another crisis — the BP Gulf of Mexico disaster. And yet again, we see another missed opportunity. The Oval Office speech last week was just that — a speech, filled with platitudes and mere words. Where was the challenge, the sense of national need, the urgency? It was the same tired energy speech that, as The Daily Show’s Jon Stewart has pointed out, every single president since Nixon has given.

For the greatest orator of his generation, our president appears to be lacking in imagination.
History will judge both of these presidents severely. Bush will be among the bottom dozen, a complete incompetent, while Obama will be in the bottom third as a promising politician who simply failed to rise to the challenge, a politician with a golden tongue but no vision and insufficient leadership qualities.

Go read Ritholtz's full post. He lays out his vision as a ten point program.
  1. Energy R&D

  2. Gas Taxes

  3. Mass Transit

  4. CAFE Standards

  5. Alternative Energy for Homes

  6. Upgrade the Grid

  7. Campaign Finance Reform

  8. Lobbying Rules

  9. Corporate Donations

  10. Transparent Disclosure
This is solid stuff. This is what Americans needed to hear. But Obama hasn't made this speech. That's a tragedy.