Sunday, May 31, 2015

Aggregate demand for consumption and debt

Over at Econlog, Scott Sumner raises an issue that bothers me a lot: those news articles with Keynesian aggregate demand (AD) stories about how consumer spending is needed to raise GDP.
 - but in the article this AD concept is just assumed and inserted into what is actually a "good news" story being presented: the people interviewed choosing to save more, pay off loans, and explaining they were now able to save for retirement:

When oil prices began to dive in October, analysts and investors spoke of an economy poised for a higher gear: Cheaper prices at the pump amounted to a massive tax cut for the middle class that would stimulate discretionary spending and create more jobs. 
Personal spending was up a tepid 1.8 percent in the first quarter, well off the pace from last year. Meanwhile, Americans are dumping more money into their savings accounts. If their habits between January and March keep up, consumers this year will save an extra $800, according to government data.
The change in behavior appears to be at least partly psychological. The recession coincided with a wave of busted home loans, premature retirements, long unemployment lines and depleted retirement savings. Americans have since worked to rebuild their financial security. Millennials, according to researchers, are perhaps the most surprising conservative spenders, shaped by recent years in which they incurred student debt, fought for jobs and were forced to take lower-paying positions.
"Now, more are getting jobs, more moving out of their parents' home," said Warren Solochek, vice president of client development at NPD Group, a market research company. "But that group is much more cautious because they've lived through this crappy time."
According to Bankrate.com, a financial services company, only one in seven Americans have spent their gasoline savings on discretionary items such as travel and dining out. Separate government data showed that spending is flat on electronics, groceries and furniture.
For Richard Knipp, 57, a member of Teamsters Local Union No. 142 in Gary, Ind., cheaper gasoline prices have allowed him to maintain his daily spending while also contributing 3 percent more to his retirement fund. He recently began doling out $200 monthly to each of his three grandchildren for their long-term savings accounts.
"I opened those accounts even before the recession," Knipp said, "but some years I didn't put in anything. Now I'm putting in more."
Economists are uncertain how long the new prudence will last and say the question marks a major fork in the road for U.S. growth.
Historically, spikes in the savings rate have proven temporary, Jason Furman, chairman of the White House Council of Economic Advisers, said in a statement Friday. If the savings rate snaps back to its previous level for the rest of 2015, consumption will grow at a brisk 4 percent rate -- enough to drive faster economic growth. 

Sumner quotes the Washington Post, and then points out that for many of the "well-educated readers" these models were taught to them when they "took basic macro in college, with the Keynesian cross model." Apparently we should all believe this model - but this is impossible to do if you understand what the model actually says - because it is simply absurd.

It really doesn't make much sense to use this model. You have all good news about how people are choosing to improve their lives and by using this model,and  you are assuming that because it involves higher savings and lower consumption that this will hurt GDP growth. We are already hugely in debt, in the US and UK. But they are arguing that we need to give up on any goals of improving our financial security, saving for retirement, and paying down our debts if we want to increase economic growth.

But, as Sumner puts it: "this sort of speculation about future growth is about as fruitful as reading tea leaves or tracing the lines in someone's hand." Indeed, the Keynesian cross model makes zero sense, at least the way it is taught. It has aggregates being toyed with in equations in order to produce certain outcomes - and it produces its result by ignoring part of the economy: by ignoring the investment and jobs that are created out of the higher savings and via the debt-paydown exchanges it produced the result that we need more consumption. But, all those economic activities will lead to jobs and growth too.

Sumner argues that growth is better determined by watching the Fed. I am not going to argue that from an economic perspective in detail today, but I will say that people achieving their own goals is more likely to be good for the economy than trying to push people to consume more and save less. This is particularly true if doing so involves injecting banks and wealthy borrowers with money.

I think letting people save and be financially responsible as they see it - and to the extent that they want to - is probably better for the economy and for overall fairness to the people, respecting their freedom to choose how they use their personal resources and not to essentially tax those savings and their attempts to repay debt in order to give money to massive banks and credit card companies, as well as borrowers..


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Tuesday, May 5, 2015

Crisis resolution that serves the people: BIG vs ELR

I saw this policy paper posted on Facebook. It argues that instead of bailing out the banks the money could have been used to fund an Employer of Last Resort (ELR) programme. I wholeheartedly appreciate the sentiment - that we should not have rewarded banks (and policy-makers, whether foolish or with selfish intention) for instigating the crisis, and that we could and should instead have used that same money to ensure that those hurt by bank failures and knock-on effects of the crisis were rescued from these ill effects, which in turn would allow them to keep their homes - and by keeping up payments, stop more banks from failing - and ultimately also to pay their taxes and so forth, stopping the crisis before it might spiral out of control into a depression--at least, this touches upon the fear and the argument for bail outs.
So, I fully agree with that aspect of the paper, I only disagree on the precise policy that should replace the handout-to-bank, as I endorse a Basic Income Guarantee (BIG) rather than the ELR suggested. A BIG, in my opinion, would be a far superior option for a number of reasons.
In short, it makes no sense try to offer public provision of jobs, which in order to ensure employment will need to be created even if they serve no useful purpose, are inefficient, or do not match the skills of those looking for work when the same money could be used to ensure that everyone has an income to cover their basic needs, and can then look for suitable employment at their own leisure, allowing job matching to occur naturally. This also ensures those who cannot work - due to disability or the need to care for children or elderly, etc. - still have an income.
It's silly to try to bend over backward trying to find or create public sector jobs for everyone in all their variety of skills - we won't have the needs in the same proportion as their skill supply, let alone matching skills of workers to jobs in the same area ad with the right level of skill and wage, and government is no good at figuring out how to employ people and what to do with them. This caused no end of problems for the Soviet governments for 75 years, and it means that the GDP multipliers assumed in papers such as this one are fallacious and in all likelihood we would see the inverse effect on GDP. 
Furthermore, with a BIG you won't have to force people to take jobs they don't like or in an area they don't like when they might desperately need time off or to work part-time or to stay in their home town, just to allow yourself the cost-savings of eliminating unemployment benefits (and squeeze out that multiplier effect) as suggested in the paper. Remember: with the government acting as employer, if you are trying to get full employment, it means that the government will be doing its best to get people to take jobs, wherever and whatever they might be, and the more that they fail or allow people to turn jobs down the farther they are from the targets expressed in the paper.
So, basically, it's coercive - if not authoritarian - and bureaucratically inefficient, which means it's also not as cheap as advocates would have you believe; and there is a far superior alternative that achieves the same goals outlined! Let labour markets - actual free ones not Soviet-style pseudo- ones with government as monopoly employer - sort people out, and instead use the money to ensure everyone has a basic income. This will provide a proper safety net and give the workers true bargaining power in labour markets: they can take only the work they actually want because they are able to survive without it.
I agree that the taxpayer money used to bail out the criminals whose short-sighted and greedy behaviour was the primary cause of the world-wide financial crisis could have funded a policy that would have actually helped the economies affected recover whilst simultaneously helping those hurt by the crisis worst, like those who lost their jobs, and it would have been easily as affordable as the massive handout to banks: I just argue that the money should have been used to fund a BIG. With the money you would need to afford an ELR, once the policy is considered realistically at least, you could afford a generous BIG, and you'll have a far superior outcome.

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Friday, March 13, 2015

Values in American Society

Several times I have come across the claim - sometimes with evidence - that American universities, in particular sociology course teach relative morality, and young people are learning this and do not believe that one or another value should have a claim to superiority. But, is this really true?

This  course (taught by Erik O Wright) is excellent - in my value system - at conveying certain critical points, and it assumes and argues that Americans do have major shared values - though I may not share his view on other points, for example his economics appears to be Marxist

(I have only just started listening to the podcasts - perhaps I will post some more as I continue to listen; syllabi, podcasts and videos can be found here)

Here is the section on values:

 Our discussion revolves around five key values that most Americans believe our society should realize:  
1. Freedom: the idea, commonly thought to be the most essential to the “American creed,” that people should be able to live their lives, to the greatest degree possible, as they wish. This means people should be free from coercive restrictions imposed by others and, as much as possible, have the capacity to put their life plans into effect.  
2. Prosperity: the idea that an economy should generate a high standard of living for most people, not just a small privileged elite.  
3. Economic efficiency: the idea that the economy should generate rational outcomes, effectively balancing costs and benefits in the way resources are used.  
4. Fairness: the idea that people should be treated justly and that they should have equal opportunity to make something of their lives without unfair privileges and unfair disadvantages.  
5. Democracy: the idea that our public decisions should reflect the collective will of equal citizens, not of powerful and privileged elites. A central theme throughout the course will be: To what degree does contemporary American society realize these values, and how might it do a better job?

He argues that the American people believe all these things, and I think social surveys agree with this -- and if other sociology courses are like his, even though he argues that markets in America are inefficient in many ways (and I do not think I would agree with his 600-level course), he does not teach relative morality or that values are not a part of, and an important part of, American society.

Wright also claims that his opinions and ideology can be compared against a standard economics course -- economists may be more free-market than other professors: one paper "determined that there was a 60-40 liberal-conservative split among the economists," another that partisan leanings affect their research areas and possibly their results--so econ courses may be more free-market than sociology courses, although this is not necessarily the case.

In any case, Wright has lots of discussion of opinions versus facts  he discusses trade-offs, and I think offers a fantastic discussion - much of his opening discussion on this, values-free science, reminds me of Pete Boettke's discussion of the same! However, in general what impressed me the most was how the basic foundations of sociology as presented in the first lecture is comprised of insights that are presented by economists as new and exciting areas to explore! If only there was more interdisciplinry work as a matter of course (no pun intended) we could make such more rapid progress!

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Thursday, March 12, 2015

Who is Disrespectful?

When I posted on Facebook the comments in my previous blog post here, "Sure, He Can, but Obama is Not "We"," several of my friends told me that my comments were disrespectful, particularly as his comments were part of a speech on the anniversary of Selma. However, my blog post was about how I felt that Obama was being disrespectful.  At least one civil rights leader refused to march because Bush took part, and found that to be disrespectful.  I would not have refused to march, but I found Obama's conflating of his campaign speech slogan "yes we can" with phrases like "we shall overcome" (and "we the people"*) which first of all was really a slogan put forth by the people - the "we" came from the people, not from a campaign team - and second, it is a self-serving political move to try to merge his campaign slogan to the civil rights movement like this, and the nerve that he has to do this when his actual presidency has made things much worse for blacks and for all the people - see the links in my original post.

In any case, I find Obama to be disrespectful. That my friends see my post as disrespectful, and even racist (I quoted Malcolm X and this was seen as racist...), indicates to me that our ability to have a civilised public conversation about policy and its effects on civil rights is extremely wanting. But, please make your own judgements - just know that it was not intended this way.

By the way, there has been another anniversary in the meantime (March 10th) - Harriet Tubman's death - and as someone pointed out on Facebook, given the disgusting track-record of Andrew Jackson, perhaps it is time that his place on the $20 bill be replaced -- by Tubman!

"Harriet Tubman died on this day in 1913. Known as Moses to the more than 300 slaves she helped find freedom, Tubman was a fighter for abolition and women’s suffrage." - Ms. Magazine

* Though as pointed out by someone on this thread, "we the people" had its own issues, as even if its intentions were good, failed to be inclusive of the majority of the people

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Sunday, March 8, 2015

Sure, He Can, but Obama is Not "We"

Wow-- this facebook post about Obama - and posted by the Whitehouse?? - with his quote wanting to add his "Yes we can" to the group of "we" phrases including "We The People" and "We Shall Overcome" -- and all the gushing and love and adoration, idolization, of Obama -- I do not think I am over-reacting, I truly find this sickening, disturbing, a frightening sign of the state of the American public, dangerously close to the attitudes of the population of a dictatorship. It seems a bit like he has a cult of personality...

Call me a cynic if you will but it seems to me that Obama merely recognized the power of this word "we" and used it to his personal advantage--and we should not praise him and reward him for this.
How can we compare his slogan to the other two cited? Neither the candidate Obama nor the president helped to forge a new revolutionary document laying out a more democratic nation, like "We the people" -- and abandoned campaign promises do not count -- nor did either one join rallies and protests in a sometimes dangerous and violent culture and era to stand up for the rights of blacks and help US society to overcome racism, like "We shall overcome" - nothing like it, his Nobel Peace Prize notwithstanding. 
In fact, this is just what we must overcome--this idea that he deserves such a prize just for being the same old self-interested, corrupt politician - like an abusive father of the nation - and simultaneously dark-skinned. (You call that being colour blind?? Just the opposite! Instead all people can see is his colour and they ignore what he actually does! Only "extremists" seem to really take notice.)
All the candidate Obama - with that slogan - did is run for office, accepting bribes by all the major corporate donors backing his predecessors and working with the same old corrupted major party machine and their pre-determined mandatory appointees, and all the president Obama has done (yes he could, and he did) is reinforce and expand the authoritarian and crony capitalist policies of Bush (and all before him) that benefit rich white men, and the police state policies that beat, shoot, and/or imprison black men just for being black, living in black neighbourhoods, and taking advantage of available market opportunities existing there...
So please, this makes me sick - please do not include Obama's "Yes we can" with those other "we" phrases, which in fact have real meaning.

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Sunday, February 8, 2015

NHS Advert Based on Fallacious Reasoning

Someone please let me know if I am making an error here, because it seems to me that the NHS is peddling some pretty weak science.

A public service advertisement put out by the NHS, which is being shown throughout January, graphically shows a tumour growing out of a lit cigarette and states that every 15 cigarettes smoked will cause a genetic mutation that may lead to cancer (view on youtube). This is based on a study which shows no such thing, the science is bad and the advertisement is making a false claim that could badly frighten many people, increasing their stress level and actually harming their health.

The error in statistics made in the underlying study should be obvious to any 1st year statistics student, and could be used as a homework assignment for such a course. It makes the NHS look terrible. (It also makes every newspaper repeating the false claims look bad too).

The claim made in the advertisement is based on a study carried out in 2009 at the Wellcome Trust Sanger Institute in Cambridge in which researchers sequenced the DNA of tumour samples taken from lung cancer patients to determine the number of mutations present. So, they were counting mutations in patients who had cancer, they were not counting mutations found in all smokers.

These sequences were compared to those in normal tissue samples from these patients. More than 23,000 mutations were found in the cancer genome – approximately “one for every 15 cigarettes smoked” they say. What they should have said is that patients who already have lung cancer have mutations for every x cigarettes smoked, assuming that they smoked this much, but it certainly does not show that individuals who do not have cancer have this many mutations, or indeed any mutations.

One could as easily assume that the mutations found in the cancer patient were due to use of hairspray and calculate how many mutations they have for each can of hairspray they used, and then assert that every can of hairspray causes x mutations. If there is a link between the mutations and smoking they have not shown it - it is merely an assumption they brought in and the study did nothing to prove it since they only looked at those who had cancer not at smokers who did not.

The £2.7 million advertising campaign is part of a nationwide crackdown on smoking, which costs the NHS an estimated £2.7 billion every year. This is a waste of taxpayer money and should be removed – and a retraction and apology offered.






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Thursday, January 29, 2015

The Third Party Possibility

In the US, as elsewhere, the system is known as a two-party system so nobody wants to "throw away" their vote on some third party candidate who could never win... but is it finally time for this to change, given the internet, social media, and online petitions?

It should be. All that is needed is a decent third party candidate.

The reason that people do not vote for third party candidates is: they have no faith that others, though they may also prefer this candidate, will vote for them because each other person also lacks this faith.

This is why electoral reform is always said to be so important - the only way to break the two-party system. People should be able to vote for first and second choices...and wihout this ability, people say, there is no way out of the two-party prison, and gridlock.

There could be a significant plurality or even majority who would prefer a third party candidate and yet that candidate will win almost no votes because nobody believes anyone else will vote for them; everyone (who bothers to vote) has some preference between the two parties, so they vote for the one they prefer between those two, beliving that if they don't then they might as well vote for the party they despise.

Yet, the internet makes possible the obvious solution: get the proof that the third party candidate could in fact win. Simply start an online pledge - much like the online petitions that so often receive hundreds of thousands of votes within days - and everyone who would like to vote for that third party candidate (but would normally give in to a two-party choice) signs and takes the pledge to vote for that third party candidate if enough others take the pledge. During election season the pledge can spread across the country like a meme, picking up signatories, until many millions have signed. If a third party candidate is truly preferred then this will be clear before voting day and the people can safely vote for him/her, knowing that their vote is not being thrown away or going to their least preferred major party. No need for an alternative voting system.

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Monday, December 15, 2014

Drugs, Racism, and Low Wages


An article I came across recently How Selling Crack is Like Working at Walmart, stresses the low wages which low-level drug dealers actually receive in America and that low-level Walmart workers receive, and the powerless position and extreme divide and inequality between the bottom level and the top, with bosses in both cases raking in millions.

I've read this before about American low-level drug dealers, minimum wage level incomes for many, but I wonder how this compares internationally -- I have a feeling if we had the statistics we'd find a lot of variation, and it would be interesting to know all the factors involved.

Although likely it would be a lot to do with pricing based on importation and the countries' "war on drugs" policies, there also may be a strong component of racism and other cultural factors, including how the people think of drug users and drug suppliers.

It is strange - and sad, a comment on hypermoral-religiosity - that in a country that prides itself on the value it places on right of free voluntary exchange, suppliers of currently-illegal drugs are thought of so poorly.

Of course these various factors all feed into each other, with the war on drugs, prison, income earned in the drugs black market, violence occurring in and culture around - and acceptance or not of drugs suppliers as a group - all interconnect and affect each other.

Anyway, according to what's out there at a glance, it appears that at least in the UK you can do a lot better that $10 / hour ($20k / yr), which is as good as the bottom rung jobs at Walmart are likely to get you. It seems student dealers are earning £500 to £1,000 a week (up to £50k /yr, or easily $75k), top dealers of course making millions, some middle class dealers in-between, and lowest-level street dealers making £19,000 / year ($30k).



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Monday, December 8, 2014

Police Should be Subject to the Rule of Law

A former police officer makes the case that cops need to be punished if we want to prevent the violent police brutality we have seen so much of recently. I agree wholeheartedly.

Indeed, I find it very disturbing that cops are never held to account, and that's not just in the US, it is true in the UK as well, and probably most other countries.

There is always a justification, which the courts - when it even gets that far - always accepts. As the former officer tells us: "Even when officers get caught, they know they’ll be investigated by their friends, and put on paid leave. My colleagues would laughingly refer to this as a free vacation. It isn’t a punishment."

Because of this, cops feel free to do whatever they want. Because they feel free, the culture and the weapons and the other factors send them out of control.  The actual police brutality situation is better in the UK because of the less-militarized police, less racist culture, etc. They are still not held to account, which shows that there are in fact other at least partial fixes, along with other ways to help hold the police accountable, but I agree that punishing police when they break the law is central.

We must punish cops when they break the law. The foundation of rule of law is that we are all subject to the same laws. If the police are above the law, just as if the rich or the government are above the law, we lose the foundation of civil society and, in this case, become a police state - just as if government is above the law we would become a dictatorship.

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Second Largest Welfare System? - A Few Thoughts on the Register Article

There is an article in The Register, which argues that the US "has 2nd largest social welfare system in the world," and makes several points about the measurement of poverty, and social welfare.

Much of it is old news to me -- I wrote an LIS Working Paper Series paper on it in 2005 -- but it's not well known. Also, there are a couple things to keep in mind.

One, the graph on the last page with the "communal" not just governmental social welfare spending includes private health insurance, which is only communal in the loosest sense since in US that means some people have all the frills insurance, allowing them best of the best care and coverage, while others might have the slimmest barest coverage. So take that last graph with a large sprinkle of salt.

Second, although I agree that the US has progressive taxes and that sin and consumption taxes are regressive, there is one thing about the "clawing back" that was not mentioned. As economists and especially free market economists and libertarians should be well aware, if the people are first given transfers and then they will have some control over use of the money, some choice, and can for example try to e.g., smoke less - or choose cheaper or black market tobacco to avoid those claw-back taxes when it is most necessary, or purchase fewer things that have VAT, buy second-hand, etc.

Finally, the sources for the first graph are OECD and the Economist, I'd have to look up where the economist got their numbers and the specifics of the OECD number, but if after-transfer income comes from the LIS or a similar set, it may not include all in-kind transfers (or may have to estimate them quite roughly) such as national health care, and may underestimate the benefit of those transfers, making the US poor look relatively better off comparatively.

Still, there are many good points in the article - many of which I have made often - including the absurd comparison between US poverty levels and European ones, when they are measured in completely different ways.

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