Thursday, July 31, 2014

Karl Rove Says Impeachment is a Mere Democratic Ploy

     He thinks the Dems are just using it to raise money for the midterms. He claims the very idea that the GOP has a plan to impeach the President in the next term is foolish.

     "About the same time White House press secretary Josh Earnest said "senior members" and "prominent voices" in the GOP were calling for impeachment. Asked about Mr. Boehner's Tuesday declaration that impeachment was off the table, Mr. Earnest suggested that the speaker was lying."

     "On Sunday House Minority Leader Nancy Pelosi joined the chorus in a CNN appearance. Without prompting, she declared that Republicans were "on a path to impeach the president."
      "On Tuesday, at breakfast with reporters, the Democratic Congressional Committee chairman, Rep. Steve Israel of New York, said the Republican election message was "impeach, impeach, impeach."
      "All this is complete and utter nonsense."
       "Yet what makes it not just false but absurd? I mean why is this a silly idea-is it because of the deep proponesity for restraint of the current GOP? Just asking the question with a straight face is a challenge-if the impeachment concern is nonsense it's not a bigger bunch of nonsense than the idea that the GOP is capable of any restraint."

     Quite rightly, then, Rove starts his argument not with 'The Republican party has restraint and would not degrade our entire system of government for cheap, short term partisan gain'-as they've made it clear time and again that there are no limits to which they won't sink for short term partisan gain. He argues more plausibly that they can't do it as they won't have the votes even if they win back the Senate.

    "The House would need to launch an impeachment effort, yet Mr. Boehner said this week that the House has "no plans to impeach the president" and "no future plans" either. On Tuesday he called it "a scam started by Democrats at the White House." No sane person believes that even after the midterms there will be the necessary 67 votes in the Senate to remove Mr. Obama, even if the House voted to impeach him."

    Well where is the evidence that the GOP Congress is sane? It's not a rhetorical question-I'm waiting for an answer. I mean everything the GOP Congress does is nuts. The fact that they don't have the votes to impeach in the Senate doesn't mean they can't try and grind up the gears of government in another impeachment farce a la Ken Starr and Monica Lewinsky. Not having the votes didn't stop them then. Why should it stop them now?

     Boehner is going through with the absurd lawsuit to sue the President just like the GOP in the 90s. No they won't be able to knock him out of office anymore than they did to Clinton. Yet that didn't stop them then and I don't see why it would stop them now. After all, it would tie him up for the last few years and bring the hated government to a standstill. 

    So already the Democratic claim doesn't sound so absurd-we know they have no restraint and they don't care about the numbers that show they can't be successful as it didn't stop them in the 90s eiither. 

     Ok, what else does Rove have to make the impeachment talk not just wrong but absurd on its face?

     "Second, impeachment talk motivates a lethargic Democratic base, worn-out and embarrassed by Mr. Obama's incompetence and lack of leadership. Mr. Israel admitted impeachment talk is "energizing our base."

      I don't think there's any embarassment-certainly I feel nothing but pride for my President and how he's governed through what has been many ways the most challenging of terms in office in many years speaking as one member of his base. 

       As for firing up the base it's hard to see how this is proof of truth much less proof of absurdity. I mean it's a double edged sword. Impeach Obama talk surely does fire up the Dem base but then it fires up the GOP base as well. 

        "Third, impeachment threats hurt Republicans with independents, a group critical to victory this fall. Today, independents are inclined to favor Republicans by an 11-point margin, according to a July 22 Fox News Poll, and 59% disapprove of Mr. Obama's performance. Yet in a July 20 CNN/ORC poll, 63% of independents oppose impeachment."

         It certainly does hurt Republicans with independents but if you know the GOP it does plenty of things that harm it-sure, Rove is right that it hurts with indies but then he was right that the GOP needed to get immigration reform done and that didn't stop the crazies in the party-today this is called the Tea party, in the 90s it was called the Religious Right-from spitting into the wind. 

         What's absurd is that the party does so many things that are clearly against its own interests like the government shutdown late last year. However this didnd't stop them then even though Rove-and Boehner for that matter-told them it was foolish-in the end Boehner knew it was absurd but did it anyway. similarly it can at least be imagined that he'd go along with at least going through the motions of impeachment theater-just like he did with shutting down the government. He didn't think it really would happen but it did and he allowed it too. 

       What's absurd is that the GOP does such absurd things. The claim that the GOP will go for impeachment if they win the Senate is not absurd whether or not it happens or not. It will be absurd if they do it but-they do absurd things. 

        In fact, Rove himself gives it away by complaining that GOPers are helping Obama and his Democratic minions by-talking about impeachment. 

        "Mr. Obama is counting on Republican allies to help gin up the specter of impeachment. It would be nice if Republican backbenchers desperate to appear on cable TV shows, and conservative celebrities seeking website hits, would resist the temptation to become useful stooges for the president by insisting that impeachment is a real possibility."

         Ok, now I'm confused. I thought the Democrats made up a phony threat. How phony can it be when Republicans themselves are talking about it?

Tuesday, July 29, 2014

Some Thoughts on Scarlett Johansson's Lucy: Now You Know What to Do?

     I knew this would be my kind of movie coming in-a kind of mind fuck where there are all kinds of ontological implications. The movie didn't disappoint. The story was backdropped by Morgan Freeman as a professor of science and his theorizing about what it would mean if a human being were to use more of their brain than 10 percent.

      According to him, animals only use about 10 percent of their brain. In the movie, Lucy somehow gets into some intrigue while living in China and becomes a 'reluctant drug mule' where a dosage of the drug CP4 starts to increase her brain use.

     UPDATE: I'm not terribly surprised to discover that the 10 percent of the brain idea is a pure myth

       I have to admit that I had thought something like this was true but that it probably didn't mean much: I figured that if we only use 10 percent of our brains that's all we really need-the idea that we could use more was probably an illusion. After all, I figured that probably most of what our brains do we don't need to think about.

      What's clear in retrospect is that what I was thinking about was less brain usage than brain consciousness
. Most of what we do happens beneath the level of consciousness is what I had in mind. Actually based on neurological research there is no way to locate consciousness either.

      "Although parts of the brain have broadly understood functions, many mysteries remain about how brain cells (i.e., neurons and glia) work together to produce complex behaviors and disorders. Perhaps the broadest, most mysterious question is how diverse regions of the brain collaborate to form conscious experiences. So far, there is no evidence that there is one site for consciousness, which leads experts to believe that it is truly a collective neural effort. Therefore, as with James's idea that humans have untapped cognitive potential, it may be that a large fraction of questions about the brain have not been fully answered

       So when I thought of the 10 percent myth I was thinking more that only 10 percent of what our brains do is conscious rather than we only use 10 percent.

       In any case, this is a movie and movies are not science by any stretch but art. What matters in the movie is not what science really says but what this means in terms of humanity's beliefs about itself-it's sociology and philosophy not science much less neurology. That's what I found interesting.

      Early after Lucy absorbs the drugs, she explains-to her perplexed mother-that 'human beings are primitive.' What seems to happen is that she is now able to read people's minds and is struck by their motivations-basically, she sounds disappointed. Apparently, she finds that they're mostly driven by things like fear and the desire to avoid pain. Again, this seems to come as a shock to her and quite a disappointment. Evidently she had presumed they were motivated by far less base instincts.

     She also finds that by being able to think more and better she is slowly becoming less human. Now Freeman as the theorizing professor had said that if a human being were able to use 20 percent of their brain they'd be able to control themselves and at 40 percent they'd be able to control other people. A student then asks him what if they could control 100 percent and he declared that he doesn't know.

     I will confess that I find Lucy's gender as in many ways determining the way she ends up reacting to her new endowment. What I find striking is that she never tries to use her new superior brain functioning for power or riches-she never uses it to win a lottery ticket.

      What all her thinking seems to do is enable her to see through humanity and not be very impressed with it. Actually, based on her action, it seems that the optimum brain usage is somewhere between 20 and 40 percent-over that level it seems to become a liability-assuming one wants to live as a human being. She did at times before she hit 40 percent use her brain in some cheeky ways like on a flight to Paris a stewardess tells her she has to turn off her laptop and she says 'You have something dripping from your lip, go get me some champagne.'

      This seems to have something do do with the idea that she can read human motivations and use them-this would certainly help me as a telemarketer! Ultimately, though she builds on the idea that what makes us human is primitive. The answer to what happens to us when we use 100 percent of our brains ends up being that we are no longer human at all and that we die.

      Lucy chooses to give up life and humanity pretty easily. I can't help but think that a male character would have at least found it more difficult to do so. Freeman had said in his theorizing lectures that until now what has driven humans is a need for time. When Lucy hits 100 percent of brain usage she gives up time-becoming 'timeless' presumably-timelessness being another Urban Legend I should think-and she is gone.

     She literally goes all the way back to the beginning of time and meets Cro-Magnon man. When he sees her he is scared but she manages to reassure him and they touch fingers-then it's over; Lucy is no more at least as a human-actually she texts her sort of love interest, a French police chief she picks up along her adventure-and tells him that she is now everywhere.

      Again, as I said above, what matters about this movie is more what it says about human ontology-our beliefs, our psychology, our dreams, etc-than the scientific truth-which is clearly lacking. What Lucy's revelation seems to be is something like Buddhism's Path to Enlightenment. Ultimately, Nirvana is found by giving up all strong human feelings and desires.

     I did say above that I think a male character might have had a different trajectory than Lucy. My guess is he'd at least struggle to do the right thing-giving up the fight for time. She found it very easy to do so, to 'leave the world as she found it' so to speak. A male protagonist probably would at least have struggled to give up the desire for time a little longer-maybe tried to use it for power and glory at least at first before everything spun out of his control and he repented.

      At the end of the move Lucy declares-to us, basically-'Now you know what to do.' What is this we should do? Apparently giving up on our desire for time and are very belief in our own humanity. I must say that I find this a little problematic-such an easy decision for not being, for deciding it's better to not be than to be.

      At it's bottom, the lesson is again nihilism-much like Buddhism-or Christianity is. Like her touching fingers with Cro-Magnon man. This is apparently a hello but what it ultimately proves to be is a goodbye. So I'm not so clear that now we know what do.

      P.S. For the record I find it very worth watching, just that I have some problems with its ontological implications-which makes it more rather than less worth watching from my point of view.

Monday, July 21, 2014

Thomas Palley vs. Paul Krugman and New Keynesianism vs. New Milton Friedmanism

     Palley and Krugman differ on what mainstream Macro did and didn't get right in the aftermath of the 2008 crisis. Both do agree that James Tobin was right though. So where is the difference?
      "Thomas Palley argues that mainstream macroeconomists have been looking in all the wrong places for an explanation of the stickiness of inflation in the face of high unemployment; what they should do is consider the old Tobin approach that combines multiple sectors (so that some workers have rising wages even in an economy that’s depressed on average) with downward nominal wage rigidity."

      "OK, I guess I’m a bit puzzled. I very much agree with Palley that Tobin’s approach does a lot to help explain what we’re seeing; but I don’t know why he thinks this is such a radical notion. I’ve been telling more or less the same story for a while, explicitly name-checking Tobin; and the formal modeling of Daly and Hobijn (pdf), which I’ve cited several times, declared in its first paragraph that it’s building on Tobin’s insights."
    However, Palley is making a much broader argument. He's arguing that New Keynesianism is not Keynesian at all. Of course, this is where NKers like Krugman, Simon-Wren Lewis, and Brad Delong wonder at the futility of discussing what 'Keynes really meant.'
    I must say I never cease to be puzzled by this complaint. Here Noah Smith also shows himself to be a charter member of mainstream econ: to be a member you have to find it puzzling why anyone could be interested in so futile a question as 'what Keynes really meant.' To ask this question you show yourself to be not an economist at all but something very sordid: a literary character.
     "My instincts are with Cochrane on this issue. There is nothing more annoying than when you argue with some idea, and then some guy comes along and says "Go read Ludwig von Mises, then you'll understand everything." No you won't. You'll just get a warm glow of understand-y-ness, and you'll end up parroting words and phrases from the Old Master without being any better able to think critically and originally about the issues."

      "Then again, a lot of those old folks were really smart, and there are probably insights embedded in their writings that are too vague or complex to be translated directly into math, but which contain information, the way the priors of a portfolio manager carry valuable information in a
Black-Litterman model. But the flip side of that is that you probably have to be a really, really smart person to extract that deep-buried insight. Economic history, in other words, seems like very dangerous sauce to me - in the right hands it can be useful, but it is usually in the wrong hands."
     Krugman himself is a little apologetic about being a New Keynesian, calling himself a 'kinda, sorta, New Keynesian.' I think Smith denies that he is a Keynesian at all-or anything. This post is not supposed to be mostly about him but I will note in passing that I find him very smug here:
     "When I started blogging a few years ago, I took a very confrontational and sometimes even insulting tone. That was because I thought A) this is the internet, B) everything on the internet is a joke, and C) everyone gets that it's a joke. I guess I had spent too much time in the bowels of the net. I always meant it as a joke, and I never imagined that top academic people would read, much less care about, my blog."

     "Turns out I was naive. Over time, fellow bloggers like
Tyler Cowen and Adam Ozimek convinced me that more civility was needed, so I try to confine my chain-yanking to those who are more used to getting their chains yanked. Academics need to be able to think clearly and objectively, without their cortisol levels being spiked."

    "Basically, in the wake of the crisis, blogs have fulfilled the same role as the verbal debates between Keynes, Hayek, Sraffa, Robinson, etc. during the Depression. But like those debates, it has generated its fair share of acrimony."

     I don't think he sounds too sympathetic either when he was just playing games with his blog, or his present, new, civil more serious posture-either way, he shows a fundamental lack of respect for ideas, I think. It's convenient that now that he's looking to get serious about his career, he's started  worry that things shouldn't get too polarized and confrontational. What he ignores is that when everyone agrees it's easier for things to remain collegiate and nonconfrontational. Smith strikes me as being terribly smug and complacent. No doubt, while he sometimes wears the poise, he cares not a whit for the little guy-if he did he'd realize that the ideas of economics can be life and death-hardly the joke he thought it was coming in.
     Back to Palley. What he's saying is that Krugman's preferred IS-LM Neoclassical Synthesis version of Keynesianism was already 'bastard Keynesianism' but that New Keynesianism is even worse, a genetic mutant of Samuelson's IS-LM Keynesianism.
    It's hard to disagree with Palley here:
    "New Keynesian economics is a genetic mutant of so-called IS/LM “bastard
Keynesianism” associated with Paul Samuelson’s MIT School of Economics."

    "New Keynesianism abandons the Keynesian vestige and jumps the intellectual threshold, becoming rational expectations new classical macroeconomics with the addition of
imperfect competition and price and nominal wage rigidities. Consequently, it is better
labeled “new Pigovian” economics (Palley, 2009) as its emphasis on market
imperfections represents the approach of Arthur Pigou, who was Keynes’ great
intellectual rival at Cambridge in the 1930s. This means new Keynesianism has little to
do with Keynes and much to do with Friedman who is the intellectual father of new
classical macroeconomics."
    I think, he's onto something here that Krugman and other NKers don't like to have to respond to. How can you deny that New Keynesianism has little do with Keynes? Greg Mankiw wrote a programmatic manifesto of NK in 1991 and it barely mentioned Keynes and had nothing but opprobrium for the General Theory-Noah Smith thinks you have to be some kind of 'really, really smart person' to be able to gain any insight from at all.

    I don't see how you can deny that there is probably no book more hated among those who call themselves NKers-'sorta, kinda' or otherwise-than GT. Sumner of course, smugly pointed what Mankiw said to Krugman-'little mention of Keynes, nothing but contempt for the GT'

   "Paul Krugman recently argued that Keynesian economics is alive and well, and linked to this paper by Greg Mankiw, which summarizes the principles of new Keynesian economics.  Unfortunately it was typed back in the Stone Age, so I can’t cut and paste.  And I’m too lazy to re-type, so I’ll summarize the gist of Mankiw’s explanation of new Keynesianism:
     "1.  It probably shouldn’t even be called Keynesian; don’t waste time with the General Theory."
     "2  It uses lots of classical principles.
     "3.  Paradox of thrift?  Fugetaboutit."
     "4.  Similar to the economics of Hume and Friedman."
      "5.  Don’t do discretionary policies, follow a rule–preferably NGDP targeting."
       "6.  Don’t bother with fiscal stabilization policy, use monetary policy"

      Could anything better make Palley's point that what is called New Keynesianism should really be called New Friedmanism?

      P.S. With my apologies to Noah Smith with his contempt for all 'literary flourishes' and stylized facts, much less an actual look at one thing that 'Keynes really said', when you hear Krugman claiming that he and everyone he knows says what Palley says already from within the NK orbit, I think of one of Keynes many classic quotes.

      'First they say you are totally wrong and then they say you have said nothing new.'

     P.S.S. For his part, at least Sumner himself admits to being about stylized facts more than rigorously microfounded models. I wonder what mainstream econ guys like Noah have against literature. I mean it's quite debatable who has added more utility to the human spirit.

    I don't get the criticism that GT is literature but while I understand the need for science to be science-assuming econ is a science-still, the antipathy that a Noah Smith has for literature is quite fascinating actually.

Sunday, July 20, 2014

Krugman, Comparative Advantage and the Optimism of Economics

    This title perhaps strikes the reader as a contradiction in terms-it kind of does for me: it seems to me that if you ask the average layperson what kinds to mind when they think of economics, probably the last thing the typical answer will be is a source of optimism.

     Presently, I'm reading Krugman's textbook-he published it just a few years ago with his wife, Robin Weils, who is also an economist. This thought of the optimistic aspect of economics just came to me while reading about comparative advantage. The big picture is I'm trying to do what Nick Rowe has requested-I'm reading a undergraduate economics textbook-rather than merely inveighing against Mainstream Econ through ignorance.

    I think he has to admit I've followed his urging-I've just finished a long textbook which in all honesty I read from cover to cover by Greg Mankiw. I found it quite good-the only thing was that it was the 1999 edition so a lot has happened since then but much of it no doubt he and most mainstream macroeconomists still believe. I bought that because back then I was broke and it was much more affordable.

    I just finally vanquished his book and have now started Krugman's-when I finish here I will finish my process of doing what Nick asks by reading Paul Samuleson's classic 'The Foundations of Macroeconomics.
', the orignal 1948 version. I'm doing more than Nick even asked-he said read a textbook, I'm reading three.

    My reason for this is I'm very interested in seeing where a Krugman and a Mankiw agree and where they disagree and then how they do against Samuelson, 56 years ago.

    Early, into Krugman, it's clear there are some differences but at this point the main ones have been of style rather than substance-Krugman probably emphasizes the idea that markets can fail a little more prominently, but Mankiw is very clear in his book that this is so and that 'sometimes, the government can improve market outcomes.'

    This is of interest, as politically these two men are usually at odds. Many conservatives accuse Krugman of 'knowing better' but basically being dishonest for political reasons and Krugman made basically the same charge against Mankiw during his time as Romney's economic adviser during the 2012 Presidential campaign.

    Anyway, the story of comparative advantage, I actually find a quite optimistic one, funny enough. I mean, traditionally, economics has turned many off as it seems to many to really deromanticize humanity-it seems to reduce us at every turn to just a bundle of selfish wants where all we care about is our own interests and advantages, our fellow man be damned. This isn't really how I see it but many have understood things like Smith's Invisible Hand that way.

    Even those who accept it as having some validity don't find it a partiuclarly appetizing way of understanding mankind and society. I mean a discussion of 'comparative' advantage might not be the thought of thing a Rousseaun artist thinks about when he waxes that the 'heart has its reasons that Reason knows not.'

    As I've mentioned, I'm currently also reading Piketty-but whether you think he's right or not it's not very optimistic-basically because in the future the rate of profits in capital will outstrip the rate of growth we will see worse and worse levels of inequality of wealth the world over.

    Meanwhile both many Keynesians and Market Monetarists have accepted something like 'secular stagnation'-including Sumner.

    With comparative advantage, we have for once an optimistic concept. On the one hand we accept the inequalities of ability between people but on the other even if one person A has an absolute advantage in everything in person B, it will still be beneficial for Person A and Person B to enter into trade together.

    This is a rather 'uncanny' result-when I use this word I think of Geoff Waite.

      What comparative advantage (CA) suggests is a minimal basis for human society. for friends, for families, for lovers, etc. Or like Zizek and Lacan find-the Other will always want something from us, though divining it is another matter entirely-hardly an easy business.



Monday, July 14, 2014

Piketty and R>G: Laws vs. Tendencies

     Many conservatives, dismissive of Piketty have taken issue with his extrapolation of R>G. Even reviews of him that are less hostile have tended to be rather impressed with this central tenet of R>G. Here is David Glasner who seems to Piketty a reasonably fair hearing:

     "But I would also add a cautionary note that, because the population of individuals and publicly held business firms is growing, comparing the composition of a fixed number (400) of wealthiest individuals or (500) most successful corporations over time may overstate the increase over time in the rate of turnover, any group of fixed numerical size becoming a smaller percentage of the population over time. Even with that caveat, however, what this tells me is that there is a lot of variability in the value of capital assets. Wealth grows, but it grows unevenly. Capital is accumulated, but it is also lost."
     "Does the process of capital accumulation necessarily lead to increasing inequality of wealth and income? Perhaps, but I don’t think that the answer is necessarily determined by the relationship between the real rate of interest and the rate of growth in GDP."
      I think R>G is a lot more impressive than Glasner seems to think. Incidentally, I think he misses the mark here:
      "Many people have suggested that an important cause of rising inequality has been the increasing importance of winner-take-all markets in which a few top performers seem to be compensated at very much higher rates than other, only slightly less gifted, performers. This sort of inequality is reflected in widening gaps between the highest and lowest paid participants in a given occupation. In some cases at least, the differences between the highest and lowest paid don’t seem to correspond to the differences in skill, though admittedly skill is often difficult to measure.
      "This concentration of rewards is especially characteristic of competitive sports, winners gaining much larger rewards than losers. However, because the winner’s return comes, at least in part, at the expense of the loser, the private gain to winning exceeds the social gain. That’s why all organized professional sports engage in some form of revenue sharing and impose limits on spending on players. Without such measures, competitive sports would not be viable, because the private return to improve quality exceeds the collective return from improved quality. There are, of course, times when a superstar like Babe Ruth or Michael Jordan can actually increase the return to losers, but that seems to be the exception."
       I notice that often when when the subject of 'winner take all' society comes up the conversation is steered towards sports-others move it to music, actors and celebrities in general-but what Piketty actually shows is that in the top levels of income the percentage of that level made up of sports stars or Hollywood actors, etc. is pretty small, no more than 5 percent. This doesn't mean that athletes don't make a lot of money but just that there are very few athletes this talented in the world. In truth they are something of a special case not really comparable.
      Comparably those in finance are 20 percent in the top 1% income level. When discussing 'Winner Take All' in today's society-which is primarily an American-and British phenomenon, and to a lesser extent, an Anglo-Saxon phenomenon-what has driven it is not about athletes, but the rise of the supermanager, the super high earning CEO of both financial and nonfinancial firms. 
      I have to disagree with Glasner here: I find the occurrence of R>G much more impressive than he does-or most reviewers of Piketty.' 
       UPDATE: Actually, it seems that Glasner misonstrues R>G here: R is not the real interest rate but the overall return to capital. I don't think this is one in the same thing. 
    Unlearning Econ documents many of the lies that have been told about Piketty-one of the big ones being that he claims that R>G is a law:
      "The claim: Piketty's 'fundamental laws of capitalism' are not fundamental at all."
     "The reality: Although calling them 'laws' is misleading, at no point does Piketty claim that his laws are inviolable. They are instead tendencies (with the exception of the first law, which is just an accounting identity) which push capital's share of income in a certain direction over time, but can be counteracted by any number of things, and only take hold over a long timespan."

      "Piketty's second law states that the capital/income ratio equals the savings rate over the rate of growth, or β = s / g. Krussel & Smith (KS) interpret this as a straightforward equality, but Piketty makes it clear this is not the intention:

    "...this is an asymptotic law, meaning that it is valid only in the long run: if a country saves a proportion s of its income indefinitely, and if the rate of growth of its national income is g permanently, then its capital/income ratio will tend closer and closer to β = s / g and stabilize at that level. This won’t happen in a day, however: if a country saves a proportion s of its income for only a few years, it will not be enough to achieve a capital/income ratio of β = s / g."

      "The law is supposed to tell you how the capital/income ratio will change for a given savings rate and growth rate, rather than what its value will be at any one time."

      "Piketty's "fundamental force for divergence [of income/wealth]" (not sure why this isn't called his third law) states that the rate of return on capital will exceed the rate of growth, increasing inequality over time, or r > g. A common misconception is that 'r' represents some sort of rate of growth for capital, but it actually represents the returns to ownership of capital in a given year. If growth is low, and the returns to capital are high, then accrued wealth from these returns will begin to dominate other income. It is not required that the returns themselves grow for this to happen. Again, Piketty is aware that empirically, r > g "is a contingent historical proposition, which is true in some periods and political contexts and not in others".
What's more, Piketty's version of his third law is not the same as the popular interpretation that seems to be floating around, characterised by Dan Kervick as “r > g, therefore disaster!” For Piketty, r > g  is only a necessary, not a sufficient condition for inequality to increase: if r is "distinctly and persistently" greater than g, this is a "powerful force for a more unequal distribution of wealth". As he makes clear, other things can offset this effect."

      Actually, Kervick misses the point here too in saying that if R>G, then disaster. First and foremost it's simply a historical fact. In fact, what is striking to me, and what I do find impressive is that even if R>G is not to be called a law and Piketty takes pains to emphasize it's not a logical necessity just a tendency, it's a very pervasive tendency throughout the history of human societies. Those instances where we have not seen R>G are the-very-special cases. According to him basically the period between 1914 to 1980 and that's about it. In the period 1914 to 1945 this was due to the shocks of two world wars and a very sharp worldwide depression. In the 1946 to 1980 period it was driven by an unprecedented rate of growth even as the return on capital recovered. 

     So it's not simply R>G, then disaster as this has been the rule throughout most of human history. I must say, if we're not allowed to call this a Law-and Piketty himself doesn't believe we should-it's still notable that this tendency has held so widely, almost universally in the history of human society. It's been much more reliable than many things that your typical Neoclassical mainstream economist is willing to call a law-like EMH or the tendency to equilibrium. 

     A very obvious question is why has this held up so often throughout history? Part of the answer is that throughout most of human history, until about 1700, economic growth was virtually nil. 

     Even since the Industrial Revolution of the 19th century it's still over the long hall only been about 1.5%-as we noted above, only in the 1946-1980 period was growth so high that it outstripped the return to capital. 

     As Piketty notes, historically throughout history, the return to capital was always 10 to 20 times greater than growth. He also notes that to a large extent this fact is the very foundation of society itself, it's what allowed a class of owners to devote themselves to something other than their own subsistence.

      This is probably the basis of human progress-the ability to devote oneself to something other than one's own subsistence. It's what is perhaps the big hope of modern economics-to see how many can achieve this-what Neoclassicals call 'leisure.' Marxism thought that the answer should and could be everyone but what's certainly become clear since Marx is if this is so it's not at all easy to achieve regardless of your system in place. 

      So to a large extent if R is going to again run so far ahead of G this would just be a return to a very old historic norm. So what might be able to arrest this tendency? I haven't finished the book yet-am just 45% through according to Kindle-but it's clear that in the American case-and British-Piketty thinks that a big part of the tremendous rise in CEO pay was the steep drop in income taxes for the rich in both countries-prior to 1980 both countries had virtually confiscatory tax rates on the top. 

     Of course, this is just the U.S.-and Britain-and if anything this rise huge rise in labor income for the supermanager is tangential to his main point: as the rise in their pay is still labor income it doesn't even bear on R>G which he actually sees as increasing more in Europe. 

     Anyway, I will keep you posted on other thoughts that occur to me as I read, but I will say that no matter what you think of R>G, it's pretty impressive that this tendency has held so long and so widely. It's not surprising that many may find this tendency very off putting and not want to discuss it as conservatives along with many others clearly don't. 

    P.S. To an extent R>G is not hard to understand. Naturally when someone begins an entrepreneurial venture, they hope to make enough money to the point where their money makes money for them. For teh poor their money is constantly subject to Zarathustra's Spirit of Gravity: the tendency is always for what meager money they have to dissipate. 

    At some point a fortune gets to a point where the force of inertia works the other way and the Spirit of Gravity seems to increase one's money rather than the much more typical reverse. If your own personal return to your money isn't more than the growth rate this basically means you're not gaining ground. So I even might believe that there could be a need for this as incentive for taking on risks in the first place. 

   UPDATE. Piketty does refer to R>G as a contingent, historical fact. Still, even if this is true, it's very striking how rare have been the societies that it hasn't held. Basically just the shocks of two world wars and a worldwide depression in which the return on capital precipitously fell-1914-1945-and then the period where Europe recovered from these shocks-1946-1980-and while the return on capital recovered, the growth rate was just for this one period even higher than the return on capital-but this was catch up growth for Europe and Japan vs. the U.S. 

    UPDATE: An important caveat though is that while according to him, the historical return on capital has been 4-5%, this is before taxes. Until the 20th century, these taxes were quite low in the developed world, however, today they are not negligible. 



Piketty vs. Sumner on U.S. Inequality

      Sumner always claims that his chief interest is getting monetary policy right-basically the CB should follow a rule for an NDGP target, preferably a level target, and preferably it should be done by the market itself via an NGDP futures market along the lines of the TIPs spreads market for expected inflation.

       Interestingly, the Market Monetarist Nick Rowe just had a piece that criticized the idea of a legislated Taylor Rule in the U.S.-but what occurs to me is the same complaint could be leveled against NGDP targeting as well or any kind of 'rules based' monetary policy. His point can be seen as an argument for discretion in monetary policy no matter what the proposed policy rule.

      In any case, though Sumner is allegedly chiefly concerned with monetary policy it's pretty clear he seeks to 'demolish' Thomas Piketty after the latter's big book on inequality and the capital-labor split.

     On the subject of income inequality Piketty argues that the reason for the big spike in inequality in the U.S.-and to a large extent also in Britain-since 1980 is an explosion in CEO pay. On the one hand, according to him this puts the U.S. in historical record territory-joining Europe on the eve of WW1.

    What is different is the composition of income inequality. The post 1980 U.S. is in a way a special case. The main thrust of Piketty's book is that a sharp increase of the ratio of income going to capital vs. labor is causing a spike in inequality worldwide, and particularly in Europe and Japan.

      However, as the U.S. rise in inequality has largely been driven by an explosion in the pay of top managers, it's caused primarily not by an increase in the capital to income ratio but rather by a surge in labor income itself going to the top 10% but especially the top 1%.

      Sumner takes issue with Piketty's claim that the explosion in CEO pay-in both big non-financial as well as financial firms- is not explained by an explosion of the marginal productivity of CEOs. Sumner claims that this an explain it:

       "On pages 330-31 he points out that US corporate managers are now paid far higher salaries than Japanese corporate managers.  He then claims it is “naive” to assert that the pay might reflect productivity.  No mention of the fact that while the Nikkei is up 2 fold since 1982, the Dow is up 20 fold.  I don’t know about you, but I’d rather be a shareholder in US firms getting ripped off by the outrageous pay packages of the American CEOs, rather than invest in Japanese firms with their low paid CEOs.  You get what you pay for."

       Of course, he makes his case easier by pointing to Japan which has stagnated since the 90s. Is he going to give up saying that the BOJ is responsible for this but that what Japan really needs is to start paying Japanese CEOs much more money?

      Germany and Sweden also pay their CEOs a lot less than we do and their economies are fairly healthy. It's tough to show causality-you can draw any number of correlations but showing that there is a necessary cause and effect is more difficult. 

       It seems to me that the unprecedented wage inequality in the U.S. can be seen as quite a bad thing or even something of a good thing-partly depending on how one judges the existence of economic inequality in principle. 

      The fact that this is the largest level of income inequality since pre WW1 Europe is certainly sobering. Still, some no doubt will make the argument that as it's more driven by labor income than capital, you could call this inequality in some sense 'meritocratic'-one can't help but recall an old phrase-a 'natural aristocracy.'

      I'd probably come down in the middle of these two extremes However, Piketty is clearly doing God's Work as it were in documenting it-with the reaction of Sumner and other conservatives, clearly he's kicked a real hornet's nest. 

      Unlearning Econ chronicles must of the alarmism of conservative economists in the face of Piketty's work.

      UPDATE: I forgot to mention, but Piketty thinks that in place of the standard marginal productivity story-'CEOs are paid so much because they are so productive'-Sumner's argument above is just another gloss on this idea, Piketty argues that in large part the reason you have seen this explosion of pay for top managers in the U.S. and to a large extent also in Britain and all the English speaking developed countries has to do with political and social norms of what's considered fair and right. 

     In this sense, then social perceptions are self fulfilling-CEO pay rises to the extent it is seen as socially acceptable-Sumner's attempt at rebutting Piketty here is an attempt to maintain the perception that such large pay packages are justified based on merit.        

     Obama's recent stated intent to raise the minimum wage may point to a change in social perception in the U.S. one which Sumner if you read him regularly clearly wants to cut off at the pass. 



Sunday, July 13, 2014

Serenading Kourtney Kardashian in the Hamptons

     Ok a few firsts here. First and foremost, I finally figured out how to post a video online. Here is me and my co-worker and right hand man Kevin Rogers-these days I'm rich enough to have a right hand man-in the Hamptons over at Cooper Beach.

     I actually want to sing this song to Kourtney but while we didn't catch her last July 4th weekend, we did manage to sing for some of the locals out at Cooper Beach in Southampton. We got some good feedback-a number liked our performance, and some took pictures. This teenage girl told us she loved it. Then she had us play for some of her friends. I asked her if she could take a video of us on my phone-I think you'll see she did a very good job.

    Today we went to NYC in the hope of riding the TMZ Celebrity Tour Bus-I had bought priority seats for us but I had mistakenly thought that it was at 11 A.M.-it was at 10 so we missed it all. Luckily, they gave us a rain check for next week on Saturday-this is a tour where you can meet some celebrities-indeed, the commercial for this tour showed people meeting Kim Kardashian herself.

    So our Quixotic Quest will continue. What seems clear is that we've now did our song and dance in a number of different locales-Southampton, yesterday at some picnic for Kevin's Church, and today in NYC and we always find folks who like our act-a guy actually gave us $5 for it today! We had Kev's wrestler friend Pauly doing his crazy shtick-wearing his caveman suit and letting Kev punch him right in the stomach-he can take Kev's punches without seeming to feel any pain-and the guy was like 'You guys are great together at whatever it is that you do.'

   We're something of a variety act I guess you could say which is why America's Got Talent might be the ideal place for us to try out. Of course, whenever I perform I wear my custom made 'In Kourtney Kardashian I Trust' t-shirt.

   On the back though it says 'Catch the Social Anomaly'-this is kind of our theme. I see us as kind of engaging in a crazy social experiment as well.

    Anyway, folks, thanks as always and have a great week.

     P.S. Yes, I still am into economics, politics and all the monetary debates. I've been reading more than I've been writing on this lately though I have written some pretty big posts on econ lately too as you know if you've been following. I continue to find Piketty's book just a tremendous resource and find all the conservative sniping at him quite telling.

     The interesting thing is that while he sees the big problem as the increasing ratio of capital vs. labor income but as he shows in the U.S. the big increase in income inequality since 1980 has much more to do with an unprecedented increase in wage inequality rather than the increase in capital vs. labor income-this problem he sees as being more prevalent in Europe than the U.S.



Saturday, July 12, 2014

On Franki Valli's Jersey Boys: on Music, Love, and Tragedy

      Last night I finally saw it-I've been wanting to watch this for a few weeks,, but every time me and my main man Kevin Rogers have gotten to the theater it's been either too early-not on for like 2 hours or too late.

       It was a great movie-we both liked it a lot. I mean this was helped by the fact that we're both real lovers of music and musicians. The music is great as is the story.

       For me in particular this movie touched on all the great subjects and paradoxes of mankind. About music, art, love, men and women, life and death.

       Franki Valli was blessed with a superb talent One of the characteristics of human society is that there are always certain individuals so blessed. However, it's like Monk always says, "It's a blessing and a curse."

       I think it was Nietzsche who said that a talent is a vampire and you are ultimately the victim of your talent, you end up being consumed by your talent. You see this with Franki Valli. First when he was just being discovered he met his future wife and mother of his children.

      Here's what I find so paradoxical. She originally falls for him after hearing him as a very young man sing in that club. She basically takes him in hand at that point-they go to dinner and she asks him 'Do you have a dime?"

      "Yes." He answers confused.

       "Great, call your mother and tell her you wont be home for dinner."

       In the next scene, they're married. However, what's interesting, is that later while he's on the road he sings all these love songs to 'the woman he loves'-this is the paradox of the great male singer. Meanwhile, as he went home after his road trips, his wife is more and more unhappy, complaining that he is never home. In the first scene when he meets Bob Gaudio, a woman-actually this woman is one of a set of blond twins but this is not really the main point-who raves about how she loves the song he wrote and that it sounds like it was written for her alone. Bob blandly answers her that it's a composite for 'EveryWoman.'

       Of course, the key of a great love song is that it seems so personal and yet-each woman feels that it's about her. The dirty secret though of someone like Valli who gets married and continues to sing love songs is that these songs are not about her-they remain composites. What won his wife over was his songs to this composite, but in marriage she wanted him to give it up.

      This is one of the major paradoxes of love. How often is it that a woman falls in love with a man but then once they're married the very thing that she fell in love with him for becomes something that she sees as coming between their happy marriage? The wonderful voice of Valli is what she fell in love with and yet she came to see it as alienating her husband's affection.

       It's not just women who fall in men who do this-men do this too. To take one example, how often do guys meet strippers and then think they've fallen in love and then want the woman to give up her job? Yet this was what attracted him to her in the first place-it never would have happened otherwise.

      It's a very common story with love. A woman falls for a popular guy-it's that he's so popular and has so many friends that really attracts her to him but once they're married she complains to him that he spends so much time with all these people-what about her, why must she be second?

      Or a man falls for a woman because she's the hottest girl in school or at work or around the block and every guy in the world wants her. However, once they get together he becomes extremely jealous if she even talks to another guy.

      Is this the tragedy of love or the comedy of love?

      On the question of Valli's marriage, it ended tragically when his oldest daughter overdosed. A case could be made that his troubled daughter suffered so greatly in part by missing him and feeling that he was not there for him. This is probably how his wife saw it-especially after such a terrible tragedy. However, I have a hard time in this case blaming him. I think this is one of the real tensions in love between the sexes, and art.

      Again, as Nietzsche said, your talent is also your vampire. I mean, was Valli supposed to just end his career and get a job as a plumber and then be home in time to help his kids with their homework, give them a bath, and tuck them in every night?

       I just feel in this case-where we have this level of talent-to deprive the world of such music would be a tragedy.

       In a way this gives a new twist on the old anti-feminist message we used to hear back in the 80s-'you can't have it all' women were admonished. In a certain sense, though, it may be that no one can have it all. I mean did Valli actually have a career and a family?

       On the other hand, on a less pessimistic note, you have the example of Bob who while being in many ways the 'straw that stirred the drink' as it were, managed to have a long lasting happy marriage with seemingly happy, healthy children. Of course, it's notable, perhaps, that Gaudio gave up signing in the group himself and relegated himself to just writing Valli's songs. Was this his own selfish calculation to have it all-and leave all the sacrifice to Valli? Of course, by then, his marriage was long over.

       As to the male-female dynamic, what I would note is this. You can make the case that with a singer like Valli, the message truly only reaches its intended addressee-to use a Zizkean phrase-in the listener of the music-the folks who buy the music and listen to it.

       To the extent that his songs are still heard every day on the radio-on oldie stations-and that they've been listened to in offices, bagel shops, family picnics, and commercials a million times and will no doubt be heard a million more times, his voice achieves it's one true goal perhaps: immortality.

      At the end of the movie he says that he'll keep singing until he gets home. Perhaps every time one of these listeners hear him, for a little while, he is.

       I think that it's legitimate to make much of the fact that in modern music, it's women who disproportionately decide what music will be popular. Of course, today there are many female singers in their own right. However, it's easy to overlook the female power involved in this selection process. Most of what becomes popular since the 50s-beginning with Elvis himself-does so through the decision making process of teenage girls. So Valli sung for them rather than his wife-he only sung for her that first time.

       P.S. In many ways, Gaudio is my favorite character in the film-why? It's because he is the one who really made it all possible. Valli was the talent, but Gaudio too had the talent to write songs-he was no slouch as a singer either-but more importantly, he knew Valli was it the first time he heard him-that this would be the-only-voice he would write for. It was only through him that Valli was finally able to declare his independence from his older bullying childhood friend Tommy.

      Also, after the horrible death of Valli's daughter, it would have been so easy to have packed up, moved away, and never sung a word of music again in a Zizekean Night of the World.

       That he didn't' was thanks to Bob being there for him and talking him into living again. The Zizekean position would have been to fall into a permanent half catatonic state-I always take the side of the one who wants to keep living not the one that says existence is so sullied as to no longer be worth fighting for.


Wednesday, July 9, 2014

Sumner Picks Apart Piketty? Or is He Just King of all Hyperbole?

     The bellicose nature of his Piketty posts makes it pretty clear that anything he writes about him will certainly not be friendly. Clearly he feels the need to 'pick him apart' for his team-Right wing economists. This is not the first time he's used such high faluting imagery in a Pikety title.

       He missed by a mile in the link above-all he had was a story about Sting giving most of his inheritance to charity rather than his daughter. This certainly happens and I don't think Pikety or any other liberal who questions the level of social mobility in America-or other First World nations-today is unaware of this fact. 

      Sumner's latest alleged demolition of Piketty again returns to the idea that Piketty is all wrong about social mobility. He goes to another old standard of his-using the fact that older people are on average richer than younger people to suggest that when you factor in for age, inequality of wealth basically disappears. 

      "But at some point in their lives 73% of Americans do reach the top 20% of incomes.  Piketty doesn’t mention that fact.  Yes, most Americans don’t become corporate CEOs, is anyone surprised by that?"

         These phrases like 'at some point in their lives', and 'most people' as well as 'do reach the top 20% of incomes' are pretty slippery terms. He seems to be saying a lot more than he's really saying. This certainly doesn't mean that most people are rich at some point in their lives-or that there aren't significant numbers of people who are poor their whole lives.. What Piketty shows is that the disparity of wealth is almost as great within each age group as in the population as a whole. So Sumner's attempt to ascribe it purely to differences in wealth due to age doesn't work.

         "Here’s Thomas Piketty on the US financial crisis (page 297):

In my view, there is absolutely no doubt that the increase of inequality in United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms.

       "Where does one begin?"

    "1.  In my view there is plenty of doubt as to whether inequality contributed to the crisis, partly because Europe is much more equal, and had an even worse financial crisis.  In fairness, he did say “contributed,” but my real complaints lie elsewhere."

      "2.  Why would stable real wages lead to more debt?  More specifically, why would it “inevitably” lead to more debt?  If my wages were stagnant I certainly wouldn’t react by taking on more debt, rather I’d borrow more if I expected my income to rise.  Is there a theory here?"

      While 'Europe'-or at least Western Europe may be more equal than the U.S., it has seen an increase in inequality since 1980 which is just as sharp. I just don't get why 'stable wages' wouldn't lead to more debt if you had loosening lending standards. I pointed this out to Sumner and he threw in another non sequitor about he not remembering any increase in debt during the Depression, hereby again totally missing the point. The reason for this is not because people 'chose' not to take on more debt but because there was no debt to be had as lenders didn't loosen standards then as they did during the housing bubble-Sumner of course doesn't know if bubbles are possible. They either aren't because of the EMH or they are possible but don't matter. 

          His number 2 and according him more important complaint on 'why would stable wages lead to more debt?' has got to be a sick joke. He calls the stagnation of purchasing power 'stable wages'-he is not only the King of Hyperbole but at least a Duke of Euphemism. 

         "On the very next page Piketty discusses the minimum wage in Germany.  But he forgets to point out that the 2004 labor reforms allowed for a large increase in low-wage German jobs, and that after these reforms the German unemployment rate plummeted while French unemployment increased. Isn’t that evidence important?"

          It's important but it doesn't necessarily lead us where Sumner seems to think-'wow let's do what Germany did in 2004!' as why do we want a country full of low wage jobs? Even now with the unemployment rate down to 6.1 percent in the U.S. how many of these jobs are in fact low wage? How exactly do these low wage jobs 'pick apart' Piketty's theory of rising inequality?

            There's no question that the conservative economists see this book as a real worry. Sumner dearly wants to carry their water for them on this-which makes sense, he is the most effective conservative intellectual by far today. If any conservative can poke holes in Piketty, he's the one to do it. However, you get the sense that he's here just throwing everything at the wall and seeing what will stick. We see his intention-to 'demolish Piketty' , to 'pick apart Piketty' but Piketty is still standing and very much still 'put together.'

          Sumner is sounding like he did when he won that imaginary bet with Krugman-ie, a little embarrassing, which again only underscores how much is at stake here-he doesn't want  anyone to talk about inequality. He has all kinds of ways to try to distract this conversation-like when he says 'the problem is not inequality within countries but on an international level. Wow these liberals sure are provincial to think it matters if inequality went up in their own country! What do they have against the rest of the world?'

        Of course he has a great solution for that-more Free Trade. The answer to the disaster of Neoliberalism is always: more Neoliberalism.