Jim Manzi’s Share of My Esteem Has Grown, While Econogeeks’ Has Fallen
It’s Jim Manzi vs. the geeconosphere! (For new readers, geeconosphere is my term for the geek economics blogosphere.) As you know if you have seen my over-the-top blog posts (which it occurred to me may freak Manzi out if he doesn’t get my “blog humor”), I am a big fan of Jim Manzi. He is connected with National Review so I’m guessing he and I don’t see eye to eye on foreign policy, but his writings on climate change are simply top notch. In particular, the thing that’s so great about Manzi is that he is really on top of his data, and he is incredibly anal and intellectually honest in response to his critics.
That’s why I was so disappointed when Tyler Cowen chickened out and let Matt Yglesias bully him into declaring that Manzi was wrong in his recent comments about Europe. If you want to get into this (it’s not some minor thing that interests me; it’s a huge brouhaha for the econ bloggers) you should start here with Manzi’s original piece, where he said:
From 1980 through today, America’s share of global output has been constant at about 21%. Europe’s share, meanwhile, has been collapsing in the face of global competition — going from a little less than 40% of global production in the 1970s to about 25% today. Opting for social democracy instead of innovative capitalism, Europe has ceded this share to China (predominantly), India, and the rest of the developing world.
Now that paragraph has caused leftist bloggers to unleash hell on poor Jim. For the initial, very courteous and sharp criticism, see Jonathan Chait at TNR. Chait raises at least two good points that made me initially think, “Hmm, Jim’s got some ‘splaining to do.” Specifically, Chait pointed out that Manzi weirdly compares the US from 1980 till now, while he compares Europe from “the 1970s” until now, and also that he focuses on total GDP rather than per capita.
And guess what? Jim did a great job ‘splaining. He didn’t pull a bait and switch, or call Chait a pinko, or say, “Oh well, once you factor in the costs of the Cold War, my point stands.” No, in this response, Jim goes through point by point and shows that if you adjust the comparisons in the way Chait wants, the same result holds. And he also gives a very plausible reason for whole total GDP is the relevant comparison for the point he was making. (He also notes that the level of per capita GDP is way higher in the US, so again it’s not clear how he was supposed to be misleading everyone.)
So naturally Paul Krugman weighs in and just embarrasses himself. Manzi responds here, pointing out that Krugman never emailed Manzi so he (Krugman) couldn’t possibly know what “data source” Manzi had used (and which was the source for Krugman claiming Manzi botched his calculation). Really, if you are busy and want to devote just five minutes, read Krugman’s rip and Manzi’s response, complete with pointing you to the actual cells in the spreadsheet. Classic. Also note that as of Tuesday afternoon, Krugman hasn’t updated his post to reflect Manzi’s response. I’m sure he’ll get right on that.
Like I said up top, what really bothered me in all this was how Tyler Cowen folded and came out and said, “Manzi was wrong” because Matt Yglesias double dog dared him. Now don’t get me wrong, this is a very nuanced debate and there are all sorts of ways you could try to come up with the proper calculation to make the point Manzi was trying to make. But that’s why you can’t definitively say, “Manzi was wrong”!!
What’s especially ironic is that these arbiters of truth and accuracy themselves are muddled and/or agnostic on this issue. In the very same post where Yglesias is mad that Tyler doesn’t come out and explicitly pass judgment on Manzi the Liar (or Arithmetic Fool), Yglesias says:
It’s very true that it’s hard to conceive of an apples-to-apples comparison of American policy to European policy. I don’t even know how you would specify a hypothetical that properly captures the impact of linguistic diversity on Europe.
And then in the very same post where Tyler folds and says, “Manzi was wrong,” Tyler starts off by (to his credit) conceding that a commenter showed two of Tyler’s earlier “thoughts on all this” contradicted each other!!
Everyone got that? Jim Manzi, who is hands down the most documented, intellectually honest, and precise pseudo-famous blogger I have ever encountered, makes a claim about Europe and the United States. A critic points out some ambiguities in the specific way Manzi originally defended his point, and Manzi very calmly defended himself on each of the criticisms.
Then Tyler brings up a bunch of general observations on the mess, two of which contradict each other. Matt Yglesias admits that he can’t even think of a proper way to measure what it was that Manzi was trying to measure. Paul Krugman just makes stuff up and doesn’t post a correction when Manzi busts him on it.
And now the conventional geeconosphere (=geek economics blogosphere) wisdom is, “Jim Manzi is a right-wing blowhard who makes up facts to support his preconceptions.” Let me be clear, I have NOT read Manzi’s original piece, because it’s way too long and (I suspect) way too chest-pounding for my liking. All I’m doing in this post is refereeing the accusations against Jim’s integrity.
Welcome to the geeconosphere, Jim.
Never Forget?
So for my junior high project I’m explaining how fascism and communism were actually both forms of socialism, in the sense that both Nazi Germany and Soviet Russia subordinated individual property rights to the demands of the supreme leader.
I just wanted to double check that people referred to Hitler as a fascist (as opposed to a Nazi), and so I went to google “Adolf Hitler fascist.”
But I noticed something interesting. As I typed in A-d-o-l… Google started bringing up suggestions. By the time I typed in just “adolf,” the first ten suggestions popped up, with the #1 being “adolf eichmann.” Then when I pressed the spacebar and typed in “h” all the suggestions disappeared.
So apparently Google has no idea what I might be looking for when I type in “adolf hitle”…
Does anyone know what the deal is? Does he get so many google hits that he would be at the top of the list anytime somebody started by typing in “ad…” to look up “address for the elie wiesel fund” and Google doesn’t want people getting mad?
I’m not kidding, I’m being serious. Google obviously disabled Hitler’s name from popping up as a suggestion, and I’m just wondering if they explain these things somewhere officially.
Taylor Rules Bernanke
I actually don’t know how I feel about the Taylor Rule. One economist (maybe Roger Garrison but I’m not sure) observed once that the so-called Taylor Rule was descriptive, not prescriptive; it simply codified a rule of thumb between price inflation and slack in output, in order to roughly explain the Fed’s actual interest rate decisions over a certain period.
Anyway, von Pepe sends me this WSJ article in which John Taylor defends his Rule from Ben Bernanke’s attack. Some excerpts:
Federal Reserve Board Chairman Ben Bernanke spent most of his speech to the American Economic Association on Jan. 3 responding to the critique that easy monetary policy during 2002-2005 contributed to the housing boom, to excessive risk taking, and thereby to the financial crisis.
…Mr. Bernanke focused most of his time on my research, especially on a well-known policy benchmark commonly known as the Taylor rule.
This rule calls for central banks to increase interest rates by a certain amount when price inflation rises and to decrease interest rates by a certain amount when the economy goes into a recession. My critique, which I presented at the annual Jackson Hole conference for central bankers in the summer of 2007, is based on the simple observation that the Fed’s target for the federal-funds interest rate was well below what the Taylor rule would call for in 2002-2005. By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom. The deviation from the Taylor rule, which had characterized good monetary policy during the previous two decades, was the largest since the turbulent 1970s.
In his speech, Mr. Bernanke’s main response to this critique was to propose alternatives to the standard Taylor rule—and then to use the alternatives to rationalize the Fed’s policy in 2002-2005.
In one alternative, which addresses what he describes as his “most significant concern regarding the use of the standard Taylor rule,” he put the Fed’s forecasts of future inflation into the Taylor rule rather than actual measured inflation. Because the Fed’s inflation forecasts were lower than current inflation during this period, this alternative obviously gives a lower target interest rate and seems to justify the Fed’s decisions at the time.
There are several problems with this procedure. First, the Fed’s forecasts of inflation were too low. Inflation increased rather than decreased in 2002-2005. Second, as shown by economists Athanasios Orphanides and Volker Wieland, who previously served on the Federal Reserve Board staff, if one uses the average of private sector inflation forecasts rather than the Fed’s forecasts, the interest rate would still have been judged as too low for too long.
I think the part I put in bold is pretty funny. Taylor doesn’t come out and say it, but really Bernanke is saying that, “The problem with a fixed rule based on objective circumstances, is that I might want to do something else.”
Right Bernanke, rules constraining government (and quasi-government) institutions are put there precisely to limit the discretion of “experts” so they can’t wreck the economy, start wars, etc. I think the record of the 2000s speaks for itself.
Does the Government Own the Whole Economy?
My sources say no:
In a recent New York Times op-ed, economist Robert Shiller (coproducer of the famous housing-price index) recommended that the US government begin to sell claims on fractions of Gross Domestic Product. Besides the practical problems with his proposal, it rests on the premise that the US government owns the entire economy. It will be instructive to parse Shiller’s column to see just how badly his collectivist thinking misleads him.
"Those Guys Are Really Smart, Except For That God Stuff"
I don’t remember the exact quote, but in C.S. Lewis’ Surprised By Joy he was explaining his conversion from atheism. He said that the writers/thinkers he respected the most just happened to be Christian, and of course Lewis (when he was still an atheist) thought they were fantastic “except for their Christianity.” Naturally this struck Lewis as ironic/funny when he was looking back on the period, after he himself had become Christian.
I had a similar experience. Even though I referred to myself as a “devout atheist” for a certain period in my life (which included undergrad, I can’t remember how early it started), the people/art I respected the most were Christian. (Two give two examples, I was incredibly impressed by the physical pipsqueak of a pastor of the church at the school where my mom taught, who would peacefully protest at abortion clinics and kept getting arrested. He was such a nuisance that the bishop had him relocated to a predominantly black church in an area of town where [I think?] I normally would have been afraid to visit. The other example was the subplot of Valjean’s redemption in Les Miserables, which is blatantly Christian though read this for nuances.)
Anyway it is with this background that I am amused to see atheists explaining the “ironic” success of apparently superstitious mumbo jumbo (my words). Here are three examples in the last month:
* David Friedman has a fascinating series of posts at his blog discussing Jewish law. For example in this one, he gives a theory for the purpose of onerous Jewish customs. Only a true believer would go through all the rigamarole that orthodox Jews are expected to obey, but then when there are legal disputes the other religious Jews will be impressed if you take on oath affirming your testimony. (If you are a true believer then you would fear God’s wrath for taking an oath falsely.) I suspect that if modern scientists went back and understood the exact conditions the ancient Israelites faced, then all of the “crazy rules” in Deuteronomy etc. would make sense.
* In his new book The Big Questions, Steve Landsburg spends a good portion bashing theism (and “bashing” is a completely accurate term) before explaining the incredible discoveries of the Jewish legal theorists. I don’t have the book in front of me so I don’t want to batch the details, but it has to do with things like how to divide an estate among various creditors. Landsburg refers to some recent papers by game theory whizzes in Israel who show that these ancient scholars somehow hit upon very elegant solutions, although of course in their expositions they didn’t give a proof showing existence and uniqueness theorems, they just said, “This is how you would divide the estate in this situation.”
* In this fascinating paper [.pdf] Pete Leeson analyzes the medieval practice of settling certain legal questions by ordeals, where (e.g.) you would dunk your hand into a cauldron of boiling water to fetch a ring, or the priest would dunk the accused in a pool and determine his guilt or innocence by whether he floated. Leeson argues that these practices–which seem unbelievably barbaric and superstitious to us–were actually effective in determining guilt. (Note that I have no idea about Leeson’s religious views, but the above link was from Tyler Cowen and I’m pretty sure he is a modern free thinker.)
So anyway I think these modern reconstructions of how faith “works” are very interesting. From my perspective, it’s obviously not surprising at all that, say, old-school Jewish legal scholars would “happen” to stumble upon a very deep and elegant way to settle disputes; they were in daily meditation with the author of mathematics and justice.
If you are openminded and truly a free thinker, you just may find that a lot of the “stupid” beliefs of religious people are actually quite pragmatic. Yet rather than merely saying, “Ah, so that explains their persistence in evolutionary-meme terms,” I would go farther and say, “Right, this is yet another piece of evidence that there is a God who wants to help His children navigate through the world He designed.”
Gary North Tackles the Deflationists
Today LRC ran a Gary North article in which he took on the deflationist camp. Although his official target is a guy named John Exter, the apparent grand-daddy of the viewpoint, North’s critique applies perfectly to someone like Mish who claims that there will be a general deflation yet a constant / rising gold price because “gold is money.” (I am pretty sure that’s what Mish’s view is, but please correct me if I’m off.)
Some great excerpts from North’s column (emphasis mine):
Anyone who really believes in Exter’s scenario should recommend paper money rather than gold for investors with less than $10,000 to invest. The investors with more money should buy T-bills. Why? You don’t have to pay taxes on your capital gains with paper money and T-bills. Legally, there are no capital gains. In fact, there are: everything costs less, and you have cash to spend.
Any investment advisor who predicts inevitable price deflation who does not recommend T-bills and paper money is faking it. He doesn’t really believe his position.
According to Exter, gold is more liquid than anything else. This is wrong conceptually. Gold is not money today. Therefore, you must pay a commission to buy or sell it. If you pay a commission, the asset is not truly liquid. One of the three characteristics of liquidity is the absence of any commission. This means money. Any asset that can be exchanged only by paying a commission is not money.
Gold’s price will fall in a time of deflation. It will fall because gold is not money except for central banks, and they hold it mainly for show, as I shall explain. It is a mass inflation hedge. It is not a deflation hedge.
…
We have never had an opportunity to test Exter’s theory of gold as a hedge against price deflation, because there has yet to be a single year in which the CPI has fallen.
…
Say that you buy a share of stock at the market price. Let us call the company Madoff, Inc. You buy it for $100. You write a check for $100 to your broker. The $100 goes from your bank account to the broker’s bank account, and most of that money then goes to the bank account of the person who sold you the share.Then bad news hits regarding your stock. The company has cooked the books. It turns out that the company is an empty shell of debt. The share price immediately falls to zero. You take a 100% loss.
You are a big loser. The person who sold you the share is a big winner: he got out in time.
The money supply has not changed.
What is the effect of the collapse of Madoff, Inc. on consumer prices? Nothing.
Why not? Because the price of Madoff, Inc. was an imputed price based on a few sales. Until the bad news hit, not many people bought or sold Madoff, Inc. There were millions of shares outstanding, but only a few thousand traded on any day. The price at which the latest share traded was imputed by the market to all the others. The money involved was limited to the handful of actual trades.
You lost the $100 on the day you wrote the check. You received an asset that you thought was worth $100, which it was, very briefly. Then it wasn’t.
You say “I lost $100 when the stock fell to zero,” but this is a mistake conceptually. You are applying the loss to the value of the share. You lost your expected future value on the share.
Yes, you lost money. You lost your money on the day you bought the share. You gave up money for a dream. The market value of your dream then collapsed. You did not lose money at that point. You lost it when you wrote the check. What you lost when the stock’s price collapsed was value. You did not lose money. The asset was not money.
Epiphany or Brain Fart? Government Debt and Inflation
As I think I have mentioned, I’m working on a textbook for junior high / early high school kids. (It’s a textbook on economics, not yoga, in case you are wondering.) I was being really anal about the precise connection between government deficits and price inflation, explaining that a budget deficit per se doesn’t create new dollars, and so by itself doesn’t push up U.S. prices.
But of course in practice there is a connection, since government debt gives the Fed an incentive to create new money. I mentioned that if we just thought about a printing press, there would always be the temptation for the government to pay its bills by simply creating the necessary number of $100 bills.
Finally I dealt with the complication of the Federal Reserve buying Treasury debt from the public, etc. etc. In our system, the government can’t literally just print up new money to cover a shortfall in revenue, and call it good.
But I wanted to show that things were actually quite close to the straight-up “counterfeiting” operation, where the Fed is literally just printing new money so the government can close its budget deficit. In doing so, I had an epiphany; the connection was even closer than I had realized before working on this section of the book. Here’s the footnote, and please tell me if this is basically right or if my black helicopter worldview has misled me:
If you are a sharp reader you might think that this isn’t truly printing up new money just to close a budget shortfall, because the federal government still owes interest and the return of principal to the holder of the bonds it issued. But guess what? The Federal Reserve is the recipient of these payments (since the Federal Reserve bought the bonds from the private dealers), and as standard operating procedure the Federal Reserve remits all of its excess earnings back to the Treasury. In other words, after the Federal Reserve pays it electric bill, employees, and so forth, any extra money it has, it sends back to the Treasury. Thus in the modern American financial system, things really can be quite similar to the operations of an outright counterfeiting operation!
Legalizing Poker and Blackjack Today, Marijuana Tomorrow?
CNBC reports:
HARRISBURG, Pa. – Pennsylvania legalized poker, blackjack and other table games at slots casinos Thursday, upping the ante in the increasingly fierce competition among states for gamblers’ money.
…
It may be more than six months before the first cards are dealt, but millions in license fees are expected to begin pouring into the state treasury much sooner.The table games bill was a critical component of the October deal that ended Pennsylvania’s 101-day budget stalemate, and came about largely because other means of raising tax revenues proved politically unpalatable.
The new law is the latest attempt by recession-slammed state governments to fill budgetary holes with gambling revenue.
Indiana is considering allowing riverboat casinos on Lake Michigan and the Ohio River. In November, Ohio voters passed a ballot measure to put casinos in four cities. Kentucky’s governor wants slots or table games at racetracks and Chicago plans a new casino.
Closer to Pennsylvania, Delaware recently began allowing parlay betting on sports at its racetrack casinos, and a new report says it may have to add two casinos to keep pace with neighboring states.
Last month, voters approved table games for a horse track in Charles Town, W.Va.
And Maryland voters have approved up to 15,000 slot machines in five areas, although progress on implementing gambling there has so far been slow.
“I see it as a border war more than a national picture,” said University of Nevada-Las Vegas professor Bill Thompson, an expert on the gambling industry. “It is the gambling war of today — three years from now it might be something else.”
I wonder what that could be? Hmm what if people are really really mad in about 3 years, the economy is still awful, states are all up to their eyeballs in deficits, and young people–for whom the unemployment rate might be 50% or higher in some demographics–are getting ready to riot?
Is there some way the people in charge could get everyone to chill out?
I’m drawing a blank.
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