Perspective III

[Edit: Whoa, it's been a while, and I should have a title.  Status of the hiatus?  Who knows, but I'd be pretty happy to get Paul Ryan's mug off the front page one of these days.]

In 2002, Jan Hendrik Schön, a researcher at what was left of Bell Labs, was accused of scientific misconduct by a formal investigative committee. He was caught falsifying data, sometimes drawing curves and pretending they were measured, other times swapping them from other pieces of data, and it was a huge scandal at the time, judged among the worst things you can do in science, or at least in premiere science. He was spotted because other researchers noticed that some of his plots looked exactly the same, even when he was reporting different conditions or phenomena. That is, they did not follow the same predictable shape, as you might hope data will do, but they bounced around their trendline in exactly the same way in both plots. This is what I remember of the scandal back then: one of my coworkers smugly pointing this out to me. See those two graphs, Keith? There's no way they should look exactly the same. (That's not just a fraud, but a lazy one. For the dedicated forger, how hard would it have been to introduce false instrument noise?)

When the Lucent committee looked more closely at his work, they found the bullshitting to be pervasive. No wonder he was able to publish a paper every week! Since this stuff was getting cranked through Science and Nature--relatively groundbreaking results in what was a sexy field at the time--Schön was ridden out of the scientific community on a rail. His awards and even his doctorate were rescinded (but the latter was re-awarded; evidently the guy's been fighting for his degree as recently as three years ago). The journal editorials tend along reputation-preserving retrospectives to the tune of how the hell did this happen, and let's never allow physics to be besmirched this way again.

I'll add that Schön is roughly my age, and even though I was a total academic nobody, there's still only a degree or two of separation between us. We worked in a similar field I am sure I read some of his papers late in my grad school days (which isn't to say I remember them specifically). My advisor had done his post-doc at Bell Labs, and some of his remaining friends there, to whom I'd been introduced, would become Schön's occasional co-authors. In defense of that community, the fact that Schön's data were hard to replicate isn't a total indictment by itself. Studies of organic electronics were notoriously difficult to reproduce in those days (and probably are now too), even for the same people, doing the same experiments.  This was much more a matter of trying to force soft, quasi-pure, and reluctantly ordered systems to behave like near-perfect semiconductor crystals than it was a matter of dishonesty. Electrical behavior that was extremely sensitive to barely-tangible properties of an interface was hardly a rare thing. And in defense of Schön's co-authors, it's actually really easy to get listed as a middle contributor in a bustling, incestuous place like Bell Labs. That place (in that field at least, and in the 1990s) was more liberal than anywhere when it came to spreading names across the mastheads. You might get listed as an author for having prepped one or two samples, for overseeing one of the instruments, or contributing a paragraph of text from one of your publications.  Take that nice piece of resume fluff, and move on, it's not terribly necessary to know what the lead was ever really up to. And more than that, Bell Labs was in its sad death spiral in the late 90s. It's got to be hard to care about what the guy down the hall is doing when you're investing all your free minutes in an effort to get yourself out from under the headsman's axe. Schön was dishonest as fuck-all, but he was in a niche where he could ramp it up a little higher than usual before getting caught.

So.  It's months old now, but the economics world was rocked--no, better to say that it should have been rocked--by two researchers who published a report explaining that national debt levels above 90% of GDP cross a drastic threshold that's correlated with low or negative growth.  Now, this was published in a conference proceedings (they give you big grains of salt at the door to these things, along with the pens and other swag--you publish in proceedings when you don't want to go through all the work of satisfying reviewers), so it's not, I sure hope, premiere economics, except that it became a leading-edge study because it got swiped up as a wand of legitimacy by pro-austerity policymakers and pundits, and we have all had to keep hearing about this crap.  But when Reinhart and Rogoff's analyses were put under any kind of scrutiny at all, it was, well, not good: bizarre weighting procedures and cherry-picked data ranges, along with spreadsheet manipulation (is it really cool with Harvard that its researchers chuck numbers into Excel and call it research?), later claimed as a mistake, that was painfully obviously designed to produce the foregone conclusion.  And even if they've claimed only correlation, causation has been implicit when the work is reported by their supporters. 

(I'll add too, that I don't think national debt is awesome myself.  I see it as a trick that clears itself up so long as there's GDP growth, but there's no good reason to monkey with the accounting like that, well, other than to be obfuscatory about imbalances.  The solution isn't to starve the lower orders; it is support them while showing the books properly.  That debt doesn't correlate with growth, or that it correlates much more weakly than they claimed, is supportive of the "black box" theory.)

Anyway, my argument isn't so much what happened.  You get academic tendentiousness for all sorts of reasons, and even thinking people are still hierarchical herd animals in lots of ways.  Their rise went farther than it should have too.  I've said before that since it's fundamentally based in the logic of agreements, economics is more like law than it is like science, which is to say that it's a matter of both rationality and, to a much higher degree than physics is, advocacy.  Reinhart and Rogoff were probably not as dishonest as Jan Schön was--it was more likely they were just caught being lazy--but on the other hand, it doesn't seem to have hurt their careers, but for a few necessary defensive letters.  Their work appears to remain influential. 

I mean, fucking seriously.  Here's Larry Goddamn Summers defending it, doing the opposite of protecting his own intellectual reputation and that of the field.  They are friends, Summers says, and he openly admits that their work supports his agenda.  Why does this guy, in the face of bad data, and his own awful history of being wrong policy-wise--not to mention occupying the smug embodiment of shitty low-empathy ethics of austerity--retain so much pull?  Why was he a chief economic advisor, and why is that slimy piece of crap on the short list to run the Fed?  I mean we know why, but still. 

Economics is far from useless, but it's also farther from hard science than it pretends.  In more ways than one.

                

Public vs. Private

Megan McArdle has again written a post, which is not remarkable in itself, other than the fact that I happened to read it days before I came across the deconstruction her writing always begs for.  McArdle is the sort of glib believer who's impervious to being called on her own bullshit, and it makes for an entertaining regular feature on various liberal blogs. Here's Susan of Texas really doing a marvelous job taking this latest one apart. The original piece is a criticism of the president's lack of private-sector work experience (which Megan claims isn't even important, but then tells you in the subsequent 2500 words why she thinks it is).

There's conflation and obfuscation abounding everywhere in Meg's piece, but what really got me about it--and I don't know how I managed to be surprised--is her insular definition of "working," what she thinks people in the private sector actually do, even what small business holders or hopeful entrepreneurs do.  In her view, the working world is entirely composed of management, networking, and office drama--it's "business" as a labor category that she's constantly returning to. We understand that this is the employment exposure that she's had and all, but still, businesses can be in the business of making things, developing things, and performing tasks, and those vital parts of enterprise don't enter a whit into her understanding of practical work experience. No labor theory of value for her.

It's a small universe for Jane Galt. The alternative she sees to corporate work is consulting. The opposite of business work that she understands is government. But man, the color of my collar's only a little off-white, but even from here, it's pretty damn hard to spot much of a gap between a career manager and a career bureaucrat. (People who have actually worked for a living tend to be at least occasionally aware that a lifetime of wearing a necktie can choke off the brain if you're not careful.) When comparing jobs at the same level (which, as Susan notes, Megan doesn't), the tasks are really similar, with a related emphasis on relationships, favors, paperwork, organization, and the necessity of looking at humans as resources. That's the actual argument for why a job in management is in any way relevant to one in politics, and you'd think that even a dink like McArdle would have put one that together by now.

Not that aren't differences between the public and private sectors, it just doesn't lie so much in the skill set. The real difference between corporate and government bureaucrats, of course, is what those various organizations they serve are trying to actually accomplish, and how they are treated publicly. When I think of the "increasingly mandarin elite, hygenically removed" from the little people,* my mind doesn't race straight to the hallowed academic halls, but more toward favored and fat sectors of the economy: finance, for starters.

If you're a private sector manager, certain lies can be afforded with a fair bit less contradiction from your industry or objection from the media. And if you're in the big game, you can more or less vote to give yourself a much nicer slice of the pie. I'm not a big believer in the claims of authority, corporate or otherwise, and I've been asking myself for years if the stories we tell really matter in the face of what people actually do, but for god's sake, explicitly tasking the powers that be with administering public welfare on our behalf has got to be a better narrative for the species than explicitly praising them for taking as much loot as they can say with a straight face that they deserve.

I know, I know, it's Megan McArdle, and what do you expect. Honesty about the comparison dispels the illusion that corporate types are doing something magically superior to anyone else who wears a suit, and that would be way less lucrative for her (and for them). It must be what they teach you in MBA school.





*Though to be fair, banks of sufficient size, insurers, and military contractors do in fact grub constantly for customers, which is how she went and finished that statement. It just involves more lobbying and coersion. I think I have her pegged on her context however.

Review: Debt, by David Graeber

(Full title: Debt: The First 5000 Years)

In these very pages, over the last several years, a sufficiently masochistic reader can dig in to find me struggling toward some basic criticisms of the modern study of economics. One of the basic complaints I've raised is that the field which claims to predict human behavior ignores far too much relevant humanity. Rather notably, it assumes away the dynamics of power and control, and as well presents a distorted and jaded view of the positive human motivations by which we estimate value. David Graeber has problems with this too, and he takes it further than I ever would have thought to. The central claim in Debt is that the majority of the economy, for the majority of history, actually arose from these interpersonal relationships and values, and not that truck and barter shuck and jive. The discussion relies less on neatly-tied case studies, or on any ideological paradigm (although he does make ethical judgments), and more on a broadly scoped anthropological and historical understanding of how lives were lived across time, among different classes, in different societies. There's a fair amount of jigsaw work in the earliest examples (as their must be when it comes to understanding very old or remote societies), and like all history, it's qualitative (although admirably inclusive), but holy fuck is it ever refreshing to read someone base his ideas about human economic interaction by observing human interaction, instead of burying it in a mountain of assumption-fudging artificially precise quantitation.

The opening bombshell (which I've linked to once or twice) is that, unlike the textbook discussion, there has never been any historical barter economy worthy of note, and that exchange using impersonal coin tended to arrive centuries after institutionalized credit arrangements. Most economic affairs were more typically conducted using a more or less elaborate organization of debts and favors, where members of a community would lend and borrow with varying levels of formality, and with individual cultural character too. It's also observed that community- and family-minded people are motivated by a "baseline communism" (as he cautiously calls it, meaning that at some point, we're all in this together) and tendency for hierarchical organization, most of which tends to get underplayed by the various modern economic theories.

Graeber divides the economic history of the globe broadly into pre-monetary times, ancient urban societies and the following imperial ages, the middle ages, and the capitalist era (not failing to speculate on whatever the hell it is we've transitioned into now). In discussing the early development of money, Graeber utilizes what he can in that period of history between writing and coin (the earliest writing known, after all, is ancient Sumerian credit accounting). He also leans heavily here on isolated cultures as they had been encountered and studied by Europeans, and the social and economic ways they reacted to the contact. (It tended to go badly for them.) Precious money-like objects, when actually used, tended to be reserved exclusively for social, human exchange (that is, for the not easily quantifiable--for men to woo women, in most cases), and while tokens have also been frequently used to keep track of debts and favors, this too was built on interpersonal trust and a sense of community. It's a recurring theme that it has historically taken a violent disruption of that social network that to turn these habits into more impersonal varieties of monetary exchange.

[As an aside, I think this is an interesting way to consider the evolution of western thought too, and it calls into question some of the things that were left on the table when the select pieces of the canon were going into the sociological scrapbook. Which was the bigger mark that ancient Athens left on the European world? Was its philosophical schools (the rediscovery of Aristotle), or was it the acceptance of slavery and the subjugation of women, right down to the veil (which count be more as an evolutionary initial condition)? Also, I wonder how much resistance there's been in European thought to universalizing human behavior by studying groups of people that Europeans were butchering and enslaving, literally by the boatload. My comic book understanding of the history of philosophy is not really up to the task, and admittedly they didn't know a lot about them yet, but it does seem the colonial-age thinkers argued a lot more with hypothetical primitive people than actual ones.]

The basic theme here is in fact a moral one. Slavery (which was rather a sudden concern for some of the African people he mentions), punitive state power, and imperial war were highly correlated with the transition to and away from currency, right up until the modern era. It took a powerful government to make the stuff official, and if there really is intrinsic value to gold, it's that it can be stolen and anonymized. Generally, Graeber writes, the estrangement of debt and finance from human connectedness made the tragedies worse (he doesn't make a more disturbing case than the Conquistadors, who kept at it because of a fucked up finance system that kept those vicious fuckers in debt too--how is the systematic destruction of a civilization more moral than not paying back your sponsors?). Adam Smith's contention that the economic sphere was separate from the human social one (and was in fact to the good), was as radical as it was utterly ahistorical. It's taken a lot of violence to get to the point where that's the default assumption, Graeber notes, and even then, the moral imperatives of debt aren't even equally applied. And really, who's doing more for the world, the one who impoverishes himself in misery to pay off his creditors, or someone who spreads happiness among his family and friends?

One interesting aspect of this viewpoint is the picture it makes of the middle ages. Graeber paints a different environment than we usually imagine, in large part because he expands it beyond the borders of violent and backward Europe. But even there, yes, it was indeed horrible in the usual respects, but people were also by most measures unprecedentedly free. Slavery was not reinstituted in any of the world civilizations following the previous imperial age, and (again despite the popular conceptions), regular people were largely left alone by greater powers. The world didn't revert to barter, but it did revert to credit. [And you know, this sort of quiet utopia is pretty close the sort of community relationships that Wendell Berry idealized in rural America too.] It's interesting to point out too, that the closest the world has seen to a free market (that is, an ungoverned one, that still works), was in the Islamic world of this time, which esteemed its merchant-adventurer class, and it succeeded because, according to the author, it was both anti-capitalist (usury was forbidden in spirit and cultural practice), and built on personal trust and community connection.

Does it all hold up? Graeber presents a great deal of compelling correlations, and some good causal hypotheses--the arguments for the origin of money are convincing--but now and then I think he goes a little too far. I wasn't quite convinced, for instance, that materialist thought was really generated from contemplating the economic nature of things, although no doubt the ideas of the time got swapped liberally around. The author frequently resorts to etymology (which must be an anthropologist's trick) to showcase various points, and while it's interesting how these thinkers of the time (and Graeber is quite good at linking thinkers to their times) found commonality in the ideas, it still feels like a stretch to state, say, that a sense of mind/body duality arose because coins have two sides. The institutions of the various imperial eras--savery and organized war--that originated coinage and then went hand in hand with it, have in my less expert opinion, much to do with resource availability and population density, and call it an emergent property of urbanization perhaps. For example, I don't think the middle ages would have evolved the Medicis and the Renaissance without coal. It seems an important additional ingredient to universalize our imperial economy (which runs on de-personalized credit) with the ancient ones, but then again, that's just my hobby horse. So far as the utopian qualities of the middle ages or rural subcultures go, I'm skeptical. You don't choose your communities, after all, but you're stuck there. As an alternative to the slavery/coin/military complex, people developed strictly hierarchical societies, a perversion of a different one of the human metrics presented in the book. (And fuck the communism of the rich, anyway.) It seems that history tells us we're left to pick our poison, a tradeoff of one kind of evil for another. Being tied to a small-town underclass is a different sort of hell. Maybe the next age will give us a genuine reimagining of social and economic organization. Here's hoping.

The Invisible Hand ...of God!

Maybe because we're soaking in it, free market economics can be a satisfying thing to make fun of, or you know, at least mockery is healthier than drinking heavily. I've had several problems with the whole discussion these last couple years I've been trying to think about it very independently, starting with the basic premises. The "free market," for one obvious thing, is a whopping misnomer. It's not a spontaneous human enterprise, but rather a carefully-drawn set of rules and proscriptions established by the authorities (if that's somehow not the dreaded state, then it's the church, the mafia, Mom and Dad, or the fuckheads running the company store). Nor has it ever seemed right to me that assessing and swapping goods a fundamental human concern that is separate from the authority-defined marketplace. Economic-minded people are weird about glorifying that hustle and bustle. (I mean, is that how you interact with your social group? In the book I am currently reading--Debt, the First 5,000 Years, which is great--David Graeber makes a convincing case that this behavior only arose in human history when the hierarchy got sufficiently centralized, large, powerful, and impersonal. Spontaneous pre-monetary barter is a myth.) Considering that the practice of economics is intended as the reduction of a huge set of human behavior to quasi-scientific principles, it seems important to get the relevant aspects of human behavior right.

Perhaps the most annoying free market trick of all is a little bit more derived, though. The Libertarian-style question-begging argument is something that drives me batshit. You've probably seen it: the tendency to discuss hypotheticals and gedanken experiments instead of evidence and data, discussions where some desired outcome is defined (for today's example, let's posit that the highway system should work (via)), the method is given (the highway system should be private, because free markets!), and the rest is figuring out how the known solution will lead to the desired outcome, often using a lot of circular reasoning and, to throw 'em off the trail, a really big thesaurus.

[In other news, I'm really glad they didn't have blogs when I nineteen.]

There is a disturbing tinge of theology to that, something resembling Intelligent Design. We know God did it, and let's demonstrate how. Since it's God, then it's clear that everything is made just-so, and to bring us even closer to the near-perfect state, we must make less contribution. It's the same kind of reasoning you get in climate denial, which, coincidentally, is yet another conservative darling. It's optimism in the old sense: nature produces the best possible result. And evidently, it's explicitly central to the field of economics. I guess I didn't quite realize it went so deep.

Recall here what Smith was trying to do when he wrote The Wealth of Nations. Above all, the book was an attempt to establish the newfound discipline of economics as a science. [...] Smith was trying to make a similar, Newtonian argument. God--or Divine Providence, as he put it--had arranged matters in such a way that our pursuit of self-interest would nonetheless, given an unfettered market, be guided "as if by an invisible hand" to promote the general welfare. Smith's famous invisible hand was, as he says in his Theory of Moral Sentiments, the agent of Divine Providence. It was literally the hand of God."

--from Debt: The First 5,000 Years

As I've probably said before, I respect greatly the urge to quantify and rationalize things. I don't really have any problem working with the best intellectual tools of the times, nor is there any issue when the analogies that lead to improved understanding later turn out to be bad ones. If some of the central assumptions of economics are flawed, they can be revised if the theories still work. Adam Smith was by all accounts a great thinker, more nuanced and decent-minded than his dumber followers two centuries later, and Isaac Newton was a wonderful man to emulate.

But the problem is, there seems to have been little impetus to revise or question these central thoughts. Smith wrote a century after Newton, and that kind of optimism was already getting colorfully leveled by his contemporaries. (Poor Liebniz: a brilliant man who got stuck with a pair of the best antagonists in history.) Secular philosophy has reduced the anthropic principle to the level of fallacy. And even if it remains a matter of faith or motivation to some scientists, the modern pursuit of science no longer torques itself up to include "god did it" in its explanations of the universe. And we can argue that economics, similarly, abandoned this approach as well, but as far as I can tell, it's never much had much of a conversation about it.

The idea of economics as a field independent of other human behavior, that is only connected to authority in the sense of a bargain among equals, originated, according to Graeber, with Adam Smith himself, that it's in fact his major contribution. It's pretty far down the chain, but here we reliably have libertarian, erm, thinkers today, perpetually arguing, as a matter of faith, that things will be great, spontaneously, if this system is somehow made more true. Even though it is never true. This bothers me.

Can Anyone Create Jobs? I'll Have To Go With "Yes."

Adam Davidson asks, Can Anyone Really Create Jobs? Now, normally I'd prefer to leave that sort of empty-headed both-sidesism right the hell alone, or at least to the better political writers out there, especially when it's, like, so two weeks ago, but sometimes when you actually make yourself pay attention to a minor irritation like that, next thing you know you've scratched your arm raw, and everywhere else feels itchy too. I note that (1) Adam Davidson is a known economics reporter, one of those ubiquitous NPR presences—presumably they pay him for this sort of thing, which is another fine reason not to send them your donations—and now here's a regular Times Magazine opinion gig wherein he professionally throws up his hands and fails to opine (when the thesis is "nope, can't do it" then remind me why I might consider reading subsequent entries); and (2) some otherwise smart Facebook friends recently congratulated themselves for "liking" this one, and venting out my polemical impulses where no one will actually read it is pretty much exactly why I have a blog. [All right, there's (3) this business of cleaning out my browser tabs while I find myself again able to focus on this sort of thing for awhile. Most of the other tabs are job postings awaiting replies, and this is a break from that. Maybe for fun, I'll try and guess how much government creation was involved in any of them.]

Read the article if you must, but this gist is Davidson observing that—or rather appealing to authority to discover that—neither the Chicago-school approach described as "do nothing" nor the Keynesian approach described as "spending a lot of money" (and only tax breaks or subsidies are feasible, he tells us) to "goad consumers into spending again" does anything. It takes him to the end of his first page to reach the point that the austerity moves of firing government employees in Britain did not improve private job growth, but did directly cause a bunch of losses when those people were suddenly let go. "Wait," you ask, "since the British government had, in fact, created all those government jobs, doesn't that mean that they can be created?" Yeah, well, don't ask me. I don't have a keen economic mind, either. You may further wonder about the simultaneous contentions that Americans can't do things people will pay them a living wage for but still need to indenture the hell out of themselves for more education to get such non-jobs.

Here's the thing. The U.S. currently already does invest a metric fuckton into job creation. It's not just the legions of deputy assistants and other bureaucrats that make up the government workforce. To point out the obvious, our military and defense contractors (including me, for a couple more weeks) are primo recipients of this, and it creates a need for high-dollar industries like lobbying, and low-dollar ones for things like food service and building maintenance pretty much by virtue of its existence. We have a huge program to hire research staff in various laboratories and through extensive grants. Given that the government is powerful enough that it can appropriate—or invent—money and just hire people to do stuff, there's no reason it has to be doing anything special. Commenters on Davidson's article (and on Facebook) note that the Roosevelt-era rural development programs are a bit outdated in modern times, but for fuck's sake, fix the rotten infrastructure, administer medical insurance, get some science on, or do all that teaching that Davidson is convinced we need. If we're doomed to a system big enough to waste so much enterprise on evilly blowing up our contrived enemies, is it too much to ask that it do something useful as well?

The other obvious rebuttal is that the market is a construct, and the government ostensibly has some power over its operating parameters. If the problem is that our delicate corporate persons can't possibly hire Americans at the rates they (the hirees) need to survive in this predatory economy, then the government has the putative power to make foreign (or immigrant) labor more expensive too. Raise some tarriffs, let the dollar fall, things like that.

The government isn't really interested in creating jobs though. The real problem—and let's just call it—is that the people who command the economy don't want to pay people to work, and furthermore don't want to pay the government to pay people to work.

All that's your standard liberal boilerplate, which has merit so far as it goes. As I face increasingly crappy job prospects of my own, I feel a growing urge to take it all a bit further. The above argument grants various assumptions that I don't at all feel like ceding at the moment. It takes as givens, for example, that money and debt are more or less real, as if they're system variables rather than some network of agreements and contracts that will tend to work out better for the people who have the better lawyers. If we turn once more to a black box way of thinking about the economy, then, again, the sum of all the things and services produced (and imported/exported) will get definitionally distributed among the people in it. To take an IOZan turn here, why the fuck does it have to be distributed according to "jobs" in the first place? I mean, sure, there's some ad hoc philosophical justification for this, amounting to a plausible intuition that we should get rewarded relative to our contribution, but hey, the Golden Rule's pretty intuitive too, and that individualist model becomes a little bit, you know, problematic, the second any one of us gets too old, sick, or dumb to contribute, or as technology-assisted productivity (as opposed to the more work/less pay kind) advances far enough down the Player Piano timeline to obviate so much ant labor.

Why the hell not just pass out what we make? There's no law of nature involved in this (and it's a bit horrifying to think that we're basing our economy on 18th and 19th century natural philosophy, which defies even anthropological evidence). It's our society, we can arrange it how the hell we want, right? Why does the idea of getting a benefit for not working blow our minds so much? Ed's got this right in that, well, it depends on what class of people we're talking about. If you already have cornered enough money, then getting more of it gets to be something of an entitlement. The truth is, distributing the economy according to jobs isn't just a somewhat arbitrary theoretical model, when it comes down to practice, it's already something of a polite fiction. Only some segments of the population are expected to work very hard for their money, which is a convenient story for the segments that don't. I mean, in a society where monster effort was what got things done, the guys who spend their days elbow-deep in toilet drains would be the ones raking in the gains.

Anyway, I also can't let myself neglect the point that both the Keynesians and the Chicagoland bullshitters suffer from alarming cornucopianism built right into their sets of axioms. I don't want to give him credit for this, but I suppose I agree with Davidson in that in the face of economic shrinkage forced by external pressures (you know, actual physics), the current economic will be that much more imperiled. Oh well, at least we invested for the future during the flush times.

Review: 23 Things They Don't Tell You About Capitalism, by Ha-Joon Chang

In this book, Ha-Joon Chang makes a clear case, in easy language, for many of the things (23 of them) that are wrong with the official parables of market economies. There's something to be said about clarity of language, which I think reflects the clarity of his arguments, and Chang gets some partial credit for introducing a few jokes and quips too, which are not badly timed, and elevate the humor maybe all the way up to "wry," making him a laser wit among the legions of employed economists. The arguments as presented are probably worth your while even if you're already a heterodox-minded sort—sometimes it's a good thing to gesture pointedly at the obvious—although I would have personally preferred to read something like this ten years ago, when it could have been a startling challenge to the received wisdom rather than just echo of my own conclusions. I'm serious about the getting there: a lot of this stuff I've either outlined boringly in blog posts (for example, of course there's no such thing as a free market, and clearly the powerful always pick their winners) or else I've painfully tried to use for rhetorical flair (e.g., how can you decry central planning and love Wal Mart?). This is where I tend to fail you as a reviewer, because I'm more attracted to write about the things areas where my mental picture is less complete--or even where I outright disagree--than I am to tout the stuff that validates my own views. So go ahead and read the book for a supply of handily succinct retorts for the next time some troll lobs some free-market mumbo-jumbo at you. It's easy, and not very long. And I'll do my incomplete best to discuss it here.

Chang does what few free-market sorts of economists like to do, which is to pull out a bunch of data—and for that matter, data of a more basic and important kind, and not the stretched inferential reaches toward the trivial that certain pop contrarians (Christ, I reviewed that one way too charitably) prefer—and use it to point out the flamingly obvious counterexamples to free-market thinking, most of it from the past thirty or forty years, and demonstrate the points he's arguing. While judicious data-comparing is an interesting exercise and all, if you're making an economic argument, it's good of him to try and evaluate what actually matters. There's a *reason* that libertarians prefer to present everything as a counterintuitive thought experiment.

He makes these comparisons with as valid a scope as he can. For example, he compares growth during respective nation's own respective development phases, which may be separated by a century or two, and while this is not perfect, it's better than comparing, say, the U.S. in 2010 to Burkina Faso of the same year. When looking at major effects of free market policies, he compares the results before and after implementation (which is what confines his history to the last four decades), and between countries that did or did not implement them. From this, there evolves some general principles and observations: all large economies are (imperfectly) planned; manufacturing is still far more important than finance (and successful economies became that way by protecting and fostering industry); free-market economic policies have resulted in lower growth, higher instability, and greater inequality in the countries where they've been willingly adopted or forced; that separating managers and owners from negative economic impacts has been a disaster.

This isn't to say that Chang has got it all covered perfectly. In some cases, I see the faults as only matters of understated emphasis, a failure to really push his conclusions right through the wall. For example, like most people, Chang imagines a distinction between state and capital. He takes care to reduce the clarity of distinction, saying that governments do in fact guide industries, that capital really has a national character (although labor, he says, not so much), and that corporate planning isn't a special category from government planning, but look, if you're going to take a long historical view of this, especially if you're going to cite examples of what made countries like the U.S., Britain, or the Soviet Union developed in the first place (and how they did so differently than African, Asian, or South American nations in their own twentieth century growth steps), then it's relevant that these economies owe a lot of their wealth to conquest and exploitation as well as development. A great deal of their governmental planning activities went to support the horrible crony industries of the day, such as enslavement, theft of gold, abuse of immigrants, and colonialism. There was a little more involved than tariffs, subsidies, and putting the screws on immigration. When it comes to failures of investment, did the Soviet Union pick badly, and in the sense of its constituents, immorally, to develop its military and space program at the expense of other industries? Yeah, almost certainly it did. But how do we in the U.S. do with choosing our core companies above all else? That is, it ain't just our financial sector that's pushing people around and diverting from more wholesome ends. Now, I don't think any of the above is *inconsistent* with anything Chang writes, and he does go further than most to fuzz up the boundaries between economic and other human activity or motivations, but having raised these points, he could have taken them home.

My second criticism is that Chang ignores arguments of scale, and some of the basic challenges to measuring things by growth. [Why, it's another of my hobby horses he's somehow refusing to recognize! The nerve!] Using growth as an important variable of success tempts fallacies of large and small numbers, and can ignore some important external factors. If, say, Congo grew more rapidly in the 60s, or western Europe in the early 50s, then you might want to consider the starting points. (On the other hand, industrially awakened America and Asia are probably excellent comparison points.) Likewise, we can make the same point for contemporary America's condition, which sane people might expect to saturate and decline at some point thanks to fundamental issues with resource-intense growth models, or even just running out of markets to expand to, even without considering the drain of the financial bubbles. I mean, I agree with Chang about the negative effects of the financialization of the west and the IMFification of the third world, and again, his counterexamples are well-chosen, a few of the modern ones that didn't rely as much on a massive army to make them work (Chang is Korean, and in a good position to question what the fuck the bank nations are always talking about), but growth models also have inherent problems of their own.

Finally, the only other thing I wish that Chang had done differently was to modify the way he introduced his chapters. I'm fine with the division and structure of the book, but each "what they tell you" section, meant to evoke a common free market argument, is a way to invite problems. I think that most of them are presented in good faith, but they're still straw men. And they don't need to be: it would not have been difficult to precede these paragraphs with a real quote to pin the view on an actual right-wing or neoliberal luminary. Two hours picking through transcripts of Larry Kudlow, Alan Greenspan, Larry Summers, etc. could have given him more than enough material.

And if they didn't fit into a general review, here are a few points that captured my interest enough to write down:

He makes a point that the nature of the work we do affects the character of society. Farmers see things differently than do industrial workers than do researchers than do cube monkeys. He's making a point that it was more natural for people on the floor or living in the company towns to want to organize into unions, but there's a lot that could be made of this. And obviously, it feeds back on itself—we have the national priorities that validate "knowledge-workers" because we are those, but we are those because there are too few industrial jobs. Maybe here's an area where education does make an impact, defining more how we see ourselves.

I was surprised to see him ascribe only about 1/5 of American de-industrialization to outsourcing and trade balance. (A large fraction is also re-classification, he argues. As support roles are spun off from the industrial sector in the name of cutting staff—think your shop cafeteria, company nurse, or the cleaning crew—they become re-classified as service employees.) One thing is that we still manufacture a lot of stuff, but we're consuming more that costs less.

De-industrialization, he points out, leads to a decline in engineering and science (and the need for the same), and you have to wonder about all this math and science push in that fading light. Confirms a point I was making recently.

Chang observes that one measure of inequality is the cost of services. When there's a ready supply of cheap human labor, then your house cleaning and restaurant meals (and food in general) are a lot more affordable. Don't get angry that your meal in France is so expensive, maybe thing of why that we have chosen to keep it so cheap here. In comparing currencies, this doesn't factor in, because people are not internationally traded goods (any more).

I had no idea that microfinance had been such a fucking disaster. It was one of those things that seemed like a great idea, and I was as impressed with the success stories as much as anyone. Turns out that the low rates of loans had hidden subsidies, and quickly turned usurious when the west stopped paying attention. More than that, argues Chang, without any real industry going on, these local enterprises quickly saturate, and can't possibly grow into high-level industries, especially when foreign interests are running those interests.

He cites college as a sorting function, not as an absolute forward-pushing economic force (as evidenced by lots of educated but poor countries), or as real training for most fields. As such, it's basically an economic drain, because you have to go there to even have a chance. It doesn't make it a non-worthwhile experience, but the economics of it are increasingly crazy. Yeah, I guess it's another validation of recent points for me. Maybe I like that at least a little.

In regards to equality opportunity vs. equality of outcome, he finds a way to argue they're the same. Especially if you can cross generations. After all, if your parents had experienced massively different economic outcomes, then your opportunity is very much not the same. More generally, he points out (using data) that a welfare state tends to strengthen social mobility.

Calling out the separation of capital and management from other stakeholders (namely, employees and the masses of human beings occupying the commons), he found a clever way to unite the disasters of soviet Communism and limited liability Capitalism. The problem? In neither case did the workers or citizens reap much reward for their efforts, and the oligarchs have not been on the hook when the shit went down.

Black Box Economics

Apologies to whatever's left of my readers for this one. I'm contractually obligated by the anti-establishment (which is getting exactly what it paid for) to churn out an update of my general understanding of economics every few months. Call it part of an ongoing series if you want. More like, some stuff I read got the brain swirling around in its usual sorry circles, and now it needs to drain.

As someone who doesn't understand all of the fine details of economics so well, and is suspicious of them anyway, I often like to try to and look at them from a coarser level, from farther away, and see if it makes sense on that necessary approximation. I find this a rewarding exercise usually, and like any human being, I grow to believe that my comfortable way of looking at things is in fact the important one. Engineers have a habit of this sort of thing anyway, as I've blathered about in times past. Those subatomic details are distracting, and obviously this is why macroeconomics is different from microeconomics, and so far as I can glean (this is my sporadic recreational reading, god help me), addressing macroeconomics based on "microfoundations" is, a lot like resource economics, only a young field struggling against an increasingly inadequate paradigm. Better late than never, I guess.

[And it's fun to ask whether microfoundations are more like statistical thermodynamics, from which macro properties can be statistically derived, or more like quantum mechanics, in which they are consistent with macro properties, but produce negligible predictive value for problems of that scale. I never developed a good answer for that analogy, and I didn't like the handful of discussions I read, because it kept coming back to me that economics isn't fundamental enough to describe primate behavior, and is insufficient with respect to the physical laws it apes.]

I agree that the macroeconomy is necessarily a statistical average of all the busy-bee activity that can be called economic, and that there is feedback with macroeconomic policy and all, but this doesn't really cover enough ground. If we can look at the economy as a big black box, then "the economy" really is how we distribute what we collectively make the effort to produce or do. (This is definitionally true, which will only make the next fuckhead who talks about "redistribution" that much more irritating.) On some level, the redistribution is arbitrary, as is the level of effort (once we get past the point of keeping a critical fraction of us fed) we put in. In American capitalism, it's a great conceit that the divvying of effort and rewards is conducted according to some rules-based algorithms. These rules are a compromise between some pet philosophical justifications of ownership, baseline standards of living (that'd be the Socialism that crept in), and variously weighted assessments of the value of different types of contributions. People can get paid to do work or make stuff and people who own can manage the value of improving their property, or so the story goes.

I'm finding that black box viewpoint useful to help weed out the parts of the economy that are fake. The GDP, for instance, is somewhat real (even if it measures things in imaginary numbers), demarking the total amount of goods-n-services that are produced, more or less. In real life though, all this stuff is limited by resources – by population, energy, land and food (elementary stuff, I know, at least with respect to land, for which more patient students than me can describe how it turned into "capital"). Call it the first law: you can't get out more than you put in, and even if you quip about optimized non-zero-sum exchanges, you're still using many implicit assumptions about where the producion must come from. You're still only optimizing efficiency. Game theory does not obviate physics.

There are times when resources directly affect the volume of worldwide production. Oil shocks are, at a minimum, a common ad hoc reason thrown around to discuss disruptions. It's the conventional understanding of the stagnant 1970s economy, and I also remember it standing in as a cause of the 2008 recession, at least for a short time, until people finally started questioning the screwy financials. It's a running curiosity that a more fundamental connection isn't observed more routinely. Given its pretense as the only social science, economics has ironically done a very bad job of integrating that first law, as outlined in this entertaining excerpt. You can't assume stuff that doesn't exist (although I lose him when he dismisses the rebuttal that things are fine to a certain level of approximation—of course it's fine when the assumptions hold). If you like to think in terms of the second law (or if you pedantically want to call process dynamics, my preferred choice of technical metaphor, an analysis of the second law, as is done in this interesting article), then "production" is even better described as a dissipative process (which can have more or less stable dynamic states, mind you), that is, kinetics rather than equilibrium. Civilization is then a transient species, something that has happened in between turning carbon and sunlight into food into shit.

Although it is essential, count money among the things that are useful fabrications. Credit, even more so. In the macro world, I try to remember that money and credit is more of an indicator of the asset distribution than a driver. Money is really a mutual agreement to accept money as a medium of exchange, which definitely helps the process along. (This is true even of gold, which upon a time was useful for this role because it was durable and people liked it. But it's no more fundamentally valuable than other representative things, and since it's value represents a narrow slice of things people really value--notably you can't eat or burn it--it's probably less good.) I see debt as basically a bet on the short-term persistence of the status quo, the human reaction to gamble that things will soon regress back to the mean. When that's a reasonable bet, it facilitates activity, and when it's not, it does the opposite. Money and credit are super useful, but they are more like written laws than physical ones, and economists are more like lawyers than scientists. Which is fine, but consider that legal rules are also only followed in principle by the robotic force of algorithm, and given that we are really creating an economy on the basis of mutual agreements, and even through we specify the goal and the rules, it's also true that we try to constantly get around them.

American capitalism (at least as it is marketed) has a lot invested in the idea that the macroeconomy emerges from its microfoundations, but I keep coming back to the idea that it's a fundamentally flawed assumption. American capitalism has done a very shitty job, to my mind, of integrating the role of power, coercion, and security, which I think is safe to also classify as fundamental parts of our overall system of agreed-upon rules, but somehow economics gets away with dismissing to the arena of politics and sociology instead, unwisely imagining that some mutual agreements can be neatly separated from others. I would say that the rules instead evolve as a consequence of the status hierarchy, which exists at a more fundamental human level than "economics" does. And the powerful are (by definition) able to influence the rules (albeit without much collective intellect or finesse) until it reaches a distribution favorable to themselves. The iron rule of oligarchy gets it so much better, and is immensely more succinct.

Where the fake meets the real, then at least we can say it gets interesting. If the "real" economy is, although maybe fuzzily defined at the edges, the redistribution of all the stuff we produce, then it's worth noting where the idea of that distribution gets most deeply obfuscated. Dr. Leo Strauss (obvioulsy not the actual one) recently summed it up as well as anyone: we don't "make" nuthin but finance these days, a service that has managed to massively overvalue itself at the expense of every other service or product. (Doc Strauss also provided some awesome interviews with David Simon about The Wire, the guiding ethos of which, he says, is that human life is declining in value in the post-industrial age.) A bubble economy is a matter of pretending that we make more than we do, and that we can distribute more than we actually have. It works because the black box of American economy has some inputs and outputs into it. In comes goods and energy, and out goes what little extra we still produce. In and out also go complex systems of agreements and arguments on how we value it in paper, full of double negatives and hot air and backed by force. The world economy doesn't have inputs and outputs other than the heat balance, however, and if we consider stored resources, then it is in fact zero sum, according to the goddamn first law of thermodynamics.

We are propping up the value of the dollar (which contracts and verbage direct oil into this country more easily and help to let other people actually do the producing of things so long as we get to keep gambling), keeping up the value of real estate (which contracts keep people with more license to make that gamble), keeping our armies massive (enforcing all the wheeling and dealing), and keeps the level of inequality high as hell. I don't know, letting oil prices rise, un-developing arable land, bringing industry back to these shores, and letting the super-rich finally absorb a kick in the neck seems to be exactly what is necessary to bring the whole system into something resembling local reality, although it's likely to be painful for all of us, and I don't want that either. We can only impoverish everyone else for so long before we start going down with them (or until maybe we get weak enough and they get pissed enough).

If the current trend we are seeing in the world today is actual GDP shrinkage driven by first-law sorts of pressures, such as limits to oil and water, or even just bad bets on expansion, then expect that huge network of agreements to stretch and become rigid (that seems consistent with a serial bubble economy, increased indenture, and IMF-style forced austerity everywhere you look) in an effort to keep the head on top, and then falter in glorious financial collapse. It's a global behavior consistent with what you'd expect from shrinking fundamental resources, and that's worth pointing out (and it's also my suspicion), but it's inconclusive on its own. It also has happened sometimes in history when power concentrates too much in social and financial spheres and the loss is painful in the living memory of everyone else. Some collapses can be tied to extension beyond resource sustainability (Rome's slow decline probably fits this model), but others are just human behavior taken too far (more like the Great Depression maybe).

I don't really know where we are at now, but I'm not super optimistic about the future.

Yes Asshole, the Rich Are Getting Richer

I visited my parents last weekend, and as I once mentioned before, these excursions usually include a lazy Sunday morning with the old home-town news rag. The city of Waterbury is most recently famous for the frightening habits of former mayors, but many years before that (maybe stretching into my early youth) the region I grew up was part of an important industrial hub. It's an urban mix peculiar to the northeastern United States: decades of corporate flight that should, you'd think, have given them some perspective by now on how difficult it is to run a city—whipping up its economy or providing services, depending on which church of ideas you attend—when the local hiring firms keep disappearing and abandoning the tax base. Despite this long trend, the Waterbury paper remains a bastion of conservative opinion, dancing with the one that brought 'em (down) over this timespan, and is currently and constantly worked up about Big Government as well as the scarier, swarthier immigrant population which is no longer from European countries that begin with the letter "I" (and which lacks those erstwhile job prospects). [Although maybe there's something to the Big Government points: no doubt any incentive the city can now offer—tax breaks, loans, industrial sites with all the hookups—is piddling consolation for taking away the freedom to dump all of the tailings you can directly into the Naugatuck river, and that pesky Superfund law clearly did slow down that mall project a few years ago, but those fine, fine minimum wage retail jobs got there anyway, they did.]

Which is not really what I'm getting at, beyond to say that the old local paper grants me a special annoyance. When my wife turns on the news at home or when I drive back listening to All Things Considered, then I only need to marvel about how extreme the mainstream has become, and the distress doesn't last. When I steal time online, I see the accepted conservatives actually subjected to the comments they so richly invite, which sates me enough to not have to write anything about it myself. But when I go to visit Mom and Dad, and the op-eds are framed in official-looking black-and-white, and what letters filter in through the editors are as supportive as they are illiterate, when, it's editorial policy aside, it's a pretty decent paper for its market size, then I find that no one is getting livid here but me. Among the usual inveterate assembly of Malkins and Wills and Krauthammers, the Republican American trucks in your more shameless (and artless) variety of deniers and class warriors for its editorial page. On Sunday, it was some guy named Steven R. Cunningham of the American Institute for Economic Research. (The version I read is behind a subscription wall, but you can find plenty of copies online from other venues.) I don't really know anything about the AIER, other than it's in the most beautiful part of Massachusetts, but if this guy is an example of its alleged mission of objective economics education and not representing concentration of wealth, then its founders are surely spinning in their graves. More likely it's just your standard pro-power think tank. Cunningham is out to skewer "one of the most enduring economic myths" that the rich are getting richer.

"It isn't true. When most people think of the rich, they probably are thinking of people with great wealth. When they think of the poor, they probably are thinking of people with low incomes. While there's obviously a correlation between wealth and income, they're not the same. And we shouldn't confuse them."

I'm going to limit the line-by-lines for this guy—the full FJM thing is not my bag, and I'm not quite making that the central point either—and excessive charts are boring (I'll link for you though), but that article should not pass without comment. From the opening graf, he proceeds from here to thrash, not this alleged myth, but a fairly irrelevant straw person, noting that people who have the most wealth are generally older, which may or may not mean something or other, but certainly leads the reader away from the important distinctions he didn't make between wealth and income, and rich and poor.

Most people consider "rich" or "poor" to be a state of concern about meeting basic necessities, extraneous pleasures, and once those things are taken care of, of attaining status. I suppose it's nice that we weren't treated to the usual false equivalence between modern pleasures (like iPods and TVs) and necessities (like cost of living and, if we wish to outlive our pre-industrial counterparts, medical care, and, of course, the indenture that most people accept to attain those things), but since richness is in part something you feel, then it's not surprising there's some subjectivity in the definitions.

But income and wealth are more quantitative. And yes, it's an important distinction, but as an economics educator (yar har), Mr. Cunningham might understand that the reason people prefer to discuss income distribution is because it's just easier to come by. Most countries keep statistics on this sort of thing, which is handy if you try to make informed economic arguments, comparisons between countries, and other stuff you'd think would be important to economics educators. Wealth assets, meanwhile, are more varied in form, and more likely to be undisclosed and private. Wealth can mean less liquidity than the numbers on your paycheck represent, but lets not kid ourselves that the "wealthy" are exemplified by the old people receiving fixed annuity payments in Cunningham's hypothetical anecdote, or that the very wealthy are in any way not rich. Steve-O is counting on his readers to neglect looking very closely at the wealth distribution he mentions, which in Waterbury is evidently a good bet. When you do look at those numbers, they're far more damning than income distribution when it comes to inequality: the top 1% of the wealthy own about 35% of it, and the top 20% own about half. It's slightly less unequal in terms of net worth (because lots of people have home equity) than it is for financial wealth, but either one is sufficient to roundfile his whole thesis. Yes, based on analysis of wealth, more of it is concentrating in the upper levels and yes, there is less distributed among us proles in the lower 80% as time goes by. The rich are getting richer, and the wealthy are getting wealthier.

"For example, from 2000 to 2009, inflation-adjusted household income fell 4.5 percent, but consumer spending increased 22.4 percent. This raises an obvious question: How did people dramatically increase spending on shrinking paychecks? The answer is: They didn't."

Hey, I wonder if anything else changed in 2000-2009! I won't keep you in suspense. Among other things, household debt increased in this timeframe by about 12% per year, while income fell as stated. I'm sure there's a relationship to spending here somewhere.

"They did increase spending. But paychecks weren't shrinking. Instead, the number of individuals per U.S. household was shrinking, which lowered the average. Real disposable income, which is essentially total after-tax income, rose 25.2 percent from 2000 to 2009. At the same time, however, households got smaller, as more people divorced, or rejected or delayed marriage. So total spending went up, while average household income - due to the larger number of households - went down."

I'm the last person to buy into the idea that economics is a field with engineering precision and scientific understanding, but we can still endeavor to put useful numbers to this sort of thing for the purposes of estimates, and some of these institutional numbers are publicly recorded and pretty easy to come by.

Households only shrank a little in this time period, but there's definitely been a downward trend since the 1960s. Cunningham is probably tooting some social dogwhistles here, but the down-slope has correlated pretty strongly with decreased fertility rate, and the smaller households are largely a result of there being fewer children in all, and more people living alone (e.g.). We can look at this a little more objectively using useful variables such as the dependency ratio, which is the ratio of the too-young and/or too-old (depending on how it is broken down; the latter usually trotted out for Social Security scare stories, but the former is more relevant to household size) compared to people of working age, and this has also declined in the cited time frame, most of the decline coming from, again, fewer children. We can also look at the participation rate, which is the number of people of working age that are in fact working. Eyeballing the graphs and applying some simple math gives relevant ratios:

2000: 1.1 children per worker
2010: 1.3 children per worker

So people are, on average, supporting more kids, contrary to Cunningham's statement, but hold the phone for a minute here... The trend since the sixties has been fewer children. If you click on the chart for participation rate, you'll note another awesome economic revolution that happened in about 2000, when the bubble burst: all of a sudden there turned out to be a lot more people than jobs. Household size shrunk slightly, but the fact that the number of available jobs dried up affected the number more.

[Most of the post-1960 growth in the participation rate is due to women entering the workforce, which no doubt has contributed to the decreasing fertility rate as well. But these two trends before 2000 (not to mention extant retirement schemes since 1935 or so) have overall been to drastically reduce the number of dependents per worker. Cunningham is, of course, prevaricating here in a general sense, even if he's picked out a little patch on which he can daub on some bullshit. Fewer dependents from 1960-2000 probably did help people feel richer though, but I don't think the increased participation rate did. Are you richer when you need two incomes to do what your dad managede with one? (If you are a woman, you may indeed be freer.) This is a reason that household income is relevant.]

"The problem is that we are not told that the top 20 percent of households includes four times as many workers as the bottom 20 percent, and nearly six times as many full-time, year-round workers. Knowing this makes a lot of difference in interpreting the original statement."

People in lower quintiles have fewer earners per household, but they also have fewer children to support. The ratios of earners per household are pretty shocking, really. The summaries in the Wiki article are consistent with all of the above figures. And what exactly do they prove? Rich households, we are pretty sure from experience and data, do not tend to have six earners in them, not without some hefty violations of child labor laws, nor are they comprised of sprawling complexes filled with in-laws and cousins, or at least that's not the sort of arrangement that pops up on the lifestyle shows. Rich households (obviously) top out at a little less than two earners per home. You have to conclude that poorer households have not only a significant fraction of zero income people, but to approach four-to-one, over half of them need to have no earners in them at all. And among those working in the bottom 20%, most of them are only doing it part time. This seems to be a horrifying reason that they're poor, and not really a point in favor of the awesomeness of the rich. I mean, it's another way of looking unemployment—of course the lowest income group is going to include all the people who have zero income—but these numbers are telling us that that comprises a hell of a lot of people. Is this sinecured fucker really ginning up contempt for all those lucky duckies with no jobs at all? (Yes.) And it's clear from the same data that working part time isn't going to do a damned thing for you either.

And needless to say, the income that the quintiles receive is well-published, and only the top two really have made gains, before or after taxes, in forty years. The fact that the lowest quintile is largely unemployed does not refute this.

"Yet, economic mobility is a characteristic that helps differentiate the United States from many other countries. Between 2004 and 2007, for example, roughly a third of the households in the lowest income group moved up to a higher income group, according to the Census Bureau, while roughly a third of the households in the highest income group moved down."

Sure, income mobility is a great thing in this country. The fact that it's less great than it used to be, or is less great than in other countries (even historically aristocratic ones), well, we peasants should shut up and be thankful for what we've got.

#

And look, I'm sorry, but that had to be exorcised. It used to be even longer. If I am so motivated, I'll take out the hyperbole and send it as a letter to the editor to be unpublished. Here's the part that's getting me though, the actual point if you want to call it that. I can understand why people employed by the AIER write and publish this sort of crap—they're paid to, directly, by people who have the wealth and power they're apologizing for—but I'm disgusted by people who continue, despite evidence, to lap it up and sell it on the retail market. You'd think that anyone above drinking age might have noticed some general economic trends by this point, and yet the entire News-o-verse has already let go of Two Thousand Eight. I don't expect Truth to be folded up and handed to me, but a little more than a thin gruel of shallow marketing disguised as evidence would be okay. Hell, just losing the certitude would be a plus, especially when you're peddling the same crap you were two decades ago, during which time the wealth community has gotten pretty much everything it's asked for. At least this Cunningham guy's an obvious whore, obviously shilling for interests that aren't mine. What the hell is the editor's excuse? What power is he speaking the truth to?

The game I usually see played with things like this (and that I am playing here too) is one of competing narratives, of different takes on the same data. Commenters like me don't usually angle straight for the lie, and call it. We like to see the twists of truth instead, different takes on it, and target a rebuttal that harvests the seeds of refutation that the writer himself sowed, and there's plenty of that here. (Maybe this thought would be better spared for the next someone who is inclined to fact-check a Megan McArdle column or something, but whatever.) But Steven Cunningham is doing more than misleading with statistics. When he poses the idea that the rich are getting richer and leads with "it isn't true," it's baldfaced.

Your Free Market at Work

So let me get this straight: One of the great triumphs of Milton Friedman-style American capitalist economics is monetarism, wherein the currency is manipulated to achieve a couple of macroeconomic and/or social goals. China also manipulates its currency to achieve a couple of macroeconomic and/or social goals. The opinion of this practice isn't as salutory when foreigners do it, but that's to be expected, just garden-variety hypocrisy.

If I understand things correctly, the economic do-si-do between these two countries relies on extremely cheap credit provided to American consumers and extremely cheap wages (and inexpensive social programs, regulations, etc.) provided to Chinese workers, neither of which valuations are especially well connected to what either group actually produces. Although this situation generates tension (at least so far as macroeconomics properly describes international relations), it's currently very lucrative to people who facilitate lending to American consumers, hiring Chinese workers, or selling their low-overhead products. While fear of instability may be real (and hence the occasional mild pokes against exchange rate manipulation), it's unlikely to change before the feces actually makes contact with the whirling blades (and if the finance crisis has taught us anything, probably not even then). Presumably this will happen if Chinese workers can command some more compensation for their effort, if Americans' consumer debt becomes too hopeless, if they can find a new population to do technical work on the cheap, or something like that. Pessimistically, China will prefer to open up its markets to consumer credit, American wage and job growth will still be held in check, and the mechanisms of wealth consolidation will be maintained as global resource limitations finally begin to resist the edges of growth. I think I understand the gist of all that. As practiced, at large enough scales, capitalism and communism concentrate power, just like everything else. Check. Free trade ain't no such thing. Got it.

I don't keep up well with the blogosphere when it comes to making this entertaining or intellectual, and this story's already a week old, but it's noteworthy when these relationships condense into such a powerful and relatively open meeting. (What do you suppose goes on at those things? I imagine it's a bunch of dull yay-rah powerpoint speeches full of mission statements and global visions, followed by a dinner that breaks down, as usual, to jostling over where the cool kids sit, or which are the power tables, and after that there are a hundred informal breakout discussions, filled with harrumphing, agreeing to talk to your people or theirs, awkward cross-cultural affection: what, no cocktail? ha ha do we shake hands or bow first?) This is expression of political power at its more outward and banal, and it's hard to see them agreeing to any arrangement that makes them less rich. I'll give Obama the benefit of the doubt and assume that he really does want to see clean energy products exported to China (whose environmental concerns are probably real), and maybe we'll even do better than the usual tactic of exporting clean energy jobs there. Well, at least GE is a surviving American non-defense company that actually makes stuff, so there's that, even if society can't seem to rid itself of Lloyd Blankfein.

Worth noting, however, that this inner party arrangement is our leader's preferred mileu, none of that weenie Carter-style public incentivizing that worked so poorly for, say, Germany. Meeting with business interests to orchestrate the economic push and pull is probably inevitable to the process of governance, and the moral balance comes down to which parties Obama or Hu feel they represent, and to achieve what ends. If the presidents are representatives of their populations, then they sure are outweighed by business interests in meetings like this. Personally, I think that Barack Obama (or any other president in memory) represents the people about as much, and in a similar capacity, as Jeff Immelt (or any other CEO of a gigantic multinational corporate empire) represents his employees, which is to say that the minions are an inevitable component to their power, a necessary evil, probably not hated, but of secondary and sometimes contradictory concern to the governing idea of the organization, as voiced by those who get rich by owning or administering pieces of it. I'm sure they'd rather not and all, but fucking the lower-downs is certainly on the table, while fucking themselves is not. And I don't think it's necessarily a question of evil so much that representation has inherent limitations—when the problem becomes the entrenchment of an elite group that is insulated from the concerns of everyone else, then the process of elevating someone to the elite makes it hard to accomplish things.

Has conservative economics disowned Milt Friedman yet? I know that the Fed is a pariah among the freedumb wing, not that they slow it down, but even so, it still has to be difficult to advocate for the idea of "competitiveness" when so much of the economy is the flow-down of executive decisions rather than market forces or other cost optimization. Mostly, I kind of wish the usual assortment of advocates would just shut up for a while.

Inheritance

It's anecdote time, everyone!

At the end of October, my grandmother proved, despite the growing evidence, the limits of her resilience. She'd shown an impressive constitution for an old lady. In her eighties, a little less than ten years ago, she broke her hip, and within a year, recovered from it. A handful of years after that, she moved from her own house in Florida to be closer to family, opting for a new life in an assisted living facility. It's not the worst arrangement for someone who is used to independence: basically it's an apartment of your own that comes with a red phone to care facilities, a common meal a day, and someone who is paid to notice if you don't show up for it. She'd been increasingly unsteady on her feet however, and five or six months ago, she fell once more, and this time broke her pelvis. At 92 years old, it really fucked her up, not just laying her flat, but taking an exceptional mental toll as well. Confusion and depression isn't something you want to see in someone in that state. I got sad emails from my mom and my aunt, fearing it was the end, but she dug in and started pulling around from this injury too. She moved in with her daughter, and when I saw her in August, she was confined to a wheelchair, showing her age, but nearly herself, despite everything. Unfortunately, a bacterial infection took root at some point in her stomach and progressed unknown on the inside for a while, and when she was rushed to the hospital intravenous antibiotics at least drove out the bugs. Amazingly, she appeared to be recovering from this too, but the 93-year-old body only had so much of a rally left in it.

[The point is that she needed care, but still had a lot of life going on. I don't want to neglect to say how great a person she was, and I miss her a lot. She was a woman who liked pretty much everyone she came across, enjoying the conversation and company, not generally thinking to notice people's flaws and issues. She had friends wherever she went, and it wasn't so much that she was sweet and nice, although she was very nice, but she wasn't about drama. My cousin said at her funeral that she was cool without having the slightest notion that she was cool. She was someone who made decency look effortless.]

Her care was financed mostly by the investments that my grandfather had put together over the years. (I think that he would have been happy to know that these did indeed provide over all that time.) Caring for her pretty much wound down the whole shebang though, including the house the old man had built with his own hands. They don't keep me in the loop with all the details, but I understand it came extremely close to breaking even. The state may have picked up a few bucks right at the end.

On the other side of the family, years before, my father's mother's odd behavior after her husband's death turned out not to be, as 25-year-old Keifus would have preferred to believe, the natural product of solitude and her own quirkiness, but rather the early stages of Alzheimer's, and it slowly worsened over a period of years. She lived by herself, with lots of visits from her children, for as long as she was capable of doing that, and afterwards moved to a nursing home when she was not so capable. I wasn't around all that much at the time (winding up grad school, moving to the DC area), but I still failed to take many of the opportunities to visit that I did have. I feel terrible about this. It may well be one of the three or four clinging regrets that I rave about when it's my turn for my mind to disintegrate. It deserves to be.

She was my family's first encounter with long-term medical finances, and, on top of watching someone's warmth and wit dissolve, I remember that it was pretty damn wrenching to have to work the system. These grandparents were also frugal (a more throwback Yankee sort of frugality), but it didn't take long at all to burn through all their assets, and after that it was years of government assistance to maintain that modest level of care.

[Both of my grandfathers, if you were wondering, were done in by prostate cancer and predeceased their wives. They'd both received hospitalization and some home care. I don't know how it was taken care of financially.]

Here's some final anecdata, what's actually driving the post. There's been a health scare from my wife's side of the family this month too, from someone not so old. Complications from routine surgery led to weeks in the ICU (a close thing, but now recovering, thanks). A completely different set of finances there (veterans and state retirement benefits), but my wife came back with tales from the waiting room of the humiliating dissolution of wealth and dignity that everyone else was dealing with as their loved ones were making the transition to state aid to cover their massive medical burden.

It's not in most of our characters to put our elders on the nearest ice floe at the first signs of impairment. We'd rather, if possible, that they decline with comfort and dignity: because we owe them, because we love them, because we'd like to limit the pain and humiliation for ourselves too when it's our turn. Because they're still human beings dammit. And if that's insufficiently cynical, then remember that the senior care industry only grows, and there's more than adequate economic motivation for the governors to allow it continue to hoover our last dimes.

In Weldon's last post, he had a line that got me. The context was different, but the point the same: A lot of people won’t get help before they’ve lost everything.

Long-term care was part of the Medicare discussion when it was drafted, but that didn't really survive into the ultimate legislation. Medicare is more designed for hospitalization and any coverage for convalescence is meant in the context of recovery from an acute illness or injury, and it only will cover limited care in this regard (a little over 3 months is all, by specialized providers, following at least 3 required days of hospitalization). Non-specialist care in an assisted living center or in a nursing home (I am not what proportion, although this is no doubt depressing too) is provided for the "medically needy" through the Medicaid program, the specific requirements and benefits of which vary by state. We all know about Medicaid for the unwashed poor, and our cracker classes are plenty indignant about that idea of course, but it's a good chance that even your typical pasty boomer, if those that hang on long enough, is going to wind up there, just like their parents did. You typically becomes medically needy by spending all of your liquid assets and all of your income on medical care. It's not a euphemism, it's actually a requirement: you have to spend everything you own before they will give you a nickel. If you were wily enough to see this coming and started giving it away, then (within three years) that's illegal too. In 2004, 56% of nursing home expenditures were provided by Medicaid, a good measure, I suspect, of how long people currently outlive that 100 days, or their fortunes.

The budget alarmists are afraid of escalating trends in medical costs, and for long-term care of the aged, and no doubt they should be. Unfortunately, the policy argument to address this tends to be between people who want to provide some level of care without using the word "Socialism" and without threatening the precious health industry with regulation, and people who flat out don't want to provide it at all. In the CBO report linked above, the prescription that it advocates, or the question it begs, is private long-term care insurance. (I realize this is Bush-era stuff, but (a) it's the damn CBO, and (b) the spectre of entitlement reform hasn't exactly disappeared with the Harvard cowboy.) After presenting its data and offering the correct observation that people are not incentivized to accumulate extra savings when the price of keeping them in pudding and rough-handed orderlies in their waning days corresponds exactly to how much they got, it then concludes that Medicaid benefits should be cut, that whatever few breaks still exist should be quickly removed in order to provide more tough-love incentives to save or buy private insurance. This is good evidence of why you should never mistake establishment-friendly economists for human beings. I mean, what the fuck else is Medicaid going to take away from you? And an automatic impoverishment in the last phase of your life is only one reason to avoid savings, but let's not pretend it's the only one: zippo return on reasonably secure vehicles, a bigger take of your life for homes and educations, and 40 years of increased credit instead of increased wages. Fuck you, the CBO.

But it'd surely be worse if we lost Medicaid, wouldn't it? For the people, yes, but more important than that, we're talking money that people are willing to pay, and that always has a voice. The way I see it, there is a constituency that stands to get rich off of expensive care (medical providers), and one that stands to get rich off of expensive administration of it (medical insurers). A push toward private long-term care insurance may be more expensive and less efficient for the people (assuming it follows other kinds of health care), but it's a win win for the favored sons.

My grandfather was a smart and resourceful guy. He got his P.E. in middle age without any of the usual college attainment and changed his career path. (I'm sincerely impressed with this--I keep some of his old-school slide rules and drafting tools to remind me what a sorry excuse for an engineer I turned out to be by comparison). He managed his savings as shrewdly as anyone who has something to manage, but who is not by any means a player, can. (That's a compliment too, but now intended a little backhandedly--having something to manage is an important part of that equation.) I didn't realize that he had help building it up in the first place with a surprise inheritance from one of his uncles. There are fewer men that are self-made than have improved their forward trajectory, but certainly either one is hard enough. The thing is, those sorts of windfalls don't float around in quite the same way as they used to, not for us little people. Too expensive to get old.

Who makes it out these days without experiencing a steady decline? I personally think it's worth it for general humanist principles that we extend quality of life as best we can, and although it's a shitty answer, Medicaid, savings and long-term care insurance are at least answers. We are priveleged to have some forward social trajectory, but inheritance is not really part of it for the middle classes these days, and we should probably count ourselves lucky that the expense is for now avoided between generations and between spouses, and that there's still a chance of keeping the house. But let's be honest here: the system as constructed is designed to consume a modest estate. This is is what happens to the net worth of the non-rich. I don't like inheritance as the mechanism to keep people less than poor, but forced liquidation on the low end adds to inequality. The next priveleged fucker who starts whining about the estate tax deserves to get hit with a bat.

The Next Bubble?

[There was cleanup called on Aisle Keifus. This post is still among my most boring, not to mention borderline ignorant, but the more egregious writing errors have been corrected. It's not like this blog is going to hit the big-time, and sometimes I just have to get stuff out.]

Complicated life choices are an unavoidable consequence of living in interesting times. How can I guide the kids toward a positive life experience that doesn't charge the price of defiance (or doesn't insist on charging it), but can still minimize their indenture to the Way Things Are.* How to offer them options for success or happiness that aren't limited to the treadmill, or the rat race? Convince each of them to invest in a hundred fifty thousand dollars worth of college, with no savings to speak of, an unsure direction (as it should be at this point, before they're even in highschool), and no solid expectation of future employment? My feelings about the value of learning, the value of keeping our citizens educated, and my memories of the experience--let's face it, my elitism--are running straight at the wall of rapidly escalating costs. I prefer my kids to go if it fits into their still-hard-to-judge life plan, even if The Man callously demands it from them anyway. I just have no idea how I'm going to pay for it.

Here is a graph of college costs posted recently at the Naked Capitalism blog.



Since the early 1980s (at least), they have been rising a great deal faster than inflation, faster even than our monstrously inflated home values did. Given what happened there, Yves Smith points out in that post her fears of a bubble. Student debt (as oppposed to mere costs) has jumped up 25%, and meanwhile, a job upon exit is harder to come by than ever. Currently, unemployment rates among 20- to 24-year-olds is up around 15%, and even with the 2005 "improvements" on bankruptcy laws, defaults on student loans are also rising. Meanwhile the lifetime net income gain of a college education is estimated at a couple hundred thousand dollars, which might leave my kids just enough dough to put my grandkids through, assuming no one in this chain plans on ever retiring, or getting sick.

At some point in our lives, we all get the "savings" spiel, how compounded growth is magical and how great it is to get in early. But exponential growth applies to negative rates too, making it so much harder to get out of the hole (especially if you get in early), and differences in those rates tends to open up chasms when they're perpetuated over years. Here is a helpful aricle by the College Board talking about rising student costs. They estimate that the growth rates in college prices from 1977 to 2007 (approximately the same range as in Yves' graph), has been about 4.5% for public schools, 3% for private ones (which remain much more expensive), and about 1.5% for public 2-year colleges ("community colleges") per year over inflation. Factoring in room and board makes the four-year schools (students are assumed to commute to two-year ones) look a little better, knocking about a percentage point off of each of those values. This tells us that tuition alone is bloating faster than the cost of dormitories or apartment rentals, but that the net effect has still been growing faster than everything else has for 35 years.

What about all that sweet, sweet financial aid? I'm glad that the College Board reports this too, and net costs show similar trends. They also break 'em down relative to household income, and here's a result that I didn't expect: according to their data, "upper middle class" folks such as me have seen no change in the percentage of their income they devote to their kids' college costs between 1992 (when my college was getting financed) and 2003 ("now" for the purposes of conversation). Although, I can still salvage a little self-pity. Here in New England, both college costs and incomes are higher than in other parts of the country, so I can look forward to increased net payout, and also life in a lower income group than the national averages suggest.



On the other hand, and as usual, it's far worse for lower income people, who are not only getting pushed into college much more than they used to, but have a bigger burden than they once did. It's not just that a matter of costs growing equally for everyone. The increase on the lower end of costs relative to income is reflective of the fact that these families have become poorer since 1992. The growth rate of income has been much different for the different qunitiles (Why the census likes to bin things up in quintiles, while the college board prefers quartiles is left as an exercise to the reader. Downloadable tabulated data could have given you a better post, but would have wasted more of my time.). Lower income people didn't benefit from a growing economy at all, while rich folks did so disproportionality, and the speed of that separation has accelerated, a grand canyon of inequality. Middle class people (at least outside of New England) have been just barely keeping up with the growing expense of those important things that are not in the CPI, which is perhaps why we don't have a revolution yet.



But anyway, the data tells me, to my surprise, that it shouldn't be any harder for me to put my kids through school than it was for my parents (who pretty much killed themselves to do it), even while great other segments of the population are getting right fucked. Even there, there are a few key omissions in that analysis:

Fuel costs have risen relative to inflation since the early 90s.

So have housing costs, a lot. Note that first chart.

It's taking two individual incomes to make that same household rate of 20 years ago.

We just finished paying off our goddamned loans. Mom and dad didn't have that issue.

Income still ain't wealth, and savings in terms of home equity has been devalued.

Student loans are an expected finance mechanism, more, I think, than they used to be. There are industry incentives to push them, in terms of government guarantees and protection from bankruptcy laws. Like in Taibbi's Griftopia, these were legislated changes in policy.

So even for the middle class, that nominally static fraction of our income still looks a lot like a growing debt trap, as the other demands on that income have increased, and as the cycle of debt closes to meet across the generations. As mentioned above, student loan debt has shot up 25% since the early nineties, which is far beyond what costs did. Mom and Dad have less to contribute, and so Junior takes on a bigger chunk himself. More people need to go to college to provide the credentialism that employers increasingly demand, (and to soak up the lack of quality jobs they offer) and meanwhile the economy is recessing, and unemployment is high.

If it's a bubble, then how does it collapse? When you default on your mortgage, at least they can take your house. The justification for your college loan is your future income. What's in the deal for lenders when you can't cough it up? Are we looking at peonage? Debtor's prisons? (It's a trick question of course. Student loans are guaranteed by the government. They'll take your taxes and slowly rescind your benefits.)

I'll accept that loan availability gradually drives up tuition prices. People can generate more money to go, and so they get charged more for the same thing. Where does it all go? Universities don't pay professors a hell of a lot more than they used to, especially given the purported value of their extensive education, and there are fewer tenure positions available, and more temporary ones, not to mention a glut of eager degreed people to fill them all. Administration as a buck-sucker is a good hypothesis, but even CEO-scale pay increases at the top don't really seem enough to be enough to soak up all those additional dollars. Not only are tuitions skyrocketing, attendance is going up too. In public universities, decreasing state funds is blamed, and that is no doubt part of the story, but it still doesn't account for the way that private education has similarly ballooned. It probably does explain the difference in the rates of cost growth vs. private school, but they're both still growing.

Another usual story is that it goes to ridiculous infrastructure improvements: spiffy buildings, meticulous landscaping, sports teams, palatial dorms, sparkling research facilities. Speaking anecdotally, every residential universtiy I've been within a mile of has been sick with this improvement disease, and it probably explains why commuter schools are growing less fast (but dorms alone don't seem to cut it as a cause, looking at the mroe modest growth of room and board compared to tuition that the College Board reports). The story is that all of this is done to attract students, but that doesn't compute, considering there are more students than ever, coughing up more bucks. Even if they didn't raise the margin, colleges should be be raking it in based on volume. I have mixed feelings about these big collegiate infrastructure investments. I am sentimental about tradition, preserving the older feel of these places, and hate to see unnecessary changes, at absurd cost. But as for the attention, these institutions may be reinforcing the last connections with learning and culture our society can expect, and that strikes me as worth preservational effort. And the improvements don't need to be constant: if the money spigot does start to lose flow, they can always stop building all this shit, just let the basketball team go pro already.

I've been intrigued (and not at all surprised) by statements, usually in blog comments, that the loan availability is also largely influenced by loan providers. More money lent means more business, and maybe sharking accounts for the baseline super-inflationary growth that we see in community colleges (which, as opposed to the residential four-years, don't spend anything on superstar professors, computer systems, and media castles). From the investment end, a couple percent growth per year seems like a pretty stable vehicle, and it's foolish to imagine they're treated as anything else, and naive to think that how this fact may benefit the borrower is a chief concern. [Editors note: Keifus was taken behind the woodpile and is now aware that baseline 1.5% growth is the increase in alleged value of an education, not of an existing investment. An already-written-up loan package only grows by its own interest rate structures, although it's perceived stability, the presence of side bets, and suckers to sell it to, no doubt help to increase what you can sell the next loan for, just like in the mortgage world. Does the increase in new loan values correlate with an actual 1.5% increase in value of an education? That's kind of the danger.] Are student loans securitized and ranked like mortgages have been? Yes, although asset-backed securities like this are reputed to be more stable and conservative than housing stock. I don't have the faintest idea whether these loan packages are as shakily insured and inappropriately leveraged as the mortgage obligations were--that'd take a real researcher to uncover. (It looks like they managed to remove caps on adjustable rates somewhere around 2000, although I might not be understanding that report primer correctly.) I'm sure nothing good will happen if people start massively defaulting on them in any case.



* We're by no means there yet. My opinion is that it's worth it to learn what's good about life before you're forced to accept its inadequacies, which will happen soon enough.