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Monday, April 23, 2018

A New Pareto Liberal Paradox (reposted from 2004)

One of the core principles of Liberalism is that there must be equality before the law. The law must not discriminate. In practice, this principle is often restricted to citizens and people are citizens only if they are born in the liberal polity or have the right ancestors. I personally consider this restriction absolutely inconsistent with my core beliefs.

In any case, equality before the law is a core principle. Liberals might consider equality of income very important or not at all important, but we must defend legal equality or else we are not liberals.

I naively imagine that I am pretty utilitarian. Consequentialist enough to accept Pareto improvements anyway. I reconcile my absolute respect for legal equality with my absolute respect for utils ideologically, that is by convincing myself that reality is such that I can hold both moral beliefs. In plain English, I am deeply convinced that legal equality is not just good in itself but also is the most efficient legal rule. I think that hereditary priviledge is not only wrong but also leads to incompetence in key positions.

However, I can imagine an alternative world in which a law which discriminates can cause a Pareto improvement. I am absolutely unwilling to name such a law clearly, because I consider it obscene. I will discuss the issue only in complete abstraction. The reader will have guessed that I am more liberal than utilitarian and would reject the Pareto improvement in the unhappy alternative universe.

The model is a case of the Matsuyama model (QJE 1991 vol 104 pp 617-650) built on the Murphy Shleifer and Vishny big push model and analysed by Herrendorf Valentinyi and Waldmann (ReStud 2000 Vol. 67 no. 2 pp. 295-307). This is a model in which different people leave villages where they farmed and move to cities where they work in industry. It is assumed that different people either face a different moving cost or have different productivity in manufacturing. This means that for intermediate values of the present value of wages in the city, some people move to the city and some stay on the farm.

The interesting dynamic arises because there are Marshallian spillovers or something (in MSV imperfectly competative firms with increasing returns to scale). Thus it is not wise to move to the city if no one else does. In an early draft of HVR 2000 Akos suggested considering congestion as well. In an unpublished draf, for very high urban populations, wages in the city decline as more and more people move to the city creating congestion. The math doesn’t change if this is a non pecuniary disutility of living in a crowded city. In the model all aspects of living in the city today are summarised by the “wage” which is the income which would give the same utility if earned in the villages minus the income which would be earned in the village. Clearly the "wage" is not just a wage. It is, at least, a wage differential.

will further assume that the income of villagers goes up as more people move to the city. This makes sense as simply supply and demand. The key variable which depends on urbanisation (n) is the difference between the income in the city and the income on the farm which first increases in urbanisation then decreases in urbanisation (n). This should be called a wage differential, but I will call it the “wage” to create confusion.

Given the risk of congestion, it might be Pareto improving to restrict migration to the City. The model becomes evil, because it is also assumed that the state is inept and can only do this by choosing an arbitrary inate characteristic of people and restricting migration based on that characteristic. That is, the State can’t say you are allowed in the city if you moved here already because it can’t keep track of it citizens. Also it can’t tax and transfer because its employees are crooks or something.

People die at a constant rate and new people are born in villages so the population is constant. Babies are all somehow born in the countryside, because … well I forget why but it is a model meant to clarify thought.

It changes in a very simple way. For any n, there is a present value of “wages” such that n remains constant. The graph of this is called the ndot =0 curve where ndot is the derivative of n with respect to time. For higher V (above the ndot =0 curve) n increases and for lower V n decreases. At n = 1, the ndot =0 curve goes to infinity. In the example in figure 1 it is horizontal for n close to 1 then becomes vertical.

Recall that the wage is really a differential between the value of income plus non pecuniary amenities in the city minus that in the countryside (randomly called “villages” farm and all sorts of things because this is a blog and I am the editor).

Another key variable is the present value of “wages” V. V changes according to Bellman’s equation, because it is a present value. This means that for any n there is a V such that V does not change which defines the Vdot=0 curve. Such a V is the “wage” dividied by the sum of the real interest rate and the death rate. Importantly present value has the property that if V is above the Vdot = 0 curve V is increasing. That is present values tend to be unstable. This makes perfect sense when you realise that in the present value equation with perfect foresite the future causes the present. (that was a joke).

It is possible for the model to have a steady state which is a “saddle” that is such that n near steady state n can, in perfect foresight equilibrium converge to steady state n (I have corrected figure 1 so that it shows a saddle steady state). This requires exactly the right initial V on the saddle path. Let’s make everything linear near such an equilibrium. Then the saddle path is a line as shown on figure 1. There is also an explosive path which leads away from the steady state. The saddle path is also called the stable manifold and the explosive path is also called the unstable manifold.

Assume that initial n is very slightly above the steady state n of the saddle steady state. A question of interest (to ecotheroy geeks) is whether n must decline to the saddle steady state n or whether it can increase and get to some other steady state. This would be another perfect foresight equilibrium. In the example this second equilibrium would definitely be Pareto better than moving down the saddle path to the saddle steady state.

ne possibility is to move out the unstable line and see what happens. Given initial n near the saddle steady state, this is pretty much the only alternative. Initial n and V minus saddle steady state n and V must be a linear combination of (delta n, delta V) on the saddle path and (delta n, deltaV) on the explosive path (because all vectors are). The equations are all linear for a large region around the saddle steady state in the example so you can think of these to vectors seperately. The one on the saddle path gets smaller and smaller and (n,V) gets closer and closer to the explosive path. Figure 1 illustrates this among other things.

update: In fact it is possible to characterise the lowest explosive path with increasing V in (n,V), that is, the one with lowest V for given n. This lowest path is the one followed if the economy starts on the n dot = 0 line and hence above the Vdot = 0 line. If one starts with higher V, then V is higher for any n, since perfect foresight paths can't cross. If one starts with lower V but still above the saddle path, (n,V) moves up and to the left till it touches the n dot=0 line then up and to the right and passes over n_o above the n dot = 0 line, above the lowest explosive path with increasing V and stays above it. If V is below the saddle path , n goes to 0 and V violates the transversality condition. Figure 2 to illustrate this.

Figure 2 is a closeup of figure 1 near the saddle steady state. The red curve is the explosive path with increasing V which has the lowest V for any n. I have added another path, drawn in purple to show why this is the lowest such path.

Possible paths leading to steady state with higher n must be very close the explosive path. Weird assumptions about the “wage" can be made so that these paths cross the V dot = 0 curve but stay above the ndot=0 curve and are not on the Vdot = 0 curve at n = 1 (see figure 1). If n is not changing because everyone is in the city, V must be on the Vdot = 0 curve. Otherwise the transversality condition is violated.

No equilibrium with high n is possible because people don’t stop going to the city when the possible equilibrium path hits the V dot = 0 curve. Let’s say this happens at n =0.9. This good steady state can be reached, at the end of a perfect foresight equilibrium path, if one tenth of people chosen at random are forced to stay in the country side. The equilibrium is better than the saddle steady state for them too, because the relative price of food is high. The unspeakable policy causes a Pareto improvement.

OK all this depends on the figure which I will feebly try to explain. The red curve is the lowest curve whith increasing V for initial n n_0. The very key Vdot = 0 curve is hard to see. It slopes up from 0 to s as more people in the city help each produce (s for Solow or standard or something because after that, for a while nothing weird happens). At g the “wage” jumps up. This is like the late 90s in the US somehow with a growth spurt. G is for Greenspan or Glassman or Gilder or anyway someone who thought the tech bubble would last. At meverything begins to go wrong and society starts to collapse in the city. This is named Mathus or Marx or anyway someone gloomy. So the Vdot =0 curve slopes up, goes flat, slopes up steeply then slopes down very steeply. If congestion problem went critical very suddently, the V dot curve could jump down and wouldn’t be continuous. In this case the saddle path to the saddle steady state (low n steady state) could be the only equilibrium.

The blue curve is the n dot = 0 curve with the discriminatory policy. The policy is descigned so that it stops urbanisation just before (or just after) congestion kicks in. It makes the red curve an equilibrium path. The new blue ndod=0 curve and the old black ndot = 0 curve should be superimposed when they are horizontal. The policy shifts the ndot =0 curve n/10 to the left because 10% of migration is banned.

Tuesday, April 17, 2018

Thoughts on Capehart on Kagan

I ├Č'm reading the Washington Post and note one very outstanding op-ed by Catharine Rampell which you should just read. She links to excellent summaries of social science research and notes that Republicans don't listen to experts and aren't reality based.

But I want to write about a dumb op-ed by Jonathan Capehart. I'm picking on him partly to explain what is so extraordinary about Rampell. The op-ed is a summary and review of a speech by noted neoconserviative Robert Kagan. Writing it did not involve googling. Capehart is, more or less, reporting a speech. He didn't check claims of fact with various competing published sources. Now I don't work enough to complain about his work effort. I really just want to stress that it is amazing how much Rampell taught me.

I also want to discuss Kagan. Kagan notes that the post WWII liberal world order is an aberration. Such a period of near peace with so many once rival countries working together is extraordinary. His valid and important point is that we should not assume it is the natural order of things and assume it will last. He argues that US engagement is necessary to preserve the (relatively) peaceful order and that America first isolationism is unacceptable.

Oddly, the op-ed doesn't identify him as a neoconservative. This is, I think, highly relevant context. As briefly summarised Kagan doesn't explain how he thinks the US should engage. In practice he has advocated invading countries. Does his respect for the world order require the USA to submit to the rules imposed on other countries ? What does he think of foreign aid ? How about global warming ?

I think Capehart is trying to unite anti-├╣Trumpers, bury hachets and refrain from grinding old axes. He presents Kagan as an idealistic internationalist and doesn't get around to discussing whether he is a hawk or a dove. On reflection, I think this is good strategy and will post this post only because almost no one will read it.

Kagan's version of recent history and the rise of neo-isolationism includes

But after the end of the Cold War, Kagan says, “A lot of Americans increasingly [began] asking, ‘Why are we doing this?’” The question got louder as the United States began ongoing wars in Iraq and Afghanistan in the early part of the last decade and as the economy collapsed in 2008.

I object to lumping together Iraq and Afghanistan. I think that, while the longest US war in Afghanistan with no hint of victory in sight is very frustrating, that it would not have caused a neo-isolationaist public reaction. The decision to invade is as close to unanimous as is possible with 340 million people. It is still rarely questioned. In contrast, at least with the benefit of hindsight, invading Iraq seems insane.

Furthermore, the invasion of Iraq was a break with the previous 58 years of US foreign policy, and was presented as such by advocates. Advocates of invasion treated stability as a dirty word. I think that 2003 was the breaking point, and neoconservatives did every thing they could to break the old order. It would be uncharitable to suggest that Kagan bears as much of the blame for the current situation as his limited power allows and to suggest that he might consider shutting up forever. I am feeling uncharitable.

But what is even odder is that he basically leaves two rather important countries out of his discussion of the late lammented liberal world order -- the USSR and the People's Republic of China. He decides that japan and Germany finally became peaceful because of the extraordinary virtue of the USA. The possibility that the peaceful coexistence and then close alliance of ancient adversaries had more to do with a common enemy than a common ally is barely mentioned. The cited phrase "cold war" is literally the only hint.

I too am a nationalist, but the excessive credit Kagan gives the USA is absurd. This is actually relevant. He must argue that the USA played an essential role *and* that we can do so again even though Putin and Xi are only moderately terrifying. If the relative near peace since 1945 was based on a balance of power between super-powers, deterrence and mutual assured destruction, it will be harder to recreate it with good intentions.

Anyway I just wanted to get that off my chest here where almost no one will read it.

Sunday, April 01, 2018

Matt Bruenig Tries to Figure out Harry Potter from op-eds

So it turns out that Noted commentator Matt Bruenig has an almost unique perspective because he can read but hasn't read any Harry Potter books. So Elisabeth Bruenig interviewed him trying to find out what he could figure out about Harry Potter based on Harry Potter references in political commentary.

It is actually very interesting. https://soundcloud.com/ebruenig/matt-tries-to-understand-harry-potter

Matt Bruenig is a total hero, because he is willing to display total ignorance on a topic where many (most) people are well informed. He is especially a hero, because the actual content of the interview will not be helpful to his causes.

Bruenig is notably a leftist (no he's not old, his twitter avatar is a photo of John Rawls). His view of Harry Potter is largely based on a Ross Douthat collumn and he, oddly, assumes that Douthat is more or less fair to JK Rowling (who is also a leftist even if Bruenig seems unconvinced).

There are two interesting misconceptions. Bruenig guesses that Voldemort is the dean of Hogwarts & can't figure out what Dumbledore is doing in the book. And Bruenig assumes that wizards don't just segregate themselves from muggles but also act as a ruling class (not just death eaters and in book 7 but all of them starting in book 1).

I think it is mildly interesting that Bruenig assumes the bad guy is in power at the beginning of the series. Listening to the podcast, I am struck by the importance of the very first chapters of the first book in which the Dursley's abuse Harry Potter. After that, it is not easy to think of muggles as an oppressed under-class.

Bruenig denounces the good guy wizards and Rowling for segregating. He sure doesn't believe in separate but equal. But the point is that no one (successfully) communicated to him that the Harry Potter books are set in the contemporary UK with parliament and prime ministers and such. He doesn't consider the possibility of separate but equal as fantasy. It might be that Douthat was being mischievous and trying to portray the leftist Rowling as an elitist & Bruenig just assumed that things were as insinuated by Douthat. It is certainly true that the premise of the books is not plausible (for example, magic would be even more widely abused -- oh and magic doesn't really exist -- that's implausible too).

I am now reading the Douthat column. I must admit that "For the six readers who have never read the Potter books but who have stuck with the column thus far nonetheless:" is a good line. By that point, however, Douthat had left no doubt that he considers Rowling a political enemy -- she will not be forgiven by a never Trump Republican for unfavorably comparing Trump to Voldemort. Rowling is quite left wing, but it would be nice if one conservative left politics out of it once, just to see what it's like. Oh and it would also be nice if one ever accepted that non-conservatives don't reject all thoughts of conservatives out of tribal hostility (and projection ?).

Douthat honorably notes that he got his idea from someone who uses the pseudonym Spotted Toad. Mr Toad doesn't make much sense. He says the appeal of Rowland is to people who are loyal to a school like Hogwarts. Uh Spotted (can I call you spotted) if Rowland appealed only to people loyal to elite educational institutions, she wouldn't be so rich. There aren't enough such people to buy a book onto the best sellers list (notably there are lots of people, including Douthat, who are ostentatiously disloyal to the elite educational institution without which they would not be prominent). On the other hand, Bruenig's belief that muggles are an underclass is based on ignoring Douthat's clear explanation "Muggles are non-magical folks, the billions of regular everyday human beings who live and work in blissful ignorance that the wizarding world exists. " which is actually also a good line -- a very brief very clear summary of a point that Bruenig missed. Douthat does insist that, in real life, Hogwarts graduates rule the world & that this is a problem. This is forcing the discussion to the home territory of an pseudo anti-elitist member of the elite of the elite. This may have confused Bruenig, but it wasn't a trick. In contrast, Douthat did assert that Hogwarts is coterminous with the wizarding world & the challenges to Hogwarts come from inside the school which explains why Bruenig thought Voldemort was at Hogwarts and had no idea that there is a Ministry of Magic in the books.

I think we do actually learn something about Bruenig from the fact that he seems to assume that power will be abused, so even the nicer wizards rule over muggles. It is certainly true that the Rowling idea of wizards hiding, even though they have the power is not plausible.

But the very alarming thing is that Bruenig proposes violent overthrow of wizards followed by something along the line of genocide -- he conceeds that Harry Potter seems to be a nice guy so it would be OK to just sterilize him. But he has the idea that there can't be peace and equality with some people so much more capable than the rest of us.

I have to admit that he might be right -- disbelief in the possibility that wizards generally hide their skills can be suspended, but disbelief sure makes a good bit of sense. But the idea that rough equality of ability must be achieved by sterilization and a sort of egalitarian eugenics does sound a good bit like a right wing parody of the left.

I suppose, the open mindedness based on not reading the books and suspending disbelief has its advantages. I do wonder what humanicy could do with the extreme inequality of ability of wizards and muggles (this is also a big theme in the generally underappreciated Marion Zimmer Bradley Darkover novels).

Thursday, March 08, 2018

THE GARY COHN MEMORIAL NEOLIBERAL SHILL BRACKET

I am so thrilled that I cyber-know two of the four finalists in THE GARY COHN MEMORIAL NEOLIBERAL SHILL BRACKET --- that I wrote a fight song

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

Face to face, out here to tweat

Hangin' tough, stayin' hungry

They stack the odds 'till we beg them to tweet

For the kill with the skill to survive

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

Rising up, straight to the top

Had the guts, got the glory

Went the distance, now the're not going to stop

Just two men and their will to survive

It's the i of the tiger,

it's the shill in the fight

Risin' up to the challenge of their rival

And the last two survivors

snark their prey in the night

And their watchin' our votes

with the eye of the tiger

i of the tiger

i of the tiger

i of the tiger

i of the tiger

Monday, March 05, 2018

In the middle of a very courteous, diplomatic, and insightful post about Modern Monetary Theory Simon Wren-Lewis recalls his student days "I was told as a student that neoclassical economics was fundamentally flawed, and would soon be replaced in some kind of Kuhnian revolution. I know how easy it is to follow your political instincts and thereby miss out on so much important and useful knowledge." I first thought "exactly what important and useful knowledge" and "odd that he assumes that rejection of neoclassical economics is based on "political instincts" and not evidence. But now I want to focus on "Kuhnian".

I'd say that, since I was a student, microeconomics has changed fundamentally, but that there hasn't been a Kuhnian revolution at all. Back then courses were mostly theory with occasional empirical examples (which don't come to mind). The key features were well defined utility functions and rational utility maximization. Only later (in then current research) was there a mix of purely theoretical articles (which are still being written) and empirical work. The empirical work would rely on a lot of theory, including typically dubious assumptions needed to identify parameters of interest. Referees and discussants would note that among there interesting critiques there would be the standard questions about identification.

Some economists whom I had the fortune to meet, were looking for natural experiments. They argued that a valid instrument which captured a tiny fraction of the variance of the explanatory variable was more useful than an invalid instrument which gave smaller standard errors and biased estimates.

The point of this post (if any) is that this was not a revolutionary storming of baricades. Each article which used good instruments justified by common sense was uncontroversial. Exactly because the theory needed for identification was plausible and simple -- easily explained to non-specialists who would find the argument convincing and unintimidating -- it wasn't controversial within the profession either. A paper about the effect of unemployment insurance cost of living adjustments on unemployment duration was threatening to no one. The new empirical economics whose (always necessary) theoritical assumptions were plausible and obvious infiltrated and took over. I can't even say when it happened -- it appears as a trend not a break.

OK so I just googled [Noah Smith empirical revolution] and got the perfectly titled "A paradigm shift in empirical economics?"

There is the phrase made famous by Kuhn "paradigm shift" . My answer is maybe yes. I would be better able to answer if I had a clue what people mean when they write "paradigm," but there clearly wasn't a scientific revolution. The field evolved into something almost unrecognizably different. I suspect that this may be the rule rather than the exception. I think the example of the quantum revolution in physics is roughly as extraordinary as it seems to be. Trying to think of other examples, I come up with plate tectonics aka continental drift. Also, I guess, Darwin (and the three independent co-discoverers of evolution by natural selection) were revolutionary.

But now I want to type about Kuhn and "paradigm". I think the very best part of "The Structure of Scientific Revolutions (later editions)" is the afterword in which Kuhn apologises for his abuse of the word. He says he used it with many different meanings in the main body of the book and that he should have stuck to the original definition which is based on the paradigm of a paradigm -- illustrations in texctbooks. This (potentially useful term) shows bow important typical illlustrative examples are to our understanding of theories and the world to which they attempt to correspond. So Special relativity have implications for everyday life which are almost identical numerically, but the typical example of motion in modern introductory textbooks is relative motion of about half the speed of light where they are very different. The revolution triumphs when the typical example is something which had been new and strange. This is a useful point. Sadly this potential useful use "paradigm" was permanently blocked by Kuhn and his many fans. I think it is best to just talk about "the illustrations in textbooks" preferably with examples (paradigms of paradigmatic paradigms).

But the point (if any) of this tangent is that Kuhn was rewarded for his mistake. In fact, he became a super star scholar exactly because of it. His carely abuse of "paradigm" made it possible for others to impress the impressionable by using an oddly spelled word which came to English from Greek not mere Latin or merer German. The vagueness forcess me to use another technical term (which has bovine not Greek origins) Bullshit. Megatons of bullshit.

Which Kuhn regretted (not that he minded being a star).

You're so Vain Thou Probably Thinkest this Song is About Thee

Showing my age, I am remembering Carly Simon's "You're so Vain" when it was new and constantly played on the radio.

I was 11 years old then (really showing my age exactly. I was born November 9 1960 the day after Kennedy was elected). I was very confused by the refrain "You're so Vain. You probably think this song is about you." It seemed to my logic infatuated mind that, whomever might be the referent of "you", the song was about him.

My sister (not then when she was --- uh look she's cool but you just don't blog women's ages) has a theory that the point is the song isn't about the guy, and is about Carly Simon's learning to appreciate and assert herself.

I had another thought just now. Maybe there are many jerks like that in Hollywood (very safe assumption) and Simon guesses that each assumes he is The vain one who angered her enough to inspire a song. Thus the problem that you != you is solved using old fashioned English.

You are (all) so vain that thou (in particular) probably thinkest this song is About Thee makes sense. There are lots of you when zero would be plenty, and each and every single one of you thinks that he and he alone is the special one who has earned by special contempt. This makes logical sense.

On the other hand, I realize there is a more elementary solution. "You probably think this song is about you" does not logically imply that the song isn't about you. It might be that the less rythmic lyric would be "You probably correctly assume that this song is about you, but you don't know that, you are sure of your (correct) guess because you're so vain". It does make sense. If the referent of "you" is such an arrogant asshole that he is sure that he is most arrogant asshole ever to be involved with Carly Simon, and in fact he is, then he must be pretty damn vain.

Do click the link above. It was huge on AM radio, but it's a very good song.

Sunday, March 04, 2018

In which I agree with Jonah Goldberg and the World Didn't end (if you are reading this)

@JewishCoffeeH tweeted

The part that's not a joke is that he thinks lifetime presidential terms are desirable, whether he was referring to China or everywhere. Trump is the first president who openly disdains basic American Constitutional values.

The part that's not a joke is that he thinks lifetime presidential terms are desirable, whether he was referring to China or everywhere. Trump is the first president who openly disdains basic American Constitutional values.

Jonah Goldberg (author of "liberal Fascism") responded

I think Trump is hostile to, and ignorant of, the Constitution. But Woodrow Wilson openly disparaged and dismissed the Bill of Rights.

I Should only say that I never called Woodrow Wilson a liberal (segregation is not a liberal policy by any of many definitions given to the word over the centuries)

But I write that Goldberg is correct and that I can think of a few other examples off the top of my head

1) George Washington acting as President of the Constitutional Convention very openly disdained the constitution of the day -- the Articles of Confederation. That constitution had procedures for amendment that were ignored. The writing and ratification of our current Constitution requrired treating an earlier constitution as irrelevant.*

2) John Adams

a) Signed the Sedition Act which declared it illegal to "Rail against any Just act of Congress". A more direct attempt to repeal freedom of speech and the press by mere legislation is not possible.

b) ordered a US Naval vessel to fight French ships in the Caribbean ignoring Congress's exclusive authority to declare war or issue "letters of Marque and Reprisal" which words must have been clearer to the delegates at the Convention than they are to me.

3) Thomas Jefferson fought an undeclared war involving an attack on Tripoli (some things never change).* Also he (and contemorary Democrats) introduced the concept of nullification in response to Adams's attack on the constitution which almost destroyed the whole thing.*

4) James Madison *

5) James Monroe *

6) John Quincy Adams made a deal to defeat the winner of a plurality of votes and electoral votes. Constitutional but offensive to the spirit (he's basically #1 constitution respecter so far)

7) Deprived the Cherokee's of their property (and for a while liberty) & also (may have said) Justice Marshall has made his decision, now let him enforce it. which would be a direct rejection of constitutionality of any kind (and even if he didn't say it out loud he acted as if he believed it). *

8) Martin Van Buren I don't know watch "Amistad"

9) William Henry Harrison didn't violate the constitution during his 1 month presidency which he spent dying.

10) James Tyler was actually extreme given his conflict with Congress but I don't remember what he did.

11) Francis Polk ordered US army troops to enter disputed territory previously recognized to be part of Mexico (before that part of the Spanish Empire) without requesting a declaration of war (which was declared with the Mexicans fought back).

12) Zachary Taylor commanded the troops mentioned in 11). *

13) Millard Filmore ran as a candidate of the Native American Party after holding the office of President as a Whig.

14) Franklin Pierce (I remember the name but nothing else)

15) James Buchanan actually may have respected the Constitution of the Union he very nearly destroyed.

16) Abraham Lincoln suspended the writ of Habeas Corpus almost immediately. Imposed a draft. Basically ignored much of the Constitution to save any of it. Did what he had to do, much of which was unconstitutional.

17) AndreW Johnson completely rejected and fought the 14th amendment. His ingtense conflict with Congress was the second greatest threat to the Constitutional order (after the recently ended Civil War).

Skipping ahead

18) Yeah Woodrow Wilson didn't respect the Constitution

19) Warren G Harding (see W.H. Harrison)

20) Coolidge undeclared war on Nicaragua

21) Hoover (see 20)

22) Roosevelt ordered the incarceration of thousands of US citizens because of their national origin. Authorized fire bombing (or at least the buck stopped there) violating the Geneva Convention which was ratified by the US Senate and, therefore, US law.

23) Truman (see 22 but this time it's atomic) and tried to draft steel workers as "commander in chief in war UN approved mission time.

24) His justice department prosecuted someone for simply being a member of the Communist Party directly assaulting the first amendment. Sent "military advisors" to Vietnam without a declaration of war.

25) Kennedy approved warrantless wiretaps of, among others, Martin Luther King (OK so his little brother did but the buck still stopped there). Invaded Cuba without a declaration of war. see 24

26) Johnson sent the regular US military to Vietnam based on the Tonkin Gulf resolution which he promised as it was being debated did not amount to a declaration of war. Invaded the Dominican Republic without a delaration of war.

27) Nixon invaded Cambodia without a declaration of war. Oh come on, don't make me try to list Nixon's crimes against the constitution.

28) Ford -- Maybe OK

29) Carter did not disdain the Constitution which is part of why he is disdained.

30) Reagan Embezzled US funds to give them to the Contras. Invade Grenada without a declaration of war (not that I'm against doing that).

31) H.W. Bush undeclared war on Panama (see 30 above)

32) Clinton undeclared war vs Serbia. Bombed a TV station (civilian target). Disdained the 8th amendment when governor (ordering the killing of mentally incapacitated Ricky Ray Rector).

33) W. Bush first see Nixon above. When caught wiretapping without warrants he declared himself to be above the law, the law being the Patriot Act which he signed into law. He claimed the ability to declare a US citizen arrested in O'Hare airport an enemy combatant and hold him indefinitely incommunicado without trial. A more direct assault on the 5th and 6th amendments is inconceivable. Claimed the authority to establish a whole new kind of court by executive order without even pretending to name which act of Congress he was pretending to execute. Asked the CIA to see if tough interrogation methods worked violating the Geneva Conventions and the 8th amendment George Bush 2nd President of that name claimed powers not claimed by George Hanover third king of that name. Was an absolutist, that is, a consistent and determined enemy not just of the US Constitution but the whole idea of limited government.

34) B. Obama never openly disdained the constitution, but did mildly, moderately, humbly order the killing of US citizen Anwar Awlaki without a trial and even if he was "far from any combat zone" (quoting from memory of a leak). Sent troops to Syria without a declaration of war. Now these are arguably allowed under the September 2001 authorization for the use of military force with Awlaki a combatant (it's not like killing a prisoner). Syria is a stretch as Daesh is not al Qaeda, and they are in fact fighting al Qaeda along with most of the rest of humanity. Obama did not the Constitutional problem and asked Congress to do something about it.

OK so some have respected the Constitution (one at least partly because he was busy dying) but it is very much the exception not the rule.

*He deprived his slaves of liberty without due process of law (the Constitution was totally hypocritical on this point clearly allowing slavery and pretending to establish a right to due process)

Saturday, February 10, 2018

Contra Mannheim

First rules of blogging. I type as I please.

I haven't read anything by Karl Mannheim but I think he wrote the phrase "social construction of truth". I think that is a bad phrase and all use of it or similar phrases should be criticized.

My reason is simple. I think anything true which can be said including the phrase "social construction of truth" can also be said using "social construction of belief". I think that all such valid claims amount to the assertion that our beliefs develope as part of a process of interaction with other people. I don't think many people have noted that beliefs are socially constructed, because the fact is so obvious that it (almost always) goes without saying.

Rather, the reason I vaguely remember that some German guy wrote "social construction of truth" is the assertion that there is no truth other than belief. It is an assertion of idealism -- that all that exists are minds and ideas. Now I don't have a problem with idealists (I disagree but I do not denounce). I do have a problem with blocking arguments by redefining words.

If "truth" is redifined to be a synonym of "belief" it is impossible to assert that beliefs are true if and only if they correspond to an external reality. It may be that this assertion (called realism) is incorrect, but I think it is very bad to redefine words so that a view with which one disagrees can't be stated.

One can assert that "truth" vs "belief" is a distinction without a difference, but it is better not to redefine "truth" so it is a distinction without a distinction.

In particular, I think the appeal of "social construction of truth" is that the meaning is ambiguous. When it must be defended from criticism it is interpreted to mean "social construction of belief" which is an assertion too obvious to make clearly. When it is not subject to criticism, it is defined as implying there is no external reality -- nothing but opinions, no atoms and no void.

I think it relies on an equivocation and is invalid reasoning.

----------------------------------------------------------------------------------------------------- OK now a bit of borderline xenophobia and nationalism. Mannheim's first language was German. I don't speak any German but I do speak Italian and have become painfully aware that the Italian word "verita" does not translate the English word "truth". A closer translation is "realta". The points are that I now have a larger vocabulary, because I learned Italian and discovered that Italian words are not exact translations of English words, and, also, that there a lot of confusion is caused by semi translated words.

Very often I find what I believe to be incorrectly translated French mixed in the English. I recognise it, because it makes sense as incorrectly translated Italian. I am very sure that this is a more irritating problem for people whose native language is anything but English, as the flow of semi-translation is mainly from English to every other language.

Wednesday, February 07, 2018

Drum goes easy on Goldberg

It is progress that hack conservatives are bothsidesing now. Jonah Goldberg correctly notes that the problem isn't just Trump but also broader extreme partizanship. He asserts that both parties are to blame. He seems to know he can't defend this assertion and declines to try. I think he may be sincere -- the extreme partisanship of Republicans means that in the Conservabubble it was generally agreed that Obama exceeded his authority. Many of the conservative attacks on Obama were due to the progressive insanity of the conservative movement. Goldberg has noticed that Trump is extreme and a threat to the Republic, but he won't bother to re-examine what he thought back when he was an orthodox conservative.

Liberals roll their eyes at the claim that President Obama violated democratic norms or abused his power. But putting aside the specific arguments, conservatives saw plenty of abuses and violations, from the IRS scandals and Benghazi to the Iran deal. Obama said many times he couldn’t unilaterally implement the Deferred Action for Childhood Arrivals program because he wasn’t a “king.” Then he did it anyway.

Kevin Drum is very hard on Goldberg.

Yeah, OK, except that we really can’t put aside the specific arguments here. We know now that the IRS “scandal” was a minor screwup that affected both parties, and certainly had nothing to do with Obama anyway. Benghazi was a tragedy, but not a scandal in any reasonable sense of the word. The Iran deal was…the Iran deal. And getting new legal advice on DACA is hardly some unprecedented norm violation. It’s up to the courts to decide if an executive order is legal, and so far no court has even taken up the question of DACA, let alone ruled against it.

It is indeed offensive that Goldberg wrote "putting aside the specific arguments" before stating his conclusions on those specific topics. He is saying that he demands that his claims be accepted (as an effort to avoid extreme partisanship) even though he won't bother to defend them.

However, Kevin Drum is not hard enough. He lets plainly false claims about DACA pass. I guess Goldberg was sincere. His claim about Obama and DACA is 100 % false, but conservatives generally agreed that it's true. When Drum asserts Obama got "new legal advice". There is absolutely no evidence that this is true. Goldberg's argument is entirely based on ignoring the difference between deferred action (within the authority granted by the Immigration and Naturalization ACt to the executive and comprehensive immigration reform which Obama consistently said he did not have the authority to impose by executive order.

My long comment.

You are much too charitable to Goldberg. His claim "Obama said many times he couldn’t unilaterally implement the Deferred Action for Childhood Arrivals program because he wasn’t a “king.” Then he did it anyway." is 100% false. In particular the word "Then" is totally false. Obama said he couldn't implement Comprehensive Immigration Reform because he wasn't king. He said that *after* the DACA was implemented. Also, formally, Obama did not issue a DACA order "DACA is based on a June 2012 memorandum issued by Janet Napolitano, then-Secretary of the Department of Homeland Security." http://www.politifact.com/truth-o-meter/statements/2017/sep/11/eric-schneiderman/has-daca-been-ruled-unconstitutional/

The denunciation of Obama for allegedly claiming to do what he admitted he couldn't do did came after DAPA (deferred action for parents of Americans) an order issued long after DACA and after comprehensive reform was blocked by Boehner (and Boehner alone there were the votes in the House). DACA was not especially controversial.

But the key thing is that DAPA (although much larger in scale that DACA) was *not* comprehensive immigration reform (that is Economic Opportunity, and Immigration Modernization Act of 2013). Note 2013 which came after 2012. It was during the 2013 debate *after DACA* that Obama asked Congress to do that whiich he said he didn't have the authority to do. The difference is the the gang of 8 reform included a path to citizenship. Obama has consistently held the position that under existing law, the executive can order deferred action and grant work permits and can *not* grant legal status (green cards) or a path to citizenship.

. People also repeatedly confuse the content of DACA and the very different content of the DREAM Act (another different thing, the first chronologically, which was blocked by a filibuster in the Senate). The Dream act (and the gang of 8 comprehensive reform) included paths to citizenship.

It is that which Obama said he didn't have the authority to do by executive order. DACA does not include a path to citizenship. It does include deferred action, which clearly falls under prosecutorial discretion, and granting work permits (but not green cards). It is precedented. George H.W. Bush issued an executive order based on the exact same claim of authority.

Only by eliding all reference to granting citizenship can Goldberg claim Obama did what he said he couldn't do. This is totally false. It is bullshit. It depends on asserting that different policies are the same and that citizenship doesn't matter. It is true that, although DAPA has the exact same legal justification as DACA, it's legality was controversial. People generally sympathetic to Obama said that it seemed that the GOP might have a point this time. Then you talked to experts on immigration law who said that Obama clearly had the authority. https://www.motherjones.com/kevin-drum/2014/11/obama-immigration-legal/

I quote you "I confess that I’ve been a little surprised by what I’ve discovered. As near as I can tell, both liberal and conservative legal scholars—as opposed to TV talking heads and other professional rabble-rousers—agree that Obama has the authority to reshape immigration enforcement in nearly any way he wants to."

note the date 2014 (DAPA) not 2012 (DACA). Although they differ only in scale, DACA was no where near as controversial and never blocked by a Court http://www.politifact.com/truth-o-meter/statements/2017/sep/11/eric-schneiderman/has-daca-been-ruled-unconstitutional/

Note also the DAPA injunction does not address the question of whether Obama had the authority to order deferred action and work permits

"But when those programs [DAPA] were temporarily enjoined by the district court in Texas, it was not on constitutional grounds, Kalhan said, "but rather based on a conclusion that Obama administration should have instituted the policy using notice and comment rule-making, rather than using the more informal guidance document that it issued.""

The entire argument depends on equating deferred action + work permits (within his authority) and green cards and a path to citizenship (Obama consistently said he didn't have the authority to grant that).

Saturday, December 09, 2017

DeLong & Krugman vs Mankiw and Mulligan III

I thought it was all so absurdly simple after all that I could explain to the many readers over at AngryBear. But I am so bad at expressing myself that even my very trivial explanation of the controversy was a mess. so I brought it here. Now I have to add paragraph breaks by hand

There has been a very odd debate among very smart economists in which Brad DeLong and Paul Krugman are convinced that Greg Mankiw made a silly algebra mistake and Greg Mankiw is not convincedade a silly algebra mistake [update oh my Prof Mankiw appeared in my comments noting that he didn't say anyone made a mistake & just wrote that he hadn't. Sorry about that].

I have struggled to understand the disagreement, which, again is elementary algebra and geometry. There is no point in trying to make sense of my efforts to understand. I am now quite sure I understand the disagreement. I am also quite sure that none of the three made a silly algebra mistake.

Mankiw's question is here

He assumes a small open economy (with something making adjustment gradual) so the after tax return on capital must be equal to the world interest rate r*. then he asks a very odd question: what is the ratio of the long term gain in wages due to a (small) reduction in the capital income tax to the short term loss of revenue. There is no particular reason to ask this question, except that it has an oddly elegant answer. That ratio is 1/(1-t) where t is the initial tax on capital income.

Brad's latest effort to explain is here

Just click the links. I finally understand that Brad too is asking a very similarly odd question. The only difference is that Brad considers a tax on capital (tau)k not on capital income (t)f'(k)k. This makes the difference.

The reason is that changing t by delta t (delta t <0 so this is a cut) has three effects on revenues. First there is the immediate loss (delta t)f'(k)k (this is what Mankiw calls the static cost and I think that's standard terminology). Second there is the additional revenue because the tax cut will cause higher investment (t+delta t)(delta k). Third and critically there is a gradual reduction in tax revenue per unit of k due to the decline in f'(k) equal to (t+delta t) f''(k) (delta k) so this causes a loss of revenue equal to (t+delta t) f''(k) (delta k)(k+delta k) or, to first order

tf''(k)(delta k)k

This means that the change in revenue per unit of capital is (to first order) (delta t)f'(k) + t f''(k)(delta k). Now imagine that new capital is due to entry of new firms, so I can talk about revenue collected from old capital. that changes by

(delta t)f'(k)k + t f''(k)(delta k)k

if delta t is negative, delta k is positive. f''(k) is negative so the second term is an additional cost to the treasury of cutting t. It taxes at a lower rate and the profits earned by the old firms are lower bcause of the competition from the new firms.

wages paid equal f(k)-f'(k)k so the change in total wages is (always to first order)

f''(k)(delta k) k.

OK as noted by Brad, the after tax returns on the old capital are always kr* so the reduction in revenue collected on old capital must be equal to the gain in wages (to first order in delta t)

(delta t)f'(k)l + t f''(k)(delta k)k = f''(k)(delta k)k

so

(delta t)f'(k)l = (1-t)f''(k)(delta k)k

Oh look that's Mankiw's short term loss in revenue equals (1-t) times the long term gain in wages. The long term loss of revenue from taxes on income of old capital is equal (to first order) to the long term gain in wages.

Now consider a tax on capital Tau if it is changed by delta Tau then there are only two effects on revenue. A short term loss of (delta tau)k and a gain of (tau +delta tau)(delta k). the long term effect on revenues from taxing old capital is just (delta tau)k.

The long term effect on after tax income from old capital is zero again, so the long term effect on wages is, to first order (delta tau)k. So again the ratio of the long term gains to wages and the long term reduction in revenue from old capital is 1.

But now the long term reduction in revenue from old capital is equal to the short term reduction in revenue from capital. So now the ratio of long term wage gains to short term revenue losses is 1 not 1-t.

Now I think the actual lesson here is that it makes no sense to look at a long term change divided by a short term change.

But no one has made an algebra mistake. Taxes on capital and capital income are different. The effect of changing them on revenue collected from old capital is different if the change in the taxes affects the pre-tax return on capital.

Now something is gained by drawing the figure (see Brad's figure). It makes it very clear that the gain to workers is equal to the loss of revenues collected on old capital (plus the little triangle which is second order in the changes in taxes).

DeLong & Krugman Vs Mulligan & Mankiw II

Below, I tried to understand why Brad DeLong and Greg Mankiw were having so much trouble understanding each other. The story so far: Delong and Paul Krugman think that Mankiw and Casey Mulligan made an elementary algebra mistake. Mankiw and Mulligan think that DeLong and Krugman made a math mistake.

I think they are all wrong and that none of the four made a mistake.

update: I also now think that I was wrong about what Brad wrote when I wrote the silly post below. Like Mankiw, he was considering the ratio of the long term effect of a tax cut on wages divided by the short term effect on tax revenues. The difference is entirely that DeLong and Krugman consider a tax on capital and Mankiw and Mulligan consider a tax on capital income. Short run revenue effects changes in such taxes differ only by a constant (the initial marginal product of capital). Long run changes in tax revenue per unit of capital and of wages differ by an further factor 1-t explaining the different results. end update: Mankiw considers a reduction in the tax on capital income in a small open economy. He assumes that the after tax return is equal to a constant world rate of return r* (in the long run although he doesn't clearly state that he doesn't think this holds in the short run). He looks at the "static" cost to the Treasury of a tax cut. Here he assumes that the pre-tax return doesn't change quickly, so he assumes that, in the short run, the after tax return is greater than r*. Then he looks a the long run increase in total wages paid (the wage bill).

He notes that the ratio (long run)/short run = (1/(1-t)) where t is the initial tax rate.

DeLong scolds Mankiw very harshly for using the word "static" with a different definition that the JCT. I personally wonder why Mankiw thinks anyone should be interested in a (long run)/(short run) ratio.

First I think I understand the communication problem (update I didn't understand it end update). Mankiw is no more able than I to write the symbol for a partial derivative on the web.

He wrote "We cut the tax rate t. Because f '(k)*k is the tax base, the static cost of the tax cut (per worker) is

dx = -f '(k)*k*dt."

he means partial x/partial t = -f'(k)k. by "static" he means "holding k constant" that is taking a partial derivative. Now if k were constant, then wages and production would be constant so profits gross of taxes would be constant and the return on capital would be greater than r*. In Mankiw's example, the only thing which changes (other than taxes once) is k. You can't change t, keep k the same and keep (1-t)f'(k) = r* constant.

update 3: All that follows is my confusion. I can get to a model in which there is a short run wage gain equal to the short run revenue loss. However, it isn't Brad's model at all. Like Mankiw his is looking at long run wage gains vs short run revenue losses dw/dtau/(partial x/partial tau). The difference is that Brad considers a tax on capital not on capital income.

Everything that follows is irrelevant to the discussion and just an example of how one can get any result one wants out of an economic model by fiddling the assumptions.

end update 3

Brad *insists* on another definition of static -- one which he knows is used by the JCT to score tax reforms and generate the ultra important $ 1.5 trillion. In this defintion, prices may change (and accounting tricks definitely change) but actual production doesn't.

So in Brad's static calculation, k stays the same but the pre-tax return on capital falls so (1-t)(pretaxreturnoncapital) = r* stays the same. This can only happen if wages go up. The net of tax income of investors is (by assumption) fixed so the gain to workers is exactly equal to the loss to the Treasury.

Brad's static analysis is a bit odd. He assumes k is fixed *and* that wages and the pre tax return on capital change. He writes that it is very important to defer to the JCT. I agree with him about that as a matter of political economy. But I want at least a story for how w and pretaxreturnoncapital can change without k changing.

The story follows. Capital is like clay. Once it is assembled, the production function is Leontief so there is no way to substitute capital and labor. Output is firms choose a technology with a given capital labor ratio from a menut that looks like an ordinary production function, but, once chosen, the ratio is fixed.

In contrast w is not determined by the technology. It is determined so the after tax return on capital is r*.

If w is too low the return is higher than r* and foreigners send in capital and hire a worker (taking w as given). There would be excess capital so the return would be zero. Uh oh. if w is too high domestic investors send all their savings abroad. Then One tiny bit of capital deprciates and there is surplus labor and wages fall to zero.

So wages and pretaxreturnoncapital adjust instantly.

New capital is installed with a higher capital labor ratio (because wages are suddenly high in the USA). So as the old capial is replaced by new capital, demand for labour slowly changes.

Capital as clay makes it possible for prices to change quickly and quantities to change slowly. This is what Brad assumes, presumably following the JCT.

Mankis is assuming a smooth production function in which substitution of capital and labor is alway possible. His short term calculation is in the short term, k is the same so w = f(k)-kf'(K) is the same so the ratio of gain to workers to loss to the treasury is 0. not 1/(1-t) not 1, but exactly 0.

DeLong, Mankiw, Krugman, Mulligan and Cochrane Argue About Elementary Economics

I think you should read this post by Brad DeLong to understand the issue and the very grave condition of the discussion in which academic economists try to contribute to the policy debate.

The TL:DR version is that Greg Mankiw blogged a little exercize in which he asked the interested reader to calculate the ratio of two effects of cutting the tax on profits. The ratio was the long run increase in wages divided by a very short run loss of revenues to the Treasury.

The point was that this ratio is 1/(1-t) where t is the initial tax rate. I have no doubt that, as a partisan Republican, Mankiw was eager to lead people to a ratio greater than 1.

Brad DeLong objected that Mankiw incorrectly called his extremely short run analysis a static analysis. The exact definition of "static" matters, because it appears in the rules of the Senate which determine if a bill can be filibustered.

In Mankiw's extremely short run, the capital stock is fixed and so are wages and prices. This is a perfectly standard Keynesian short run. In static analysis as conducted by the CBO, the OTA and the JCT, wages and prices are assumed to adjust (and all accounting tricks are used).

Astonishingly, there is a heated debate about this. I think it can be resolved if Mankiw says he didn't use static in its Senatorial sense and should have written "extremely short run". I also think he should, but definitely won't, note that his calculation is just a calculation with no policy relevance at all (it would have none even if the super simple modeling assumptions were the truth, the whole truth, and nothing but the truth).

Oh crap my summary for those who find DeLong's post TL is Too Long too. Just click the link.

My interest is in totally pointless theory. (no JCT no CBO). Why, in the model, does the long run take a long time to arrive ? What assumption is made which prevents K from jumping ?

I can think of 3

1. What Mankiw really has in mind. The economy is a closed economy. higher after tax interest implies higher saving and capital accumulation (there is a substitution effect but Ricardian equivalence means there is no income effect). The economy converges to a new steady state with after tax interest equal to the rate of time preference (1-t)f'(k) = rho. But this is hard, so (like the Tax Foundation as denounced by Krugman) he semi shifts to an open economy, but just to say that the after tax interest rate reaches a constant in the long run.

But then, if there are no installation costs and domestic and foreign goods are perfect substitutes, then domestic K will jump. Oooops. One needs one or the other. Krugman has very wonkishly done imperfect substitutes here.

so I will whip out Q. To avoid Krugman's insanely wonkish math (and replace it with other insanely and pointlessly wonkish math) I assume that domestic and foreign goods are perfect subsitutes (with no transportation costs either). This means that there is alway perfect purchasing power parity and current account deficits can jump up and down. This good can be consumed or assembled to make capital. I use its price as numeraire. It really just means I am setting the after tax rate of interest to a constant r*.

I will assume that labor input is constant and L=1. So I can write production as f(K) = F(K,1) and talk about derivatives. Capital income gross of taxes is Kf'(k), investors get (1-t)Kf'(K), the IRS gets tKf'(K) and workers get f(K)-Kf'(K). Here notice that I assume that reinvested profits are taxed -- no expensing investment here.

Now I will intoduce an installation cost. The cost of increasing K by dK is dk+dk^2 . The second term is called an installation cost. This means that the value of a unit of capital is not necessarily one unit of the final product. The ratio of the prices is called Q.

The convention is to call the dk increase I (investment) and not explain where installation costs appear on profit and loss statements. I assume that the installation costs are counted as investment not expenses for tax purposes (this is also conventional). I am just insisting that the tax collected is equal to tKf'(K) no matter how much or little firms invest.

The Standard results now are that

1) Q = 1+2I

2) r*Q = (1-t)f'(K) + dQ/dt

so in steady state r*=(1-t)f'(K) . There is math behind the equations, but they make sense. The marginal cost of capital is 1+2I so equation 1 just means that there is no arbitrage opportunity based on building new capital and selling it. Equation 2 says the return on ownership of capital is equal to r*. In other words, there is no arbitrage opportunity based on borrowing, buying some capital, operating it for a while collecting after tax revenues then selling it for a capital gain or loss.

Now what happens quickly if t is suddenly cut by dt ?

K can't jump. production can't jump. The real wage doesn't jump. real profits gross of taxes don't jump. This short term is Mankiw's extremely short term. There is no need for wage or price stickiness.

The variable Q jumps up (owners of capital are richer -- that is the actual point of the whole operation even if Republicans won't admit it).

OK I haven't proven this (and have no intention of doing so) but the transfersaility condition and the budget constraint imply that K will converge to a new steady state where r* ( 1-t+dt)f'(K), dK/dt = I = 0 and Q = 1. So Q has to head back down (K,Q) moves down a saddle path.

This means that the dQ/dt term is negative. This means that Q jumps up to a level lower than (1-t+dt)/(1-t).

Well that was almost exactly pointless. The only tiny point is that I have a model which has been fully worked out (I didn't here -- it's in the literature google [Q theory hayashi]) in which the very short run is exactly Mankiw's very short run.

Monday, December 04, 2017

Twitter AI Fail

I just got 2 new twitter followers.

Asteroid day is "Raising awareness to protect Earth from asteroid impacts and inspire the next generation." kay mccull's avatar tells people to vote.

I have trouble doubting that there is some connection with the poll I recently posted in which I asked if Clinton weren't on the ballot would her supporters have voted for the Sweet Meteor O'Death. A.I. is getting scary, but still confused support for a life destrying meteor with opposition. I assure my (few) blog readers that only one of my (few) twitter followers voted for the Sweet Meteor O'Death

Sunday, December 03, 2017

Republicans Reject the NFL, the CIA and the FBI

I forget who said she never expected that, after the national divorce, liberals would get custody of the NFL. But it's beyond that. Now Republicans reject the CIA and the FBI too. Donald Trump sometimes sounds like a paranoid 60s hippy claiming he is being persecuted by the evil FBI (except some of them really were persecuted).

So what else can they reject and abandon ? Hmm the flag. Some of it is blue like blue states -- they can't have that, and some is commie red. So they will probably decide to purify it.

I can't wait to see Republicans wave their white flag.

Wednesday, November 29, 2017

Optimal Capital Taxation and The Long Run

I do not like the argument that capital income shouldn't be taxed and I do not like the assumption that, in any good economic model, the economy will converge to a unique long run balanced growth path.

The two are related in two ways. First the mathematical case for zero tax on capital income states that as time goes to infinity the tax rate goes to zero. Many economists pretend this means that it should be cut to zero right now. This is utter nonsense.

The argument is that we wish people to have high consumption. For that to be possible they must save and invest. Capital income taxation penalizes saving and so prevents capital accumulaion -- by causing higher consumption now. The whole argument is based on the fact that, when one has a budget constraint, more now means less later. But this fact that the whole discussion is about doing the opposite now of what you want to do in the future is conveniently forgotten when it shifts from assumptions about desired consumption to conclusions about optimal taxation. I do not think that this can be an honest mistake.

The solution to the simplest version of the problem is that a state which wished to take wealth from investors and worries about their incentive to save should take the wealth as quickly as it can until it has taken all that it has any desire to take, then stop. The tax on capital income goes to zero if and only if the state does not wish to take from capitalists. Exactly when a lump sum tax which capitalists must pay no matter what would also be zero. As claimed, there is no tradeoff in the very long run between concern about incentives and other aims. But the reason is that the other aims are totally achieved as they would be if there were no problem with incentives.

The math is fairly simple (pdf warning). A slightly different and more realistic model has a more extreme result. The state takes from capitalists at time t even though it would rather let them keep the wealth in order to reduce their consumption at earlier times.

Here the trick is to assume the future is now.

A much more serious problem which actually affects political debate is the assumption that tax cuts will not lead to an exploding debt. This is just and assumption and it is part of the rhetoric of advocates of tax cuts, but it is also true of the models used by serious economists to analyse tax cuts. The reason is that the standard approach requires the economy to converge to a steady state. An exploding debt to gdp ratio is not allowed, because all such ratios are must converge to constants in all respectable models. Here the point is that this is required for the model to be respectable -- it does not follow from other core assumptions.

So, for technical reasons, it is assumed that the tax cut is paid for either by a tax increase or a spending cuts (often the assumed tax increase is a lump sum tax) which does not affect incentives. This makes the analysis useless. A more realistic assumption would be that the exploding growth will cause a future policy change involving taxes which have actually been collected without causing uprisings. This means that low taxes now imply high taxes in the future. If one considers only capital income taxes, it means the believe that they should go to zero as time goes to infinity implies they should be high now. If the choice is taxes in the future or in the present (and it is) then arguments that taxes should be low in the future imply they should be high in the present.

Of course the enthusiasts for tax cuts hope that the debt will lead to cuts in social welfare spending. But they don't admit it, because even discussing the possibility of such cuts in the future is political poison. Also, I think, they have short planning horizons and want low taxes at the time of the next election and don't care about the long run (but are willing to use analysis of the long run whenever it is convenient).v The assumption that something will be done to deal with the debt (and that this something won't have bad incentive effects) is almost always combined with the insane assumption of Ricardian equivalence that ordinary people keep track of the national debt, know what share will be paid by them and their heirs and adjust consumption accordingly. In the real world, government bonds create the illusion of wealth causzing higher consumption and crowding out investment.v I think there is another problem with journalistic presentation of the debate. Supply side loons say tax cuts will cause so much growth that they pay for themselves. Sensible people say this is nonsense. Ballanced journalists say the truth is probably somewhere in between -- they will cause more growth but not enough to pay for themselves. This means they can say that, on the one hand GDP will be higher and on the other the national debt will be higher. They don't explain why the second is a bad thing (people just assume it is). But if it is a bad thing, it is because the debt causes lower GDP (it isn't painful to carry it in itself). There is a logical contradiction between believing public debt is bad because it is bad for GDP growth and ignoring this effect when discussing GDP growth. This is so obvious that I think the popularity of pairs of inconsistent claims must be do to something very strong. I think it is the need to find something good to say about Republicans, which regularly drives US journalists crazy.

So the discussion suffers from two huge fatal errors based on playing around with the long run.

Tuesday, November 28, 2017

A Comment on Drum

Read this excellent post by Kevin Drum on, you guessed it, lead.

I guessed where it was heading after reading the title.

my comment

I have often thought of attempting to write this post and always thought better of it, concluding that you will write it better. And so you did.

I'd like to add one more explanation of resistance to the lead hypothesis. It is offensive to human dignity to argue that a mere metal can undermine human society and distort a human mind. You and I are atheists, but most people in the US believe in some kind of immaterial and (they hope) immortal soul. Any strictly materialistic explanation in psychology is threatenting to this hope (I don't have any such hope to lose). I think there is a similar cause of hostility to psychopharmacology. I think it is one of the reasons that people assert (assume really) that pills cover up the real problem (but don't assert that insulin covers up the real problem of diabetics).

I'd note another right wing hypothesis which competes with lead. There are many who think that the war on poverty had perverse effects by distorting incentives. Another theme of yours is the extreme hatred of "welfare" so of course you have grappled with the argument that welfare created the culture of poverty. The progressive (domestic) program was tried 65-68 & followed by increased social pathology. Totally aside from the fact that the war on poverty didn't last as long as the war in Vietnam (let alone Afghanistan) you can argue that it was a coincidence.

Finally, another left wing hypothesis threatened by lead -- which was I think the counterculter's hypothesis. There was a time when "the affluent society" was pejorative. I think it's (among other things) the title of one of the Galbraith books which I haven't read. The idea was somehow that the immense increase in material wealth in the 60s did something bad to our character or psyche or something. This isn't the explanaton that the counterculter was to blame. Rather it is the explanation which members of the counterculter (and some eminent Harvard economics professors) offered. It too is blasted by lead.

Finally speaking of blasting by lead, the easy availability of guns hypothesis is usually an explanation of US vs rest of rich world murder rates not of the rise in the 60s. It's doing fine.

Wednesday, November 15, 2017

Do Android Phones Dream of Electoral Sheeple in 1984

Signs of the times

A photo tweeted by the Russian Ministry of Defense Tuesday as "irrefutable" proof that the United States has allied with the Islamic State in Iraq and Syria turned out to be from a video game.

@umpire43 a bot who claimed to have joined the nave at age 5 then claimed to have served 22 years from 1970 to 1972 has deleted all its tweets But I have a screen capture

Dan Scavino retweeted him/her/and or it.

Umpire43's story is amazing. Roy Moore & his wife literally took an old letter of support by 53 pastors, and forged it to make it seem like he was still supported AFTER the allegations of sexual assault on minors came out.

So far, multiple people named in the letter have demanded they be removed from it.

But Russian cyber spies who are just interested in ethics in gaming journalism, stolen honor bots who defend pedophiles and Roy Moore himself bow down to Bernie Bernstein the fake man of the day

Wow: There's a fake, mysterious robocall in Alabama out there from someone falsely claiming to be 'Bernie Bernstein,' a reporter from the Washington Post, seeking 'damaging' info on Roy Moore for $

WKRG is on the Bernie Bernstein case

With notably rare exceptions Bernie Bernstein is aware of all internet traditions. A meme is born.

Jeff B/DDHQ‏Verified account @EsotericCD

I'm surprised they didn't go with "Shlomo Jewgold" instead of the infinitely more subtle "Bernie Bernstein."

Jeet Heer‏Verified account @HeerJeet

ME: "....and then the child molesting candidate tries to save himself by robocalls from a fake reporter called Bernie Bernstein."

PRODUCER: "Security!"

Brohibition Now‏ @OhNoSheTwitnt

Bernie Bernstein? Did Hanukkah Solo and International Banker Globalowitz sound too unrealistic?

The inevitable contrarian hot take (from Matt Yglesias of course).

Matthew Yglesias‏Verified account @mattyglesias

I have met people named Bernie Bernstein — it’s not *just* a Fake Jewish Media Name.

Oh hell just search twitter for Bernie Bernstein they are all wonderful

I think @Yair_Rosenberg wins the prize

((Yair Rosenberg)))‏Verified account @Yair_Rosenberg

(((Yair Rosenberg))) Retweeted Meridith McGraw

This is ridiculous. We didn't assign Bernie Bernstein to manufacture anti-Moore stories. He's currently rigging the Brexit talks.

The enemies of truth are ruthless, but they are also very very stupid.

Thursday, November 02, 2017

The Long Run and International Economics

I am still thinking about Krugman and the Gravelle Geardown

Do click the link if you are interested in understanding what I am typing about. Very briefly the question is: what effect would cutting the tax on profits have on the _US capital stock ? The particular issue is what difference does it make that most of US production is production of non traded goods and services. Gravelle claims that this implies a lower long run effect of the tax cut on US capital stock than would occur if all goods and services were traded (or that's what I think based on Krugman's explanation).

Here the key words are "long run" and, I think, an important issue is long run mysticism. This post is getting long. I will put the conclusion here. It seems to me that standard assumptions about the long run make even less sense in open than in closed economies and I think that is the key issue here. Macroeconomists have the most consensus and confidence about the long run. The reason is that it is all handled by simple assumptions made for convenience. In particular, it is standard to assume that there is a unique long run steady state determined by tastes and technology. This doesn't follow from other core assumptions. I think this is a terrible problem, because politicians think it is honorable to focus on the long run and that means they make policy influenced by the assumptions we make for convenience (austerity, the EU stability and growth pact, and European Single Bank single mandate). Over in the USA they talk about the effect of tax cuts assuming the government intertemporal budget constraint will be satisfied with equality -- this when commenting on GOP policy proposals which would violate it.

I will hint at a model used (by Krugman say) to assess the effects of a profit tax cut. It starts with two strong assumptions. First prduction is determined by technology and accumulated capital -- the model is solved as if there were full employment. This makes (some) sense if one assumes the unemployment rate is detrmined by monetary policy. Second it is assumed that consumption is not affected by interest rates. This assumption is based on the evidence -- it is radically different from the standard assumption made in theoretical macroeconomics. Finally Government consumption plus investment is taken as given.

With those thee assumptions, increased investment must correspond to reduced net exports. This matters a lot for short run dynamics. To get higher investment, the USA must run a higher current account deficit. Krugman recently argued that this has implications for exchange rate dynamics which, in turn, imply slow convergence to a new steady stated. But here I will just discuss the long run and assume it is a steady state.

I will now make an invalid argument as to why non-traded goods don't matter. In the long run, everthing will be in balance, The US after tax return on capital will be equal to the world real interest rate. The current account deficit will be zero. The real exchange rate will be that consistent with current account balance. It doesn't matter if all or onl ysome goods are traded.

Here the trick is that I assumed that there is a unique steady state even though the model must have a continuum of steady states. I assumed that each countries intertemporal budget constraint (that the present value of it's foreign debt must go to zero) is satisfied in the simplest way with each country having no foreign debt. Nothing guarantees that. Another steady state is one in which the USA is a net debtor and services the debt with trade surpluses forever.

Here long run mysticism has met representative agent mysticism, but an extreme representative agent assumption which is never made (but which I accidentally implicitly assumed). The assumption is that I can treat all countries as the representative country, so, in the long run, none is in debt to another. This is expecially crazy. It was an honest intellectual mistake I made.

In fact, I'm pretty sure I can guess what would happen if I actually worked through a model. The US cuts corporate taxes, foreigners want to buy US stock. This drives up the dollar and drives down net exports. The workers freed up by the reduced net exports build more capital in the USA until the after tax return drops to the world level. The dollar slowly depreciated until the world reaches a new steady state in which the US has more capital and the same rate of investment so the current account is at the constant level which satisfies national budget constraints. That does not imply zero net exports. The US has accumulated foreign debt while adjusting to the new higher capital stock. This means that the budget constraint implies positive net exports to service that debt. So the dollar will depreciate in the long run. The amount of capital which can flow in is limited by the amount of debt the USA can service. I think Gravelle gets her result, because this limit is binding.

Here my error was assuming that I could model the long run as a unique steady state in which all countries are symmetric -- none is a creditor nor a debtor. There is nothing in the model which implies this. It is an insane assumption about the representative country, which has no place in a model in which different countries have different tax policies. TThis is an extreme case of a very common error. Also in a closed economy, it doesn't really make sense to assume there is a representative agent. The assumption is just one of the many tricks used to get a single steady state when assumptions about tastes and technology are consistent with many different steady states.

A Comment on Krugman on Gravelle

Paul Krugman finds intuition for the calculations of Jennifer Gravelle difficult. Now even more than usually, you really have to click this link to know what I am typing about.

My comment.

yes that intuition is difficult. I have an attempt. So 1% of GDP is tradable. Also consumption and total production fixed. Mars cuts tax from t to 0. So to invest more Mars runs a current account deficit -- all cyberservice provided by earlhlings & martian cyberworkers go build capital. Note all the extra capital belongs to earthlings (I assumed martian savings are fixed).

In the long run, there will be current account balance. This means Mars will have a trade surplus required to pay the return on earthling owned capital on Mars. They owe us delta(k)r per year. They can run a trade surplus of only 1% of GDP so delta(k) less than or equal to 0.01 GDP/r

It seems to me the long run effect is entirely due to the fact that the tax cutting planet has to pay more capital income to the other one. This places a limit on the sum of their trade deficits and extra capital accumulation.

I think the limit on long run capital inflow is that hypothetical Mars (or the US in the real Solar system) can only owe the rest of the solar system liabilities which it can service. This is a long run limit -- a statement about the new steady state.

In the really real world, I think current US current account surplues are not sustainable forever, so the sum over the next century can't increase (or stay the same). So the long run effect of a profit tax cut is zero. But that's just a guess.

Tuesday, October 31, 2017

What could 51 Senators do to Save the Republic ?

I don't think knives in the Senate chamber will be needed to deal with Orange Julius.

I am inclined to fantasize two things. First I imagine that Trump will attempt to place himself above the law (not a fantasy). Second I dream that Democratic Senators, two independents, McCain, Flake and Corker will resist with all instruments provided by The Constitution.

They can replace McConnell with one of them (say Corker). They can nuke the rules of the Senate. They can make 100 new committees Trump Russia committees 1 through 100 each consisting of one Senator with full power of subpoena.

They can hold Trumpers who resist Subpoenae in contempt of the Senate. The whole Senate can find them in contempt and propose that the House impeach. The 51 can keep the Federal Government open with weekly continuing resolutions and shut it whenever the Trump administration resists.

I think the Senate can clearly hold people in contempt -- that is have the sergeant at arms lock them up in some office.

Crazy and not enought.

Now 67 Senators and 290 Representatives can pass laws over vetoes. They can include making 535 committees with the power of subpoena and the rule that unelected employees of the US government found to be in contempt of Congress are not allowed on US government property. They can (by law) grant themselves the power to search and seize all US government property (maybe excluding property of the judiciary and stuff in the White House). This would require no warrants as the property already belongs to the US Government and the law describes what that means.

The power of veto and pardon won't cancel this law.

Crazy sure but 2017 is crazy.