Notes on being away

Not blogging for two months has its pros and cons, but there are two I'll mention briefly.

1) I've started to get comment spam, odd since there's been very little activity here, and I'm planning to clean it out. If you happen to be a spammer who's reading this (as if), don't bother to send it. My readership is not all that big, and it's pretty much non-existent from Japan, so it's really not worth it.

2) Back in July I wrote a post that was kind of a throwaway, about a radio commercial that had really bugged me (does "keeper of cool" resonate with anyone?). Why, I can't imagine, but my post continues to show up first (out of 433,000 hits) in a Google search for that phrase, and, as a result, it has become my most popular post by a wide margin, attracting (so far) 39 comments. I confess that I don't understand that at all.

Wait - what??

As you can see, it's been more than two months since I've blogged, and what's funny is that I really haven't missed it all that much. That said, it may be time to get out and drop a few insights on the world; also, I owe you, my readers, some promised posts (such as my guide to going Rim-River-Rim in the Grand Canyon in one day, NPS advice notwithstanding).

In my dedication to remaining logical and centrist, I'm finding plenty to criticize in the current scheme. Since I ripped conservatives pretty consistently in the runup and aftermath of the Obama election, you might think that I'd be in hog heaven right now. But I'm not, not that I expected much else (I'm actually pretty amused at the liberals who thought the system would change overnight, ignoring that Obama is a successful product of that very system, and apparently believes that tweaks are preferable to revolution).

But what really amuses me on either side of the political dichotomy is the raging inconsistency that people demonstrate. Let's just take one example from last month. Ezra Klein is a young man who writes for the Washington Post, and has taken a special interest in health care. A lot of what he writes is insightful and informative, and I recommend following him.

However, he can fall plague to the seduction of utopia. A favorite staple of people who want to advance some controversial notion is to let the states experiment with alternatives, at which point we can pick the best one for the country as a whole. This argument ignores differing situations - does the Massachusetts health care program, and we'll stipulate that it's been a success, really apply to Hawaii, Texas, and North Dakota? I can't say, but neither can anyone else.

But here's Klein on November 17:

Medicaid should be federalized, but so too should a lot more of school spending, along the line Matthew Miller has argued for. And these would both be good policies even outside of the context of state budgeting, as leaving school funding to local communities is a recipe for wild inequality and inconsistent standards, while leaving Medicaid eligibility to the states has left America with 51 different Medicaid programs with 51 different eligibility schemes and very little coherence.

I'm sorry, but why hasn't one really good Medicaid idea come to dominate others? You can't argue that the states can be used as laboratories for policy alternatives if real-world examples are hard to come by. I suspect we're seeing path dependence and special interests as impediments to change, and that's why I'm always mightily suspicious when anyone's pet theory is advanced as a candidate for dispersion. It's very possible that some new method of education, no matter how successful, will not be adopted wholesale by lesser-performing school districts. In the end, it will all come down to some kind of central coercion, and I don't have the sense that the United States is all that happy with that idea.

A blogging loss, at least for now

I would be remiss if I didn't mention that there has been a change in a blog I have mentioned often and have highlighted to the right, Decidedly. The main author, Greg Glockner, has left the company from which the blog emerges (he talks about his decision in a post here). and we shall be losing his insight on issues of decision-making. The blog continues with posts by Carol A. Burch, whom I have quoted from time to time, and I'll go on following it, but we'll miss Greg and hope he finds another outlet for his writing soon.

First the Cubs, now the Olympics

I'm going to admit upfront that I love the Olympics. The idea of athletes from all countries and all sports getting together and competing is easily over-sentimentalized, I know, and the problems of the world don't go away for 17 days every four years, but it still represents an ideal that is good and noble. Maybe it's become cluttered with commercialization and politics and greed and all the other human sins, but there remains a purity behind the intent that I appreciate and admire.

Perhaps that's why I, while leaning toward wanting the Games in my home city of Chicago, retained some very real ambivalence about the whole thing. The politics of Chicago and Illinois is so corrupt, so subject to cronyism and cheating, that I feared, I suppose, that the Olympics would be tainted by the sweetheart deals, the opportunities of resource diversion to cronies of Mayor Daley, the ram-it-through mentality that would make the actual people of Chicago an afterthought.

Yet...it still would have been really cool to see the Olympics come to Chicago, to be here for this oft-wonderful city to be highlighted on the world stage. Perhaps Bob Costas could do his show overlooking Daley Plaza with a big picture of Da Mare over his shoulder (having set the precedent of honoring local dictators by allowing us to spend 17 days appreciating the lovely mass murderer Chairman Mao).

Alas, it is not to be. Chicago got blown away in the first round of a competition that everyone in the city figured was in the bag. The media coverage was laughable, of course, including Olympics "experts" who, before the vote, confidently told us all the reasons Chicago was the front-runner, then did a 180 after the vote and confidently told us about the many flaws in the plan.

[To offer a minority-in-Chicago opinion: The voting results tell me that Chicago had no chance. Had we squeaked by Tokyo in the first round, I doubt things would have gotten any better. One has to suppose that the Asian bloc would have gone to Chicago instead of Rio, and I know no reason to think that would have been a lock.]

But here's the most important flaw, in my eyes. Chicago is simply not perceived as a world-class city by, well, anyone who doesn't live in Chicago. I wish it were true, certainly, because I love a lot of things about this town, but it simply isn't, and all the boosterism in the world isn't going to change that.

Look at a Chicago Tribune editorial from this past Monday:

No, Chicago doesn't need the Olympics. This is already a world-class city. Has been for decades. During its rich history, Chicago has scrapped its path to world-class stature in manufacturing, finance, retail, professional sports, academia -- on it goes. An Olympiad would be wonderful, but certainly isn't essential.

The paper cites five areas in which Chicago is world-class.

Manufacturing - largely gone to cheaper places in the country and out, and most of the headquarters of those companies have left for greener pastures.

Finance - guess the largest bank headquartered in Chicago. Go ahead, I'll wait. That's right, it's the Northern Trust, an institution that exists primarily to manage the assets of rich people. It has no place in the nation's top banks.

Retail - we need only look at the replacement of Marshall Field's with Macy's, but we can also walk down Michigan Avenue and see all the national chains to understand that retailing is no longer a primary industry.

Professional sports - even if we grant that field an influence it doesn't have, it's hard to make a case that we're any better at that than other world cities.

Academia - the tendency to overrate Northwestern, which comes from looking around newsrooms and seeing all the Northwestern grads, is irritating enough. When one looks at the deplorable condition of the once-proud economics faculty of the U of Chicago, one gets a sense that perhaps all is not rosy on the local quads.

The "on it goes" might include financial markets, but the Board of Trade and its ilk are rapidly moving to T1 and T3 lines coming in from all over the world, so they aren't the source of employment they once were. It might include tourism and conventions, but a lot of that business is being lost to cities with more to offer in the way of entertainment and food (it seems clear that any industry with a strong Asian presence is going to put their conventions in Seattle, San Francisco, or Vegas; Europe, New York or Orlando).

What Chicago has not done is establish any particular presence in anything with a future, in technology or bioengineering or alternative energy. That we aren't Detroit stems mainly from bigger size and greater diversity of industry, but it's not difficult to see us following that path eventually.

And Mayor Daley knows this, which is why he pushes tourism and splashy parks and big events, because those are the only ways he can think of to extract money from other places to prop up an obviously unsupportable infrastructure.

I hate to write this, hate to believe it, but it's hard for me to see a great future for Chicago. Getting the Olympics might have delayed the day of reckoning, but it wouldn't have changed the fundamentals. Not getting them, I don't know what's going to happen. But, at some point, the boosters and hucksters are going to have to realize that a very different Chicago is coming down the pike, and we're better off planning for that than we are trying to hit the big home run to "put us back on the map."

Back from the Southwest

Blogging (and responding to comments) has been even more sparse the past few weeks, as you may have noticed. I was away, picking up on more of the things that I missed from having a travel-averse mother. I finally made my first journey to both the Grand Canyon and Las Vegas, about which I'll probably have more to say in the coming days (of course, I said that about last year's trip to Utah, too, and you're still waiting for that).

I'll just enliven things with one comment: It is possible, no matter what the Park Service says, to hike from the rim of the Grand Canyon to the Colorado River and back in one day, though I am not minimizing it as a challenge. But the wife and I did it, it was not unbelievably difficult, and I'll write more about that for those who care at some point. Anyway, ho hum, I'm back to the quotidian, and none too thrilled about it.

They shoot, they score

CBO (Congressional Budget Office) scoring has become the hottest thing lately. CBO assessment of a health care plan, for example, is seen as definitive (at least until the results differ from what is desired, at which point the spin comes in - but the numbers themselves are rarely questioned).

So, and it seems to be a question day on the old blog, why can't the magic of CBO scoring be extended to a breakdown of costs and benefits by population segment? Why can't we put the wisdom of these analytic solons to the test of figuring out, for example, what a health care bill will really cost for different people, or anticipating how the market will change in response to passage of any of the myriad of bills we have?

The answer is probably that these matters are too difficult to forecast, that too many different things can happen. But can't that same argument be extended to the areas the CBO is willing to consider? Aren't all of their numbers, all of their revenue and deficit calculations, fraught with uncertainty? Perhaps we all need to take everything we're hearing with huge heaps of salt.

Software vs. finance

I've worked in software for quite a few years now, and I know that there are few more complex things that humans have created. To describe to anyone who hasn't worked in the field just how complicated an order entry system, for example, can be is almost impossible. You not only have thousands of lines of code, written by people of varying skill levels and experience responding to different requirements, but you also have interactions with the operating system, third-party software, external data stores, and so forth. Any moderately interesting application is orders more complex than the majority of the non-computer world.

So my question for the day is this:

Why do we need finance people to stay in place to unwind the crisis, when we let completely inexperienced people take over our software?

We're seeing our bankers making the big bucks again, and they were all kept in place through government bailouts. No matter what they had done to destabilize the world financial system, they were needed because "only they could understand these complicated financial instruments."

Now I have a master's in finance from a prominent school (FWIW), so I have some understanding of financial products, the misdirection, the assignment of risk (that theoretically reduces that risk, ha, ha), and I can tell you that there is no financial product, no matter how layered in legal jargon, that compares to a useful computer program in difficulty.

So, and I ask this in sincerity, why do we need to prop up the kings of Wall Street, restore them to their place in the universe, while every day we move some piece of software to an offshored company full of folks with meager training and experience? Why are we so comfortable taking applications away from the people who built them, giving them over to people who don't understand the business, the industry, the requirements of users?

Several answers present themselves, and at least one of them is right, but I still find it incongruous and unfortunate.

The final end to Camelot?

Ted Kennedy has, as pretty much everyone knows by now, passed away, and there is no end to the tributes for the great "liberal lion." A typical one comes from Robert Reich:

America has had a few precious individuals who are both passionate about social justice and also understand deep in their bones its practical meaning. And we have had a few who possess great political shrewdness and can make the clunky machinery of democratic governance actually work. But I have known but one person who combined all these traits and abilities. His passing is an inestimable loss.

Most Americans will never know how many things Ted Kennedy did to make their lives better, how many things he prevented that would have hurt them, and how tenaciously he fought on their behalf. In 1969, for example, he introduced a bill in the Senate calling for universal health insurance, and then, for the next forty years, pushed and prodded colleagues and presidents to get on with it. If and when we ever achieve that goal it will be in no small measure due to the dedication and perseverance of this one remarkable man. We owe it to him and his memory to do it soon and do it well.

I don't really have a lot to say about Ted Kennedy in particular. The whole Kennedy family mystique has always eluded me; I never found them as good-looking or effective or impressive as the common wisdom would tell us, but they seemed to fill some niche in America that people desired. We're starting to see some dispassionate looks at the legacy of JFK, finally, and it would appear that, whatever his potential may have been, the reality was somewhat more disappointing. RFK was a master of rhetoric, but he didn't really accomplish much either.

But Teddy, he's the one who rolled up his sleeves and did the work and stood as a beacon of hope. And that may all be true, at least to some people.

My point, actually, is about the expectations we have for people in politics and how different they are from those in any other walk of life. Look at the Reich quote above; we're supposed to commend Kennedy for fighting for universal health insurance for 40 years, for fighting the good fight.

But, bottom line, he didn't get it done. He spent 40 years under Democratic and Republican presidents, within Democratic and Republican Congresses, and it hasn't happened. He was undoubtedly sincere about wanting it to happen, he introduced bills and talked up the issue and cared about the people who needed it, I'm sure, but, in the end, we don't have it.

I can't think of another field of endeavor in which results are so severed from perception. If you worked in a company and spent 40 years never quite getting your product out the door - well, you wouldn't work in that company for 40 years. On the other hand, if you happened to be in a division that got lucky, you'd be lucky too. But it would all come down to what you had been perceived as accomplishing, not to the effort you had made, no matter how noble.

That's not true in politics. You can truck through 40 years, making speeches and showing you care, and, when you pass on, you'll be hailed as a success despite a lack of provable results. Whatever symbolic role Ted Kennedy filled (and symbols do matter, so I am not trying to deny the power of that), the reality is that very little of his effort in health care (and other issues) came to fruition. That doesn't mean he shouldn't be admired for trying; it does mean we should try to temper our awe, just a bit.

A shameless bid for Google attention

The Illinois Lottery is running a couple of commercials for their second chance lottery game, one of those things where people can win by saving their losing tickets. One of those commercials has a funny line, though I'm ignoring the fairly obvious implication that girls with accents are easy (leading the lottery-playing character to get a creepy smile on his face). One of the Vegas dancers is trotting down the street and says, "I'm a dancer. I can dance." The actress gives a good reading of the line.

I mention this only because I want to see what Google does with this post. Only one result currently comes up in a search with <"i'm a dancer i can dance" lottery>; this post should make two.

Another tragic death

The word "legendary" finally died today. It had been on life support for some time, but it took the Chicago Tribune to push it over the edge:

Alexis Cohen, legendary 'American Idol' contestant, killed in hit-and-run in New Jersey

Legendary for her cursing rant against Simon Cowell

I acknowledge that this is a tragedy for her family and friends, and I'm not trying to make light of her death.

But when a headline writer for a major metropolitan newspaper destroys the meaning of a word in some lame bid to draw attention to one of the more minor stories of the year, it is not wrong to wonder just how low our standards will go.

"Keeper of cool"

Sometimes I'll go to the Web to see if something is bothering others the way it bugs me; in effect, I'm pathetically looking for support in my dissatisfaction. I don't know if other people do that, but I rather suspect they do. I would think there were Google searches for "michael jackson too much coverage" from people who were attempting to discover that others felt that the "news" outlets were focusing overly much on a less-than-that-important story (I suspect that, had Jackson passed away during fall premiere season that the number of hours devoted to it would have been far less).

Anyway, I've been irritated for some time by the radio commercials for Cisco's WebEx product. It's a teleconferencing product, and the campaign has featured at least two spots starring a businessman who uses WebEx to enhance his ability to do presentations and hold internal meetings. The facts behind the campaign aren't bad; I'm a big believer that teleconferencing is going to become ever more important, that at some point it will curtail the rosy forecasts of ever-increasing business air travel (even if fact is lagging the enthusiastic projections of those who sell these systems).

What I don't like is the narrator - I've taken a visceral dislike to this guy. In the first spot, he talks about how he can appear all over the world making presentations, yet still be available for tonight's date with "the very lovely Rachel," and I just find something smug and smarmy about the way he delivers the phrase.

The newer ad demonstrates how this guy can pull his creative team together to implement some idea he had (perhaps on a date with tvlR, I don't know). His idea bounces from his head to various other cities, and the other members testify as to their contributions, and our main guy comes back to tell how his great idea was instantly translated into reality because of WebEx. (This is a pretty rosy picture of innovation, but it is an ad, I suppose.)

In this case, it's not Rachel's boyfriend who bugs me as much as "Logan in Cambridge," who proclaims himself, "I'm kind of the keeper of cool." And he's more smug than the Rachel guy, and it all just rubs me the wrong way.

So this morning I get on the Web to see if anyone else is as bugged by these ads as I am, and the answer is, apparently not. But here's the funny thing: There seems to be one transcript of this commercial that has been replicated numerous times, so it propagates the same funny errors. (Oddly, the transcripts aren't exactly the same, so is it using some kind of voice recognition software?)

First, we have "so I gathered my eighteen to meet online using WebEx," which is not what he says at all; it's "gathered my A team." Then comes Cool Boy, and his segment is transcribed as, "Logan in Cambridge Canada keeper of cool." As I've already pointed out, it's "I'm kind of the," not "Canada."

So I've gone from being nettled at an ad that just sticks in me to being perturbed by an Internet mystery: why these strange renditions, and why are they spreading (and another, why isn't anyone else bugged by these ads, but maybe I'm just going to have to accept that it's my own pathology being measured here)?

Bubble machine

Occasionally I will take requests on the blog (actually, I'd love to get more), suggestions on something to write about, and I'm happy to put something together if I can think of something to say. A reader/friend asked me to write something about Matt Taibbi's Rolling Stone article titled The Great American Bubble Machine. In it, Taibbi lays the blame for our financial meltdown on investment bank Goldman Sachs:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

Reaction has been severe. Of course, Goldman Sachs has responded with outrage, but many other commentators have leapt to the barricades, accusing Taibbi of overreach and sloppiness. One who has attracted a lot of attention with her "takedown" is The Atlantic's Megan McArdle, and I'll swing back to her in a moment.

But, you ask, what of my take on the original article? Ah, yes, but there's a problem: Rolling Stone has, in their infinite old-media wisdom, not published the whole thing online; the link I provided above is a series of excerpts interspersed with videos of Taibbi. So it's hard for me to provide any cogent analysis of the article without running out to the store and picking up a copy of the mag, and I'm not going to do that. (Kevin Drum fell into the trap, reviewing the article without realizing he was looking at bits and pieces. Once he got on track, he read the whole thing, concluding that, "It's a very good takedown of the modern financial industry and well worth reading." Drum also provides a link to a site that purportedly offers the whole article, but that's not working for me.)

I am left, then, trying to review an article based on excerpts, and that's not fair to the piece. I will not try to claim total objectivity anyway, as I am a fan of Taibbi's writing. His reviews of the Tom Friedman oeuvre are canonical, but I already praised those enough. He is a passionate writer, one who, perhaps, sometimes allows his passions to get in the way of precision.

But that's who he is, and to take the other side, to argue that his vehement eloquence is disqualifying is to refuse to engage with his points. And that is a far greater sin. Witness the quote in a TIME piece from a former journalist, "For the record, I don't think any article that contains the line 'vampire squid sucking the face of humanity' [Taibbi's opening description of Goldman] is real journalism." That quote is vacuous and completely unenlightening. (Taibbi himself responds to TIME's piece here.)

Here's Taibbi's position in an somewhat unfair nutshell: Goldman Sachs has been at the center of every negative investing trend over the last several decades, and their involvement in questionable financial instruments and oil speculation directly led to the current world financial crisis. Furthermore, their connections to people in high places ensures that they will be allowed to profit mightily no matter what happens in the global economy.

And that doesn't really seem too wrong. I sense maybe a little too much conspiracy in Taibbi's article, a bit too much willingness to credit Goldman with prescient malevolence. In my experience, there is rarely a decision arc in even the most powerful companies; rather, there is a culture which approaches problems in consistent ways, thus leading to similar results. Once that culture is seen as successful, it becomes widely adopted and the influence is magnified.

One thinks of, in the business consulting realm, the influence of McKinsey. McKinsey is not responsible for some of the worst management trends of the past 30 years, but they do tell their well-paying clients what they want to hear. Once the concepts (things like dehumanization and offshoring, anything in which customers can reap gains without paying the full costs) get the official McKinsey imprimatur, they become consecrated as holy writ, and McKinsey appears to be at the cutting edge of modern management techniques. I believe something similar happens with Goldman Sachs, that whatever they do quickly pervades the industry, giving the appearance of a conspiracy where none exists.

Which brings me to Megan McArdle. I find this self-styled libertarian to be maddeningly inconsistent, capable of penning some clear-eyed pieces that cut through cant (as in this post about retraining, where she couples her own experience with conventional wisdom and finds reasons to question the "wisdom"), but too often falling into a mush of disorganization. One could pin that on the blog format, but she is a major force in the blogging world and I expect more from her.

At any rate, her criticism of Taibbi has received quite a bit of attention, probably because she begins:

What I think, sadly, is that Matt Taibbi is becoming the Sarah Palin of journalism. He seems to deliberately eschew understanding his subjects, because only corrupt, pointy-headed financial journalists who have been co-opted by the system do that. And Matt Taibbi is here to save you from those pointy headed elites.

(Sarah Palin analogies are always attention grabbers.) Her argument is that Taibbi misemphasizes the importance of the things that Goldman did, that they did do those bad things but they're old news and other people did stuff that was worse, so why pick on Goldman?

She then takes her U of Chicago MBA (a degree she shares with this writer) and rolls right off the tracks:

But in fact, everyone was aware that CDO's were repackaging crap mortgages--that was the point. The idea was pure portfolio theory, broadly agreed upon by everyone involved. Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don't like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.) But if you pool the risk, only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn't been for those crazy kids a collapse in the housing market of a scale not seen since the Great Depression.

This betrays a misunderstanding of portfolio theory, in that the risk of the pooled security is less only if there is minimal correlation among the component securities. Diversification works only when the underlying elements are different in nature; when they all stem from the same source, for example, residential mortgages, any downturn in the overall housing market will destroy the value of the pooled security, which is, of course, exactly what happened. There is no magic that allows anyone to take D-level garbage that is all of the same type and turn it into AAA by clever dividing and recombining. That's absolutely basic.

McArdle then hedges her own bets by agreeing with Taibbi's basic point:

Wall Street is an arrogant beast that more than held up its half of the devil's bargain which drove us into our current ugly straits. Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression. They made a terrifying amount of money doing it. And now that the taxpayers have bailed them out at considerable expense, we don't even get a goddamn fruit basket. Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age. I think some populist rage is more than warranted.

She simply disagrees with the way Taibbi chose to illustrate these problems, claiming that he didn't ask the right questions and, therefore, profoundly misunderstands the true nature of the problem. So we should be mad at Goldman, but we should also be mad at others too, and we can't know exactly who we should be mad at for what, and so forth into its own brand of incoherence.

McArdle got some pushback for her piece, especially for her assertion that, "financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system." So she wrote another long blog post about that, defending herself with this analogy:

A woman gets into her car, and waves at her husband, who is crossing in front of the car. Pressing the pedal to the ground, she puts it into gear . . . and steams forward at full speed, crushing him against the wall of the garage.

Is she a villain? It rather depends, doesn't it?

Scenario #1: she's angry because she found out he had an affair, and decided to kill him "by accident" for the insurance. Scenario #2: she thought she was stepping on the brake, and stepped on the gas instead. The former is a crime, the latter a tragedy. But you can't divine which simply by knowing that something terrible happened....Villainy involves people who know, or should have known, that what they were doing was likely to lead to the awful results.

I mean, you can quibble and say "You should have known that that was the gas pedal", and indeed you should have, but if, for whatever reason, your senses deluded you, you're not a villain. No, even if you were thinking about the presentation you had due at work--or how angry you were at your husband for having a fling with his secreatary--rather than concentrating on your driving.

When something is common enough, I think it definitionally isn't villanous. It may be a practice that should be fixed--we should all be more careful when starting our cars, I'm sure.

This is a bad analogy, so let's try to fix it. Let's say the woman may or may not know how to drive. Her husband asks her if she knows which is the brake pedal. She confidently answers yes, then steps on the gas and kills him.

Alternatively, she chooses to flip a coin as to which pedal to step on.

Is she a "villain" in either of those scenarios? I don't know, but she is certainly criminally negligent, and we do have societal punishments for that kind of recklessness.

And this is closer to what we've seen from our financial corporations. They took unconscionable risks, actions that could bring down a world financial system, then pled, "No one could have known," when it all went south. Their perverse incentive policies made gambling with OPM (other people's money) acceptable, even necessary. This is not their senses deluding them, this is arrogant heedlessness and, whatever the merits of Taibbi's contention that a great deal of it was due to deliberate manipulation on the part of Goldman Sachs, can't be wished away by McArdle's limp argument.

Then, unsurprisingly, McArdle yet again hedges her bets, telling us that she actually doesn't like Goldman Sachs at all:

I have no reason to love Goldman Sachs, and I don't. I didn't like them when I was interviewing for investment banking internships in business school (worst interviews by far were sponsored by Goldman Sachs and Bear Stearns). I dislike the way their alums, and indeed, their current employees, have permeated our politics and our financial regulatory system like some sort of insidious fungus. I have been repelled by Jon Corzine ever since he spoke at my business school graduation ceremony, where he jovially described how he had cheated his way into a diploma by getting his girlfriend to do his final project for him. He seemed to think this was funny.

She goes on in this vein for a while, but ultimately defends the bankers by claiming that they were stupid, but so was everybody else, and that doesn't equate to villainy, and that no change to history would have allowed us to avert the financial crisis (?!?):

But I think the case needs to be a leetle bit tighter than the fact that bankers make stupid decisions, bankers get paid a lot, and we just had a financial crisis. I'd like to see someone make the case that they did things that were actively, knowingly, illegal and morally turpitudinous, rather than simply totally moronic. Because with the total moron thing, they had an awful lot of company.

Of course, that's actually just the case that Taibbi is making (perhaps it is not as airtight as we would like, but it's a start). When money is entrusted to people who are reckless with it, that's wrong - I suppose we can debate the word "villainy" at some length. But the hands-off, "no one is more wrong than anyone else" attitude is profoundly unhelpful, no matter how much the principal actors in this piece would like it to become the prevailing approach.

[Update: I have come across a site on which the whole Taibbi piece has been posted. I don't believe a complete reading changes anything I've already written, but I'll ponder it some more and come back if I have any additional comments to make.]

Used to put the paycheck in the bank, now we get it there

Kevin Leicht is guest-blogging at Credit Slips this week, and he starts off with an excellent post that discusses the way in which our economy has moved from one in which people consumed based on what they were paid, lowering their risk over time, to one in which consumption is based on debt. He concludes:

More importantly, Henry Ford’s original idea (that workers should be treated well in part because they spend money as a consumer outside the office door) was discarded as a quaint old-fashioned notion. “Let the other guy treat people well, I can’t afford it” seemed to be the individual response of employers around the country and, for a long time anyway, Wall Street loved it. In the business section of the newspaper major downsizing on the front page was accompanied by major jumps in stock prices on the back page.

Over the long term this exposed a classic public goods problem – U.S. consumer purchasing power is something everyone has an interest in but no one has any concrete incentive to contribute to themselves. There are so many alternatives to paying people a decent wage that virtually any alternative is more acceptable than paying people more money or even paying people what they’re worth.

Is this sustainable?? It is difficult to see how. After all, if someone told you that we were going to base the largest developed economy in the world on (a) treating the mass of employees badly, (b) producing many products and services that are consumed offshore and then (c) loaning these same employees money to buy the basic goods and services to keep the entire economy afloat, I would say that someone just walked off a postbellum Southern plantation to sell us on the virtues of sharecropping(!) .

The current economic downturn gives us an opportunity to think hard about this entire I-borrow-because-I-can’t-get-a-decent-wage system. Simply restoring the ability of banks to loan money is not enough. Instead, the actual real earnings-based purchasing power of the American consumer must be restored. This is a much tougher task. Loaning people money is not a perfect substitute for paying them, but it is the easy way out. It produces real differences in political and economic power that can’t be ignored. It also isn’t economically sustainable.

Nothing to add, except to point out that we have structural problems which will prevent the recovery, when it comes, from being a return to what it was before. Robert Reich sees this, in a post from last week:

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

There are those of us who have been arguing this for some time, that the rules and the landscape have changed, and we had better start preparing ourselves for reduced opportunity and circumstances. We could do that through intelligent planning, through a recognition that the old rules don't apply any more, but I'm pretty sure we won't do that.

Gettin' all renegade-y

A lot of people have already commented on TIME's cover story on Sarah Palin, and I'm certainly not going to go through the whole thing - it's all I could do to read it. It's a curious piece, one almost obsessed with creating an image of Palin as quintessentially Alaskan, and thus foreign to normal understanding. There is some talk of her negatives, but that all seems to get washed away in a tide of admiration, forced, I suppose, by the attempt to explain her appeal. But there is, along with a Web sidebar titled "See the fashion looks of Sarah Palin," which probably never accompanied a TIME story about Eisenhower, this:

Whether that is true or not, Palin's unconventional step speaks to an ingrained frontier skepticism of authority — even one's own. Given the plunging credibility of institutions and élites, that's a mood that fits the Palin brand. Résumés ain't what they used to be; they count only with people who trust credentials — a dwindling breed. The mathematics Ph.D.s who dreamed up economy-killing derivatives have pretty impressive résumés. The leaders of congressional committees and executive agencies have decades of experience — at wallowing in red ink, mismanaging economic bubbles and botching covert intelligence.

If ever there has been a time to gamble on a flimsy résumé, ever a time for the ultimate outsider, this might be it.

This is simply claptrap, not illuminating at all. That we should believe that Palin stepped away from the governorship because of her "ingrained frontier skepticism" of her own authority is almost insulting. It suggests that she doesn't trust herself to run something, and, while I think a little self-doubt is a good thing, this is not exactly the quality we look for in a president.

We still trust credentials a lot, as we don't ask our barber to take a little off the top and fill a bicuspid while he's at it. We might be starting to understand that credentials don't guarantee wisdom, but I don't think that credentialism is on the wane at all. If anything, it's become more prevalent as we tell our kids that the only road to success leads through college.

What's interesting is the title used on the cover of the print edition: The Renegade. I believe we're supposed to admire Palin for taking "the road less traveled." And this seems strangely reminiscent of another politician, one who bucked the system, voted his conscience, a press-deemed "maverick."

And as I wrote about John McCain close to a year ago:

Is it possible that John McCain, the original maverick, thinks that "maverick" implies random, unexplainable decisions, rather than adhering to a set of principles that are sometimes at odds with a party's orthodoxy? Because I think the people think that McCain is the latter, and I'm beginning to suspect that McCain is the former.

As entertaining as the press may find randomness, it seems a very poor quality to seek out in our leaders. A little unpredictability may be admirable; running amok rarely is.

Hello? Is anyone there?

Greg Glockner, at the Dwaffler Decidedly blog, tells A tale of two outsourcings. The first is actually a counter-outsourcing story, as Boeing plans to buy one of their key suppliers for the "revolutionary" 787 airplane, running directly counter to their master strategy of strewing bits of manufacturing across the world and assembling the results in magically short time. This hasn't gone at all well, as I wrote about a year and a half ago:

This, of course, is the logical consequence of modern-day management thinking. You out-manage your risk by transferring it to others, relying on contract compliance to take the place of responsibility. You conceptualize or ideate, not even descending to the point of high-level design, rather shifting that to the "experts" who know better than you what you need.

But you can't take a contract and glue it into a working airplane. Perhaps Boeing will get some money back, eventually, through negotiation or lawsuit. Will they ever make up the deficit to Airbus in market or mind share? I doubt it.

Apparently the newest solution is to bring the suppliers into the company, so the mystical world of contract compliance will give way to the old-fangled solution of actually managing something.

Greg's second example comes from the world of telecommunications: Sprint is going to outsource their network operations to Ericsson:

So what will be left of Sprint? They don't manufacture the equipment. They won't operate the network. According to Matt Hamblen of Computerworld, "Ericsson will manage day-to-day operations of the Sprint CDMA, iDen and wired networks, while Sprint retains control and customer care under the deal."

Customer care? Excuse me while I laugh. Someone I know endured atrocious customer experiences from Sprint. It took months of letters - the old-fashioned, paper kind - to resolve a simple billing issue. Customer service is not a strength of the mobile phone industry.

Oh, and isn't customer care just another job that will be outsourced someday?

The answer to the last question is, of course, yes. Which will leave Sprint with control and...nothing else.

I may well have mentioned this before (my great ideas get lost in the swirling mists of time), but I think we're approaching the logical consequence of this thinking. Eventually, there will be a Fortune 500 company that will have about 12 employees. There will be a CEO, a few people who stay up all night to talk to the various suppliers around the world, and some flunkies who will make lunch and airplane reservations for the CEO. That'll be it.

The value of the company will not come from any value-added work they'll be providing, because there won't be any. The company won't make anything, won't sell anything, won't ship anything. It will simply be a holding company for a collection of brands, with all the work done by others as cheaply as possible. The CEO will negotiate contracts (at the highest level), check with the lawyers to ensure contracts are being complied with, give presentations to analysts, and do as much media as possible to "build the brand."

At that point, maybe we'll all finally understand that it is not a function of American business to employ Americans, and we'll stop accepting some pretty weak arguments that we have to do more for these companies. Then, corporate welfare will stop, lobbyists will have less influence on politics, and we'll be able to work for the welfare of the people.

Ha, ha, I made myself laugh.

An entertainer in the Capitol? No way

Republicans seem to be upset that former Saturday Night Live writer and occasional performer Al Franken has finally been certified as the winner of a Senate seat from Minnesota. He "stole the election," he's "unqualified," and so forth.

What could they ever think of a president who had appeared in movies like:

• Cowboy from Brooklyn
• Girls on Probation
• Naughty but Nice
• Alice in Movieland
• Juke Girl
• The Rear Gunner
• Stallion Road
• She's Working Her Way Through College

I mean, come on, do we want some porn actor in Washington, in the seat of power?

Of course, these are all movies from the oeuvre of Republican saint Ronald Reagan. Maybe Stuart Smalley isn't looking quite as bad now.

Palin was different

Ezra Klein, in the wake of Sarah Palin's surprise resignation, quotes some research by a Penn graduate student that indicates that Palin had an unprecedented effect on the presidential race, completely out of line with that of any other candidate for the second spot:

Judgment on her was incontestably important. The correspondence between dynamics in her ratings and dynamics in McCain vote intentions is astonishingly exact. Her marginal impact in vote-intention estimation models dwarfs that for any Vice-Presidential we are aware of, certainly for her predecessors in 2000 and 2004. And the range traversed by her favorability ratings is truly impressive. But why? We are unaware of any theory that opens the door to serious impact from the bottom half of the ticket.

I don't think this is particularly surprising at all. Most veep candidates come from a pretty narrow range of candidates, the experienced governor/senator/representative community. They usually have some kind of track record, might have been contenders for the presidency themselves, and are genially competent (Dan Quayle notwithstanding).

This does not describe Sarah Palin at all. She was and is a woman of modest accomplishments, an appalling lack of qualification for a presidency that she very well might have had to assume, and an ideologue whose beliefs were entirely out of step with the mood of the nation.

In other words, we don't need a theory to wrap around the Palin effect, we need to look at Palin herself - and that's just what the nation did, and they decided that they didn't want her a heartbeat away from the Oval Office, and McCain was reckless in picking her. If there's anything to be learned here, it is that the "bold" pick will be taken negatively if it represents an unacceptable amount of risk. We might conclude that Oprah is unlikely to be tabbed any time soon.

Post-nation nation

Carol A. Burch at Decidedly (a week old; I'm still working on my new blogging schedule):

Success of one's people in those countries [Russia and Asia] is honored, appreciated and focused upon by each individual far more than in the United States, where emphasis is on the individual and individual achievement.

We can see the effect of individual vs. collective consciousness as we look at the shifts in centers of economic and political power in the world today.

Corporations and individuals in the U.S., as is their right in a free society, made decisions that inured to their individual benefit. Production and manufacturing (and the economic and political strengths that are associated with those endeavors) went elsewhere. Certainly, the image of a collective exodus of almost the entire manufacturing base from the nation was probably not part of each individual decision. Yet, cumulatively, over time, this happened. This is the effect of the lack of a collective consciousness. Now, with diminished economic health and clout to influence the world's direction, we, as a country, are less formidable, and are viewed primarily as a voracious consumer society.

Economic strength now centers in the countries that took on the manufacturing. Of note is the fact that these countries operate culturally with a high level of collective consciousness,with a collectively understood and embraced long-term vision of a future in which they will continue to dominate. It is unlikely that the mistakes we made will be repeated there.

Very true. We derided the old Five-Year-Plans of the Soviet Union and China, confusing execution with concept. Then we saw India and China actually plan for the future, focusing resources on growth fields like engineering and computer science. (Keep in mind this didn't constitute a huge risk, these were already well-established as fields of the future by the time these countries got around to supporting them.)

At the same time, the U.S. decided that laissez faire worked so well for economics that it could be applied to anything that even had the slightest economic component. CSI is a hit TV show, of course we'll see students flock to forensics programs despite the reality that budgets will never go up as much as enrollment did. I wonder what all those budding Gil Grissoms are doing now.

One thing that interests me is how this idea was sold to the American people, not that they needed much convincing. There were two large ideas, I think, with which we deluded ourselves that "collective consciousness" was something that could be transcended.

The first was what I call the "lottery mentality," with an added shot of altruism. If we allow everyone to pursue their own aims, each person will maximize their potential, get rich, and then be able to do more for the collective than they ever could just going out and living their lives. What lottery winner fails to say that he'll do more for his church, or for his children, or for his community? We created a virtue out of going out and scrabbling for whatever bucks were there, because, sometime in the future, more will be created for the larger group.

Much of this, of course, was simply mindless claptrap. A lottery is a massive tax and redistribution scheme, but it's hard to see how society profits from it. Much of business works the same way - some aspects of what is done is truly innovative, and betters the lot of humanity, but a great deal more is a way to take money from someone and give it to someone else. [I'm not talking here about the normal business of business, in which customers pay less for something than it's worth to them, but some of the less publicized activities, such as lobbyist-induced tax breaks and offshoring, things for which we never quite figure out the true cost.]

The second "big idea" was one that didn't require us to give up our sense of the collective good, but to expand it. This was what I refer to as the "post-nation" concept, the idea that we uniquely had a responsibility to the world, that even if some of our practices were negative in effect to the U.S., that they benefited the world far more.

We see this in some of the commentary the past few days about Iran, from those thinkers who believe we "must" get involved. That we would undoubtedly pay a price in lives and money to install a president who doesn't have all that much power who might be little better than the one they have is of little consequence; we must interfere because that's what America does.

We also see it in discussions of offshoring in which we blow by the very real negative effects on American workers and move to wondrous tales of how our work is helping the downtrodden of China and India. Whatever we used to call national interest gets subsumed to a utopian ideal of effortless foreign aid.

I guess my point is that the United States has never really lost its sense of the collective unconsciousness, we've just allowed it to be perverted from the straightforward sense of nation that we used to have to some pretty indirect, even strange, concepts. It's not that we've lost sight of the greater good, just that we've allowed it to be twisted into ideas that are so obscure that the true costs and benefits have been lost.

Perhaps these new ideas are, ultimately, better for the world as a whole and we should pursue them, but I don't believe the case is so clear-cut that we shouldn't at least be discussing them. And I'm sure it's just coincidence that they are pushed most ardently by the folks who have the most to gain from their acceptance.

Ups and downs

Sullivan points out that poor Paul Krugman can't seem to make up his mind as to whether the economy is getting better or worse:

Is it just me, or has the economic news started to darken again?

Sullivan then prints a rejoinder from Free Exchange:

The first and most obvious point to make is that news can surprise on the downside while still trending toward improvement if expectations have improved more rapidly than the data.

Which doesn't entirely eliminate the other possibility, that the second and, at least to me, equally obvious point to make is that news can surprise on the upside while still trending toward decline if irrational hope has improved more rapidly than the data.

I'm back

It's been four weeks, I'm feeling somewhat refreshed, so I'm going to do some blogging again...not every day, probably, but once in a while. I've enjoyed the time away, I don't expect the blog to ever be as much of my personal mix as it has been, but I'll weigh in when something catches my eye. Thanks to those who missed me.

500!!

Back on Jan. 1, 2008, I started writing daily posts for this blog. Other than my vacation, I've stuck to that, writing at least once each day, amassing a total of somewhere north of 700 posts in those 500 days. I've tried to come up with novel takes on things each day, not always succeeding, but I've never found the time or the interest in doing "pointing posts," those "Sullivan makes a good point here: <quote>" items with no commentary. And for some time, I've been looking forward to this day, this May 14, when I would hit 500...and now I have.

---

Let me offer a rough, imprecise taxonomy for blogs. One can posit that blogs fall into four categories:

1) Blogs for money
There are people who blog for a living. Not many, perhaps, and many of these people are affiliated with a larger group or media outlet, but their primary job is blogging.

2) Blogs for some money
2-bloggers blog as part of earning their keep, and a large number of the most famous bloggers fall into this group. I have no idea how important Andrew Sullivan's blog is to his continued employment at The Atlantic; he still writes articles for the print magazine. I'd imagine that the blog has become increasingly important, so let's guess that Sullivan is a 1.2- or 1.3-blogger.

Yglesias, on the other hand, seems to be more of a pure blogger. He works for the Center for American Progress, a kind of think tank, and I'm not really sure what he does for them other than blog. I'd guess he's around a 1.1-blogger.

Folks who do corporate blogs fall into this category. I've spoken before of my admiration for Decidedly, a blog from a company called Dwaffler, that stays largely away from advocacy of their products (OK, they slip it in once in a while) in favor of cogent discussion of issues (primarily decision-making, which is the purpose of their product...but, hey, it's not put right in our faces). I've also seen some simply awful corporate blogs, ones that exist solely as marketing adjuncts with little insight or point of view.

But corporate bloggers generally do not blog to eat. Their primary job is CEO or COO or flack, and the blog is something extra they do, perhaps in an attempt to put a human face on a company, to relate to existing and potential customers. These are 2-bloggers.

3) Blogs for influence
We now fall into the categories of the unpaid. If you blog without remuneration, but hope that you have an effect on people's thinking, you're a 3-blogger. The vast majority of blogs fall into this category; most people aren't selling anything, not even indirectly, they're just offering ideas about subjects they know or care about. The audience can be large or small, devoted or casual, but the blogger still needs to feel that the words are being read and thought about.

4) Blogs for personal satisfaction
4-bloggers are the idealists, the people who put their thoughts out without consideration of an audience. They "have to" write, perhaps to exorcise demons or work through issues, but they do so without regard to whether anyone is listening.

However, 4-bloggers are also the most superfluous, because they have the option of writing their thoughts in a diary (sorry, guys, journal) or into a Microsoft Word file. If they truly don't care what people think, if their offerings are just for themselves, there's no reason to put their ideas out on the most public forum ever invented. For that reason, I don't believe there are many pure 4-bloggers - everyone ultimately wants their words to matter, if only a little, so a goodly number of bloggers are 3.8- or 3.7- or 3.3-bloggers.

---

Having created this hierarchy, I must, unsurprisingly, try to see where I fit into it. There's a purity to the idea that I write because I must, because I've just got to, got to, let my feelings OUT!, that I'm a 4.

But I'd be lying to myself. I may have started this blog with low expectations, but humans are built to dream. At the beginning, I might have said "4," that Androcass was going to be a device to let me work out my feelings, to serve as an outlet for frustrations at times (by the way, that hasn't worked for me at all - I haven't found that I naturally feel better after expressing myself, but maybe that's just me). But, not so deep down, I certainly hoped that some small audience would enjoy my writing and be engaged with it, that it would inform or provoke, and that (in the best Web 2.0 way) feedback loops would emerge and I would be enriched by the involvement of others.

Furthermore, I've had a chance to be embedded in the sphere of commentary in a way I never really was before. Previously, I read newspaper and magazine opinion pieces, got into a few blogs, but I never engaged with them in the way that I've had to over the past 16+ months. In part, it was to find fodder for my own efforts, but, whatever the reason, I've spent a lot of time in the 1 to 2-blog world (and the 1-commentators who don't blog, who just bloviate away in publications or on television).

And I haven't ended up being impressed. There are a lot of people making six figures who recite party talking points, or mislead to make a point, or lag reality by years only to present it as something they discovered (offshoring is happening, really, Tom?). I'm not so arrogant as to believe I rank with these "seasoned professionals," but I'd put my thinking track record up with many of them. It's not so much me, anyway; I read quite a few bloggers who write well and passionately, out of real knowledge, who put the windbags to shame, and none of them will ever achieve a fraction of the fame, the money, or the influence.

---

So what I was shooting for hasn't really happened. I have a few regular readers, some of whom comment via posting comments or direct e-mails, but (according to my readership stats) many people visit, sample what's here, then move off, never to be seen again. However the marketplace of ideas works, what I'm peddling isn't selling.

I'll grant that I haven't done the things that "drive traffic." I haven't done much of the, wait around for Drum to write something, write a real quick blog post, then puff it up in Drum's comments. There are other tips and tricks to make one's blog a go-to spot, and I haven't found the time to implement those (and I find some of them kind of unseemly).

I might fare better if I homed in on one or two topics of interest. Some specialized blogs become quite successful, rising past the 3 level and on to the more lucrative positions. I have chosen a certain eclecticity, in that I have things to say in more than area; this blog has always been more a reflection of me than of a specific point of view, anyway.

I've had comments about my tone, but I haven't altered anything in response. Here's why: I've been told that I'm overly negative, too cynical, unduly harsh, that this attitude turns people away. That may be true, but I read plenty of blogs that seem far more down that road than mine, so I don't really see it.

What I have tried to do is ask questions, present alternatives. I think it's important to understand the difference between "positive-sum" and "win-win," and I am, possibly, withering in my opinion of people who understand the difference but fail to point it out because it might undercut their (political) point. I think it's important not to align one's self with either Bill Gates or Lou Dobbs on visa issues, but to ask the questions which would allow us to make decisions and formulate policy; if that's deemed by others as being "harsh" toward anyone at the poles, then I guess I'm harsh.

But the clincher is, I've also read other comments that suggest I
should inject more passion, put more of my outrage into what I write.
I can't square that circle; maybe there's some kind of skill that
allows a writer to be passionate and advocating, but not critical - I don't have that skill, I guess.

---

The upshot of this is that, as of today, Androcass is sliding into semi-retirement. I've grown tired of working pretty hard at something that actually seems to be moving down the hierarchy, that is of its own weight approaching 4-hood. I have no doubts I've had some good ideas, and some that I've found novel ways of presenting - I'm happy with a higher percentage of my posts than I would ever have anticipated when I began this.

For some time, though, it's been clear to me that the cost-benefit is going the wrong way. I'm not accountable to a little mini-community; heck, my most ardent reader and contributor has disappeared off the face of the earth (something which served to support my already-made decision). There are other things I want and need to do, hours that are better spent in other pursuits. Over the past 500 days, this blog has become far too central to my life, and I need it to stop.

Don't take that to mean that I'm going to pull a vanishing act. I like this Androcass persona, and the very act of thinking and writing has allowed me to polish and refine my thinking on all sorts of topics. If I'm in your feed reader, please leave me there, because I'll be back from time to time, as passion demands (it's possible I'll feel compelled to post something tomorrow, though it would ruin the nice symmetry of "500"). I have a bunch of topics I can't quite get myself to part with (any day now, I expect to finish my classic post titled, "Korea - Should Truman really be getting involved?).

But I may not post tomorrow, or over the weekend, or the rest of the month, I just don't know. Maybe I'll pour my energy into bike riding, or music, or doing things around the house (do I hear the wife cheering?). It makes little sense to do so to a blog that is moving down the hierarchy, that will never bring anything other than a mix of satisfaction and frustration.

To those of you, whether commenters or not, who have been regular readers, I thank you. Whether active or passive contributors, you have enriched my life, and I am most appreciative. Catch y'all down the road somewhere.

Next top model

Why do economists all end up advocating the same positions, free trade, free markets, and all the other sorts of things that have been shown to have flaws that stunned those very economists when they were confronted with a real economy?

John Kay discusses the limitations of economic models here:

Since the 1970s economists have been engaged in a grand project. The project’s objective is that macroeconomics should have microeconomic foundations. In everyday language, that means that what we say about big policy issues – growth and inflation, boom and bust – should be grounded in the study of individual behaviour. Put like that, the project sounds obviously desirable, even essential. I confess I was long seduced by it.

Most economists would claim that the project has been a success. But the criteria are the self-referential criteria of modern academic life. The greatest compliment you can now pay an economic argument is to say it is rigorous. Today’s macroeconomic models are certainly that.

But policymakers and the public at large are, rightly, not interested in whether models are rigorous. They are interested in whether the models are useful and illuminating – and these rigorous models do not score well here.

Mark Thoma quotes Barry Eichengreen:

What got us into this mess, in other words, were not the limits of scholarly imagination. It was not the failure or inability of economists to model conflicts of interest, incentives to take excessive risk and information problems that can give rise to bubbles, panics and crises. It was not that economists failed to recognize the role of social and psychological factors in decision making or that they lacked the tools needed to draw out the implications. In fact, these observations and others had been imaginatively elaborated by contributors to the literatures on agency theory, information economics and behavioral finance. Rather, the problem was a partial and blinkered reading of that literature. The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. ... It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster. ...

And from Thoma himself:

There are two uses of economic and econometric models, one is to use the models to understand how the world works, the other is to use the models to forecast. And while, of course, one of the goals of understanding the economy is to be able to predict it, it is simply not something most academic economists do (and the best models for forecasting are not necessarily the same as the best models for learning about how the economy works). Business economists do lots of prediction and forecasting, but academic economists? Not so much. We come along long after events have occurred - e.g. we're still analyzing the Great Depression to some extent - and try to use those events (as well as data from normal times) to try to understand how the economic world works, how policy can improve performance, etc.

[The preceding doesn't explain why academic economists take checks to do just the sorts of things Thoma says they can't do well - I'm sure there's a model to explain that.]

In a nutshell, here's the problem. Economists model what is most tractable to model, and a large economy with small players who can as a group be predicted is reasonably easy to model. It's not perfect; occasionally real people do crazy things like bid up the price of real estate beyond all historical precedent or reason, and as we saw, the models weren't able to cope with the implications of that.

If we look at the assumptions that undergird economic models, we have a roster of somewhat abstracted but perfectly logical ideas, each of which is imperfect if you want to describe real reality, but seem close enough. And, for the middle ground that is usually inhabited by the real world, they seem to work well enough.

Then along comes something extreme, something unprecedented, and the models fall apart - they simply weren't built to take into account things that have never before happened. That the extreme events are well within possibility is something the model builders prefer to ignore.

But there's something else, a feedback effect that is less noted. Once you have built your model, staked your professional flag on it, you're stuck with it and the vision of the world it encompasses. If you model free trade, and it demonstrates that free trade offers magical value-added effects, you then have to buy into a world in which free trade is always good, always right. (That's why even reputable economists refuse to refute a trade flack who makes profoundly misleading statements.)

And with that belief comes a series of subsequent conditioning. Any basic model of free trade only shows that there are gains to the two nations engaging in that trade. It doesn't demonstrate anything at all about the internal distribution of those gains, or some of the obnoxious utility effects. But your whole academic life now depends on free trade, so you have to ignore those things that are unpopular or inconvenient (and, if pressed, you fall back on the "my model doesn't include political effects" or some such hedge).

The real mistake is that we listen to these ivory tower dwellers, these folks who make amazing math while forgetting that it's supposed to model something the rest of us call reality. We shouldn't be amazed that the models failed us in the current crisis; we should be amazed when they tell us anything useful at all.

[For a somewhat more technical explication of models and assumptions, see this from Willem Buiter.]

The free world

This is a favorite topic of mine, the idea that seems prevalent that there is a whole lot of free stuff that isn't being captured in GDP, but has real value, and we should count it to see how great the virtual world is, and so forth. I touched on this last week in a post where I talked about Yglesias's idea that low-selling books should be virtually given away rather than sold for big amounts of money.

The larger issue is expressed well in an older post by Yglesias:

One noteworthy trend we’re experiencing of late is the rising prominence of social production—the creation of valuable information goods on a non-commercial basis. Probably the clearest example is Wikipedia, a hugely useful service that doesn’t produce any economic “value” in GDP terms. Of course valuable activity that doesn’t register in GDP is nothing new—just ask moms spending time taking care of their kids. But the transition to the digital economy is changing things in important ways. In particular, it’s simultaneously making it cheaper than ever to produce and distribute information goods, but harder than ever to capture revenues from information goods.

This is true, but Matt sees this in extremely positive terms, particularly with the idea that retirees will embrace the free economy:

In the future, it might be common for grandpa to spend a couple of hours a day tinkering with open source software. Or maybe he’ll make it his business to attend city council meetings and write on the web about them. People will write whole books and distribute them for free to people’s kindles. A lot of this material may have a “crank” quality to it. But much of it will be genuinely well-informed, and reflect a lifetime of knowledge. Already, I can see in DC’s local blogosphere that there’s a fine line between an annoying busybody and a vital source of information. As the cohort of people with the most time on their hands to just pursue their interests becomes more digitally literate, I think we’ll probably see an explosion of non-commercial activity in a variety of fields. And one important source of success for commercial enterprises will be finding ways to hybridize commercial and non-commercial elements of the production/distribution process.

He kind of limps to the close (endings are tough for me too):

One important implication of this is that we’re almost certainly shifting from a world in which a large and important set of activities aren’t captured in the national economic statistics to a world in which a large, important, and growing set of such activities isn’t captured in the conventional statistics.

I think this is all way too positive. Ultimately, an economy is about doing something or making something that can be exchanged (generally using the medium of money) for something of value that you want. All this free activity is cool and neat, but a whole lot of it comes from a community that is fortunate to have the leisure time to do things that happen to be of interest to others.

Wikipedia is useful (don't tell John McIntyre I said so), but few are lining up to pay for it. There is a hobby quality to it, and to a lot of what passes for so-called "social production." The Internet is great in that a lot of things that people might have done for fun can now be made useful for other people, but we shouldn't confuse that with the workings of a real economy. Some of the most successful projects of the past few years have uncertain realities in a financial sense, and rely on the contributions of people who choose to work on them...and can choose not to work on them.

It's nice to think that a whole army of grandpas are going to go out and donate their time to things that profit a lot of people who are better off than they are, but that's not a sustainable resource that anyone can count on. There's a reason that we have newspapers that assign people to cover city council meetings and write about them and get paid for them - it's called work. I don't think the populace should have to work their civic knowledge around Granddad's annual trip to Florida.

The light at the end of the tunnel...

Time doesn't permit me to develop this theme fully today, but we need to begin to think about what will happen after this recession/depression is over. There is a tacit assumption that the only realistic options are V-shaped, U-shaped, or W-shaped, with only a very few even contemplating the possibility that L-shaped may be far more likely.

We have just lived through a series of booms that wildly inflated our expectations of what we should expect from our economy. And it's possible that there is a "true" level to which we will revert, and it may not be the big-growth model that we assume. It could well be that the lower leg of the "L" is where we should have been all along, that the inexorable nature of the logisitic curve has finally caught up with us, and that we will sink into a prolonged low-growth mode.

What does a computer programmer cost? $50-60K, because that's what we're used to paying? Well, no, they're goods like anything else, so the real answer is, whatever the market demands. Increasingly, we can get perfectly serviceable programmers for $10-15K, so that de facto becomes the cost. To assume that the "American premium" will somehow maintain that big a differential is darned naive. (Substitute "manufacturing worker" or any other movable profession and the argument is the same.)

But, if we pay our computer programmers less (or employ fewer of them), there will be less money floating around for purchases of consumer goods and the like. One could argue (and many have) that displaced programmers will move on to work that is at least as lucrative, but that seems increasingly unlikely given the kinds of jobs that look like growth professions (solar panel installers? wind turbine makers? home health care providers? None of these seem like the stuff of upper middle class aspirations, no matter how necessary they are).

It is possible that Americans are simply overpaid with respect to the rest of the world, that our wages and prices are simply too high in a globalized competitive world. That may be due to historical precedent that is no longer relevant, but it's hard to argue that it's sustainable.

And, in a global sense, there's probably nothing wrong with that. The United States is likely due for a readjustment in light of world market conditions; maintaining the status quo is unwieldy and, quite possibly, unfair and exploitative.

But it does imply a change. Many want to think that we'll just move over and share the top step with billions of others, but that probably can't happen in a world of finite resources. The rise of others will mean some fall for us. It doesn't have to be catastrophic, but it will require some rethinking.

This might seem deflationary, if wages and then prices fall to something closer to world-acceptable levels. Every economist will say that that would be an utter disaster, that it would change our financial landscape in all kinds of unpleasant ways. And that may be right, leaving us only two options. We could inflate our currency; nominal wages and prices would stay roughly where they "should" be, but there would be all sorts of consequences from that, most unpleasant. Or we could see a massive fall in the dollar, as we equalize our wages and prices through foreign exchange. We would see a huge increase in exports, and some industries would find the U.S. labor market more attractive. Since the dollar is the world's reserve currency, there would also be some mighty nasty results from this.

There are a number of mechanisms which might counter this trend somewhat, but I don't see them being sufficient to stem off the larger problems that come from equalization. I hope so, of course, but I can't be too optimistic.

Tim Duy, via Mark Thoma, has an essay that seems slightly more positive, but leaves us, in the end, with at least some version of what I've outlined:

Bottom Line: The economy looks to be turning a corner relative to the downward cyclical force of last year. But this is only a partial victory, as the factors that that started us down this path - namely, a debt-supported consumer spending dynamic - remain in play, and will likely remain in play for years, arguing for a long period of slow growth, punctuated by short-lived bursts of positive data. In such an environment, and considering the importance of government support to sustain financial stability, the odds favor continued policy easing. Those looking for a more positive scenario are pinning their hopes on either an unlikely rapid return to past patterns of consumer behavior, an unlikely rapid evolution in patterns of economic activity that are not consumer dependent, or a decoupling of emerging market economic activity from the US (which could pose a different set of policy challenges).

Brad DeLong believes that we will be sustained by something that has blinded us, so far, to the extent of our problem, the handcuffed dollar-holding foreign governments:

The next generation, therefore, will see a very interesting dance. Call it reverse finance colonialism? Call it something. Foreign governments will be seeking high-return assets for their enormous portfolios without selling dollar-denominated wealth. Consequently, they will have to focus on U.S. corporate securities. With such large-scale investment comes ownership and with ownership comes control. No government will want to play the role of passive investor, with the attendant risk that its partners will tunnel the wealth out from under its grasp, leaving an empty corporate shell.

So what is likely to come to pass is not the socialism feared by the Right—at least not ownership of the means of production by the U.S. government. Instead, it will be ownership of U.S. companies by foreign governments—and on a scale we’ve never before seen.

Can anything stop this progression? Yes. A collapse of world economic growth—which would create a very dangerous and angry world. Or a sudden return to thrift on the part of American consumers—so that we can finance the industrialization of the rest of the world rather than having them finance our consumption. But neither is likely.

That will leave Americans confronting a new and unprecedented phase of globalization. Government agencies in Beijing, Dubai, and Brazilia will have a large financial interest in everything from the health-care policies of American factories to the compensation packages of corporate executives and the apportionment of seats on corporate boards. And their interest will matter: They will, after all, be the people who have the money—just as Americans were the people who had the money in the years after World War II.

So we'll be able to sustain our lifestyle to some extent, but only at the price of becoming financial captives to the countries that can prop up their bad investments only by throwing more money into the pot. I'm not sure DeLong follows his own thinking quite far enough, but it's difficult to see a way in which scenario ends well for anyone.

Norms

Drum mentions one of the real unmentioned issues in testing:

Now, the whole point of high-stakes testing is to provide us with hard, quantitative assessments of how our kids are doing. You simply can't be a believer in this stuff and not care about whether the tests are meaningful from place to place and year to year. And yet, as Bob says, this issue gets only an occasional mention each year before being quickly dropped down the memory hole until another year's test results come out and someone happens to casually mention it again. It's almost enough to make you think that a lot of these folks are more interested in using tests as a political cudgel than they are in whether kids are actually learning something. Almost.

This is such a huge issue. If you look into the literature on the subject, you'll see a lot about "objective norming" and the like. It all sounds very statistical and scientific, and it certainly generates no end of PhDs in education.

But creating tests is very hard, even in isolation. When you freight them with conveying more information than they can easily, such as allowing comparisons across space and time, you create a near-insuperable problem. Think about it: How would you create two tests in anything that are sufficiently different so as not to allow cheating, but similar enough that two different groups of students will score proportional to their "true" levels of ability?

Even if you could create tests far better than seems possible, how do you know the populations are really the same? There is an assumption that a 2008 group of 7th-graders is roughly the same as a 2009 group, but you don't know that, and you have no way to tell whether an increase in scores comes from: 1) A group that happens to be smarter; 2) A test that turned out to be easier; or 3) An actual improvement in knowledge that comes from education. (Again, the testing bodies will assert that they do have ways to correct for the first two, but I have little confidence in the fourth-decimal point precision that they assert.)

Yet, every year, the results roll out, and they're used to threaten or close schools, discipline teachers and administrators, allocate funds, and as a symbol of American pride or shame. That's putting a whole lot of weight on something that has inherent statistical problems. It's a real shame we're so uncomfortable with plus/minus, that we demand a false accuracy that alters lives.

Take the next step

Yglesias, a couple of weeks ago, on national identification of companies:

He [Tyler Cowen] points out that not only do Toyota and Honda manufacture cars in the United States, but these are publicly traded firms. Americans can—and do—own shares in both firms, and could own more if we wanted to. Conversely, an “American” company like Apple actually does very little production in the United States. Nestle is “Swiss” but it’s a giant multinational corporation and Switzerland is a small country so the vast majority of its operations are elsewhere.

So let's follow the logic a little further and ask ourselves why we use taxpayer money to prop up one set of multinationals at the expense of another set, and why the economic talking heads don't leap to calling that what it is...protectionism.

If we put a tariff on every foreign car of $1000, every reputable pundit would yell Smoot-Hawley (except for Congresswoman Bachmann, who would yell Hoot-Smalley) and decry this action as Hoover-style Depression-inducing.

Let us, however, give $1000 per car to an auto company that happens to house its executives in and around the Detroit area, and that's called principled support of a major American industry. I really don't get the distinction.

Update: for a somewhat economisty view of this which makes sense, see Claus Vistesen by way of Edward Hugh.

Walking the middle

We're having a discussion on yesterday's post about whether paying for labor is a plausible alternative to whining about it and importing people. My conclusion was that we should be rational about it, explore all options, instead of leaping to expedience. North Dakota does have other ways of getting doctors than to eliminate H-1B quotas. Rational examination might still lead us to the importation of doctors, but it might not; the challenge commands us to think more broadly than the first (and possibly cheapest) solution that comes to mind.

But I don't want to rehash that here. What I want to talk about is the tendency we all have to over-contextualize arguments people make, to focus on the back story instead of what's really being said. I've had comments on this blog (and in private e-mails) that deal, not with what I'm writing, but with the motivations of those who provide the evidence. There is enough validity to that view to make it worth considering, but it is not sufficient to allow the arguer to ignore the actual argument.

I have often cited sources that come from people who are clearly more anti-immigration than I am. I do that because the conventional media seems to ignore a lot of the evidence that conflicts with the common wisdom that Americans aren't good enough to fill certain jobs (the PR-fueled, CEO position). And if you read what I write, really read it, you will see that I'm taking a more nuanced view than, simply, we must close our borders. To lump me in with the people who do believe that is, while convenient for you who want to disagree with me, spurious and insulting.

Let's take the H-1B question, at least one aspect of it. There are people who believe that the number should be 0, and their views have become marginalized. There are other people whose self-interest drives them to believe that the number should be essentially infinite. And there is the actual number, based on historical accident more than science, of 65,000.

Where I have tried to walk is the uneasy middle, because I really want to understand what the "right" number is. Unfortunately, that stance means that I have to disagree somewhat with both sides, that I don't have the false comfort of saying, on the one hand, that abuses in the program imply that it should be abolished, or, on the other hand, that there's a (rather bogus) study that "proves" that H-1B applications create jobs. Moving in either direction would, I assure you, be far easier; I could jump in bed with one side or the other and sway along with one mantra ("H-1Bs are bad, bad, bad") or the other ("H-1Bs are good, good, good").

I'm not contending that I am unaffected by my own experience, that's asking a bit much. But I do believe I can remove myself from the midst of whatever biases I have, at least enough to ask the right questions. For example, I've worked with H-1Bs who had no business programming a computer, and certainly should not have been allowed in a position where they could undercut native talent. That's happened enough times to make me think that, more than perhaps, the quota is too high.

But that's a first-cut reaction, and I like to dig a bit deeper. So I ask myself how we actually come up with the people who receive these visas. And I look at the conventional media, which pretty much accepts the idea that H-1Bs go only to the "best and the brightest," but is weak on details. It turns out that there is no great selectivity there, that we're not necessarily skimming the cream from other countries. Additionally, the biggest H-1B users are Indian offshoring companies, who have their own motivations for bringing in their countrymen for a few years, then sending them back to the subcontinent.

If we really take the time to look at this, or any other, issue, we find that there is a complexity that doesn't quite line up with political simplicity, that, if we're trying to find truth, we can't just line up with Bill Gates or Lou Dobbs. Each may have contributions to make to the dialogue, but neither seems to capture the full difficulty of the problems inherent in immigration policy - each is quite selective in their choice of facts.

But each of them may have facts to contribute to the discussion, and it behooves the inquirer to look at both sides and try to determine what truth can be found. Sadly, our news providers seem incapable, most of the time, to appreciate this. It's easier to brand Gates an eminent statesman and assume that his wealth gives him special insight into topics that are well beyond his ken (but within his sphere of self-interest). In this way, extremes are relabeled "conventional wisdom," and any dissent becomes relegated to the fringes; you're either with Bill Gates or you're part of the radical nutjob Dobbs contingent.

That may make the job of commenting on things a lot easier, but it's also colossally lazy. Some of the people who disagree with me are guilty of that (and I am, at times, just as guilty). It's hard to question assumptions, to look skeptically at what both sides are saying, especially when you can sort people into two classes ("agree with me, disagree with me").

I'm pretty sure that the 65,000 number for H-1Bs is "wrong," because it was not determined based on much of anything that I can tell, and because it doesn't change in response to any externalities. Is it too low, or too high? Well, that depends on what our goal for the program is, and that's not something that either side spells out particularly well.

[I thought of trying to hash some of the two sides out here, but this isn't the post for that, because I'm using the H-1B question to illustrate the thought process.]

Hey, facts are tough, but that doesn't make truth something we should ignore. Since I don't have the ability to run an experiment on the H-1B question, my guess is that there are gains and losses whichever path we select. If we dropped visas to 0, some people would be better off, some would be worse. If we expanded them to 200,000, same thing. If I can acknowledge that, try to figure out who falls into each category and determine the magnitude of the life change, then so can everyone else. Of course, that wouldn't be as much fun as the shouting off the top of the head that most people seem content to do, but that doesn't mean we shouldn't try.