Monthly Archives: August 2011

Research Shows Rich Getting Richer Makes Poor Poorer

I could swear that I have posted an interview about this research before, but I cannot find it.

The report referenced in the interview is Searching for the Supposed Benefits of Higher Inequality: Impacts of Rising Top Shares on the Standard of Living of Low and Middle-Income Families by Jeffrey Thompson and Elias Leight of the Political Economy Research Institute (PERI) of the University of Massachusetts, Amherst.

Actually, coauthor Jeffrey Thompson states that the research shows that there is a correlation between the rich taking a larger share of the economy and the rest getting less income, not just a lower share of the economy. This is a much stronger result than comparing the share of the economy going to the rich and the share going to the rest. This last result would be merely stating a tautology. (Tautology is the saying of the same thing twice in different words. Tautology also means a series of self-reinforcing statements that cannot be disproved because the statements depend on the assumption that they are already correct).

The tautology leaves open the possibility that the rich getting a larger share could still leave the rest with more income if the economy had grown sufficiently to compensate for loss of share. The research specifically says that this did not happen.

The headline itself, does not pinpoint the actual result either. As the economy grows and the shares stayed about the same, as it has done in the past, the rich would get richer and so would the rest of us.

So to make sure we are not confusing correlation with causality, you could say that things that have occurred in recent history to make the rich get a larger share of the economy make the poor poorer. Which just means that you have to look at the various factors that caused the rich to have a greater share. You can’t just blindly make the rich have a smaller share as it might not help the poor.

The researcher mentions causes to be looked into. One that he did not mention was the increase in GDP from the rich making money by investing in financial derivatives. The GDP increase is on paper only. The increase comes from the bubble caused by such investment. The huge temporary gains divert resources from more truly productive areas of the economy. The diverted resources include top intellectual talent that could be doing more for the world than figuring out how to profit from high-frequency stock trading. This top talent could be inventing products that would benefit many more people than just the top 1% of the wealthy.

A Dispirited Fed Chairman Emerges at Jackson Hole

The article, A Dispirited Fed Chairman Emerges at Jackson Hole, is another reminder how people are good at looking at some evidence and jumping to the wrong conclusion. The article starts with the following:

A thoroughly chastened and discouraged Fed Chairman Ben Bernanke gave his annual speech last Friday at the Fed conference in Jackson Hole, Wyoming. After reading this year’s speech, and then re-reading last year’s speech, I found his tone gloomy and dispirited. This is a far cry from the younger, more confident Ben Bernanke who in 2002 told Milton Friedman at his 90th birthday party that Milton was right about the Fed causing the Great Depression and “we won’t do it again.” Of course Milton was right about the Fed but for the wrong reasons, which could be part of our problem.

With this beginning, I had the feeling that this article could go wither way.  It could go in the right direction, or it could demonstrate a huge misunderstanding.  The latter turned out to be correct. Here is where the article started going south in a hurry.

It is my impression that while he has tried to exude confidence, he is now clearly discouraged. As well he should be, since none of the Fed’s “suite of tools” have worked as intended and almost every forecast the Fed has given since the Crash has been wrong.

My comments that I posted on this article state my disagreement.

I imagine that Bernanke is dispirited, but not because his policies didn’t work.

It must be tough being Fed Chairman when the Legislative and Executive branches have been working at cross-purposes to what you have been trying to do.

It’s about time that a Fed Chairman could leave the diplomacy behind just a little and say forthrightly, “You know my job would be a lot easier if I had a little help here. Maybe if you guys in the Legislative branch were pulling in the same direction as I am, this economy would move faster. The President could stand a little tougher against the people pulling the wrong way.”

I also noticed that while investors in general and people on this site tend to claim they don’t believe in Keynesian economics, they sure rushed for the stock market exits when they saw the debt ceiling deal forced on us by the Republicans.

Maybe they really didn’t understand why they had this visceral reaction that it was time to get out, but those of us who understand the economics sure felt that it was an understandable reaction.

If I hadn’t already had an investment strategy to weather this storm, I might have had the same reaction as the people rushing for the exits.

Republicans Against Science

And speaking about economists who understand what needs to be done, we have the article Republicans Against Science from economist Paul Krugman. This column goes somewhat far afield of economics.  He finishes with the following words:

Now, we don’t know who will win next year’s presidential election. But the odds are that one of these years the world’s greatest nation will find itself ruled by a party that is aggressively anti-science, indeed anti-knowledge. And, in a time of severe challenges — environmental, economic, and more — that’s a terrifying prospect.

As a personal note of confession, having achieved a Masters Degree in Electrical Engineering, I have a prejudice that believes that actually studying something might lead to a better understanding of the subject of study.  Maybe that is why I fail to see value in always downplaying what academics have to say about any given subject.

Don’t get me wrong.  One of my personal credos is that one should never believe something cannot be done just because an expert says so.  It is worthwhile to consider what they have to say, but I have frequently found that it is also worthwhile to do some investigation on your own.  You might, and I emphasize might, be able to come up with something the experts have not thought about yet.

David Blanchflower on Alan Krueger Nomination

I have been wondering about President Obama’s nomination of Alan Krueger to head the White House Council of Economic Advisers. At least Krueger is from Princeton University and not the University of Chicago.

The interview below is the first instance I have seen of a fellow economist commenting on the nomination. (There is a brief introductory ad in the video. You can mute it until the interview starts.)

Unlike the people in the above interview, I think that if this guy is any good, the Republicans will fight his nomination tooth and nail.

From The New York Times article, Economic Adviser Pick Is Known as Labor Expert, we have the following:

The cooler reception came from some on the left, who said the moment called for a big-picture macroeconomist who would push for more ambitious initiatives to reduce unemployment. “The kind of action he’s an aggressive and creative thinker about is relatively small bore, supply-side changes rather than big-picture efforts to fill the gap,” Matthew Yglesias, a senior fellow at the liberal Center for American Progress, wrote in a blog.

I had that same feeling when I heard the interview above. Krueger sounded a bit too much like he comes from the pushing on the string camp of economists rather than from the pulling camp. Pushing is ok as long as there is still some starch left in the string. When it has gone limp, pulling is the only thing left to do. (It’s not my fault if you see any hidden sexual reference in the preceding sentence. If you think you see it, it must be because your mind is in the gutter.)

I keep trying to remind people that there is no policy prescription that is correct at all times. You have to pick the prescription to fit the disease. In this case, any lessons learned from labor policies studied in the midst of mild recessions might not be valid for prescribing what to do in this era of the Lesser Depression.

Keynesian economics was developed to explain why certain economic policies that people up to that time had believed ought to have worked did not in fact work during the Great Depression. I hope that Alan Krueger is not thinking still about policies that “ought to work”, but that lots of economists have realized will not work under the current conditions.

Barack Obama Needs to Force Congress Into Recess, Make Appointments 1

Michael Tomasky has posted the article Barack Obama Needs to Force Congress Into Recess, Make Appointments.

He cites Article I, Section 3 of the U.S. Constitution:

He shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient; he may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper; he shall receive Ambassadors and other public Ministers; he shall take Care that the Laws be faithfully executed, and shall Commission all the Officers of the United States….

He then explains how Obama could use this section to adjourn Congress against their will and be free to make the recess appointments of all the people for whom the Republicans refuse to allow hearings and a vote.

Would Obama have the backbone to do something like this?  Would he even have the nerve to threaten to do this? Not very likely in my opinion.

Apple iPad in the 1969 classic: 2001 A SPACE ODYSSEY

The video clip below from 2001 A Space Odyssey. The Apple iPad looks a lot like the device the two astronauts are using. This is the look that Apple patented 40 years after it appeared in the movie.

Who knew I was supposed to watch more science fiction to get my engineering inspiration? Actually, it is not that surprising. It has been pretty well known that science fiction can be the inspiration for later actual technological inventions.

Of course patenting how to make something happen that was only dreamed of by science fiction writers is one thing. Trying to patent a look that was actually put into practice by film makers 40 years ago is quite another.

Republicans Falsely Call Elizabeth Warrren A Liar

The article headline is Revealed: Former Goldman Sachs VP Turned Issa Staffer Supervised Scheduling Of Elizabeth Warren Incident.

I’ll put a few of the sentences of the article together so that you can quickly get the gist.  You can read the whole article to see if I have been fair and balanced in my editing.

Rep. Darrell Issa (R-CA) hired Peter Haller, a former Goldman Sachs vice president, as one of his top aides.

Haller oversaw the scheduling of the Warren testimony. Haller reportedly changed the time of the hearing at the last minute, then misled Warren staffers by promising to end the testimony by 2:15 pm that day.

McHenry, with Haller sitting behind him, accuses Warren of trying to evading the committee by trying to leave at the agreed-upon time. When Warren noted that McHenry’s aides had agreed upon the schedule, McHenry elicited audible gasps in the room by declaring Warren a liar: “You’re making this up, Ms. Warren. This is not the case.”

How much do you want to bet that Scott Brown will try to make the false claim a campaign issue?  Of course he won’t tell you the claim is false when he brings it up.  When he throws this into a debate, try to remember where you saw the refutation.

Why, That Must be Nancy Pelosi!

I was looking at Google News and saw the headline Why, That Must be Nancy Pelosi! by David Martinez.

Google had used the first paragraph of the article as a teaser.

If any one ever needed a better reason to throw the Democratic Party into the garbage can of history, last Tuesday night’s “Town Hall Meeting” in Oakland, California, was a perfect example of the party’s pathos, duplicity and outright arrogance.

I thought, “Oh, another right wing diatribe against Pelosi.”  I hesitated, and then I thought, “OK, let me see what they have to say, this time.”

When I read the next two paragraph, I knew I was in for quite a different post from what I had imagined.

The night had been billed as a chance for people to “tell their stories” directly to House Minority Leader Nancy Pelosi of San Francisco and Congresswoman Barbara Lee of Oakland.

I was asked by my friend Leslie to take photos of an action planned by a group she organizes with called USUncut, a direct action group fighting public budget cuts and targeting corporations who avoid billions in taxes. She and three others from the group planned to attend the Town Hall Meeting and use the opportunity to confront Pelosi on her having signed off on the recent debt-ceiling deal, and to unfurl one of their “Tax The Rich” banners.

A Republican voter seeks answers from Brown

RichardH pointed me to the column A Republican voter seeks answers from Brown by  Professor Charles Fried, a Republican friend and Harvard colleague of Elizabeth Warren.  This is not quite a ringing endorsement of Warren, more like a dull thud.

Fried goes on to explain why it is so difficult to be a Republican with the current crop of Republican politicians now in power on the national scene.  He poses a  number of questions to Scott Brown to help Fried get a sense of why he should vote for Brown over Warren.  Toward the end of the article, he made the following comment:

On the other hand, is he [Brown] willing to stand up to Nancy Pelosi – who keeps me in the Republican Party – and forthrightly admit that it makes sense to raise the age for Social Security eligibility and to adjust the unrealistic annual cost-of-living increase? Medicare must be disciplined, so which specific measures would he support to do that? And what about insurance companies’ rejection of applicants because of pre-existing conditions?

I left the following comment in response to the article and some of the anti-Warren vitriol of the other comments:

It’s not so much that as a Liberal, I don’t think it is right to talk about modifications to Social Security and Medicare. It’s just that I don’t think we need to have those discussions until we fix the problem of the government mandated shift of wealth to the wealthy over the last 30 years. When we solve that problem, we can see where we are with Social Security and Medicare, and then decide what needs to be done.

Much of Social Security’s near term problems will be solved by an economic recovery.  President Obama tried to start on the road to fixing Medicare problems by his health care reform bill which was eviscerated by the Republicans.  Instead of focusing our efforts on fixing problems that may or may not go away before they materialize many years down the road, let us focus on the economic problems that are preventing recovery right now.  If we get a recovery and there are remaining long term problems, then we can address them  when we see which of those problems remain to be solved.

The distortion of our tax system and regulatory system since the advent of Ronald Reagan is the most immediate problem that needs to be addressed.  Doing so might fix a whole bunch of other problems before we even get to address them directly.

Obama admits economic message unsatisfactory

So now Obama admits economic message unsatisfactory.

“I don’t think we’re in danger of another recession, but we are in danger of not having a recovery that’s fast enough to deal with what is a genuine unemployment crisis for a whole lot of folks out there — and that’s why we need to be doing’ more,” he said.

Reminds me of the old burlesque bit that I saw reenacted on I Love Lucy,  “Slowly I turn and step by step,  inch by inch …”

Maybe in a few months Obama will be able to say, “Yes, a double dip is likely because of that lousy deal I made on the debt ceiling.  It may have taken me months to see this, but the stock market got it the day the deal was signed. They started taking their money out of stocks, before the ink was dry. They kept telling me they didn’t believe the Keynesian economic prediction that the economy would tank if we started cutting deficits now, but that’s not how they acted. ”

For those few people who have not seen the bit, either in the original airing or in the multitude of reruns, here is the video below: