I received the enclosed email from Senator John Kerry asking for my inputs on the solutions to the deficit problems in the federal budget.

Below is the first idea that I sent him.

Get Expert Help For Solving The Long-Term Debt Problem

Finding a good solution to the long-term debt problem is a highly technical undertaking. The calculation of how much short term stimulus is needed requires a deep understanding of economics. Understanding how to make structural changes in the economy’s incentive system, is not a political question.

Find the best experts in these matters that you can, and listen to their advice before making any decisions.

You wouldn’t hire a bunch of lawyers and politicians to figure out how to build a skyscraper for thousands of people to occupy. Why do something equivalently silly in trying to solve the debt problem?

It is a sorry state of affairs when our Senator asks for our ideas on how to solve a very technical problem. I was a professional computer software engineer for over 40 years. The senior level management in the companies where I worked were called upon to make decisions on what software our company ought to be making. I would not have expected them to get in a conference room and haggle over the details of how to design that software. That was my job to do. They certainly could ask my advice as to schedule, budget, staffing levels, and best technical approach. This is the kind of advice that I am recommending that Senator Kerry seek in the context of deciding how to solve our debt problems.

Other suggestions I made focused on the data he and the committee need before deciding on solutions.  I told him to first find out how much the economy is losing by permitting 9% unemployment.  Add in the losses from letting this much or more of actual and potential productive facilities of the economy to  remain unused.  Then figure out how much higher the federal revenues would be with the elimination of this loss along with elimination of tax incentives going to the wrong facets of the economy.  When he had these numbers in hand, he would know what was the goal and what resources he had to juggle to reach that goal.  Calculating these numbers is not something that can be done through debates among politicians.  This is just one example of why the committee must have expert advice.  They need to realize that the members of the committee do not have the technical expertise among themselves  to answer these fundamental questions.

As in any enterprise, investments are made over time and the benefits of those investments are reaped over time after the investments have had a chance to produce results.  It is no easy task to estimate when the cash flow from earlier investments will arrive to facilitate future investments.  An enterprise needs to figure out how much to borrow and when in anticipation of revenues from the investments made.  They need to figure out how initial investments and results will affect the ability to borrow and invest in the future.  Do these calculations sound like something that 12 Senators and Representatives can figure out in some Congressional conference room?  Even if these 12 individuals had the competence to make these calculations, they would need help in gathering data.

I wonder who among my readers of this blog think they have the competence to make these calculations let alone the wisdom to figure out what to do if they had these numbers in hand.  I am certainly well aware that I don’t have that competence myself.  I barely have an inkling of what questions to ask.

This episode of On Point with Tom Ashbrook is an interview with James Gleick author of the book The Information: A History, A Theory, A Flood.

A quote from the prologue of the book might give you a hint as to why you might be interested in listening to the interview.

The bit is a fundamental particle of a different sort: not just tiny but abstract—a binary digit, a flip-flop, a yes-or-no. It is insubstantial, yet as scientists finally come to understand information, they wonder whether it may be primary: more fundamental than matter itself. They suggest that the bit is the irreducible kernel and that information forms the very core of existence.

After listening to the interview, you may want to read the book. You may also be interested in my previous blog post about an earlier work by James Gleick, Chaos: Making a New Science.

Thanks to RichardH for telling me about this episode of On Point.

Paul Krugman wrote the post The Great Experiment in Spending.

World War II was the great natural experiment in the effects of large increases in government spending, and as such has always served as an important positive example for those of us who favor an activist approach to a depressed economy.

As he pointed out at the end of the article:

I hear from various sources — and see in comments — that there’s an apparently concerted campaign to take this post and use it to accuse me of wanting a war. And the worst of it is, some people will believe it.

For the people who don’t understand the point of posting this information, you need to be more explicit.  The explicit point is that people are able to see the need for such spending to fight a war.  The  possibly unintended effect of this spending is to get people employed.  Those of us who, like Paul Krugman, point to the example of war as proving the theories of Keynesian Economics wonder why the economic deniers cannot see this clearly enough to put people back to work without having to wage war.

The war example points out that stimulative spending can get people back to work.  Wouldn’t it be more beneficial to society to recognize its power to stimulate the economy without the need for going to war as an excuse?  Imagine if all that productivity could be used for something to help humanity rather than just taking the fruits of that effort and blowing them up, not to mention the death and destruction caused by these explosions.

In mathematical circles the war example is called “an existence proof”.  There are many indirect ways to prove that something exists, but providing just a single example of the object in question is enough to prove that it exists.  People who use logic no longer say that the object has not been proven to exist after they have been shown an existing example of the object.

Counter to this idea is that the lack of an example is not proof that it does not exists.  It only means you may not have found the example yet. To erase all doubt, you only need to find one example.  That is why it is always easier to prove something exists than it is to prove that something does not exist.

When confronted with this evidence that stimulus can fix the unemployment problem, I have people ask whether or not you could really do this without a war.  I just cannot understand what is holding back their imagination after they have been brought so close to seeing the possibility.  The only thing that seems to be holding us back from stimulating the economy without a war is the inability of enough voters to imagine the possible.

Here is an email I just received. You may want to sign up as I have.

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.

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.

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.

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.

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.

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.