Aljazeera has the article Smart people, stupid people, and budget politics by Dean Baker.

Blame the media

When a typical person hears that the government spends $445m a year on the Corporation for Public Broadcasting, they are likely to think that this is a lot of money, since it is way more than most people will ever see in their lifetime. Almost no one has their nose in the budget books, so they are not able to recognise that this sum is just a bit more than one-hundredth of one percent of the budget.

The same is true for other categories of government spending. People hear huge numbers and think that programs involve lots of money, because to them these sums would be lots of money. They are not in a position to assess the importance of a program to the federal budget

This article is a beautiful attempt to put some meaning behind Greenberg’s Law of The Media – “If a news item has a number in it, then it is probably misleading.”

Quoting large dollar figures with no context to be able to judge significance is just one of the ways that news story seem to imply something for which there is no basis in the article.

McClatchy DC has the article White House open to short-term increase in debt ceiling.  I knew this was trouble as soon as I saw the headline.

The White House indicated Monday for the first time that it would be open to a short-term increase to the nation’s borrowing limit, allowing the federal government to avoid a possible default on its obligations that could plunge the nation into another recession.

Senate Democrats expect to bring a longer-term fix to the floor for a vote later this week. It would raise the debt ceiling for months, perhaps until after the November 2014 elections. House Republicans said they could consider a stopgap measure if it were part of a larger deal.

“If the White House is open to a short-term debt limit increase with accompanying spending cuts and reforms, that is a positive sign,” said Michael Steel, a spokesman for House Speaker John Boehner.

It is pointless to even talk to the Republicans.  As soon as you open your mouth they think you are now negotiating non-negotiable positions.

The point of having stop gaps and continuing resolutions is to keep the government running while the two sides work out the issues on which they cannot agree.  Every time Obama makes the slightest concession, the Republicans demand everything else.  The President would just stop talking completely.

The President should just say,

“Congress, just do your job.  Keep the government running.  Call me after you have done your job, and we can talk about other issues.  There will be no further communications to you from the White House.”

USA Today has the brief story China warns U.S. about debt default.

“‘We hope the United States fully understands the lessons of history,’ Zhu said, referring to a deadlock in 2011 that led to a downgrade of the U.S. credit rating to “AA+” from “AAA” by agency Standard & Poors.

“The last big confrontation over the debt ceiling, in August 2011, ended with an eleventh-hour agreement under pressure from shaken markets and warnings of an economic catastrophe if a default were allowed to happen.”

First it was Russia telling us how to avoid war, and now the Chinese government is explaining to us how to run a capitalist economy.

How dare they?  Isn’t the USA the best capitalist country in the world?  Maybe not.

That great bastion of conspiracy theories, The New York Times, has the article A Federal Budget Crisis Months in the Planning.

To many Americans, the shutdown came out of nowhere. But interviews with a wide array of conservatives show that the confrontation that precipitated the crisis was the outgrowth of a long-running effort to undo the law, the Affordable Care Act, since its passage in 2010 — waged by a galaxy of conservative groups with more money, organized tactics and interconnections than is commonly known.
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“They’ve been hugely influential,” said David Wasserman, who tracks House races for the nonpartisan Cook Political Report. “When else in our history has a freshman member of Congress from North Carolina been able to round up a gang of 80 that’s essentially ground the government to a halt?”

This shouldn’t be a surprise to anyone who is paying attention.  Perhaps the people who think both sides are equally to blame may be surprised by this.

Alternet is carrying the story Tea Party Radicalism Is Misunderstood: Meet the “Newest Right” from Salon.

For all its Jacksonian populist rhetoric, the Newest Right is no more a rebellion of the white working class than was the original faux-populist Jacksonian movement, led by rich slaveowners like Andrew Jackson and agents of New York banks like Martin Van Buren.

This article explains why the battle cry, “The south will rise again” may be turned into fact.

Talking Points Memo has the article Harry Reid: ‘Speaker Boehner Has A Credibility Problem’.

If you have ever wanted a diplomatic way of calling someone a liar, then this is one possibility.

Further into the article it discusses Chuck Schumer’s challenge with respect to presenting a clean continuing resolution to the floor of the House of Representatives for an up or down vote.

Despite reports to the contrary, Boehner was adamant on Sunday that such a bill could not pass the lower chamber. In response, Democrats like Sen. Chuck Schumer (D-NY) and White House spokesman Jay Carney challenged Boehner to prove his claim and bring the legislation to a vote.

Perhaps Speaker Boner just wants to be pushed into doing what he claims he does not want to do so that he won’t be blamed for doing it by the Tea Party.  Is tea a euphemism for something else that we usually think of for being smoked?

I have gotten involved in an online discussion of the article Why Understanding Fiat Currency Matters For Scientists: We Are Being Pitted Against Public Health on the New Economic Perspectives web site.

I gave my opinion that it is not true that “money” created in the United States by the FED can only be put into circulation by issuing government debt. I was told that I was entering into a controversy between the proponents of Modern Monetary Theory (MMT) and New Currency Theory (NCT).

I was directed to a paper Modern Money by Joseph Huber. He explained the difference between MMT and NCT. I think that Huber agrees with the idea that he attributes to MMT:

Money does not need to be loaned into circulation, but can equally be spent into circulation, free of interest and redemption, i.e. debt-free.

He then goes on to point out myriad ways in which MMT misunderstands how to put this concept into practice and how NCT gets it right.

I think both theories have some truths while they ignore other truths. It mainly comes down to the difference between reality and theory.

The paper goes back and forth in describing the belief systems of MMT. It advocates NCT (new currency theory). However, it suffers from the problem that other systems (including MMT)  do in thinking of money as all one thing or all another.

Just like the particle and wave duality in physics. Neither electrons nor light are all particle or all wave. In actuality they have properties of both. In other words particle are idealized models of reality. Waves are also idealized models of reality. At this point we have no words to adequately describe reality. We make models of certain aspects of reality. These models are useful in different domains. Theorists can continue to search for more and more complete models that eliminate some paradoxes of the existing models. It is open to conjecture as to whether or not there will ever be a model for which we can never find an unexplained paradox. That does not stop us from using models, but we need to be prepared for black swans.

Some of the items in reality that neither MMT nor NCT theory seem to comprehend are examples from the shadow banking system.

When a person does a naked short sale of a stock, that person is “creating” shares of a stock with no authority from the issuer of the stock. While technically illegal, the volume of naked short sales is huge. There have even been many cases where the number of shorted shares is greater than the number of shares issued by the company.  If you happen to be an innocent owner of any shares in that company, you will think you own something of a certain monetary value.  That value will be even less “real” than stocks not subject to naked short selling.  The company can be put out of business through no fault of its own, but only due to the consequences of naked short selling.

As long as we are on the subject, what about the idea of counterfeit money and plain old fraud? If you have an economic theory that pretends these things do not exist, then you don’t have much of a complete theory at all.

According to an email from the DCCC:

The government shutdown could end today. All Boehner has to do is stop listening to the Tea Party and put a clean funding bill on the House Floor. Will you help us get 100,000 strong today calling on Boehner to end the shutdown immediately?

Here is the link to the web site where you can add your name.  According to the most recent count, if 18 Republicans in the House would vote yes on a clean continuing resolution, then the shutdown would be over.

The point of a continuing resolution is to keep the government open while the two sides continue to negotiate a resolution of their differences.   If voting on a continuing resolution requires a settlement of differences, then you don’t need the concept of a continuing resolution.

You have to wonder if it had been a saner time in our politics when the idea of using a continuing resolution was first conceived. Must be something in the tea they are drinking these days. Maybe they don’t realize that at the original tea party they dumped the tea in the harbor, they didn’t drink it.

Should the Democrats negotiate with the House Republicans?  On October 2, 2013, Harry Reid conceded to Speaker Boner everything he wanted in order to get the vote on the continuing resolution.  Boner did not hold up his end of the bargain (surprise, surprise, as if he had never failed to keep a promise before).  So now we should trust the Republicans to keep their word this time.  If they don’t, I guess the Democrats will just have to negotiate some more until the Republicans have even more than they ever thought possible.  Gee, that would be fair.  The Democrats concede more than the Republicans wanted in their bottom line offer, and the Republicans get everything they wanted and then some.  Now, that’s what Republicans call compromise.

I found this CNBC segment from 2009, Dr. Nassim Taleb: “My Friend Nouriel Roubini Has A Weakness, He Likes Bernanke Too Much”.

Very special CNBC Squawk Box this morning, with Dr. Nouriel Roubini as the guest host and Black Swan, Dr. Nassim Taleb as a segment guest.  We will have more from just Roubini later, but this is by far the best clip from the morning group, as it includes interplay and commentary from both. Taleb is difficult to transcribe because virtually every sentence is meaningful.

A conversation between Taleb and Roubini  is like a dream to me.  I won’t give you the dream adjective that comes to mind.

I tend to side with Roubini in this segment. Taleb is too much of an absolutist. While he is right about the mistakes of Bernanke, and Roubini agrees, someone who didn’t learn anything from his mistakes would have been much worse than Bernanke as the crisis unfolded. This is not to say that there couldn’t have been somebody better.

Of course what would have been better would have been a government to step in with the right fiscal policies rather than to force the Fed to use its inappropriate tools as best it could to solve the problems the rest of the government was incapable of handling.

Bernanke worked with the hand he was dealt better than a Greenspan would have. That may be faint praise, but it is praise nevertheless.

Harvard Business Review has the book review Nassim Taleb’s Cure for Fragility by Larry Prusak.

What I can say confidently is that Taleb is writing original stuff—not only within the management space but for readers of any literature—and that you will learn more about more things from this book and be challenged in more ways than by any other book you have read this year. Trust me on this.
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Taleb actually has something new to say that is worth pondering. And in a world where large-scale, unpredictable events are the norm, pondering it is important. You can count on chaos, and work to make your organization antifragile. Or you can keep planning for the probable. If you choose the latter course, then brace yourself for the next black swan — and pray that it isn’t your swan song

I like this review of the book.  Although I think Prusak makes a few minor errors in assessing whom Taleb likes and whom he doesn’t like, by and large I think he describes the value of the book quite well.

I have to admit that both Taleb and the reviewer are in sync with some (and I emphasize some) of my preconceived notions.  Taleb does challenge some of my preconceived notions, too.

2013/10/04 8:20 PM

OK, I have spoken some more to RichardH about Taleb, Black, Scholes, and Merton.

Perhaps I just don’t know enough to make a valid judgment. Richard is going to give me a little help in trying to separate fact from fiction.

Ultimately, I think the lesson about life and economics may be the same as Taleb is trying to teach, but Taleb’s opinion of who gets the cheers and who does not may be highly faulty.