Maybe this is important, maybe not. But what do I know? I’m holed up here in my rainforest hovel, where the Long Damp has finally returned. I am ignorant of most accounting matters, but I suspect that the current credit crunch is, to misquote John Sayles via Burt Reynolds in “Breaking In”, “a big event in the world of asset pricing.”
Whenever there are opportunities to falsely upgrade values during a boom or falsely prevent them from dropping during a bust, I say keep an eye on the accountants.
The zombie that Keynes couldn’t kill still stalks the landscape. In a New York Times op-ed today, Conley tells us that the reason we are sliding into a recession is that we save too little, and that only more savings can pull us out.
A few remarks, with Conley in italics:
The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis — most notably the subprime mortgage mess — one factor that has received little attention is America’s low savings rate.
Um, what is the transmission mechanism here? Weren’t people buying subprimes saving too much or in the wrong way relative to their income? This seems to be an argument based on moralism, not economics: we have been bad these past years, spending beyond our means, and now the recession will be our punishment. In the middle ages our sins were punished by earthquakes and plagues, now it’s recessions. At least it’s an ordered universe.
The simplest approach would be to seed universal mutual fund accounts for low-income Americans. The best way to do this would be through a so-called refundable tax credit deposited directly into a special investment account for each taxpayer. In future years, the government could contribute an additional 50 cents for every dollar the taxpayer deposited into this account. Think of it as a universal 401(k), but one that could be used not only for retirement but also for things like a down payment on a house, college expenses or unexpected health costs.
Well this is dandy: in a time of recession we should create new incentives for individuals to salt away more money. Less consumer demand, that’s the ticket. And behind this proposal is the error of thinking that savings creates investment. If the economy is in a nosedive, and businesses are going bust everywhere, who will want to invest?
As I’ve written in this august blog before, our savings shortfall is the consequence of the massive and ongoing trade deficit: we have to borrow to make up the difference between what we earn and what we spend. The problem with the stimulus package, at least one of them, is that it does nothing for expenditure switching.
Don’t jump to conclusions. Children who work for pay usually make less than adults, but they are usually less productive too. It is far from obvious whether their employers take in more profits, or whether child labor undercuts jobs and wages for adults. You can speculate on this all you want, but now, for the first time, there is empirical evidence.
My study, “Child Labor Wages and Productivity” has just been published by the International Labor Organization (ILO). Working with teams in four countries, we surveyed children and their employers in two sectors per country, gathering data on the division of labor between adults and children, relative wages and productivity, firm-level factors, employer motivation, and the social context. You can read about children who fish off the coast of Ghana, repair cars and motor scooters in India and fold fireworks in the Philippines. The analysis is not particularly high-tech, but you can find basic wage regressions and estimates of production functions with child and adult labor inputs. There is also a ton of descriptive material.
The bottom line is, sometimes, under some conditions. When normal people talk about child labor they often assume that children are a gold mine for unscrupulous employers. This can be true, but it’s not the whole story. Meanwhile, when economists study child labor they usually assume the opposite, that the law of one price equalizes unit labor costs across all age levels. This is even less likely to be the case. If you care about child labor and want evidence instead of arbitrary assumptions, I think you’ll find the study up your alley.
It’s a free download at http://www.ilo.org/ipecinfo/product/viewProduct.do?productId=7065.
Out running today, I had occasion to think about the difficulties involved in sharing the planet with geese. These hefty birds would be a plus in every respect were it not for their shortcomings in the domain of personal hygiene. While picking my way gingerly along the route, I focused on possible solutions.
First, we need to direct environmental budgets to serious problems, like goose poop. If people were pooping in public to anywhere near the same extent, stopping it would be viewed as a top priority.
Now on to specifics. As we know, geese are subject to imprinting. We should pay people to become surrogate goose-parents and to lead them (as pictured in the linked photo) to an appropriate bathroom or outhouse so that they can see what proper pooping looks like. But this will create a further complication: geese, alighting from their migrations, will be knocking on doors everywhere, asking to use the facilities. To forestall this, I recommend building banks of public toilets along known flyways. This might seem extravagant, but the size of these goose-a-potties can be small, holding down costs.
And then we humans can run along rivers and bays without staring at our feet all the time.
Barack Obama has been driving Paul Krugman and others crazy with his call for a warm, fuzzy hands-across-America style of politics. Where does this come from? Here’s one answer….
Cass Sunstein. Sunstein has been cited as an advisor to Obama, and he has written extensively on the dangers of a world in which people only communicate with those they already agree with. If the right listens only to Limbaugh and Hannity, and the left logs on only to Huffington and Kos, each side will shift further away from the other, until there is no middle ground left. All will be blinkered extremism. For details, consult his book Republic.com or his continuing stream of papers like this one. (Question: how does he write this stuff faster than I can read it?)
I have mixed feelings about this view of our political condition. On the one hand, as a partial follower of John Dewey, and as someone who teaches at an institution that embraces “learning across significant differences”, I know how important it is to listen with an open mind to those whose point of view challenges your own. You do yourself and the quality of your thinking no favor when you live and converse in an echo chamber.
But there are two problems with the let’s-all-get-along school. First, there is the issue of power. There are wealthy, well-entrenched interests that don’t want an open-minded, cooperative approach to political questions. They are in charge and want to keep it that way. Opposing views will be censored, defunded, misrepresented and, if they arise in distant oil-bearing regions, incarcerated and waterboarded. It is necessary to struggle against these interests if we want to create a world in which thoughtfulness and generosity rule.
Second, what counts as moderation in America is often hopelessly skewed to the right, even by the standards of other capitalist countries. I generally distrust corner solutions—all this or all that—and look for blending and balancing, but if John Edwards is too far to the left to be taken seriously, I’m a speck on the thin edge of the political distribution, several sigmas out. In this respect, the Sunstein/Obama analysis is correct, but radically incomplete. We need to really extend the conversation to the vast regions beyond the pale of approved discourse. The resulting zone of consensus will be moderate by the standards of intelligent human thought but extreme with respect the political constraints we live under today.
I am at the Bainbridge Graduate Institute, where last night I heard a presentation on the carbon offset market. Someone from the audience asked if this is really just a modern version of purchasing indulgences, salving the conscience of the sinner so he can go on sinning. This is a fair question, but it doesn’t dispel the confusion that now surrounds offsetting.
First point: it is an obvious fact that many if not most of the offsetting crowd in the US, the ones who seek to neutralize their carbon footprint, take a moralistic approach. In the end, purchasing offsets is about them and how they feel about themselves. I wouldn’t condemn this, since good intentions are, well, good (most of the time). But from time to time we should ask ourselves, what is the net effect of this business on actual carbon in the atmosphere?
This leads to the second point: carbon offsets mean entirely different things now and under a future regime of carbon permits. Today, if you buy a carbon offset, there is no particular social cost and probably some potential social gain. The offset doesn’t make you drive or burn fuel oil; you buy the offset because you do these things in the first place. Meanwhile, if the offset causes any improvement in the carbon situation somewhere else, even just a little, it is a plus. True, some offsets also make things worse because they take a tunnel vision to the problem and ignore other environmental and social effects, but these can be avoided with a little research.
Now think about the future. Suppose we institute a system of carbon permits, ratcheting them down each year to meet our long term carbon goals. In this hopefully not too hypothetical world carbon offsets become a threat. An offset represents the cancellation of some part of the permit framework: you get to emit more carbon because you bought an offset. In this case there is a clear and substantial social cost, measured against the same iffy social gain. The net effect is that carbon emissions are likely to go up.
Moral of the story: transcend moralism. Put some of your spare cash into carbon offsets, but do some digging into the practices of the offset providers. Support a national system of carbon emission controls that makes no room for offsets.
Today’s news brings up an important question: are American and other military forces using profiling techniques in selecting targets for assassination?
Let’s speculate for a moment. Suppose you are a tactical commander for an occupying military force in some such place as Iraq or Gaza. You are locked in a struggle with a partisan militia, and you don’t have enough intelligence data to know who its members are. Your main weapon is aerial bombing; your main information source is aerial observation.
Begin by assuming that there is a probability that any randomly selected male between the ages of 16 and 40 is a militia fighter, say 10%. (Women may be fighters too, but their likelihood is much lower.) It is not in your interested to try to kill everyone in that demographic; you would give young men no incentive to not join the militia.
But what about groups of young men? Suppose that the probability of being in a militia rises with the number of military-age men who are seen meeting together. It might be 25% for groups of four, 50% for groups of six, and so on. Once a gathering reaches a certain size you determine that the risk of bombing non-fighters (type I error) is small enough that you should attack.
This model is too simple, of course. An actual profiling system would presumably include other dimensions (ethnic, geographic, time of day), but the general idea remains the same: if a gathering of men is given a high enough score you kill them. The result is that you eliminate a large number of those fighting against you, and you also accept the occasional public relations setback of bombing a wedding, a work detail, a militia unit made up of local collaborators.
I would like to see two things: the actual profiling methods employed by American, Israeli and similar forces (not a chance), and a public defense of the procedure by those who carry out or support it. Right now there is only silence and invisibility, but does anyone doubt that assassination-by-profile is standard operating procedure in modern anti-insurgency warfare?