Pink Himalayan Calculator Problems, Part (n)

Further to DougJ’s catch over at Balloon Juice this morning:  last night I actually found myself reading (why, oh why, dear FSM?) the McArdle post in question, a bit of fappery in which she paraded her above-the-fray disdain for the idea that the Obama administration might take action to clean up a mess the Republican rump plans to deposit on his lawn.  (No linky ’cause I’m not in the business of giving any hint of value to McArdle’s employers/enablers.)

It’s really a sad effort, in which McArdle attempts to complete a ~1,600 word piece on the failure of governance implied by a discussion of a platinum coin on the US balance sheet without implicating anyone other than President Obama.  She does make a couple of nods in the direction of “both sides do it” faux-balance, chiding the Republicans for their role in the last debt-ceiling debacle and noting that the GOP side of the aisle seems even less prepared for the consequences of actually blocking the measure this time around.

But those are head fakes.  She reserves the full blast of McArdle scorn (as always, queue Denis Healey’s “savaged by a dead sheep” line here) for Obama in particular and the Democrats in general (whodathunkit!).  Her chief complaint: Obama’s election campaign went pitiably small (an argument that relies on ignoring most of what Obama discussed on the trail), and that he and his party simply ignore the “fact” of federal over-spending.

I’m not going to do my usual obsessive 4,000 word fisk on all the failings of fact and logic that permeate this, as so many of McArdle’s effusions.  Life is too short; I’m on (self-imposed) deadline; and frankly, the slow erosion of McArdle’s career makes the task less pressing, at least to me.  The Daily Beast ain’t The Atlantic, and while the site itself may still command more traffic her old home (I’m not sure of that, but it was true a while back) you can see the impact the difference in audience makes.  I actually waded into the comment thread on the post in question (the shallow end — didn’t have the stomach or the time for the deep dive) and there were plenty there heading for Red State territory.

There’s no doubt in my mind that McArdle is unlikely ever to want for a reasonably well-paying gig; she’s pretty well situated on the Wingnut Welfare railroad.  But there is a big difference between those who intone their harmonies inside the Wurlitzer and those who play out a bit, and it seems to me that she’s heading the wrong way on that particular arc.  Could be wrong, of course, and constant vigilance and all that.  But really, there are bigger fish to fry (looking at you, BoBo, et al.).

So, in the interest of everyone’s time, let me here just take note of the fact that McArdle’s calculator is performing as well as ever.  Her post’s coffee-spray-on-the-screen moment came on reading this gem:

For a while, Democrats could pride themselves on being the reasonable ones. Now they, too, are choosing words over math.  “We don’t have a spending problem,” President Obama apparently blithely told the Speaker of the House.  Which is technically true . . . if we’re willing to raise the government’s tax take to north of 50% of Gross Domestic Product. [ellipsis in the original]

Err.

Just to dot the “i”s: 2011 GDP?

$14,991,300,000,000.  Call it $15 trillion. (via the World Bank.)

2011 federal spending?

$3,598,000,000,000.  Call it $3.6 trillion. (Via the CBO.)

Now, I don’t know about y’all, but I’m not sure I even need to pull out my slide rule to see that 50% of $15 trillion is $7.5 trillion.  And I can probably get by without digging up a working model of a Curta to confirm that $3.6<$7.5.

But perhaps I should do the calculation anyway.  Using the rounded numbers, it seems that federal spending in fiscal 2011 amounted to ~ 24% of GDP.  Or, for those of you keeping score, right in the range  Bernard discussed yesterday.

All of which is to speak the obvious; McArdle’s number is simply bullshit.

I actually have no idea what she was thinking there; it really is one of the least well hidden secrets in US budget discussions that the feds spend a bit under one quarter of GDP.  That’s a number that’s been out there a lot, not least in the context of not-exactly-obscure proposals like the Ryan “Path to Prosperity”* budget plan, which called for long-term government spending to fall to 19% of GDP.

Just to belabor the point:  getting this proportion scaled right is not rocket science — it’s just part of the assumed knowledge of anyone talking US fiscal stuff.  Which is to say that anyone can, of course, screw up and type a number in error.  But then, if you’re numerate at all, you get that tingle that tells you there’s something just off — and you fix it.

Which leaves me with the usual McArdle conundrum:  is she simply so tone-deaf quantitatively that she really didn’t catch the absurdity of the claim?  Or is she so reckless a polemicist that she did, and didn’t care?

One last thought.  Back when McArdle was securely perched at The Atlantic, I often ended these rants by pointing out that her work colored the output of the whole site.  Sometimes I called out the writers I did (and do) admire there to make that criticism more pointed.  The same obtains today:  McArdle’s work is a measure of The Daily Beast.  If they choose to publish her, they own whatever good she may produce — and all the bad, with every bit of reputational and credibility damage that may result. In which context, whatever your feelings about Andrew Sullivan, I’ll say this:  he’s not stupid about his career.  It’s not (or not just) the manner of his leaving Tina’s playpen; it’s the fact of that abandon-ship that, to me, speaks volumes.

*Doublespeak alert

Image:  Agostino Carracci, Hairy Harry, Mad Peter and Tiny Amon, between 1598 and 1600.  I have used this before, but it really seems to fit here.

Guns Are The Enemy Of Liberty

I’m going to be posting a number of shorter (for me) posts on this over the next day or so; I take on board the injunction that general expressions of sorrow and disgust have their place — but are no substitute for specifics.

I’ll have some thoughts about actual measures to be advanced (more invitations to the community to continue to think together).  But here I’d like to start off making an obvious point:

An armed society may be a polite one.  But it’s not one that is free. It is not one in which a civic life in any meaningful sense of the term can take place.

Guns kill liberty.

That’s what philosopher Firman Debrander argued in this morning’s New York Times, and he is in my ever-humble opinion spot on.  It’s worth the time to read the whole thing, but here’s the core of his case:

…guns pose a monumental challenge to freedom, and particular, the liberty that is the hallmark of any democracy worthy of the name — that is, freedom of speech. Guns do communicate, after all, but in a way that is contrary to free speech aspirations: for, guns chasten speech.

This becomes clear if only you pry a little more deeply into the N.R.A.’s logic behind an armed society. An armed society is polite, by their thinking, precisely because guns would compel everyone to tamp down eccentric behavior, and refrain from actions that might seem threatening. The suggestion is that guns liberally interspersed throughout society would cause us all to walk gingerly — not make any sudden, unexpected moves — and watch what we say, how we act, whom we might offend.

As our Constitution provides, however, liberty entails precisely the freedom to be reckless, within limits, also the freedom to insult and offend as the case may be. The Supreme Court has repeatedly upheld our right to experiment in offensive language and ideas, and in some cases, offensive action and speech. Such experimentation is inherent to our freedom as such. But guns by their nature do not mix with this experiment — they don’t mix with taking offense. They are combustible ingredients in assembly and speech.

Exactly so.

Obviously so.

“Smile when you say that, mister,” is great fun from the back row of the movie theater; much less so at arms length, bellied up to the bar.

Gun nuts, the NRA’s official core and all their acolytes and enablers are the enemies of American freedom, of the liberty you and I and everyone should take as our right.  That would be the liberty to walk where we choose, wearing what we want (an “I Reserve The Right To Arm Bears” t-shirt included), to assemble peaceably in protest or at the doors of our kids’ schools every weekday morning.  As Debrander discusses, the openly armed asshole at one of the town meetings during the summer of Obamacare, did not shoot anyone — but no one challenged him; his views echoed in the silence; actual debate was suffocated because no one wanted to piss off a guy who could kill you.  If you can’t have such civil debate, if you can’t even comfortably, free of fear, assemble for politics, or shopping, or a night at the movies, or in kindergarten, you don’t have a democracy in any real sense of the term.  And in that context, tyranny wins.  Debrander again:

After all, a population of privately armed citizens is one that is increasingly fragmented, and vulnerable as a result. Private gun ownership invites retreat into extreme individualism — I heard numerous calls for homeschooling in the wake of the Newtown shootings — and nourishes the illusion that I can be my own police, or military, as the case may be….

As Michel Foucault pointed out in his detailed study of the mechanisms of power, nothing suits power so well as extreme individualism. In fact, he explains, political and corporate interests aim at nothing less than “individualization,” since it is far easier to manipulate a collection of discrete and increasingly independent individuals than a community. Guns undermine just that — community. Their pervasive, open presence would sow apprehension, suspicion, mistrust and fear, all emotions that are corrosive of community and civic cooperation. To that extent, then, guns give license to autocratic government.

Our gun culture promotes a fatal slide into extreme individualism. It fosters a society of atomistic individuals, isolated before power — and one another — and in the aftermath of shootings such as at Newtown, paralyzed with fear. That is not freedom, but quite its opposite. And as the Occupy movement makes clear, also the demonstrators that precipitated regime change in Egypt and Myanmar last year, assembled masses don’t require guns to exercise and secure their freedom, and wield world-changing political force. Arendt and Foucault reveal that power does not lie in armed individuals, but in assembly — and everything conducive to that.

One last thought:  What does such philosophical high mindedness (Foucalt, forsooth!)  have to do with actual change in the way America understands and regulated guns?

Obviously, words don’t stop bullets.  We do need a new, powerful legal framework in which the nitty-gritty of guns and American life are reshaped.  There’s all the stuff we have and will talk about, from regulating the registration of firearms and the licensing of their owners, to restrictions on types of weapons, to insurance and its role in internalizing the social costs of civilian gun ownership and so on.  Others here have already started those lines of thought, and I promise I’ll do so as well.

But one of the biggest challenges we face is that over the last two decades or so, the NRA and its gun nut allies have captured much of the language of liberty as it applies to guns.  Framing regulation of guns as an infringement of gun rights has seen a drop in support for gun regulation from close to 80% to below 45% in Gallup’s polling of the question.  The ability to assert the “guns everywhere” position as a test of freedom has given the NRA and its running dogs* a huge rhetorical advantage.  We need to take it back.  Arguments like the one Debrander makes can help us do so.  We can amplify that one voice with our own…as in this small way, I hope to do here.

*you can take the China hand out of the business, but you can’t take the China out of the hand.

Image: Édouard Manet, Mister Pertuiset, The Lion Hunter, 1881

Why We Fight (Kind of Meta)

Attention Conservation notice [w. apologies to Cosma Shalizi, from whom the phrase is stolen]:  What follows is what in the newspaper business used to be called a thumbsucker  — in this case, yet another way to see the GOP as not just wrong, but so steeped in an error of principle, of worldview, as to be irredeemable.  It’s got a nice anecdote in it, lifted from someone else, but there’s no need to read on if you don’t like such stuff.  Which last is, of course, a PGO of its own.  See:  I’m fractally unnecessary.

______________

I don’t recall an election in which two such strikingly opposite visions not just of the United States, but of human nature, so clearly set the stakes.  Let me get to part of what I see by some indirection:

I’ve been doing a lot of reading lately, with (thanks to the exceptional luxury of a sabbatical) much more to come.  I’ve started out by trying to catch up on some of the political books I’ve missed recently — and I’ll probably have some thoughts to share about Christopher Hayes’ Twilight of the Elites before long.  I just finished Michael Sandel’s What Money Can’t Buy too, though I found it perfectly interesting, but less compelling than Hayes’ book for a number f reasons.  Still that’s a philosopher’s take on the same problem explored in the book that prompts this post, Virginia Sweet’s God’s Hotel.  

Sweet’s work is a memoir of her doubled journey as a doctor at the last surviving American big city alms house, San Francisco’s Laguna Honda Hospital, and as a scholar trying to understand Hildegard von Bingen’s spiritual and practical approach to her form of medicine.  Sweet’s book has been enthusiastically received, and I can see why, though it didn’t move me in quite the same way it seems to have for some others.  It’s Sweet’s lack of struggle that gets me, I guess; there’s no doubt in my mind she did sweat and suffer over her 20 years caring for the poor, but in recollection the life  unfolds with an easy rhythm, no matter how tumultuous the world around her might be.

That said, though, the core message of the book is that there is a profound difference between health care and medicine, and that we ignore the virtues of the art and practice of medicine at our great cost.  As one of  her reviewers notes, this is a subversive thought:  Medicine is a craft, performed one-on-one, slowly…

…while health care is a commodity, something that can be abstracted and, in a sense, mass-produced:

Sweet doesn’t romanticize much, and she never suggests that she, her patients or anyone should trade modern medicine and its quantifying tools for Hildegard’s actual practice.  But she makes the point a good historian of ideas should: one studies the past not to recreate it, but to understand what its thoughts meant to its thinkers — and then what meaning those same insights may have in the radically different time and place in which the historian lives.  Use Hildegard as a tool to probe what the consequences may be if we commit ourselves to life within Mitt Romney’s vision of America.

In that frame, here’s just a brief passage, in which Sweet describes her even-tempered reaction to the consequences of an infestation of her hospital by the kind of consultants that Romney’s parent firm Bain produces:

Above all, the [consultants'] report said, they’d been amazed by the anachronistic presence of a head nurse on every one of the hospital’s thirty-eight wards.  As far as they could tell, this head nurse did nothing but sit most of the day in  her chair in the nursing station.  She answered the phone, to be sure, and kept the charts tidy; now and again she when out and inspected a patient with one of her nurses.  Also, she made coffee, kept the TV room and lounge neat, organized patients’ birthed parties and in general, did whatever needed to be done. It was a pleasant job [the consultants] observed, helpful, no doubt, but one hundred years after Frederic Taylor’s description of scientific management, and in a time of tightening health-care budgets, such a use of a skilled RN was excessive.  They’d even seen one head  nurse whose only task was knitting.  That’s right, a head nurse who, as far as they could tell, spent all day in her chair at the head of her ward, doing nothing but knitting blankets and booties for her patients.

So their main recommendation was to change the nursing structure at Laguna Honda.  The job of head nurse should be eliminated.  Instead, a new nose manager position should be created, where each nurse manager would be responsible for two wards instead of one.  She would no longer answer the phones, tidy the charts, or help out with patient care.  Rather she would manage the staff…

It was a lesson in the inefficiency of efficiency.  And the best way to explain is to tell you about the head nurse who knit….[hers] was a little-old-lady-ward, with thirty-six little old ladies — white-haired, tiny and old — and sure enough almost everyone one was wrapped in or had on her bed a hand-knit blanket; white and green, white and red, white and yellow.  And there was the head nurse sitting in her chair at the nursing station, answering the phone, fussing with the charts, observing her charges, and knitting one of the few blankets remaining to be done.

I’ve thought a lot about those blankets since the disappearance of the head nurses and their well – run neighborhoods of wards.  About what the blankets meant and what they signified.  And here’s the thing: The blankets made me sit up and take notice.  Made me pay attention. Marked out that head nurse as especially attentive, especially present, especially caring.  It put me and everyone else on notice.

It’s not that the ladies for whom they were knitted appreciated them or even noticed them. Who did notice was — everyone else. Visiting family noticed.  Looking down the center aisle, they saw two rows of little white-haired ladies — their mothers, great-aunts, and sisters — each lady bundled up in a bright, many-colored hand -knit blanket. They also saw that each had makeup on, and her hair done and her nails polished by the nurses who knew that, down at the end of the ward, was the head nurse, knitting. The Russian ambulance drivers noticed, when they rushed onto the ward to pick up one of the ladies…Even the doctors noticed.  The blankets put us all on notice that this was a head nurse who cared.

…those blankets signified even more than attention and caring. The click of that head nurse’s knitting needles was the meditative click of — nothing more to be done.  Although it had seemed to [the consultants] that the head nurse  did nothing except knit, that nothing was, as the Tao says, what the Superior Man does when everything that was supposed to be done has been done.

We did get used to the new system eventually.  The remaining staff learned to answer the phones, tidy the charts, talk to families, help the doctors, survey the ward and support one another at the same tim they were looking on the computer or filling out the forms that the new nurse managers created.  But the new system had a cost.  It was stressful. After the head nurses were cut in half, there were more illnesses and more sick days among the staff; there were more injuries more disabilities, and earlier retirements. Among the patients there war emore falls, more bedsores, more fights, and more tears.  And this, in the broader scheme of things — even economics — is not efficient.

…The [consultants'] report  taught me not only the lesson of the inefficiency of efficiency.  It also taught me the lesson of the efficiency of inefficiency.

Because it wasn’t just the tasks of the head nurse that fell by the wayside with [the] recommendations. It wasn’t even their watchful re-creation of neighborhoods within the village of the hospital.  It was the time they had, the unassigned time, that not only belonged to them but spread itself to all the staff — doctors included. That unassigned time, as inefficient as it seemed to be… turned out to be one of the secret ingredients of Laguna Honda.  With the elimination of the head nurses, so economical on paper, some of that extra time was also eliminated, and with it, some of the mental space to focus and care.  There was, I discovered, a connection between inefficiency and good care…

I don’t want to romanticize here, any more than Sweet does through her long narrative.  To channel my inner Freud, sometimes the old ways of doing stuff really are outmoded.  No one who has recently spent four years in academic administration needs to be reminded of that.

But Sweet’s point is one I’ve been thinking of more and more as each Bain vulture capitalism story makes its way in and out of the Look! Shiny! media narrative.  Sweet mentions that the consultants who got rid of half of the head nurses shifted $2 million in the budget.  They collected $200,000 for their recommendation — an agreed 10% bounty on all “savings” their study produced. They correctly determined an individual inefficiency, and missed, in Sweet’s account, the systemic advantages of what seemed to their analytical framework, their faith, to be an obviously flawed system.

And so it goes throughout the current GOP worldview.  We know that the private sector is the GOP solution to (putative) problems in the public schools [paywall] by selecting the right measurement criteria.  Bobby Jindal can determine the cost of libraries, but not the cost in money or possibility of their loss. The number wins; the uncertain future weighs for nought.  The usual catchphrase for all this is privatizing profit and socializing risk — which is what the GOP seeks for social capital as much as the financial kind.  Hence the stakes of this coming election.

But beyond that pretty familiar notion, what came to front-of-mind as I read Sweet’s story was the reminder, if any were needed that the basic worldview of the two sides in this election are not the same, for all the overlap of interest and elite corruption and all that the circular firing squads of the left can (sometimes accurately) describe. I said this was meta, and it is, and I should probably let y’all get back to your Saturdays.  But behind the consultant’s technical apparatus is a vision of a world of individual action and reaction. Cut here, save the money, Profit!

Taken to the level of politics and national elections, it’s a vision (sic!) of a country best understood as an assemblage of 300 million individuals. Hence, among the adherents of this view, the furor over the suggestion that business folk had any help building their businesses.

If you think that such a view of the lack of connection between one person’s endeavor and the next is the way to educate a population, receive health care in a timely and useful fashion, to innovate, then the GOP is for you.  If you think we live in society in which individuals  gain freedom of opportunity and access to experience supported by the links between the lives of all those 300 million — if you inhabit reality, that is — then we need to destroy the current GOP root and branch, now and for the forseeable future.

Put another way:  we need to recall that I didn’t build this blog…without the internet, without its readers, without…you get the idea.

And that’s enough meandering.  I’ve just finished my next, post-Sweet book in this orgy of reading, Elaine Pagels, Revelations. Interesting, culminating in a very good explanation of what from my perspective I read as the reason Isaac Newton so excoriated what he saw as the theft of Christ’s church by Athanasius, his imperial patrons and his allies.  Not sure what to grab next.  No matter.  What a joy it is to read and read and read…

Images: Jan Steen, ​The Sick Woman, ​ before 1679.

Max Liebermann, ​The Canning Factory, ​1879.

 

Federalism For Me And Not For Thee…Food Safety Dept.

As long as we’re talking about food….

Government by referendum is not a great way to run a railroad, IMHO.  Certainly, California voters have wandered down some deeply damaging alleys with the referendum process in that state.  (The referendum-induced 2/3rds majority required to raise taxes has been a stunning success, for example, if by success you mean rendering the world’s 8th largest economy largely ungovernable.

But there is no doubt that if you are into federalism and the return of power to the most local level possible, then it ought to be hard to find fault with the notion  that citizens of state ought to be able to decide that they want there food supply raised under certain regulatory conditions, and they want to ensure local standards of food safety.  So, who should object to this:

A California voter-approved law…requires that caged veal calves and breeding sows as well as laying hens should be able to stand up, lie down, turn around and freely extend their limbs.

The initiative was approved by 64 percent of California voters after animal rights activists released undercover videos of strangled, deformed and mummified hens in cages.

This isn’t even that controversial among at least some of the affected producers, according to reporting at SFGate.com:

The egg industry, in a landmark agreement with the Humane Society of the United States, has embraced the hen law and enlisted Sen. Dianne Feinstein, D-Calif., to enact it nationally so that all egg producers operate under the same rules.

Other states have similar laws, but all that may change (cue the usual suspects music) if the House GOP, fronted by poster child dangerous idiot Steve King (R-salmonella) have their way:

The latest salvo came in a midnight vote in the House Agriculture Committee on an amendment to deny states the ability to regulate any farm product, potentially overturning not just California’s farm laws but animal welfare, food safety and environmental laws related to any farm product in all 50 states. [King introduced the amendment]

Read that again:  “potentially overturning not just California’s farm laws but animal welfare, food safety and environmental laws related to any farm product in all 50 states.” [Emphasis added, obviously]

For just a taste of the implications, here’s a California egg farmer who supports the law:

Riebli, the Petaluma egg farmer, said that if King’s amendment survives, “California also has pesticide laws for fruits and vegetables. They’re gone. California has its own standards for fluid milk (requiring fortification with vitamin D). They’re gone.”

Who needs a race to the bottom when Congress can just teleport us to the floor of the Marianas Trench?

There’s a lot more to this issue — we’ve got a pigs vs. chickens battle going on; an argument over what states can regulate that has genuine complexity and so on.  But look at what the GOP is trying to do (to be fair, along with Democrats from some ag/agribusiness heavy states): deny the ability of any state to regulate the health and safety of the food it’s citizens consume.

John’s running tagline is basically right: anyone voting Republican now and for the foreseeable future is voting to turn the United States into  Somalia.

Discuss.

Image:  Gustave Klimpt, Garden With Roosters, 1917

McArdle Mini-Me Follies, Real Estate Economics Division

Blogger’s note: You’ll find below that I use an anonymous source to support my attempt to dissect Someone [who] is wrong on the Internet.™  As always, anonymous sources are only as trustworthy as the writer who deploys them.  You have been warned.  (BTW — I do know that it’s cheating to do even minimal reporting on a blog post.  Sue me.)

Dr. Manhattan is one of the McArdle guests feeding the wire whilst that blog’s proprietor is preparing what will no doubt be a never-before equalled work of economic and/or culinary erudition. His is the nom de blog of someone described as “a lawyer…who represents, among others, clients in the investment industry” — a connection that may prove significant below.

Up for dissection today: his post titled “A Modest Proposal” in which he promotes the idea of killing what he alleges to be the lead culprit in the crash of 2007-8:  Mortgage Backed Securities.

What’s fishy here?  Well — lots.

I’m not going to go full metal blogpocalypse on this, in part because life is too short, and in part because Dr. Manhattan gets props in my book for having written clearly and unequivocally against the vaccine-autism claimed link on his (now dead) personal blog — from the perspective of a parent of an autistic child.  That kind of writing in that community takes courage, so this brush with the McArdle empire will be as free of my usual attitude in that direction as I can make it

That said, here’s the passage that set me wondering about this post:

…killing MBS will likely kill the 30-year fixed-rate mortgage with no prepayment penalty, which, in the words of Raj Date, “does not flourish in the state of nature.”  And right now very few people can get one of those anyway, which is not a coincidence.

Hmmmm.

One of the benefits of hanging out at a place like MIT is that there is almost always someone around who actually knows stuff on just about any subject you’d care to check…and so it is with the economics of real estate.  I dropped a line to a colleague up the street, and got confirmation of the obvious:  the 30 without a pre-payment penalty (the clause that makes refinancing mortgages so straightforward) significantly predates the rise of mortgage backed securities (by decades).  Such mortgages start to appear in the 30s; MBS start to become significant in the marketplace after 1970.  That the end of the latter would kill the former is, as we say, an assumption not in evidence.

Oh well.  And that “very few people can get one…” claim.  I’m filing this in the life-is-too-short category to check fully, so I’ll just note that (a) 30 year mortgages remain by far the most common housing loan out there — roughly three quarters of all mortgages as of the most recent Census report (2011, on 2009 data).

Also, being as I’m someone refinancing for the third time a loan first taken out in 2009, I can in my anecdotage* attest that the no-prepayment-penalty mortgage is both alive and trivially easy to obtain.  (At least in my market, it remains the default option.)

What bothers me about this passage is just the garden variety flaw behind so much glibertarian and/or right econ blogging:  what they know** requires no actual data to confirm.  This is kind of what you’d expect at a McArdle-branded blog:  that which ought to be true need not be checked.

But the tricky bit is that plausibility is all; the moment the reader’s willing suspension slips  — then you read everything else in the piece with attenae quivering.  Hence, I was ready when I took a second look at this gem:

 CDOs and credit default swaps don’t kill financial systems, mortgages kill financial systems.

Uh.  No.

As it happens, I’m not operating out of my usual sea of ignorance on this point, as my current project involves a deep dive into the first debt-for-equity swap in financial history.  The key fact most often ignored from that early period of finance is that though plenty went wrong, usually in ways that, frankly, aren’t materially different from the ways folks game and/or fail to grasp the system now, the core financial act of abstracting things into numbers is an enormously useful trick.  It is, truly, an engine of wealth.  See, e.g. Adam Smith, chapter IV of Book I of Wealth of Nations on the importance of a medium of exchange; currency is just the first step in the process by which finance mediates transactions.

In that vein, mortgage backed securities are like any tool; you can build a house with a hammer; you can also crush a harp seal’s skull.  It is all a matter of the user and the constraints that user’s society places on the deployment of such tools.  As my correspondent at MIT put it, there are three clear points of vulnerability inherent in the process of packaging individual mortgages into a big clump:

1). Originators do not have skin in the game and may try to pass off bad loans as good.
2). Rating agencies are paid by the pool creators rather than the investors (who are unknown at the stage when ratings must occur).
3). Special servicing needs a better business model. (TL: I.e., those who handle troubled or in-foreclosure mortgages need to do it right, which isn’t happening)

All of these are known flaws.  All of them are subject to regulatory responses.  My interlocutor again:

Until the 100 year flood #3 was never problematic. As for #1 and #2 as long as F&F were functioning as a public entity they monitored and disciplined originators and rating agencies with bad records. 800 lb gorillas can do that.  So a huge monopsonistic mortgage conduit actually overcame the intrinsic problems with MBS – and in my view should simply be turned into a non-profit public utility!

The alternative to MBS is to return to individual loan underwriting, retention and servicing.  We could certainly choose to say hello to all that, but at a cost — not a trivial one — that in the end would make the price of money for housing detectably higher.

This isn’t a terrifically complicated idea:  from its emergence in the 18th century, the bond market has lowered the cost of capital applied to all kinds of stuff in the real world, beginning, more or less, with the British Empire.  (See, for example, the brief essay buried about 2/3rds of the way through Volume II of Fernand Braudel’s Civilization and Capitalism, which gave me my first glimpse of the role of liquid capital markets and Britan’s rise to world-power.

All of which is to say that the derangement of the mortgage market in the United States was indeed a major and growing problem through the ‘oughts, compounded by an ideological commitment that prevented regulation everyone with an economics IQ higher than a plant’s understood to be necessary.  But even if the collapse of the housing market provided the spark for global financial disaster, the fuel for that inferno came not from the securities constructed directly out of home loans, but from their derivatives.  And as it is in derivatives that a whale’s share of the money can be made (at least until the music stops) those on Wall St. resisted and still resist not just regulation of those instruments, but any real discussion of their significance.

But here’s the blunt reality of modern finance: the scale of the derivatives market vastly exceeds that of the real economy that underlies it.  The leverage — the number of dollars at risk  in excess of the value of the real assets from which such bets are derived — is what makes for catastrophe.  Dr. Manhattan’s airy confidence, as quoted above, that ” CDOs and credit default swaps don’t kill financial systems,” is more than wrong.  To the extent that it reflects accurately what folks on Wall St. actually believe, it’s terrifying.

Or, as my MIT wise man says, more gently:

Not sure your writer fully understands how CDO and CDS markets work, and how counter party risk is basically unmeasurable – making them horribly subject to a systemic meltdown.

I’m betting none of this comes as a surprise to anyone reading this; reality based communities tend to be able to count on both fingers and toes.  And I guess I’ve committed my usual sin of John Foster Dulles-ing what was, after all, a throwaway of a line and a thought.

But I do think it important to try to push over and over again one basic point: financial markets are essential; they fund real lives.  They are also prone to failure in ways that are unsurprising, and are, at least in part, subject to constraint by design.  To pretend that failure is at once impossible and inevitable, just one of those things (like cancer) that attends the messy business of being alive, is merely to ratify the transfer of wealth from most of us to those with their paws on the capital spigots.

Dr. Manhattan might say that he is merely directing our attention to the root cause of our ills — but it is to me notable that the instrument he wants to do away with is the one that lowers the cost of a mortgage to you and me, and those he wants leave untouched are what buys as 2008.

If it were McArdle herself who had written this, I’d add snark here.  But as I said up top, Dr. Manhattan is someone who has earned some benefit of the doubt.  He may simply have gotten this one wrong, which is a state that comes to us all; me certainly.  So I’ll leave it here….

Over to you all.

*Credit for that coinage (at least in my first hearing) to the king of the three dot columnists, the gone but by no means forgotten Herb Caen .

**In the Mark Twain sense of knowledge.

Images:  Frans Snyders, The Fishmonger, first half of the 17th century.

Benjamin West, The Death of General Wolfe, 1770.

Megan McArdle Orders the Burlwood Dash For Her Tumbrel

Blogger’s Note: Zandar (apologies…) and Asiangrrl goaded me into diving once more into the swamp that is Megan McArdle’s prose.  But this is it.  There’s real and much more interesting work to be done out there, good stuff to read and (I hope) write.  And it’s clear that I can’t do what folks like TBogg and DougJ have mastered — the precision strike, 300 words and out, that leave the divine Ms. MM’s latest smoking in the ruins.  There’s no “I can handle just one more toke” self-delusion available to me.

So I’m quitting. Cold turkey.

This is the last McArdle post for at least six months — and I’ve empowered my colleague, Seth Mnookin, to tase me if I slip.

Also:  to steal Cosma Shalizi’s customary phrase, here is an attention conservation notice.  What follows is about 2,700 words vivisecting a 1,000 word or so book review.  It’s John Foster Dulles-scale overkill. It’s just me lancing a boil.  That’s all.  Read it at your own pleasure — but don’t come complaining to me that you’ll never get those minutes back.  We cool?

_______________________

My uncle, the ex RA officer, once told me the grim term-of-art British soldiers adapted to describe IRA bomb-makers inept enough to blow themselves up.  They had scored, it was said, an own-goal.

So it is, (without bloodshed, thankfully) that we must read the latest from our favorite Marie Antoinette re-enactor, Megan McArdle, writing in last weekend’s Wall St. Journal.  (And yes, I know DougJ got here first, along with all you would expect from the Balloon Juice commentariat, but what good is snark without oversnark, I say.  Charlie Pierce too.  (Update: and, of course, the invaluable Susan of Texas.)  Well, say I, a feast is as good as enough, is it not.?

Just to recap:  last Saturday, McArdle wrote what was ostensibly a book review that devolved rapidly into a celebration of McArdle’s own purchasing habits and the particular form of her pursuit of happiness.

There’s a lot that could be said about the miserably parched self-and-world view that informs that defense, but the rest of the column is equally egregious, so, in my usual succinct fashion, I decided to have a whack at it:

McArdle begins by announcing that she has bought herself a $1,500 food processor/cooking robot, a Buck Rodgers gadget called a Thermomix. This machine’s claim to fame is that it combines a chopper/grinder/stirrer function with a precision scale and a heating element.  Toss stuff into its mixer bowl in the right order and in what the machine tells you are the right amounts, press some buttons in the correct sequence, and standardized results accrue.

Now, contrary to the outrage in DougJ’s thread, I’m going to say up front that I have no problem with McArdle lusting after this, buying one — it’s her money to blow, after all — and concluding that this kind of automated cooking satisfies her urges.  I’ve dumped most of my sideways snark on this question to the footnote, for anyone that cares.*

No, what gets me, pretty much as always with this writer’s stuff, is her ferocious disregard for basic craft, and what I think is the essential bargain journalists make with their readers.

So, to begin, here she is, ex cathedra, on the book nominally under review, James Roberts’ Shiny Objects:

It’s a thorough survey of both academic research on consumerism and basic finance advice. Still, I first ran into an argument I hadn’t seen before somewhere around page 200…

We have a familiar McArdle rhetorical cheat here.  “I first ran into an argument I hadn’t seen before around page 200…” as if her familiarity with this literature is itself somehow dispositive.  I’ll give you that she’s not quite saying the arguments are wrong, but it is a purely uncheckable diminuition of her antagonist’s authority.

Next:

And well before then Mr. Roberts had fallen into some of the terrible habits of the genre. Though less openly contemptuous of the spendthrift masses than many of his fellow scolds, he still exudes that particular sanctimonious anti-materialism so often found among modestly remunerated professors and journalists.

Oh, snap!  It’s a measure of McArdle’s particular qualities that she manages to transform whatever publication chooses to admit her to its space into that privileged corner of the school steps where the Mean Girls live.

I mean, seriously:  working at jobs we like for money less than that the 1 % can command so warps the character as to turn us unfortunate journalists and professors into hypocritical scolds.  Damn.  I’m short on my month’s quota of vituperation and visible displays of hair-shirt couture.

Of course, this is (a) simple pre-emption:  “I’m not a culinary snob, wielding cash to distract as I chase the lives of my betters.  You’re the snob!  So there!”

And (b) it’s nonsense.  Professors and journalists are not badly paid by any reasonable standard. Roberts himself is a professor of marketing at Baylor, and as of the 2009 mean salary for such faculty was $138,000.   That’s not Prada and hot and cold running Dom rich, but it’s not bad coin by anyone’s standards, and applied to the cost of living in Robert’s Waco, Texas, that’s a sum that will set you up very nicely indeed.

All this is crushing flies with a jack-hammer, I know, but the point is, I think, pretty damn obvious:  McArdle hasn’t or won’t do the work to test the question on the table: whether or not money buys you happiness.  So she throws monkey faeces at the wall instead.

To continue:

Here are some of the things that upset him and that “document our preoccupation with status consumption”: Lucky Jeans, bling, Hummers, iPhones, 52-inch plasma televisions, purebred lapdogs, McMansions, expensive rims for your tires, couture, Gulfstream jets and Abercrombie & Fitch. This is a fairly accurate list of the aspirational consumption patterns of a class of folks that my Upper West Side neighbors used to refer to as “these people,” usually while discussing their voting habits or taste in talk radio. As with most such books, considerably less space is devoted to the extravagant excesses of European travel, arts-enrichment programs or collecting first editions.

I’ve long noted that McArdle has, to put it kindly, some reading comprehension problems; they are manifest again it this paragraph. She writes down a series of items.  Note that she does not quote — somehow she’s culled this set of items from what could be a single passage, or might be half the book, which would affect the interpretation of what Roberts was actually saying.

Now look at the key claim:  “This is a fairly accurate list of the aspirational consumption patterns of a class of folks that my Upper West Side neighbors used to refer to as “these people,” usually while discussing their voting habits or taste in talk radio.”

Do you see a pattern of consumption in that catalogue?  Iphones and McMansions — just points on a single cultural and aspirational continuum, right?  a Gulfstream falls uniquely onto the same folks’ bucket lists as Abercrombie and Fitch products?  This is a set of cultural markers that clearly distinguishes Limbaugh dittoheads from those who shop at Murray’s Sturgeon?

What’s actually going on here is McArdle distorting what Roberts is trying to say, even  within her own skewed presentation of his case, in order to transform that serious argument into a spitball fight about class and privilege.  But everybody wants something on that list, and many of us want a lot of it, which is what I understand Roberts to be saying:  the pressure to consume affects us all, no matter what we got or where we live.  Oh — and I’d have to say — it’s pretty bold, to put the nicest spin on it, for a Manhattan-bred, beltway insider like McArdle to lecture a guy living in Waco about what ordinary Americans want.

Really, McArdle’s rush to contemn her neighbors for the class snobbery she imagines she hears (make the lambs stop screaming!) sounds to my suspicious ears to be something that has crossed the writer’s mind.  There’s just a little too much specific desire in that “bling…plasma…rims” catalogue for me to trust her claim as to who spoke such slurs and who listened.  And as for that ” considerably less space is devoted to the extravagant excesses of European travel, arts-enrichment programs or collecting first editions,” I bet Roberts didn’t mention $1,500 food choppers either.

Onward!

Consider the matter of status competition. Mr. Roberts, like so many before him, argues that conspicuous consumption is an unhappy zero-sum game. But this is of course true of most forms of competition: Most academics I know can rank-order everyone in the room at a professional conference with the speed and precision of a courtier at Versailles.

Oh yeah?  McArdle must know a particularly miserable set of academics, which, now that I think on it, is not that farfetched.  All I can say is that at the conferences I attend, McArdle’s kind of high school (yes, that again) attention to who among us are the kewl kats is not the defining dynamic of the meetings.

Of course, the real stupidity here, beyond the “trust-me” bullsh*t inherent in the “most academics I know” approach to reporting, is the idea that academic exchange is merely the arena in which status competition plays out.  This is the shorthand response, but academics are members of a professional community.  They go to conferences to communicate results.   There is competition, and you notice the Nobels in the room and so on.  But most academics understand that better work by anyone raises the status of the entire group as well as of the individuals involved.  Success in physics or  geochronology or the study of counterfeiting and late 17th century finance (a plug, here, in case you were wondering (Kindle edition too!) is not  a zero-sum game.  That McArdle thinks it is explains much.

Any competition, from looks to money to academic credentialing, both consumes a lot of resources and makes many of the participants feel bad about themselves.

No.  See above.  For a beautiful account of the meaning of competing, and not just the competition, check out what is in my opinion the single best book about a sporting event ever written in America, John McPhee’s Levels of the Game.

Actually, I have to say that to say that this passage from McArdle actually made me feel a ghost of pity for her.  Such a direct glimpse into the poverty of her soul!  Setting aside all else:  what a drag it would be to be her!  (Apologies, Bobby D.)

There’s more — I’ve only covered the first half of a two-book review.  I just don’t have the strength to go through that latter half, beyond noting that it took me all of a couple of moments to find that in trashing his book she makes one claim that is simply at odds with what Rutgers economic historian James Livingston, actually says. It’s not “rich savers,” as she has it, whom Livingston charges with inflating bubbles.  Rather, he argues, “corporate profits …[are] just restless sums of surplus capital, ready to flood speculative markets at home and abroad.”  I have little doubt that similar problems obtain with the balance of her review, but there comes a point where even I can take no more.

So one last thought, really an explanation about why it is McArdle so gets under my skin.

That would be because she so diminishes the craft I have spent decades learning and now teach:  how to write about matters of fact; how to be a journalist.  I’ve detailed some, (by no means all) of the kinds of errors of argument and interpretation in this one little fish-wrap piece that make a mockery of the notion of a bargain of honesty with one’s readers.  But I’ve left till now the tic that McArdle displays over and over again that tells you that she simply can’t be trusted.  And that would be her near-constant invocation of strangely generic sources.

Journalists often use anonymous sources, and it’s always an issue.  But good journalists provide enough of the context of anonymity to give the reader a chance to gauge how likely it is that Mr. X actually said what he is reported to have done, and that Ms. Y is actually knowledgeable enough to be a sufficient authority for whatever the reporter asserts.  The guy inside Philip Morris who’s identified only as a Big Tobacco insider — that’s someone who’s need for anonymity the reader understands, and if he says that the tobacco companies knew about the smoking-cancer connection since the fifties — and oh, by the way, here are the shopping bags full of documents — then you know what you’re dealing with.

But those “neighbors” whom, presumably, McArdle engaged in friendly conversation, no doubt hiding her overflowing disdain with all the subtlety and grace for which she is so well known…I don’t think so.

Rather, whenever you read the broad cultural pronouncements of our Village betters, remember this:  the local taxi driver, the “concerned Democrat,” any of Megan McArdle’s usefully clueless liberal “friends”…they don’t exist.  Not in any meaningful sense, at any rate, and any actual journalist knows this, as does any competent editor.

And in the end, that’s why I’ve got to quit this beat for a while — a long time I hope.  McArdle has disproportionate influence, or at least, a much bigger megaphone than her own merits could command.  But in the end, she’s just not that interesting.  There are better things in life to do than to spend precious moment, much less hours, contemplating the train wreck that passes for her body of work.

Oh — and one more thing.  Whilst I’ll defend to the death McArdle’s right to spend her cash on any damn gadget she wants (see the footnote immediately below), that doesn’t mean I won’t snicker at it.  And yup, a $1,500 kitchen robot is pretty much an après moi, le déluge kind of item.

Me, I’d rather Occupy My Kitchen, and dine (as last night) on roast capon with a pasta-and-sausage stuffing, squash and cippoline onions, sides, and an almond and pear tart, home made.  Did I mention that in bamboozling my beloved into marrying me, I gained a former pro chef as a roommate?  I believe I did.

*Go to it, I say.  I don’t even think that McArdle’s appreciation for what the machine can do is as hopelessly misconceived as her examples suggest. While making a béchamel sauce hardly requires such an investment, still I can see the convenience, and in the right context, some real value of such a device.

That would be in a professional kitchen, where the goal of uniform repetition is paramount.  Once you work out the recipe for something you want your restaurant to add to its menu, a machine that automates the process of turning out consistent results every time has an obvious value.  For the home cook?  Well, Nathan Myhrvold has one, and if you are his kind of cook, one fascinated by the application of technology and precision measurement/regulation to cooking (and with the budget to sustain your fancy), then fine.

If you’re McArdle, less compelled by molecular gastronomy than the kind of kitchen olympics that leads one to write a  phrase like “…perfect hollandaise and flawless béchamel can be produced in minutes with virtually no effort,” then clearly, this kind of robot can help mask any flaws in your basic kitchen technique. And, hell, take her word for it that the gizmo is fast and convenient, and that those qualities enable her to make food she likes more often than she previously could.  As McArdle perfectly correctly says — that’s a boon, for her.

There is a price to be paid, it seems to me:  a tedious leveling of one’s cooking.  Once the robot gets going, all you can do is accept the price of automation:  you get consistent results, but you can only experiment by rerunning the whole process — making the same dish again — for each change that might seem desirable.  When you cook by more pedestrian methods, you dip and intervene.  All in all, it’s a perfect device to turn the ambitious but not-terribly-talented home cook’s kitchen into an amateur version of the sort of restaurant Calvin Trillin marvelously dubbed the Maison de la Casa House.  But all in all, if you’ve got the money and you want the crutch — hell, why not?

Images: Joachim Wtewael, Kitchen Scene, 1605.

Jean Clouet (attr.), Charles IX of France with racket,  1552.

Bartholomeus van Bassen, The Parable of the Rich Man and Lazarus, c. 1620-30.

Megan McArdle: Is it her reading that’s the problem? Her comprehension? Her honesty? You Make The Call!

I know that this is all kind of moot in light of the events of the last few days, but someone passed word of this McArdle post to me yesterday, and it seemed to me to capture so much of what has gone wrong in the way the media engaged the debate over deficits and their discontents.

In this particular example of Village media retailing a false narrative, She Who Is Always Wrong™ took issue with a chart referenced by and a conclusion her actually, you know, accomplished colleague* James Fallows has been arguing for a while.

And yes, I know, a cage match between Fallows and McArdle is kind of like watching Ali (in his prime) against the Weehauken Regional Golden Gloves champion, at least as far as intellect and journalistic chops are concerned.  McArdle would win, no doubt, were the judges scoring condescension and high-school in-group wit.  But when it comes to actually reporting an issue, understanding what one has been told, and reporting both facts and (clearly demarcated) analysis/opinion, Fallows v. McArdle wouldn’t be licensed even in Nevada.

But that doesn’t stop the divine Ms. MM, unsurprisingly.  Her role is not to be responsible, or accurate, or even coherent.  It is to advance the approved Central Committee line — which, McArdle, loyal and very effective apparatchik that she is, seems to know before the word from on high need ever get spoken out loud.

Hence her attempt to deflect the hideously liberally biased facts of the history of the deficit.

For, you see, the Fallows post she seeks to undermine focused on this chart:

Fallows made the point, also raised by such raving loony left organizations as the Pew Charitable Trusts and the ever-liberal New York Times that such recourses to history and actual data suggest both a problem and solutions that are different from those we’ve just gone through the wringer trying to debate. (Both references supplied by the White House.)

The broad point is both obvious and obviously too painful for McArdle to contemplate:  George Bush the Lesser inherited significant surpluses and a budget that promised to generate further surpluses through times of economic growth, and transformed that extraordinary fiscal idyll into a crater, a truly spectacular failure of financial prudence.

As the chart above accurately depicts, the largest driver of the deficit is the Bush tax cuts that coincided with the eight years of desperately unspectacular economic returns, culminating in the catastrophic failure of global financial capitalism.** The next largest creator of new debt was expanding domestic spending, followed closely by the wars in Afghanistan and Iraq, both wars of choice.  The prescription drug benefit (Medicare Part D) is a smaller item on this list — just 10% of the scale of the tax cuts — but it’s worth noting for the argument to come below.

All this, of course, shows what we already knew:  Bush policies, supported overwhelmingly by a GOP party that controlled the House for six of the eight years of the Lesser’s adminstration, and the Senate for more than four of those years, are what produced something approaching half of the total still-outstanding debt accumulated to date by all administrations since the birth of the Republic.  This, the Obama administration contrasts with its own record of a 1.4 trillion dollar addition to what we owe now, composed mostly of the stimulus, some particular policy choices, and a bit (and the significance of this will become obvious in a moment) of the extension of Bush tax policies.

So, given that none of these claims are controversial to anyone but McArdle, why is The Atlantic’s Business and Economics Editor so unhappy with her colleague?

Let’s give her the floor for a a moment:

I’m a little less enamored, considering that this graph attributes decisions made by Obama and an all-Democratic Congress–like doubling down in Afghanistan–to Bush, while taking responsibility for basically nothing except the stimulus.  When Obama extends the Bush tax cuts for the rich under pressure from Congressional Republicans, that disappears from his side of the ledger, because after all, he didn’t want to do it.  When Bush enacts Medicare Part D under pressure from Congressional Democrats, the full cost is charged against his presidency.  The list of such silliness goes on.  Our president seems set to coin another presidential motto: “The duck starts here.”

Ah, word salad.

I’ve been enjoying ignoring McArdle, as life is too short to waste time on the negligible.  But that means I’ve forgotten the peculiar pleasure of watching someone lie so badly.  It really is an art, to say something contradicted within fractions of a column inch without noticing — or more likely, without caring, for the purpose of this kind of communication is not to advance an argument but to establish a talking point.

So, to the fisking:

On attributing to Bush costs for the two wars:  well, (a) the $1.4 trillion laid to the Bush account underestimates the long term budgetary consequences, reasonably accurately totals up the budgetary authority extended to conduct the war through FY2009, including homeland security and foreign aid costs of the choice made to go to war.   More to the point, it correctly attributes the decision to the administration that made it.  We are still paying for Medicare Part D, for example, and will continue to do so, because unless repealed, future administrations continue to administer decisions made by prior ones.

It’s true that Obama and his administration have continued to fight the wars launched by his predecessors — but unless you want to advance the claim that all decisions by a President vanish from their legacy the moment they leave office, it still seems appropriate to lay the bulk of the cost of any given decision to the President who made it.  It is fair to state that Obama has chosen to pursue war in Afghanistan while dialling down our commitment (and cost) in Iraq — which is indeed a commitment for which the US taxpayer must pay.  That would suggest one could add a chunk to Obama’s ledger of deficit spending for war, while the chart above suggests other choices are responsible.

But again, if you think about what that chart is actually arguing –  that you should look to new choices on spending, president by president, to understand our current budget predicament — then you grasp its logic.  Bush sent us to war that we must somehow finish.  Obama demanded stimulus, which has not proved to be sufficient.  Both of these are real decisions taken at particular points in time by distinct administrations.  And both choices are accurately reflected above.  To which McArdle responds by conflating our president with water fowl. (Sic — ed.)

Meanwhile, consider McArdle’s next claim:

When Obama extends the Bush tax cuts for the rich under pressure from Congressional Republicans, that disappears from his side of the ledger, because after all, he didn’t want to do it.

Oh snap!  I wish I could proffer such incisive analysis with such — how to describe it? — insouciance.

Except (and this is where my jaw hit the floor, even considering the source), if you take one moment to look at the chart in question, you’ll find, nicely colored in blue, attributed to Obama, $250 billion accounted for as part of the December, 2010 deal that extended the Bush tax cuts for two years.

It really doesn’t seem too much to ask that the Business and Economic Editor of an institution as venerable as The Atlantic might actually read the chart she’s analyzing.  But sadly, that’s just a bridge too far for McArdle.

Update 8/2/31:  reader Atlas Fugged caught an error here:  Obama lays claim to $250 billion of the $800 billion cost of the December 2010 deal; that covers the unemployment extension and other aspects of that bargain; the tax cut extension does, as McArdle says, lie on Bush’s side of the ledger.  I apologize for the error — but note that the argument made on the cost of war still applies:  the decisions made by presidents do not die with the end of a given administration; legacies are, after all legacies.  To be strictly fair, I’d say Obama should own the middle class portion of the tax cuts; the extension of the tax cuts on earners over the $250,000 was clearly a Republican ambition first and last.

And now for the capper:

When Bush enacts Medicare Part D under pressure from Congressional Democrats, the full cost is charged against his presidency.

This is called doing the best (worst) you can when the hand you’ve been dealt has no cards at all.  Just to recall.  Medicare Part D, the prescription drug benefit, was debated and passed in 2003, a year in which the Republicans controlled both houses of Congress.  Republican leadership in the House of Representatives famously bent procedure to the point of breaking to ensure the measure’s passage there.  It’s not clear what pressure that the Democrats could have brought to bear on any of the key players, and certainly not Bush himself:  this was a period of unequivocal Republican control of the legislative process.

McArdle hopes no one remembers when and what happened here, I guess.  She’s playing to the established meme that Medicare is a Democrat’s program, so any spending for it must be due to some nefarious Democratic strategem.  But facts do have that well-known liberal bias, and this claim of hers is simply false.  Whether it is a conscious lie or merely a reflexive one is unclear and unimportant.  That McArdle publishes obviously wrong statements — this one, and the tax gaffe above, for two — is what actually matters.

Enough, mostly…except for a quick take on what this is all about.  One thing among many has been driven home by the ongoing debt-limit debacle:  however poorly you may rate Obama’s poker skills, the GOP has been revealed, again, as a party that cannot govern.

It can make use of power, of course — that’s the what they’re doing now, as they attempt to transfer yet more of the burden of living in American from the rich to the poor and middle class.  (Just to anticipate the usual trolls, how else to characterize an approach to deficits that bans tax increases on the rich and the richest but explicitly raises all kinds of costs borne by the rest of us.)

But it can’t actually do stuff that makes the country go.  The Bush the Lesser administration was an eight year demonstration of that incapacity to do even the basics — from the catastrophic mismanagement of the Coalition Political Authority to “heckava job Brownie” adventures in abandoning an American city, to the sustained and successful campaign of failure in economic and fiscal mismanagement.  Remember:  Bush policies left us with debt, a burst housing bubble, and the near-death experience of the US and world banking system.

It shouldn’t require reminding folks of this:  the GOP had its hands essentially unchallenged on the levers of governance and they failed.  Full stop.  A crater.  We’re currently flying with a partly crippled FAA because the GOP still can’t find their asses with two hands behind their backs.  And above all, as the chart that the White House published, others have corroborated, and James Fallows correctly pointed out accurately depicts, any Republican who claims to care about deficits who voted for Bush-era spending measures is a fraud.

Which gets back, at long last, to McArdle’s real aim in her post.  She writes:

The focus on the past makes it a very bad guide to the relative magnitude of the future choices we need to make.  Some of these items (tax cuts, entitlements) will grow, and some of them (military spending, some discretionary items) won’t….Settling whether “Bush policies” or “Obama policies” were the “cause” of the deficit wouldn’t tell us a damn thing about what we should do

This is an attempt to bely the obvious: knowing what policies, chosen by whom actually created the federal debt tells us a great deal about what we should do.  E.g.:  GOP tax cutting creates recurrent fiscal disasters, leading, inter alia to the need for Democratic choices to spend on stimulus to try to recover from the mess.  Pace McArdle, looking at what was done, administration by administration, and then examining both the context and the consequences of those decisions is precisely what you need do in order to frame choices here-and-now about what we should do.

That McArdle knows this at some level, I have little doubt.  But the consequences of becoming aware of such knowledge are insupportable: she’d have to come to grips with the realization that much of what she has written and supported in the past is turning to ashes in her mouth — not to mention the difficulties it would cause her with her patrons were consciousness to descend upon her.  So, again, she is a pretty straight forward illustration of the truism that it is very hard to grasp that which would cost you to understand.

That’s it, but for this last bit of snark:  McArdle near the bottom of her post contrasts the White House chart with one that she “just happen[s] to have handy.”  I invite you to enjoy it, for it is a peculiar masterpiece. It is both one of the worst examples of the graphic display of information I’ve seen since the great Tufte began to show us the way — and it is, as one would expect, a deeply dishonest depiction.

I’ll leave it to you to pick out the various ways in which the chart conceals relevant information, while just noting that I find it … interesting … that McArdle does not provide a source for this handy chart.  Would it’s provenance be that embarassing?

And with that, enough.

*I know that it must hurt Fallows, an actual journalist, to be thus labelled by McArdle. But, in fact, she’s right, with all the implications for both that follows from that harsh reality.

**I know that sounds like hyperbole — but as the Michael Lewis work at that link documents (as many others do), it ain’t.

Images:  Joachim Beuckelaer, Vegetable Seller,  2nd half of 16^th century.

Gerard ter Borch, The Reading Lesson, 2nd half of the 17th century.

Who’s Taxing Whom

Fair warning: what follows is a bit of a rant and contains nothing particularly new.  But the fiscal follies of our overlords are unhinging me, and as misery loves company, I hope to share my derangement.

———–

I’ve been a little obsessed with light bulbs lately, as regular readers know.  I  continue to be dumbfounded at the depth, passion, and naked-mole-rat-stupidity of the GOP drive to ensure Americans waste money on illumination.  Following a thought from one commenter, I’m bracing for the claim that bans on whaling are really an unconscionable assault on the liberty of the people to light their homes with oil lanterns.

But as I thought about the implications of the Republican House caucus’ relentless drive to undermine America’s energy security, I started to fixate on a penetrating glimpse of the obvious:  the entire GOP approach to the federal government’s fiscal policy is a vast tax hike on most Americans.

That the GOPsters approach to policy will raise the cost of living in America is, I think obvious by this point:  when you privatize public goods, by and large those goods cost more for the individual user to access.  (There is a lot of detail obscured by that blanket statement, and certainly some instances where it might be otherwise, but the health care system (about which more below) is a familiar example of the basic problem, and there are many more.)

Republicans would say, I think, that cost isn’t the issue.  Government shouldn’t pay for much that it does now and that individuals can make better choices about priorities and so on.  They’d add that government musn’t pay for that which it can’t; that, to use a cliche repeated over and over again, that the government must behave like any household would, and not spend money it doesn’t have.

That last is nonsense, of course.  I’m actually working on a next book that tells a grand story of fraud and deceit at the birth of the idea of government debt — and that tale turns on the ways that governments aren’t like households or small businesses.

For now, though, the point is that if you take the Republicans false metaphor at face value, then you see that despite the brave promises of “no new taxes,” the practical, household consequences of their actions add up to a huge stealth tax increase that differentially falls on to working people, the middle class, and the poor.

And yes, as noted above, I know I’m restating the obvious, but bear with me.  Let’s  take my lighting fixation for a spin.  Recall that the energy efficiency standards that so offend the current Republican caucus* are predicted to save each American household $50 a year.

Now back to that bill-paying session over the kitchen table Republicans are so wont to imagine.  Maybe liberty is beyond price.  Whatever it’s called though, this extra hit of four or five bucks a month would feel exactly the same as if the GOP had voted a $50/home surcharge on each of us to subsidize light bulb makers or power generators:   We wouldn’t have that money no more, and it’s by GOP choice that this increase in our burdens would such cash out of our pockets.

A latte a month may in fact be a worthy price to keep the dead hand of statism from our necks.  But what about cost of aging?  Remember the Paul Ryan plan that virtually the entire GOP congressional caucus has endorsed.  That scheme switches the cost of medical care for the elderly to those old, ill people and their families.  Now we’re not talking cups of coffee any more, mere Franklins a year; rather, we’re in the realm of beaucoup  Benjamins.

Again this is surely familiar to all here, but just as a reminder, the gap between the vouchers Ryan’s plan provides and the projected actual cost of senior’s health care is about $12,500,  according to a CBO analysis, $6,000 more than the out-of-pocket charges to be borne were Medicare left unchanged.

And is there any choice here, really, for any household that loves its grandparents (or just folks of an age that in my case is coming up rather sooner than seems plausible)?

No there is not.  We could enact the old Jewish mother light bulb joke,** but our only real options were the GOPsters to achieve their long-cherished goal of killing Medicare is to pay the freight or die faster.

Death and taxes — there’s a reason the two are such close kin, after all.

Old news, get over it — I get it.

But the point I want to make, the meme, to use a word I mistrust, or a shove to the Overton window, is that all this talk of the holding the line against taxes and so on is bullsh*t when we’re working at the level of that holy kitchen table.  There, the only thing that matters at the level of individual Americans’ bank accounts is that GOP policies raise the cost of being an American in ways that are indistinguishable from brutal, huge tax increases.

If politics is perception then it’s important to do what the Bush clan was brilliant at — take your opponents’ seeming strength and hang an anvil around its neck.  And here, as we see every day (and many posts here remind us), the GOPsters using the power of government to impose huge new costs on us all that we have in practical terms no way to avoid.  The resulting drain of our dollars is not a tax in law, of course, but the resulting holes in my wallet feel exactly the same as if it were.  And, of course, the bitter last jest is that under the Republican approach, we pay more to get less.

So I’d like to see every Democrat running, and the chattering classes as well, all raging about the GOP stealth tax on the American way of life.  I’d like to see the ads that make that connection with couples in their kitchens talking about this GOP tax assault, how cleverly it’s been disguised, how hard it bites.  I’d like to see sneering and rage and bitter remorse at the thought that any all-American family of voters was taken in by all that no-tax deceit.  I want to make it impossible for any GOP thug to hide behind Grover’s tissue of a pledge when next the polls open.

No new taxes?  Hell and death (and taxes)!  No GOPster should be allowed to say that unchallenged.

*Recall also that the standards were approved with bipartisan support in 2007 (including sponsorship by GOPster Fred Upton, currently  chairman of the  House Energy and Commerce Committee, who now fights the good fight against light bulb efficiency), and signed into law by that notorious state-socialist, George W. Bush.

**Q:  How many Jewish mothers does it take to change a light bulb?

A:  “None!  I’ll just sit here in the dark.”

Images:  Vincent van Gogh, The Potato Eaters, 1885

Rembrandt van Rijn, Portrait of an Old Jew, 1654

 

Savaged By A Dead Sheep

That would be James Fallows, suffering the blistering assault of one Megan McArdle over this piece, the one John lauded here.

The reference to the deceased quadraped is one I’ve had occasion to return to more than once — it comes from the ferocious Labour Party debater and then-Chancellor of the Exchequer Dennis Healey, describing the experience of oratorical combat with the his successor in that post, the Tory Sir Geoffrey Howe.  It may well be too kind when applied to the Business and Economic Editor of the Atlantic.

Seriously:  Fallows is a seasoned and deeply knowledgeable reporter, one who actually does what folks used to do with more frequency — study, seek real sources, talk to lots of folks, master a literature, stay with a story over decades and all the rest of the things real journalists of the first rank actually do.

McArdle…

…is McArdle.

A contest of wit, literary skill, and especially knowledge and or wisdom is no fair fight…except for this:

Fallows is not one for ‘tube wars.  I’ve read his stuff for a long, long time, and he says his piece and then almost always moves on to the next issue.  If you check out his blog since he wrote on the piece that has offended McArdle you’ll see a great piece putting GOP Sen. Inhofe’s disastrously dangerous flying and “safety-is-for-little-people” attitude in proper context; an analysis of the non-event of the Michelle Obama waved-off landing, memories of Tim Hethering and the like.  I can’t imagine that it pleases him when McArdle calls him colleague before attempting to dress him down, but life is short, and people with actual talent have better things to do with their time.

Which leaves it to me to take note of a post that once again demonstrates the axiom:  Megan McArdle Is Always Wrong™.

In this case, I rather think she knows she’s wrong — or rather she has to argue an obviously false case.  I say has to, because for all her grand title, her function at The Atlantic seems to be to come up with some argument-like word string that provides cover for known failures of policy, argument, and ideas.

The give away starts with her first substantive paragraph.  She writes:

…they [Standard and Poor's] do spend a great deal of time analyzing government finances, much more than James or I do.

Ahhh…the argument from authority again, one of McArdle’s favorites.

The question, as Fallows pointed out, is not whether S & P analyzes government or private financial instruments.  Here’s Fallows:

S&P knows nothing more about U.S. budget prospects than you or I do. [Italics his.  Bold mine.]

I’m sure you can catch the trick McArdle hopes to play here.  Fallows said nothing about anything technical to do with US government bond market operations.  He’s arguing that S & P is making a judgment that they are ill-prepared to make, on the politics of the budget.

McArdle’s assertion that the rating agencies are expert at the task of rating debt is itself a stretch — she could, perhaps, take a look at a real financial journalist’s account of the rating agencies incompetence and intellectual weakness, say, in Chapter 6 of Gillian Test’s excellent Fool’s Gold. Michael Lewis in The Big Shorthas some choice stuff on the agencies’ sheer bland ignorance of the instruments they were supposed to rate of, among others, S & P — see, e.g. the material in Chapter 7.  She could also take a look at the comments by Warren Buffett in his 2008 letter to the shareholders of Berkshire Hathaway, among other venues.

But the deeper issue is that McArdle is trying to slip in an assertion that all S & P was doing was expressing its ordinary business judgment.  They are not; as Fallows points out — along with plenty of others, including S & P itself:

“we see the path to agreement as challenging because the gap between the parties remains wide.”

No financial judgment there — just one more political prognostication.

No wonder, then, that McArdle speeds hastily by her ham-fisted opening gambit.  Full tilt, she heads to a marvelous bit of disengenousness:

You make think that their opinion is crap, in which case you should say so–[Gee -- thanks MM! -- ed.] but I cannot understand why we’d quibble with the format in which that opinion is issued.  S&P has been issuing these sorts of things for a long time, and I don’t think it would make much difference if they started doing so in blog form.

This is a display of verbal dexterity along the lines of the old joke — it was used in Calvin and Hobbes, but waaaay predates that cultural icon — about the little boy on the first day of kindergarten who spends the whole day in hope after his new teacher says, “Sit here for the present.”

“What?  No gift, after I sat there the whole *&%!# day!”

Recall what Fallows wrote:

To repeat Clive Crook’s point, S&P knows nothing more about U.S. budget prospects than you or I do. They’re saying they have an opinion on the state of Congressional-White house dealings on the budget. Fine. Go on a talk show or start a blog.

Let me channel my inner McArdle here:

“Oh.  You’re not complaining that S & P musn’t  publish their reports in an easily updated, web-published format?

This is sarcasm?

Oh.  I see.  My bad….”

Really.  I don’t have a lot of respect for McArdle’s capacity for argument at the best of times, but this is pathetic, even for her.

Next up, a tasty dish of word salad:

Moreover, their opinion does actually matter, since previous rounds of financial regulation have embedded financial agency ratings deep in the structure of our financial markets.

This is a usual bit of McArdle sleight of hand.  Fallows says the S & P opinion is worthless, and wonders why the news media got so hot and bothered.

Oh no! says McArdle:  that damn fact that the financial markets deal in risk means that ratings decisions do matter (not to mention, as she doesn’t, that the quality of those decisions matters even more.)  But to continue:

If James or I scream that the US debt picture is unsustainable, we will not move markets.  If S&P downgrades US debt, this will trigger a sell-off, even if the people selling disagree with their assessment.

Well, this  is (a) bait and switch and (b) subject to a little empirical investigation:  did this statement of opinion have that result?

To (a):  A downgrade of US debt would indeed have a notable effect.  But that’s not what the S&P did, of course.  US government debt is still rated AAA.  Were that to change…big news.  But a warning that some folks in the S&P offices don’t like the way Eric Cantor is eying Tim Geithner?…not so much.

To (b):  How much not so much?

Not at all, in fact.

In the wake of the announcement by the ratings agency, the market for long term (ten year) US government debt actually went up — as revealed in this chart, posted at the site of someone who actually knows a little bit of economics.

But what about that terrifying drop in the equity markets on Monday?  The NYSE closed 140 points down from Friday’s close (though up roughly 60 from a trough met in the immediate aftermath of what Fallows correctly termed hysteria at the S&P release.  It went Back up another 65 yesterday; up just a whisker under 6% for since Jan. 1; up more than 10% over the last twelve months.  Oh, and as of Thursday afternoon, the market had a third day in a row of gains, to the point that stock market indexes are up to peaks not seen since June, 2008 — well above the point where it was before S&P opened its big yap.

In other words: McArdle simply gets this one wrong.

(BTW:  If she were to say that well, the S&P didn’t downgrade US debt, so technically, she’s not in error, see point (a) above. This would be McArdle wanting it both ways:  S&P opinions are meaningful, unless they are not.  Taking her at the implication she wants us to draw:  the S&P opinion in this instance is more important than anything Fallows might say — well, the markets disagree, and by that judgment, McArdle’s assertion fails the test of reality.  Q.E.D.)

Just about all the rest of McArdle’s post engages with Jame Galbraith, an economist whom Fallows quotes.  Galbraith makes the point that unless the Republicans misjudge the speed of the oncoming train, the US simply won’t default — because “It controls the “means of production” for the dollars to pay off those bonds.” Galbraith adds:

If you’re worried about inflation, fine. But that’s a different matter, with a lot of other variables that count for more than S&P’s feelings.

McArdle, predictably, regards this thought with horror.  First she indulges in a little history.

Inflation was a good way to ease the burden of our World War II borrowing–once the war was over.

It’s true that there were three years of significant inflation from 1946-48.  But McArdle, no economist, is no historian either.  Competent approaches to historical argument include looking for more than the convenient monocausal explanation that makes the point you don’t want anyone to examine too closely.

What else may have had an impact on the total debt, and on the debt-to-GDP ratio?

Well, two obvious factors are a dramatic drop in government spending made possible by the end of the Second World War (down 40% in 1946) , and a sustained record of economic growth.*  Tax rates (much, much higher then) also had something to do with a key fact:  after the war, the US ran a budget surplus debt declined as proportion of GDP [Thanks to a kind reader for the correction) in 36 of the next 47 years.

All of which is to say that the actual history of US government obligations is intimately bound up with stories of national expenditure and  budgeting, but above all, with the power of economic growth (plus a reasonably progressive tax code) to rein in any momentary expansion of the standing debt.  Not that McArdle can stop to think about these or all the more finer-grained analyses of what happened back then, as that would limit the possibility of this kind of snark:

But it is not a good way to ease the burden of an increasingly expensive entitlement program that shows no signs of winding down.

This is code for Medicare and Medicaid and/or Obama’s health care reform.   We’ve discussed elsewhere McArdle’s unwillingness to countenance even the stray thought that any cost cutting measure will actually work, so chalk this up to her “I’m not listening….” debate tactic.

Moving on:

Especially since these days, the debt markets are much more efficient than they were in 1948; information about the money supply is transmitted very quickly to potential buyers of our bonds.  You can pull all sorts of tricks to force bondholders to eat some losses on the money they lent you–but you can’t pull them over and over.  America was able to wriggle its way out of a substantial portion of its WWII debts in large part because it was otherwise pretty fiscally sound.

Wriggle out of?…See above. This is pure word salad, to be sure, but at its core, such as it is, it’s making the same claim as above:  markets will price US bonds to the level of risk that these incredibly modern, efficient institutions can now readily perceive — which is why  (recall) the S & P announcement was so momentous, and Fallows was wrong to scoff.

Well then, (a) if the bond market is that efficient what produced the catastrophic collapse of the commercial bond market, oh, all of two years ago or so?  As, among others, Michael Lewis has pointed out over and over again, transparency has never been a feature of especially the more arcane corners of the market in debt….

and (b) more precisely  on point to the topic at hand, if the bond markets are so efficient these days, why is the interest of US government debt historically low and has been for some time ?

And as long as we are talking history, it’s worth remembering that government bonds have traded in a very stable fashion for a long time; the creation of a reasonably clear and calm government debt market was one of the great achievements of British finance in the 18th century — see among much else in the significant literature on this point, Fernand Braudel’s brief essay in the second volume of Civilization and Capitalism on his view that this was the foundation of British imperial wealth and power. The US inherited both that financial technology and ultimately the power that the British were able to finance through such fiscal innovation.  Not everything important has happened in Megan McArdle’s life time.  Just sayin.

No matter, like honey badger, McArdle don’t care:

You can argue that a small amount of inflation is preferable to the alternatives, distributing the pain very broadly in order to avoid the intense dislocations of a sudden shock.  I might even agree with someone who argued this. But small amounts of inflation are not going to rid us of $10 trillion in debt.

Perhaps not, though I don’t believe anyone has argued that it would.

In any event,  (a) we don’t need to get rid of $10 trillion in debt.  Historically, we’ve prospered just fine at debt levels that hang at 40% of GDP.

To put that into current numbers:  the CIA estimates 2010 US GDP at $14.72 trillion.  40% would be about $5.9 trillion.  That leaves $4 trillion for McArdle to get rid of; or rather, less or zero if we assume that the US economy will actually continue to grow over time.

This is actually kind of important, so please forgive a digression into a wholly artificial, but illustrative bit of arithmetic:

If we assume a balanced budget (i.e. no net surplus or deficit over a period of years, whatever the ups and downs of individual cycles — which was the US norm for decades after WW II, and the last few of the Clinton years — a time so recent that even young McArdle may recall it), an annual growth rate of 3% would double the size of the US economy in 24 years.**

A small amount of inflation would accelerate that quite nicely (or capture additions to the debt produced by a budget net out of balance over time), as would a rise in tax rates from historical troughs — but I’m not arguing here that this trivial calculation is the reason to dismiss McArdle from any grown-up conversation about policy and the economy.

Rather, what this little exercise tells us is that one should pay no attention to McArdle because she isn’t honest.  No discussion of debt trends that fails at least to nod at the implications of long term economic growth is even remotely useful.  To put it another way:  by her choice of what to ignore, McArdle ensures that she is talking nonsense throughout this passage.

But really — she has only our best interests at heart.  By concentrating only on the debt, she gets to tell us why we have to take our medicine:

And the pain of large amounts of inflation is extremely painful–arguably, more so, not less so, than technical default…

Again, this is misdirection.  You get the equivalent of default through inflation when the rate is so high as to make debt instruments effectively worthless; such events are termed hyperinflations.

The disastrous economic and political implications of hyperinflaton are indeed well known.  So, while it’s true that high conventional inflation can be deeply unpleasant (I’m old enough to remember the seventies), at least in the American experience, such inflation neither amounted to a debt default, nor did its effects resemble those suffered by  Weimar Germany, for example in 1922 and 1923.

If McArdle wants to argue that the US is currently on a path towards such hyperinflation — or the worse such event that took place in Hungary, or recent experience in Zimbabwe, and so on — then she needs to come up with some evidence that current US fiscal and monetary policy is meaningfully akin to the circumstances that attended such bursts of extraordinary declines in the value of national currencies.

She has not — and once more, as lots of folks point out to her at regular intervals, there are no signals from those with the most skin in the game that such an event is in the offing.

Enough.  I admit.  There is something in McArdle’s smug disengenousness that gets my goat on a deep level, and the consequence, as you’ve seen above, just ain’t pretty.

So I’ll shut up now, but for two parting shots.

First:  Jim Fallows is the real deal, a journalist and analyst of great out-there-in-the-world experience. He’s someone who is always worth reading:  you learn something when you do.  He has to suffer the indignity of being called — and being — Megan McArdle’s colleague at The Atlantic. But the fact that their paychecks come from the same bank account does not make them equivalent.  Fallows has earned what he knows through years of effort and accomplishment; McArdle knows what she knows with great certainty and gusto — but she’s the poster child for Mark Twain’s famous jibe.  There is no comparison — as I hope the above has sufficiently demonstrated.

Second:  When confronted by yet another example of error and flat out bad argument by Megan McArdle the question always arises:  is she dumb or deceitful?

Now I concede that she might be both a dessert topping and a floor wax.  But really, while McArdle may be many things, stupid ain’t one of them.

If you called her lazy, incurious, insecure or what have you, I’d probably agree — but I think she knows exactly what she is doing in her writing.  She is a court singer, writing lays in praise of those who toss her scraps.  I’m not really sure how much damage she can do at this point.  I’d like to think that the schtick is growing old, and that her audience, large as it is, is now made up almost entirely of the choir to whom she preaches.

But maybe not.  Hence posts like these.

(Also, too — writing this has kept me from going medieval on her truly delightful cooking video.  I’m saving that for a special treat….;)

(And another thing:  if you’ve read this far, you might want to check out a much shorter and quite lovely take down of another McArdle folly by James Bales, directly below this white whale.

*Economic output in constant dollars dropped from 1945-1946, edged down a little more in 1947, and then embarked on a steady path of growth for decades.

**I’m using here the rule of thumb known as the rule of 72.  It has the canonical virtue of having many divisors — which is what dictated my arbitrary choice of a 3% annual GDP growth rate.  Makes the sums come out more easily, even though it may be a shade high.  But the answer is the same if you use a 2.5% growth rate and calculate assuming continuous compounding, in which case you could employ the rule of 70, which slightly understates the rate at which such compounding occurs.

Images:  Hans Memling, The Last Judgment Tryptich (open), 1467-71

Albert Anker, The Crèche, 1890

Mizerák István, Sweeping the pengő inflation banknotes after the introduction of the forint in August 1946

Francisco de Goya, Riña a garrotazos, 1819-23

The McArdle Chronicles redux: How to Argue in Bad Faith: An Example

Again, I’m the messenger.  My MIT colleague Jim Bales has taken up my slack in covering the gift that keeps on giving, Megan McArdle.

Enjoy — it’s a good one

TL

Jim Bales here – my thanks to Tom for letting me borrow his soap box. The words that follow are mine, and not his.

So, Megan McArdle has a post in which she asserts that:

“[T]he federal income tax is now very progressive; it collects most of its revenue from people at the top.”

Commenter mmh53b noted:

“When I was a lad … progressivity was not based on the percentage of tax revenue collected from the top, but rather the marginal tax rate.”

The lesson on arguing in bad faith can be found in Ms McArdle’s reply:

‘In this context, the question is: how dependent are tax revenues on high incomes? Because the more dependent they are on high incomes, the more they swing from peak to trough. This has, contra your belief, always been a definition that characterizes a system as “progressive” rather than “regressive”.’

Wow – sucks to be commenter mmh53b, doesn’t it? After all, what mmh53b had always considered to be the definition of a progressive tax is now simply their belief, a belief contra-ed by Ms McArdle with a definition. In fact, Ms McArdle insists that her definition has always been a definition, and thus it is the only definition she will allow for the term “progressive” tax.

Does anyone support poor mmh53b? No one of any importance. Just:

Wikipedia: A progressive tax is a tax by which the tax rate increases as the taxable base amount increases

The Mirriam-Webster Dictionary: Progressive, increasing in rate as the base increases, with the example, “a progressive tax” (definition 4b)

The Encyclopaedia Britannica: [P]rogressive tax, tax that imposes a larger burden (relative to resources) on those who are richer

The Oxford English Dictionary: The only definition to use the word “tax” (2d), reads: Of a tax or taxation: increasing gradually according to ability to pay; increasing as a proportion of the sum taxed as that sum increases. (As to Ms McArdle’s “always”, the first usage cited was in 1792 by Tom Paine.)

Well, it appears that the “a definition” that Ms McArdle prefers is sufficiently rare so as to have been overlooked by the both Britannica and the OED. It certainly seems that “progressive tax” has always meant what commenter mmh53b has thought it meant. Perhaps Ms McArdle, in her capacity as Business and Economics Editor of the Atlantic is using in it a narrow, technical sense? Perhaps economists never use “progressive tax” in its common (and well-nigh eternal) meaning of higher tax rates on higher incomes?

Thanks to Google Books we can quickly check a few Economics textbooks.

The Shrill One (Dr. Robin Wells) and her spouse (some fellow named Krugman) write in their tome Macroeconomics (p. 192) An individual in a higher income bracket pays a higher income tax rate in a progressive tax system like ours. Then again, they are shrill. What do they know?

Now, Robert Samuelson, he was an economist! He’ll get this one right! In his Economics he wrote (page 390, caption to Figure 16-4) Taxes are progressive if they take a larger fraction of income as income rises. Well, maybe Samuelson wasn’t such a good economist, since he didn’t know the “a definition” that Ms McArdle insists was “always” in place.

I know — Professor (and chairman of President Bush’s Council of Economic Advisors) Greg Mankiw will get it right! In his Principle of Economics Mankiw defines a Progressive Tax (p. 255) as a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers. Oops.

And so we are left with three simple choices.

1)     All of these people, from Tom Paine through Robert Samuelson all the way to Greg Mankiw, are wrong and Ms McArdle is right.

2)     Ms McArdle, the Business and Economics Editor for The Atlantic, is utterly ignorant of the meaning of an economic concept as basic as a progressive tax.

3)     Ms McArdle will make shit up rather than acknowledge that one of her critics was right.

My money is on 3), hence the title of this post. Why? Because her evasiveness was utterly unnecessary. She need only have said, “Why yes, mmh35b, you are correct. A progressive tax system has higher tax rates on higher incomes. As a result, the tax revenues come disproportionately from the wealthy, whose income is more volatile than the less wealthy. Furthermore, that volatility causes tax revenues to go down when the economy tanks, which is when governments have increased need for that revenue.” Of course, had she done so she would have acknowledged that she was sloppy in her choice of words in her original post, and that her critic had caught her out. So, rather than admit the small error and turn it into a chance to advance her cause, she chose to try to shut down mmh35b instead. And that is arguing in bad faith.

PS – A Counter Example

In contrast to Ms McArdle, consider the actions of Mr. Louis Martinelli (ht Abi Southerland at Making Light). After working for many years with the National Organization for Marriage to deny same-sex couples the right to civil unions (much less full marriage), Mr. Martinelli has come out in support of full marriage equality and issued an retraction of his past words and deeds that he now considers to be wrong. In particular, notice in the latter link how Mr. Martinelli holds fast to those elements of his prior statements that he still considers true, yet acknowledges and retracts those elements that were false, irrelevant, or simply hurtful.

One need not agree with Mr. Martinelli completely to recognize that he is striving to argue in good faith. One need not disagree with Ms McArdle completely to recognize that arguing in good faith is not important to her.

Image: Jan Massys, At the Tax Collector, 1539