Archive for the ‘economics’ category

Friends Don’t Let Friends Vote Republican: Economic Stewardship edition

September 9, 2014

From Forbes (sic!) this analysis of President Obama’s economic record as compared with Saint Ronaldus of Reagan:

Economically, President Obama’s administration has outperformed President Reagan’s in all commonly watched categories.

Preston_Dickinson_-_Factory_(c._1920)

Simultaneously the current administration has reduced the deficit, which skyrocketed under Reagan.  Additionally, Obama has reduced federal employment, which grew under Reagan (especially when including military personnel,) and truly delivered a “smaller government.”  Additionally, the current administration has kept inflation low, even during extreme international upheaval, failure of foreign economies (Greece) and a dramatic slowdown in the European economy.

That’s from Forbes contributor Adam Hartung, a business development and consultant kind of guy — i.e., no raging, card-carrying taker.  The whole piece is worth a look.

When you’ve lost Forbes…*

*which they haven’t, really — one drive by piece doth not an editorial campaign make.

Preston Dickinson, Factoryc. 1920

Just Another DFH

April 4, 2013

Over at Balloon Juice, DougJ got the day started with yet more evidence that the Republican Party remains committed to a program of immiserating the miserable.

Hendrick_ter_Brugghen_-_The_Rich_Man_and_the_Poor_Lazarus_-_Google_Art_Project

I dug into my note pile to find yet one more DFH squealing his soft-headed liberal pieties in the face of such intellectual courage:

Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconvenience to the society? The answer seems at first sight abundantly plain. Servants, laborers, and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.

The liberal reward of labor, as it encourages the propagation, so it increases the industry of the common people. The wages of labor are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the laborer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low.

Who wrote such bilge?

Adam Smith, in The Wealth of Nations, Book I chapter 8.

Image:  Hendrick ter Brugghen, The Rich Man and the Poor Lazarus 1625.

China’s Car Dealers and the threat from R-Money: A Clear and Present Danger

August 24, 2012

I didn’t get to this yesterday, but The New York Times reminded us why, for all the justified scorn that can be heaped upon much of its Op-Ed team and the occasions when the Village consumes its straight journalism, it remains essential.

You just don’t get this kind of article without a large, well-resourced commitment to sustained coverage.  It tells us something we simply wouldn’t know — in any kind of broad public way — without their effort.

And the piece offers a model that the Village itself would do well to study:  it provides a strong basis of fact with which to think about broader problems, and it suggests without dictating where that focus of interest might reside.

The piece, you see, is about something that sounds kind of mundane:  an inventory overhang in China’s domestic market.  A huge one:

The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

Now, China hands — some of them, at least, including folks I talk to — have been arguing for some time that China’s economy and society are much more vulnerable than some popular accounts have suggested.  The social/political sensitivity of exactly this problem — the need to keep growth roaring to prevent the uneven distribution of the new China’s rewards from inciting real anti-government action — is likely as much why the central leadership has been hiding the numbers as any attempt to boost business confidence.*

There are lots of implications one may draw from the underlying circumstances reported here.  China, as the article’s author, Keith Bradsher, notes, has been one of the few functioning economic engines pumping during the Great Recession. Significant problems there, Bradsher writes,

…give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.

China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.

There is, as suggested above, another reason to pay close attention to this story.  For example, if you credit  the argument/research [pdf] advanced by my MIT colleague Yasheng Huang, China after Deng Xiaping has seen a growing gap in rural vs. urban wages, and a shift away from the incredible burst of local and rural entrepeneurship that Deng’s government engendered in the ’80s.  Huang’s work suggests that the long-running theme in Chinese history, center-periphery tension, is experiencing increased strain right now.

While I haven’t heard anyone predicting significant political/social disruption in China is imminent, the risk of destabilization in China is something to be watched.  It’s a country trying to do something very tricky indeed — maintain political structures within a context of enormously rapid economic change and social re-stratification.  It’s a country with which we very heavily engage on a lot of axes, not just economic. Bradsher and theTimes here help their public grasp some of what that readership — us — ought to be paying attention to.

So props to the Times, and do go read this story; as the processes it describes play out, this may have as much impact on our material well being as anything Congress may do quite a while.

And now to my headline:  why does this story reinforce my view that Mitt Romney represents a serious danger to America and the world?

Simple:  he’s an blustering foreign policy ignoramus completely unprepared to deal with the kind of complexities stuff like this pose.  Ryan’s as bad, possibly worse.  Seriously.  This is the weakest foreign policy ticket of my lifetime.  Neither man has any serious time abroad, except for Romney’s mission years in France, which do not  in my view count for much.**  Neither man has done anything in his life that requires navigating complicated intersections of interests across language and history barriers.  Both have had sheltered and shielded lives.  Neither have made a study of any significant international or foreign policy tangle.  They don’t know sh*t. So they rely on advisors — the same crew, for the most part, who performed with such notable skill during the Bush-lite years.

Which is why you get easy braggadocio like this:

If I am fortunate enough to be elected president, I will work to fundamentally alter our economic relationship with China. As I describe in my economic plan, I will begin on Day One by designating China as the currency manipulator it is.

More important, I will take a holistic approach to addressing all of China’s abuses. That includes unilateral actions such as increased enforcement of U.S. trade laws, punitive measures targeting products and industries that rely on misappropriations of our intellectual property, reciprocity in government procurement, and countervailing duties against currency manipulation. It also includes multilateral actions to block technology transfers into China and to create a trading bloc open only for nations genuinely committed to free trade.

Why does Romney think that the last several presidents of both parties have not done this sort of thing?  Lots of reasons.  The multilateral actions proposed are fantasies, for one.  The unilateral ones assume that we face no consequences for such actions.  Not exactly a safe thought.  And finally — moves that at this moment pushed a struggling Chinese economy into worse shape, as Bradsher’s article helps one to grasp, have plenty of unintended consequences that would make most leaders think hard.

Romney is not most leaders.    he is through both life and professional experience astonishingly unprepared for the job he seeks.  When you actually stop and think about what it would mean to sit him opposite the Chinese leadership, your first reaction should be terror.

Of course he does look the part.***

So that’s OK then.

*For one thing, business folks can generally look out over their own car lot/warehouse and kind of see the excess supply themselves.  They talk to each other too…which all reminds me of this true classic of a Doonesbury strip

**Why not?  Because of what he was trying to do in France:  evangelize. The conventional purpose of a Grand Tour or junior year abroad or some such is to expose yourself to the way a culture not your own does things.  Mission activity attempts to express the desirability of your own culture as a replacement for that in which you travel. Very different mental/emotional circumstances.

***Read: white, older, tallish, male, good hair.  He is, to reuse a tired by still marvelous on point phrase, someone to be taken as potential leader only through the subtle bigotry of exceptionally low expectations.

1:  Yes, I am old enough to have read on its first release a comic from Nov. 10, 1973.  What pleases me, lo these many years on, is that I am not so old as to be unable to remember doing so. 😉

Images:  Evert Collier, Newspapers, Letters and Writing Implements on a Wooden Board, c. 1699

Ma Yuan, Dancing and Singing (Peasants Returning from Work), before 1225.

Not Another Ryan Thread: Romney’s Dismal Fraudsters

August 12, 2012

I got nothing to add to the Ryanpalooza that’s been sweeping this and many other blogs.  I don’t trust my horse racing system — haven’t since Tricky Dick crushed The Pride of the Upper Midwest in the 7th at Hialeah way back in 1972.  I knew dirty deeds had to be involved, but even so, my then fourteen year old self couldn’t believe thatthe obviously better horse couldn’t carry the day…

But more than my desperate attempt to wean myself from trying to re-handicap this race as I absorb each quantum of news, rumor or the dispersing vapors of Hunter S. Thompson’s last hit of ibogaine, I’m not going to burden you with yet more Ryaniana because I don’t want to lose sight of the larger pathology within which the zombie-eyed-grannie-killer’s many sins are but symptoms.

That greater wrong within which the many smaller ones find safe haven is the Romney campaign’s comprehensive dishonesty about what a Romney administration would seek to do, and what it would mean if (FSM forbid!) it actually got the chance to do it.  The latest case in point comes in a story that the Ryan announcement has largely cast into the tall grass.  That would be the white paper — so called –put out by four academic economists that purports to describe just how a Romney-led United States would become a land of milk and honey, wealth trickling down from the heights to all “you people” so badly served (it is said) by President Obama’s leadership.

The only problem with this “analysis?”  It’s bullshit.

Let me turn the podium over to KThug:

The big story of the week among the dismal science set is the Romney campaign’s white paper on economic policy, which represents a concerted effort by three economists — Glenn Hubbard, Greg Mankiw, and John Taylor — to destroy their own reputations. (Yes, there was a fourth author, Kevin Hassett. But the co-author of “Dow 36,000″ doesn’t exactly have a reputation to destroy).

And when I talk about destroying reputations, I don’t just mean saying things I disagree with. I mean flat-out, undeniable professional malpractice. It’s one thing to make shaky or even demonstrably wrong arguments. It’s something else to cite the work of other economists, claiming that it supports your position, when it does no such thing — and don’t take my word for it, listen to the protests of the cited economists. [links in the original]

And now put your hands together for Brad DeLong:

HHMT: As a consequence of short-termism, uncertainty over policy – particularly over tax and regulatory policy – limited both the recovery and job creation. One recent study by Scott Baker and Nicholas Bloom of Stanford University and Steven Davis of the University of Chicago found that this uncertainty reduced GDP by 1.4 percent in 2011 alone, and that restoring pre-crisis levels of uncertainty would add 2.3 million jobs in 18 months.

LIE: I am sorry, but I have to escalate from “FALSE” to “LIE”. The phrase “particularly over tax and regulatory policy” makes this a lie.

As Simon van Norden writes:

To understand the integrity of [the HHMT] argument, consider his claim that ‘uncertainty over policy–particularly over tax and regulatory policy–slowed the recovery and limited job creation. One recent study by Scott Baker and Nicholas Bloom of Stanford University and Steven Davis of the University of Chicago found that this uncertainty reduced GDP by 1.4% in 2011 alone.’ Note the phrase ‘this uncertainty’: he’s talking about uncertainty ‘particularly over tax and regulatory policy’. Now read the analysis by Baker, Bloom and Davis http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2000734. From their abstract: ‘The index spikes around presidential elections and major events such as the Gulf wars and the 9/11 attack. Index values are high in recent years and show clear jumps associated with the Lehman bankruptcy, the 2010 midterm elections, the Euro crisis and the U.S. debt-ceiling dispute.’ Uncertainty over regulatory policy? No mention. Uncertainty over tax policy? No mention. What Hubbard seems to be doing is interpreting the uncertainty created by elections (and the debt-ceiling showdown) as uncertainty about regulatory and tax policy (as opposed to, say, government spending.) 

[HHMT = the four authors of the paper in question, Hubbard, Hassett, Mankiw and Taylor; all emphases in the original]

DeLong does this over and over again in his post — which is just a relentless debunking of claim after claim in the original paper.

So what’s going on here?  Why are highly credentialed and well placed economists simply falsifying basic facts and arguments presented by other members of their profession, many of whom show the discourtesy of remaining sufficiently not-dead-yet  to call them on it?

[Link to Ezra Klein courtesy of Kthug]

Krugman again:

But surely part of it is simply that they have been caught up in the vortex of the broader Romney campaign — a campaign that has made fraudulence part of its standard operating procedure. Remember, Romney spent months castigating President Obama because he “apologizes for America” — something Obama has never, in fact, actually done. Then he spent weeks declaring that Obama has denigrated small business by claiming that businessmen didn’t actually build their own firms — all based on a remark that was clearly about infrastructure.

Meanwhile, Romney’s tax plan is now a demonstrated fraud — big tax cuts for the rich that he claims would be offset by closing loopholes, but the Tax Policy Center has demonstrated that the arithmetic can’t possibly work. He turns out to have been dishonest about when he really left Bain. And on and on.

So this is a campaign that’s all about faking it — fake claims about Obama, fake claims about policy, fake claims about Romney’s personal history.

Is it really surprising, then, that the economists who have decided to lend their names to the campaign have been caught up in this culture of fraud? Maybe some of them were initially reluctant, or thought they could support the campaign with selective renderings of the truth. But the pressure was on to be team players, to give the campaign material it could use — and so, one day, they all ended up putting their names to a report that is just plain dishonest, in ways that can be and have been easily documented.

Perhaps so.  I certainly cannot tell what’s in the hearts of Hubbard, et al.  I’m not so sure, though — I think that the commitment to a political party that has since Reagan committed itself to the primacy of belief over evidence (just ask David Stockman) turns folks like these four into useful idiots, already primed to commit the kind of intellectual dishonesty that Krugman and others find so difficult to fathom.

But this I know:  among the many, many reasons why the Republican party can’t be allowed access to power there is this constant theme:  from Romney to Ryan to helpful peons like this quartet, no one dares state the bald realities of their plans and policies.  If they did, they’d score in single digits come the election.  And so they don’t.

Factio Grandaeva Delenda Est.

Images: Unknown Flemish artist, Rich and Poor, 17th century.

Abraham van der EykAllegory of the theological dispute between the Arminianists and their opponents1721

Pretty Boy Floyd Had Nothing On These Guys

October 18, 2011

Towards the end of last week, John pointed out the clueless sociopathy of Jay John Carney’s view of insider trading as a victimless crime.  (Here, the string “Jay John Carney” should be read as “your liberal media at work.”) [Update:  oops.  Apologies to the distinguished White House press sect’y.  How do you spell brain bubbles, anyone?]

I just want to add that John’s reaction — that someone using private information to gain an advantage in a two-party trade has got a victim all lined up — is not merely obvious; it’s been studied.

That is: you can imagine a hand waving argument that because each party has their own reasons to enter a transaction, then even the “outsider” on an insider trade gains what he or she desires from the exchange, otherwise they wouldn’t make the deal.   Since that motivation is untouched by the knowledge that the counterparty possesses and they do not, what’s the problem?  That’s my rough approximation of the glibtard case, at least.*

The problems with this crayon-level argument are pretty plain, I’d say, the most glaring, to me, is that assumes that each choice exists only within the narrowest possible slice of time.  Or, as an economist friend of mine put it in response to Carney’s “reasoning” (sic!):

The argument that trades are voluntary so everyone benefits is clearly only true ex ante – that is to say on the basis of the original biased information.  The guy who gets stiffed clearly wouldn’t have made the trade if he’d had the same information as the insider.  You might as well make this argument to justify dodgy second hand car sales or street trading swindles.  The guy who buys a lemon from the dealer who has hidden its faults expected to make a gain but that doesn’t mean he actually does or that the dealer isn’t a crook.

Beyond any mere ridicule of the rich-people-can-do-no-wrong that defines the Village view, the point I think John was making is that insider trading has both individual victims — those who were cheated out of what they would have gained had there been full knowledge of what was going on for both parties to a trade — and systemic costs that we all bear.

Surprise! That turns out to be something people actually know something about

I’m not going to claim that the clutch of papers I turned up in a swift surf through the literature  is anything remotely like an authoritative review of the current state of research on insider trading.  But what struck me is how easy to come up with a bunch of different angles on the problems insider trading produces for markets as well as individual investors.  Here’s an old analysis — it dates from 1991, which amounts to not much more than a mathematical formalization of a penetrating glimpse of the obvious:

In the absence of insider trading, and as long as managers’ salaries arepositively corelated with their firms results,managers will make such choices efficiently, and consequently such choices have previously received little attention, we show that, in the presence of insider trading, managers may make such choices inefficiently…More generally, the analysis of this paper suggests that the extent to which insiders may trade in their firm’s shares has considerable effects on the agency problem in corporations….

…ya think?  Snark aside, the important point is that an insider’s actions don’t begin and end with the transaction. One set of victims in an insider trade are those who hold some share in whatever enterprise or instrument is being traded.  It’s not just that insiders have more information than a counterparty, but that they have power to affect what their companies do — which means their incentives no longer align with everyone else connected to that enterprise.  In other words:  direct victims of insider trades include not just counterparties, but shareholders (or analogous parties-of-interest) in any given setting.

Then there’s this study from 2003.  Here, Julan Du of the Chinese University of Hong Kong and Columbia’s Shang-Jin Wei report on the impact of insider trading on market volatility — basically how insider trades affect how fast (and how much) prices change on a market.

They conclude:

More insider trading is found to be associated a higher market volatility even after one controls for the volatility of the real output growth, volatility of monetary and fiscal policies, and maturity of the stock market. Moreover, the quantitative effect of insider trading on market volatility is also big when compared with the effect of the volatility of other fundamentals.

But who cares, or who should?

All of us. Wild changes in prices driven by insiders taking advantage of their privileged position undermine the entire purpose of capital markets.  Du and Wei again:

Market volatility affects the incentive to save and to invest. In almost any model with a representative agent maximizing utility under uncertainty, the more volatile the asset market, holding the average return constant, the less the agent will save, and hence the less the investment will be. A certain degree of market volatility is unavoidable, even desirable, as one would like the stock price fluctuation to indicate changing values across economic activities so that resources can be better allocated. However, precisely because stock prices are supposed to serve as signals for resource allocation, excessive volatility that is not related to economic fundamentals would diminish the signaling function and impede resource allocation.

Or, to translate out of econ-geek speech:  markets are supposed to allocate capital, sending investor cash to support productive investment.  Mess with that, and the sorting function of the market, “the invisible hand,” to steal a phrase, starts to fail.  Investment decisions are distorted and we end up with a less productive economy as a whole than we would have without the thumb on the scales applied by greedhead wealthy corporate insiders seeking yet more loot than they already possess.

__

All this is the long way ’round of saying that when our Galtian overlords f**k with market mechanisms in any of the splendid variety of ways they have schemed innovated, there are certainly individual losers involved.  But the more consequential reality is that messing with the financial markets threatens the real economy — and that’s where all of us live.  The foreclosure crisis begins as a financial disaster.  It brings us to ruin because now 15 million actual homes are underwater in cities and towns across the United States…and that guts the whole damn country.

It’s not that eleven years in jail is too much for one misunderstood genius.  Rather: just one financial felon behind bars is orders of magnitude too few.

*Here’s that case from the horse’s ass mouth — which would be Jay John Carney himself, from the piece to which John originally linked:

But are they [insider trader Raj Rajaratnam’s opposite numbers) really harmed? Of course not. No investor was ever induced by Rajaratnam to sell a stock. Stock market transactions take place impersonally, without regard to who is on the other side of a trade.

Saying that investors wouldn’t have sold if they had Rajaratnam’s information doesn’t make the sellers victims of Rajaratnam’s trading. Even if Rajaratnam hadn’t bought the stock, they still would have sold while being in a position of relative ignorance compared to him.

Oy.

Images:  Francisco de Goya, Robbery, c. 1794

Jan Provoost, Death and the Miser, before 1529.

You Don’t Need A Weatherman…

October 13, 2011

…to tell which which way the wind blows.  Not when even Marty Feldstein marches in with a more aggressive mortgage forgiveness plan than we’ve seen out of either Congress or the administration.

I don’t love the plan as offered, to the extent that an 800 word op-ed. offers much in the way of a fine-grained proposal.  Feldstein, Ronald Reagan’s head of the Council of Economic Advisors, calls for forgiving out-of-the-money mortgages down to 110% of the homes’ value — a threshold that would touch 11 million out of the 15 million  homes in the United States.  Lenders would absorb half the loss and the government would cover the other half, at a cost Feldstein asserts would be less than $350 billion.

I don’t have much to say about that part of the plan.  Why 110%?  Is there any data that suggests that’s the number to encourage underwater mortgagees to stick with the loan?

Or…how much of the current foreclosure crisis is driven by unemployment, and hence at this moment is unlikely to be touched by a payment reduction that still leaves the house underwater?

No clue, here (and no expertise to justify a guess), but these are empirical questions that could be answered…and in any event Feldstein — now at Harvard — is at least trying to come to grips with that insane number of 15 million houses that embody enormous financial loss.

The part of the this proposal that I think is almost certainly a bad deal is the price homeowners would pay to get their mortgage reduction:  Feldstein would transform these loans from non-recourse status —  in which the lender can claim the collateral, the house, but no other assets if the borrower defaults — into an instrument that puts all the borrowers assets are at risk.  To me, taking financially vulnerable people in the midst of  a bad economy and placing them at still greater economic risk seems to me both cruel and stupid.

Much better, in my view, are the proposals that place the government — the taxpayer, you and me, baby — into financial partnership with both the borrower and lender.  In these approaches, the borrower who gets mortgage relief has to share with the lender (and/or the Feds) any gain made from an ultimate sale of the property.  Everybody’s incentives align, and the borrower is not one layoff away from utter ruin, as he or she would be in the Feldstein scheme.

But what really stood out for me is not that Feldstein has come up with the least middle-class-friendly version of mortgage relief out there — that’s how he rolls — but that even such an old Reagan hand has driven to the core of the matter:

…As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession.

Yup, Dorothy, we’re not in Kansas anymore — or perhaps, pace  Thomas Frank, even in Kansas they’ve starting to grasp the most brutish of brute fact.

Yes, it sucks that the taxpayer must bail out over-extended borrowers and the reckless (criminal) financial institutions that placed those loans.  But life does blow sometimes — as most actual grown-ups understand.  Increasingly, those able to recognize the difference between ought and is accept that it’s better to deal with that fact than to watch the entire fiscal structure of our economy swirl down the toilet of whinging infant Congressional Republican orthodoxy.

Feldstein concludes by restating that same message.  Better the nation take its medicine than seek to extract the pleasure of righteousness amidst the rubble:

I cannot agree with those who say we should just let house prices continue to fall until they stop by themselves. Although some forest fires are allowed to burn out naturally, no one lets those fires continue to burn when they threaten residential neighborhoods. The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater. We all have a stake in preventing that.

That’s DFH talk, of course.  Without quite saying it out loud Feldstein here offers the suggestion that society has both values and obligations that trump the every-man-a-wolf-to-his-fellow-man cult of the individual that passes for  contemporary GOP “thought” on the social compact.

When you’ve lost Marty…

Image:  John Constable, The Hay Wain, 1821

You Can Always Tell A Harvard Man (And Woman)…

September 16, 2011

…You just can’t tell how much damage they will do.

The reality-based community took it on the chin again this week in a whole bunch of ways.  One that caught my eye came in this exchange, reported in TPM:

“[I]f you want a role that has benefit programs for older Americans, like the ones we’ve had in the past, and that operate for the rest of the government like the ones we’ve had in the past, then more tax revenue is needed than under current tax rates,” [Congressional Budget Office chief Doug]Elmendorf said. “On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans” or all the rest of the government’s functions.

Given where Congress finds itself — a separate story that began over a year ago — that’s the debate Democrats want to be having. Should we roll back safety net programs in order not to increase taxes on the wealthy?…And it’s precisely the debate Republicans do not want to have. So they spent Tuesday trying to reorient the conversation: instead of arguing in favor of their preferred and informed decisions about the future of the country, they posited a scenario where crisis is upon us already and the only plausible way to avert fiscal catastrophe and help the country end its economic slump is to cut, cut, cut right now.

“There’s a recent report by Alberto Alesina of Harvard University,” noted Sen. Rob Portman (R-OH), “showing that the most successful and pro-growth deficit reduction took place in countries that relied chiefly on austerity programs, spending cuts. And nations that relied more on tax increases were less successful in reducing the deficits and had slower economic growth.”

Ah, one more zombie lie — or rather an error, or failed analysis turned into a public lie by those who repeat it.

Alberto Alesina and Silvia Ardagna published this paper in 2009.  Portman accurately described what it claimed to demonstrate.  To say, as Brian Beutler does in the TPM piece, that this work is controversial is surely true — just as remarking that a blue whale is large is a valid statement.  Here’s Krugman discussing it shortly after publication, capturing the flavor of informed (as in, statistics-competent) criticism.  There are, of course, a wealth of other takes a google’s length away.

But the real problem is that Krugman’s and others’ initial questions of the work, were, of course correct.

To put it in the way natural scientists do when confronted by similar challenges to well-established knowledge, extraordinary claims require extraordinary proof.  Here, if you want to say something contrarian about experiences as empirically well documented as the effects of fiscal austerity on economies, you need to nail every facet of the argument.  You don’t just get to say the speed of light in a vacuum in the early universe was different from that speed now (a real claim).  You gotta prove it.  So far, eighty years of trying to do so for both the tired light hypothesis and the anti-Keynsian fairy-dusters have been unsuccessful.

This latest attempt to assert (spherical) cows are (spheroidal) chickens is no different.  The most recent analysis of Alesina and Ardagna’s claims comes  in this report from the IMF research shop.  Essentially, the new work shows, the Harvard team constructed their data universe in way that led them into a fundamental mistake, as Krugman’s describes:

…results purporting to show economic expansion following spending cuts and/or tax increases were based on a statistical illusion: an expanding economy can often lead to rising revenue and/or falling spending (e.g. because safety-net spending falls or because the government cuts back in an attempt to cool off inflationary pressures). And as a result, what the Alesina-Ardagna results capture is muddle by reverse causation.

The IMF authors say something similar with proper professional decorum r — which makes their conclusion yet more rhetorically devastating:

Estimation results based on measuring discretionary changes in fiscal policy using cyclically-adjusted fiscal data––a practice often used in the literature––suggest that fiscal consolidation stimulates private domestic demand in the short term, providing support for the hypothesis. This result is consistent with a literature that finds that fiscal contractions can be expansionary. However, our analysis suggests that using cyclically-adjusted data to estimate the effects of fiscal consolidation biases the analysis toward overstating expansionary effects.

In contrast, estimation results based on fiscal actions identified directly from contemporaneous policy documents provide little support for the expansionary austerity hypothesis. In particular, we compile an international dataset of fiscal policy adjustments motivated by a desire to reduce the budget deficit and not in response to current and prospective economic conditions using the Romer and Romer (2010) historical approach. Based on the fiscal actions thus identified, our baseline specification implies that a 1 percent of GDP fiscal consolidation reduces real private consumption by 0.75 percent within two years, while real GDP declines by 0.62 percent. The baseline results survive a battery of robustness tests. Our main finding that fiscal consolidation is contractionary holds up in cases where one would most expect fiscal consolidation to raise private domestic demand. In particular, even large spending-based fiscal retrenchments are contractionary, as are fiscal consolidations occurring in economies with a high perceived sovereign default risk.

Put that more simply:  you need to look at what really happened during the actual events you want to understand if you are going to make any sense of the situation.  When you look at a derived model of those events, you miss what people actually said and did, and you are vulnerable to a whole host of methodological traps to which any act of model-making is subject — and hence you screw up.  Which is what the Harvard pair appears to have done.

I don’t know what Alesina and Ardagna will say to all this, or about the use of their conclusions by Senator Portman.  But, of course, once it’s out there, they could issue mea culpas from the balcony in St. Peter’s Square, and it wouldn’t matter.

That’s the nub:  the real issue is that credentialed economists produced work that does not conform to reality — but does conform to what our friends in the Comfort the Comfortable lobby would wish to be true…and hence, it will never die.  Just to repeat:  it is not true that cutting demand in an economy with a demand gap in the gazillions will magically conjure up folks willing to spend.

Oh — and one more thing:  Portman knew, or should have, that the work he cited was, to say it most nicely, unproven. The IMF research, only the latest in a series of demonstrations of flaws in the Alesina-Ardagna conclusions, was released early in the summer, more than two months before the hearing this week.

If Portman did not pick up on work of direct relevance to their argument about the proper course for our country to steer, then he and his staff are incompetent, and should have no role in setting policy for a rowboat, much less for a society and economy on which the lives and happiness billions at home and abroad depend.  If he did know about it, then he’s a lying scum who has no business in any position of power.

You make the call.

So, just to get back to the underlying reality (and to belabor the obvious one more time): as the British Chancellor of the Exchequer George Osborne was reminded this week, starving an already famished economy of someone, anyone, the government willing to spend is the way to screw your economy, and especially those most vulnerable in it.

Which, of course, is exactly what the Republican deficit hallelujah chorus is trying (and mostly succeeding) in doing to us.

Images:  David Vinckboons, Distribution of Loaves to the Poorbefore 1650.

Viktor Oliva, The Absinthe Drinker, 1901

None Dare Call It Treason…

June 6, 2011

But, at least as I read it, that’s what the Republican party — and by that I mean, actual office holders and acknowledged leaders, not yahoos conspiring on some mountaintop — are edging ever closer to these days.

Evidence for such a serious charge?  Just the latest comes from an event Mistermix annotated earlier this morning:  the murder of Peter Diamond’s nomination to serve as a governor of the Federal Reserve.

A little backstory:  Peter Diamond is a member of the Economics Department at MIT (and hence, one of my colleagues).*  He is the author, co-author or editor of twelve books, and his CV lists 143 published papers.  He is perhaps best known recently for his work on social insurance and Social Security in particular, but his interests have ranged very widely indeed, to include among much else foundational research on what happens when buyers and sellers in a market have to look for each other, the problem of “search markets.”  Think, e.g., the problem that  employers and job seekers face to find specific matches in order for the job hunter to sell his or her labor to an employer-buyer.

That’s work that was just honored with the 2010 Nobel Prize for Economics.** [For more details, see the paper to be found at the “advanced information” tab here.]

Now every Nobel comes with a story, and I heard a couple of them at various celebrations I attended to honor Diamond.  One nice touch came at the economics department party for the prize, where department grad students and colleagues wore replica Peter Diamond Red Sox jerseys, in recognition of perhaps his most treasured honor, throwing the first pitch at a regular season game at Fenway a year or so ago.  Nobels are nice and all, but in the Athens of America, the Sox rule.

Then there was the one Diamond himself told at another reception this spring, which suggested the potential for trouble when an anonymous Swedish-accented female voice sounds at one’s home number at 0-dark-hundred, asking for the man of the house, then en route from an overseas trip — and refuses to say what it’s about to his just-awakened partner.  Hmmm.  But that’s the rule:  the laureate gets told first, no ifs/ands/buts.

But the most telling anecdote came from the current head of the MIT economics department, Ricardo Caballero, who told of contacting his immediate predecessor as head, James Poterba, who promptly handed over the brief he had prepared years earlier listing what to do when the call came from Stockholm with Peter Diamond’s name attached.  Which is to say — Diamond has long been recognized as a giant in the field.  The MIT department along with much of the profession had for a while seen the ultimate award of a Nobel as a matter less of “if” than “when.”

The signal importance of Diamond in our current predicament is that he is two creatures at once:  A mathematician by early training, he does a lot of what many academic economists do: prove theorems within models in an attempt to capture essential features of experience within the rigor of mathematical analysis.  At the same time, he is a committed observer and parser of the real world, with a direct focus on critical current policy issues.  In his own words [see entry 4: “My Research Strategy]:

I found I liked doing policy.  And I found that looking at policy questions fueled identification of good theory questions to model and analyze.  As a public finance economist, I was naturally interested in policy (rather than becoming a public finance economist because I was so interested in policy), although that has reversed.  And as a theorist more interested in constructing models to analyze questions than to getting new results in existing models, my taste ran to simplifications that seemed to preserve the important properties and so provide plausibly robust policy insights, an approach that fit with finding questions from involvement in policy discussions.

Hence work on Social Security, on pension systems around the world and so on.

So, just to recap the game so far:  we have in Peter Diamond someone recognized by everyone qualified to do so as one of the pre-eminent economists writing today. His work addresses major issues at the level of both theory and policy/application.  His questions include several that are pressing right now, notably employment and the understanding of essential social insurance programs.

And yet, because of the actions of one or a small minority of United Senators, supported by a unified Republican Senate caucus, the citizens of the United States of America will not secure the benefits of Peter Diamond’s knowledge and intellectual skills at a time when almost one in ten job-seekers are out of work, and our pension and health care systems face the prospect (threat) of enormous and individual-life-changing transformation.

So, why do Senator Richard Shelby of Alabama and the entire slate of the GOP Senators so hate the rest of us ?

Well, that would be (according to Shelby) because Diamond is unqualified to be a Fed governor.  This despite the overwhelming testimony of his profession.

But wait!  There’s an “argument” (sic) Shelby attaches to his presumptively stupid argument that a Nobel laureate economist can’t handle a Fed post.  Shelby’s rationalization?…

…Diamond, it seems, lacks specific expertise in monetary policy, the proper responsibility of the Fed.  Mistermix’s post details the duplicity of this claim:  at the time of Diamond’s nomination, three of the five sitting governors were not monetary specialists.  We’re back to the old trick of inventing criteria as needed to cover blatant political manouvering.

And anyway, Shelby’s just wrong (surprise! Dog bites man!), as Diamond himself made embarrassingly clear in a New York Times op-ed published today:

Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?

The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy….

…understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural — caused by mismatches between the skills that companies need and the skills that workers have — aggressive Fed action to reduce it could be misguided.

In my Nobel acceptance speech in December, I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, and thus not a reason to stop an accommodative monetary policy — a policy of keeping short-term interest rates exceptionally low and buying Treasury securities to keep long-term rates down. Analysis of the labor market is in fact central to monetary policy.

Seems like this guy might be useful, just about now, doesn’t it?

Diamond’s most important point was not that Shelby’s malign influence is evidence of a poisoned political process, (though it is) nor even that the point of monetary policy is to influence things like the labor market (which it is, and is what makes direct knowledge of such spheres kind of important).  Rather, Shelby and the Republican Party are actually playing a much more dangerous game, one much more hostile to the interests of the United States and its citizens than any mere power squabble.   Here’s how Diamond wraps up his piece:

To the public, the Washington debate is often about more versus less — in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.

Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better.

And this is where Shelby’s — and the Republican Party’s — become guilty of what some may think is too strong a charge.

We face real, enormous problems.  Yet the Republican party has decided that its return to power by any means is more important than the interests of the United States. Why else block an obviously overqualified person to help set monetary policy, except for the fear that his policy ideas might work?  How else to describe — other than the pursuit of party advantage over Country First — the increasingly vocal murmurings that the GOP should push the US into default in order to so damage the American (and world!) economy that even as weak a candidate as any in the current GOP pool could defeat President Obama in 2012?

And so on — readers of this blog can continue the litany as needed.

Rush Limbaugh laid this out back in 2009 of course:  it was better then and it’s still the preferred option, from his point of view and from that of the Republican Party as a whole, that President Obama fail and the US suffer.  Heaven forfend that this administration to succeed and for GOP governance to be thus revealed as the disaster it is.

Oh — and one more thing.  As Diamond writes in the passage quoted above, blocking his nomination has the effect of making it more and more difficult to bring  “skilled analytical thinking” to bear on great public problems.

This despite the fact that deriding the possibility of competence as a tool of governance is both a disaster in the short term (near 10 percent unemployment, remember) and utterly corrosive of US power and influence looking to longer horizons.  If we barricade the government against even the possibility of having to act on the best disinterested advice we can get…what do you think will happen over time?  Nothing good…

I suppose there are some out there (a quotidian gossip, perhaps) who might find the use of words like “treason” to be, well, uncivil in this context.

But how else do you describe actions that harm Americans now and are likely to weaken the US relative to competitors and potential adversaries over the years and decades?  And when those deeds are in the service not only of trying to defeat a sitting President, but to deny that President the levers of government within the term for which he was duly elected?  I don’t know words strong enough to excoriate such Benedict Arnolds.

This is your modern Republican Party.  It is, IMHO, beyond salvation.  We do need an opposition, but this one does not retain any claim to the traditional epithet, “loyal.”  Time to start over.

Factio Grandaeva Delenda Est.

*I’ve met Diamond at a couple of large events.  I don’t know him though and have never had a real conversation with him — and I’ve never discussed with him or any other MIT economist what the hell was going on with his Fed nomination.  What follows is thus all mine; don’t blame him.

**Strictly speaking, the Sveriges Rijksbank Prize in Economic Sciences in Honor of Alfred Nobel…but most everyone still calls it simply a Nobel Prize. #vampirepedantcrucifixfootnote

Images:  Max Liebermann, Women in a Canning Factory, 1879.

Agostino Carracci, Arrigo el peludo, Pedro el loco y el enano Amon (Hairy Arrigo, Crazy Peter, and the dwarf Amon), before 1602.

On the Pernicious Myth of the Free Market

September 7, 2010

So: let’s begin the experiment in how quickly I can rebuild blog traffic after a summer’s neglect, shall we?

A week or so ago, there was a Twitter flurry on the subject of phrases some of us would like to see banned from science writing, stimulated by  the annoyingly prolific Carl Zimmer‘s list of such sins.  (His fault you’re a sloth? — ed.)  Some very good ones there, this being my favorite (for obvious reasons):

Breakthrough (unless you are covering Principia Mathematica)

But the list of writerly shortcuts we should all avoid made me think of the phrase that gets my goat every time I hear it — which means that I am goatless a lot of the time.  For that phrase is “the free market.”

I twittered my disdain for that term, noting in 140 characters or less that “free markets” as imagined do not exist in nature, and that hence, at best, they are the analogue to the physicists’ herd of spherical cows.

In fact, as friend of Inverse Square Ian Preston pointed out to me, that analogy is wrong — or at best, only a bit right.  The bit that’s right is that there is a spherical-cowlike idea that economists make use of all the time.  Where physicists simplify something like a shape to make a calculation or a proof-of-concept argument a little easier, economists will assume circumstances in which markets behave exactly as we were taught in our versions of Ec 10:  there is perfect competition, perfect information available to all parties and so on.  Such markets are spherical…goats, perhaps, just to keep the field clear for physicsts contemplating falling bovines.

What they are not is “free” markets, at least not in the sense that term is used in popular discourse.  Remember:  when a physicist says “consider a spherical cow” you and she know that you have just entered the realm of the imagination. When some right-radical* propagandist uses the term “free market” you also know what is being advanced:  the notion that these drastic simplifications actually exist in the wild, and that any deviation from an absolutely unfettered market structure represents both a practical and a moral ill.

But, of course, there are no such creatures roaming the savannah.

Rather, as both economists and less rarified people who actually pay attention to the distortions in just about every market have recognized, all kinds of things in the real world make markets less than perfect, “unfree.”  Assymetric information is one buzzword, regulatory capture is another phenomenon, various kinds of externalities apply other distortions to transactions, governments can intervene to increase or decrease the efficacy of market mechanisms…and so it goes.

The point, obvious to all but those willing themselves to believe in Adam Smith as the tooth fairy, is that his invisible hand is not placing dollars under virtuously self-interested pillows unbuffeted by all kinds of forces.  Instead, the phrase “free market” is primarily  propaganda, an attempt to perpetuate the big lie that  there necessarily cannot be any better outcome than the one that transfers the most wealth and power to those who already have seized so much of it in the last years and decades.

That’s where Ian stepped in, both to echo my thought and to extend it (and perhaps, just a bit, to attempt to insulate his profession from the worst of what radical right hacks are trying to do in the name of modern economics).   As he wrote in email he has kindly given me permission to publish…

Saw your tweet on “free markets” and completely agree but I think you’re only halfway to the truth.  The real spherical cow is the “competitive market.”  “Free market” strikes me as a phrase you hardly ever hear mainstream economists use in an academic context.  (You do hear “free trade” but I think there’s a different political resonance to that phrase).   There are plenty of reasons to link efficiency with idealised competition but “competitive markets” don’t make for such good right wing rhetoric as “free markets” and any fool can see that freeing particular markets up is often neither necessary nor sufficient for making them competitive.

Now why should you listen to Ian, even if you don’t to me?  Perhaps because he is, in fact, a real economist and a very good one.  As such, on being asked if he would let me disseminate his note above, he did what conscientious thinkers are supposed to do.  He tested his own conclusions:

Since you’re thinking of basing a blog post on it, I thought it’d be a good idea to check that I’m not talking nonsense.  I put the phrases  “free market” and “competitive market” into Google Scholar, linking them to particular economic journals.  The former does seem to be typically less common and particularly so the more theoretical or technical the journal to which the search is linked – see the attached table.  “Free market” does appear to occur in technical phrases like “free market equilibrium,” which does have a ring of familiarity, so you can’t really say it is never used in that way but I suspect it is most often coming up in phrases like “free market policies”.  There’s some evidence there anyway for my casual impression that “free market” is more often useful as rhetoric or as a description of a particular kind of policy whereas “competitive market” is the more precise and useful analytical simplification – the spherical cow, in other words.

At the bottom, in an attempt to put an upper bound on the ratio, I have added the results of a similar search linking to one of the journals associated with the non-mainstream Austrian school.  I admit that I have never even looked at this journal but the results show the sort of heterodox economists who evidently do find it useful to talk about the “free market” – the sort of people who mistrust mathematical modelling, mistrust econometrics and mistrust any attempt by government to override the price mechanism.

Here’s the chart:

The moral of all this: (a) when someone uses the phrase “free market” in political discourse, hang on to your wallet.  And (b) fight the con that such people are trying to run on you — us, everyone.  What we need, again, as a practical matter as much as and before any moral considerations, are competitive markets, fair markets.  One thing that recent experience has reaffirmed is that you can’t have a prayer of getting such at least sort-of-level playing fields (and hence, genuinely efficient allocators of capital and maximizers of desire) without explicit government regulation of market behavior.

Here this sermon endeth.  Less abstract stuff to come.  Happy first-day-of-school (at least for father and son in the Levenson household) to all.

*Another one of my pet peeves is the term “conservative” — which, IMHO, is in American politics a spinner’s term to describe people and views who are neither conservative in the formal sense of the term, nor connected to history in any way that resembles what traditionalists assert as the wellspring of their views.  They are instead authoritarian (hence the right) and willing to do enormous damage to the polity to achieve authoritarian power — the radical part.

Image:  Henri Rousseau, “Combat between the tiger and the buffalo,” after 1891.

A Tale of Two Financial Stories, or Why it Helps to Pay Attention to the Man Behind The Curtain — Paul Krugman and NPR edition

April 26, 2010

Two stories caught ear and eye this morning.

First, in terms of my attention, this one from NPR, heard while driving in to work.  Then, this one from K-thug, pulled up via my usual quick check of Daily Kos’s pundit round-up.*

Very short form:  the NPR story, of a type that I generally regard with a bit of suspicion, was an anchor-interviewer with a reporter doing a prospective analysis of the big financial rumble to come between, Goldman Sachs and Sen. Carl Levin’s subcommittee.  The story hinged on the release of emails by both sides intended to condemn or exculpate the poster child for a financial system gone way off the tracks.

It was everything you’ve come to loathe in political horse race stories, now translated into the big-money arena:  who’s ahead, who will win, what each is saying of the other.

There was no real attempt to make sense of the underlying argument, and in fact the reporter conflated two different issues: whether Goldman defrauded investors by failing to reveal flaws it knew and or consciously engineered into financial instruments it was selling; and/or whther Goldman in some sense conspired to bring the economy down by shorting mortgage backed securities in the run-up to the collapse of 2008.

The difference matters, to put it mildly.

Meanwhile, Krugman makes the obvious point: short sales may be ugly but they are not in themselves evil.**  FWIW  I’m not bothered by shorts at all (except on English men of a certain age, but that’s a different story, and probably relates to the trauma of being forced to wear and observe type-specimens of such schmattas as a very knobby kneed and self-conscious third grader in Hong Kong back when blogging was done with chisel and slate).

Rather, as Krugman argues, the real story revealed in straying emails is not that of Goldman doing what Goldman is set up to do — make as much money as it can, by any means up to the limit of the law (they devoutly hope, while budgeting for that hope’s denial) — but of rating agencies doing exactly what they are set up to prevent.  Krugman writes:

The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody’s and Standard & Poor’s; what it has found confirms our worst suspicions. In one e-mail message, an S.& P. employee explains that a meeting is necessary to “discuss adjusting criteria” for assessing housing-backed securities “because of the ongoing threat of losing deals.” Another message complains of having to use resources “to massage the sub-prime and alt-A numbers to preserve market share.” Clearly, the rating agencies skewed their assessments to please their clients.

These skewed assessments, in turn, helped the financial system take on far more risk than it could safely handle. Paul McCulley of Pimco, the bond investor (who coined the term “shadow banks” for the unregulated institutions at the heart of the crisis), recently described it this way: “explosive growth of shadow banking was about the invisible hand having a party, a non-regulated drinking party, with rating agencies handing out fake IDs.”

Goldman is a pit bull, trained up as an attack dog.  You expect it to bite, especially, as now, when that hound’s master has for so long failed to constrain its pet.

The response is obvious, and is now, imperfectly, working its way through the Senate.

The ratings agencies are supposed to be neutral umpires, but the payment structure under which they work has turned them, as Krugman notes, into witting confederates of the very folks whose offerings they were supposed to assess.  The term “accelerant” is often used to describe the chemical compounds arsonists to transform a match-drop ignition into a holocaust.  It works pretty well to describe what happened to our financial house when the ratings folks used their magical “AAA” rating to transform sh*t into (fools’) gold.

All of this is to say read the whole Krugman piece, for one, and to ask the DeLong question of NPR:  why oh why can’t we have a better press corps.

What’s really troubling to me is that NPR is in fact one of the good ones, by and large.  They have smart people working for them; they still employ real reporters; they pay attention.

But economics reporting is very hard — I’ve said elsewhere that I think it is harder than what most people think of as “real” science writing — and the way NPR swung and missed this morning is a very useful example of what happens when a news organization doesn’t quite get the story or the beat.

The piece I reference isn’t altogether  terrible, in the sense that it sets out to deceive or is talking about something wholly trivial in the face of a larger disaster (see Michelle Obama, sleeveless dresses of, for an example of what I mean here).  I don’t know the internal editorial sequence of events that NPR stories go through in this or in any case, but if I were to guess, I’d say that at least part of the problem behind this kind of story on that network is that the assigning or managing editors for the show are not sufficiently knowledgeable to tell the difference between the tabloid excitement of Goldman in the headlines and the substantive significance of something much duller, like whether or not Moody’s and Standard and Poor assessed risk accurately.

Just writing those last three words made my eyelids dip, just a little — which is the problem.  You have to see the story behind the facts if you want to be a useful journalist.  To be sure, a big part of the job of any specialized journalist, a science writer, an econ scribe, whatever, is to educate your editors into a broad understanding of what really matters on your beat, so I don’t want to absolve the on-air folks entirely.

Also, to be fair, we all like the tabloid stuff to help the morning coffee go down; it’s part of the trade too.  But my beef is that NPR had two stories on the financial crisis in today’s Morning Edition program — the other was on the way Senate filibuster rules are impeding reform — and both missed the story with more significance to the question of how bad and how soon the next crisis will be. And that’s not good enough.

*Within which I also found today, to my far-from-solitary surprise, a pointer to Mark Helprin making sense.

**For a good explanation of one of the garden variety uses of short selling for ordinary investers, or more precisely, the writing of put options, see Burton Malkiel’s passage on the use of options in his occasionally controversial classic, A Random Walk Down Wall Street.

Image:  Jean-Marc Nattier, “Marie Zéphirine de France”  c.1753