Posted tagged ‘Paul Krugman’

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

Andrew Sullivan and the Anatomy of False Equivalence

April 24, 2010

Here’s one more attempt to learn how to blog short, made glorious summer by that son of Surrey (not quite the same ring, is it?), Andrew Sullivan.

Instead of doing the full John Foster Dulles at every opportunity, I want to try picking on the one moment that illustrates the larger problem.

Here it is Sullivan’s inability to escape both the tropes of a failed journalistic conceit he himself often condemns…and the fact that he simply cannot free himself from the fetters of both identity politics and the claim of faith over experience.

Here’s the relevant passage in his post from yesterday (April 23, 2010) on yet one more bit of David Brooks’ maundering:

I can see how easy it was for the FNC-RNC to wheel out their exhausted tropes of anti-government rhetoric and for Paul Krugman, say, to wheel out his own pro-government radicalism.

Of course, to any unbiased observer — hell to just about any biased one, it must be obvious that a major propaganda network and the national committee of one of two American political parties are institutionally equivalent to one biweekly newspaper columnist.

Or not.

And of course, there is the question of the empirical issue:  who was right.  The weird thing here is that Sullivan actually knows the answer, for a little further down in his post, he writes,

“I happen to think that Krugman has much more of a case right now, because the circumstances almost require the drastic measures he favors.”

Which is to say, of course, that Krugman is not radical, and his work is not “pro-government,” whatever the hell that cliche masquerading as a thought might actually mean.  Rather, he proposed a series of extraordinarily conventional, mainstream economist’s responses to a classic financial crisis, and both his proposals and his criticisms of the actions actually undertaken have turned out to be well matched to the actual events and clearly derived from a long-standing and often-tested body of economic thought.

And, not to belabor what I think is obvious, this is where, for all of Sullivan’s obvious accomplishments, he still allows the habits born of his roots in polemic, not to mention his tortured identity politics, to limit his grasp of his circumstances.

Fox News and the modern Republican party are radical, by any reasonable definition of the term.  They are committed to creating a false reality to replace the actual body of knowledge and experience that describes the world most of us actually inhabit (and yes, I’m getting ready to ridicule you too, Rod Dreher, you pietistic and scientifically illiterate purveyor of false intellectual modesty).  And most important, they lie a lot.  All the time.  About big stuff and small.

And there is nothing in that record that is equivalent to anything in Krugman’s.  Again:  Krugman was right and Krugman was wholly conventional, neither seeking an expansion of government for its own sake nor any radical transformation of the relationship of government to the economy.  The pairing simply makes no sense as an actual statement about the world — and it only does in the context of Sullivan’s angst about the fact that the person he believes himself to be is one that his world now clearly says he’s not.

That is:  he wants to continue calling himself a conservative, despite the fact that most of the people in this country who claim that label, at least in the public arena, disdain his views, a favor he readily returns.  At the same time, he wants to appropriate any act he approves of as “genuine” conservativism — notably the many accomplishments he and I both admire to President Obama’s credit.  It’s an endlessly fluid concept, Sullivan’s political theory:  what is truly conservative is that which satisfies his sense of self-image and or necessity at any moment.

And that, of course, is the danger one faces when reading him:  you need to continuously filter out his reflex to utter and perhaps even in some deep way believe “conservative” tropes that should have been mugged out of him by the history of the last two decades.  That he still cannot do so on a regular basis (and there is a lot more of this kind of nonsense in just this one post…really I’m trying to restrain myself here) is a measure of how hard it is to abandon epistemic closure (to coin a phrase…or not) even when you warn against it.

Image: Ambroise Paré “Portrait of a Chameleon” 1585.

Megan McArdle is Always Wrong…Completely Outsourced Rate-Spread/Default Risk Edition

April 1, 2010

No one person (except perhaps the stalwart souls here and here) can stand to read Megan McArdle on a sustained basis.  Or at least I can’t.  She is such a reliable source of fail that reading her on a daily or even a weekly basis would do more damage to my productivity and my blood pressure than I could tolerate.

So it is with gratitude that I outsource this smackdown on Ms. McArdle’s inchoate dark mutterings on the possibility that the US Treasuries market is pricing in the risk of sovereign default to much more expert figures than myself.  Here’s DeLong, offering a morsel of that which is dreaded by every aspiring “this-beats-honest-work” right wing pundit — actual data from the world; and here’s Krugman patiently explaining the kindergarten basics of the government bond market to the “The Atlantic’s Business and Economics Editor.” (sic!  How the mighty have fallen…ed.) DeLong’s comment thread is fun too.

To those magisterial defenestrations (gotta use that word from time to time….ed.), I have only this to add.  Ms. McArdle possesses a tic that in various forms is a familiar tell on the right.  When someone over there wants to promote some out-there claim of Democrat-and-or-Obama induced catastrophe that they sense, somewhere deep down, may not actually make any sense at all, they intro their folly with some formulation like the one Ms. McArdle uses here: “it’s not unreasonable to assume…”

Translation:  “I’m know I’m about to say something really stupid, don’t call me on it.”

(Thanks to Tim F. of Balloon Juice for bringing these delightful bits of smackdown to my attention.)

Image: Vasily Vasilyevich Vereshchagin, 1901.

One More Link: Paul Krugman Explains It All Edition

October 2, 2009

Once again I missed the Ig Nobels — bozo, me, given the proximity to that glorious milestone in the academic year.

But Paul Krugman was there, delivering a 24/7 lecture:  twenty four words of hopeless jargon from within one’s discpline followed by a Hillel-like* seven word account of that field.

Here’s the transcript, in full.

*Hillel explained the essence of Judaism to an impatient inquirer in an aphorism some 26 words long.  Not quite seven, but not bad.  (The shortest form of Hillel’s reply to the demand that he teach the meaning of Torah in the time his interlocutor could stand on one leg in a mere twelve words, which is getting close to Ig Nobel glory, saying,  “That which is hateful to you, do not do to your fellow”

Image:   “A dark and dismal valley,” illustration to the Icelandic legend of Gold-brow.  Published in celandic Legends : Collected by Jón Arnason : Translated by George E. J. Powell and Eiríkur Magnússon, Richard Bentley, London, 1864. This illustration facing page 19. Digitized version from Google Books,

I Have Seen The Light: A Revelation on Reading David Brooks This Morning

October 3, 2008

David Brooks is Sarah Palin.

You can see what I mean in five minutes with today’s Times op-ed page.  On the one hand, this, from Brooks.  On the other, this from Paul Krugman.

I have to admit to a certain weariness of spirit everytime I pick up Brooks’ “work” (sic — ed.) these days.  How often must one say the same thing in a slightly different context:  that Brooks is a glib hack, too lazy to do even the minimal work required to flesh out his preconceptions with even the most fragile of veneers of fact or experience?  I complained here that he wasn’t even trying anymore, and nothing in today’s effort suggests otherwise.

Of course, given the reach of the pulpit he possesses from which to bully the rest of us, he needs to be stomped as often as he rises on his hind legs. The price of liberty is eternal vigilance (as Sarah Palin reminded us last night explaining why she wants to kill Medicare).*

So here goes.  Today, Brooks argues (a) that because Palin spoke in complete sentences, she met the “survival” test; (b) she was just folks, and though such casual style won’t wash in the elevated circles in which Brooks travels, it could do very well out there in flyover country.

By the way:  I’m not kidding about the disdain for his alledged fellow GOP supporters Brooks displays these days.  Here’s the same notion in his words:

To many ears, her accent, her colloquialisms and her constant invocations of the accoutrements of everyday life will seem cloying. But in the casual parts of the country, I suspect, it went down fine.

Memo to all those casual parts of the country.  Now y’all know what Serious ™ conservatives think of you.

Last, Brooks alleged that Palin had reached debate parity with Biden; that she was a radical alternative to Washington insiders; and that, while no game-changer, her performance was an unexpected, “vibrant and tactically clever” tour de force.

There are of course, problems with this interpretation.  Two big ones.  The first is that the column as a whole is a list of nicely constructed platitudes presented with no clear connection to what actually happened.

In fact, much — really most — of the piece could have and may well have been written before 9 p.m. last night.  Except for the fact of Palin’s black suit, and the fact that she can pronounce the name of the president of Iran, more than half is Brooks waffling on about terrified GOPers hiding behind sofas and the grand significance of casual Fridays to the great scheme of things.

Such airy generalization is the trick that bored college students use to flesh out the last three hundred words of an eight hundred word assignment.  As I’ve said before, if I were surnamed Ochs or Sulzberger, I’d want a refund.

But this same laziness – or worse — caused Brooks to miss the key story he thought he was covering.  The question the post-debate polls asked was simple and obvious:  Did Palin do what was necessary in the debate?  Did the debate persuade the uncertain that Palin was ready for the job she seeks?

Brooks can’t answer that question.  He couldn’t even ask it, because unlike musings on politics as performance, this one could be answered in ways he still does not wish to accept.

And it was:  within the statistical limits of the polls, the answer was no; her numbers on this question were effectively unchanged, at least as a first reaction to the debate.

That fact leads to the conclusion that Brooks is struggling to avoid: The fact that Americans by a notable majority in the context of such a divided electorate see her as unqualified reflects not on her, but on the man with whom those polled disagree:  John McCain.

This blog exists as a defense of empiricism and the use of the analytical methods of science to interpret the raw data of experience.  There are, of course, lots of pundit/hacks who daily commit sins as bad as those of Brooks — willed ignorance, cherrypicking of data, ignoring contrary facts, howling intellectual solecisms and all the duplicitous arsenal of the ideologically blinded right.

But I have to confess that Brooks gets my goat more than most precisely because of his pretention to scientific respectability — his musings on neuroscience, his assertion of soft-science knowledge and authority.  It’s BS — a facade and a fraud.  Today’s offering is the latest of a “what I thought while seated in the smallest room of the  house” tossed off little number.

We deserve better from the New York Times.  Hell — the Right deserves better from somone supposedly representing the view from that side of the debate in the most visible of positions.

And of that David as Sarah reference:  Compare Brooks’ offering today with Krugman’s.  Now, whatever you think of Krugman, he is, like Biden, expert in his area, aware of the ground of experience, deeply knowlegable.  His column today, not about the debate, focuses instead on the financial crisis and its broader economic implications.

It’s not a particularly data-dense column — but it makes reference to facts, it suggests reasonable inferences from those facts; it provides a framework for pursuing some of the top level claims more deeply (and Krugman does, in fact, get you the latest awful numbers for you in his first blog post of today) and so on.

Again — while I’m a Krugman fan, others surely disagree.  But when they do they are forced to engage him on the ground of the data and his argument.

Brooks exerts no such compulsion.  He has his talking points; he is glib and plausible.  Pushed even a little, it becomes painfully obvious that there is no there there.

Isn’t in time the Times had mercy on this out-of-his-depth man and sent him back to the Weekly Standard wading pool in which he can’t hurt himself so easily?

Image:  Artist unknown, “The Swaddled Twins” dated 7 April 1617. Source: Wikimedia Commons.