Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, August 26, 2006

The Macroeconomic Outlook Deteriorates

Paul Krugman is not yet ready to forecast a recession--not quite:

The Bubble Bursts - Krugman - NYT Web Journal: Paul Krugman: Just a wonkish note about how bad the macroeconomics of all this could be:

If you look at the most leading of the indicators on housing, stuff like new home sales and applications for permits, they're off more than 20 percent from a year ago. If that translates into an equivalent fall in residential investment, we're talking about a fall from 6 percent of the G.D.P. to 4.8 percent. And this may be only the beginning; I wouldn't be surprised to see housing investment drop below its pre-bubble norm of 4 percent of G.D.P., at least for a while.

Add to this the likely effect of a housing bust on consumer spending and you've got a direct hit to G.D.P. of, say, 2.5 percent or more. That's bigger than the slump in business investment that led to the 2001 recession. And the main reason the 2001 recession wasn't as deep as some feared was that the Fed was able to engineer... a housing boom. What will the Fed do this time?

Maybe rising business investment and a declining trade deficit will soften the blow. But it's remarkably easy, playing with the numbers, to come up with scenarios in which the unemployment rate rises above 6 percent by the end of 2007. That's not a prediction, but it's well within the range of possibility...

Republican Standard-Bearer Katherine Harris Says: It Is Sinful to Elect Jews and Muslims

Yes, it is the standard bearer of the Florida Republican Party at work:

Your Friday Afternoon Republican Juggernaut Update: After reading today's Florida Baptist Witness interview of Rep. Katherine Harris we can safely assume Ms. Harris is one Republikkkan who does not support the candidacy of Sen. Joe Lieberman...

If you are not electing Christians, tried and true, under public scrutiny and pressure, if you’re not electing Christians then in essence you are going to legislate sin. They can legislate sin. They can say that abortion is alright. They can vote to sustain gay marriage. And that will take western civilization, indeed other nations because people look to our country as one nation as under God and whenever we legislate sin and we say abortion is permissible and we say gay unions are permissible, then average citizens who are not Christians, because they don’t know better, we are leading them astray and it’s wrong.

Linguistic Cognition

Here I sit, with my half-completed review of Peter Lindert's Growing Public: on the right half of my screen, Growing Public itself--some 2^21 bytes of frozen cognition about the twentieth-century welfare state, its rise and vicissitudes--at my right hand, my iPod with 2^11 songs (almost all of which I know in the sense of recognize, but virtually none of which I could sing reliably--even if I could sing) plugged into my left ear, off further to the left the 2^30 bytes of frozen cognition that are the family room library, and in front of me my laptop screen, processor, 2^36 byte hard disk, and (on the left half of the screen) my connection to the miraculous Interwebs.

All of this extraordinary system exists to amplify my powers to cognate linguistically to produce things others will find informative and useful--in this case, my overdue review of the excellent Growing Public.

Meanwhile, halfway across the continent, Michael Berube and his son Jamie Berube investigate amplifying Jamie Berube's powers to cognate linguistically via "facilitated communication" and the Intellitalk3.

A Ben Bernanke Party Game!

Identify the time series in the background of this picture:

Introduce a Bug into Your Wetware!

Misprogram your visual cortex!

Backreaction: How are you today?
RubyTooth--60 Second Trip

Fortunately, it's only temporary...

Payroll Employment and Household-Survey Unemployment

The household-survey unemployment rate tends to fall when the monthly establishment-survey payroll employment number is more than... it's now 130,000 jobs gained a month, and tends to rise when the monthly establishment-survey payroll employment number is less than 130,000 jobs gained a month.

Figure updated to cover 1981:1 to 2006:7.

(Since 2000:1, the estimated intercept has risen to 166,000--but is very imprecisely estimated.)

The Rothenberg Political Report: House Outlook for 2006

Right-wing political commentator Stuart Rothenberg changes his forecast for the House:

The Rothenberg Political Report: New Print Edition: House Outlook for 2006: Our latest race-by-race review of Congressional districts around the country convinces us that a Democratic wave is building and that the party is poised to take control of the House of Representatives in the fall. The only question now is the size of the November wave.

The national mood remains bleak for Republicans. President George W. Bush's job performance ratings are terrible, and the public still gives Congress low marks. A majority of Americans continue to tell pollsters that the country is headed in the wrong direction. That's a recipe for a GOP disaster, and there is no reason to believe that things will change dramatically between now and Election Day to improve Republican prospects. At the district level, voters are more critical of Republican incumbents -- and supportive of even unknown Democratic candidates -- than they usually are at this point in the election cycle....

To hold the House, Republicans must retain at least a handful of districts that now appear likely to go Democratic.... Therefore, we are raising our estimate of likely Democratic gains from 8-12 seats to 15-20 seats, which would translate to between 218 and 223 seats... in the next House...

The lesson that the Republicans drew from the 1994 election was that the Democrats in Congress had failed to support Clinton, made the country see his presidency as a failure, and so lost their Congressional majority. Their conclusion was that their own majority in the House would crumble either if a Democratic president was seen as a success or a Republican president was seen as a failure. Hence--they thought--they needed to do everything they could to undermine Bill Clinton (no matter what its effect on the country) and everything they could to support George Bush (no matter what its effect on the country).

They didn't count on the fact that George W. Bush was such an idiot that he would make his presidency a failure in spite of 110% Republican support, and that the public would perceive the reality of the situation.

Why Oh Why Can't We Have a Better Press Corps? (Jonathan Weisman and Washington Post Bad, Dick Polman and Philadelphia Inquirer Good Edition)

Outsourced to Jamison Foser, who writes about journamalist Jonathan Weisman and journalist Dick Polman.

Here's Foser on Weisman, who would--if the Washington Post cared at all about its reputation as an honest deliverer of objective news--would have been fired years ago:

Media Matters - "Media Matters"; by Jamison Foser: Washington Post reporter Jonathan Weisman participated in an August 25 online discussion on the newspaper's website:

West Coast: Dick Cheney said he was stuck with the grave decision of whether to shoot down the flight that crashed in Pennsylvania or not. The recently released NORAD tapes confirm that the government first knew of the flight one minute before it went down. Is Cheney lying, again, or was he thinking very fast that day, with his drama unfolding within 60 seconds? I've yet to read anywhere that Cheney has been queried about his story. THANKS.

Jonathan Weisman: If I can get him on the phone, I will query him. Cheney's statements present a quandary for us reporters. Sometimes we write them up and are accused of being White House stenographers and stooges for repeating them. Then if we don't write them up, we are accused of being complicit for covering them up. So, all you folks on the left, what'll it be? Complicity or stenography?

We can't speak for all the "folks on the left," but we suspect most of them would choose "Option C: Journalism." Indeed, several participants in the online discussion made exactly that point. As one put it:

[R]esearch and intelligent questions based on said research that makes up 'Reporting'. Retyping statements without research is 'Stenography'. Avoiding asking tough questions because it makes your original stenography look really, really bad is 'Complicity'."

Weisman, showing nothing but contempt for his readers -- and, though it seems he didn't realize it, for his profession -- responded with a series of churlish comments like "Please apply for my job" and "Sometimes, you folks really drive us nuts."

We can assure Mr. Weisman that the feeling is mutual...

Foser on Polman:

Media Matters - "Media Matters"; by Jamison Foser: Then head over to Philadelphia Inquirer reporter Dick Polman's blog. In June, Polman -- described by ABC News as "one of the finest political journalists of his generation" -- posted an explanation of what's wrong with [Weisman's] kind of journalism...

I don't feel that we should be content with passing along misinformation in "straight" stories. The reader deserves a full context, and that means politicians should be fact-checked -- a job that's relatively quick and easy to do, in the Google era. Providing accurate factual context is not "commentary." It's what "straight" reporting should be about.

It always helps to remember the lesson of Senator Joe McCarthy. The 1950s demagogue... was enabled at every step of the way by journalists who believed their job was to only report "what was said." McCarthy was a senator, therefore, if he said something (true or not), it was deemed news. When he made wild charges about 60 or 80 or 100 communists in the State Department, it was reported as news. The "fact" that he was making such charges was considered sufficient; as the New York Times wrote back then, after reviewing their own McCarthy coverage, "It is difficult, if not impossible, to ignore charges by Senator McCarthy just because they are usually proved false. The remedy lies with the reader."

Washington reporter Richard Rovere, in a book he wrote two years after the senator's death, complained about "the system that required (reporters) to publish 'news' they knew to be fraudulent but prohibited them from reporting their knowledge of its fradulence. [sic]"

In today's world, given the credibility problems that have plagued administrations of both parties, that "system" is not adequate. Nor was it then.

Friday, August 25, 2006

Why Oh Why Can't We Have a Better Press Corps? (Slate Edition)

Outsourced to Scott Lemieux:

Lawyers, Guns and Money: Why Founding A Publication Based on the Principle of Contrarianism For Its Own Sake Is A Bad Idea, Part MCLVII: Shorter Jack Shafer:

I have yet to be convinced that an article exclusively about why men shouldn't marry women with incomes over $30K isn't gender neutral. The fact that the author took gender-neutral data and used it entirely to bash "career women" just proves my point! (Via Feministe.)

That the Congress of the United States of America Has No Confidence in Donald Rumsfeld

If you haven't noted its existence, you should definitely note the existence of the Wall Street Journal news pages' Washington Wire weblog:

John Harwood: DEMOCRATS TARGET RUMSFELD to boost election pressure on rivals. Campaign strategists seek intraparty consensus by focusing on accountability rather than Iraq troop withdrawals. A "no-confidence" vote in Pentagon chief, which Democratic lawmakers might offer on defense spending legislation, could embarrass Bush while appealing to Republicans who defend ousting Saddam but criticize war's execution.

One House Republican predicts leaders would heed White House urgings to block a vote. But a Republican consultant says some incumbents may embrace idea for distance from war setbacks. In private comments to top aides, Rumsfeld signals he plans to remain through Bush's term.

If Bush isn't already embarrassed by Rumsfeld, a no-confidence vote won't embarrass him. What it would do would make it harder for the media to continue to downplay the horror and contempt both sides of the aisle have for Donald Rumsfeld.

Near-Real-Time Federal Reserve Conference Blogging

David Wessel and Greg Ip of the Wall Street Journal are blogging the Federal Reserve Bank of Kansas City's Jackson Hole conference:

David Wessel writes:

David Wessel: From Wausau to Wuhan via Jackson Hole: Much has been made about differences between the easy-to-understand public speaking style of Federal Reserve Chairman Ben S. Bernanke and his famously opaque predecessor Alan Greenspan. But in his speech this morning at the Federal Reserve Bank of Kansas City's Jackson Hole, Wyo., forum, Bernanke seems to be borrowing a Greenspan tactic, one Greenspan often used to avoid talking about interest rates: Pepper your speeches with obscure historical references and unusual metrics.

"When geographers study the earth and its features, distance is one of the basic measures they use to describe the patterns they observe," Bernanke said in the opening of his address on the benefits of globalization and current threats to it, the subject of the conference. "Distance is an elastic concept, however," he continued. "The physical distance along a great circle from Wausau, Wisconsin to Wuhan, China is fixed at 7,020 miles. But to an economist, the distance from Wausau to Wuhan can also be expressed in other metrics, such as the cost of shipping goods between the two cities, the time it takes for a message to travel those 7,020 miles, and the cost of sending and receiving the message. Economically relevant distances between Wausau and Wuhan may also depend on what trade economists refer to as the 'width of the border,' which reflects the extra costs of economic exchange imposed by factors such as tariff and nontariff barriers, as well as costs arising from differences in language, culture, legal traditions, and political systems."

Along the way, Bernanke also quotes Martin Luther, refers to Vasco da Gama and mentions the Napoleonic Wars. He does not, however, cite Greenspan's frequent observation that -- because of the value of ideas and miniaturization of technology -- a dollar's worth of gross domestic product weighs less than it used to.

Greg Ip writes:

Bernanke’s knowledge of economic history was on ample display in his opening remarks Friday to the Fed’s Jackson Hole symposium, “Global Economic Integration: What’s News, What’s Not.” In particular, he draws chuckles by quoting one German observer’s protests that importing from Asia makes Asians rich while impoverishing Germany. The observer? Martin Luther, in 1524. (Bernanke credits his former colleague and co-author, Princeton’s Harold James, for the quote.)

Thursday, August 24, 2006

Linguistic Cognition

Here I sit, with my half-completed review of Peter Lindert's Growing Public: on the right half of my screen, Growing Public itself--some 2^21 bytes of frozen cognition about the twentieth-century welfare state, its rise and vicissitudes--at my right hand, my iPod with 2^11 songs (almost all of which I know in the sense of recognize, but virtually none of which I could sing reliably--even if I could sing) plugged into my left ear, off further to the left the 2^30 bytes of frozen cognition that are the family room library, and in front of me my laptop screen, processor, 2^36 byte hard disk, and (on the left half of the screen) my connection to the miraculous Interwebs.

All of this extraordinary system exists to amplify my powers to cognate linguistically to produce things others will find informative and useful--in this case, my overdue review of the excellent Growing Public.

Meanwhile, halfway across the continent, Michael Berube and his son Jamie Berube investigate amplifying Jamie Berube's powers to cognate linguistically via "facilitated communication" and the Intellitalk3.

Income Distribution in Historical-International Perspective

Nicholas Gruen posts on income distribution in historical international perspective:

Nicholas Gruen: Here’s a diagram from a recent paper (pdf) [by Roine and Waldenström] on the Swedish distribution of income. It shows that the kinds of income distribution through time that Andrew Leigh and Anthony Atkinson came up with for Australia and NZ are typical of most western countries. It also shows that you can lean pretty successfully against the wind - as the Swedes have. And also that you can lean pretty ineffectively against the wind - like the French have. I’ve asked the authors of the paper for a better resolution picture - but I think it’s fairly clear even in it’s somewhat foggy state.

It's as Piketty and Saez said: the advent of social democracy is found everywhere in the industrial world; the more recent coming of the Second Gilded Age is primarily an Anglo-Saxon phenomenon.

Straight Is the Gate; Narrow is the Path

The WSJ rounds up some usual suspects to talk about the economy:

WSJ.com - First Anecdotes, Now Data: August 24, 2006 11:38 a.m. New-home sales fell for a second consecutive month during July as mounting inventories allowed would-be buyers to wait for better deals. Sales of single-family homes decreased by 4.3% to a seasonally adjusted annual rate of 1.072 million, the Commerce Department said Thursday. The report came a day after a weak existing-home sales data. Here's what economists said about today's new-homes data, and what they mean for the economy and Fed policy.

Data on home sales is finally revealing what all the anecdotal reports have been telling us -- that demand for housing is plunging. The latest report on new-home sales mirrors that of existing-home sales. The decline in sales activity is accelerating for both. It is more critical for new-home sales than existing-home sales because most home owners can simply pull their homes off the market and wait for improving market conditions, builders cannot. Therefore the sharp increase in unsold new homes should cause builders to reduce their new projects and begin to eliminate excess staff. -- Brian Fabbri, BNP Paribas

Despite the weakness in July sales, new-home sales figures on a longer-term view continue to hold in relatively well compared to more anecdotal-type reports pointing to more significant weakness, most notably the National Association of Homebuilders' housing market index, which has plunged to a more than fifteen-year low. This apparent divergence may be partly explained by the fact that new home sales are counted at contract signings and are not subsequently adjusted for sales that are canceled before closing. -- Morgan Stanley Fixed Income Economics

The demand for new housing is well pass its peak and is now on a retreating trend. Nevertheless, the level of new home sales remains quite high. Unfortunately, inventories of unsold new homes are very high, revealing moderate overbuilding. Finally, home price momentum has slowed significantly as home builders are using discounts to motivate new home buyers. -- Steven A. Wood, Insight Economics

Further evidence that the housing market weakened in July. Data on homebuilder sentiment and mortgage applications suggest that the market weakened further in August. The housing data are likely to encourage the Fed to keep rates on hold in September. – Bear Stearns Economics

So housing demand is weakening fast. This means that construction employment will fall, the leveraging-up of the homeowning population will end, and so consumer spending is likely to slow as well. As these sectors of demand stand down, what will stand up? Exports? Corporate investment?

Good luck, Mr. Bernanke. You need it.

Judge Taylor and FISA

Gail Collins and the New York Times editorial page should be ashamed of themselves for printing an op-ed by Ann Althouse attacking Judge Taylor's ruling enforcing FISA,

J.D. Henderson writes at Intel Dump:

INTEL DUMP - More on ACLU v NSA: Today's NYT's carries an editorial about how bad Judge Taylor's opinion was. It reads in part:

Immensely difficult matters of First and Fourth Amendment law, separation of powers, and the relationship between the Foreign Intelligence Surveillance Act and the Authorization for Use of Military Force are disposed of in short sections that jump from assorted quotations of old cases to conclusory assertions of illegality. Orin S. Kerr, a law professor at George Washington, told The Times that the section on the Fourth Amendment is "just a few pages of general ruminations ... much of it incomplete and some of it simply incorrect."

Sounds damning. Except... Immensely difficult matters of First and Fourth Amendment law, separation of powers, and the relationship between the Foreign Intelligence Surveillance Act and the Authorization for Use of Military Force? Really? Immensely difficult?

No. Immensely SIMPLE matters, not difficult.... [Bush] admits to violating FISA on the grounds he has the inherent authority to ignore laws he doesn't like explains why so many find the opinion poorly reasoned. Judge Taylor made short shrift of the administration's ridiculous argument, and that upset many people....

But they were not difficult matters. They were as simple as I have just laid out. The president admits breaking the law, but says he can do so because of two reasons: 1) inherent powers, and 2) the AUMF. Judge Taylor said no to both.... [S]he is chastised... because she did not find the question "immensely difficult."...

The editorial continues:

The potential for the president to abuse his power has nothing to do with kings and heredity.... [T]he president is not claiming he has powers outside of the Constitution.... He's making an aggressive argument about the scope of his power under the law.

Really? His claims of inherent executive power that trumps the 4th Amendment and a criminal statute passed by Congress do not have anything to do with kings?... Weren't the checks on the executive branch designed precisely because of the tyranny of kings? And if he isn't arguing that he is above the law, what do we make of the claim that he can ignore FISA (A LAW) because of his "inherent" powers as president? Isn't that a claim that he is above the law? Isn't that the very argument he is making?

It is a serious argument, and judges need to take it seriously. If they do not, we ought to wonder why a court gets to decide what the law is and not the president.

No. Not really. I guess I should have hundreds of citations and pages of exhaustive analysis that support my radical idea that the president can not ignore laws because he doesn't like them. But I won't. Why? Because it is not a serious argument.... That does not mean that Judge Taylor ignored the argument, she just found it very simple to dispose of, and did so quickly....

The biggest fear of this administration must be that the Supreme Court finds the administration's argument just as easy to dispose of -- for then the claim of a simple misunderstanding of "immensely difficult" points of nuanced legalese becomes untenable. We would have instead just what Judge Taylor found: a simple law, a clear Constitutional command, and an obvious and blatant violation of both.

The author of the NTY editorial writes on her blog:

It's hard to understand why a judge writing an opinion in such a high-profile case, dealing with such difficult law, would not put immense effort into creating an outward appearance of heavy scholarly effort and pristine neutrality.

Perhaps because it was simply not difficult?...

The talk of poor reasoning or "difficult" legal issues is a smokescreen that attempts to make it seem reasonable that the president could have knowingly violated a criminal statute in violation of the Constitution -- in short, the pundits and the administration want to convince you that if the president did commit a felony (he did), well, it was a simple mistake due to the immensely complicated law.... [But that immensely complicated law was exceedingly simple. The law said get a warrant. The president said he did not have to follow that law. Judge Taylor said no way.

It didn't take a legal treatise to explain why Bush was wrong, and the arguments against this opinion are based on a flawed premise that this was a difficult decision that required heavy scholarly effort.

It did not....

This was a short and simple opinion on a very easy question, and to expect anything else means you think the president might have had a tenable position and the judge should have spent pages and pages analyzing his claims. He is not a king, and thus his arguments are quickly disposed of, as they were in Judge Taylor's opinion -- an opinion that was well-written despite what you hear from the critics.

Why Oh Why Can't We Have a Better Press Corps? (Gene Epstein of Barrons Tries to Strike Back Edition)

Where in the Holy Name of the One Who Is does the print media find such people?

And why in the Holy Name of the One Who Is does it employ them?

I wrote:

Brad DeLong's Semi-Daily Journal: Finance I (Remedial) (Why Oh Why Can't We Have a Better Press Corps?): Tyler Cowen did a bad thing in recommending Econospinning, by Gene Epstein:

Marginal Revolution: Econospinning: Imagine lengthy polemics against the use of numbers in the work of Paul Krugman (most of all), the Op-Ed page of The Wall Street Journal, Brad DeLong, Steve Levitt, and Barbara Ehrenreich, among others. Except the vehicle isn't the blogosphere, it is a book!...

I open the book at random and get page 143...

Econospinning author Gene Epstein writes back, more than confirming all my initial negative impressions.

The third sentence I write--the third sentence--is a quote from Tyler Cowen saying that Gene Epstein's Econospinning contains "lengthy polemics against the use of numbers in the work of... Brad DeLong."

Yet Epstein has the stupids to claim that I fail to "make due acknowledgment... [that I am] mentioned critically in [his] book."

Brad DeLong's Semi-Daily Journal: Finance I (Remedial) (Why Oh Why Can't We Have a Better Press Corps?): [DeLong's] sweeping dismissal of my book... falls far short of [DeLong's] own standard. Just for starters, I needn't tell him that a reviewer of a book should always make due acknowledgment when he himself is mentioned critically in that book...

Knzn Reads Arthur Laffer So We Don't Have to

The mysterious, vowelless knzn treats Arthur Laffer in an appropriate manner:

Economics and...: Dangerous Curve: Arthur Laffer, on the opinion page of today’s Wall Street Journal (hat tip to Dave Altig), writes:

You'd have to dig pretty far down in the duffle bag of economists to find one who actually believes in the Philips Curve--the idea that rapid growth causes inflation.

It appears that, all these years that I’ve been studying the Phillips curve, I’ve been under a wrong impression about what the Phillips curve was. You see, naïve as I was, I thought that demand was the causal factor. I thought that excess demand caused both faster growth and rising inflation rates. I had this crazy idea that maybe, faced with excess demand, firms would both raise prices and increase production, thus increasing the inflation rate and increasing the growth of output at the same time. And I also thought that this excess demand would give firms a reason to hire more workers, even if they had to pay higher wages to do so, so the unemployment rate would fall and wages would rise. Seems like a pretty reasonable theory to me; I doubt you would have to dig very far down in the duffle bag to find an economist who believes it. But apparently, this is not what the Phillips curve is about.

No, according to Laffer, the Phillips curve is the idea that growth itself causes inflation. That is a really dumb theory. No wonder so few of us actually believe it. All this time I thought I believed in the Phillips curve, when actually what I believed was something quite different.

Wednesday, August 23, 2006

Hoisted from Comments: Scott Martens (Who *Knows* Cog Sci and Linguistics) Denies Me a Cookie

He writes, at http://delong.typepad.com/sdj/2006/08/the_blue_car_is.html#comment-21414336:

"You see, I would argue, the neural circuits were well-engraved: an Acura Integra, the smaller of our cars, the more responsive of our cars, the non-station wagon--the features of the blue car were nearly identical to the features of the red car, so when our brains grasped for a verbal referent they had a good chance of picking the standard phrase we used for the red car. And, of course, neither of us had any trouble understanding what the other meant by the phrase "the red car.""

Bad economist. No cookie for you. Go get Marx' "Theses on Feuerbach" off the shelf. Open to page one:

"The main defect of all hitherto-existing materialism - that of Feuerbach included - is that the Object, actuality, sensuousness, are conceived only in the form of the object, or of contemplation, but not as human sensuous activity, practice, not subjectively."

Do not ask what properties your old red car possessed. Ask: How did the red car fit into your system of praxis? Did the new car fit into the same place?

Then, imagine momentarily that you possessed a transcript of all speech within the Delong household from 1988 (when you bought the red car) to its replacement in 2001. Measure the rate of co-occurance of "red" and "car" in this transcript using any of a number of basic, non-connectionist, techniques. Mutual information is the simplest, but I'm doing my thesis on minimum description length, which is more complicated but has other advantages. Using mutual information, you could compare the entropy of "car" with "red car", and will find that they are at least comparable. "Car" paired with other adjectives will most likely not have comparable entropy.

So, on the one hand we have an object of praxis that has a significant role in your life, and on the other we have a conjunction of words occurring in a pattern comparable to a single word. This is no coincidence, comrade. You could have continued to use the phrase "red car" to indicate the new car. You did not do so because you took some effort not to, either for the sake of an imagined linguistic norm or to ease communication with non-Delongs with whom you might need to discuss your Acura. Most likely the first.

There is no need to invoke features here. The object as practice covers this ground far more easily.

The occurrence of priming in this case - the return to saying "the red car" - is a sign that this type of semiotic creation is a behavioral norm which you have consciously chosen to violate. In fact, you've acted in a manner contrary to the linguistic norm. A "Tudor house" is an exact analogy to the "red car" - you're unlikely to see one in Berkeley that was built when the Tudors were on the throne.

Now, there was no need to invoke connectionism in explaining this outcome. Neurons were, to be sure, involved. But so were hands, feet and carburators. As for modeling, quite non-connectionist information theory was up to the task.

Shah here has it partly right:

"Any real discussion has to has some discussion about the interactions and interfaces between all of that mess, because it's pretty much certain (to me) that the emergent properties of both language and consciousness arises from contact points within all the systems in the brain..."

At least as important to symbol use and production are the contact points between physical cognitive devices within our bodies and our practices and (in Marx' sense of the word) human sensuous activities.

But I have issues with Feldmann here:

"For embodied cognitive science, any computational-level formalism must be effectively reducible to the connectionist level and thus to brain mechanisms."

No, no, no, no! Nothing reduces to brain mechanisms because (thumping the table) BRAINS DON'T SIT IN GLASS JARS!!!!! This used to be one of the key tenets of embodied cognition as a research program.

Have we forgotten Bateson's blind man?

"Suppose I am a blind man, and I use a stick. I go tap, tap, tap. Where do I start? Is my mental system bounded at the handle of the stick? Is it bounded by my skin? Does it start halfway up the stick? Does it start at the tip of the stick? But these are nonsense questions. The stick is a pathway along which transforms of difference are being transmitted. The way to delineate the system is to draw the limiting line in such a way that you do not cut any of these pathways in ways which leave things inexplicable."

This basic failure of "embodied cognitive science" to actually embody its cognition in actually existing bodies is the thing that I most have against it. It may be necessary to have a computational level of description for human cognitive activity - it seems reasonable enough - but there can never be a NEURAL level which is complete, descriptively adequate and consistent with macro observation because (more thumping) COGNITION IS NOT CONTAINED IN BRAINS!

I'm all in favor of studying brains. I support research into connectionist algorithms and alternative computing principles. But I do not imagine that the solution to the problems of linguistics is primarily to be found in those things.

And I think that is one area where Feldmann and I are really on different pages. He slags the Chomskyans for ignoring brain research when it goes against them, which is right on because their whole research program is based on the idea that the brain must contain certain things. But I don't think connectionism or brain research are really going to bring clarity to much in linguistics either.

It's possible that in this respect we only differ in emphasis and vocabulary. I haven't read his book yet.

As for grounding things in metaphor... I was once an advocate of this approach. I'm not anymore. The information theoric explanation I offered for the "red car" also offers an alternative perspective on metaphor. Rather than seeing metaphor as a consequence of neural association, it makes at least as much sense to see neural association as a consequence of metaphoric usage.

Instead of making metaphors central to cognition, we might reread some Saussure. There is a meaningful, practical, opposition between "This situation is good" and "This situation is bad". We not only think different things when we hear the one and not the other, we do different things, and the things we do have different consequences depending on the objective conditions underlying those statements.

For Saussure, the existence of this opposition is central to linguistics and semiotics. Oppositions of the same sort are central to information theory and computing.

However, there is no opposition between "This situation is bad" and "This situation stinks". That fact alone would, for a lexicographer, be evidence that "to be bad" is the definition of "to stink" in some contexts. Now, situations cannot literally stink. If they could, there would be an opposition between "this situation is bad" and "this situation stinks" because they would entail different actions and different consequences.

This lack of opposition makes it possible for "this situation stinks" to take some type of metaphorical meaning. The semantic overlap between "to stink" and "to be bad" - that things that stink are not generally positively regarded - in combination with the practical fact that what we often wish to communicate about situations is whether they are positive or negative from some perspective, makes this metaphor comprehensible. Regular use, in turn, makes it conventional.

This explanation seems more likely to me because the kinds of metaphors he is invoking are not actually used all that systematically. Even though "bad" can be systematically expressed as a bad smell, the English language does not systematically express good as a good smell. You can't say "this situation smells like roses".

Again, the mechanisms involved here do include some brain activity, although it is possible to model them using quite non-connectionist explanations, but more importantly they involve practical knowledge of the conditions under which language is used. They turn on activities that go on outside the brain.

Here, I think the cognitivist program in the US and I have to go our separate ways. They tend to see neurobiological modeling and metaphor as being at the root of cognition and semiotics. I tend to see praxis and opposition as central instead. There is some compatibility here, but I think in the end will all be for naught.

It bothers me to see linguistics so easily set adrift from its fundamental Saussurian roots, and it bothers me to see so much of what academic Marxism did right - placing a huge huge emphasis on practice - forgotten as if it never existed.

Tuesday, August 22, 2006

The Pile of Books to Be Read Grows...

James Fallows's (2006) excellent Blind Into Baghdad: America's War in Iraq (New York: Vintage: 0307277968) arrives...

Jared Bernstein Starts Thinking About the Forthcoming Poverty Release

Jared Bernstein writes:

TomPaine.com - The Catch-Up Economy: As summer draws to a close, the mind inevitably turns to... benchmarks. A benchmark is a number you use to help put another number in context. It answers the economist’s pesky question: Compared to what? Now is the time to be thinking about benchmarks because on August 29 the government will release findings on household income and poverty for 2005.

In a world where most of our economic information is about broad averages... these statistics offer important insights into how families of different income classes fared last year. Every five minutes, we’re updated on the latest squiggle in the stock market, but only once a year the Census Bureau tells us how many children are poor in America....

Most of us who follow such things expect positive results: median household income—-the income of the typical household, smack dab in the middle of the income scale—-should rise a bit in real (inflation-adjusted) terms, and poverty should fall.

What underlies our optimism? First, 2005 is the fourth full year of an economic recovery that began in late 2001. As we would expect, poverty rose and household income fell in that recessionary year. But the negative trend has persisted in each recovery year since, and that has taken us by surprise.... The poverty rate, for example, rose each year from 2002 through 2004, a historically unprecedented trend. Since 2000, when poverty bottomed out at 11.3 percent, it has climbed to 12.7 percent in 2004, adding 5.4 million persons, including 1.4 million children to the ranks of the poor.

That’s not supposed to happen in an economic recovery, and it is a telling reminder of just how unbalanced this economy has been.... It’s also a sharp reversal of the poverty trend of the 1990s, when an all-too-unique period of broadly shared prosperity pushed poverty rates into a seven-year slide, with the biggest benefits accruing to the least advantaged. Child poverty among African Americans, for example, fell by 14.9 percentage points over these years, more than twice the overall decline for all children....

[W]ith most labor market indicators trending up... we expect enough of the growth to reach the bottom half to begin to reverse the slide. But there is almost no way the 2005 results will repair the damage done thus far. The income of the median household is down $1,700 (in 2005 dollars) since 2000, and it would take an unusually large gain to make that up in one year. Poverty is likely to decline by only a few tenths of a point, and will remain well above its 2001 level of 11.7 percent....

Note that getting back to the previous income peak and poverty trough is not that demanding a benchmark. Productivity over this recovery has been quite stellar—up 14 percent just since late 2001. Most economists assume this automatically translates into higher living standards, but don’t tell that to the median family.

If the August 29 release reveals that incomes rose for middle and low-income families, we will applaud even meager gains. Our applause should be tempered, however, by the knowledge that we are behind where we ought to be.

Armed with appropriate benchmarks and reference points, we must place the upcoming Census results in the context of an economic recovery that has produced an alarmingly large gap between growth and the living standards of most families...

The Blue Car Is the Red Car

Once upon a time we had a red car--a red two-door 1987 Acura Integra without air conditioning that we bought in the spring of 1988. We called it "the red car." After thirteen years we replaced it with a blue four-door 2000 Acura Integra with air conditioning. And for the first couple of months we had it, we would occasionally and accidentally (whatever that means) refer to it as "the red car"--even though we knew full well that it was the blue car.

You see, I would argue, the neural circuits were well-engraved: an Acura Integra, the smaller of our cars, the more responsive of our cars, the non-station wagon--the features of the blue car were nearly identical to the features of the red car, so when our brains grasped for a verbal referent they had a good chance of picking the standard phrase we used for the red car. And, of course, neither of us had any trouble understanding what the other meant by the phrase "the red car."

Last week, for the first time in a decade, we drove past the dealership where we bought the red car. And last week--for the first time in five years--we both used the phrase "the red car" when we meant "the blue car."

Thus it seems only natural to me to think that Jerome Feldman is right when he claims, in Jerome Feldman (2006), From Molecule to Metaphor: A Neural Theory of Language (Cambridge: MIT Press: 0262062534), that it is time to try to study human language seriously by starting with the observation that language is produced and controlled by human brains active in the world, each of which has perhaps 100 billion neurons with a thousand connections and millisecond response times--a massively-parallel array of processors in a form almost totally unlike the traditional architecture of all of our electronic computers (except possibly for Google itself).

This may be a bad bet. 100 billion neurons will surely have powerful and remarkable emergent properties that cannot be easily predicted from the behavior of any one of the neurons. Perhaps language is that sort of emergent property that is effectively wetware-independent. But I don't think so. I think it is a very good bet. And Jerome Feldman takes us all on a very interesting and wild ride through the subject.

Highly recommended.

And when Jerome Feldman tries to explain how so much of our high-level metaphorical thinking is grounded in primary metaphors of our immediate physical experience, he can only do so... metaphorically. His discussion of the event structure metaphorical complex contains the sentence: "Difficulties are impediments to motion." Impediment. You can see the Latin roots im- and ped-: an impediment is something that keeps you from footing it. Your impedimenta is your luggage that you have to carry on your journey, but that makes the journey difficult.

p.87: Let's look at how long it takes, on average, to do one of these perception-reaction tasks.... How fast can you engage the brakes after seeing an obstacle in your path? It takes about half a second.... This kind ....of calculation can help us understand some basic facts about how the brain computes.... [T]he time for each of the basic processes of neural signalling and firing is about one-thousandth of a second.... Let's compare this with the average human reaqction time of half a second.... The reaction time includes the time for the image information to get from the eyes back to the brain and the time for the motor signals to reach the muscles and contract them. This doesn't leave very much time for the brain to do whatever processing is needed to decide which button to push or whether to slam on the brakes.

If we think of each neural action as one computing step, then our brain is able to compute the reaction in around 100 steps. By way of contrast, computer programs... take many millions of time steps to recognize an image. This discrepancy is one of the main factors leading computer scientists to conclude that neural computation is radically different from ordinary computation....

Earlier work had shown that you could both improve the speed and reduce the probability of error in such a visual reaction task by having the subject hear the target word around the time the image was flashed... the general phenomenon of priming.... When you are planning to buy a care, you are much more likely to notice similar cars....

The psychological literature is filled with discussions of priming, spreading activation, and related ideas. There is usually no specification of how mental connections and spreading mental activation map to neural connections and neural firing. Bridging this gap is an important goal of this book...

p. 141: For embodied cognitive science, any computational-level formalism must be effectively reducible to the connectionist level and thus to brain mechanisms. Computational-levbel descriptions may fail to capture several key neural properties, including massive parallelism, robustness, spreading activation, context sensitivity, and adaptation and learnings. As in all science, the trick is to have levels of description that are mutually consistent, with each facilitating different kinds of reasoning...

p. 200: A general theory elaborated by Joseph Grady in 1996 suggests that the metaphor system is grounded in the body in terms of "primary metaphors." In each primary metaphor, such as affetion is warmth, an experience brings together a subjective judgment... and a sensory-motor occurrence.... For this metaphor, such an experience might be cuddling up to a parent. Such correlations often show up in language.... Affection is warmth.... Intimacy is closeness.... Important is big..... Happy is up.... Bad is stinky.... More is up.... Help is support.... These primary metaphors allow one to express a private internal (subjective) experience in terms of a publily available event; this is one crucial feature of metaphorical language.... Largely universal, primary metaphors provide the grounding for much of the metaphor system.... From our neural perspetive, primary metaphors can be seen as a normal consequence of associative learning... neurons that fire together, wire together....

Causes are forces. States are locations (bounded regions in space). Changes are movements (into or out of bounded regions). Actions are self-propelled movements. Purposes are destinations. Means are paths (to destinations). Difficulties are impediments to motion. Expected progress is a travel schedule; a schedule is a virtual traveler, who reaches a prearranged destination at a prearranged time. External events are large, moving objects. Long-term, purposeful activities are journeys.

p. 273: The core questions in dispute can thus be expressed succinctly: (a) Are formal grammar rules expressed in the brain? (b) Is grammar independent of other brain structures? (c) Is there some special genetic encoding specifically for grammar? The language wars are fought between people.. portraying grammar as a special ability and... [those] suggesting that it is part of our general intelligence.... Neither side in this battle... worries explictly about the details of how language and thought are processed in the brain. The linguists do analysis of language as such, and the PDP connectionists focus on learning rules. By keeping the issues narrowly focused, both sides are able to pursue their arguments without dealing with questions that would be compelling from any broader perspective.... [C]onsider walking, or even better, dancing. Dancing is clearly learned and can be described by rules. Dancing appears to exist in all cultures and can be learned without formal instruction.... There may well be a human proclivity to dance--a dancing instinct. Suppose we recast issues a-c for dancing: (a) Are formal dancing rules expressed in the brain? (b) Is dancing independent of other brain structures? (c) Is there some special genetic encoding specifically for dancing? These questions don't seem to make a whole lot of sense, do they?... [N]one tells us much about how cdancing is actually carried out and learned....

For different reasons, both sides in the language wars reject detailed operational theories. From the PDP general learning position, the only interesting issue is learning from a blank slate.... The fact that the brain has a great deal of elaborate structure before learning begins is ignored....

The extreme believers in innate, autonomous, rule-based grammar can ignore any conflicting biological evidence because of their conviction that neuroscience is not nearly developed enough to be taken seriously.... Chomsky... in... 2003.... "When people say that the mental is the neurophysiological at a higher level, they're being radically unscientific. We know a lot about the mental from a scientific point of view. We have explanatory theories that account for a lot of things. The belief that neurophysiology is implicated in these things could be true, but we have very little evidence for it. So, it's just a kind of hope; look around and you see neurons; maybe they're implicated."... The scientific path to truth [according to Chomsky]... is formal linguistic analysis. If neuroscience is incompatible with this formal analysis, neuroscience must be wrong. The same belief system provides a rational for ignoring inconvenient results from psychological experiments.... These are said to reflect only linguistic performance.... The deep questions concern linguistic competence and can only be addressed by the orthodox methodology of formal grammar...

p. 317: They key to understanding grammar acquisition is not the famous poverty of the stimulus... but rather the opulence of the context. The child comes to language learning with a rich base of conceptual and embodied experience as well as a supportive social environment. Words and rules that describe this experience can be learned without formal training, although not without years of focused effort...

p. 330: My personal favorite among the recent books is Looking for Spinoza by Antonio Damasio (2003). Damasio tries to relate the latest biological and clinical findings to subjective experience with impressive results. As with all current explanations, even if every detail in the book were exactly right, it wouldn't resolve the big question. We simply don't yet have a way to pose the question of subjective experience in a way that could yield a scientific answer...

Restoring Honor and Dignity to the White House

U.S. News and World Report calls a shrub a shrub. They're only six years late:

USNews.com: Washington Whispers: Animal House in the West Wing: He loves to cuss, gets a jolly when a mountain biker wipes out trying to keep up with him, and now we're learning that the first frat boy loves flatulence jokes. A top insider let that slip when explaining why President Bush is paranoid around women, always worried about his behavior. But he's still a funny, earthy guy who, for example, can't get enough of fart jokes. He's also known to cut a few for laughs, especially when greeting new young aides, but forget about getting people to gas about that.

Why Oh Why Can't We Have a Better Press Corps? (Washington Post Edition)

Why I give the Washington Post a decade before it crashes and burns:

Dean Baker writes:

Beat the Press: The Post had an article on the Congressional Budget Office's (CBO) estimate of the cost of the recently passed Senate immigration bill that was sure to mislead anyone who reads it. The article's headline warns that CBO estimated the 10-year cost at $126 billion. This headline not only commits the common sin of scaring readers with a big number outside of any context (the spending is less than 0.4 percent of projected federal spending), it also fundamentally misrepresents the CBO report. The report is very clear that there was a mistake in the wording of the bill. The $126 billion is an estimate based on the mistaken wording.

CBO did a separate estimate that is based on the intention of the sponsors of the bill, as conveyed to them from conversations with the key sponsors of the bill and their staff. The net cost of the bill under this estimate is less than $35 billion over the next decade, or less than 0.1 percent of projected spending. Members of Congress may not be the brightest lights in the world, but it is reasonable to assume that they would have fixed the bill before its final approval. The $35 billion figure (0.1 percent of projected spending) should have been the headline for this article.

And, yes, the author of the article our old friend, that one-man specialist in incompetent journamalism, Jonathan Weisman.

Government Policy and Income Inequality Yet Again Again

Paul Krugman emails:

I think it's really important to realize that we have only a modest amount of direct evidence that technological change is driving increased income inequality. That is, while there have been a few studies showing some connection between increased use of IT and changes in the wage structure, very little of the conventional wisdom that technology is the culprit is based on those studies.   So why is technology given the credit? Basically because it's the residual category - and as Bob Solow said about the role of technology in growth, the residual is the measure of our ignorance. We estimate the effects of the stuff whose effects we know how to measure - taxes and globalization, mainly - and then attribute the rest to technology.   The point is that it's all too possible that we're attributing to technology rising inequality that may be largely due to hard-to-quantify political and institutional change.   There are several reasons to think that politics plays a big role. One is the broad correlation between the political climate and trends in inequality, which I pointed out in the Times. (By the way, Larry Bartels in Princeton's politics department shows that there's a strong correlation between party control of the White House and inequality trends even in the short run; see http://www.princeton.edu/~bartels/income.pdf. It's kind of a mysterious result, but worth pursuing.)   Another piece of evidence is the wide difference in inequality trends between the US and to a lesser extent the UK, on one side, and everyone else.   Yet another piece of evidence, which I think is very suggestive, is the discontinuous nature of the Great Compression. If you go back to the original Goldin and Margo paper, http://www.nber.org/papers/W3817, they found that there was a drastic reduction in wage inequality over the course of just 5 or 6 years in the 40s, which then stuck for another 30 years. In the paper, they struggle to reconcile this with a supply-and-demand framework, but it sure looks like a change in norms which had sustained effects on market outcomes.   So what are the mechanisms? Unions are probably top of the list; I believe that there's a qualitative difference between wage bargaining in an economy with 11 percent of workers unionized, which is what we had in the early 30s, and one with 35 percent unionization, which is what emerged from World War II. That's discontinuous change, partly driven by a change in political regime. And the process went in reverse under Reagan.   An overall climate of public scrutiny may matter too, especially at the top of the scale.   And don't forget that some taxes affect the pre-personal-tax distribution of income. Taxes on corporate profits went from a minor inconvenience before FDR, to a major source of revenue under Eisenhower, and back again.   The bottom line is that the view that rising inequality reflect forces beyond the reach of politicians may sound sensible, but it's actually a supposition based on very little evidence, and there's a lot of evidence on the other side.

Government Policy and Income Inequality Yet Again

Andrew Samwick thinks about mechanisms through which "conservative" economic policy might lead to a significantly more unequal pre-tax income distribution:

Vox Baby: Show Me the... Mechanism: Krugman argues that the dominant political ideology is the main cause of changes in inequality. I want him to show a mechanism.... Others in Brad's recap have speculated about such mechanisms. There are a few different groups of them. Here's my quick take on them:

1) Weaker bargaining positions for labor, exacerbated by government policy.... Interesting idea. I think it's plausible.... [W]e've got to insist on a better comparison before assessing their importance.

2) Tax policy leading to higher pre-tax incomes disproportionately at the high end.... I don't think this is a valid explanation of some fundamental economic shift. It is a criticism of using reported income, rather than accrued income, to compare income distributions at different points in time.

3) Tax policy leading to higher pre-tax incomes disproportionately at the high end.... This one comes from Matthew Yglesias.... When you have a very progressive rate structure, an employer can get a lot more bang for his buck by directing his employment budget at middle-income people.... I think that's fascinating. I hadn't fully appreciated that a progressive tax system might be used to give lower-income workers a leg up in competing for the marginal unit of production. It remains an empirical question as to how important this might be.... I would have thought the effect to be small, compared to things like increasing global competition in product markets.

4) Lax enforcement of laws that should prevent the rich from stealing from others: This group is basically organized around the notion that CEOs and other top corporate officers have seen their pay grow tremendously over this period, and some of that, the theory goes, must be due to illicit activities. Hard to argue that none of it is ill-gotten, though I am not in the camp that suggests it is very high...

Monday, August 21, 2006

A Warning: Jet Blue

Think, people. Think very hard before you sign up for JetBlue's nonstops from Boston to the West Coast. It turns out that their planes do not have enough fuel to get to the West Coast when the headwinds are strong.

Thus a six hour flight that would be turned into a six and a half hour flight by strong headwinds is instead turned into an eight hour flight by an involuntary refueling stop in Salt Lake City.

And then--because whoever runs Oakland operations for JetBlue does not have an arrangement with Southwest to use some of its open gates--the fact that we were late kept us on the tarmac for 45 minutes waiting for a JetBlue plane departing Oakland to push back from its gates. Flight attendants responded to questions from our seat neighbors about what was going on by telling them that they should call JetBlue on their cell phones: that the flight attendants knew nothing and weren't going to take any steps to find out.

And then--presumably because JetBlue hadn't sprung for overtime for baggage handlers--it took forty five minutes after we docked at the gate for our luggage to arrive on the carousel.

So it was your standard late-plane experience: you talk to the spouse, talk to the kids, march up and down the aisle, sit in sullen silence, watch Hellboy read the truly excellent Hour of the Octopus by Joel Rosenberg--a fantasy detective story set in a version of feudal Japan--talk to your neighbors, and finally stagger out of the airport four hours after you were supposed to arrive.

JetBlue won't tell me how often this unscheduled-refueling-in-Salt-Lake-City happens, or why their Oakland operation doesn't seem to have a plan for when it does.

Think carefully, people. Think carefully.

We're Going to Need More Monkeys!

This will be very useful someday, in some context...

But first I need to figure out where I got it from...

Finance I (Remedial) (Why Oh Why Can't We Have a Better Press Corps?)

A special Barrons edition.

Tyler Cowen did a bad thing in recommending Econospinning, by Gene Epstein:

Marginal Revolution: Econospinning: Imagine lengthy polemics against the use of numbers in the work of Paul Krugman (most of all), the Op-Ed page of The Wall Street Journal, Brad DeLong, Steve Levitt, and Barbara Ehrenreich, among others. Except the vehicle isn't the blogosphere, it is a book! This one is guaranteed to ruffle feathers...

I open the book at random and get page 143. The heading halfway down the page is "The Employment Report and the Bond Market." The text is:

...there is evidence that the employment report misinforms the bond market.... Once the [nonfarm payroll] number is announced at 8:30 AM [on the first Friday of each month], bond prices can react accordingly. But do they react the right way? The recent run-up in short term interest rates does not inspire confidence.

From June 30, 2004, to March 28, 2006, the Federal Reserve hiked the interest rate... 15 times in a row. The yield on the two-year Treasury note rose in response, from 2.64% on July 2, 2004... to 4.89% by April 2, 2006.... 22 employment reports [were] released over this period. How much credit can they be given for alerting the bond market to this 225 basis point rise in the two-year interest rate? No credit can be given at all....

[On] the 22 trading days on which these employment reports were released... the yield rose 11 times, fell in 9, and was flat the other two times...

Idiot. Fool. Must... calm down. Must... adjust medication doses. Must... remain calm. Must... explain things simply and clearly. Ah. I can feel the neurotransmitter balances change. That's better.

Ahem!:

Gene Epstein, Economics Editor of Barrons, believes that the monthly "employment report misinforms the bond market" because during the period from mid-2004 to mid-2006 that the Federal Reserve was in a tightening cycle[1]--and thus that bond yields were rising--bond yields did not exhibit substantial jumps in the immediate aftermath of the release of the monthly employment report. Instead, about half the time bond yields jumped. About half the time bond yields fell.

But suppose that bond yields had jumped, regularly, on the day the employment report was released. What then? Then there would have been a lot of free money to be made: sell bonds the day before the employment report is released, buy them back after the release, and so make your fortune.

That kind of thing doesn't happen. Financial markets may not get asset prices right all the time, but they are very good at eliminating easy opportunities to make lots of money via simple trading strategies. Systematic, arbitragible moves in asset prices in one direction only (or predominantly) in response to the monthly flow of economic data simply do not happen, whether or not the statistic released is informative and useful.

The monthly employment reports from 2004 to 2006 did not provide signals that short- and medium-term bond yields were on a rising trend--everyone trading knew that. The monthly employment reports provided signals as to whether employment was rising faster than previously expected--in which case bond yields would rise because that meant the Federal Reserve would be likely to raise the federal funds rate faster than previously expected--or slower than previously expected--in which case bond yields would fall because that meant the Federal Reserve would be likely to raise the federal funds rate slower than previously expected.

You don't have to be a fundamentalist believer in efficient markets to know the following proposition:

About half the time the monthly employment report will be stronger than expected, and bond yields will rise; about half the time the monthly employment report will be weaker than expected, and bond yields will fall.

But it appears that you do have to be a lot smarter than and know more about Wall Street than the Economics Editor of Barrons.

Finance I (Remedial) (Why Oh Why Can't We Have a Better Press Corps?)

A special Barrons edition.

Tyler Cowen did a bad thing in recommending Econospinning, by Gene Epstein:

Marginal Revolution: Econospinning: Imagine lengthy polemics against the use of numbers in the work of Paul Krugman (most of all), the Op-Ed page of The Wall Street Journal, Brad DeLong, Steve Levitt, and Barbara Ehrenreich, among others. Except the vehicle isn't the blogosphere, it is a book! This one is guaranteed to ruffle feathers...

I open the book at random and get page 143. The heading halfway down the page is "The Employment Report and the Bond Market." The text is:

...there is evidence that the employment report misinforms the bond market.... Once the [nonfarm payroll] number is announced at 8:30 AM [on the first Friday of each month], bond prices can react accordingly. But do they react the right way? The recent run-up in short term interest rates does not inspire confidence.

From June 30, 2004, to March 28, 2006, the Federal Reserve hiked the interest rate... 15 times in a row. The yield on the two-year Treasury note rose in response, from 2.64% on July 2, 2004... to 4.89% by April 2, 2006.... 22 employment reports [were] released over this period. How much credit can they be given for alerting the bond market to this 225 basis point rise in the two-year interest rate? No credit can be given at all....

[On] the 22 trading days on which these employment reports were released... the yield rose 11 times, fell in 9, and was flat the other two times...

Idiot. Fool. Must... calm down. Must... adjust medication doses. Must... remain calm. Must... explain things simply and clearly. Ah. I can feel the neurotransmitter balances change. That's better.

Ahem!:

Gene Epstein, Economics Editor of Barrons, believes that the monthly "employment report misinforms the bond market" because during the period from mid-2004 to mid-2006 that the Federal Reserve was in a tightening cycle[1]--and thus that bond yields were rising--bond yields did not exhibit substantial jumps in the immediate aftermath of the release of the monthly employment report. Instead, about half the time bond yields jumped. About half the time bond yields fell.

But suppose that bond yields had jumped, regularly, on the day the employment report was released. What then? Then there would have been a lot of free money to be made: sell bonds the day before the employment report is released, buy them back after the release, and so make your fortune.

That kind of thing doesn't happen. Financial markets may not get asset prices right all the time, but they are very good at eliminating easy opportunities to make lots of money via simple trading strategies. Systematic, arbitragible moves in asset prices in one direction only (or predominantly) in response to the monthly flow of economic data simply do not happen, whether or not the statistic released is informative and useful.

The monthly employment reports from 2004 to 2006 did not provide signals that short- and medium-term bond yields were on a rising trend--everyone trading knew that. The monthly employment reports provided signals as to whether employment was rising faster than previously expected--in which case bond yields would rise because that meant the Federal Reserve would be likely to raise the federal funds rate faster than previously expected--or slower than previously expected--in which case bond yields would fall because that meant the Federal Reserve would be likely to raise the federal funds rate slower than previously expected.

You don't have to be a fundamentalist believer in efficient markets to know the following proposition:

About half the time the monthly employment report will be stronger than expected, and bond yields will rise; about half the time the monthly employment report will be weaker than expected, and bond yields will fall.

But it appears that you do have to be a lot smarter than and know more about Wall Street than the Economics Editor of Barrons.

Looking Back at the Greenspan Years

Dean Baker writes on how Alan Greenspan should have done more to try to warn people about the stock market bubble of the late 1990s:

Beat the Press: Alan Greenspan and the Stock Bubble: The biggest sin that the Greenspan sainthood proponents must sweep under the rug is his failure to do anything about the stock market bubble.... Greenspan recognized the bubble at the time, as he has acknowledged in the post-crash years. He said that it was his view that it was better to deal with the fallout from the crash rather than addressing the bubble head-on.... I did not know a single person in 1998-2000 who was putting money in the stock market believing that it would get roughly the same return as government bonds. Surveys provided zero evidence to support the view that expected returns on stocks had fallen, if anything, they had risen based on the experience of the recent past. In short, it was very simple to recognize the bubble and anyone who did not -- well you had some serious bad judgment....

The S&P 500 index peaked at more than 1500 in March of 2000. Six and a half years later it sits at 1266. This means that, adjusting for inflation, the market is more than 30 percent lower today than it was at its peak six and a half years ago.... As to the harm, how about the 2001 recession? I would add that the economy is not out of the woods from the stock crash yet, because Greenspan seized on the housing bubble as the only available tool to rescue the economy from the wreckage from the bursting of the stock bubble....

The other big response to the "no harm" argument is the pension crisis. The country's DB plans are in crisis today largely because they made no contributions to their funds throughout the bubble years.... Arguably, this was a failure of regulation.... But our central banker presumably noted the mismanagement of trillions of dollars of pension assets and looked the other way....

I am big fan of talk -- Greenspan should have used his Congressional testimonies and other public forums to carefully explain how people can know that the stock market was in a bubble. Note, I don't mean whispered comments about the market possibly being over-valued. I mean very clear charts that explain where stock returns come from (dividends and capital gains) and that at PEs that eventually exceeded 30, it was necessary to believe either that PEs will continue rising forever to absolutely crazy levels or that stockholders would be content with 3 percent real returns.... If the Fed chair makes a clear and solid case, every money manager in the country would have to address it.... Any portfolio manager who said that they did not pay attention to Greenspan would be fired, and possibly sued for negligence....

The other tool Greenspan had to tackle the bubble was raising interest rates. I am not a fan of this, because it would slow the economy and throw people out of work, but it would have been better than letting the bubble grow unchecked. (This is my view today on the housing bubble.)

Of Dean Baker's last point, let me quote John Maynard Keynes: "It is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier." And worse to provoke unemployment than to disappoint the avid investor in high-tech IPOs. The high-employment boom of the late 1990s had many virtues, and I cannot see how raising interest rates then enough to push down stock prices (and in the process cause unemployment) would have given us a better world.

Of Dean Baker's second point--the pension point--I think that it is a very good point.

Of Dean Baker's first point--the 2001 recession--I don't see its force. Less boom and less bubble would have given us smoother growth, but in all probability lower cumulative output. I am, instead, grateful that the 2001 recession was so small and was proceeded by such a long period of high employment and investment.

But I do share Dean's wish that Alan Greenspan had been more dour and gloomy about the stock market in the late 1990s. How much more dour and gloomy? That is the tough question. And does his failure to be more dour and gloomy lead me to reassess my judgment of Greenspan. No. He was luckier than anyone would have imagined beforehand, but he was also, overall, a much better central banker than I would have been in his place.

Driving Forces Behind Rising Income Inequality: Tracking the Internet Debate

To a good neoclassical economist, the statement that the relative price of a factor of production--like the labor of the elite top 1% of America's wage and salary distribution--has risen is the same thing as the statement that the relative productivity of that factor of production has risen. But we need to distinguish between these statements in order to make sense of the ongoing argument between Andrew Samwick on the one hand and Paul Krugman and Mark Thoma on the other.

In a nutshell: Is the statement that there is a higher return to education today merely an assertion that the rich today earn more in relative terms than their counterparts in the past? Or is it also a statement that the rich today are more productive in relative terms than their counterparts in the past?

Andrew Samwick takes the first definition, and concludes that rising inequality is the result of a higher return to education. By his lights, he is clearly correct.

Paul Krugman and Mark Thoma take the second definition and conclude that that rising inequality is not primarily the result of a higher return to education but instead primarily the result of socio-political factors that have raised the relative price of what the rich and well-educated do. And they too have a strong case. Piketty and Saez's latest numbers estimate that top 13,000 American households have multiplied their relative real incomes nearly fivefold since the 1970s. Then they received some 0.6% of national income. Now they receive nearly 2.8% of national income--an average of $25 million each, compared to roughly $5 million each had the relative income distribution remained at its 1970s levels. What are the CEOs, CFOs, COOs, elite Hollywood entertainers, investment bankers, and the very highest levels of professionals doing differently now in their work lives that makes them, in relative terms, worth five times as much as their predecessors of a generation and a half ago?

Andrew Samwick writes:

Vox Baby: Paul Krugman on Inequality: Paul Krugman, a highly educated man, leaves himself out of his own column today in "Wages, Wealth, and Politics." The excerpt:

But [Treasury Secretary Paulson]... [argued] that rising inequality is mainly a story about rising wages for the highly educated. And he argued that nothing can be done about this trend, that “it is simply an economic reality, and it is neither fair nor useful to blame any political party.” History suggests otherwise...

[Samwick writes:] I'll even agree with [Krugman] about his (later) discussions of where Republican Eisenhower and Democrat Clinton fit in their respective eras. I'll even forgive him the seemingly obvious point that in the "New Gilded Age," the income gains do seem to be at the high end, refuting his critique of Paulson's first point (under the very reasonable assumption that the top 1 percent is on average "highly educated.")

What always puzzles me about Paul Krugman and his claims about inequality is why he doesn't seem to realize how silly he sounds... he is part of that top 1 percent... between his income from his university, his speaking engagements, his books, his columns, and his investments. Now, does Paul Krugman think that he was just a tool of the "New Gilded Age" politicos? Does he owe his income gains to the people he despises, those nasty Republicans and that ridiculously centrist Clinton? I'd like to know. I suspect that if you asked him why his income grew to the point where he's in the top 1 percent, he would give some long answer, the shorter version of which is that he's "highly educated" and he's not lazy.... [T]his explanation is... accurate. Krugman's about as highly educated as you can get. He's got plenty of skills and occasionally (though not here) a good argument. People like what he does and he gets paid for it. Good for him. But good for Secretary Paulson as well, since Paul Krugman's own experience supports both parts of Paulson's assertion.

Mark Thoma fires up his Paul Krugman emulation program inside his own brain and produces an answer that's very good. According to Mark, what Paul might say is:

I'm sure that I earn a lot more than James Tobin did (I use him as an example because of how modest his lifestyle was), but it's not because I'm a better economist; it's the system that has changed. And what I'm talking about is the system, not whether individuals have earned their places in it. Why is that so hard to understand?

Which leads Andrew Samwick to respond:

Vox Baby: Krugman on Paulson's Speech: Some readers, including Mark Thoma at Economist's View, misconstrued it as suggesting that if Krugman is in the top 1 percent, then he is being dishonest if he advocates policies that would reduce the income of the top 1 percent.... I am not calling Krugman dishonest. I am saying that his own experience should suggest to him how silly his argument is. Krugman begins by criticizing Treasury Secretary Paulson for "falsely implying that rising inequality is mainly a story about rising wages for the highly educated."... In order for Krugman to validate that criticism, he has to show us that "rising inequality is mainly a story about... something else." His choice for that something else is a thesis that "it matters a lot which political party, or more accurately, which political ideology rules Washington." So he's got to show us how the political ideology ruling Washington over the last 25 years has generated the following outcomes.... Here is what he says about that 25-year period:

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what's good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.... [I]t seems likely that government policies have played a big role in America's growing economic polarization -- not just easily measured policies like tax rates for the rich and the level of the minimum wage, but things like the shift in Labor Department policy from protection of worker rights to tacit support for union-busting....

He mentions the level of the minimum wage and the tacit support for union-busting. Let's just grant him that those are relevant for the 1 percent decline in real wages in manufacturing. But what is the mechanism for ideology driving outcomes in the top 1 percent?... [H]e cites no evidence to link the policies of the ruling political ideology to the income gains for the top 1 percent....

In the race between these two arguments, Paulson is way out in front of Krugman.... Krugman is a perfect example of someone whose real income is high because the returns to being educated are higher, not because the dominant political ideology has conspired to increase his earnings capacity in some pernicious way.... [T]o support Krugman's thesis rather than Paulson's, Mark would have to tell us how the dominant political ideology, rather than simply a higher return to education, has changed that system. That's the part where Krugman needs some real ghost-writing help.

For Samwick, the key thing is that people today are willing to pay Paul Krugman much more for what he does than they were willing to pay Jim Tobin for what he did--therefore Paul is richer because "the [income] returns to being educated are higher." For Paul, the key thing is that Jim Tobin was a better economist--was more productive--therefore Paul's riches cannot be the result of a higher productivity return to being educated.


Mark Thoma writes further:

Economist's View: The Debate over Inequality: Factors like top marginal income tax rates and social norms are connected to the political environment.... A lot of the change is driven.... [F]actors such as the New Deal's very large tax increases on the wealthy, both directly on income and indirectly on corporate profits are an important factor connected to the political environment at the time. It's an open question how much of the change in inequality that might explain by itself.

Unions are also worth taking seriously, with union membership nearly tripling to about a third of the workforce from the mid 1930s to the mid 1940s. This would affect all wages, not just those in sectors where unions are prevalent. The decline of unionization after the 70s is also a factor to consider, and there's a strong case to be made that this was made possible by a political environment that allowed union busting to occur. In any case, I don't think this is a settled question and I hope to follow up with more later...

Greg Mankiw says:

Greg Mankiw's Blog: Samwick on Krugman: I agree with Andrew that Paul is on shaky ground when trying to explain rising income inequality by politics (as opposed to technology, demography, and so on). Policy choices such as tax rates and minimum wages have not been the main causes of increasing inequality. At least that is the consensus, as I understand it, of the professional labor economists who study the issue...

Matthew Yglesias writes:

The Influence of Politics | TPMCafe: By Matthew Yglesias: Paul Krugman writes that politics matters for the income distribution, citing the long-term trends in inequality and their close correlation with long-term political trends. Brad DeLong says he thinks this is wrong, political changes can and do have a large impact on after-tax income distribution but the trends show up strongly in pre-tax income. "I can't see the mechanism by which changes in government policies bring about such huge swings in pre-tax income distribution."

I note for the edification of readers that one thing I've learned since arriving in DC is that a difference of opinion on this subject is a major divide within the progressive economic policy community. Most mainstream economists -- including most liberals -- agree with DeLong. Politics and policy affect the secondary distribution (after tax and transfer) and what happens with the primary distribution is just out there. Leftier economists tend to say this is mistaken.

I would side with Krugman on this. The trend data is too striking to be ignored. If you have a phenomenon and are having trouble identifying the cause, the thing to do is to try harder to identify the cause, not assert that the phenomenon isn't happening. But what is the cause? I can think of some plausible stories.

One thing to say is that tax policy impacts pre-tax distribution. When the top income tax rate was very high -- 70 percent or above -- this not only meant that rich people paid a lot in taxes, it also meant that there were a broad range of circumstances where it didn't necessarily make much sense to offer well-compensated people even more compensation. When you have a very progressive rate structure, an employer can get a lot more bang for his buck by directing his employment budget at middle-income people than at rich people. As you flatten the tax structure, this becomes less-and-less the case.

Similarly, very high tax rates encourage high income people to engage in more leisure and less work whereas right now we have the somewhat odd situation where highly compensated people tend to work more than do the moderately compensated. All this, I think, makes a big difference. Then the other factor to note is probably unionization which is much more impacted by policy decisions than people often seem to realize.

I opined:

The problem that I have with Paul Krugman's argument here is that the shifts in income inequality seem to me to be too big to be associated with anything the government does or did. Yes, Roosevelt and company were pushing in the right direction. Yes, Reagan, Gingrich, Bush, and company have been pushing in the wrong direction. But what they did and do affects (I think) after-tax income inequality much more than the before-tax income inequality numbers, and the before-tax numbers show the trends remarkably strongly. And I can't see the mechanism by which changes in government policies bring about such huge swings in pre-tax income distribution.

In response, in comments on my weblog, we have:

PaulC: I have no idea if Krugman is right, but it seems clear to me that the effect of government over long periods of time has the potential to be that significant. First off, small effects often have multipliers, particularly in winner take all scenarios. E.g., in an olympic race, the runners are all excellent to begin with, with the actual difference in ability often fractions of a percent. But only a few get medals; they have some chance at fame. The almost-as-goods are forced back to their day jobs. I'm not saying this is a good model for the economy, but it just illustrates how even a small advantage can pay off disproportionately.

Second, if you look at government policy over time and conclude they're not doing much, I wonder what you're using as a baseline. Maybe it's only a radical government that lets inequality get out of hand by doing nothing, while a moderate one would consider it a disaster that needs action. I think there are two premises (counter-premises) that need to be considered. One is the idea that growing inequality is socially disastrous (a normal, natural situation). The other is that private wealth in a growing economy can be tapped up to a limit for public good (is absolutely sacrosanct and should only be touched as sort of a necessary evil for supporting some minimal governmental duties--e.g. defense and law enforcement).

If you look at these premises and ask what a government would do in response to trends over a long period of time, I think it is reasonable to consider that a government with conservative premises would let inequality get out of hand, while one with liberal premises would be able to change the outcome using proportionately small changes assuming multipliers.

Or to recast my previous comment as a metaphor (with unfortunate allusions to the movie Being There, but so be it) suppose I am observing two gardens: one apparently well-maintained and productive, the other overgrown with crabgrass and dandelions. I might conclude that whatever happened isn't the gardener's doing. They both planted roughly the same crops, used the same fertilizers, watered them about as much. The plots were similar in size and received the same amount of sunshine. Whatever happened is the result of some mysterious external factors. When pressed, I might add that in fact the gardener with the better results did something else, spending a little extra time each day pulling out some plants. But they were just little seedlings, barely noticeable. If were to weigh the mass of weeds against those seedlings, it would be clear to any reasonable person that there is simply no way that those small actions could account for the difference between these gardens.

Graydon: The kicker is what kinds of corporate organization are permitted, not tax policy. The relentless push for de-regulation and for restructuring law related to markets has converted a machine intended to secure the general prosperity into a machine to concentrate wealth. (This started around 1970, with the creation of the formal obligation for a corporation to maximize monetary returns to the exclusion of all other considerations.) Organizational patterns and structures matter. Tax policy is not even vaguely important compared to, frex, what banks are allowed to do, and that is often both governmental and policy set by non-legislative means. The general conflation of wealth and virtue isn't any help, but the core problem is that profit is legally regarded as an excuse to do almost anything.

Blissex: «Inequality in America starts with COMPLACENCY at the bottom» Yes, this is something that has struck me quite a bit -- the ''let's bend over'' attitude of american workers. The Economist has commented that this is due to something like 60% of Usians thinking that they will become rich before their retire, even if class mobility is actually quite low.

«polls show 50% would prefer to be in a union -- but there is no inexorable groundswell because there is fundamental understanding of the desparate need.» Perhaps there is some, but then there is terror. Employers apparently rather dislike hiring ex-union workers. In the past unionization battles were sometimes fought with rifles and explosives (both sides) and like in other countries the Army was occasionally brought in to machine gun strikers. Perhaps it could not happen again, but now that there are national databases, and big employers routinely refuse to hire people who don't have a perfect credit history nationally, it is hard to be the one who sets the ball rolling.

«I very undramatically chalk it all up to an accident of culture: we have this belief in the self-reliant individual and no information to tell us otherwise (the great compression and decades of galloping productivity misinformed us otherwise).» I agree that this is a large part of the story; the business interests are marxian to a fault (they tend to believe in most of what Marx said, reserve labor army and all, just see it from the other side :->), and seem to have understood well the gramscian concept of ''cultural hegemony''. But it is also because the unions at some point in the 70s-80s became widely perceived, and correctly, as exploitative and brutal guilds in their own right, and the left as a bunch of dreaming crazies. There is a very nice book on the subject, "The right nation", by Micklethwait and Wooldridge. The left and the union have dug themselves in a deep hole... Almost as deep as the right and the chambers of commerce dug themselves in the 1930s.

«[ ... ] never picked up even a hint that, by now, 25% of workers are earning less than the minimum wage under Lyndon Johnson, $9.50/hour even though average income doubled since that same time -- or that middle and upper middle family income has grown half as fast as average income for over 30 years -- or that the missing growth has almost all gone to the top 1%.» Well, few people talk about these things because they know which side their bread is buttered on, and talking about these things means being classified as a promoter of the politics of envy or of class hatred.

«Not that I blame the top 1% for doing what they are supposed to do in a capitalist economy: bargaining hard for the best deal.» Ah you see class warfare is when the bottom 99% want a bigger slice of the pie, but when it is the 1% doubling theirs that's justly rewarding higher productivity. :-)

«The solution is for someone to alert the bottom to the money they are missing out on and on how easily they could recoup it by modernizing labor organizing legislation and then get out of their way. All so simple if somebody would just tell us.» But that would require going up against vested interests for the sake of a few dozen million poor suckers. :-) To give you an idea of how dire the intellectual and practical situation is, some unions are trying to organize day laborers, but are afraid that their members would complain, which is beyond moronic: http://SeattlePI.NWSource.com/business/281097_daylaborunion14.html «However, Jerry Hunter, former general council for the National Labor Relations Board, said unionized construction workers might balk if their unions recruit illegal immigrants. "Members could start asking themselves, 'Whose interests are you representing?' " Hunter said.»

«Small changes for example in the climate to make hostile and asset stripping takeovers easier» Perhaps I have mentioned this already, but I think Milken and Drexel have had a far greater influence that I thought. When debt fueled hostile takeovers were rare, management had long term careers and their self interests were to pursue corporate empire building. Now that it is easy and cheap to fund with debt a takeover, management self interests are to make as much money as possible as possible in as short time as possible. Their profile has switched from a long term to a short term sharecropper, and now they work the assets they are temporarily leasing a lot harder. Which is not in the interests of shareholders either. But the incentive is there. While Milken was the enabler of the asset stripping fashion, perhaps they were not the ultimate cause; I suspect the increase in takeovers was largely based on reductions in capital gains tax, which also gave an incentive to corporations to stop distributing dividends and gross up the capital value of the company, via ''virtual'' earnings.

Robert Waldmann: I think prevailing ideology has direct effects in addition to affecting public policy. Heartened by the fact that you think you have discovered an intelligent sociologist (who is in fact a physicist) I'd say that social norms are critical, and that firms have to respect their workers perceptions of what is fair. It is no longer fatal to a firm for the top 5 officers to have incomes that you and I consider obscene. Thus such firms are not crippled by the anger of their other employees. More generally I think the ideas that greed is OK and that grabbing lots of money demonstrates intelligence not corruption have become stronger resulting in increased inequality. In a word Akerlof.

And Paul Krugman, in email, promises more:

There's actually a lot more behind this than I could put in the Times; it will ultimately be a chapter in my next book...

Falling value of the minimum wage. Shift in the personnel at the National Labor Relations Board and the role of that shift in the decline of unions. Loosening up on the regime that regulates Wall Street and the consequent shift from the Berle-Means technostructure corporation to the modern takeover game, plus institutional corruption via IPOs and compensation subcommittees of boards of directors. Declining marginal tax rates on the rich making it less unreasonable for your CEO to demand compensation in cash rather than in a fancy executive dining room. Trade. Immigration--which has a powerful effect on the American income distribution even if it does little to shift the income distribution among the native born.

How much bang can these politically-driven changes have? And how much is the politics the result rather than the cause of rising inequality? And what is the role of the factors identified by McCarty, Poole, and Rosenthal's Polarized America in all this?

I'm skeptical--I think it's more likely than not that politics are a reinforcing factor rather than the driving force--the moving crest of the tsunami and the froth on top of that rather than the originating earthquake, which I would see as probably in society and technology--but it's an open question, and now I have another reason to eagerly look forward to Paul Krugman's next book.