J. Bradford DeLong's Blog, page 1168

Oh Dear. Larry Kotlikoff Fails to Read...: Let's Make This This Week's Monday Smackdown

No, Larry Kotlikoff, Paul Krugman does not think Paul Ryan is stupid. Paul Krugman does not write that Paul Ryan is stupid--he writes that Ryan "is a con man... his budgets were sold on false pretenses... magic asterisks claiming huge but unspecified savings from discretionary spending and huge but unspecified revenue gains from closing loopholes he refused to name."

This is worth this week's smackdown...

Larry Kotlikoff: : "Paul Krugman [has] a responsibility to act like [a] grownup...

...If they start calling people with different views “stupid,” they demean themselves and convey the message that name calling rather than respectful debate is appropriate conduct.... None of we economists know anything for dead sure.... A key job economists have is to explain the different views we have about how the economy works before explaining why we prefer our view. Simply saying “You’re wrong, I’m right, and, furthermore, you’re stupid for not agreeing with me.” is something you’d expect from a child, not a grown up and certainly not from a columnist for the New York Times who sports a Nobel Prize.... I’m sorry, but Paul Ryan is not stupid.... I’m very proud to call Paul Ryan my friend even though we don’t agree on everything and even though I voted for President Obama twice...

I read this, and my first reaction is: did Larry Kotlikoff read?

Let's back up: What does Paul Krugman write? He writes:

One of the best insults I’ve ever read came from Ezra Klein, who now is editor in chief of http://vox.com. In 2007, he described Dick Armey, the former House majority leader, as “a stupid person’s idea of what a thoughtful person sounds like.” It’s a funny line, which applies to quite a few public figures. Representative Paul Ryan, the chairman of the House Budget Committee, is a prime current example....

Did Ezra Klein call Dick Armey "stupid"?

No.

Ezra Klein said that a stupid person would think that Dick Armey was thoughtful.

Does Ezra Klein think that Dick Armey is stupid?

No.

Ezra Klein's point is that Dick Armey is not an "honest, thoughtful, crackling-with-ideas type conservative... [with high] intellectual energy", but rather something else, something else that presents a simulacrum of thoughtfulness that is convincing to stupid people.

Does Paul Krugman call Paul Ryan "stupid"?

No.

Paul Krugman's point is that Paul Ryan is like Dick Armey--someone who presents a simulacrum of thoughtfulness that is convincing to stupid people (or, I would argue, simply not paying a great deal of attention).

Does Paul Krugman think Paul Ryan is "stupid"?

I really do not think so. Anybody who has gotten where Ryan has gotten has lots of smarts along lots of dimensions. But I do think Ezra's description of Armey applies: Ryan gives no signs of being especially thoughtful, honest, crackling-with-ideas, or possessing high intellectual energy.

So why does Larry Kotlikoff think that Paul Krugman calls Paul Ryan "stupid", when what Paul Krugman says is that Ryan produces not the reality but only a simulacrum of thoughtfulness?

The answer I leave as an exercise to the reader...

OK.

There's more.

When Larry Kotlikoff takes his show on the road to economists, he generally faces four big questions:

(1) The CBO writes that the 25-year fiscal gap is "1.2% of GDP... the fiscal gap would be roughly 50 percent larger [i.e., 1.8% of GDP] over a 75-year period." That is not large enough to be a huge problem: long-run deficit-reducing Reconciliation Bills larger than that have been routinely passed by Democratic Presidents Clinton and Obama and Republican President George H.W Bush (and large long-run holes have been blown in the fiscal gap by Republican Presidents Reagan and George W. Bush). Is there a reason to think a current-law fiscal gap like the one we have now is a huge problem?

(2) The worrisome 25-year and 75-year fiscal gaps of 3.4% of GDP and 7.4% of GDP are found in the CBO's alternative fiscal scenario--which assumes that future congresses will pass and future presidents sign laws that massively raise spending without covering the increased spending by raising taxes. But anything congress and the president do now cannot bind future congresses and presidents: all spending cuts now will do is increase the number of goodies in terms of spending increases and tax cuts that future politicians can decide to do when they decide to be irresponsible. Why then do you think we should pass spending cuts now?

(3) Since 1933 there has not been a single year in which the interest rate the U.S. government has had to pay on its debt has been higher than the growth rate of GDP. Since 1789--since the establishment of the Constitution--the interest rate the U.S. government has had to pay on its debt has averaged comfortably less than the growth rate of GDP. The right way to conceptualize the U.S. government debt, it seems, is not that issuing debt burdens future generations that must levy taxes to repay it. The right way, it seems, is that issuing debt attracts wealthholders who want to keep their money safe--that it is more a profit center for than a burden on the government. Why then--until the interest rate on the debt at least comes close to the trend growth rate of GDP--should we worry about the size of the national debt?

(4) The imbalance in the federal government's long-run accounts is more than 100% due to the fact that our health-care sector spends much, much more than the health-care sectors of other industrial countries. Isn't there good reason to think that we will eventually--through some means--get our health-care sector back into line? And shouldn't the policy focus therefore be on fixing the health-care system so it approaches the level of efficiency found in other countries, rather than on cutting other "entitlements"?

In my view, Larry doesn't have terribly good answers to any of these four questions. They all are major weaknesses in and pose major problems for his shtick.

But does he acknowledge any of these weaknesses and problems? No, he dodges them.

Does he explain what different views other economists have of the situation, and why they think these four questions raise issues that seriously undermine Kotlikoff's point of view? No:

Larry Kotlikoff: The Government Should Report Its ‘Fiscal Gap,’ Not Just Official Debts: "HOUSEHOLDS can’t spend, on a continuing basis...

...more than they earn. Countries can’t either, at least not over the long run.... Dig deep into the appendix of the most recent Social Security Trustees Report, released on Monday, and you’ll find that the program’s unfunded obligation is $24.9 trillion 'through the infinite horizon'... nearly twice the $12.6 trillion in public debt held by the United States government... True, Social Security benefits could be cut by Congress and the president. But so can official debt, as Argentina’s likely default reminds us.... Two weeks ago, the Congressional Budget Office... raised what’s called the alternative fiscal scenario, the most realistic projection.... I calculate that the 'fiscal gap'... was $210 trillion last year, up from $205 trillion the previous year. Thus $5 trillion was the true deficit.... What we confront is not just an economics problem. It’s a moral issue. Will we continue to hide most of the bills we are bequeathing our children? Or will we, at long last, systematically measure all the bills and set about reducing them?

And this column of Kotlikoff's raises three additional questions:

(5) The CBO's Long-Run Budget Outlook already reports CBO estimates of fiscal gaps. In what sense do we need to start reporting it? Isn't the CBO part of the government?

(6) Is the "$210 trillion" you mention the same as the 7.4% of GDP fiscal gap reported by the CBO? If it isn't the same, why and where do you disagree with the CBO's analysis, and why do you attempt to invoke its authority? If it is the same, why not say so--and why not put it in perspective? After all, nobody can make anything of "$210 trillion" other than as a really big number, while "7.4% of GDP" tells the reader that the AFS has the government taxing 22.6% of GDP and spending 30% of GDP, right?

(7) For the president and congress to, say, raise the Social Security retirement age or cut Medicare Advantage reimbursement payments to insurance companies does not bring on a financial crisis and a recession--which a government debt default does. Why say that the two are the same?

We would have more patience with and more charity toward Larry K. if he would at least try to answer these seven questions--to explain the different views economists have about how the economy works...

Liveblogging World War I: August 3, 1914: United Kingdom Foreign Minister Edward Grey Reports...

Edward Grey: Speech on the eve of war: 3 August 1914:

Last week I stated that we were working for peace not only for this country, but to preserve the peace of Europe. Today events move so rapidly that it is exceedingly difficult to state with technical accuracy the actual state of affairs, but it is clear that the peace of Europe cannot be preserved. Russia and Germany, at any rate, have declared war upon each other.

Before I proceed to state the position of his Majesty's Government I would like to clear the ground so that, before I come to state to the House what our attitude is with regard to the present crisis, the House may know exactly under what obligations the government is, or the House can be said to be, in coming to a decision on the matter. First of all, let me say, very shortly, that we have consistently worked with a single mind, with all the earnestness in our power, to preserve peace. The House may be satisfied on that point. We have always done it. During these last years, as far as his Majesty's Government are concerned, we would have no difficulty in proving that we have done so. Throughout the Balkan crisis, by general admission, we worked for peace. The cooperation of the great powers of Europe was successful in working for peace in the Balkan crisis. It is true that some of the powers had great difficulty in adjusting their points of view. It took much time and labour and discussion before they could settle their differences, but peace was secured, because peace was their main object, and they were willing to give time and trouble rather than accentuate differences rapidly.

In the present crisis it has not been possible to secure the peace of Europe: because there has been little time, and there has been a disposition -- at any rate in some quarters on which I will not dwell -- to force things rapidly to an issue, at any rate to the great risk of peace, and, as we now know, the result of that is that the policy of peace as far as the great powers generally are concerned is in danger. I do not want to dwell on that, and to comment on it, and to say where the blame seems to us lie, which powers were most in favour of peace, which were most disposed to risk war or endanger peace, because I would like the House to approach this crisis in which we are now from the point of view of British interests, British honour, and British obligations, free from all passion as to why peace has not yet been preserved....

The situation in the present crisis is not precisely the same as it was in the Morocco question.... It has originated in a dispute between Austria and Servia. I can say this with the most absolute confidence -- no government and no country has less desire to be involved in war over a dispute with Austria than the country of France. They are involved in it because of their obligation of honour under a definite alliance with Russia. Well, it is only fair to say to the House that that obligation of honour cannot apply in the same way to us. We are not parties to the Franco-Russian alliance. We do not even know the terms of the alliance.

So far I have, I think, faithfully and completely cleared the ground with regard to the question of obligation. I now come to what we think the situation requires of us. For many years we have had a long-standing friendship with France

[An HON. MEMBER: "And with Germany!"].

I remember well the feeling in the House and my own feeling -- for I spoke on the subject, I think, when the late Government made their agreement with France -- the warm and cordial feeling resulting from the fact that these two nations, who had had perpetual differences in the past, had cleared these differences away; I remember saying, I think, that it seemed to me that some benign influence had been at work to produce the cordial atmosphere that had made that possible. But how far that friendship entails obligation -- it has been a friendship between the nations and ratified by the nations -- how far that entails an obligation, let every man look into his own heart, and his own feelings, and construe the extent of the obligation for himself. I construe it myself as I feel it, but I do not wish to urge upon any one else more than their feelings dictate as to what they should feel about the obligation. The House, individually and collectively, may judge for itself. I speak my personal view, and I have given the House my own feeling in the matter.

The French fleet is now in the Mediterranean, and the northern and western coasts of France are absolutely undefended. The French fleet being concentrated in the Mediterranean, the situation is very different from what it used to be, because the friendship which has grown up between the two countries has given them a sense of security that there was nothing to be feared from us. My own feeling is that if a foreign fleet, engaged in a war which France had not sought, and in which she had not been the aggressor, came down the English Channel and bombarded and battered the undefended coasts of France, we could not stand aside...

[Cheers]

... and see this going on practically within sight of our eyes, with our arms folded, looking on dispassionately, doing nothing. I believe that would be the feeling of this country. There are times when one feels that if these circumstances actually did arise, it would be a feeling which would spread with irresistible force throughout the land. But I also want to look at the matter without sentiment, and from the point of view of British interests, and it is on that that I am going to base and justify what I am presently going to say to the House. If we say nothing at this moment, what is France to do with her fleet in the Mediterranean? If she leaves it there, with no statement from us as to what we will do, she leaves her northern and western coasts absolutely undefended, at the mercy of a German fleet coming down the Channel to do as it pleases in a war which is a war of life and death between them. If we say nothing, it may be that the French fleet is withdrawn from the Mediterranean.

We are in the presence of a European conflagration; can anybody set limits to the consequences that may arise out of it? Let us assume that to-day we stand aside in an attitude of neutrality, saying, "No, we cannot undertake and engage to help either party in this conflict." Let us suppose the French fleet is withdrawn from the Mediterranean; and let us assume that the consequences -- which are already tremendous in what has happened in Europe even to countries which are at peace -- in fact, equally whether countries are at peace or at war -- let us assume that out of that come consequences unforeseen, which make it necessary at a sudden moment that, in defence of vital British interests, we should go to war; and let us assume which is quite possible--that Italy, who is now neutral...

[HON. MEMBERS: "Hear, hear!"]

-- because, as I understand, she considers that this war is an aggressive war, and the Triple Alliance being a defensive alliance her obligation did not arise -- let us assume that consequences which are not yet foreseen and which, perfectly legitimately consulting her own interests -- make Italy depart from her attitude of neutrality at a time when we are forced in defence of vital British interest ourselves to fight -- what then will be the position in the Mediterranean? It might be that at some critical moment those consequences would be forced upon us because our trade routes in the Mediterranean might be vital to this country? Nobody can say that in the course of the next few weeks there is any particular trade route the keeping open of which may not be vital to this country. What will be our position then? We have not kept a fleet in the Mediterranean which is equal to dealing alone with a combination of other fleet in the Mediterranean. It would be the very moment when we could not detach more ships to the Mediterranean, and we might have exposed this country from our negative attitude at the present moment to the most appalling risk. I say that from the point of view of British interest.

We feel strongly that France was entitled to know -- and to know at once! -- whether or not in the event of attack upon her unprotected northern and western coast she could depend upon British support. In that emergency and in these compelling circumstances, yesterday afternoon I gave to the French Ambassador the following statement:

I am authorised to give an assurance that if the German fleet comes into the Channel or through the North Sea to undertake hostile operations against the French coasts or shipping, the British fleet will give all the protection in its power. This assurance is, of course, subject to the policy of his Majesty's Government receiving the support of Parliament, and must not be taken as binding his Majesty's Government to take any action until the above contingency of action by the German fleet takes place.

I read that to the House, not as a declaration of war on our part, not as entailing immediate aggressive action on our part, but as binding us to take aggressive action should that contingency arise.

Things move very hurriedly from hour to hour. French news comes in, and I cannot give this in any very formal way; but I understand that the German Government would be prepared, if we would pledge ourselves to neutrality, to agree that its fleet would not attack the northern coast of France. I have only heard that shortly before I came to the House, but it is far too narrow an engagement for us.

And, Sir, there is the more serious consideration -- becoming more serious every hour -- there is the question of the neutrality of Belgium.... I will read to the House what took place last week on this subject. When mobilisation was beginning, I knew that this question must be a most important element in our policy -- a most important subject for the House of Commons. I telegraphed at the same time in similar terms to both Paris and Berlin to say that it was essential for us to know whether the French and German Governments, respectively, were prepared to undertake an engagement to respect the neutrality of Belgium.

These are the replies. I got from the French Government this reply:

The French Government are resolved to respect the neutrality of Belgium, and it would only be in the event of some other power violating that neutrality that France might find herself under the necessity, in order to assure the defence of her security, to act otherwise.

This assurance has been given several times. The President of the Republic spoke of it to the King of the Belgians, and the French Minister at Brussels has spontaneously renewed the assurance to the Belgian Minister of Foreign Affairs to-day.

From the German Government the reply was:

The Secretary of State for Foreign Affairs could not possibly give an answer before consulting the Emperor and the Imperial Chancellor.

Sir Edward Goschen, to whom I had said it was important to have an answer soon, said he hoped the answer would not be too long delayed. The German Minister for Foreign Affairs then gave Sir Edward Goschen to understand that he rather doubted whether they could answer at all, as any reply they might give could not fail, in the event of war, to have the undesirable effect of disclosing, to a certain extent, part of their plan of campaign. I telegraphed at the same time to Brussels to the Belgian Government, and I got the following reply from Sir Francis Villiers:

The Minister for Foreign Affairs thanks me for the communication and replies that Belgium will, to the utomost of her power, maintain neutrality, and Belgium expects and desires other powers to observe and uphold it. He begged me to add that the relations between Belgium and the neighbouring Powers were excellent, and there was no reason to suspect their intentions, but that the Belgian Government believe, in the case of violence, they were in a position to defend the neutrality of their country.

It now appears from the news I have received to-day -- which has come quite recently, and I am not yet quite sure how far it has reached me in an accurate form -- that an ultimatum has been given to Belgium by Germany, the object of which was to offer Belgium friendly relations with Germany on condition that she would facilitate the passage of German troops through Belgium.

[Ironical laughter]

Well, Sir, until one has these things absolutely definite, up to the last moment I do not wish to say all that one would say if one were in a position to give the House full, complete and absolute information upon the point. We were sounded in the course of last week as to whether, if a guarantee were given that, after the war, Belgian integrity would be preserved, that would content us. We replied that we could not bargain away whatever interests or obligations we had in Belgian neutrality.

[Cheers.]

Shortly before I reached the House I was informed that the following telegram had been received from the King of the Belgians by our King -- King George:

Remembering the numerous proofs of your Majesty's friendship and that of your predecessors, and the friendly attitude of England in 1870, and the proof of friendship she has just given us again, I make a supreme appeal to the diplomatic intervention of your Majesty's Government to safeguard the integrity of Belgium.

Diplomatic intervention took place last week on our part. What can diplomatic intervention do now? We have great and vital interests in the independence -- and integrity is the least part -- of Belgium..

[Loud cheers.]

If Belgium is compelled to submit to allow her neutrality to be violated, of course the situation is clear. Even if by agreement she admitted the violation of her neutrality, it is clear she could only do so under duress. The smaller States in that region of Europe ask but one thing. Their one desire is that they should be left alone and independent. The one thing they fear is, I think, not so much that their integrity but that their independence should be interfered with. If in this war, which is before Europe, the neutrality of those countries is violated, if the troops of one of the combatants violate its neutrality and no action be taken to resent it, at the end of war, whatever the integrity may be, the independence will be gone..

[Cheers.]

.... No, Sir, if it be the case that there has been anything in the nature of an ultimatum to Belgium, asking her to compromise or violate her neutrality, whatever may have been offered to her in return, her independence is gone if that holds. If her independence goes, the independence of Holland will follow. I ask the House from the point of view of British interests to consider what may be at stake. If France is beaten in a struggle of life and death, beaten to her knees, loses her position as a great power, becomes subordinate to the will and power of one greater than herself -- consequences which I do not anticipate, because I am sure that France has the power to defend herself with all the energy and ability and patriotism which she has shown so often..

[Loud cheers.]

-- still, if that were to happen and if Belgium fell under the same dominating influence, and then Holland, and then Denmark, then would not Mr. Gladstone's words come true, that just opposite to us there would be a common interest against the unmeasured aggrandisement of any power?

[Loud cheers.]

It may be said, I suppose, that we might stand aside, husband our strength, and that, whatever happened in the course of this war, at the end of it intervene with effect to put things right, and to adjust them to our own point of view. If, in a crisis like this, we run away

[Loud cheers.]

from those obligations of honour and interest as regards the Belgian treaty, I doubt whether, whatever material force we might have at the end, it would be of very much value in face of the respect that we should have lost. And I do not believe, whether a great power stands outside this war or not, it is going to be in a position at the end of it to exert its superior strength. For us, with a powerful fleet, which we believe able to protect our commerce, to protect our shores, and to protect our interests, if we are engaged in war, we shall suffer but little more than we shall suffer even if we stand aside.

We are going to suffer, I am afraid, terribly in this war, whether we are in it or whether we stand aside. Foreign trade is going to stop, not because the trade routes are closed, but because there is no trade at the other end. Continental nations engaged in war all their populations, all their energies, all their wealth, engaged in a desperate struggle they cannot carry on the trade with us that they are carrying on in times of peace, whether we are parties to the war or whether we are not. I do not believe for a moment that at the end of this war, even if we stood aside and remained aside, we should be in a position, a material position, to use our force decisively to undo what had happened in the course of the war, to prevent the whole of the west of Europe opposite to us -- if that had been the result of the war -- falling under the domination of a single power, and I am quite sure that our moral position would be such as --

[the rest of the sentence -- "to have lost us all respect." -- was lost in a loud outburst of cheering].

I can only say that I have put the question of Belgium somewhat hypothetically, because I am not yet sure of all the facts, but, if the facts turn out to be as they have reached us at present, it is quite clear that there is an obligation on this country to do its utmost to prevent the consequences to which those facts will lead if they are undisputed....

One thing I would say. The one bright spot in the whole of this terrible situation is Ireland.

[Prolonged cheers.]

The general feeling throughout Ireland, and I would like this to be clearly understood abroad, does not make that a consideration that we feel we have to take into account

[Cheers.]

I have told the House how far we have at present gone in commitments, and the conditions which influence our policy; and I have put and dealt at length to the House upon how vital the condition of the neutrality of Belgium is. What other policy is there before the House? There is but one way in which the Government could make certain at the present moment of keeping outside this war, and that would be that it should immediately issue a proclamation of unconditional neutrality. We cannot do that.

[Cheers.]

We have made the commitment to France that I have read to the House which prevents us doing that. We have got the consideration of Belgium which prevents us also from any unconditional neutrality, and, without these conditions absolutely satisfied and satisfactory, we are bound not to shrink from proceeding to the use of all the forces in our power. If we did take that line by saying, "We will have nothing whatever to do with this matter" under no conditions -- the Belgian treaty obligations, the possible position in the Mediterranean, with damage to British interests, and what may happen to France from our failure to support France -- if we were to say that all those things matter nothing, were as nothing, and to say we would stand aside, we should, I believe, sacrifice our respect and good name and reputation before the world, and should not escape the most serious and grave economic consequences.

[Cheers and a voice, "No."]

My object has been to explain the view of the government, and to place before the House the issue and the choice. I do not for a moment conceal, after what I have said, and after the information, incomplete as it is, that I have given to the House with regard to Belgium, that we must be prepared, and we are prepared, for the consequences of having to use all the strength we have at any moment -- we know not how soon -- to defend ourselves and to take our part. We know, if the facts all be as I have stated them, though I have announced no intending aggressive action on our part, no final decision to resort to force at a moment's notice, until we know the whole of the case, that the use of it may be forced upon us.

As far as the forces of the Crown are concerned, we are ready. I believe the Prime Minister and my right Hon. Friend, the First Lord of the Admiralty have no doubt whatever that the readiness and the efficiency of those forces were never at a higher mark than they are to-day, and never was there a time when confidence was more justified in the power of the Navy to protect our commerce and to protect our shores. The thought is with us always of the suffering and misery entailed, from which no country in Europe will escape, and from which no abdication or neutrality will save us. The amount of harm that can be done by an enemy ship to our trade is infinitesimal, compared with the amount of harm that must be done by the economic condition that is caused on the Continent.

The most awful responsibility is resting upon the Government in deciding what to advise the House of Commons to do. We have disclosed our minds to the House of Commons. We have disclosed the issue, the information which we have, and made clear to the House, I trust, that we are prepared to face that situation, and that should it develop, as probably it may develop, we will face it.

We worked for peace up to the last moment, and beyond the last moment. How hard, how persistently, and how earnestly we strove for peace last week the House will see from the papers that will be before it. But that is over, as far as the peace of Europe is concerned. We are now face to face with a situation and all the consequences which it may yet have to unfold. We believe we shall have the support of the House at large in proceeding to whatever the consequences may be and whatever measures may be forced upon us by the development of facts or action taken by others.

I believe the country, so quickly has the situation been forced upon it, has not had time to realise the issue. It perhaps is still thinking of the quarrel between Austria and Servia, and not the complications of this matter which have grown out of the quarrel between Austria and Servia. Russia and Germany we know are at war. We do not yet know officially that Austria, the ally whom Germany is to support, is yet at war with Russia. We know that a good deal has been happening on the French frontier. We do not know that the German Ambassador has left Paris. The situation has developed so rapidly that technically, as regards the condition of the war, it is most difficult to describe what has actually happened. I wanted to bring out the underlying issues which would affect our own conduct, and our own policy, and to put them clearly.

I have now put the vital facts before the House, and if, as seems not improbable, we are forced, and rapidly forced, to take our stand upon those issues, then I believe, when the country realises what is at stake, what the real issues are, the magnitude of the impending dangers in the west of Europe, which I have endeavored to describe to the House, we shall be supported throughout, not only by the House of Commons, but by the determination, the resolution, the courage, and the endurance of the whole country.

Later in the day Sir Edward added the following:

I want to give the House some information which I have received, and which was not in my possession when I made my statement this afternoon. It is information I have received from the Belgian Legation in London, and is to the following effect:

Germany sent yesterday evening at seven o'clock a note proposing to Belgium friendly neutrality, covering free passage on Belgian territory, and promising maintenance of independence of the kingdom and possession at the conclusion of peace, and threatening, in case of refusal, to treat Belgium as an enemy. A time-limit of twelve hours was fixed for the reply. The Belgians have answered that an attack on their neutrality would be a flagrant violation of the rights of nations, and that to accept the German proposal would be to sacrifice the honour of a nation. Conscious of its duty, Belgium is finally resolved to repel aggression by all possible means.

Of course, I can only say that the Government are prepared to take into grave consideration the information which they have received. I make no further comment upon it.

Liveblogging World War II: August 2, 1944: The Warsaw Uprising

World War II Today: Warsaw insurrection becomes a popular Uprising:

In Warsaw the opening shots in a planned military revolt had been fired by the underground Polish Home Army on the 1st August. The Germans had been about to order tens of thousands of ordinary citizens to report for working parties – it was intended to march them to the outskirts of the city to build anti-tank ditches. Such a move would now prove impossible, the residents of Warsaw had endured much over the past five years and many now sought their opportunity for revenge as well.

Andrew Borowiec was a fifteen year member of the Polish Home Army who had been involved in the opening skirmishes of the battle. After months practicing with stones in the forests outside Warsaw he suddenly found himself throwing his first grenade at German soldiers that evening. He describes how the military insurrection quickly became a popular Uprising and how the Poles attempted, at first, to fight a battle within the ‘rules of war’:

In the morning we awoke from rough slumber to discover that it was raining slightly, and the citizens of Warsaw had hijacked our Uprising. Their enthusiasm for it was unquestionable.

However badly we had started, there was obviously no going back. The civilians had realized that we controlled the largest part of the city, and during the night they had come on to the streets to ask our sentries where they should build the barricades to defend it.

On a much larger scale it reminded me of what I had seen with Mateczka during the siege of Lwow at the beginning of my war, almost five years earlier. We were becoming a fortress. Deep trenches were dug; pavements were torn up; abandoned tramcars were manhandled into place, then overturned to provide the framework that could be filled with enough earth and rubble to stop a Tiger tank.

Platoon 101 was ordered to help them. And as we worked we had music. Technicians from our propaganda department had been repairing the street loudspeaker system that the Nazis had attached to lamp posts, trees and balconies to tell us their lies, issue their ultimatums and announce their barbaric reprisals.

It had been slightly damaged in the fighting but now suddenly burst into song, and we stood stock still, throats constricting, eyes moistening. For the first time in almost five years we were listening to a public broadcast of our national anthem ‘Jeszcze Polska Nie Zginela‘ — ‘Poland Is Not Yet Lost’.

Later in the day there was another treat. Bor used the system to address his soldiers. ‘After nearly five years of continuous and difficult underground struggle,’ he told us, ‘you now stand openly, weapons in hand, ready to restore freedom to our country and punish the German criminals for the terror atrocities committed on Polish soil.’

Platoon 1O1, not for the moment having any weapons at hand, got on with building barricades. There was almost a holiday mood. Polish flags were unfurled, girls kissed front-line troops in their newly acquired leopard-spotted camouflage, housewives brought glasses of cold tea, bakers offered bread.

And all the time the news got better. We had captured the Powisle Power Station on the west bank of the Vistula, and thus ensured that we had the electricity we needed to run our hospitals and arms factories. This was despite a recent strengthening of its defences when SS-Polizei reinforcements had brought the strength of its garrison up to about a hundred.

But twenty-three of the Polish workers at the plant belonged to us and had smuggled in weapons and explosives. They announced W-Hour by exploding a large bomb beneath the guards’ living quarters while, at the same time, their sentry posts came under heavy fire from outside. The surviving SS-Polizei barricaded themselves in.

A fierce fight ensued, in which about twenty men were killed on each side. It ended at noon the next day when seventy-eight Germans, some of them technicians, came out with their hands up.

From the outset the Home Army had decided that, instead of paying the Germans back in kind, we would uphold the Geneva Convention, to which Poland was a signatory, and take prisoners.

Apart from ethical and propaganda considerations there were good tactical reasons for this. The most obvious one was that soldiers who knew their lives would be spared were more likely to surrender a hopeless position and make our victories less costly. Another reason was that it might encourage the enemy to take prisoners too, if only so that exchanges could be arranged.

Even so, as far as most of the Home Army were concerned, this applied only to the ordinary soldiers of the Wehrmacht. Whether or not an SS man was busy in the Totenkopfverbande [SS Death's-Head Units - responsible for the concentration camps], breaking records in human suffering, or engaged in more military pursuits was immaterial: they were all shot. A private and deadly cycle of daring assassination followed by cold-blooded reprisal had been going on between the SS and the Polish underground for so long now, they knew what to expect.

And yet, at the Powisle Power Station the SS-Polizei — who, in many ways, were the backbone of Nazi counter-insurgency operations against eastern European partisans — had chosen to surrender rather than fight to the death, and their surrender had been accepted. Were we being magnanimous in victory? .

See Warsaw Boy

Weekend Reading: Michael Koplow on the Conflict In Gaza

Michael Koplow: "I mean it when I call these friends and acquaintances well-intentioned; the first group is genuinely and legitimately concerned...

...with Israel’s safety and survival and is terrified by the anti-Semitic outbursts and attacks around the world under the cover of the Palestinian cause and sees no other rational response to the nihilistic and eliminationist rhetoric from Hamas but the current IDF operations in Gaza. The second group genuinely cannot abide seeing hundreds of Palestinian civilians killed and images of dead children on Gazan beaches and blames the Israelis for bringing a tank to a knife fight and using it in ways that seem to cause indiscriminate death while Israeli civilians are relatively safe from Hamas rocket fire. Neither group is going to ever come over the other side or change its views, but that is to be expected. The despair comes from the fact that neither group even empathizes with the other side or remotely understands how someone can possibly arrive at a position different from its own....

So I have kept my mouth shut and hoped that the fighting will end and everyone can go back to posting pictures of their kids and videos of baby animals....

One example of wishing for a reality that doesn’t exist is the hope of many of Israel’s supporters that the world will all of a sudden wake up to the fact that Hamas hides behind hospitals and schools and thus forgive Israel for a billowing Palestinian civilian casualty count.... The Israeli government keeps repeating the same talking points about civilian shields ad infinitum as if it expects to convince anyone who isn't convinced already.... And the longer the fighting goes on, the worse off Israel is going to be.... What the world sees in Gaza... is dead women and children and UN schools being shelled rather than command bunkers under hospitals and UN schools being used as rocket storage depots.

Another... is this meme that Hamas’s problem is solely with the occupation, and that if Israel were to end the blockade, then Hamas would leave the Israelis alone. Hamas does not like Jews.... Hamas built a huge network of tunnels into Israel for the purpose of kidnapping and killing civilians while it was respecting the ceasefire with regard to rockets. So one has to be willfully blind or colossally stupid to argue that its intentions were benign until Israel provoked it. I don’t doubt that Hamas is capable of holding actual ceasefire, and I think that under certain circumstances it could abide by a longterm truce. But nothing that Hamas has said or done points to it quietly going away if Israel and the Palestinian Authority were to sign a final status agreement ending the occupation.

A third example of not accepting the world as it is can be seen in the debate on the role of Turkey and Qatar.... Qatar shouldn’t be rewarded for funneling money to Hamas and providing a home for Hamas’s leadership in Doha, and Turkey shouldn’t be rewarded for harboring the Hamas leader behind the kidnapping strategy or constantly undermining Mahmoud Abbas.... Schanzer and Weinberg/// write... 'A cease-fire is obviously desirable, but not if the cost is honoring terror sponsors. There must be others who can mediate.' I’m not sure in fact that there are others who can mediate.... Any deal will have to involve the U.S. and Egypt, but also Turkey or Qatar as well, and that’s just the reality of things. I wish it weren’t so, but it is, and ignoring the basic structure of the players involved won’t get Israel and Gaza any closer to a ceasefire....

Finally, and perhaps most damagingly, there is the idea taking hold on the right that if given just enough time to keep fighting, Israel can end Hamas rule in Gaza.... Israel made this mistake before in 1982 when it went into Lebanon based on the fantasy of destroying the PLO once and for all.... The quicker that everyone realizes that a political solution is the only long-term one, the better everyone will be. Let’s deal with the world as it is, not the world as we want it.

Weekend Reading: Cosma Shalizi (2009): On the Certainty of the Bayesian Fortune-Teller

Cosma Shalizi (2009): On the Certainty of the Bayesian Fortune-Teller: "Three-Toed Sloth: Slow Takes from the Canopy (My Very Own Internet Tradition): June 16, 2009:

Attention conservation notice: 2300 words of technical, yet pretentious and arrogant, dialogue on a point which came up in a manuscript-in-progress, as well as in my long-procrastinated review of Plight of the Fortune Tellers. Why don't you read that book instead?

Q: You really shouldn't write in library books, you know; and if you do, your marginalia should be more helpful, or less distracting, than just "wrong wrong wrong!"

A: No harm done; my pen and I are both transparent rhetorical devices. And besides, Rebonato is wrong in those passages.

Q: Really? Isn't his point that it's absurd to pretend you could actually estimate a something like a probability of an interest rate jump so precisely that there's a real difference between calling it 0.500 000 and calling it 0.499 967? Isn't it yet more absurd to think that you could get the 99.5 percent annual value-at-risk--the amount of money you'd expect to lose once in two thousand years--down to four significant figures, from any data set, let alone one that covers just five years and so omits:

not only the Black Death, the Thirty Years' War, the Barbarian invasions, and the fall of the Roman Empire, but even the economic recession of 1991--the only meaningful recession in the last twenty years

(as of 2006), to say nothing of the

famous corporate loan book crises of the Paleochristian era

(p. 218)?

A: Of course all that's absurd, and Rebonato is right to call people on it. By the time his book came out it was too late to do much good, but if people had paid attention to such warnings I dare say we wouldn't be quite so badly off now, and they had better listen in the future.

Q: So what's your problem? Oh, wait, let me guess: you're upset because Rebonato's a Bayesian, aren't you? Don't bother, I can tell that that's it. Look, we all know that you've got objections to that approach, but at this point I'm starting to think that maybe you have issues. Isn't this sort of reflexive hostility towards a whole methodology--something you must run into every day of work--awkward and uncomfortable? Embarrassing, even? Have you thought about seeking help?

A: Actually, I have a serious point to make here. What Rebonato wants is entirely right-headed, but it fits very badly with his Bayesianism, because Bayesian agents are never uncertain about probabilities; at least, not about the probability of any observable event.

Q: But isn't Bayesianism about representing uncertainty, and making decisions under uncertainty?

A: Yes, but Bayesian agents never have the kind of uncertainty that Rebonato (sensibly) thinks people in finance should have.

Q: Let me try to pin you down in black and white. [Opens notebook]

I have here on one side of the page our old friend, the well-known the probability space Omega F. Prob. Coming out of it, in the middle, is a sequence of random variables X1, X2, ... , Xn, ... , which have some joint distribution or other. (And nothing really depends on its being a sequence, I could use a random field on a network or whatever you like, add in covariates, etc.)

On the other side of the random variables, looking at them, I have a standard-issue Bayesian agent. The agent has a hypothesis space, each point m of which is a probability distribution for the random sequence. This hypothesis space is measurable, and the agent also has a probability measure, a.k.a. prior distribution, on this space. The agent uses Bayes's rule to update the distribution by conditioning, so it has a sequence of measures D0, D1, etc.

A: I think you are missing an "As you know, Bob", but yes, this is the set-up I have in mind.

Q: Now I pick my favorite observable event f, a set in the joint sigma-field of the Xi. For each hypothesis m, the probability m(f) is well-defined. The Bayesian thinks this is a random variable M(f), since it has a distribution D on the hypothesis space. How is that not being uncertain about the probability of f?

A: Well, in the first place--

Q: I am not interested in quibbles about D being a Dirac delta function.

A: Fine, assume that D doesn't put unit mass on any single hypothesis, and that it gives non-zero weight to hypotheses with different values of m(f). But remember how Bayesian updating works: The Bayesian, by definition, believes in a joint distribution of the random sequence X and of the hypothesis M. (Otherwise, Bayes's rule makes no sense.) This means that by integrating over M, we get an unconditional, marginal probability for f:

Pn(f) = EDn[M(f|X1=x1, X2=x2, ... , Xn=xn)]

Q: Wait, isn't that the denominator in Bayes's rule?

A: Not quite, that equation defines a measure--the predictive distribution--and the denominator in Bayes's rule is the density of that measure (with n=0) at the observed sequence.

Q: Oh, right, go on.

A: As an expectation value, Pn(f) is a completely precise number. The Bayesian has no uncertainty whatsoever in the probabilities it gives to anything observable.

Q: But won't those probabilities change over time, as it gets new data?

A: Yes, but this just means that the random variables aren't independent (under the Bayesian's distribution over observables). Integrating m with respect to the prior D0 gives us the infinite-dimensional distribution of a stochastic process, one which is not (in general) equal to any particular hypothesis, though of course it lies in their convex hull; the simple hypotheses are extremal points. If the individual hypothesis are (laws of) independent, identically-distributed random sequences, their mixture will be exchangeable. If the individual hypotheses are ergodic, their mixture will be asymptotically mean-stationary.

Q: Don't you mean "stationary" rather than "asymptotically mean-stationary"?

A: No; see chapter 25 here, or better yet that trifler's authority.

Q: You were saying.

A: Right. The Bayesian integrates out m and gets a stochastic process where the Xi are dependent. As far as anything observable goes, the Bayesian's predictions, and therefore its actions, are those of an agent which treats this stochastic process as certainly correct.

Q: What happens if the Bayesian agent uses some kind of hierarchical model, or the individual hypotheses are themselves exchangeable/stationary?

A: The only thing that would change, for these purposes, is the exact process the Bayesian is committed to. Convex mixtures of convex mixtures of points in C are convex mixtures of points in C.

Q: So to sum up, you're saying that the Bayesian agent is uncertain about the truth of the unobservable hypotheses (that's their posterior distribution), and uncertain about exactly which observable events will happen (that's their predictive distribution), but not uncertain about the probabilities of observables.

A: Right. (Some other time I'll explain how that helps make Bayesian models testable.) And--here's where we get back to Rebonato--all the things he is worried about, like values-at-risk and so forth, are probabilities of observable events. Put a Bayesian agent in the risk-modeling situation he talks about, and it won't just say that the 99.5% VaR is 109.7 million euros rather than 110 million, it will give you as many significant digits as you have time for.

Q: So let me read you something from p. 194--195:

Once frequentists accept (at a given statistical level of confidence) the point estimate of a quantity (say, a percentile), they tend to act as if the estimated number were the true value of the parameter. Remember that, for a frequentist, a coin cannot have a 40% chance of being biased. Either the coin is fair or it is biased. Either we are in a recession or we are not. We simply accept or reject these black-or-white statements at a certain confidence level... A Bayesian approach automatically tells us that a parameter (say, a percentile) has a whole distribution of possible values attached to it, and that extracting a single number out of this distribution (as I suggested above, the average, the median, the mode, or whatever) is a possibly sensible, but always arbitrary, procedure. No single number distilled from the posterior distribution is a primus inter pares: only the full posterior distribution enjoys this privileged status, and it is our choice what use to make of it.

This seems entirely reasonable; where do you think it goes wrong?

A: You mean, other than the fact that point estimates do not have "statistical levels of confidence", and that Rebonato has apparently forgotten about actual confidence intervals?

Q: Let's come back to that.

A: He is running together parameters of the unobserved hypotheses, and the properties of the predictive distribution on which the Bayesian acts. I can take any function I like of the hypothesis, g(m) say, and use it as a parameter of the distribution. If I have enough parameters gi and they're (algebraically) independent of each other, there's a 1-1 map between hypotheses and parameter vectors--parameter vectors are unique names for hypotheses. I could make parts of those names be readily-interpretable aspects of the hypothetical distributions, like various percentiles or biases. The distribution over hypotheses then gives me a distribution over percentiles conditional on the hypothesis M. But we don't know the true hypothesis, and on the next page Rebonato goes on to cast "ontological" doubt about whether it even exists. (How he can be uncertain about the state of something he thinks doesn't exist is a nice question.) We only have the earlier observations, so we need to integrate or marginalize out M, and this collapses the distribution of percentiles down to a single exact value for that percentile.

Q: Couldn't we avoid that integration somehow?

A: Integrating over the posterior distribution is the whole point of Bayesian decision theory.

Q: Let's go back to the VaR example. If you try estimating the size of once-in-two-thousand-year losses from five years of data, your posterior distribution has got to be pretty diffuse.

A: Actually, it can be arbitrarily concentrated by picking the right prior.

Q: Fine, for any reasonable prior it needs to be pretty diffuse. Shouldn't the Bayesian agent be able to use this information to avoid recklessness?

A: That depends on the loss function. If the loss involves which hypothesis happens to be true, sure, it'll make a difference. (That's how we get the classic proof that if the loss is the squared difference between the true parameter and the point estimate, the best decision is the posterior mean.) But if the loss function just involves what observable events actually take place, then no. Or, more exactly, it might make sense to show more caution if your posterior distribution is very diffuse, but that's not actually licensed by Bayesian decision theory; it is "irrational" and sets you up for a Dutch Book.

Q: Should I be worried about having a Dutch Book made against me?

A: I can't see why, but some people seem to find the prospect worrying.

Q: So what should people do?

A: I wish I had a good answer. Many of Rebonato's actual suggestions--things like looking at a range of scenarios, robust strategies, not treating VaR as the only thing you need, etc.--make a lot of sense. (When he is making these practical recommendations, he does not counsel people to engage in a careful quantitative elicitation of their subjective prior probabilities, and then calculate posterior distributions via Bayes's rule; I wonder why.) I would also add that there are such things as confidence intervals, which do let you make probabilistic guarantees about parameters.

Q: What on Earth do you mean by a "probabilistic guarantee"?

A: That either the right value of the parameter is in the confidence set, or you get very unlucky with the data (how unlucky depends on the confidence level), or the model is wrong. Unlike coherence, coverage connects you to reality. This is basically why Haavelmo told the econometricians, back in the day, that they needed confidence intervals, not point estimates.

Q: So how did the econometricians come to make fetishes of unbiased point-estimators and significance tests of equality constraints?

A: No doubt for the same reason they became convinced that linear and logistic regression was all you'd ever need to deal with any empirical data ever.

Q: Anyway, that "get the model right" part seems pretty tricky.

A: Everyone is going to have to deal with that. (You certainly still have to worry about mis-specification with Bayesian updating.) You can test your modeling assumptions, and you can weaken them so you are less susceptible to mis-specification.

Q: Don't you get weaker conclusions--in this case, bigger confidence intervals--from weaker modeling assumptions?

A: That's an unavoidable trade-off, and it's certainly not evaded by going Bayesian (as Rebonato knows full well). With very weak, and therefore very defensible, modeling assumptions, the confidence interval on, say, the 99.5% VaR may be so broad that you can't devise any sensible strategy which copes with that whole range of uncertainty, but that's the math's way of telling you that you don't have enough data, and enough understanding of the data, to talk about once-in-two-thousand-year events. I suppose that, if they have financial engineers in the stationary state, they might eventually be able to look back on enough sufficiently-converged data to do something at the 99% or even 99.5% level.

Q: Wait, doesn't that suggest that there is a much bigger problem with all of this? The economy is non-stationary, right?

A: Sure looks like it.

Q: So how can we use statistical models to forecast it?

A: If you want someone to solve the problem of induction, the philosophy department is down the stairs and to the left.

For the Weekend: Chocolate!

Noted for Your Afternoon Procrastination for August 1, 2014

Over at Equitable Growth--The Equitablog

Nick Bunker: Weekend reading | Washington Center for Equitable Growth
Lunchtime Must-Read: All Those US Indicators This Week | Washington Center for Equitable Growth
Heather Boushey and Nick Bunker: Nothing new under the labor market sun | Washington Center for Equitable Growth
Is Living on the Dole Bad for You?: Thursday Focus for July 31, 2014 | Washington Center for Equitable Growth
Lunchtime Must-Read: Jason Furman and John Podesta: We Can't Wait: The Cost of Delaying Action to Stem Climate Change | Washington Center for Equitable Growth
A Note on the Shape of Yesterday's GDP Growth Number | Washington Center for Equitable Growth
Morning Must-Read: Ari Phillips: Paul Ryan Says Climate Change Is An Excuse To Illegally Grow Government And Raise Taxes | Washington Center for Equitable Growth
Over at Grasping Reality: Neel Kashkari Finds Out Our Big Macroeconomic Problem Is Lack of Demand | Washington Center for Equitable Growth

Plus:

Things to Read on the Afternoon of August 1, 2014 | Washington Center for Equitable Growth

Must- and Should-Reads:

Ari Phillips: Paul Ryan Says Climate Change Is An Excuse To Illegally Grow Government And Raise Taxes: "Rep. Paul Ryan (R-WI) said Wednesday that 'climate change occurs no matter what', but that the EPA’s recent efforts to reduce emissions from existing power plants are 'outside of the confines of the law', and 'an excuse to grow government, raise taxes and slow down economic growth'.... The 'federal government, with all its tax and regulatory schemes' can’t do anything about climate change... and 'end[s] up... making the U.S. economy less competitive'.... EPA chief Gina McCarthy recently said that she wouldn’t put forth a rule that 'doesn’t respect the Clean Air Act and isn’t legally solid', and that she is confident the regulations will survive any legal challenge..."

Jason Furman and John Podesta: We Can't Wait: The Cost of Delaying Action to Stem Climate Change: "We do face significant uncertainty.... That uncertainty, however, is an argument for doing more and doing it sooner.... The costs of achieving a fixed climate change goal would be 40 percent larger if we waited a decade to take action. And those costs could grow exponentially with a longer wait.... Delay means losing years of research in effective carbon-reducing technologies, along with bigger investments in older, carbon-intensive technologies, meaning that we would have to adopt more stringent and therefore more costly measures in the future to make up for lost time..."

Cardiff Garcia: All those US indicators: what did we learn this week?: "We received further confirmation that the first quarter slump really was just a temporary, weather-stricken pause.... Nominal wage growth has improved, but... not nearly enough for policymakers to start worrying about its impact on inflation... higher inflationary pressures in the second quarter were concentrated mainly in April and May.... The economy has created about 230,000 jobs per month this year.... Furthermore, in June there was a rise in the labour force participation rate.... The labour market isn’t yet healthy, but it is healing. The Fed... explicitly emphasised that 'a range of labor market indicators suggests that there remains significant underutilization of labor resources'.... Yellen’s position on labour market slack and her call that some unexpectedly high inflation readings earlier this year were 'noise' look pretty good right now..."

**Jonathan Landay and Ali WatkinsThe CIA lied: agency admits it hacked Senate computers to snoop on torture investigations: "CIA employees improperly accessed computers used by the Senate Intelligence Committee to compile a report on the agency’s now defunct detention and interrogation program, an internal CIA investigation has determined. Findings of the investigation by the CIA Inspector General’s Office 'include a judgment that some CIA employees acted in a manner inconsistent with the common understanding reached between SSCI (Senate Select Committee on Intelligence) and the CIA in 2009', CIA spokesman Dean Boyd said in a statement. The statement represented an admission to charges by the panel’s chairwoman, Dianne Feinstein, D-Calif., that the CIA intruded into the computers her staff used to compile the soon-to-be released report on the agency’s use of harsh interrogation methods on suspected terrorists in secret overseas prisons during the Bush administration..."

Adam Ozimek: Instead of Moving, Workers Are Dropping Out: "Geographic mobility has long set the U.S. apart from Europe, and its recent decline has created concerns. A new paper from the IMF suggests that one cause of this decline is a change in the way people respond to regional economic shocks.... Workers have become less likely to leave their states of residence in search of work and more likely to instead leave the labor force.... Declining geographic mobility is seen as yet another worrisome sign of a general decrease in economic dynamism. With labor force participation down more than would be expected following the last recession, the new research suggests these factors may be related..."

Paul Krugman: Knowledge Isn’t Power: "It usually turns out that there is much less professional controversy about an [economic] issue than the cacophony in the news media might have led you to expect.... [Asked] whether the American Recovery and Reinvestment Act--the Obama 'stimulus'--reduced unemployment... a vote of 36 to 1. A follow-up question on whether the stimulus was worth it... 25 to 2.... Let me ask, instead, whether you knew that the pro-stimulus consensus among experts was this strong.... You certainly didn’t hear about that consensus on, say, CNBC.... More important, over the past several years policy makers across the Western world have pretty much ignored the professional consensus on government spending and everything else, placing their faith instead in doctrines most economists firmly reject.... Am I saying that the professional consensus is always right? No. But when politicians pick and choose which experts--or, in many cases, 'experts'--to believe, the odds are that they will choose badly. Moreover, experience shows that there is no accountability..."

And:

Luigi Pasinetti: Institutional Forces and the Discipline of Economics
Mark Thoma: Behind the Fed's promise about short-term rates
Nick Bunker: A Post-War History of U.S. Economic Growth: An Examination of the Contributions to Growth of the Components of Gross Domestic Product
Cosma Shalizi (2009): On the Certainty of the Bayesian Fortune-Teller
Trygve Haavelmo (1944): The Probability Approach in Econometrics

And Over Here:

Bad Siri! When I Say "Cosma Shalizi", Do Not Transcribe It as "Cosmos Elysée"! (Brad DeLong's Grasping Reality...)
Elementary Philosophy of Probability and the War on Nate Silver: The Honest Broker for the Week of August 2, 2014 (Brad DeLong's Grasping Reality...)
What THEY Cover Up: Live from La Farine CCXXXI: August 1, 2014 (Brad DeLong's Grasping Reality...)
Liveblogging World War I: August 1, 1914: Failing to Shy at the Jump (Brad DeLong's Grasping Reality...)
Thursday Watching Numbers Weblogging: Over at Equitable Growth (Brad DeLong's Grasping Reality...)
Neel Kashkari Finds Out: Low Employment Not Due to Skill Mismatch or "Structural" Factors: Live from La Farine CCXXX: July 31, 2014 (Brad DeLong's Grasping Reality...)

Should Be Aware of:

Peter Dorman: Figuring out the Inflation Vigilantes: "Paranoia about inflation is a widespread, longstanding phenomenon, with immense influence over public discourse and economic policy, and out of all proportion to the actual... threat. It deserves to be studied by the normal tools of social science, the ones we devote to other significant political, religious and social ideologies.... The disinflation lobby is an important part of the political landscape.... Seeing the spending side of inflation and not the income side is Type II money illusion... actively purveyed by the media and even, on occasion, prominent members of the economics profession..."

J.W. Mason: The Rentier Would Prefer Not to Be Euthanized: "Here’s another one for the 'John Bull can stand many things, but he cannot stand two percent' files. As Krugman says, there's an endless series of these arguments that interest rates must rise. The premises are adjusted as needed to reach the conclusion.... But what are the politics?... The rentiers would prefer not to be euthanized.... To the extent that pure money-holders facilitate production, it is because money serves as a coordination mechanism, bridging gaps--over time and especially with unknown or untrusted counterparties--that would otherwise prevent cooperation from taking place. [1] In a world where liquidity is abundant, this coordination function... can no longer be a source of authority or material rewards.... The problem is, the liquidity specialists don’t want to go away.... So we get all these arguments that boil down to: Money must be kept scarce so that the private money-sellers can stay in business..."

Karl Marx (1867: Cooperation: "Capitalist production only... really begins... when... the labour-process is carried on on an extensive scale and yields... large quantities.... At first... the difference is purely quantitative...[then] a modification takes place.... The simultaneous employment of a large number of labourers effects a revolution in the material conditions of the labour-process.... They are used in common, and therefore on a larger scale.... The effect is the same as if the means of production had cost less.... Just as the offensive power of a squadron of cavalry, or the defensive power of a regiment of infantry is essentially different from the sum of the offensive or defensive powers of the individual cavalry or infantry soldiers taken separately, so the sum total of the mechanical forces exerted by isolated workmen differs from the social force that is developed, when many hands take part simultaneously in one and the same undivided operation, such as raising a heavy weight, turning a winch, or removing an obstacle. In such cases the effect of the combined labour could either not be produced at all by isolated individual labour, or it could only be produced by a great expenditure of time, or on a very dwarfed scale.... We [have] here... the creation of a new power, namely, the collective power of masses..."

Amos Oz: "I would like to begin the interview... by presenting one or two questions.... What would you do if your neighbor across the street sits down on the balcony, puts his little boy on his lap and starts shooting machine gun fire into your nursery? What would you do if your neighbor across the street digs a tunnel from his nursery to your nursery in order to blow up your home or in order to kidnap your family? With these two questions I pass the interview to you."

Bad Siri! When I Say "Cosma Shalizi", Do Not Transcribe It as "Cosmos Elysée"!

Elementary Philosophy of Probability and the War on Nate Silver: The (Not Very) Honest Broker for the Week of August 2, 2014

Of all the weird things that have happened in the American public sphere in my life, the most weird was the War on Nate Silver--launched in the fall of 2012 by David Brooks, Joe Scarborough, Dylan Byers, and a remarkably large company.

The underlying argument appeared to be that Nate Silver was doing something wrong and unfair by using... evidence. By... counting things. By... using statistics. By... estimating probabilities...

A few of the "best" examples:

David Brooks on the PBS NewsHour:

What I hate are the forecasts, when they say so and so has a 66 percent chance of winning or a 32 percent chance of winning.... If you tell me you think you can quantify an event that is about to happen that you don’t expect, like the 47 percent comment or a debate performance, I think you think you are a wizard. That’s not possible...

Dylan Byers: Nate Silver: One-term celebrity?:

So should Mitt Romney win on Nov. 6, it’s difficult to see how people can continue to put faith in the predictions of someone who has never given that candidate anything higher than a 41 percent chance of winning (way back on June 2) and--one week from the election--gives him a one-in-four chance, even as the polls have him almost neck-and-neck with the incumbent...

Morton Kondracke: Election Oddsmakers Suffering From Fuzzy Math::

Nate Silver, the New York Times’ election modeler, gives Obama a 65.7 percent chance of winning.... Intrade... had Obama as a 64.2 percent favorite as of today.... Romney came off as a plausible president... while Obama didn’t engage--and that the election’s been moving in Romney’s direction ever since.... The Real Clear Politics average of recent polls has Romney up by 1 point--meaning, a tie--but the Gallup seven-day tracking poll shows Romney up by 7 points among likely voters.... [If you] place a bet in... London [on Romney], you might just make a pile...

Peggy Noonan: Obama and His Team Have Lost That Loving Feeling:

The other day a Republican political veteran forwarded me a hiring notice from the Obama 2012 campaign. It read like politics as done by Martians.... "Analytics Department"... "predictive modeling/data mining" specialists to join the campaign's "multi-disciplinary team of statisticians".... Is that what politics is now? Or does the Obama re-election effort reflect the candidate and his flaws?...

And it seems to be not, or not entirely, a Democrat-Republican thing:

Natalia Cecire: The Passion of Nate Silver (Sort Of):

The "Nate Silver phenomenon" is a perfect example of Second Gilded Age puerility... a form of boyishness... a Tom Sawyer who insists on playing even when a slave's freedom is at stake... it is entirely appropriate that his statistical forecasting began not in politics but in sports. Nate Silver's models cannot... explain, say, the role of race... cannot give definitive predictions either, only probabilities.... Statistics is an inherently puerile discipline.... It's not understanding.... Silver's most ardent defenders are wholly immersed in the logic of puerility... most notably Silver's fellow statistical Wunderkind, Ezra Klein.... The moral absence at the heart of statistical methods.... A Nieman Lab defense... celebrates that "FiveThirtyEight has set a new standard for horse race coverage".... That this can be represented as an unqualified good speaks to the power of puerility...

And there's more! A lot more!! An awful lot more!!!

But what has reminded me of all this?

The reopening of the War on Nate Silver by National Review and its Charles Cooke: Smarter than Thou:

Insecure hipsterism... unwarranted condescension... self-professed nerds... (a) the belief that one can discover all of the secrets of human experience through differential equations and (b) the unlovely tendency to presume themselves to be smarter than everybody else in the world... Melissa Harris-Perry, Rachel Maddow, Steve Kornacki... Chris Hayes... Ezra Klein, Dylan Matthews... Matt Yglesias... Nate Silver... Paul Krugman... Richard Dawkins... Al Gore... Bill Nye... anybody who conforms to the Left’s social and moral precepts while wearing glasses and babbling about statistics.

The pose is, of course, little more than a ruse.... I’m smart... not... southern, politically conservative, culturally traditional, religious in some sense, patriotic, driven by principle rather than the pivot tables of Microsoft Excel, and in any way attached to the past.... the fadlike fetishization of “Big Data” is merely the latest repackaging of old and tired progressive ideas.... “It’s just science!” is... a bullying tactic... to pretend that Hayek’s observation that even the smartest of central planners can never have the information they would need... was obviated by the invention of the computer. If politics should be determined by pragmatism, and the pragmatists are all on the left... well, you do the math....

Progressives... believe... unscientific things--that Medicaid, the VA, and Head Start work; that school choice does not; that abortion carries with it few important medical questions; that GM crops make the world worse; that one can attribute every hurricane, wildfire, and heat wave to “climate change”; that it’s feasible that renewable energy will take over from fossil fuels anytime soon--but also do their level best to block investigation into any area that they consider too delicate.... Perhaps the greatest trick the Left ever managed to play was to successfully sell the ancient and ubiquitous ideas of collectivism, lightly checked political power, and a permanent technocratic class as being “new,” and the radical notions of individual liberty, limited government, and distributed power as being “reactionary”...

But why is this tired table-pounding worth writing about?

Because there is an interesting intellectual point underneath it all in at least one of the fronts in the War on Nate Silver.

We see it, a bit, in Jonah Goldberg's Nate Silver's Numbers Racket:

An intense kerfuffle broke out over the poll-prognosticator Nate Silver and his blog at the New York Times, FiveThirtyEight. Silver, a statistician, has been predicting a decisive Obama victory for a very long time, based on his very complicated statistical model, which very, very few of his fans or detractors understand. On any given day, Silver might announce that--given the new polling data--"the model" now finds that the president has an 86.3% chance of winning. Not 86.4%, you fools. Not 86.1%, you Philistines. But 86.3%, you lovers of reason...

And it is developed more fully by the truly extraordinary Gregg Easterbrook's Absurd Specificity Watch:

Americans seem to love hyperbolic claims of precision--perhaps it makes us feel that science is more efficient than it really is. When Nate Silver of The New York Times forecasts, as he did on the morning of the 2012 presidential voting, that Barack Obama will win re-election with "314.6" electoral votes to "223.4" electoral votes for Mitt Romney, such numbers are received with gravitas--as if the decimal places made them deep, rather than silly. In just two days, Obama's chance of re-election increased from "80.8 percent" to "83.7" percent. A claim of a "83.7" percent chance rather than "a good chance" is seen as turning the speaker into Mr. Spock, when actually ought to make readers giggle...

But why should Silver's claim at the start of November 2012 that his model predicted that Obama had an 80.8% chance of winning the election should "make readers giggle"?

What was wrong with it?

In what sense was the "specificity" "absurd"? If one is going to lay odds after all, one has to pick a real number between zero and one to do so, and of the real numbers in that interval the "absurdly specific" ones are those with a representation with just one or two non-zero digits. You should giggle if someone claims the odds are even, or 3-2, or 2-1, Or 4-1 exactly.

So there is something there that is not obvious.

Let's unpack it: time for a dialogue! [UPDATE: Cf. : Cosma Shalizi (2009)]

Thrasymakhos: So tell us, friend Simplissimus, what your cohorts' objection is. Gregg Easterbook and Jonah Goldberg do not tell us why Nate Silver should make you giggle. Instead, they use that figure of rhetoric that I call "Mean Girls": to mock, and in the process of mocking implicitly warn you that if you admit to not understanding their mockery you will be mocked too. That keeps them from having to outline exactly what their mockery is so the underlying argument can be examined...

Simplissimus: I will give it a try.

Let us think about the kinds of knowledge that we could have about a forthcoming future event, and about the overweening pride of those who falsely pretend to forms of knowledge and certainty that they cannot have...

Sokrates: Let's be specific. Is there something that was once in the future but is now in the past that was bothering you? Something we can examine?...

*Simplissimus: OK. The Obama-Romney presidential election. Nate Silver's false pretense of knowledge that he knew the odds down to the last decimal point.

Sokrates: Back up. Let's start with claims to knowledge that we can all agree are false, just so we can all start on the same page...

Simplissimus: OK...

Sokrates: We could claim about some future event that we know what will happen--that, for example, that we know at the start of November 2012 that Obama is going to win. Is that the kind of false pretense knowledge you are talking about?

Simplissimus: No. Everyone argues that certain knowledge of what future events will or will not come to pass is impossible.

Sokrates: So everyone agrees that claims of certain knowledge about the future are offenses against Tyche: impious and false. Only wizards and prophets claim such knowledge, and there are no true wizards and prophets.

Simplissimus: You speak truly, Sokrates.

Sokrates: But that is not the type of knowledge that Nate Silver claims, is it?

Simplissimus: No.

Sokrates: OK, so Nate Silver does not claim--call that first-order certainty. Nate Silver is much too epistemologically modest to fall into that trap of claiming to know who will be the winner.

Simplissimus: True.

Sokrates: There is another epistemologically arrogant claim to knowledge. Joe Scarborough makes it. He claims to know--with certainty--that the odds on who will win the presidential election are 50-50, and anybody who claims to know anything else is a fraud:

Nobody in that campaign thinks they have a 73% chance--they think they have 50.1% chance of winning. And you talk to the Romney people, it is the same thing. Both sides understand that it is close, and it could go either way. And anybody that thinks that this race is anything but a toss up right now is such an ideologue, They should be kept away from typewriters, computers, laptops and microphones for the next 10 days, because they are jokes...

Call that second-order certainty--that the principle of insufficient reason rules, and that the only true fair odds any honest and rational person can arrive at must be 50-50. Is that Nate Silver's offense?

Simplissimus: No.

Sokrates: So what, then, is Nate Silver's impious and false claim? What is it that offends the goddess Tyche, and because of which we should pay him no attention?

Simplissimus: The offense is that he claims that the odds of Obama winning the election are 80.8%. And then he claims two days later that the odds of Obama winning the election have risen to 83.7%. Nobody can know that. Nobody should claim that.

Sophia: So what is wrong with Nate Silver is that he claims to know the odds?

Simplissimus: Exactly.

Sophia: OK. Let's start dropping into some math here. Suppose there is, as a property of the world, some θ--written in the courses of the stars--that is the true chance that Obama will win the election.

Simplissimus: Why "θ"?

Thrasymakhos: It's a trick we math people use to make you feel insecure. It reminds you that there are valid forms of knowledge we know that you are totally clueless about. And it reminds you that these forms of knowledge are ancient and indeed "classical". It was Glaukon's brother, after all, who inscribed "let no one enter here who knows not geometry" above our gates. It is a way of reminding you to look up at that inscription, and remember that you do not belong in this conversation.

Sophia: We have to call "the property of the world--written in the courses of the stars--that is the true chance that Obama will win the election" something. And to call it "the property of the world--written in the courses of the stars--that is the true chance that Obama will win the election" makes discussion incredibly circuitous. Calling it θ allows us to think more quickly and more accurately.

Thrasymakhos: Perhaps...

Sophia: So your complaint is that Silver claims to know that true θ? And that knowing that true θ is something nobody can do, and something nobody should claim?

Simplissimus: Exactly.

Sokrates: So Silver's impious offense is not that he claims to know who will win--the first-order certainty-- the future, and not knowing that nobody can guess the future and therefore the principle of insufficient reason rules--the second-order certainty--but rather the third-order certainty of claiming to know what the odds really are?

Simplissimus: Exactly.

Sophia: But that is not what Nate Silver does.

Simplissimus: Huh?!

Sophia: Silver has a model. His model produces an estimate. Silver doesn't claim to know what the true odds θ are: all he claims is to have constructed (what he hopes is) an unbiased estimate θ' of the true odds θ.

Simplissimus: I don't understand...

Thrasymakhos: Does Nate Silver actually think that he knows is the chances of Obama's winning the election are 80.8% in any comprehensive sense? No. The most he will say is that that number is the point at which he, personally, would switch from thinking that betting on Obama is a good deal (for small stakes) to thinking that betting on Romney is a good deal (for small stakes).

Simplissimus: But Nate Silver says Obama's odds are 80%! He claims to understand the deep structure of the universe, and know what the true odds θ are! You cannot make a forecast of the odds without such knowledge!

Sophia: Yes you can.

Simplissimus: Huh?

Sophia: The odds you quote are simply the odds you would bet at. They aren't a claim to know what the true odds θ are. They are just your best unbiased estimate θ' of what the true odds are--which is why you shouldn't bet on whether the jack of spades will jump out of the deck and piss in your ear when you are betting against somebody other than Nature, but that is a different discussion...

Simplissimus: But you cannot calculate the true fair odds of Obama winning without knowing what θ is! Nate Silver's claim to have calculated those odds is an impious and false claim to know something about the deep structure of the universe that he cannot! He cannot honestly know that at the the start of November, 2012 the true θ was 80%! But that is what quoting odds requires!

Sophia: Nonsense!

In order to quote odds we do not need to know what the true θ is. We only need to have the best unbiased estimate θ' of θ that we can construct.

Let's consider an example: Suppose Nature has told us that θ is either 0.6 or 1.0, is equally likely to be each, but that we cannot find out any more than that. As long as we have our unbiased θ'=0.8, we can calculate the probabilities perfectly well.

Then--take a breath--there is a 50% chance that Obama has a 60% chance of winning, and a 40% chance of losing. And--take a breath--there is a 50% chance that Obama has a 100% chance of winning and a 0% chance of losing. We can then add up the probabilities:

a 30% chance that θ is low and Obama wins
a 50% chance that θ is high and Obama wins

And these up, and see that Obama has an 80% chance of winning. Compute the probability that Obama wins from our θ'=0.80, and see that Obama has an 80% chance of winning.

This generalizes.

We do not need to know the distribution of the true θ. All we need is an unbiased estimate θ' of the true θ. And then we are golden. Game and set.

Simplissimus: But what if the chance that the true θ=0.6 is not 1/2 but 3/4?

Sophia: Then our unbiased estimate θ'=0.7. And when we do the math:

a 45% chance that θ is low and Obama wins
a 25% chance that θ is high and Obama wins

And thus a 70% chance that Obama wins. Once again, what we need is an unbiased estimate θ' of the true θ. This generalizes: all we ever need to calculate the odds is an unbiased estimate θ' of the true θ.

Simplissimus: But what if we think the odds that the true θ=0.6 are 1/2 when they are in fact 1/4, and we have a θ'=0.8 and compute that Obama has an 80% chance of winning when in fact he has only a 70% chance?

Sophia: Then our θ' is not an unbiased estimate, is it?

But note that you are no longer claiming that Nate Silver impiously pretends to know something he cannot. You are, instead, merely claiming that Nate Silver's calculations are off, and that his procedure for arriving at his θ' does not produce an unbiased estimate of the true θ. Game, set, and match.

Complexificius: But suppose we don't know with certainty that nature is picking θ=0.6 and θ=1.0 with equal odds. Suppose nature picks a parameter λ first, and with a probability λ picks θ=0.6 and with probability (1-λ) picks θ=1.0. Then constructing an unbiased estimate θ' of the true θ no longer allows you to calculate the odds, does it? You have to know λ, right?

Sophia: Wrong! You can still calculate the odds with your unbiased estimate θ' of the true θ. But in order to construct an unbiased estimate of the true θ you need to know something about λ. Can you guess what that something is?

Thrasymakhos: Do you need to construct an unbiased estimate of λ?

Sophia: Correct! Suppose that there is a 50% chance that the true λ=0.5 and a 50% chance that the true λ=1.0. Then when we run the probabilities, we get:

a 50% chance that λ is high (1.0):

a 50% chance that λ is high (1.0) and θ is low (0.6):

a 30% chance that λ is high (1.0), θ is low (0.6), and Obama wins.


a 50% chance that λ is low (0.5):

a 25% chance that λ is high (1.0) and θ is low (0.6):

a 15% chance that λ is high (1.0), θ is low (0.6), and Obama wins.

a 25% chance that λ is high (1.0) and θ is high (1.0):

a 25% chance that λ is high (1.0), θ is high (1.0), and Obama wins.

That's a 70% chance that Obama wins.

If we knew what the true λ was, we could construct an estimate of θ', since θ'=0.4λ+0.4. We don't know the true λ, but if we start with an unbiased estimate of it λ'=0.75, we can still construct an unbiased estimate θ'=0.7. And so we figure Obama's odds at the same 70%. Game...

Thrasymakhos: You are leaning rather heavily on linearity here...

Supercomplexificissimus: But...

Sophia: I know what you are going to say: in order to calculate the true fair odds of Obama winning we had to get an unbiased estimate θ' of the true θ that nature chose. But in order to get that unbiased estimate of the true θ we needed an unbiased estimate λ' of the true λ that nature chose. But nature chooses λ according to some chance process, and we need an unbiased estimate of the α that governs Nature's choice, which requires we know the process, which requires an unbiased estimate of, in turn, β, γ, δ, ε, ζ, η, ι, κ, μ, ν, ξ, ο, π, ρ, σ, τ, υ, φ, χ, ψ, and ω...

Supercomplexificissimus: Correct. Where do all the unbiased estimates of all of these come from?

Thrasymakhos: You do realize you have just rediscovered the unsolved problem of induction?

Sophia: From the same place that your confidence that the sun will almost surely rise in the east rather than in the south tomorrow comes from. The point is that--wherever knowledge comes from--in order to calculate his odds, Nate Silver needs not to know what the true θ is, or even what the probability distribution of the true θ is, but only needs to have an unbiased estimate θ' of the true θ. And--wherever knowledge comes from--the claim that one has an unbiased estimate θ' is an epistemologically modest one, much more modest than knowing what the true θ is or what the distribution of the true θ is or that Obama will win or that Obama will lose or that it is a 50-50 tossup.

Supercomplexificissimus: But surely it matters that we do not know that the true θ=0.8! Surely it matters that all we have is an estimate θ'=0.8 that we hope is an unbiased estimate of the true θ!

Sophia: It doesn't matter for Nate Silver. It doesn't matter for anybody hoping to calculate true fair odds.

Supercomplexificissimus: Who does it matter for, then?

Sophia: Take your θ'=0.8. Suppose that you had 20 parallel-universe earths, and 20 Obamas, and placed 20 bets. Then you would expect to win 16 of them, yes?

Supercomplexificissimus: I suppose so.

Sophia: And if the true θ drawn by Nature were θ=0.8, you would have only one chance in 100 of winning all 20, correct?

Supercomplexificissimus: I suppose so.

Sophia: But if your θ'=0.8 came from a 50% chance of a true θ=1.0 and a 50% chance of a true θ=0.6, the odds of your winning all 20 would be one in two, not one in a hundred.

That is where the difference lies. It is in making repeated bets in similar situations that failing to recognize that you do not know the true θ drawn by nature but only have an (hopefully) unbiased estimate θ' turns around and bites you in the ----. Cf.: "Gaussian Copula", passim...

Sokrates: I am not satisfied. I hear--all the time--people talk about things like "non-ergodicity" and "Knightian uncertainty". I would not claim to know what they mean. But surely they are gesturing in a direction in which it matters whether a particular θ'=0.8 really means that the odds are 80%, or whether that θ'=0.8 is just the average of a large number of widely-different possible things that the true odds θ might be.

Sophia: I mentioned one way it matters--if the situation is not a one-off. It also matters a lot if you are betting not against nature but against another mind--if your estimate θ' is rock-solid, then you can gamble away; but if there is great uncertainty about θ then you need to be very aware of the possibility that perhaps they know more than you do, and you should on no account take the bet. Moreover, it matters a great deal for how you construct your estimate θ'. If uncertainty about what the true θ is is high, you should be prepared to radically revise your beliefs as new information comes in. And you should not make irreversible decisions if new information that might be important is on the way. and worrying about such things reminds you that there is always also the risk that you do not understand the situation, and that many things that look like sure things are not.

Sokrates: But?

Sophia: Nate Silver is perhaps the quantitative analyst least vulnerable to such "black swan" critiques. On election day he gave Obama's chances as 92%, while other similar-methodology forecasters like Princton's Sam Wang were well above 99%. Why? As best as I can tell, because Nate's model includes a 16% chance that the model was hopelessly and grossly wrong in some dimension.

Sokrates: So quantitative methods do have their limits after all?

UPDATE: And something that I should have linked to at the start: Cosma Shalizi (2009): On the Certainty of the Bayesian Fortune-Teller

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What THEY Cover Up: Live from La Farine CCXXXI: August 1, 2014

Moe Lane: HA! My Secret Map made the Tor.com blog!: