J. Bradford DeLong's Blog, page 2130

The Failure to Get HAMP in Proper Gear Was Another Large Unforced Error from the Obama Administration

Alan Beattie and Robin Harding:

US data emphasise lingering risk to recovery: House prices and consumer confidence have fallen by more than expected, according to data released on Tuesday, emphasising the lingering risk that a weak housing market will dent domestic demand and undermine the US economic recovery. According to the widely followed Case-Shiller index, house prices dropped by 1.3 per cent between September and October, the fourth consecutive month in which prices have fallen. Prices across 20 US urban areas stood 0.8 per cent below the level of October 2009, a sharper fall than economists had expected. Separately, the Conference Board, a research group, said that its index of consumer confidence had declined to 52.5 in December from a revised reading of 54.3 in November, confounding the expectations of most economists who had predicted an increase to nearly 57....

While most data show the US economy is continuing to pick up steam, the housing market and its effect on consumer confidence is one of its weakest links. House prices are being held back by a huge pipeline of foreclosures that has not yet worked through the system and by the continued difficulty that many consumers have in getting a mortgage...

Concision And The Public Intellectual

Ta-Nehisi Coates:

Concision And The Public Intellectual: [L]et's say I go on television and say:

We can salute the bravery of the Confederate Army, while deploring their aims.

This is a fairly conventional point which relies on relatively established mores. They are, in this case, 1.) Slavery was bad 2.) The men who died at Gettysburg, Antietam, and Vicksburg on both sides, were brave. Or some such. Moreover it makes me sound fair-minded in my willingness to allow for a kind of moral out for all sides, regardless of their sympathies. 

But let's say I go on television and say:

Confederate bravery is neither unique, nor in and of itself, praise-worthy. Mohammad Atta was brave. The kamikazes were brave. But bravery in service of evil should never be commemorated.

This is a problem. Even in writing it, I've had to take up more space then the previous assertion. Likely, I could edit it down to a sentence or two. But I leave it this way to show how much space and time it takes me to make the more contentious point, one that challenges our accepted thinking, (the 9/11 bombers were brave) and leaves no room for an honorable retreat. Pushing the point further, I could, as was done the other night, simply call the firing on Fort Sumter a terrorist attack. This is almost certainly untrue, but it incites our visceral disgust for terrorism and thus leaves the point of commemorating implicit....

Surely concision, favors the simple and conventional, but this is as true in writing as it is talking on cable news. The problem is that intellectuals are (hopefully) trained to write. They aren't trained to talk.

Going into the next few years, we need historians debating the Civil War's causes not "liberal columnists" who could just as easily be debating health care or TARP. I'm a liberal, but I don't really see how pointing out that the South seceded to preserve and expand slavery necessarily leads to an argument for single-payer health care. I mean, I hope it does. But there's no real reason why it has to.

Ta-Nehisi Coates's Appreciation of Teena Marie

The Indomitable Blackness of Teena Marie

The Pre-WWI Double Bluff

Mark Thoma sends us to Richard Green who sends us to John Maynard Keynes.

Richard::

Richard's Real Estate and Urban Economics Blog: Keynes on the "Psychology of Society": My wife gave me a Kindle for Christmas.  The first thing I should say is that it is really great: my eyesight isn't what it once was, and I find it very easy to read..  The second is that I will continue to buy books at Vroman's (a Pasadena bookstore), because I want them to stay in business.  Third, I downloaded the Economic Consequences of the Peace, which I hadn't read in four or five years. It has a section early on that really struck me...

Maynard:

Europe was so organized socially and economically as to secure the maximum accumulation of capital.  While there were some continuous improvements in the daily conditions of life of the mass of the population, Society was so framed to to throw a great part of the increased income into the control of the class least likely to consume it.  The new rich of the 19th century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption.  In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others.  Herein lay, in fact, the main justification of the Capitalist System.  If the rich had spent their new wealth on their own enjoyments, the world long ago would have found such a regime intolerable.  But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.

The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war [WWI], could never have come about in a Society where wealth was divided equitably.  The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Eqypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.

Thus this remarkable system depended for its growth on a double bluff or deception.  On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, perusade or cajoled by custom, convention, authority, and the well-established order of Society into accepting a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce.  And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice...

Links!!

Steven Johnson:

Accessing the e-book revolution: In 1467, Peter Schöffer and Johann Fust published a translation of St Augustine’s The Art Of Preaching. They were old colleagues of Johannes Gutenberg, the pioneer of modern printing. But their true claim to fame is that they were the first commercially successful printers, and this success stemmed in part from their relentless innovation with the world’s newest communications technology: the book.

One such innovation appeared in the 1467 edition, which was the first printed book to include an alphabetical index. Schöffer and Fust were not only competing by releasing new titles. They were changing what it meant to use and read a book.

Some of the first book advertisements – and indeed some of the first modern adverts anywhere – talked up their “better arranged indexes” as a selling point. The publishers of the The Art of Preaching claimed that their indexes, along with other new cross-referencing features, were “alone worth the whole price, because they make it much easier to use”. The phrase sounds like it could be from an advert for some 21st-century gadget: “Our books aren’t just informative. They’re also user-friendly!” The echo of today’s marketing language is no accident. Thanks to a series of interrelated technologies – but especially the web, the Kindle and the iPad – we are living through a radical reinvention of the tools and techniques of reading.

One of the most thrilling digital developments of 2010 was the arms race between e-book readers.... Apple’s iPad itself stands out as the most significant breakthrough... does more than any device before to consolidate book reading and web browsing. I remember sitting down with the iPad when it arrived this spring, and thinking that for the past 15 years we had been surfing the web on the wrong kind of machine.... The difference between our time and Gutenberg’s is, of course, the rate of change. It took almost half a century for the alphabetical index to become a standard; Arabic page numbers were not adopted until the 1500s. There were feature wars in the new platform of the book, but salvos were fired only every 20 years.

It may have taken a long time, but when all those features coalesced into the system of citation, indices, page numbers, footnotes, bibliographies and cross-references that we now take for granted, they helped usher in the scientific revolutions of the modern age. Entire ways of interacting with information became possible because we had agreed on how to describe where the information lived and how to point people towards it....

Where links abound, a rich ecosystem of commentary, archiving, social sharing and scholarship usually develops because links make it far easier to build on and connect ideas from around the web. But right now, books exist outside this universe. There is no standardised way to link to a page of a digital book. Books contain the most carefully crafted and edited text that we have – truly the richest source of information in the world – and yet all that information remains unlinkable. Google works as well as it does because people find interesting information on the web and link to it; Google then prioritises pages that attract a disproportionate number of inbound links. But if you find a fascinating passage in a novel or a book of history, there is no standardised way to link to it, which means that the rest of the web cannot benefit from your discovery.

Fortunately, a solution to this problem exists, one that merely involves a commitment to use technology that already exists. Call it the mirror web. If you create digital information in any form, make a parallel version of that information that lives on the web.... [T]his technique needs to become a new convention. When publishers create apps without web mirroring, we should be quick to condemn them.... The most radical premise behind this idea of web mirroring, however, is that it should apply to digital books as well. In future, every page of every book should have a shadow version of itself that lives on the web....

Today there is a real danger that this art of linking to things – an art that dates back to Schöffer and Fust and beyond – will grow less and less relevant in an unconnected world of apps and e-books. But there is also an opportunity here. We could choose to become better at making connections, bringing together in a new way the two most transformative textual platforms of the modern age: the book and the web.

Rebound Redux: Have we moved past Jevons on efficiency? The Great Energy Challenge

James Barrett:

Rebounds Gone Wild – The Great Energy Challenge: Energy efficiency has become very popular in recent years. So much so that it’s becoming cool for the truly hip to hold it in disdain. Case in point: David Owen’s piece in this week’s New Yorker: “The Efficiency Dilemma.”... [H]e’s being contrary just for the sake of being contrary. I don’t want to make a habit of highlighting this type of work, and to do a thorough job of dismantling the piece would take more time and space than I have. But... I have a hard time letting such poor and frankly lazy reasoning pass without comment.... The focus of the article is something called the Jevons paradox (named after economist William Jevons), or the more common and more broadly defined “rebound effect.” In essence the rebound effect is the fact that as energy efficiency goes up, using energy consuming products becomes less expensive, which in turn leads us to consume more energy. Jevons’ claim was that this rebound effect would be so large that increasing energy efficiency would not decrease energy use....

To be clear, the rebound effect is real.... The problem with knowing how far to take things like this is ... the real world is complicated and trying to disentangle everything that’s going on is very difficult. Owen cleverly avoids this problem by not trying to disentangle anything.

One supposed example of the Jevons paradox that he points to in the article is air conditioning.... Owen notes that between 1993 and 2005 air conditioners in the U.S. increased in efficiency by 28% but by 2005,homes with air conditioning increased their consumption of energy for their air conditioners by 37%. Owens presents this as clear and obvious proof of a Jevons effect....

A few key facts disprove the point. Facts that are not hard to track down. I write for this blog in my spare time (for free), and I managed to find it without breaking a sweat. I’m not sure why a paid writer for a magazine like The New Yorker couldn’t do the same.... Real (inflation adjusted) per capita income increased by just over 30% over that time period. All else being equal, when people have more money, they buy more stuff, including cool air. The average size of new homes increased from 2,095 to 2,438 square feet, over 16%. More square feet means more area to cool and more energy needed to cool it. In 1993, of homes that had A.C., 38% only had room units while 62% had central air. By 2005, 75% of air conditioned homes had central units. Bigger units covering more rooms means more cool air and, you guessed it, more energy.... Finally, even though air conditioners were 28% more efficient in 2005 than in 1993, air conditioners last between 15 and 25 years....

Without the increases in efficiency, energy consumption would have been much higher.

Worse, and even more transparently wrong, Owen points to the increasing use of air conditioning in the developing world, especially India and China, as evidence of a globally expanding Jevons effect. Never mind the fact that income in China is growing something like three times as fast as in the U.S. and that the cost of air conditioning as a share of average incomes are falling at an even greater rate....

It’s easy to be sucked in by stories like the ones Owen tells. The rebound effect is real and it makes sense.... But it’s not enough to observe that energy use has gone up despite efficiency gains and conclude that the rebound effect makes efficiency efforts a waste of time...

Matthew Kahn:

Rebound Redux: Have we moved past Jevons on efficiency? – The Great Energy Challenge: In my undergraduate environmental economics class at UCLA, I ask my students to discuss whether buying a Prius could increase their gasoline consumption and thus increase their greenhouse gas production. David Owen would argue that it certainly could.  Suppose that I used to drive a vehicle that achieved only 25 MPG.  If gasoline is priced at $3 per gallon, then I used to pay 12 cents per mile of driving. If I now purchase a Prius that achieves 50 MPG, and gas prices continue to be $3 per gallon, then I will now pay a price of 6 cents per mile of driving.  This 50% reduce in the price of driving is likely to encourage me to drive more.   But, will my overall gasoline consumption actually rise? It only would if I respond to this reduction in the price per mile of driving by more than doubling my mileage. Why? Suppose I used to drive my 25 MPG vehicle 10,000 miles per year.  I would need to buy 400 gallons of gasoline for this driving. If I now drive my Prius 25,000 miles per year (more than double) then indeed David Owen would be right as he would observe that my gasoline consumption has increased to 500 gallons per year.  No empirical economist believes that the demand for driving is so responsive to this incentive effect.

In the case of car driving, remember that somebody has to drive the car! Suppose that you can drive at 30 miles per hour in your city.  To drive 10,000 miles per year will require 333 of your precious hours. While to drive a Prius 25,000 miles would require over 800 hours. Remember that time is money! Suppose that for every hour you drive that you could have worked and earned a wage of $20 per hour.   Will owning the Prius really increase your driving?  A mile of driving a Prius costs you 6 cents of fuel and at 30 miles per hour costs you 2 minutes of time which valued at 33 cents a minute (20/60) equals 66 cents. So the total cost per mile is 72 cents.   A mile of driving of your old MPG vehicle costs you 12 cents of fuel and 66 cents in lost time so the total cost is 78 cents.  This reduction in total cost from 78 cents to 72 cents is tiny. As shown by this arithmetic, the "rebound effect" is swamped by the value of time....

Owens exaggerates the importance of the “rebound effect”. Recall that the rebound effect makes the counter-intuitive claim that increases in energy efficiency increase energy consumption. For products that require our time to use (such as driving) or for which we have limited demand (refrigerators), I do not believe that the rebound effect is an important issue....

My bottom line is that energy efficiency improvements will shrink our carbon footprint.

Luigi Zingales Does Not Like the EFSF...

Luigi Zingales:

Europe’s Financial Alchemy by Luigi Zingales: It is universally recognized that a key factor underlying the 2007-2008 financial crisis was the diffusion of collateralized debt obligations (CDOs)... [T]he European Financial Stability Facility (EFSF), created by the eurozone countries last May, is the largest CDO ever created... the outcome could be similar: the entire banking system sent into a tailspin.

CDOs are a form of financial alchemy: special-purpose vehicles that buy the financial equivalent of lead (low-rated mortgaged-backed securities) and finance themselves mostly with the financial equivalent of gold (highly sought-after AAA bonds). This transformation is based on one sound principle and two shaky ones. The sound principle is excess collateral.... The first shaky principle is that if the return on these bonds is highly correlated... they all default at the same time.... The second shaky principle is that... issuers of CDOs relied on credit-rating agencies.... As a result, the CDO market did not so much spread risk as it shifted and hid it....

Europe is following a similar path. The EFSF, created to assist countries facing “illiquidity,” is designed exactly like a CDO. The EFSF buys the bonds of the countries which find it difficult to finance themselves in the marketplace (for example, Ireland) and issues bonds that are AAA rated. How is this alchemy possible? Once again... overcollateralization, an assumption on the joint distribution of possible outcomes, and the... approval of... credit rating agencies.

With the EFSF, the overcollateralization takes the form of guarantees by other eurozone countries. Among the major countries, however, only France and Germany have an AAA rating. How can a bond guaranteed in large part by countries such as Italy and Spain (likely candidates for a fiscal crisis) provide AAA status to Irish bonds?... [I]f the EFSF has to guarantee Spain, would Germany really be willing to step in and use its taxpayers’ money to cover Spanish banks’ losses?... [H]ow free are credit rating agencies to express their opinion on the very institutions that will regulate them?...

After the sub-prime mortgage crisis, politicians alleged that the market was short-sighted and irrational, and rushed to propose new regulations. While some of the criticism might have merit, what gives politicians the moral authority to criticize? After all, as the EFSF shows, their orientation can be more short term and irrational than the market’s, repeating the same mistakes because they seem not to have learned from them.

The market’s verdict is likely to be uncompromising. As Oscar Wilde said: “Fool me once, shame on you; fool me twice, shame on me.”

I think that the answers to Luigi's worries are pretty simple.

"How can a bond guaranteed in large part by countries such as Italy and Spain (likely candidates for a fiscal crisis) provide AAA status to Irish bonds?" The answer is that it cannot, and does not. The bond guarantee is offered by France and Germany: they are the countries that matter.

"If the EFSF has to guarantee Spain, would Germany really be willing to step in and use its taxpayers’ money to cover Spanish banks’ losses?" I agree that it is better for Germany not to offer a guarantee than for it to offer it and then to renege on it. But it is, of course, best of all for Germany to offer the guarantee and stand behind it.

"How free are credit rating agencies to express their opinion on the very institutions that will regulate them?" Not very. But why does this matter? The guarantee is AAA if Germany and France fulfill their pledges, and not if otherwise. You don't need a rating agency to tell you that.

"What gives politicians the moral authority to criticize [the markets]?" There is no rule saying that you have to have moral authority before you can criticize. Anybody can criticize. The important question to ask is never "does the critic have moral authority?" but rather "is the critic right?" In this case, the critics of the market are right.

If I understand Luigi's argument, it is that the EFSF should not have been started and should be wound up as soon as possible because the German government is making pledges that it will be unwilling to fulfill should push come to shove. It is not clear to me why he believes that to be the case--everything I have heard tells me that the German government does understand what its pledge to back the EFSF means, and does and will stand behind hit.

DeLong Smackdown Watch: Keeping-Your-Stuff and Limited Government Edition

Dan Hirschman writes:

DeLong QOTD: Bookwealth, Then and Now « A (Budding) Sociologist’s Commonplace Book: I’m not sure how to understand DeLong’s claims about limited government being one possible reason for the takeoff in economic growth in the 1500. Government promised not to take your stuff? What about the enclosures? More broadly, while government respect for property rights may have increased, the governments of the 16th-19th century were hardly “limited” in the modern sense of not interfering directly with business. For one thing, these are the governments that legally created the modern corporation in the first place. The whole “limited government” concept is radically under-defined when you start thinking about all the subtle and indirect ways governments make economies possible. But again, I think the broader points DeLong are making are certainly onto something – I just worry about the casual usage of language from contemporary debates to describe a very different process and a very different world. And heck, DeLong suggests students take a “sociology of modernity” class, so that’s pretty cool.

Touché. Should have written: "government promised not to take your stuff if you were rich..."

Yes, the Affordable Care Act Is a Sensible Centrist Policy

It is a fact that Nationwide RomneyCare is the kind of policy that hits the sweet spot as far as the center of the American electorate is concerned.

Matthew Yglesias:

Yglesias » The Median Voter Supports The Affordable Care Act: We’ve seen this before, but today CNN has another poll (PDF) confirming that the Affordable Care Act’s conservative critics are a minority.... I’m not 100 percent sure if “not liberal enough” is the way I would describe the law. But you make the ACA better by making it more aggressive. That’s a public option, but it’s also more forceful implementation of the Independent Medicare Advisory Panel concept and a more aggressive phase-out of the tax subsidy for employer-provided health insurance.

Cornell University Has Some Explaining To Do: Why Oh Why Can't We Have Better Academics?/William Jacobson Edition

Surely Cornell could find somebody less prone to major errors in argumentative logic than William Jacobson to teach in their clinical legal program?

Ta-Nehisi Coates:

It's Not That You're Racist...: ...It's that you're either ignorant or dishonest. Cornell Law Professor William A. Jacobson inveighing against Matt Yglesias:

Using the logic of Matthew Yglesias of Think Progress, who is having his 15 minutes of race card fame, anyone who expresses any measure of praise for the pre-1947 Yankees necessarily would be "expressing affection for a White Supremacist" organization. It would not matter that the praise was for the Yankees' baseball skills; any expression of anything less than complete condemnation of the Yankees necessarily evidences tolerance for racism because the Yankees were part of a racist system.  That logic is what Yglesias uses against Haley Barbour because Barbour made a statement that when Barbour was growing up in the early 1960s in Yazoo City, Mississippi, the "Citizens Council" stood up to the Klan and was organized to keep the Klan out of Barbour's home town. That apparenly is a true statement, but because the Citizens Council also supported the system of segregation, Yglesias has accused Barbour of "expressing affection for the White Supremacist Citizens Council," and almost the entire nutroots blogsphere has picked up the meme that Barbour is a racist. Yet nothing Barbour said, or has done in his professional life, supports the charge that Barbour supported segregation himself, although if he were a Southern Democrat during the 1960s he almost certainly would have supported segregation...

I think it helps to be very clear....

Matt has accused Barbour of "expressing affection for the White Supremacist Citizens Council," and spurred the "nutroots blogsphere" (I assume that's basically left bloggers) to run with that and use it to argue that Haley Barbour is a racist.
Left bloggers who, like Matt, are claiming that Barbour is a racist are doing something "odious and evil."

Let's take the last point first--I think it would be generally odious and evil to accuse someone of racism without much evidence. I think there's quite a bit of evidence that Haley Barbour is shockingly ignorant of the history of his state, and of American history at large. In his office hangs the battle-flag of an Army raised solely to found a republic based on White Supremacy. This is not the politically correct sooth-saying of liberal historians. It's the reprehensible rantings of the very Confederates whom Haley Barbour honors....

I can agree that merely displaying the flag of a white supremacist Army, praising a group which opposed integration in the 1960s, and--at this very moment--is boycotting a Hollywood movie because for casting a black person as a Norse deity does not make one a racist. I guess I'd also agree that dressing in Nazi regalia and praising Pat Buchanan's writings on Jews doesn't, in itself, make you an anti-Semite. No one can know the contents of person's heart. But it does make you, as Matt charged,  "dangerously ignorant."...

Jacobson never quotes Matt--or frankly anyone--charging that Barbour is a racist. That... leads us to the second point--that there is an outbreak of liberal bloggers claiming Barbour is a racist. A google search of "Barbour is a racist"... does not reveal a single liberal blog of real note making that case... [but rather] a raft of sites either arguing that Barbour isn't a racist, or arguing why it's not relevant. Unable to deal with the actual arguments made by Matt here, for instance, and evidently generally ignorant of the basic facts of American history, Jacobson simply strawmans and changes the subject....

Jacobson is a professor at one of the most prestigious institutions of higher learning in this country. I can't for the life of me imagine how someone rises to such heights and, evidently, never acquires an understanding of the rudiments of American history, nor an ethic of honest debate. It's true that universities are sprawling. But this is the kind of dissembling defense of public official who honors a white supremacist flag, and praises a white supremacist organization, is what you get out of a professor at Cornell, what real hope is there for cable news?