Relevant and even prescient commentary on news, politics and the economy.

Why Doesn’t Donald Trump go back to his own country ?

He can choose Scotland or Germany (although neither want him — I wonder where he is hated more — Scots tend to be lefty and very good at hating). I won’t go back to my own country — Hungary — because I can’t stand Viktor Orban and can’t learn the language (I have never felt as foreign as I did when looking for my grandmother’s old apartment).

But he directed his go back to their own country racist xenophobic attack at, among others, Alexandria Ocasio-Cortez and Ayanna Pressly. Ocasio-Cortez’s family came to New York from Puerto Rico so her country of last detectable origin is … the USA (I know Donald Trump doesn’t accept that as he defines American as anglo white but it is still true).

Ayanna Pressly is African American. Most African Americans are descended from people who were in the USA when it was founded (and long before any ancestors of Donald Trump or Robert Waldmann). Now it is true that some very prominent African Americans aren’t — Barack Obama, Kamala Harris, Colin Powell and Eric Holder come to mind. I will now google (I already checked to be sure that Ocasio-Cortez’s family came from Puerto Rico). OK no hint of any immigration at all in the Pressley family history. Note the USA is not a country of immigrants. Immigration is a voluntary act and most African Americans are descended from people kidnapped and brought here in chains. What is her own country if it isn’t the USA. Even she doesn’t know (and it sure wasn’t organized as a country when her ancestors were kidnapped).

It is clear, as it always has been, that Trump’s nationalism is racism. A woman whose ancestors were in the USA when it was founded should go back to her own country which can’t be America because the genuine US population is white, white, and white.

Sorry for stating the obvious and proving what has been clear for decades.

Also of course, Pelosi said it better

Pelosi stood up for the congresswomen.

“When @realDonaldTrump tells four American Congresswomen to go back to their countries, he reaffirms his plan to ‘Make America Great Again’ has always been about making America white again,” Pelosi tweeted. “Our diversity is our strength and our unity is our power.”

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Lucas, Jenner, Washington, Shaw

I am thinking about modern macroeconomic methodology again. I am also thinking about the fresh water school of thought. Also I am thinking about aspirin and smallpox.

I am going to attempt a nickle summary of the Lucas critique (really a half penny summary or a 5 Turkish Lira summary).

Lucas argued that it was unwise to base policy on models which fit the available data, because parameters can be estimated even if they do not describe causal relationships but rather depend on the policy regime. So long as one does not understand the mechanism which causes the pattern one sees, one should not use it to forecast the effect of policy.

I will admit that this is (more even than usually) unfair, but, I suspect I could get away with it if I didn’t admit that.

Now note, I did not include the word “economic” anywhere. Therefore straw Lucas would argue that the observed pattern that people exposed to Vaccinia don’t get small pox, should not be used to forecast the effect of a policy of mass vaccination unless and until the mechanism is understood. The mechanism of disease and of acquired immunity was not understood at all when Jenner wrote. It wasn’t understood a century later. Bernard Shaw dismissed it as crude empiricism in “Doctors’ Delusions” in which he also asserted that vaccination doesn’t work and that smallpox is, in fact, the exact same disease as large pox, that is syphilis.

However, the crude empiricism lead to excellent policy advice. The approach which was not based on any understanding of mechanisms of any micro foundations worked. Small pox no longer exists outside of Moscow and Frederick Maryland where some is frozen.

This post is 2 days late, because our founders made policy related to acquired immunity — George Washington banned it — he forbade soldiers from attempting to acquire immunity from small pox.

The alert reader will notice that the letters “vacc” do not appear in the paragraph above. The reason is that long before vaccination, people avoided small pox by innoculating themselves with the small pox virus. A little bit of fluid from a pock put on the skin almost always gave the person one pock then resistance forever (about 1% of the time it gave the person small pox — this is a point estimate from a doctor who kept records and the 1% is one person out of about 100). This was the procedure banned by Washington. He didn’t understand what was going on.

Washington’s policy was good policy too. The person who got one pock acquired resistance fast enough to avoid small pox, but he or she was contagious and tended to infect those around him or her. So the old policy of inoculation with small pox shows us the dangers of crude empiricism. The obvious effect was one pock then immunity for the patient. The non obvious effect was more small pox. This also shows the importance of externalities and the difficulty of learning from simple experiments when there are externalities.

The bottom line is that there is no bottom line. The world is complicated. Neither ignore patterns you haven’t explained nor look at the data which has been collected and ignore possibilities which haven’t been or can’t be evaluated is the answer. The answer is, if anything, that one should keep an open mind.

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US Trade Deficits and Blue Collar Jobs

I looks as if I might disagree with Paul Krugman for barely more than once. I admit I am following Brad DeLong (and also that I surfed there from Kevin Drum).

The discussion is over what hurt blue collar US workers, automation, China or two recessions.

Yang says it is automation. Krugman disagrees in a tweet thread noting that productivity growth has been slow (I do absolutely agree with Krugman that Twitter is horrible and that blogs are better).

I will fair use with abandon

OK, it seems mean to pick on Andrew Yang, who won’t even be a factor in the nomination. But he positions himself as the tech guy who knows how the world really works, and there are others like him. So maybe worth pointing out that they’re all wrong 1/

Yang’s thing is that automation is destroying all the jobs, so we need universal basic income. There is a case for UBI (and a case against, in favor of more targeted aid), but either way the premise is wrong. Productivity has been slowing down, not speeding up 2/

Here we have Yang focused on manufacturing and Krugman on the whole economy. Total labor productivity has a lot to do with where people are working and poorly measured production of health care (and education) matters a lot. However, the post great recession slowdowns are similar

The troubles of the very troubling past decade are not due to rampant revolutionary robots.

Krugman argues against Yang (and 1990s Krugman) that trade was very important. But there is an odd shift in time frames. The productivity slowdown noted in tweet 2 is post 2008, the next tweet discusses 2000-2005

And while Yang asserts that automation destroyed lots of manufacturing in the midwest, you don’t have to be a protectionist to realize that the acceleration of job loss after 2000 was mainly about the surging trade deficit 3/

“after 2000” is doing a lot of work here. First the figure shows a non agricultural non oil goods trade deficit surging from 1991 through 2005. In contrast the declines in manufacturing employment are 2000-2003 then 2008q1-2010q2. The raw correlation looks low.

By the way, Brad also has the very smart (as usual) point that blue collar jobs include transportation, construction, and mining (and really wholesale trade) and import competition specifically affects manufacturing (just click the link).

Largely Krugman is assuming his twitter followers understand the effects of the business cycle with high demand causing high employment and large trade deficits and recessions causing reduced employment and trade deficits. He looks at the graph and takes out the dot.com boom, the mini recession, the housing boom and the great recession. Brad and Drum take him to task for this, saying the main problem is aggregate demand. I don’t think Krugman really disagrees with that at all. He just assumes that anyone who looks at his second figure sees dramatic decline in manufacturing employment and increasing trade deficits 2000-2018 somewhat obscured by the business cycle.

But Krugman does have trouble with his little graph. First, since 2007, the non oil non agricultural merchandise trade deficit hasn’t surged. It went from 4% if GDP to 4% of GDP. “after 2000” must mean “fairly soon after 2000 but, by now, a long time ago”. Second, the productivity slowdown (noted in tweet 2) is totally after the deficit surge ended — from 2007 to now. In the years soon after 2000, there were two anomalies (much discussed by one Paul Krugman) a recovery with actually declining employment (job loss recovery after the jobless recovery and before the job lust recovery and I fear to think of the alphabetically following Job Lys tears recovery). The second was the extremely high growth of productivity in a fairly slack economy. Those years fit Yang’s story, about automation.

Then there are the great recession and the sluggish recovery. The US has seen stable non oil non agg. merchandise trade deficits, slow productivity growth (also in manufacturing) and an overall decline of manufacturing employment (of about 12%). That sure looks like a period of slack demand and extraordinarily slow growth for a US decade. Since 2007 US GDP detached from the exponential trend it had followed for a century (actually rather more than the shortfall 1929-1941, but I think even more 2007-2017 than 1929-1939). That is, as Kevin and Brad note (and as Krugman has noted again and again) clearly a matter of horrible macro policy (much less horrible than over here).

I’d say overall, the trade and manufacturing employment evidence is pretty weak. The China shock had dramatic effects on some factory towns, but it doesn’t show up very clearly in national data. Something very strange was happening 2000-2005. I didn’t understand it then and I don’t understand it now. Then from 2007 through 2016 (maybe) there was very slack demand largely due to low housing investment and low government investment. It doesn’t seem to have had all that much to do with robots, Chinese people, or even Chinese robots.

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Technology and Productivity. What went wrong?

Kevin Drum wrote a typically brilliant post on absurdly high estimates of the growth of the number of health care administrators. I was very interested in one little passage. My comment.

Dear Kevin

You used to work for a tech company and IIRC in public relations. Now your day job is as a blogger-journalist. Don’t quit your day job.

you wrote “Once you take into account the growth in health care generally, the share devoted to administration has gone up by 50-100 percent. That’s a lot! But it’s also not that surprising. In 1970, the health care industry spent approximately $0 on IT management. Today they spend a bundle, and all of that is admin overhead. ”

You are saying a huge improvement in information technology explains part of the increase in administrative costs. Better technology is supposed to be more efficient not less efficient. If IT weren’t a waste of money, it would cause lower not higher costs (I’m embarrassed to type a tautology but there it is).

You think it is obvious that IT is a waste of money. This might be excellent work for a blogger journalist (I wouldn’t be surprised if you are right). But it sure suggests you have more of a past than of a future in tech pr.

I am being sarcastic and am also totally serious. In fact, I am quite confident that you are right that IT has caused an increase in administrative costs, and that the use of IT in business administration has been a total waste of money. The reason is the 4th law of thermodynamics — work expands to fill the allowed space. Also known as Parkinson’s law.

I’m sure the number of administrative tasks which can be performed per person hour has increased enormously (this is counting the information techs’ hours too). But I think the amount of the cost of each unit of product which goes to pay salaries of administrators has gone up. The reason is that the number of administrative tasks which are assigned or required is not equal to the number which are necessary or even useful (which I would guess is a low number). Rather it is the number which can be done without hiring more people who have old job descriptions. So the non info techie administrators are kept and given more tasks. This means that the newly hired info techies are an added expense, unless the new tasks given to other administrators are actually useful in some way.

I am fairly sure that they aren’t useful.

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A 21st Century Theological Dispute

People have long struggled to understand The Word of God. One might even wonder if a better approach would be to rely on artificial intelligence.

However, I’m not sure AI algorithms understand Him either

This shows that even God the Omnipotent can’t manage sarcasm blatant enough for Twitter. Twitter has repented, but it looks like a very long penance to me.

I fear not His wrath, for though I walk in the valley of copyright infringment fair use is with me.
Still He has earned a link.

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Keynes’s Private Letter to Roosevelt

From Brad. My bold

To Franklin Delano Roosevelt, 1 February 1938

Private and personal

Dear Mr. President,

You received me kindly when I visited you some three years ago that I make bold to send you some bird’s eye impressions which I have formed as to the business position in the United States. You will appreciate that I write from a distance, that I have not revisited the United States since you saw me, and that I have access to few more sources of information than those publicly available. But sometimes in some respects there may be advantages in these limitations! At any rate, those things which I think I see, I see very clearly.

(1) I should agree that the present recession is partly due to an ‘error of optimism’ which led to an overestimation of future demand, when orders were being placed in the first half of this year. If this were all, there would not be too much to worry about. It would only need time to effect a readjustment;—though, even so, the recovery would only be up to the point required to take care of the revised estimate of current demand, which might fall appreciably short of the prosperity reached last spring.

(2) But I am quite sure that this is not all. The recovery was mainly due to the following factors:—

(i) the solution of the credit and insolvency problems, and the establishment of easy short-term money;

(ii)the creation of an adequate system of relief for the unemployed;

(iii) the public works and other investments aided by Government funds or guarantees;

(iv) investment in the instrumental goods required to supply the increased demand for consumption goods;

(v)the momentum of the recovery thus initiated.

Now of these (i) was a prior condition of recovery, since it is no use creating a demand for credit, if there is no supply. But an increased supply will not of itself generate an adequate demand. The influence of (ii) evaporates as employment increases, so that there is a dead point beyond which this factor cannot carry the economic system. Recourse to (iii) has been greatly curtailed in the past year. (iv) and (v) are functions of the upward movement and cease—indeed (v) is reversed—as soon as the position fails to improve further. The benefit from the momentum of recovery as such is at the same time the most important and the most dangerous factor in the upward movement. It requires for its continuance, not merely the maintenance of recovery, but always further recovery. Thus it always flatters the early stages and steps from under just when support is most needed. It was largely, I think, a failure to allow for this which caused the ‘error of optimism’ last year.

Unless, therefore, the above factors were supplemented by others in due course, the present slump could have been predicted with absolute certainty. It is true that the existing policies will prevent the slump from proceeding to such a disastrous degree as last time. But they will not by themselves—at any rate, not without a large-scale recourse to (iii)—maintain prosperity at a reasonable level.

(3) Now one had hoped that the needed supplementary factors would be organized in time. It was obvious what these were—namely increased investment in durable goods such as housing, public utilities, and transport. One was optimistic about this because in the United States at the present time the opportunities, indeed the necessities, for such developments were unexampled. Can your Administration escape criticism for the failure of these factors to mature?

Take housing. When I was with you three and a half years ago the necessity for effective new measures was evident. I remember vividly my conversations with Riefler at that time. But what happened? Next to nothing. The handling of the housing problem has been really wicked. I hope that the new measures recently taken will be more successful. I have not the knowledge to say. But they will take time, and I would urge the great importance of expediting and yet further aiding them. Housing is by far the best aid to recovery because of the large and continuing scale of potential demand; because of the wide geographical distribution of this demand; and because the sources of its finance are largely independent of the stock exchanges. I should advise putting most of your eggs in this basket, caring about this more than about anything, and making absolutely sure that they are being hatched without delay. In this country we partly depended for many years on direct subsidies. There are few more proper objects for such than working-class houses. If a direct subsidy is required to get a move on (we gave our subsidies through the local authorities), it should be given without delay or hesitation.

Next utilities. There seems to be a deadlock. Neither your policy nor anybody else’s is able to take effect. I think that the litigation by the utilities is senseless and ill-advised. But a great deal of what is alleged against the wickedness of holding companies is surely wide of the mark. It does not draw the right line of division between what should be kept and what discarded. It arises too much out of what is dead and gone. The real criminals have cleared out long ago. I should doubt if the controls existing today are of much personal value to anyone. No one has suggested a procedure by which the eggs can be unscrambled. Why not tackle the problem by insisting that the voting power should belong to the real owners of the equity, and leave the existing organizations undisturbed, so long as the voting power is so rearranged (e.g. by bringing in preferred stockholders) that it cannot be controlled by the holders of a minority of the equity?

Is it not for you to decide either to make a real peace or to be much more drastic the other way? Personally I think there is a great deal to be said for the ownership of all the utilities by publicly owned boards. But if public opinion is not yet ripe for this, what is the object of chasing the utilities around the lot every other week? If I was in your place, I should buy out the utilities at a fair price in every district where the situation was ripe for doing so, and announce that the ultimate ideal was to make this policy nation-wide. But elsewhere I would make peace on liberal terms, guaranteeing fair earnings on new investments and a fair basis of valuation in the event of the public taking them over hereafter. The process of evolution will take at least a generation. Meantime a policy of competing plants with losses all round is ramshackle notion.

Finally, the railroads. The position there seems to be exactly what it was three or four years ago. They remain, as they were then, potential sources of substantial demand for new capital expenditure, Whether hereafter they are publicly owned or remain in private hands, it is a matter of national importance that they should be made solvent. Nationalise them if the time is ripe. If not, take pity on the overwhelming problems of the present managements, And here too let the dead bury their dead. (To an Englishman, you Americans, like the Irish, are so terribly historically minded!)

I am afraid I am going beyond my province. But the upshot is this. A convincing policy, whatever its details may be, for promoting large-scale investment under the above heads is an urgent necessity. These things take time. Far too much precious time has passed.

(4) I must not encumber this letter with technical suggestions for reviving the capital market. This is important. But not so important as the revival of sources of demand. If demand and confidence reappear, the problems of the capital market will not seem so difficult as they do today. Moreover it is a highly technical problem.

(5) Businessmen have a different set of delusions from politicians, and need, therefore, different handling. They are, however, much milder than politicians, at the same time allured and terrified by the glare of publicity, easily persuaded to be ‘patriots’, perplexed, bemused, indeed terrified, yet only too anxious to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. You cold do anything you liked with them, if you would treat them (even the big ones), not as wolves or tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish. It is a mistake to think that they are more immoral than politicians. If you work them into the surly, obstinate, terrified mood, of which domestic animals, wrongly handled, are so capable, the nation’s burdens will not get carried to market; and in the end public opinion will veer their way. Perhaps you will rejoin that I have got quite a wrong idea of what all the back-chat amounts to. Nevertheless I record accurately how it strikes observers here.

(6) Forgive the candour of these remarks. They come from an enthusiastic well-wisher of you and your policies. I accept the view that durable investment must come increasingly under state direction. I sympathise with Mr Wallace’s agricultural policies. I believe that the SEC is doing splendid work. I regard the growth of collective bargaining as essential. I approve minimum wage and hours regulation. I was altogether on your side the other day, when you deprecated a policy of general wage reductions as useless in present circumstances. But I am terrified lest progressive causes in all the democratic countries should suffer injury, because you have taken too lightly the risk to their prestige which would result from a failure measured in terms of immediate prosperity. There need be no failure. But the maintenance of prosperity in the modern world is extremely difficult; and it is so easy to lose precious time

I am, Mr President

Yours with great respect and faithfulness,

J.M. Keynes

References

John Maynard Keynes (1938), “Letter of February 1 to Franklin Delano Roosevelt,” in Collected Works XXI: Activities 1931-1939 (London: Macmillan).

my comment. Notice how the focus on housing was abandoned by later Keynesians. Housing is key to the business cycle (and to the effects of monetary policy which were not Keynes’s interest at all when the economy was in a liquidity trap). Yet somehow, investment in macro models is always business fixed investment.

The point is that, in 1938, Keynes gave the excellent advice for what to do in 2008. He was ignored then and ignored again in 2008 (except by Brad).

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Pfizer, Embrel, and Alzheimer’s

I’m getting my medical news from the front page of The Washington Post where Christopher Rowland discusses the possiblity that embrel, an anti arthritis drug, reduces the risk of Alzheimer’s dementia.

The issue is clearly incredibly important. The article raises interesting ethical, economic, statistical, and biological questions.

Better to click the link, but I will attempt a quick summary. There is evidence from anonymized insurance claims records that people who take Embrel for arthritis are less likely to develop Alzheimer’s. This hypothesis could be tested against the null of no effect with a huge long lasting extremely costly clinical trial. The patent on Embrel is about to expire. Obviously the Pfizer executives decided not to fund the trial. They also didn’t publish the retrospective study (it seems someone leaked it to Rowland).

I am most interested in the biology. Pfizer claims that they decided this, because of scientific evidence that Embrel wouldn’t work. In particular it does not cross the blood brain barrier. The argument is that it can’t help the brain without entering the brain. This is nonsense.

Embrel binds the appealingly named but nasty protein hormone tumor necrosis factor alpha (TNF-alpha). TNF-alpha promotes inflamation. It has a role in fighting tumors. It also causes cachexia wasting away of cancer patients and tuberculosis patients. It was discovered two ways. One group was purifying the wonderful TNF, the other the evil cause of cachexia which they called Cachexin. Both were surprised to discover they had purified the exact same molecule.

embrel binds and blocks TNF-alpha. It is a soluble form of the TNF-alpha receptor which competes with actual receptors which send a signal to cells when they bind TNF-alpha. It is a very important treatment for rheumatoid arthritis.

I say it doesn’t matter than embrel doesn’t enter the brain, because TNF-alpha does. If embrel binds TNF-alpha the dimer doesn’t enter the brain. If TNF-alpha in the brain causes Alzheimer’s then Embrel can reduce the risk by inactivating TNF-alpha which would enter the brain (also keeping it out of the brain but that doesn’t matter).

Pfizer’s argument is like saying that strangling someone can’t cause brain damage, because the strangler’s hands don’t enter the brain. They block oxygenation of hemoglobin which does enter the brain. The argument is silly (and effectively refuted by Rowland and scientists he interviewed).

I mean it’s obvious that inflammation spreads. That’s why cold viruses in your nose make you feel aches and pains all over (that one is interferon not TNF-alpha but the logic is the same).

There is fairly extensive evidence that inflammation has a key role in Alzheimer’s.

Of course the economics is also very clear. A huge investment in finding a new use for a molecule whose patent is about to expire is absolutely inconsistent with any duty to shareholders. This is clearly a case in which the government should fund the trial.

The statistical or methodological issue is that doctors will not trust non experimental evidence. The FDA has very strict rules for approval of a new pharmaceutical and for advertizing a new use of a pharmaceutical. They do not have to be applied to the decision of whether to prescribe a pharmaceutical off label (not for the use for which it was approved) but they are. The idea is that prescribing something with known and very minor side effects without knowing it will work is irresponsible. The logic is completely different from maximizing the expected welfare of the patient (in this case the healthy adult).

The idea that non experimental evidence is highly suspect and to be used only to propose experiments is alien to me. The rules which are called medical ethics seem to me to have very little relationship with the actions which are, in fact, morally right and morally wrong.

I think everyone should take Embrel (as soon as it is off patent and affordable). I also think there really should be a publicly funded clinical trial (which will be possible because no one will take the advice I gave in the past paragraph).

update: pulled back from comments. My knowledge of US pharmaceutical regulation is out of date (30 months out of date, but that’s out of date). I said non experimental data should be considered. So did Congress and Barack Obama and their signed act is law.

Run75441
June 5, 2019 6:59 am
It became far easier to bring things to market under the recent passage of the 21st Century Cures Act.

“The 21st Century Cures Act modified the FDA Drug Approval process. It was intended to expedite the process by which new drugs and devices are approved by easing the requirements put on drug companies looking for FDA approval on new products or new indications on existing drugs. For instance, under certain conditions, the act allows companies to provide “data summaries” and “real world evidence” such as observational studies, insurance claims data, patient input, and anecdotal data rather than full clinical trial results.”

Pharma R&D is given the normal tax break also.

Someone is lying.

The 21st century cures act

Pfizer might have decided not to publish the data back before December 13 2916. In any case, they don’t need FDA approval to publish data (1st amendment and all that). They need approval to advertise a new use of Embrel, but they can publish the data.

It seems clear that their problem is that Embrel is going off patent and will soon just be competition for their newer still on patent drugs. The news is out (as of yesterday on the front page of the Washington Post).

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Kiribati is Low But Not as low as Whale Shit at the Bottom of the Ocean

It is possible to cause a huge (short term possibly reversed) increase in carbon capture by algae by dumping iron sulfate in the ocean. On the other hand, uh, well, maybe it won’t work and you will just get a few tons of fish (not many tons of carbon containing detritus on the bottom of the ocean.

Now the general principal seems to be that, so long as there isn’t proof beyond reasonable doubt that a proposal will work, to stick to the tried and true and first do no harm but rather wait until the tundra melts, methane is released, and the climate is irreversibly altered.

This makes no sense. Conservatism may make sense if the choice is between the current state (which is not ideal) and gambling on something new. It makes no sense if one is careening towards a precipice, as we are.

There is an, as usual, interesting post at Vox.com.   Kelsey Piper discusses the unfortunate fact that rogues might attempt to fight climate change without scientific proof that ocean fertilization works and without international regulation of ocean fertilization. Personally, I think the near certainty of climate catastrophe if we stick to the current approach is a more serious problem.

The current approach is international negotiations to reach non binding agreements which from which Donald Trump withdraws the second largest carbon emitter.

In contrast, the dangerous rogue approach is something allowed by current non law, conducted by Native Canadians which had the side effect of a record salmon harvest.

I want to address two questions. First should we dump Iron Sulfate in the open ocean. I think the answer to this question is obviously yes. I have read no argument with any trace of possible validity against it. I might add that it works better if mixed with silicate and seeded with marine diatoms. But in any case, I have seen no argument anywhere that there is a non negligible risk of undesirable side effects.

Yet the official response, such as it is, is to condemn the efforts and seize everything that can be seized.

I attempt to understand what the hell is going on after the jump.

But before that I note:

What happens when some individual or country wants to go big in the battle against climate change without buy-in from their neighbors? Could a country unilaterally pursue climate solutions that, unlike ocean iron dumping, pose substantial risks?

Note the insanity. In a post on ocean dumping of iron sulfate, Piper says the real issue isn’t any possible bad effects of ocean dumping, but the fact that someone might do something else which is bad some time. But note also that even a tiny country which has authority over a lot of ocean could unilaterally dump iron sulfate. The country doesn’t need a lot of land area. The country doesn’t need high altitude. The country’s average elevation might be two meters above sea level.

Why doesn’t Kiribati dump all the iron sulfate they can buy in the huge expanse of ocean around their tiny soon to be drowned atolls ? What do they have to lose ? Who is going to stop them ? The side effect would be more fish around Kirbati. The policy would make sense even if oceans weren’t rising.

OK so what’s the problem ?

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Comment on DeLong on Buchanan

Read Brad’s post.

my comment on “Milton Friedman’s redefinition of “neutral monetary policy” to mean “whatever monetary policy keeps nominal GDP on its trend growth path” led people prone to motivated reasoning in a laissez-faire direction completely and horribly astray… astonishing failure to mark one’s beliefs to market”

Someone should write a book “Economic Theory: What Went Wrong”. You had a draft in your mind some years ago. PseudoDeLong wrote that economics had been healthy, although inevitably influenced by ideology. In the good old days, there were fruitful debates between libertarians like Friedman, Stalinists like Sweezy and everyone in between.

Then Lucas and Prescott made a mess of things, abandoning evidence for pure theory. Or rather, they made a non mess of things, focusing on their favored models and ignoring non messy reality.

This is an attractive story, but it does not correspond to the actual history of what was actually written and said. It is, roughly, salt water good, fresh water bad. Fresh water means both back engineering theory from free market policy preferences and favoring rigorous analysis of the implications of absurd assumptions both to common sense and to empirical rigor “progress don’t regress” “Theory ahead of business cycle measurement”.

The problems are (at least) two. First the fresh/salt division isn’t identical to left/right. The terms were introduced by Hall a salty conservative. Sargent and Hansen are distilled water center-lefties.

But second, many salty righties manage to be almost as receptive to actual evidence as Prescott. You present an example. I think Friedman is another. Actually Lucas himself is a brilliant rhetorician — he can do it with words as well as with equations.

Notice, I classify Friedman as a salt water economist. I do insist that Friedman and Lucas are methodological opposites (it isn’t merely that their statements contradict, so they can’t both be right, one is the negation of the other so they can’t both be wrong)
http://rjwaldmann.blogspot.com/2012/03/modern-macroeconomic-methodology-modern.html

They are on the same team with teammates named Laffer, Kudlow and Moore. They are (or sadly were) geniuses, but they work back from the conclusion and are more loyal to small government ideology than to their stated methodologies. This must be true, because they consider themselves part of the same school even though they have opposite methodologies.

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Angry Bair

Sheila Bair, who ran the FDIC during the crisis, argues against further bank bailouts. She earned great respect. One thing, which she doesn’t mention, is that she refused to let Geithner use the FDIC trust fund to bear the lower tail risk while leaving the upper tail profits to investors in Public Private Investment Partnerships. She insisted on having a veto on non-recourse FDIC loans used to purchase newly made pools of iffy mortgages. As a result, the prediction by Paul Krugman and Joe Stiglitz that the program was a scam turned out to be incorrect, while my prediction turned out to be correct.

Nonetheless I partially disagree with her firm op-ed. Oddly, the point is that it completely neglects the accomplishment of people like Sheila Bair (there may be only one of them). In her column she doesn’t mention the fact that the US Federal Government made a huge profit bailing out the financial system. The careless reader might imagine that the bailout consisted of grants and that the national debt was increased by the amount disbursed not reduced.

This isn’t key to her conclusion that such generous bailouts should be forbidden and that the Dodd-Frank act which requires that future interventions be more painful for bankers should be preserved. Her valid point is that the crisis caused huge losses, even though the bailout added less than nothing to those losses. She argues that planning future bailouts with profit for the US government but not enough pain for the bankers would create moral hazard. I absolutely agree.

But it is also a fact that the US government made huge profits (I think the hugest in world history). The moral hazard argument is valid and can stand totally aside from the insinuation that the bailouts cost taxpayers anything.

I think this is important, because since public onwnership of risky assets bought at higher than market clearing prices to save the financial system was profitable by accident, we must know there is a gigantic inefficiency. I think the reasonable response is to sell bonds and buy risky assets for market prices. That means that the profitability of the bailout is strong evidence that there should be partial public ownership of the means of production.

This was noted by John Quiggin decades ago (arguing against privatizing state owned firms in Australia). It has been argued by Miles Kimball for years. A little bird told me that Olivier Blanchard talked about it over lunch with Brad DeLong recently.

I think it is an important part of the lesson of 2008 (I admit I have been advocating it since 2005).

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