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

Watch Out for Charlie Kirk’s Treacle Tart

“There’s many a fly got stuck in there.”

Who is Charlie Kirk? He is the 24-year old executive director and founder of Turning Point USA. Jane Meyer profiled the organization in the New Yorker in December:

Based outside of Chicago, Turning Point’s aim is to foment a political revolution on America’s college campuses, in part by funneling money into student government elections across the country to elect right-leaning candidates. But it is secretive about its funding and its donors, raising the prospect that “dark money” may now be shaping not just state and federal races but ones on campus.

A couple of weeks ago in The Baffler, Maximillian Alvarez described the tactics employed by TPUSA to harass and silence opposition to their “free market” totalitarianism. If you like Tomi Lahren, Sebastian Gorka, Donald Trump Jr. and Sean Hannity, you’ll love Charlie Kirk.

Charlie Kirk is a Charlatan.

Last Friday, the Sandwichman posted Is the “Invisible Hand” a lump of labor? to EconoSpeak and Angry Bear. It received a little over 300 views on EconoSpeak and a total of three comments on both blogs. Charlie Kirk’s twitter video on the “socialist myth of the ‘fixed pie'” was tweeted three days earlier. It has so far received 3,300 “likes” and 1,688 comments.

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Interest rates: no shift in the economic weather yet

Interest rates: no shift in the economic weather yet

I wanted to make two comments about what has been happening recently with interest rates, a short term look and a long term look.
Today let’s discuss the short term.
Since September, long term Treasury interest rates have risen from roughly 2.1% to 2.8%. The two year Treasury yield has risen from roughly 1.3% to 2.1% — which means that for the first time in years, the 2 year Treasury is giving you more in interest than the dividend yield from holding the S&P 500. So, not only will interest rates presumably slow the economy, in terms of income they are now a *relative* bargain compared with holding a wide index of stocks.
Now, I don’t pretend to know where interest rates will go from here over the short term. Whether long rates rise over 3% or fall back under 2.5%, I don’t know. But let’s assume that over the short term they stay roughly where they are now.
An upward spike in interest rates has happened twice in this expansion.  Most recently, rates spiked from under 1.5% in mid-2016 (thank you Brexit!) to 2.6% following the US presidential election (blue in the graph below).  Here’s what happened with housing permits (red) and real GDP (green) in the year following that spike:
Permits stalled for most of 2017 before turning up, while GDP also paused before continuing to advance.

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Why Tax Cuts for Rich Dude Will Lead to Little Stimulus

Why Tax Cuts for Rich Dude Will Lead to Little Stimulus

Over at Brad DeLong’s blog jonny bakho adds an interesting comment:

How much stimulus did the GWBush tax cuts provide? They came during a recession followed by “jobless recovery” made somewhat better by the housing bubble, then burst big time in 2008. How different would the multiplier be if given to infrastructure repair and broadband extension, investments that create domestic jobs? In a global economy, tax cuts to the investor class are spent globally. Tax cuts for investors can theoretically speed the process of offshoring if most of the good investments are in foreign countries, a negative domestic stimulus. In a global economy, all “stimulus” is leaky. To be a truly domestic stimulus, tax cuts and spending must be carefully targeted. GOP tax cuts in 2001 and 2016 were both designed to enrich wealthy patrons, with little attention to targeting for domestic stimulus

For some reason I could not add to his comment there so I decided to post my thoughts here:

Make that the 2017 tax cut and add in the 2003 tax cut and I agree. First of all the marginal propensity to consume for rich dudes (MPC-rd) is likely quite modest and the impact effect = the tax cut for our rich dude times (MPC-rd minus his marginal propensity to import). If this rich dude takes his trophy wife to Rodeo Drive to spend $1800 on a Louis Vuitton bag – that bag was made in France.

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Consumption tax may not make sense

By  Steve Roth   (reposted from Evonomics)

Consumption tax may not make sense

You often hear calls out there — mostly from Right economists but also from some on the Left — for a consumption tax in the U.S. As presented, it’s a super-simple idea: tally your income, subtract your saving, and what’s left is your consumption. You pay taxes on that.

We want to encourage thrifty saving and discourage profligate consumption, so what’s not to like?

Lots. Before getting into the idea’s economic virtues and vices, consider the accounting. Whaddaya mean by “saving”? Economists are deeply confused about that word, so it’s worth sorting through a bit.

Start with a simple pared-down household. The only accounting complication is that they own a house:

How much did this household “save”? Should the interest payments count as consumption? The principal payments almost certainly should not (and could be treated that way under the rules of a consumption tax without a whole lot of work for homeowners and lenders…). But what about home maintenance? A new paint job increases your home’s asset value. Should you depreciate that asset value over some years? Or say you buy new appliances for your kitchen: You’re cash out of pocket, but your home is worth more. Are those purchases “consumption”?

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The Risk of Opioid Addiction

I have been writing on healthcare for a while now and started to look at various topics with regard to pharmaceuticals. In my researching other topics, I found this particular correspondence to the Editor of the New England Journal of Medicine. Illuminating, if one might call it such? “A 1980 Letter on the Risk of Opioid Addiction

The NEJM published 1980 letter:

Addiction Rare in Patients Treated with Narcotics

Recently, we examined our current files to determine the incidence of narcotic addiction in 39,946 hospitalized medical patients who were monitored consecutively. Although there were 11,882 patients who received at least one narcotic preparation, there were only four cases of reasonably well documented addiction in patients who had no history of addiction. The addiction was considered major in only one instance. The drugs implicated were meperidine in two patients, Percodan in one, and hydromorphone in one. We conclude that despite widespread use of narcotic drugs in hospitals, the development of addiction is rare in medical patients with no history of addiction. Jane Porter; Herschel Jick; MD Boston Collaborative Drug Surveillance Program, Boston University Medical Center, Waltham, MA.

In a more recent June 1, 2017 letter to the NEJM editor, the authors dealt with the broad based and undocumented assumption in the 1980 letter of Addiction Rare in Patients Treated with Narcotics and the realization of the addiction and deaths of many people using Opioids. “from 1999 through 2015, more than 183,000 deaths from prescription opioids were reported in the United States and millions of Americans are now addicted to opioids.” Signed by four researchers exploring the reasons why Opioid addiction and deaths have risen, one of the conclusions reached was doctors being told “the risk of addiction was low when opioids were prescribed for chronic pain.” Supplementary Appendix.

From the 2017 correspondence to the Editor entitled; “A 1980 Letter on the Risk of Opioid Addiction,” the authors, by utilized bibliometric analysis of data derived from the number of citations of the 1980 letter from the date of its publication until March 30, 2017. The authors analyzed the relationship between the 1980 letter and it’s conclusion(s) with other document’s conclusions citing the 1980 letter. The analysis can be seen in Figure 1.

608 citations of the 1980 letter were identified (Figure 1) of the index publication. Also noted was a sizable increase in citations after the introduction of OxyContin (a long-acting formulation of oxycodone) in 1995. 439 (72.2%) authors of articles cited the 1980 letter as evidence addiction was rare in patients treated with opioids. 491 (80.8%) authors of articles did not note the patients described in the letter were hospitalized at the time they received the prescription and left readers to assume these were out-patients. As an aside to the citation of the letter, some authors grossly misrepresented the 1980 letter’s conclusion(s) in various comments as shown in Section 3, Supplementary Appendix. In comparison to the 1980 letter citations, the researchers also compared the number of times other letters published in the NEJM were cited: “11 other stand-alone letters taken from the same time period were cited at a median of 11 times.” To be redundant, the 1980 letter was cited 608 times.

The researchers concluded:

a five-sentence letter published in the Journal in 1980 was heavily and uncritically cited as evidence that ‘addiction was rare with long-term opioid therapy.’ Furthermore, they believed the citation pattern contributed to the North American opioid crisis by helping to shape a narrative lessening prescribers’ concerns about the risk of addiction associated with long-term opioid therapy. In 2007, the manufacturer of OxyContin and three senior executives pleaded guilty to federal criminal charges they had misled regulators, doctors, and patients about the risk of addiction associated with the drug. Our findings highlight the potential consequences of inaccurate citation and underscores the need for diligence when citing previously published studies.”

As I have been doing my research on another piece to which this is almost a prelude to it, I have found an overwhelming resistance to any type of control being placed on prescriptions for Opioids of which there are limitations on the number of days a prescription is given for short term pain. The naysayers always go back to the issue of chronic pain.

Whereas one perspective written in the NEJM Reducing the Risks of Relief — The CDC Opioid-Prescribing Guidline comes right out and states; “The few randomized trials to evaluate opioid efficacy for longer than 6 weeks had consistently poor results. In fact, several studies have showed that use of opioids for chronic pain may actually worsen pain and functioning, possibly by potentiating pain perception. A 3-year prospective observational study of more than 69,000 postmenopausal women with recurrent pain conditions showed that patients who had received opioid therapy were less likely to have improvement in pain (odds ratio, 0.42; 95% confidence interval [CI], 0.36 to 0.49) and had worsened function (odds ratio, 1.25; 95% CI, 1.04 to 1.51).”

The resistance to quantity limitations of Opioid prescriptions for non-chronic pain can be felt strongly in both state and federal legislatures by pharmaceutical companies lobbying. In a ten-year period from 2006 to 2015 Pharmaceutical companies have spent $880 million in lobbying all 50 state legislatures and in making campaign contributions in an effort to prevent laws restricting Opioid prescription quantities. In the end, it is just a matter of profits disguised as concern for chronic patient pain care.

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Contra Mannheim

(Dan here…another post lifted from Robert’s Stochastic Thoughts)

Contra Mannheim

First rules of blogging.  I type as I please.I haven’t read anything by Karl Mannheim but I think he wrote the phrase “social construction of truth”. I think that is a bad phrase and all use of it or similar phrases should be criticized.

My reason is simple. I think anything true which can be said including the phrase “social construction of truth” can also be said using “social construction of belief”. I think that all such valid claims amount to the assertion that our beliefs develope as part of a process of interaction with other people. I don’t think many people have noted that beliefs are socially constructed, because the fact is so obvious that it (almost always) goes without saying.

Rather, the reason I vaguely remember that some German guy wrote “social construction of truth” is the assertion that there is no truth other than belief. It is an assertion of idealism — that all that exists are minds and ideas. Now I don’t have a problem with idealists (I disagree but I do not denounce). I do have a problem with blocking arguments by redefining words.

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Fraying at the edges? *relative* underemployment increases

Fraying at the edges? *relative* underemployment increases

This is a post I’ve been meaning to put up all week (after all, this week was going to be very slow on data and news, right?).
As the expansion gets more and more mature, the *relative* performance of certain measures of improvement become more interesting.  One of those is the comparison between U3 unemployment, and the broader U6 underemployment measure.
While we only have about 25 years of data, so caution is warranted, generally speaking, during that time as the expansion has improved, an increasing number of the more marginally employable find jobs. As a result, U6 declines faster than U3. Later on, as the expansion begins to wane, U6 underemployment has weakened first:
Another way of looking at this is to subtract the U3 unemployment figure from that of the broader U6 measure:

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Is the “Invisible Hand” a lump of labor?

The first premise of Adam Smith’s famous metaphor about an “invisible hand” leading individuals to promote the public interest, although they intend only private gain, was that there is only so much work to go ’round. That is, Smith assumed there was a certain quantity of work to be done — a “lump of labor.” He didn’t tacitly assume it — he stated it plainly:

As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion.

Smith didn’t present his invisible hand metaphor until six paragraphs later. But the argument about individuals promoting the public good in spite of seeking only private advantage is in the paragraph immediately following the above passage. The subsequent reference to an invisible hand merely emphasized and amplified the argument.

Smith’s premise about the proportion between the number of workers and the amount of capital defined, with minor modification, what came to be known as the wages-fund doctrine of classical political economy. Instead of the whole capital restricting the number of workers that could be employed, however, the wages-fund argument specified that it was only that portion of capital that consisted of wage-goods that imposed the limitation.

Few authors have noted the connection between the classical wages-fund doctrine and Smith’s version of it. One was Henry Hoyt, who was governor of Pennsylvania from 1879 to 1883. In Protection versus Free Trade (1886), Hoyt credited Smith with having “laid down, as quite fundamental, this proposition… [as] one of the pillars of his free-trade system.” He then categorized Smith’s statement as a version of the wages-fund doctrine:

We shall see later on the essential vice of this statement as a statement of fact. It is not true that industry is limited by capital, and, as a matter of fact, there has never been any limitation on the employment of labor by reason of lack of capital. It is one mode of formulating the wages-fund theory.

Thirty years after Hoyt, Leopold Amery delivered a series of lectures in which he evaluated The Fallacies of Free Trade, paying particular attention to Smith’s “terminological inexactitude.” Smith’s concept of capital viewed the capital of a nation as merely an aggregate of individual capitals. The difference, Amery explained, was that an individual’s capital “is the result of saving, and grows by saving from profits or by credit based on profits” while the capital of a nation, “grows by the exercise of the qualities and energies of which it consists.” In the jargon of systems dynamics, Smith mistook a stock for a flow.

Amery subsequently served as a conservative Member of Parliament from 1911 to 1945 and was best known for a Commons speech he gave in 1940, following the Allied retreat from Norway. In that speech he criticized the government’s conduct of the campaign and concluded with a quotation from Oliver Cromwell, “You have sat too long for any good you have been doing lately. Depart, I say, and let us have done with you. In the name of God, go!” Three days later, after surviving a motion of no confidence with a greatly reduced majority, the Conservative government of Neville Chamberlain resigned.

As Hoyt had done, Amery identified Smith’s error with the wages-fund doctrine but also with “its daughter fallacy,” which he specified as “the restriction of output”:

It is upon this confusion, upon this terminological inexactitude, that they have based their exposition of many a plausible and mischievous fallacy – the long since exploded “wages fund” theory for instance, with its enduring legacy of class hatred, and with its daughter fallacy, the restriction of output, a fallacy involving most harmful consequences to the prosperity of the working man…

In contrast to the wages-fund doctrine, which was boldly proclaimed by the champions of free trade and laissez faire, this so-called “daughter fallacy” — also known as the “theory of the lump of labour” — had no suitors. This peculiar lack of utterance was sometimes noted by its detractors.

James McCleary, who served in the U.S. House of Representatives from 1893 to 1907, claimed there was an “oft-repeated error” behind statements from union leaders made to the congressional committee on labor on which he sat. “It was rarely if ever put into words,” McClary wrote in 1912, “but it was the unspoken major premise of many an attempted syllogism, the unstated basis of many an appeal.”

Half a century later, steel industry executive William Caples observed that the alleged fallacy was “one of the most tenaciously held and generally least articulated of trade union beliefs…” Least articulated by the trade unionists themselves, that is. Opponents of trade unionism never tired of attributing the belief to those who “rarely if ever” professed it.

McCleary’s and Caples’s perception of an absence of overt statement is confirmed by full-text searching of thousands upon thousands of historical documents, newspapers, pamphlets, books and journal articles using synonyms and cognate phrases for the proverbial fixed amount of work to be done. Up until the 1860s declarative statements of those phrases occurred exclusively in texts authored by political economists, propounding some version of the orthodox wages-fund doctrine. When trade union leaders or advocates used the phrases, it was invariably either with conditional if-clauses or in refutations of the claims of orthodox political economy.

In the 1860s and after a remarkable metamorphosis took place. Just as the wages-fund doctrine was being refuted, repudiated and recanted by economists, there emerged a chorus of remonstrance against what John Wilson in the Quarterly Review called a “Unionist reading of the Wage-fund theory.” As usual, no evidence was given of unionists stating any such view, only indignant assertions.

Leo Amery’s analysis of terminological inexactitude is useful here to help understand what is going on in the incongruous transformation from avowed principle to alleged error. The first step was to deploy, as Smith had done, an individualist concept of accumulated capital in place of a societal concept of exercised capacities – substituting the stock for the flow. The second step was to uphold this ideal of aggregate capital accumulation as the standard by which the workers’ self-interest must be gauged. To attempt to restrict the accumulation of capital was thus denounced as delusional. This argument led to what Maurice Dobb later called “the apparent paradox that the more the workers allow themselves to be exploited, the more their aggregate earnings will increase (at least in the long run), even if the result is for the earnings of the propertied class to increase still faster.” The illegitimate “daughter” was thus conceived entirely in the image of the banished father.

Let me try to explain that once more because the sleight of hand of the operation makes it difficult to follow what’s going on. In order to allege the derivative restriction-of-output fallacy, the plaintiff needed both to commit AND to disavow the original wages-fund fallacy. This was accomplished by accepting both the “terminological inexactitude” and the conclusion of the original (social benefit from individuals pursuing self-interest) while failing to acknowledge the conclusion’s disgraced premise (the number of workers proportionate to accumulated capital).

Even if we understand how the derivative fallacy claim works the question still remains, why is it widely persuasive? I would propose two parts of an answer to that question. First, regardless of the invalidity of its premises, there is a compelling kernel of truth in Smith’s invisible hand metaphor. Actions that are wholly motivated by self-interest can, and often do, indeed have “unintended” social benefits. An avid gardener may care little about the pleasure the garden provides to neighbours and passers-by. Commerce certainly enables a wider and presumably preferable variety of commodities than would otherwise be available. On the other hand, the social costs of actions motivated wholly by self-interest may be diffuse and deferred and thus hard to trace.

The second reason is both an historical and a theological one. As such it can only be briefly alluded to here. Smith’s fable is a theodicy of sorts. Instead of addressing the question of how there can be evil in the world if God is omniscient, omnipotent and good, it addressed the paradox of the persistence of poverty in the midst of plenty. The intellectual climate of the Enlightment was awash in rationalistic theodicies. The legacy of those intellectual pursuits during the emergence of supposedly secular political economy has been addressed elsewhere in depth, for example, by John Milbank in “Political Economy as Theodicy and Agonistics,” by Michael Sonenscher in “Physiocracy as a Theodicy,” and most recently by Joseph Vogl in The Spectre of Capital.

Vogl identified what he called the “oldest and most deep seated convictions” of liberal economics as arising from “the conviction that market activity is an exemplary locus of order, integration mechanisms, harmonization, appropriate allocation, and hence social rationality, and that it demands to be represented in a coherent, systematic way.” At the core of such representations is the notion of individual actions motivated only by self-interest leading unintentionally to socially-beneficial outcomes.

A recurring feature of theodicy is the assumption of a closed system, “characterized by constancy of sum and the preservation of energy,” as Vogl described Leibniz’s metaphysics. In other words, the desire to be reassured about the ultimately benign nature of God, the universe or the economic system – especially when confronted with disconcerting evidence to the contrary – leads inexorably back to the notion of equilibrium, a self-correcting mechanism that presupposes a closed system. That is the narrative box we are in. It is how that story goes. No one is immune from the desire for reassurance.

The question that has to be asked, though, is whether the detachment and complacency enabled by such reassurance is not itself the greater evil. To paraphrase Leopold Amery, quoting Oliver Cromwell, “Depart, Invisible Hand, and let us have done with you. In the name of God, go!”

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Drum goes easy on Goldberg

(Dan here…Lifted from Robert’s Stochastic Thoughts)

Drum goes easy on Goldberg

It is progress that hack conservatives are bothsidesing now. Jonah Goldberg correctly notes that the problem isn’t just Trump but also broader extreme partizanship. He asserts that both parties are to blame. He seems to know he can’t defend this assertion and declines to try. I think he may be sincere — the extreme partisanship of Republicans means that in the Conservabubble it was generally agreed that Obama exceeded his authority. Many of the conservative attacks on Obama were due to the progressive insanity of the conservative movement. Goldberg has noticed that Trump is extreme and a threat to the Republic, but he won’t bother to re-examine what he thought back when he was an orthodox conservative.

Liberals roll their eyes at the claim that President Obama violated democratic norms or abused his power. But putting aside the specific arguments, conservatives saw plenty of abuses and violations, from the IRS scandals and Benghazi to the Iran deal. Obama said many times he couldn’t unilaterally implement the Deferred Action for Childhood Arrivals program because he wasn’t a “king.” Then he did it anyway.

Kevin Drum is very hard on Goldberg.

Yeah, OK, except that we really can’t put aside the specific arguments here. We know now that the IRS “scandal” was a minor screwup that affected both parties, and certainly had nothing to do with Obama anyway. Benghazi was a tragedy, but not a scandal in any reasonable sense of the word. The Iran deal was…the Iran deal. And getting new legal advice on DACA is hardly some unprecedented norm violation. It’s up to the courts to decide if an executive order is legal, and so far no court has even taken up the question of DACA, let alone ruled against it.

It is indeed offensive that Goldberg wrote “putting aside the specific arguments” before stating his conclusions on those specific topics. He is saying that he demands that his claims be accepted (as an effort to avoid extreme partisanship) even though he won’t bother to defend them.

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