We are not going to be second to none

Rob AtkinsonThis morning on NPR we heard from a fellow name of Rob Atkinson, president of something called the “Information Technology and Innovation Foundation” (where do these think tanks come from, anyway?). He was riffing on Obama’s SOTU line, “I do not accept second place for the United States of America.”

Mr Atkinson helpfully points out that “the Japanese, Mexicans or Indians … can do the things that are easy to do; they have low-wage labor; they can’t do the things that are harder and more complex and require more knowledge, more skills, more technology, more brainpower—that’s what we can and should be good at, and if we don’t do that then we are in real trouble.”

Any pushback from the interviewer (Liane Hansen)? Naw.

“We are not going to be second to none,” says Atkinson. If he has anything to say about it, we are in real trouble.

The Debate Over the Cause of the Debt and Evolution

Dean Baker says yet again what, sadly, needs saying yet again.

The Debate Over the Cause of the Debt and Evolution

The NYT had an article discussing President Obama’s plan to set up a commission to propose recommendations for reducing the deficit. At one point the article refers to the debate: “over the nation’s rising debt and its causes and solutions.”

There really is not much basis for debate over the cause of the debt. The debt has grown rapidly in the last two years because of the recession created by the collapse of the housing bubble. The debt would be much lower today if the deficit hawks had not been dominating public debate and distracting attention from the housing bubble in the years when it was growing to dangerous levels.

Over the longer term, the deficits are projected to be unsustainable due to the growth of health care costs in the United States. Since the United States pays for more than half of its health care through public programs like Medicare and Medicaid the failure to fix the health care system will also lead to serious budget problems.

As with evolution, there really is not much room for debate on the factors driving the deficit (the big rise in military spending also was an important factor in the deficits). It is misleading to imply that there is.

—Dean Baker

Is China a Bubble?

Over at Angry Bear—it sounds plausible, doesn’t it? But what do I know…

Is China a Bubble?

A friend of mine who does just about all of his business providing a very specific service to selling to companies who do business with China. (And yes, that is as specific as I am willing to be, except to say that right at this moment, the service he provides is extremely tailored toward China.) My friend tells me he believes “China is a bubble” which very much resembles the dot com bubble and the housing bubble. According to him, this is the resemblance – there is no due diligence to speak of on any deal involving China, not from the Chinese and not from the Westerners dealing with them, and all the deals are being done with “other people’s money” and heavily leveraged. …

The Poverty of Economics

Marx: The Poverty of Philosophy — Chapter 2.1

Economists have a singular method of procedure. There are only two kinds of institutions for them, artificial and natural. The institutions of feudalism are artificial institutions, those of the bourgeoisie are natural institutions. In this, they resemble the theologians, who likewise establish two kinds of religion. Every religion which is not theirs is an invention of men, while their own is an emanation from God. When the economists say that present-day relations — the relations of bourgeois production — are natural, they imply that these are the relations in which wealth is created and productive forces developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time. They are eternal laws which must always govern society. Thus, there has been history, but there is no longer any. There has been history, since there were the institutions of feudalism, and in these institutions of feudalism we find quite different relations of production from those of bourgeois society, which the economists try to pass off as natural and as such, eternal.

via bourgeois economist Brad DeLong

The Vicious Cycle of Stagnant Wages

Kevin Drum:

The Vicious Cycle of Stagnant Wages

Here’s my capsule view of the great financial meltdown of 2008: For the past couple of decades, the benefits of economic growth have gone almost entirely to the rich. But the middle class still wanted to prosper, so the rich loaned them money to continually improve their lifestyles. That worked for a while. And then it didn’t.

Drum goes on to preview an upcoming book (Fault Lines: How Hidden Fractures Still Threaten the World Economy) by Raghuram Rajan. Amazon says May 20. Here’s the blurb:

Economist Raghuram Rajan warned about the global financial crisis long before it hit, but few listened. Now, as the world struggles to recover, it’s tempting to blame the crisis on just a few greedy bankers who took irrational risks and left the rest of us to foot the bill. In Fault Lines, Rajan argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren’t fixed. Can we risk not listening to him a second time?

Rajan shows how the individual choices that collectively brought about the economic meltdown—made by bankers, government officials, and ordinary homeowners—were rational responses to a flawed global financial order in which the incentives to take on risk are incredibly out of step with the dangers those risks pose. He traces the deepening fault lines in a system overly dependent on American consumption to power the world economy and stave off a global downturn; a system where America’s thin social safety net has created tremendous political pressure to keep job creation robust, because jobs are the primary provider of health and other benefits; and where the U.S. financial sector, with its skewed incentives, is the critical but unstable link between an overstimulated America and an underconsuming world.

Rajan demonstrates how inequalities in U.S. incomes, education, and health care are putting all of us into deeper financial peril, and he outlines sensible reforms to ensure a more stable world economy and to restore lasting prosperity.

Should We Jettison GDP As an Economic Measure?

Richard Posner considers its shortcomings (interesting reading) and ends up saying, “No, but…”:

Should We Jettison GDP As an Economic Measure?

… But it is necessary to emphasize that it is just a starting point. I disagree with economists who say the “recession” ended in the third quarter. The depression (as I think we should call it if only because of its enormous potential political consequences) has caused massive unemployment with all the associated anxieties and hardships, has greatly reduced household wealth, has caused private investment to turn negative, has cost the government trillions of dollars in lost tax revenues and recovery expenditures (TARP, the fiscal stimulus, the mortgage-relief programs, the auto bailouts, etc.), has undermined belief in free markets and altered the line between government and business in favor government, and is threatening a future inflation while deepening our dependence on foreign lenders. To view a change in GDP from negative to positive as signifying the end of a depression (by which criterion the Great Depression ended in 1933 and again in 1938) is to misunderstand the utility of GDP as a measure of economic activity.

Eight things James Kwak is sick of

A Partisan Post, You Have Been Warned

Last night I read a post by Brad DeLong that made me so mad I had trouble falling asleep. (Not at DeLong, mind you.)  There’s really nothing unusual in there — hysteria about the deficit, people who voted for the Bush tax cuts and the unfunded Medicare prescription drug benefit but suddenly think the national debt is killing us, political pandering — but maybe it was the proverbial straw.

First, let me say that I largely agree with DeLong here:

“I am–in normal times–a deficit hawk. I think the right target for the deficit in normal times is zero, with the added provision that when there are foreseeable future increases in spending shares of GDP we should run a surplus to pay for those foreseeable increases in an actuarially-sound manner. I think this because I know that there will come abnormal times when spending increases are appropriate. And I think that the combination of (a) actuarially-sound provision for future increases in spending shares and (b) nominal balance for the operating budget in normal times will create the headroom for (c) deficit spending in emergencies when it is advisable while (d) maintaining a non-explosive path for the debt as a whole.”

Now, let me tell you what I am sick of:

1. People who insist that the recent change in our fiscal spending is the product of high spending, without looking at the numbers, because their political priors are so strong they assume that high deficits under a Democratic president must be due to runaway spending. And it’s not just Robert Samuelson.

2. People who forecast the end of the world without pointing out why the world is ending. Here’s Niall Ferguson, in an article entitled “An Empire at Risk:”

“The deficit for the fiscal year 2009 came in at more than $1.4 trillion—about 11.2 percent of GDP, according to the Congressional Budget Office (CBO). That’s a bigger deficit than any seen in the past 60 years—only slightly larger in relative terms than the deficit in 1942.”

But does he mention that the reason for the 2009 deficit is lower tax revenues due to the financial crisis and recession? No.

Here’s Ferguson on the 10-year projection:

“Meanwhile, in dollar terms, the total debt held by the public (excluding government agencies, but including foreigners) rises from $5.8 trillion in 2008 to $14.3 trillion in 2019—from 41 percent of GDP to 68 percent.”

Does he mention that, as early as January 2008, that number was projected to fall to 22%, and the majority of the change is due to lower tax revenues? No.

3. People who posture about our fiscal crisis who voted for the Bush tax cuts — shouldn’t shame require them to keep silent?

4. People who say, like Judd Gregg, “after the possibility of a terrorist getting a weapon of mass destruction and using it against us somewhere here in the United States, the single biggest threat that we face as a nation is the fact that we’re on a course toward fiscal insolvency,” as if this is a new problem, when it’s been around since 2004 (see Figure 1) — when, I might add, Judd Gregg was a member of the majority.

(Tell me, was Niall Ferguson forecasting the end of the American empire in 2004, when everything he says now about long-term entitlement spending was already true? That’s a real question.)

5. People who say that we can’t pass health care reform because it costs too much, ignoring the fact that the CBO projects the bills to be roughly deficit neutral, ignoring the fact that the Senate bill has received bipartisan health-economist support for its cost-cutting measures, and ignoring the fact that our long-term fiscal problem is, and always has been, about health care costs (see Figure 2).

6. People who say the Obama administration is weak on the deficit (Ferguson refers to Obama’s “indecision on the deficit”, and he is gentle by Republican standards), when by tackling health care costs head-on — and in the process angering their political base — they are doing the absolute most important thing necessary to solve the long-term debt problem.

7. People who cite “financial ruin” purely, absolutely, incontrovertibly as a political tactic to try to kill health care reform (courtesy of DeLong and Brian Beutler):

GOP-medicare-crisis.jpg

8. Joe Lieberman.

By James Kwak

How To Make The World’s Easiest $1 Billion

Henry Blodget, via Jorn Barger:

How To Make The World’s Easiest $1 Billion

With all the banks paying back the TARP money, some folks are assuming that the great Wall Street bailout is finally coming to an end.

But of course it isn’t!

Taxpayers are still guaranteeing all big bank bonds (Too Big To Fail) and subsidizing huge bank earnings and bonuses with absurdly low interest rates.

But instead of bellyaching about it, you might as well just smile and cash in. After all, that’s what Wall Street’s doing.

So here’s how to make the world’s easiest $1 billion: click

The jobs deficit

Krugman. We all know this, I’m sure, but a reminder can’t hurt. 300,000 new jobs a month for five years, just to make up lost ground.

The jobs deficit

It was truly amazing the way last week’s employment report was hailed by many people as a sign that our troubles are over. Here we are, having suffered huge job losses, and needing to make up the lost ground — and a report showing that we’re still losing jobs, but not as fast, is grounds for celebration?

Anyway, I thought it might be useful to create a sort of benchmark for the level of job growth that would really count as good news. I start from the fact that we’ve lost about 8 million jobs since the recession began — that’s the official number plus the preliminary estimate of the coming benchmark revision. I then take EPI’s estimate that we need to add 127,000 jobs a month. EPI points out that when you put these numbers together, they say that to return to pre-crisis unemployment within two years we’d have to add 580,000 jobs a month. That’s not going to happen.

But let’s set a more modest goal: return to more or less full employment in 5 years –which means seven lean years of depressed employment. To keep up with population growth over those 7 years, the United States would have had to add 84 times 127,000 or 10.668 million jobs. (If that sounds high, bear in mind that we added more than 20 million jobs over the 8 Clinton years). Add in the need to make up lost ground, and we’re at around 18 million jobs over the next five years — or 300,000 a month.

So that’s a useful benchmark. Even if we add 300,000 jobs a month, we’re looking at a prolonged period of suffering — a huge cost from the Great Recession. So that’s kind of a minimal definition of success. Anything less than that, and it’s bad news. It sort of puts that wonderful report that we only lost 11,000 jobs in perspective, doesn’t it?

Walk away from your mortgage

This is the abstract of Brent White’s paper “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis“.

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Here’s the tail of Felix Salmon’s post on the subject.

The world’s largest guilt trip

… White goes on to enumerate an astonishingly long list of institutions, up to and including the president himself, which are speaking with a single voice on this question, and saying that paying an underwater mortgage in full is the morally correct thing to do. Hank Paulson did it, despite the fact that he would have fired anyone at Goldman who behaved similarly; Neil Cavuto likened people who walk away from their mortgages to people who would have “quit” and handed over Europe to the Nazis.

Even Gail Cunningham, of the National Foundation for Credit Counseling, declared in an interview on NPR that “Walking away from one’s home should be the absolute last resort. However desperate a situation might become for a homeowner, that does not relieve us of our responsibilities.” If you’re thinking of walking away, you’ll almost certainly do so while overcoming enormous feelings of guilt. And where there’s guilt, there’s belief in dire consequences:

Most people simply do not believe they will escape punishment for their moral transgressions. Guilt and fear of punishment go together. Thus, the notion that one will suffer great consequences for walking away from one’s financial obligations not only seems possible, but feels quite right. It just can’t be that one can walk away from their mortgage with no significant consequence. As such, people rarely question apocalyptic descriptions of foreclosure’s consequences.

The result is a system tilted enormously in favor of institutional lenders who exist in a world of morality-free contracts, and who conspire to lay the world’s largest-ever guilt trip on any borrower who might think about joining them in that world. It’s asymmetrical, it’s unfair, and it’s about time that homeowners started being informed that a ding to their credit score is not the end of the world; that no one would expect a capitalist company to behave in the way that individuals are being told to behave; and that their options are in fact broader than they might believe. White’s paper is the perfect place for them to start their reading.

SuperFreaking Climate Change

I doubt that you’ve missed the flap about Chapter 5 of Steven Levitt and Stephen Dubner’s latest book, SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance (pause for breath). If you have, it’s the “global cooling” chapter, and it’s something of a mess.

There’s plenty to read on the subject, but let me point you to two of the best pieces. The first is Elizabeth Kolbert’s review in The New Yorker. Best line first:

Neither Levitt, an economist, nor Dubner, a journalist, has any training in climate science—or, for that matter, in science of any kind.

Ouch. More:

But what’s most troubling about “SuperFreakonomics” isn’t the authors’ many blunders; it’s the whole spirit of the enterprise. Though climate change is a grave problem, Levitt and Dubner treat it mainly as an opportunity to show how clever they are. Leaving aside the question of whether geoengineering, as it is known in scientific circles, is even possible—have you ever tried sending an eighteen-mile-long hose into the stratosphere?—their analysis is terrifyingly cavalier. A world whose atmosphere is loaded with carbon dioxide, on the one hand, and sulfur dioxide, on the other, would be a fundamentally different place from the earth as we know it. Among the many likely consequences of shooting SO2 above the clouds would be new regional weather patterns (after major volcanic eruptions, Asia and Africa have a nasty tendency to experience drought), ozone depletion, and increased acid rain. Meanwhile, as long as the concentration of atmospheric CO2 continued to rise, more and more sulfur dioxide would have to be pumped into the air to counteract it. The amount of direct sunlight reaching the earth would fall, even as the oceans became increasingly acidic. There are eminent scientists—among them the Nobel Prize-winning chemist Paul Crutzen—who argue that geoengineering should be seriously studied, but only with the understanding that it represents a risky, last-ditch attempt to avert catastrophe.

To be skeptical of climate models and credulous about things like carbon-eating trees and cloudmaking machinery and hoses that shoot sulfur into the sky is to replace a faith in science with a belief in science fiction. This is the turn that “SuperFreakonomics” takes, even as its authors repeatedly extoll their hard-headedness. All of which goes to show that, while some forms of horseshit are no longer a problem, others will always be with us.

Kolbert in turn points to An open letter to Steve Levitt, posted by Raymond Pierrehumbert, professor of geophysics at the University of Chicago.

Dear Mr. Levitt,

The problem of global warming is so big that solving it will require creative thinking from many disciplines. Economists have much to contribute to this effort, particularly with regard to the question of how various means of putting a price on carbon emissions may alter human behavior. Some of the lines of thinking in your first book, Freakonomics, could well have had a bearing on this issue, if brought to bear on the carbon emissions problem. I have very much enjoyed and benefited from the growing collaborations between Geosciences and the Economics department here at the University of Chicago, and had hoped someday to have the pleasure of making your acquaintance. It is more in disappointment than anger that I am writing to you now.

I am addressing this to you rather than your journalist-coauthor because one has become all too accustomed to tendentious screeds from media personalities (think Glenn Beck) with a reckless disregard for the truth. However, if it has come to pass that we can’t expect the William B. Ogden Distinguished Service Professor (and Clark Medalist to boot) at a top-rated department of a respected university to think clearly and honestly with numbers, we are indeed in a sad way.

By now there have been many detailed dissections of everything that is wrong with the treatment of climate in Superfreakonomics, but what has been lost amidst all that extensive discussion is how really simple it would have been to get this stuff right. The problem wasn’t necessarily that you talked to the wrong experts or talked to too few of them. The problem was that you failed to do the most elementary thinking needed to see if what they were saying (or what you thought they were saying) in fact made any sense. If you were stupid, it wouldn’t be so bad to have messed up such elementary reasoning, but I don’t by any means think you are stupid. That makes the failure to do the thinking all the more disappointing. …

A fascinating lesson ensues. Go read.

More bogus numbers

John Schmitt, via Dean Baker. This seems of a piece with my previous Meg Whitman post.

Here we go:

Casey Mulligan Swings and Misses

University of Chicago economist Casey Mulligan has a post today at the New York Times Economix blog where he seems to argue that the current push for statutory paid sick days in the United States is ignoring the role of economic incentives. According to Mulligan, workers in countries with generous paid sick day policies stay home because of “incentives, and not the flu”.

I don’t think Mulligan has been following the U.S. debate on paid sick days very closely. The U.S. debate is very serious about incentives. The current system — which does not require employers to provide paid sick days and leaves upwards of 50 million workers without paid sick days — gives strong incentives to workers to go to work sick, lowering productivity and potentially spreading illness.

Of course, offering paid sick days also gives workers incentives to take time off when they are not sick. But, there is nothing in Mulligan’s post that says where we should set the optimal level. He doesn’t even make a case that the most generous systems in Europe are too generous, just that they lead to more sickness absences in some cases. For all we know, after we factor in the cost of contagious diseases, the most generous European systems might still be too stingy.

To make his point about the effect of incentives, Mulligan features the following graph from a recent IMF paper:

MulliganSickDays.jpg

Mulligan, however, has made very selective use of the original IMF graph:

IMFsickdays.png

In the original, Denmark, Germany, and seven other countries with more generous statutory paid sick days policies all have lower sickness absence rates than the United States. A really interesting question is: how is it that these countries are able to provide both guaranteed paid sick days and lower sickness absence rates? (And why didn’t Mulligan include these countries in his graph?)

Meg Whitman: fun with numbers

George Skelton in the LA Times. I heard Whitman’s obviously bogus ad the other day and didn’t get around to doing the arithmetic. This is going to be a depressing campaign.

Meg Whitman’s radio whoppers

… Neither major party has a lock on truthfulness. I’ve written about false advertising by Republicans and Democrats alike for years.

Now, in the very first series of radio ads in the 2010 gubernatorial race, comes blatant baloney from billionaire political novice Meg Whitman, the former chief executive of EBay who is running for the Republican nomination.

“Did you know,” Whitman asks radio listeners, “that in the last 10 years, state spending has gone up 80%?”

Well, no, I did not know that. So I did some checking.

“They’re completely wrong when they say that,” replied state Finance Director Mike Genest, a conservative former budget consultant for Senate Republicans.

It doesn’t take much digging to learn that general fund spending “in the last 10 years” has risen just 27%, according to finance department data. Adjusted for inflation and population growth, spending actually has decreased by 16.6%. …

Freaking climate change

The tubes are abuzz with comment on Levitt & Dubner’s new book Superfreakonomics and its material on climate change. The consensus: at best, lazy and misleading; at worst, dishonest.

Start with Krugman:

Superfreakonomics on climate, part 1

OK, I’m working my way through the climate chapter — and the first five pages, by themselves, are enough to discredit the whole thing. Why? Because they grossly misrepresent other peoples’ research, in both climate science and economics.

Climate Progress goes into considerably more detail.

Here’s Stoat at Science Blogs:

SuperFreakonomics: Global Cooling (and some other stuff)?

I liked Freakonomics, so I’m a bit sad to see the (inevitable) sequel being so hopelessly wrong. Probably this is a case of the old rule: whenever you see people write about stuff you know, they get it wrong. Joe Romm has a fairly characteristic attack; and just for a change I’ll agree with him; though he chooses odd bits to assault. It looks like the “global cooling” junk is just one chapter, but of course it is the only one I’ll pay any attention to.

Diagnosis, in brief: (1) they write about stuff they clearly don’t understand (2) they pick a catchy reverse-common-wisdom nugget as a headliner without the having the slightest interest in whether it is true or not (mind you, plenty of more respectable folk do the same) (3) they pick an expert to talk to, but since they don’t have a clue about the subject they don’t know how to pick a good expert, or even understand what the expert says (4) there is a grain of sense in there, but so badly wrapped in trash it is nearly unfindable.

The entire piece is riddled with errors. Reading it all would be tedious. So, before reading it in detail I decided to set myself a target of 10 major errors and then stop. …

And last, for now anyway, Brad Plumer.

Does “Superfreakonomics” Need A Do-Over?

I enjoyed the original Freakonomics quite a bit. It surveyed some fun-to-read economic research that Steve Levitt had done at the University of Chicago, and while a lot of that work was employed in the service of trifling questions (“Do sumo wrestlers cheat?” “Do game-show participants discriminate?”), it was clear Levitt was a clever economist who could gin up fascinating “natural experiments” to crack open everyday mysteries.

So now Levitt and his co-author Stephen Dubner have a sequel, Superfreakonomics, which includes a chapter on climate change. Do they deploy Levitt’s trademark economic techniques to shed new light on old questions? Because that might be useful! Alas, no, there’s nothing of the sort. Levitt and Dubner just parachute into the field of climate science and offer some lazy punditry on the subject dressed up as “contrarianism.” There’s no original research. There’s nothing bold or explosive. It’s just garden-variety ignorance. …

Should you care? Well, maybe not; Levitt & Dubner are hardly the go-to guys on climate science, nor the first to get it badly wrong. But the various critiques are at least entertaining, and educational to boot. And the subject itself is serious. Krugman concludes in a later post:

Levitt now says that the chapter wasn’t meant to lend credibility to global warming denial — but when you open your chapter by giving major play to the false claim that scientists used to predict global cooling, you have in effect taken the denier side. The only way I can reconcile what Levitt says now with that reality is that he and Dubner didn’t do their homework — not only that they didn’t check out the global cooling stuff, the stuff about solar panels, and all the other errors people have been pointing out, but that they didn’t even look into the debate sufficiently to realize what company they were placing themselves in.

And that’s not acceptable. This is a serious issue. We’re not talking about the ethics of sumo wrestling here; we’re talking, quite possibly, about the fate of civilization. It’s not a place to play snarky, contrarian games.

Oh, what the hell, let’s add one more, with a link to yet another. Matthew Yglesias makes another useful meta-point, and points to the UCS in the bargain.

Steven Dubner Digs the Hole Deeper

Caldeira aside, it would be one thing if Levitt and Dubner wanted to make the argument that they have reason to believe that most scientists are mistaken about the climate change situation. But instead they make the claim that most environmentalists are mistaken about the climate change situation and that it’s Levitt & Dubner who are channeling the views of the scientific community. But according to the Union of Concerned Scientists “the fifth chapter of the book, ‘Global Cooling,’ repeats a large number of easily discredited arguments regarding climate science, energy production, and geoengineering.”

Of course it’s possible that the UCS is mistaken about some matters. And it’s possible that Ken Caldeira is mistaken about some things. But it’s not possible that Levitt and Dubner are correctly representing the views of Caldeira or climate scientists in general. Nor is it possible that Levitt and Dubner are correct when they assert that photovoltaic cells are black (they’re usually blue) nor is it correct to say that black PV cells lead to net increases in global temperature. These mistakes. A mixture of bad science and bad reportage on a crucial public policy issue, done by a writing duo who became famous for clever statistical analysis of trivial matters.

Diagnosis: What Doctors Are Missing

A little weekend reading. Yves Smith points us to a piece by Jerome Groopman in the NYRB.

Diagnosis: What Doctors Are Missing

A fascinating and somewhat disturbing article at the New York Review of Books by Jerome Groopman looks at what counts for progress in medical diagnosis and finds it to be more of a mixed bag than most readers would assume. This won’t come as much of a surprise to those who know a bit about the field (one of my colleagues who worked at the National Institutes of Health called it “a medieval art”). But what is a tad disconcerting is that the efforts to make medicine more scientific may not in fact be a plus.

That may sound simply bizarre to readers. Isn’t evidence based medicine a good thing? Well, maybe not.

One of the reasons this piece struck a chord with me is that some of the efforts to make medicine more scientific parallel, in their negative aspects, the push to make economics more scientific. In medicine, this means developing more rules and tools for diagnosis; in economics, the course chosen was to impose more “rigor” which meant make greater use of mathematical exposition (proof-like theoretical papers) and to have “empirical” papers centered around statistical analysis of data sets.

Now while this all may sound well and good, in fact, both are methodological choices that limit investigation. For instance, evidence based medicine seeks to gather symptoms and then use that to determine what the ailment might be. Well, the problem is these protocols have been developed from people with only one thing wrong with them. Many people who show up in doctor’s offices have multiple pathologies. So a lot of effort is being expended to develop an approach that has limited value in the field, and worse, doctors are increasingly expected to conform to it.

As if T-bills were no better than cash

This would be just another boring example of media ignorance, except that Sorkin is billed as “a financial columnist for The New York Times. Or maybe that’s not news after all.

Let’s See, Low Interest Rates Mean that Investors Have Trust

Somehow the world got turned upside in a Vanity Fair excerpt of a book on the financial crisis by NYT reporter Andrew Ross Sorkin. Sorkin, in outlining the dimensions of the financial breakdown following the collapse of Lehman, tells readers: “Treasury bills were trading for less than 1 percent interest, as if they were no better than cash, as if the full faith of the government had suddenly become meaningless.”

Actually, the full faith of the government suddenly was a really big deal. Interest rates of less than 1 percent meant that investors were willing to sacrifice interest payments precisely to take advantage of the full faith of the government. Investors were looking for security, not returns, and at that time, they considered government bonds to be very secure.

Thanks to Ken Broomfield for the tip.

—Dean Baker

The New York Times Does Not Like the European Welfare State

Another Dean Baker classic.

The New York Times Does Not Like the European Welfare State

The New York Times is unhappy because it doesn’t seem likely that Europe’s governments will dismantle their welfare state. The problem is that people in Europe like the welfare state and democratically elected governments seem intent on putting the wishes of their electorate over the desire of the New York Times and the experts it chose to consult for this article.

The article begins by telling readers that: “two years ago, Europe was growing more rapidly than the United States, and the Old Continent finally seemed prepared to tackle longstanding economic challenges like rigid labor markets, runaway government spending and a rapidly aging population.”

In fact, these “longstanding challenges” do not really exist. Europe did not suffer from “runaway government spending,” most countries had relatively modest budget deficits prior to the economic crisis. Over the long-term, the United States is projected to face far worse budget problems than Europe because of its out of control health care spending.

Its “rigid labor markets” did not prevent Europe from experiencing labor productivity growth that was comparable to that of the United States. It also managed to run current account surpluses, instead of unsustainable deficits, like the United States.

Europe’s population is aging more rapidly than the United States, in part because its people enjoy longer life expectancies. It is not clear why the NYT views this as a problem.

The article is full of complaints that Europe’s governments are not following the NYT’s agenda. For example , without any substantiation the NYT tells readers that: “just when it is needed most, the political will to address Europe’s bigger economic problems seems absent, according to many experts across the region and around the world.” It’s not clear what “just when it is needed most” could possibly mean in this context.

The article later complains that: “In Germany, Angela Merkel, who was elected last month to a second term as chancellor, has also avoided taking on the country’s powerful unions and its regional banks. She has embraced the “social market economy” and has insisted there is no alternative to relying on exports rather than consumers to drive growth.”

It’s not clear what the problem is. Economists view exports as a form of investment. Rich countries, like Germany, are supposed to run trade surpluses, lending money to poor countries to finance their development. The NYT apparently wants Germany to siphon money away from poor countries, as the United States does, leaving them with fewer resources to finance their development.

It would have been useful if the article had included the views of someone associated with Europe’s labor unions or an economist more familiar with recent research on European labor markets.

—Dean Baker