The Dollar, the Deficit, and Accounting Identities

And the second.

The Dollar, the Deficit, and Accounting Identities

It would be great if people who reported on the budget deficit for major news outlets could be required to know the basic accounting identities that get taught in every introductory economics class. The key one that almost none of them seem to know is that the trade deficit (X–M) is equal to the sum of public and private savings (T–G)+(S–I). This identity means that if the United States is running a trade deficit, then the sum of public and private savings must also be negative. That has to be true — it is an identity. It’s just like 2 + 2 = 4. It is always true.

This matters for all the nutty deficit hysteria because no one every asks the deficit hawks how they would like to see the identity met. The U.S. has a large trade deficit because of the value of the dollar. At a given level of GDP, the main determinant of the trade deficit is the value of the dollar. Politicians and even many economists like to hyperventilate about “competitiveness” and talk about how we’re going to improve our trade situation by getting a better trained and educated work force, rebuilding the infrastructure, or fixing the tax code. But even if you gave any of these characters everything they wanted in whichever direction, there is no plausible story where their policy of choice would have even half the impact on competitiveness and trade as a 10 percent reduction in the value of the dollar — and even then we would only see the impact after many years.

So, the trade deficit is determined by the value of the dollar for all practical purposes. But, most of the deficit hawks see a fall in the value of the dollar as the worst possible outcome. This is their horror story. People will worry about whether the U.S. can pay its debts and then the dollar would fall, the horror, the horror!

Okay, so the deficit hawks want the U.S. to run a large trade deficit. Then the next question is what the rest of the equation should look like. Since they want a balanced or near balanced budget, the deficit hawks must want very low private savings. Again, we can hope to get the identity met by having high levels of private investment, but neither they, nor anyone else, has anything in their bag of tricks that will appreciable raise the level of private investment.

This means that Peter Peterson, David Walker and the rest of the deficit hawk crew want workers to have very low private savings, so that they will have nothing to live on in retirement when we cut their Social Security and Medicare. They may not say this, and it’s possible that they don’t even understand it themselves, but that is the logical conclusion of their position.

That may make Peter Peterson look bad, but accounting identities are even more powerful than rich Wall Street investment bankers with a billion dollars to buy newspapers, reporters, and economists.

—Dean Baker

How to think about the national debt

It’s quiet. Too quiet. So let’s see if Dean Baker has something to say. Heres the first:

NYT Joins Efforts to Scare Public About the Size of Government Debt

Peter Peterson, the billionaire Wall Street investment banker, is devoting more than $1 billion to a campaign to whip up fears about budget deficits in order to force cuts in Social Security and Medicare. It almost looks as though the NYT has joined the effort.

It printed an article today that uses a measure of government debt that is explicitly designed to be misleading. The article reports on the debt of Greece, but then adds in a discussion of the debts of other countries, including the United States.

The calculations are misleading because they compare future obligations over many decades to the current year’s GDP. The honest way to do this calculation is to compare future obligations to projected GDP over the time horizon in which these obligations will be met. However, this calculation would produce a much lower ratio. (The debt in the case of the U.S. would be around 6 percent of GDP.)

It is also worth noting that in the case of the United States, the vast majority of the projected deficit is due to exploding health care costs. If the country fixed its health care system it would instead have large surpluses.

—Dean Baker

The Democratic Party’s deceitful game

Glenn Greenwald:

The Democratic Party’s deceitful game

… Basically, this is how things have progressed:

Progressives:  We want a public option! Democrats/WH:  We agree with you totally!  Unfortunately, while we have 50 votes for it, we just don’t have 60, so we can’t have it.  Gosh darn that filibuster rule.   Progressives:  But you can use reconciliation like Bush did so often, and then you only need 50 votes. Filibuster reform advocates/Obama loyalists:  Hey progressives, don’t be stupid!  Be pragmatic.  It’s not realistic or Serious to use reconciliation to pass health care reform.  None of this their fault.  It’s the fault of the filibuster.  The White House wishes so badly that it could pass all these great progressive bills, but they’re powerless, and they just can’t get 60 votes to do it.   [Month later] Progressives:  Hey, great!  Now that you’re going to pass the bill through reconciliation after all, you can include the public option that both you and we love, because you only need 50 votes, and you’ve said all year you have that! Democrats/WH:  No.  We don’t have 50 votes for that (look at Jay Rockefeller).  Besides, it’s not the right time for the public option.  The public option only polls at 65%, so it might make our health care bill — which polls at 35% — unpopular.  Also, the public option and reconciliation are too partisan, so we’re going to go ahead and pass our industry-approved bill instead … on a strict party line vote.

This is why, although I basically agree with filibuster reform advocates, I am extremely skeptical that it would change much, because Democrats would then just concoct ways to lack 50 votes rather than 60 votes — just like they did here. …

via Glenn Greenwald

Digression

Has it occurred to you that Listerine is named after Joseph Lister, who we learned (when? junior-high biology?) was the inventor of antisepsis. Listerine was named in 1879, when Lister was still alive and working, so the association was presumably livelier than it is today.

The -ine in Listerine has the sense, from chemistry, of “forming names of alkaloids, halogens, amines, amino acids, and other substances” (Oxford American), and we see it around quite a lot—chlorine, for example, from khlōros, green, and -ine (likewise iodine is ‘violet-colored’).

Cocaine, then, is coca-ine, relating to the alkaloid from the coca leaf. It looks like it should be (and is) pronounced co-caine, though. And co-caine in turn influenced the likes of procaine and novocaine, synthetic anesthetics that replaced the earlier use of cocaine for the purpose.

And let’s not forget caffeine, from the French, café-ine.

Five long years (and class-size reduction)

I note, somewhat belatedly, that I’ve been blogging here since January 2005 (or November 2004, if you want to count a first experimental WordPress post).

My first substantive post, BBC: Small-class pupils ‘do no better’, began:

New British research suggests that there “is no evidence that children in smaller primary classes do better in maths or English”.

Anniversaries aside, I bring up that post because it’s still a live subject. In December, a local editor opined (emphasis mine),

School officials are considering “eliminating class size reductions” in kindergarten through third grade. That means that instead of one teacher for every 20 students there may be half again as many students crowded into the classroom. Superintendent Rob Gaskill says there may soon be as many as 32 young scholars in a classroom. There is universal agreement that such a change would have profound implications for the education of young students.

…and our local school board, pushing for a local parcel tax, ranked class-size reduction near the bottom of a list of potential cost-cutting measures.

Class-size reduction (CSR) is popular in California, especially with parents and teachers, but there’s no good evidence that it leads to better educational outcomes, at least not the way it’s implemented here. CSR in California typically means reducing K–3 classes from about 30 to 20 students. What sketchy evidence that exists for CSR benefits is limited to class sizes in the 12–15 range. That, and unsupported claims that it “stands to reason” that CSR is beneficial.

CSR is expensive, and needs better justification than we’ve seen to date.

Archdruid Eileen: On Voting Systems

As you may know, I have an interest in elections and voting, and follow the literature more than casually. I’m delighted to pass on this excellent paper, On Voting Systems, by Archdruid Eileen of the Beaker Folk of Husborne Crawley.

It’s a brief paper, but contains a fairly comprehensive review of portal, hydraulic and feline balloting systems, along with the single most compelling argument I’ve come across for electronic voting.

I won’t quote any of the paper here, so as to encourage you to read the whole damned thing.

The World According to Howard Zinn

The World According to Howard Zinn

From his 2002 autobiography You Can’t Be Neutral on a Moving Train:

howardzinn.jpgTo be hopeful in bad times is not just foolishly romantic. It is based on the fact that human history is a history not only of cruelty, but also of compassion, sacrifice, courage, kindness.

What we choose to emphasize in this complex history will determine our lives. If we see only the worst, it destroys our capacity to do something. If we remember those times and places–and there are so many–where people have behaved magnificently, this gives us the energy to act, and at least the possibility of sending this spinning top of a world in a different direction.

And if we do act, in however small a way, we don’t have to wait for some grand utopian future. The future is an infinite succession of presents, and to live now as we think human beings should live, in defiance of all that is bad around us, is itself a marvelous victory.

via James Ridgeway

Teach to the back of the envelope

(I have a draft post on “teaching to the test” rattling around somewhere, hence the title of this one.)

RCA AirnergyThe gadget shown here was displayed at the recent Consumer Electronics Show. Cnet reported:

The device, called the Airnergy, uses an antenna and circuitry to harvest the energy and an internal battery to store the electrical charge. A company representative told OhGizmo that they were able to charge a BlackBerry from 30 percent to full charge in about 90 minutes using the ambient Wi-Fi signal at CES, although the charge time varies depending on how close the battery is to the original signal.

Now, this doesn’t really pass the sniff test, but, after all, it’s RCA, and they “demonstrated” it, so what the hell? The point of this post is that a judgement like this can be informed by a little back-of-the-envelope calculating, and that this is an example of the kind of skill that I’ll argue elsewhere, eventually, ought to be possessed by any graduate of a high school physics class.

We need some basic facts first. Wikipedia tells us that wifi base stations are limited by the FCC to 4 watts output. My cellphone battery is labeled: 3.7VDC 1150mAH. Assuming 100% charging efficiency, that’s 4.255 watt-hours required for a full charge. I’ll guess from the picture that the receiving antenna is 100 cm2 and that we put it a meter from the transmitter. How much power does the charger “see”?

We know (or can easily look up) that the surface of sphere is 4πr2, so the surface of a sphere with a radius of a meter is about 12m2, or 120,000cm2. Our 100cm2 antenna represents 100/120,000 or 1/1200 of the sphere, which is 4mW.

So at a distance of a meter, we’re looking at 1000 hours to fully charge my Palm Centro battery.

Notice that we’ve erred on the side of generosity to the RCA device. Neither the antenna nor the charger nor the battery charging system is going to be 100% efficient, and the device itself looks to be smaller than 10x10cm. And we’re not going to be within a meter of the wifi box at our local Starbucks.

It’s apparent that, to the extent that the device actually works, it does so only by being in very close proximity to the wifi transmitter.

Now, I suppose there’s a test question here that we could (and should) teach to. Quote the Cnet article and ask, “Is this device practical? Justify your conclusion.” Trouble is, that question requires the kind of answer that’s impossible to grade automatically, and in general, it seems to me that the same thing is true whenever we test practical skills—knowing how, rather than knowing that.

More Real Soon Now.

Addendum: If I were grading the answers to that question, here are some of the elements I’d be looking for.

  • We’re interested in how much power is available from the wifi transmitter, and how much energy (power times time) is required.
  • We’re interested in the area of the surface of a sphere, and the notion that the power available to the device drops with the square of the distance from the transmitter.
  • Assumptions ought to be conservative. If the answer claims that the device is practical, then it should make conservative assumptions about efficiency and size; if not, then (as above) the conservative assumptions go the other way, giving the device the benefit of the doubt.
  • If the answer concludes that the device is not practical, it would be a plus to suggest what RCA is up to, and how it might have been “demonstrated”.

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.

For Less Voting

Matthew Yglesias makes the case that we (in the US) vote too much. Heretical, of course, but it has the ring of common sense.

For Less Voting

Ezra Klein saw the same Larry Lessig presentation I was at yesterday. His take is more skeptical than I would be about the pernicious influence of money in politics. If I disagree with Lessig about anything in this regard it’s that I think the focus on the precise modalities with which special interests are allowed to offer bribes to members of congress is too narrow. I certainly support things like “clean elections” laws, but I think we ought to also look at broader reforms.

Consider, for example, America’s staggering quantity of elected officials. If you live in Toronto, you vote for a member of the Toronto City Council, you vote for a member of the Ontario Parliament, and you vote for a member of the Canadian Parliament. That’s one large Anglophone city in North America.

What happens in New York City? Well, you’ve got a city council member, a borough president, a mayor, a public advocate, a comptroller, and a district attorney. You’ve also got a state assembly member, a state senator, an attorney-general, a state comptroller, and a governor. Then at the federal level, there’s a member of congress, two senators, and the president. That’s sixteen legislative and elected officials rather than Toronto’s three. New Yorkers don’t have three times as much time in their day to monitor the performance of elected officials. Instead, New Yorker elected officials simply aren’t monitored as closely. That creates more scope for corruption. What’s more since campaign money has diminishing marginal returns, the proliferation of elected makes money matter more than it otherwise would.

A big country like the United States is never going to have public officials who are as well-monitored as the ones in a place like Denmark. But we make the situation much, much worse by proliferating the quantity of elected officials to the point where most people have no idea what’s happening. How many people can name their state senator? How many people know what things their school board has authority over and what things their mayor decides? And this is all without considering the absolutely insane practice of electing judges.

Incandescent lights forever

edison_light_bulb.jpgAs I was listening to a friend discuss the early days of digital computer design, and how much things had changed, it struck me that there is one common technology of similar age that would be instantly recognizable to its inventor: the Edison incandescent light bulb.

Edison was only one of many, of course, but he’ll serve our purposes. Edison built the bulb on the right around 1880, give or take. What I find interesting is that, while we’ve all got CFLs and LEDs around the house these days, most likely we’ve also got copper wire bringing electricity into our house and through the walls, mechanical-contact switches, and glass bulbs with white-hot glowing filaments. Edison would be completely familiar with the entire technology (using a tungsten filament and filling the envelope with an inert gas were incremental improvements that Edison would have been familiar with, and didn’t fundamentally change things).

The panoply of other technological inventions from the end of the 19th and beginning of the 20th centuries (automobile engines, computers, flying machines, etc) have evolved to the point where their inventors would be lost trying to explain them. Otto would understand the principle of my Honda Civic’s engine, of course, but it lives in a nest of high tech that’s well beyond his time.

Not so the lighting system that illuminates me as I type. It’s instantly recognizable in all respects by any techie from 100 years ago. And for longer than we might care to think, I’m guessing.

R.I.P. Howard Zinn

From his hometown paper:

zinn.jpgHoward Zinn, the Boston University historian and political activist who was an early opponent of US involvement in Vietnam and whose books, such as “A People’s History of the United States,” inspired young and old to rethink the way textbooks present the American experience, died today in Santa Monica, Calif, where he was traveling. He was 87.

His daughter, Myla Kabat-Zinn of Lexington, said he suffered a heart attack.

“He’s made an amazing contribution to American intellectual and moral culture,” Noam Chomsky, the left-wing activist and MIT professor, said tonight. “He’s changed the conscience of America in a highly constructive way. I really can’t think of anyone I can compare him to in this respect.”

Chomsky added that Dr. Zinn’s writings “simply changed perspective and understanding for a whole generation. He opened up approaches to history that were novel and highly significant. Both by his actions, and his writings for 50 years, he played a powerful role in helping and in many ways inspiring the Civil rights movement and the anti-war movement.”

For Dr. Zinn, activism was a natural extension of the revisionist brand of history he taught. “A People’s History of the United States” (1980), his best-known book, had for its heroes not the Founding Fathers — many of them slaveholders and deeply attached to the status quo, as Dr. Zinn was quick to point out — but rather the farmers of Shays’ Rebellion and union organizers of the 1930s.

As he wrote in his autobiography, “You Can’t Be Neutral on a Moving Train” (1994), “From the start, my teaching was infused with my own history. I would try to be fair to other points of view, but I wanted more than ‘objectivity’; I wanted students to leave my classes not just better informed, but more prepared to relinquish the safety of silence, more prepared to speak up, to act against injustice wherever they saw it. This, of course, was a recipe for trouble.”

via Balloon Juice

Yes, thickheads.

Geoff Pullum. Perhaps you can resist reading the rest of his post.

Language Log asks you (don’t all shout at once)

… Yes, thickheads. I know they won’t like being called that; but hey, what do I care? I’ve shut off the comments area to new contributions now. Let them squirm and fume, with the smoke coming out of their ears. They’re just wrong. I like a good distinction in senses as much as the next man, and I don’t care for ignorant word choice errors; but I don’t get in a stew about it. It’s the way languages are, and the way they’re going to be. You have to deal with it.

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

Presidential assassinations of U.S. citizens

Glenn Greenwald.

Presidential assassinations of U.S. citizens

… Just think about this for a minute.  Barack Obama, like George Bush before him, has claimed the authority to order American citizens murdered based solely on the unverified, uncharged, unchecked claim that they are associated with Terrorism and pose “a continuing and imminent threat to U.S. persons and interests.”  They’re entitled to no charges, no trial, no ability to contest the accusations. …

Dead metaphor department: running tide

On NPR this morning, of President Obama in advance of tonight’s SOTU: “the tide is running against him”.

This is one of those metaphors that most listeners, if pressed, could explain. I think. While it’s dead, it’s not yet returned to dust. But how many of us have any experience of a “running tide”? We in the SF Bay Area have a nearby dramatic example, four times a day, and I’ve even watched it run from a blufftop overlooking the Golden Gate. But it’s never been running against me.

If our experience of tides comes from our visits to the beach, we know something about the ebb & flow of the tide, but not its running. (It was relatively late in life that I made the connection between “flow”, ebb & flow, and “flood”, ebb tide and flood tide. Duh.)

The sense of “tide” as “time” (eventide, Eastertide) predates its related application to the timing of the sea. We can hear an (unintended) echo of that sense in “the tide is running against him”.

Catastrophe tears us apart

Amen, Brother Ezra!

Catastrophe tears us apart

“It is amazing that some people here in Congress still don’t get it,” says Sen. Evan Bayh, who’s counseling Democrats to move to the right. “For those people it may take a political catastrophe of biblical proportions before they get it.”

I’ll just note that the “catastrophe of biblical proportions” that Bayh is referring to is not that health-care reform doesn’t pass and hundreds of thousands of people die unnecessary deaths. It’s not that the Congress is unable to pass a second stimulus and millions of Americans are jobless, anxious and uninsured for years longer than necessary. It’s that Democrats lose a bunch of seats in the midterm elections.

Politicians have a tendency of talking about the consequences of elections as if they’re very real and the consequences of policy as if they’re very abstract, and as we’re seeing with the stalling of the health-care bill in the aftermath of Martha Coakley’s loss, they legislate that way, too. And then they wonder why voters don’t trust them and their initiatives.