Kevin Drum - November 2011

Miscellaneous Links

| Fri Nov. 18, 2011 1:51 AM EST

Some miscellaneous reading that I didn't get around to blogging about today:

Eli Lake writes that Israel is gearing up for a strike on Iran's nuclear program. "Israel has been assembling a multibillion-dollar array of high-tech weapons that would allow it to jam, blind, and deafen Tehran's defenses in the case of a pre-emptive aerial strike....Israel also likely would exploit a vulnerability that U.S. officials detected two years ago in Iran's big-city electric grids, which are not “air-gapped”—meaning they are connected to the Internet and therefore vulnerable to a Stuxnet-style cyberattack—officials say."

The Crystal Cathedral has been sold in bankruptcy to the Diocese of Orange. It will become a countywide cathedral for the Catholic church in Orange County, replacing their current home, St. Callistus.

Ramesh Ponnuru debunks the idea that Republicans lost Congress in 2006 because they had abandoned true conservatism by overspending: "If Republican overspending drove voters away, they should have lost support first among conservatives. But there was no sign of a demoralized base in 2006....It was among independent voters that Republicans got slaughtered." The real problem, he says, is that "Republicans had nothing to say about wage stagnation then and are saying nothing about it now. The real cost of Republicans’ fixation on ideological purity is that it distracts them from their real problems, and the nation’s."

David Corn reports that Newt Gingrich's Center for Health Transformation supports an individual mandate as part of their plan for healthcare reform. Among other things, their proposal would "Require that anyone who earns more than $50,000 a year must purchase health insurance or post a bond." This isn't from last month or last year. It's from today.

Matt Taibbi wants to know why a woman who fraudulently applied for food stamps got three years in jail while Wall Street bigshots have all walked free. "Compare this court decision to the fraud settlements on Wall Street....[Citigroup, Goldman Sachs, and Deutsche Bank] have been repeatedly dragged into court for fraud, and not one individual defendant has ever been forced to give back anything like a significant portion of his ill-gotten gains. The closest we've come is in a fraud case involving Citi, in which a pair of executives, Gary Crittenden and Arthur Tildesley, were fined the token amounts of $100,000 and $80,000, respectively, for lying to shareholders about the extent of Citi’s debt. Neither man was forced to admit to intentional fraud. Both got to keep their jobs."

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It's the Aggregate Demand, Stupid

| Thu Nov. 17, 2011 10:33 PM EST

How does a decline in consumer demand affect different geographic regions? Well, suppose that consumer demand falls heavily in Orange County, where I live. You'd naturally expect to see a large employment drop in industries that are stuck in Orange County and depend solely on Orange Country residents for their business. Local accounting firms, for example. Schools. Restaurants. Construction companies.

But what about industries that sell their stuff all over the country? Pharmaceuticals, say, or high tech or clothing. In Orange County, that would include companies like Allergan, Western Digital, Broadcom, and Quiksilver. You'd expect employment at these companies to react not so much to Orange County, but to the country as a whole. So even if Orange County is doing poorly, these companies might continue to do well as long as the country is doing well.

The first category is called the non-tradable sector. The second is called the tradable sector. So if weak consumer demand is at the core of our economic problems, here's what you'd expect to see:

  • Employment in the non-tradable sector would be worse in counties that are the most depressed.
  • Employment in the tradable sector would be about the same everywhere, and would depend on how the country as a whole is doing.

So is this how things look? Economists Atif Mian and Amir Sufi took a look at tradable and non-tradable employment in all large counties in the United States and plotted it against the level of debt in each county. If consumer demand is responsible for our sluggish economy, you'd expect counties with high debt loads to have employment declines in the non-tradable sectors, but to see no real differences in the tradable sector. And that's exactly what they found:

From the paper:

In order to remove any direct effect of the residential housing boom and bust, we explicitly remove construction or any other real-estate related sector from the non-tradable definition.

Consistent with the aggregate demand channel, job losses in the non-tradable sector from 2007 to 2009 were significantly higher in high leverage counties that experienced sharp demand declines. In particular, a one standard deviation increase in the 2006 debt to income ratio of a county is associated with a 3 percentage point drop in non-tradable employment during this time period, which is 2/5 a standard deviation. Moreover, the large decline in employment in the tradable sector is completely uncorrelated with 2006 debt to income – exactly as predicted by the aggregate demand channel.

This comes via Paul Krugman, who says this paper demonstrates that the data doesn't really fit a structural unemployment story, but instead fits a story in which spending is just too low. "The empirical evidence," he says, "more and more, exhibits a clear Keynesian bias."

For related work from Mian and Sufi on the effect of household debt on unemployment, see this post from earlier in the year.

Why Artifical Intelligence Is Closer Than We Realize

| Thu Nov. 17, 2011 6:15 PM EST

I haven't read Erik Brynjolfsson and Andrew McAfee's Race Against the Machine yet, but Matt Yglesias has and he says that one of their analogies has changed the way he thinks about technological progress. Basically, if something improves x% per year, then the level of change looks small at first but explodes later, even though the actual rate of change has stayed the same the entire time:

The point of this, in terms of technological progress, is that we’ve gotten so accustomed to Moore’s Law that we sometimes overlook the implication that the deeper we get into the chessboard, the bigger the changes. We all know that computers advanced a lot between 1991 and 2011, but we should expect the scale of change over the next 20 years to dwarf those changes. This is a straightforward application of a well-known principle and some pretty basic math, but it’s usually not discussed in quite the right way. We think we’re used to the idea of rapid improvements in information technology, but we’re actually standing on the precipice of changes that are much larger in scale than what we’ve seen thus far.

This gives me an excuse to make the exact same point in a different way, specifically about the possibility of creating a computer with human-level intelligence. Suppose that in 1950 the fastest computer on the planet had about a trillionth the computing power of a human brain, and suppose also that computing power increases 1000x every 20 years. Here's what things would look like:

  • 1950: Trillionth
  • 1970: Billionth
  • 1990: Millionth
  • 2010: Thousandth
  • 2024: Tenth
  • 2030: One

In 1950, true AI would look like a joke. A computer with a trillionth the processing power of the human brain is just a pile of vacuum tubes. In 1970, even though computers are 1000x faster, it's still a joke. In 1990 it's still a joke. In 2010 it's still a joke. In 2024, it's still a joke. A tenth of a human brain is about the processing power of a housecat. It's interesting, but no threat to actual humans.

So: joke, joke, joke, joke, joke. Then, suddenly, in the space of six years, we have computers with the processing power of a human brain. Kaboom.

Here's the point: technological progress has been exactly the same for the entire 80-year period. But in the early years, although the relative progress was high, the absolute progress was minute. Moving from a billionth to a trillionth is invisible on a human scale. So computers progressed from ballistics to accounting to word processing to speech recognition, and sure, it was all impressive, but at no point did it seem like we were actually making any serious progress toward true AI. And yet, we were.

Assuming that Moore's Law doesn't break down, this is how AI is going to happen. At some point, we're going to go from 10% of a human brain to 100% of a human brain, and it's going to seem like it came from nowhere. But it didn't. It will have taken 80 years, but only the final few years will really be visible. As inventions go, video games and iPhones may not seem as important as radios and air conditioners, but don't be fooled. As milestones, they're more important. Never make the mistake of thinking that just because the growing intelligence of computers has been largely invisible up to now that it hasn't happened. It has.

Why Aren't We Buying More Stuff?

| Thu Nov. 17, 2011 5:12 PM EST

So what's wrong with the economy? Weak consumer demand seems the most likely candidate, and Karl Smith usefully points out that looking at the Personal Consumption Indicator, which has recovered fairly decently since the recession, doesn't really give you the whole story on this:

Ironically Real PCE does not actually measure consumer spending. This is because to make the metric consistent it has to include implicit spending. Things like the rent that you pay to yourself. Things like the medical bills that Medicare and Medicaid pay on your behalf....Those things, however, are not fungible using cash. It doesn’t matter what is happening to the relative price of potatoes [if] you can’t spend Medicare dollars on them. Thus the pool [of] goods purchased with cash moves separately from the pool of goods either purchased on your behalf by the government or consumed implicitly.

Instead he suggests looking at retail sales, which haven't yet returned to their 2008 peak. But why?

The straightforward explanations for this are either that people are optimally choosing to consume more leisure and fewer goods and services — that is, we are in the midst of a Great Vacation. Or, that something is preventing people from purchasing as many goods and services as our society is capable of producing. Since the former strikes us as so counter-intuitive, we fall back on explanations for the latter.....At certain times, for reasons we don’t completely understand, people suddenly start buying fewer things than we are capable of producing.

Hmmm. In one sense, the reason we're buying fewer things is mysterious, but in another it's not: it's because we don't have enough money. The NGDP targeting folks would probably tell us to look at nominal disposable income, and if you do that you see that we're something like a trillion dollars under the trend growth rate of the last decade. The Fed could do something about that, but it's chosen not to. So the nickel version looks like this: less money --> less demand --> less hiring --> more unemployment --> less money. Rinse and repeat.

Chart of the Day: Corporate Taxation in America

| Thu Nov. 17, 2011 2:54 PM EST

This comes via Felix Salmon, but I edited his chart to create a different one. Roughly speaking, mine shows total corporate income tax paid as a percent of pretax profit, and as you can see, it's been on a pretty steady downward trend for a long time, from around 50% in 1950 to 20% today. But of course, this is just an aggregate number. As Felix says, "What we don’t know — because they won’t say, and no one’s forcing them to say — is how much any given public company pays." And you can hardly blame them, since the tax rate for lots of big companies would be so laughably small that no one would ever take them seriously again when they complained about America's terribly burdensome tax system.

None of this is to say that we shouldn't reform the corporate tax code. We should. Intead of a high basic rate with lots of exemptions, we should have a somewhat lower rate with fewer exemptions. And we probably ought to adopt a territorial system while we're at it. Or, alternatively, we could just ditch corporate taxation entirely and replace it with something else that has a similar or more progressive incidence.

But whatever we do, don't ever fall for the complaint that corporate tax rates in the U.S. are high. They aren't. (See Table 1 here.) American taxes are complex, but they aren't especially high.

Being Poor in America Really Sucks

| Thu Nov. 17, 2011 1:51 PM EST

There's voluminous evidence demonstrating that income inequality has skyrocketed in the United States over the past few decades and is now higher than in virtually every other developed country. This might not be all that bad if income mobility had also increased, but a number of recent studies have shown just the opposite: at best, mobility is no better than it's ever been, and it might actually have decreased a bit. Generally speaking, the rich are a lot richer than they used to be, and unless you start in an upper middle class family to begin with, the odds of ever joining the ranks of the rich have gone down.

But why? The Pew Economic Mobility Project gives us a clue today. The chart on the right compares four big English-speaking countries on a single measure: vocabulary test scores of five-year-olds. You'd expect that children of highly educated parents would do well and children of poorly educated parents would do badly. And you'd be right. On average, the children of poorly educated parents have both genetic and environmental disadvantages, so it's no surprise that they do worse than average.

But in the United States they do a lot worse. The Pew chart is normalized so that children of middle-educated parents score in the 50th percentile and other children are compared to that standard. In Canada, the least-advantaged kids manage to score at the 37th percentile. In the United States they score at only the 27th percentile.

Now, it's pretty unlikely that Canadian kids with low-educated parents are genetically unluckier than American kids with low-educated parents. Genes may account for some of the overall difference between rich and poor kids, but not for the difference between Canada and the U.S. That has a lot more to do with how we raise our kids and what kind of attention we give them at early ages. On that score, the United States does wretchedly. We simply don't give our poorest kids a fair start in life.

More on that tomorrow morning.

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The Anti-Tax Jihad Lives On

| Thu Nov. 17, 2011 12:54 PM EST

The easiest way to address our long-term deficit problem is to do nothing. This is normally something Congress is pretty good at, so you'd think they could pull this off. The problem is that in this case "nothing" means letting the Bush tax cuts expire as planned, and nobody — not congressional Republicans, not congressional Democrats, and not President Obama — wants to do that. But if they did, it would cut the deficit by about $4 trillion over the next decade, far more than any of the other plans on the table.

This whole tax issue is what lies behind so much of the nonsense you hear about the supercommittee. Today, for example, George Will tells us indignantly that Republicans are offering up $500 million in revenue increases but Democrats have turned up their noses at it. Leave aside the fact that $200 billion of this is just gimmickry; the truth is that this isn't even $300 billion in new revenue because it comes with a condition: permanent extension of all the Bush tax cuts. The net effect is a revenue decrease of $3.7 trillion.

So why aren't Democrats screaming from the rooftops about this? Well, they can't, because they're committed to extending most of the Bush tax cuts themselves. They want to get rid of the tax cuts for the rich, but that's small potatoes. The middle-class tax cuts — which mostly go to the rich too, but never mind that — add up to about $3.3 trillion and Democrats have already taken them off the table. Matt Yglesias is unhappy about this:

An underlying issue here is something that drives me nuts and that I think progressives need to think much harder about — the toxic impact of the Democrats rallying in 2008 around the cry of absolutely no tax increases of any kind for the non-rich. Pushing for a more progressive tax code is great, but pushing for rich-people-only tax increases has proven to be a good applause line in speeches that’s made actual governance incredibly difficult.

Agreed. The only question is: is this really just an applause line? Or is it a matter of electoral survival? We liberals keep thinking that anti-tax fever has to crest any time now, and I remember a slew of magazine pieces predicting exactly that around 2006-07. But it hasn't happened yet. Or, more accurately, I guess I should say that Democrats are still scared witless by the idea of proposing a broad tax increase, and the evidence suggests they're right to be.

In a way, the persistence of anti-tax fervor is surprising. The numbers, after all, are crystal clear: if the Bush tax cuts are extended, closing the deficit gap is all but impossible no matter how much Republicans bluster otherwise. But nobody likes taxes, and in the middle of hard times they like them even less. So the anti-tax jihad lives on. It's true that it makes prudent governance all but impossible, but the public doesn't appear to be in any mood to deal with the truth right now and Republicans are willing to spend gargantuan sums to keep them in that mood. The solution to this is murky, to say the least.

Rick Perry's Money Problem

| Thu Nov. 17, 2011 12:00 PM EST

Given the obvious loathing of the Republican base for Mitt Romney, I've been reluctant to flatly rule out the possibility of Rick Perry winning the nomination despite his Gardasil heresy, his immigration gaffe, and his cringe-inducing debate performances. I'm willing to flatly rule out Herman Cain, but not Perry.

However, if this story from the Houston Chronicle is true, then Perry might be well and truly screwed:

Texas Gov. Rick Perry’s campaign fundraising has gone into a tailspin as a result of poor debate performances and plunging poll numbers, jeopardizing his position as the best-funded Republican presidential candidate of 2012.

....But Perry’s loyal backers are running into resistance from Republican donors. One Perry fundraiser, who asked not to be named, said he received 15 RSVPs for a recent event from potential donors saying they might attend. But after a gaffe-marred Perry debate performance, none showed up.

....Another Perry fundraiser said he expects the Texas governor to raise between $3 million and $5 million in the final three months of 2012 — less than one-third of what he generated in the first six weeks of his candidacy.

The fat lady hasn't quite sung yet, but she is definitely warming up her pipes. There's still time for Perry to rebound, but Iowa is less than seven weeks away, so the "there's still time" meme is rapidly approaching its sell-by date. If Perry's going to mount a comeback, he better get started.

Via Patrick Caldwell.

Rick Perry: Obama is a Socialist

| Wed Nov. 16, 2011 10:08 PM EST

Rick Perry has gotten plenty of pushback for his latest ad, which accuses President Obama of saying that "Americans are lazy." Obama didn't say that, of course, just like he's never gone on an apology tour, he's never bad-mouthed American exceptionalism, and he's never said he hates Christians. It doesn't matter, though. I suppose this one is bound to take its place in the great Republican pantheon of Obama's imaginary rhetorical sins along with all the other stuff they've made up. It's sort of remarkable how invested they are in this kind of thing.

But there's more to this ad than just that! Michael Scherer chastises Perry for lying about what Obama said. Dan Amira mocks him for his inability to speak correctly even on a taped spot. (No teleprompter, I guess.) But so far I haven't seen anyone even blink at the fact that Perry finishes up by telling us that "Obama's socialist policies are bankrupting America."

Has it come to that? Is calling Obama a socialist now so routine that it doesn't even raise an eyebrow anymore? I guess I must have missed it when we passed that milestone.

The Debasement of Science

| Wed Nov. 16, 2011 2:30 PM EST

Jonathan Zimmerman notes today that opposition to fluoride in drinking water is back on the rise. But he says there's good news: this time it's based on medical evidence, not kooky conspiracy theories. Fairbanks, Alaska, for example, stopped fluoridating its water this year:

Are they right? I doubt it. The Centers for Disease Control and Prevention and the American Dental Assn. continue to recommend water fluoridation, which they say reduces tooth decay by 25%. And I'm inclined to follow the lead of the leading professional organizations on matters involving their own vocations.

But I'm also glad that the anti-fluoridators are resting their case on science, which provides a shared framework for dialogue and understanding. And that makes them very different from the nation's first critics who were — to put it mildly — paranoid kooks.

This provides Zimmerman with an opportunity to regale us with the history of these kooks, which is certainly good clean fun. Unfortunately, I think he's off base on his wider point. Fluoride aside, it's true that most crackpot arguments these days take on the veneer of science. Creationism has become Intelligent Design. Global warming deniers write lengthy statistical critiques of climate change research. Tax cutters produce Greek-letter-laden academic papers demonstrating that lower rates on rich people will supercharge the economy. Toxin manufacturers of all kinds rely, as they always have, on blizzards of industry-supported research showing that their products are safe. Even abortion activists turn to science to "prove" that human life begins at conception.

There's no question about it: science reigns supreme today. Unfortunately, this doesn't mean that we collectively take empirical evidence more seriously than we used to. What it means is that science has become increasingly debased, just another partisan tool that an increasing number of people take no more seriously than advertising claims about who has the best pizza. Scientists have their version of science and everyone else has theirs. And that version is decidedly not the same as the "elitist" version practiced by the guys in white lab coats.

Reality-based opposition to fluoride may be something to smile about, as Zimmerman says. But if so, it's the exception, not the rule. More generally, the crackpots have simply learned that their arguments sound better when they're wrapped in the language of science. As a result, the public now seems to view science as little more than a flag of convenience for whichever side they sympathize with most. And that's not anything to smile about.