Living the X-Files

I can subscribe to the remarks of Bret Stephens in the New York Times on the accusations levied against Supreme Court nominee Brett Kavanaugh. Here’s a snippet:

I have absolutely no idea what, if anything, happened between Brett Kavanaugh and Christine Blasey Ford at a party in Maryland in the early 1980s.

Unless you were at the party, I believe that you don’t, either.

I believe that statements on the controversy that begin, “I believe Blasey,” or “I believe Kavanaugh” — because they jibe with personal experience or align with a partisan motive — are empirically worthless and intellectually dishonest. I believe the defect could be corrected by saying, “I want to believe” Blasey or Kavanaugh.

Read the whole thing.


Welcome to the Jungle

In an opinion piece at the New York Times Steven Erlanger laments the return of the jungle in international affairs, (of course) blaming it on Trump:

BRUSSELS — President Trump seems determined to upend 70 years of established American foreign policy, especially toward Europe, which he regards as less ally than competitor.

The Trump turnabout has set off a fervent search on both sides of the Atlantic for answers to hard questions about the global role of the United States, and what a frazzled Europe can and should do for itself, given a less reliable American partner.

The German foreign minister, Heiko Maas, speaking before a conference of all Germany’s ambassadors last month, argued for a stronger European foreign and defense policy in the face of a suddenly uncertain future.

“The rules-based international order” is eroding in a world where “nothing can be taken for granted any more in foreign policy,” he said.

I would ask Mr. Erlanger (and Mr. Maas) how the following comport with a “rules-based international order”:

the 1971 war between India and Pakistan
the murder of Israeli athletes at the Munich Olympic Games
the Yom Kippur War
the killings fields of Cambodia
the Soviet invasion of Afghanistan
the revolutionary government (AKA “students”) in Iran seizes the U. S. embassy in Tehran
the Argentine invasion of the Falkland Islands
the Israeli invasion of Lebanon
the Iran-Iraq War
the U. S. invasion of Grenada
Reagan’s selling arms to Iran
the U. S. invasion of Panama
Iraq’s invasion of Kuwait
the Rwandan genocide
the NATO intervention in Yugoslavia
the terrorist attacks on September 11, 2001
the invasion of Iraq
the Russo-Georgian War (whoever started it)
routine hacking of public and private computers and networks by China, Russia, North Korea, Israel, and probably us
routine violation of intellectual property by practically every country that isn’t in Europe or North America

and that’s just hitting the high spots.

The notion of a rules-based international order is a mostly European fantasy. Rules are made and broken in pursuit of countries’ perceived national interests. Trump pretty obviously doesn’t hold a lot of truck with the idea but he’s certainly not responsible for its loss of repute.

The jungle about which Mr. Erlanger complains has always been there and probably always will be. It spreads unless beaten back and if the countries of Europe and North America tire of beating it back, succumb to cultural ennui or otherwise become unwilling to do so, there is no alternative force that will prevent its advance.


Why Kankakee?

Can someone explain to me why Kankakee, Illinois is one of the fastest growing housing markets?


In Summary

  Kavanaugh did what he is accused of doing Kavanaugh did not do what he is accused of doing
Kavanaugh is confirmed This would be a great injustice, would call every decision in which Justice Kavanaugh participates into question, and could throw the Supreme Court itself into disrepute. This would be a just outcome and the only alternative in which Kavanaugh could reclaim his good name, at least among those of good will. Note: I recognize that there are some who would not consider any Trump nominee being approved by the Senate as a just outcome.
Kavanaugh is not confirmed This would be a just outcome which would preserve the repute of the Court. This would be a great injustice, would heighten political hostilities, and provide a roadmap for making it hard or impossible to confirm any future nominee.

Does that about cover it?


To Make Policy You Need Facts

Two Yale profs, Edward Kaplan and Jonathan Feinstein, have published a study that suggests that the number of immigrants in the United States illegally may be double the official estimates. From Yale Insights:

Using mathematical modeling on a range of demographic and immigration operations data, the researchers estimate there are 22.1 million undocumented immigrants in the United States. Even using parameters intentionally aimed at producing an extremely conservative estimate, they found a population of 16.7 million undocumented immigrants.

The results, published in PLOS ONE, surprised the authors themselves. They started with the extremely conservative model and expected the results to be well below 11.3 million.

“Our original idea was just to do a sanity check on the existing number,” says Edward Kaplan, the William N. and Marie A. Beach Professor of Operations Research at the Yale School of Management. “Instead of a number which was smaller, we got a number that was 50% higher. That caused us to scratch our heads.”

The eye-catching graphic from the article is reproduced above. What it illustrates is that the number of people here illegally is something between 16 million and 35 million and the official estimate of 11 million is not only wrong but very wrong.

The authors of the study’s conclusion is exactly the right one: to make policy you need to know the scale of whatever you’re dealing with.

This study doesn’t just have implications for immigration policy. It affects policy across a wide range of issues—immigration, health care, housing, transportation, and infrastructure. Our policies need to be designed for the world as it is not the world of our hopes or our fears.

We should start measuring a variety of indirect sources—highway and public transport utilization, water and sewer use, and the like. Clearly, we need better estimates.


Critiquing Stiglitz

At City Journal Gene Epstein provides a rather harsh critique of prize-winning economist Joseph Stiglitz (note: there is no Nobel Prize in economics; that’s a folk rendering; it’s a mistake I’ve made myself from time to time):

Stiglitz is a figure to be reckoned with, not just for his past impact on policy but for the influence that he might wield in future Democratic administrations. University Professor at Columbia, former chairman of President Bill Clinton’s Council of Economic Advisers, former chief economist at the World Bank, and author of more than 30 books, Stiglitz has been publicly associated with New York mayor Bill de Blasio and Senator Elizabeth Warren of Massachusetts, both of whom might bring him along if they win higher office. But how could an economist with his presumed sophistication publicly endorse the disastrous policies of Hugo Chávez?

Much of his criticism has to do with Dr. Stiglitz’s misdirected support for Hugo Chávez and the Chavistas in Venezuela but I want to concentrate on this:

As Stiglitz stressed in his Nobel lecture, “perfect competition is required if markets are to be efficient” (italics his). He was right that by challenging the idea of perfectly competitive markets, information economics signified a paradigm shift. But perfect-competition theory is so abstract that only economists blinded by their own mathematical proofs could possibly subscribe to it. Any institutions created and run by fallible human beings are bound to fail. Then again, these same human beings run the governments in which Stiglitz places such trust.

since it highlights my own views about economics and economists.

Economics is a science of human behavior. It’s not like physical sciences of physics or chemistry and it’s certainly not mathematics. Adam Smith, David Ricardo, and John Maynard Keynes weren’t mathematicians (although Keynes apparently had some talent for math). They were observers of human behavior. Observing human behavior dominated economics for its first 200 years.

In the 1970s economics took a turn, in my opinion a wrong turn. Econometrics came to dominate the field. Econometric is the branch of economics that uses mathematical notation, modeling, and statistical analysis.

The problem is that knowing a lot of economic theory, a little mathematics, and a little statistics doesn’t necessarily make you a good economist if you’re missing the observation and understanding of human behavior so necessary for the field. Your models can be completely internally consistent but if they don’t actually represent what happens in the real world, they’re useless.

The additional complication is that neither classical nor Keynesian economics deals well with very short timeframes or very small changes.

We can have pretty good confidence in some of the conclusions that classical economics has given us. People do respond to incentives. That doesn’t tell us how quickly they respond or how much they respond.

Additionally, there is absolutely no way to separate economics from politics.

So back to Mr. Epstein’s observations about Stiglitz. How much inefficiency does a tiny bit of imperfection introduce into markets? We have no idea. That’s something that can only be determined empirically and for some reason, like the Greek philosophers of old, economists seem to have an abhorrence of physical measurements. You can understand why. They’re terribly difficult to make.


Why Isn’t Productivity Increasing?

I found a lot to like in Annie Lowrey’s piece at Atlantic on the seeming contradiction in our present situation, low unemployment and slow wage growth:

The central paradox of the Trump economy is that widespread concerns about labor shortages coexist with widespread complaints about low wages. But economists do not see it as much of a paradox—instead seeing it as a sign of dimming business dynamism and diminished worker power.

However, there are several important factors she skips over and I want to concentrate on those.

First, why is there “diminished worker power”? She points to market concentration, non-compete clauses, decline in union membership, and the possibility that the headline unemployment rate doesn’t really represent the true number of people who are unemployed. Left unstated is that importing workers, legal or illegal, increases the labor pool resulting in a more slack labor market than would otherwise be the case and the sad reality is that we don’t really know whether there are ten million or forty million people present illegally in the United States, working fraudulently or illegally.

There’s something else she misses, something I attribute to having an English major and, in particular, an English major for whom I can find no evidence of ever having taken an economics course, writing your economic analysis. Labor productivity doesn’t spring up spontaneously. It is primarily the consequence of investment by government, businesses, and individuals.

Most consumer spending is consumption (hence the name) but some is investment. If you take a class that will lead to your being qualified for a better job or more pay, that’s investment. Education that does not lead more or less directly to a better job or more pay isn’t investment. It’s consumption. That 18th century Belgian art class may help you lead a fuller, better life but it’s not technically investment. Having that mole removed probably isn’t investment, either.

Most education and most health care is consumption. Whether it’s being paid for by the federal government or by you, it’s probably not investment.

And as I’ve said here repeatedly, IMO our most pressing economic problem is that business investment is inadequate to increase productivity. In preemptive rebuttal, businesses used to invest more at much lower levels of earnings than they do now. For a whole host of reasons, many of which I’ve discussed here over the years, managers have become accustomed to being able to derive more revenue without spending more and changing old habits comes slowly.


Safety Nets

I want to make a couple of remarks about Holman Jenkins’s latest column in the Wall Street Journal but I’ll quote a substantial chunk of the column here first because I think you might find it interesting:

en years after Lehman, revisionists are overturning the potted story of the 2008 crisis, and not too soon.

Claims of a national housing bubble as the precipitating event always seemed dubious when referring to an asset class whose prime differentiator is location, location, location.

What bubble there was seemed confined to a few subprime hot zones mainly in the West and Southwest. Now comes the Mercatus Center’s Kevin Erdmann to complicate the story. The hottest markets in the country never stopped being hot because restrictive zoning and building regulations turn them into what he calls “closed-access cities,” such as New York and San Francisco, where it is legally impossible to supply the housing demanded by the nonrich.

The subprime hot zones of the early 2000s, in his recounting, were those that experienced a demand shock from working families being priced out of the closed-access cities. Using Phoenix as an example, he shows that prices shot up to unsustainable levels because even a home-building boom couldn’t keep pace with new arrivals. He also shows, based on rents, construction and housing’s share of personal consumption, there never was a national oversupply of housing but the opposite: a shortage that continues today, centered on the closed-access cities that generate so much of U.S. economic activity.

Every day the sun rises in the world capital markets on countless scenes of failed risk-taking without causing a general panic. This is where the housing story interacts with another strand of revisionism, led by Bentley University’s Scott Sumner, which faults the Ben Bernanke Fed for tightening all through the Great Recession, oblivious to plunging inflation and a rising public demand to hold cash. A related story that you’re hearing—that anger over the bailouts is what led to the rise of Trumpian populism—is, of course, ridiculous. People are angry because their own job and wage opportunities were depressed for a decade.

Which brings us to Lehman. Say what you want about “too big to fail” and moral hazard. These are real problems. But once the safety net is unfurled, sending mixed signals was the height of foolishness, with the result that an even bigger, more controversial bailout was needed to corral the ensuing panic. Keep in mind that a general loss of confidence by wholesale lenders is what suddenly endangered the survival of a whole array of banks, money-market funds and industrial firms like GE and the auto makers, only some of which held the opaque, hard-to-value mortgage derivatives that were at the heart of a bank solvency conundrum.

The first remark is that I think that while it’s completely appropriate to have “safety nets” for individuals we should never, ever, under any circumstances have them for companies. Not for Lehman Brothers. Not for General Motors. Not for Goldman-Sachs. Help the people, particularly the working poor, who will be injured by a company’s collapse but for goodness sake do not help companies. Companies need to be able to fail to make prudent decisions about their courses of action.

The second remark is that although we have global movement of goods and capital we do not have the institutions or resources to control those flows. This is a subject that has been lost in the retrospectives of the financial crisis of a decade ago. Some of the actions taken were to preserve foreign companies, banks, and even foreign governments.

A last word: we are not insulated from the choices of Chinese or Indian companies and banks.


Change of State

In his Washington Post column George Will considers a subject which I think has much broader implications. The subject is modern parenthood and here is his peroration:

Contemporary America is a bubbling cauldron of acidic judgmentalism, a stew of status anxieties, of preening about lifestyle fads and of nasty habits learned from government: Brooks seems to understand that “the criminalization of parenthood” occurs “within the confines of an oppressive and infantilizing nanny state.” The ever-metastasizing administrative state’s rage to regulate bleeds into a pandemic urge to criminalize more and more of life, and to excoriate and shame those whose behaviors cannot (yet) be formally punished.

It is not unrelated that whenever a third-rate comedian or an adjunct professor of gender studies at a third-tier college says something politically idiotic or — which is much the same thing — culturally “insensitive,” Internet hordes who are happy only when unhappy become ecstatically enraged: A brain map might show their pleasure receptors ablaze, as if stimulated by another controlling addiction, cocaine.

Modern American life brings many stresses beyond those of judgmentalism, “status anxieties”, lifestyle fads, and nasty habits. There is always social pressure to “do the right thing”. I don’t think there has ever been a time at which it has been so difficult even to know what the right thing is and the perception of what the right thing is changes with rapidity too fast to follow.

As we have recently been reminded, what you did as an adolescent and even what you are accused of doing as an adolescent can blight your life forever.

Income and job insecurity are tremendous stresses. We have gone from being a country in which 5% of the people were foreign-born to one in which 14% of the people are, the highest in our history. In some American cities two-thirds of the people are native speakers of a language other than English, the first time in our history in which that has been the case. That alone is a source of stress, as the Biblical story of the Tower of Babel tells us.

Our politicians are sources of stress. Our news media have apparently decided their job is to keep us in a permanent state of anxiety. A president predisposed to lash out on Twitter is not a stress-reliever.

Liquid water does not become ice gradually. It happens suddenly. That’s called a “change of state”. As stresses mount we should not assume that they may be adjusted to incrementally. Reactions can come suddenly and without warning.


Six Scenarios for Kavanaugh

At CNN Byron Wolf outlines six possible strategies for how Brett Kavanaugh’s nomination proceedings might unfold:

  1. Republicans rally, confirm Kavanaugh
  2. Pence casts tie-breaker, confirms Kavanaugh
  3. Kavanaugh fails, Republicans find a new nominee before Election Day
  4. Kavanaugh fails, Republicans vote on a new nominee in the Lame Duck
  5. Kavanaugh falters, Democrats win Senate Majority, find consensus nominee
  6. Kavanaugh falters, Democrats win Senate majority, but block a nomination until 2021

Of those I think the most likely are #2, #4, followed by #6.