In response to a comment by the author of the post I used as a starting point for my own post, Trend Spotting, I made a substantial comment which I thought deserved to be rescued from a now-dormant comment thread. Here it is.

GDP and, especially, GDPPOT (real potential GDP) aren’t facts. They’re calculations based on assumptions. If the assumptions are wrong or the calculations are wrong, they have no referent. They’re not just wrong. They’re meaningless.

Imagine a magic widget-producing machine. It produces widgets, so many an hour, without any inputs. The machine can’t be converted to any other purpose or even sold for scrap. All it’s good for is producing widgets.

Assume that people buy these widgets as fast as the widget-producing machine can make them. As long as people want widgets and are prepared to pay for them with money (or with credit as frequent commenter Ben Wolf might remind us), the widget-producing machine is a real money maker. What it adds to GDP is what people pay for the widgets it produces. Its contribution to GDP is based on its outputs not its inputs.

If people suddenly don’t want widgets any more, what does the widget-producing machine add to GDP? Zero. All other things being equal GDP in the present is therefore reduced from GDP in the time that people wanted widgets by the amount they were willing to pay for widgets before they stopped buying them.

That’s true whether the machine continues to make widgets or not.

In other words in my example there is no such thing as potential GDP.

In the real world it’s a lot more complicated than that. The GDP-producing machine that is the economy does have inputs and, when people stop buying some or all of a component that once added to GDP, over time some of the inputs of that component may be turned to other uses.

The way to facilitate that process is to reduce the barriers that inhibit the conversion process. Waiting for people to start buying the component again is nuts. Drawing a straight line from the old GDP trend line and labeling it “potential GDP” has no referent. Or, as Steve Verdon pointed out in comments, it’s no more provably true than any other line you might draw.

I’ve just published a foreign policy-related post at Outside the Beltway:

Drumbeat to War With Iran: Take a Stand

Dispassionate analysis of the prospect of war with Iran by opinion writers makes its likelihood ever more acceptable. My view: I’m against it. Vehemently so.

Matt Miller is disappointed at how cramped President Obama’s thinking about higher education is:

The president deserves credit for calling out soaring tuition and unsustainable student debt as huge barriers to upward mobility and a strong middle class. But unfortunately, the remedies he sketched in his State of the Union address and in a speech at the University of Michigan last week are textbook examples of proposals meant to signal the president’s “values” (and win votes) while doing little to address the problem.

He then draws attention to an online higher education provider called Straighterline:

It would make the world safe for disruptive innovators such as Straighterline, a Baltimore-based firm that offers college classes online via two main models: $99 per month (for all the classes you can take), or $999 for 10 courses for one year. That’s right: freshman year for under $1,000, with no government subsidy.

Straighterline offers the general and introductory courses that account for up to a third of enrollment nationwide — subjects such as college algebra, English composition, microeconomics, psychology 101, accounting 101, and U.S. history. The 4,500 students it will serve this year then transfer the credits elsewhere.

The federal government will spend more than $17 billion on Pell Grants this year. On top of that the states will spend more than $100 billion—the state of Illinois alone will spend more than $2 billion. Students and their families will spend additional billions, much of it borrowed.

The real cost of higher education has tripled over the period of the last 20 years, much of the increase attributable to increasing administrative costs.

Straighterline, the experiments of Sebastian Thrun, and any number of other online education providers demonstrate a clear alternative: higher education can be provided online at a significantly lower cost, perhaps as low as 10% of what is being paid now when all factors are considered.

If there are questions about quality, address them. It is simply unconsionable to proceed as we have.

In his most recent remarks on the subject Illinois’s Governor Pat Quinn has announced his objective that 60% of Illinois’s young people go on to higher education. Ignore for a moment that the highest proportion of people with higher education in the world (Canada) is 50%. Ignore that 50% is probably the upper limit on the proportion of the population that can actually do the work that higher education requires. Higher education for that large a proportion of young people at today’s costs is unaffordable, let alone at tomorrow’s costs.

We are reaching the point where the wheel hits the road on higher education. Is the purpose of higher education to enable young people to lead fuller, more productive lives? Is it to provide a backdrop for research, the greater proportion of which is utterly useless? Is it to employ a large cadre of adults at wages they otherwise could not realize? Is it to enrich those in the credit-extending industry? We can’t accomplish all of those objectives.

Check out Barry Ritholtz’s post on whether housing prices have bottomed out. Now combine that with PIMCO’s Bill Gross’s remarks from his recent newletter:

Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time.

I think we’re at a major turning point in the U. S. economy. Housing and the associated credit will not be the engine of growth going forward that it has been for nearly all of my lifetime.

We have been there before. The primacy of housing in economic growth isn’t a law of nature. It’s an artifact of demographics, policy, and history.

We’re going to need to find something new. In all likelihood there won’t be one main overwhelmingly significant economic driver but lots of less significant drivers. Whatever they may be they won’t be education or healthcare. Each of those depend too highly on government spending. They’re drags rather than engines of growth.

Waiting for housing to recover or, worse, targeting policy at such a recovery is a waste of time, energy, and money.

There are some ideas that just won’t die. The dollar coin is, apparently, one of them:

U.S. Sen. Mike Enzi is co-sponsoring legislation introduced Tuesday that would phase out the $1 paper bill and replace it with a $1 coin. The move, the Wyoming Republican said, could save taxpayers billions and reduce the federal deficit.

That’s because coins last far longer than paper currency. Coins circulate for about 25 years, on average, while each $1 bill has an average lifespan of 4.7 years.

The switch would save about $5.6 billion over 30 years, according to a Government Accountability Office report issued last year.

If memory serves there have been a number of attempts at getting a dollar coin to take hold over the period of the last 40 years:

• The Eisenhower dollar in the late 1970s
• The Susan B. Anthony dollar in the early 1980s
• The Sacagawea dollar (and variants) in the early 2000s
• The President series dollars beginning in 2007

The only one of those that served any really useful purpose was the Eisenhower dollar. Las Vegas casinos stopped issuing their own tokens and used Eisenhowers instead. We’ve got, literally, billions of unused dollar coins sitting around in storage.

The beneficiaries of a new dollar coin would, presumably, be mine owners (if you’re wondering why this story originated in the Casper Star-Tribune). I strongly suspect that any amounts that might be saved by issuing them would be overwhelmed by the costs, particularly to vending machine manufacturers.

Here’s my proposal. Let the federal government issue a new dollar coin. On one side would be an image of P. T. Barnum, encircled by the words “There’s a sucker born every minute” (which he almost undoubtedly did not say). The coin should be gold-toned (in honor of something he actually did say: “I am a showman; no amount of gilding can tarnish that”). On the reverse side there should be a picture of the Brooklyn Bridge. Possibly with a “For Sale” sign superimposed.

TaxProf Blog takes note of a report from the Tax Foundation that finds that since the economic downturn of 2007-2009 the percent of income earned by the top 1% of income earners has returned to the level that it was during the Clinton Administration:

The most recent published studies on income inequality use 2006 or 2007 as their end point, without fully correcting for the business cycle. … It is deeply misleading to talk about income inequality without properly taking into account the business cycle. Since the peak of the business cycle in 2007, personal incomes have collapsed to a degree not seen since the Great Depression. The most dramatic collapse has been in high incomes, as the most recent IRS data shows. For example, since 2007 the number of millionaires has dropped 40%, while income reported by millionaires has dropped in half. …

while the progressivity of the federal income tax is higher than it’s been since 1986.

I agree with the assessment that President Obama is likely to base his re-election campaign, at least in part, on a campaign for greater income equality. Is he fighting the last war? Has that mission already been accomplished?

My own complaints haven’t so much been about the top .1% or income earners or the top 1% of income earners but the top 10% of income earners, far, far too many of whom are direct beneficiaries of federal largesse.

It will be a good trick to run on income inequality without proposing anything that will actually do anything about it but that seems to be the plan.

Mickey Kaus makes a good point. Americans don’t have much problem with income inequality but they do have a problem with social inequality:

I understand why President Obama might want to water down the money-egalitarianism of the left into a simple “equal sacrifice” argument for higher upper tax brackets. But when even crusading opinion journalists who work for The New Republic have to deny their interest in actually equalizing incomes for its own sake then it kind of proves Andrew Kohut’s point that Americans reject that point of view, no? … P.S.: I suspect polls will show Americans do care about social equality (that we are “equal in the eyes of each other,” as Ronald Reagan put it). The popular desire for social equality is why Mitt Romney ate at McDonald’s today

Taking note of this report from the Congressional Budget Office that finds that the total compensation of federal employees overall exceed the total compensation of their private sector counterparts, James Joyner remarks:

Public sector employment is much closer to the progressive ideal than employment in the private sector. For one thing, it’s capped at the upper end. Even the president only makes $400,000 and no civil service employee makes more than the $179,700 ceiling. On the lower end, even the most junior person (a GS-1, Step 1) makes $17,803 a year–roughly $8.55 an hour. Further, the benefits are comparable across the board, so even those at the bottom of the scale get good health coverage, paid vacation, and retirement benefits.

James and I have each posted on the subject from time to time. The more I reflected on the CBO report the more frivolous I realized it was and I’ll try to explain why I think that in this post.

First, the report is a static analysis. It doesn’t take into account the effect that government compensation levels have on the private sector compensation it’s trying to use as a basis of comparison. What is the market wage of a lawyer who didn’t graduate at the top of his class and/or from a Top 20 law school without substantial government employment and/or subsidy of lawyers? A physician? A teacher? A social worker? The answer is that nobody knows. They could be higher. Or, as my intuition tells me, they could be much, much lower.

Second, ending the analysis with employees whose W-2s are issued by the federal government draws too fine a line. I don’t much care whether a truck driver being paid $50,000 a year is a federal employee or the employee of a company with a contract with the federal government (which is probably paying nearer $100,000 for the work than $50,000). I care what the total cost of the activity is, fully loaded, out the door. If it can be done less expensively by a full-time federal employee, that’s how it should be done. Allocations and allotments that prevent hiring full-time employees but allow hiring contractors at substantially higher cost are smoke and mirrors.

The problem is particularly acute in the military but isn’t limited to the military. And it’s why I roll my eyes when anyone triumphantly points out that the total number of federal employees hasn’t risen over the last 5 years, 15 years, or whatever. It’s just playing with numbers; it doesn’t reflect the reality.

Third, does the system of hiring, firing, and compensation provide the federal government with the flexibility that it needs to be able to respond to an environment that in all likelihood will change more rapidly with each passing year? I think we’ve got a system tailored to the needs and attitudes of the 1950s and 1960s and we’re trying to make do with it in the 21st century.

That’s a start. The eyes crosseth.

In my last post I mentioned Chinese noodles. Have you ever seen hand-pulled noodles being made? Amazing. I am convinced that Chinese ancestry is required to do this.

Here’s something else that’s almost in the same category. I do not believe that it is possible to make good corn tortillas by hand without 10,000 years of Indian ancestry:

If I think up any other examples like this I’ll add them to this post.

A little while ago in the comments to this post a discussion ensued about what we do and don’t know about the past. The lacunae in our knowledge are not limited to the very distant past or even the merely distant past. There’s a lot we don’t know about things that happened relatively recently. I’ve always found the history of food preparation a fascinating subject so I thought I’d use the history of spaghetti with marinara sauce as an example.

Spaghetti with tomato sauce, also known as marinara, is a staple of southern Italian cookery or almost anywhere that southern Italians live, e.g. the United States, Brazil, Chile, etc. I don’t know what things are like now but when I lived in Germany what was served in restaurants as spaghetti and tomato sauce wouldn’t even have been disgorged from any self-respecting can. By comparison Beefaroni is haute cuisine. Perhaps things are better now.

However, spaghetti with marinara hasn’t always been a pillar of southern Italian cuisine. It’s actually a relative newcomer. Let’s start with the pasta.

Once upon a time every school child both in Italy and the United States learned that Marco Polo brought noodles back with him from China and that’s how the Italians got spaghetti. That’s almost certainly wrong. Oh, he might have brought them back but pasta very much along the lines of today’s pasta was being made and used in Sicily before Marco Polo was born. Besides, Chinese noodles are made very differently.

In the Book of Roger, the Tabula Rogeriana, written in 1154 in Arabic by Muhammad al-Idrisi, the court geographer to Roger II of Sicily, there’s a brief off-hand remark that the people of the Sicilian town of Trabia were making a form of pasta in long strands from hard, African-style wheat and exporting it all over the country. This actually sort of stands to reason. The Arabs had invaded and occupied Sicily for about a century beginning in the 10th century and the Arabs, too, make several different forms of pasta. That both the Italian pasta and the Arab are made from a style of wheat originating in Africa rather than European wheat renders that origin story even more likely.

Does long strand Italian-style pasta go back even farther in time? And who invented it? Nobody really knows.

There are a number of stories about the origins of tomato sauce or marinara, e.g. invented by sailors, made by sailors’ wives when they returned home, etc. but I suspect these are largely fanciful.

Since tomatoes are a product of the New World clearly they can’t have arrived in Italy (or Sicily) prior to the 15th century. The earliest recipe for tomato sauce that I’ve been able to find referenced is in Antonio Latini’s 1692 cookbook, Lo scalco alla moderna. The earliest recipe for tomato sauce with pasta was apparently in Roman chef Francesco Leonardi’s 1790 cookbook, L’Apicio moderno.

I haven’t been able to uncover the details of these early tomato sauce recipes. They don’t seem to be online either in the original or in translation. All of the early recipes I’ve been able to discover closely resemble Escoffier’s sauce tomate: a sauce employing a roux and containing salt pork and tomato puree and seasoned with bay leaf and thyme. This sounds more like the sauce called “tomato gravy” by Italian Americans than like marinara.

None of this really reveals where the idea for marinara actually came from. I’ve found a number of medieval recipes that closely resemble Escoffier’s sauce tomate, made with figs, prunes, or apricots instead of tomatoes. Could these be the antecedent of marinara?

I have read accounts that claimed that, prior to the invention of marinara sauce, Italians ate their pasta dry, i.e. without sauce. I’m skeptical. I think that aglio e olio (pasta prepared with a sauce of olive oil and garlic) goes back as far as pasta itself. We know that the ancient Greeks were dipping their bread in olive oil more than two millenia ago. Why would eating pasta with olive oil from a trencher be so far-fetched? Among the oldest recipes in the Western world is a Roman recipe for pesto—herbs pounded in a mortar with garlic and olive oil—which they apparently used to flavor their porridge. I’m betting that pasta al pesto is pretty old, too.

The earliest recipe for spaghetti and tomato sauce I’ve been able to discover is from 1839. That’s a mere flick of the eye ago—just a couple of generations (if you’re a grandson of John Tyler, that is).

The oldest cookbook actually in my possession, a 1924 American cookbook, contains a recipe for tomato sauce that’s very much like marinara (it’s the fourth tomato sauce recipe listed). In the commentary it characterizes the sauce as “good with Italian Paste”, i.e. pasta. It wasn’t until the 1920s that spaghetti and tomato sauce became commonplace in the United States.

So, in summary:

• We don’t know when Italian-style pasta was invented or by whom. Sometime before 1100 and with Arab influence is a good guess.
• We don’t know when marinara was invented or by whom. Certainly no earlier than the 16th century. Southern Italy in the 17th century is a good guess but it might be as late as the 18th century.
• We don’t know what inspired the inventor of marinara. It’s possible that he or she was adapting a sauce that used some other kind of fruit. Or just had a lot of tomatoes sitting around.

Spaghetti and meatballs is Italian American and almost undoubtedly 20th century in origin.