There are two posts I’d like to bring to your attention because, together, they broach a subject I’ve been trying to figure out how to post on for some time. The first is a post by Scott Sumner noting the failure of Keynesianism first as policy but even more importantly in political terms. The frequent retort to arguments along these lines (and one always made by Paul Krugman) is that state and local governments have been working at cross-purposes to the federal government. That dog won’t hunt:

Krugman likes to point to the “50 Little Hoovers,” but what he is really doing is pointing to 50 little flaws in the Keynesian model. If the cutbacks in state and local spending reflect declining revenues due to the recession, then the Keynesian model needs to treat them as endogenous, just as business investment falls endogenously due to weak sales and excess capacity. In order to be exogenous, it would have had to be under the control of the (Federal) policymakers who make the decisions about the size of the fiscal package. But Keynesians seemed to greet the news of huge S&L spending cutbacks with surprise and dismay. And then they used it as an excuse for the federal stimulus not working. That’s about as logical as blaming the failure of Federal stimulus on corporations cutting back on investment (something FDR did in the 1930s, showing that logic has never played much of a role in arguments over government stimulus.)

Additionally, as I’ve said around here pretty frequently while it may be theoretically possible that a perfectly timed and well-structured stimulus might have the predicted effects, we’re politically incapable of producing a perfectly timed and well-structured stimulus. If it turns out that inflation is rampant and uncontrollable in China following their (much praised) stimulus package, it may well be the case that nobody is capable of producing a large enough stimulus package that’s timed right and structured well enough.

The other post is from Keith Hennessey and it includes the eye-catching graphic at the top of this post (click on the graphic for a larger version). The graphic is a visual representation of the long-term effects of the Obama Administration’s recently proposed budget drawn directly from the Administration’s own numbers.

Here’s the point that I’ve been gnawing on. According to the NBER, the official scorekeeper for recessions, we’ve been in a recovery for nearly a year and a half. As we have recently had reaffirmed for us, recoveries don’t go on forever, there is always the eventual downturn. The recovery has been going on for nearly 15 months. When will we start paying off the spending spree that the federal government has been on for the last year and a half? If it’s not soon, we’ll be in another economic downturn.

I’ve already given my prescriptions. I think we should turn the fiscal clock back to about 1996. To get even that far we’re going to need to engage in a major reworking of the tax code (long overdue) that, alas, includes some additional revenue and we’re going to need to cut some spending. I’m jake with a deficit that runs between 1 and 2% of GDP. The present plans which involve running deficits of twice or more than that in perpetuity make my blood run cold. And we haven’t even factored in the impossibly rosy projections for GDP growth that the Obama Administration is using (4% or more where I think that 2 to 3% is much more likely).

Chicago has received the results of the 2010 census. The short version is that the city is the smallest it’s been in 90 years, the white population shrank a bit, the Hispanic population grew a bit, and the black population shrank by 17%:

Chicago lost a hefty 200,000 residents in the last decade, most of them African-Americans, while suburban counties grew dramatically in numbers and diversity, according to 2010 census data released Tuesday.

People continued to spread out far from the region’s urban hub, as thousands flocked to Will, Kane and McHenry counties, all of which experienced a second decade of vigorous double-digit growth, the numbers showed.

“I think these data from here and elsewhere in the country reflect that the United States has become a suburban nation,” said Scott W. Allard, a University of Chicago associate professor of social service administration. “It is a continuing migration from the city out to the suburbs while there are also immigration waves directly to the suburbs as well.”

In the 2000 census, Latino immigration fueled a modest 4 percent population increase in Chicago, marking the city’s first decade of growth since the 1940s.

This time around Chicago’s Latino population was up just a little more than 3 percent. The white population was down a bit, while black numbers dropped nearly 17 percent.

Latinos and Asians accounted for the metropolitan area’s biggest population increases during the 2000s. In both cases, the biggest gains for those groups were in collar counties, not in the city or suburban Cook County.

“The biggest (change) is finding more minority people in different places in the metropolitan area where you didn’t used to find them,” said Jim Lewis, a demographer and senior program officer at Chicago Community Trust. “That and the loss of black population in the region and the state.”

Don’t underestimate the importance of the loss of black voters to Chicago or, potentially, to federal elections. Chicago is now nearly evenly divided among whites, blacks, and Hispanics. IMO the level of racial politics here will be heightened if anything.

The populations of a number of rural counties in Illinois also declined while the total population of the state increased bit. Not enough to keep Illinois from losing one seat in the U. S. Congress, bringing its congressional delegation to 18.

Now the real fun begins! Handicapping the redistricting is going to be interesting. I’m guessing that one or more seats will be lost downstate while it’s at least possible that the collar counties will pick up a seat. The massively gerrymandered 17th and 19th Congressional Districts could certainly use some help.

There’s a forum on global food prices going on over at the New York Times that’s helped to expand my understanding of the relationships among ethanol production in the U. S., corn prices, and other food prices I discussed last week. For example, this makes sense to me:

The U.S. is the largest exporter of corn, but we use twice as much corn to produce ethanol as we use it for food export.

Wheat and soy prices increase when corn prices are high, since their acreage allotment is replaced by corn. In addition, wheat and soy get substituted for corn as animal feed.

High corn prices cause higher meat, dairy, wheat and soy prices for consumers. Since last June, the corn price has doubled. Soy and wheat prices are each up 60 percent. Cattle and hog prices have risen 25 percent.

and this makes sense to me, too:

Trade restrictions remain pervasive and help to keep commodity prices high. Recent research by Jeffrey Reimer and Man Li indicates prices could fall by 57 percent if all countries were as open to trade as the United States. Particularly acute examples, like the recent ban of wheat exports by Russia, India’s rice export ban in 2008 and subsequent Philippine hoarding, can greatly exaggerate the effects of weather shocks on world prices. Such policies likely come about from efforts to keep food affordable for a country’s most disadvantaged. Their ultimate effect, however, is to keep food prices higher worldwide, and make more people hungry. To make matters worse, market speculators likely hold greater inventories in anticipation of possible future export bans or hoarding.

As I said last week I’ve opposed agricultural subsidies for nearly 50 years and have opposed ethanol subsidies for corn in particular for as long as we’ve had them. But I also favor aggressive policies to open up world agricultural trade, generally. It’s not entirely clear to me how you disentangle rising prices caused by lousy U. S. energy self-sufficiency policies from rising prices caused by lousy Chinese food self-sufficiency policies.

Let’s consider an example. Unlike beef U. S. pork is, essentially, sold at global commodity prices. Said another way, absent tariff and non-tariff subsidies U. S. pork is competitive with Chineses pork. For much of 2009 and 2010 China had an outright ban on imports of pork from the United States, Mexico, and Canada. There was no ban on imports of grain. Meanwhile, Chinese grain production declined, due to a combination of bad weather and terrible agricultural policy and practices. It may be counter-intuitive but until recently China had been a major exporter of grain, particularly wheat. It is now a net importer.

When corn prices rise high enough rather than feeding their pigs corn, Chinese farmers will feed their pigs wheat and the global price of wheat rises. Bottom line: greater wealth in China, increased meat consumption in China, Chinese agricultural policies, predatory Chinese trade policies, and ill-conceived U. S. ethanol subsidies combine synergistically to raise the cost of food everywhere.

I think there’s an additional message here: when China is the low cost producer of all sorts of agricultural products, industrial materials, and manufactured goods, changes in Chinese policy have a disproportionate effect on world markets and as a consequence of China’s political system such changes can come with alarming rapidity. Fasten your seatbelts, we’re in for a bumpy ride.

See also here.

Update

Moved to action by the absence of actual relevant authorities in the forum I cited above, I went looking for a corn economist and whadday know? I found one and he seems to have direct, relevant expertise. See especially this extremely interesting presentation.

The Watcher’s Council has announced its winners for last week. First place in the Council category was Rhymes With Right’s A Message To The CPAC Boycotters.

First place in the non-Council category was Foreign Affair’s with Egypt’s Democratic Mirage, informative and timely.

You can see the full results here.

In his column this morning David Brooks tells a story about changing values with this example:

For example, imagine a man we’ll call Sam, who was born in 1900 and died in 1974. Sam entered a world of iceboxes, horse-drawn buggies and, commonly, outhouses. He died in a world of air-conditioning, Chevy Camaros and Moon landings. His life was defined by dramatic material changes, and Sam worked feverishly hard to build a company that sold brake systems. Sam wasn’t the most refined person, but he understood that if he wanted to create a secure life for his family he had to create wealth.

Sam’s grandson, Jared, was born in 1978. Jared wasn’t really drawn to the brake-systems business, which was withering in America. He works at a company that organizes conferences. He brings together fascinating speakers for lifelong learning. He writes a blog on modern art and takes his family on vacations that are more daring and exciting than any Sam experienced.

Jared lives a much more intellectually diverse life than Sam. He loves Facebook, YouTube, Wikipedia and his iPhone apps. But many of these things are produced outside the conventional monetized economy. Most of the products are produced by people working for free. They cost nothing to consume.

I have some problems with his story. For one thing I don’t believe that there are enough Sams and Jareds to effect the sorts of changes we’re seeing. Consider: in all likelihood Sam would have had his children between 1920 and 1945 and they, in turn, would have had theirs between 1940 (at the earliest) and 1990 (at the latest). My point is that Jared (on average) is probably too young to be Sam’s grandson.

For another Jared is too old to be in the primary demographic for Facebook. The median age of Facebook users is under 24 and very much the same is true for Twitter.

For another thing his story has a notable hole in it. What about Sam’s son, Frank, born in 1940?

Let me make a few revisions to his story to bring it more into accord with reality. Let’s imagine that Sam was born in 1925, Frank was born in 1955, and Jared was born in 1985. The biographies are about the same except for this difference: Jared is either unemployed or underemployed and, as you can see from the chart above, is pretty likely to be living with Frank and his wife. It’s only by Frank and his wife’s work that Jared is able to maintain his lifestyle.

Now Jared’s “more intellectually diverse” life is not precisely Hannah Arendt’s life of the mind but dwelling too much on that would just be petty of my me. Who am I to judge?

However, I’m genuinely concerned about what will happen to Jared when Frank or his wife dies. Frank is pushing 60. If he’s anything like the rest of his age cohort he probably hasn’t saved enough and he got killed in the collapses of the dot-com bubble and the housing bubble. His 401K isn’t worth what he thought it was going to be and his house isn’t worth what he thought it was going to be.

What Mr. Brooks’s story sounds like to me is Thorstein Veblen’s Theory of the Leisure Class but with conspicuous consumption and conspicuous leisure replaced by conspicuous idleness.

Back in my parents’ day memorization was a routine part of early education. I don’t just mean memorizing the names of the parts of speech or times tables but memorizing all sorts of things: poems, famous speeches, state capitals, the presidents, the succession of English kings, lots of others things.

I recall fifty years ago at scout camp one of our troop leaders stood in front of the campfire and recited from memory the entirety of a lengthy narrative poem (Robert Service’s eerie “The Cremation of Sam McGee”). I was so impressed by the feat that I memorized it myself. I can still recite it all of these years later.

There are strange things done in the midnight sun
By the men who moil for gold.
And the arctic trails have their secret tales
That would make your blood run cold.

The Northern Lights have seen queer sights
But the queerest they ever did see.
Was that night on the marge of Lake LaBarge
I cremated Sam McGee.

I also have the Gettysburg Address, Lincoln’s Second Inaugural, some Shakespearean sonnets and lots of the soliloquies, stanzas of Macaulay’s Horatius, some poems by Browning and William Butler Yeats, snippets of the Declaration of Independence and the Constitution, psalms, and all sorts of other things committed to memory. Even quotations from science fiction novels (“I am Shadowjack, the thief who walks in silence and in shadows! I was beheaded in Igles and rose again from the Dung Pits of Glyve. I drank the blood of a vampire and ate a stone. I am the breaker of the Compact. I am he who forged a name in the Red Book of Ells. I am the prisoner in the jewel. I duped the Lord of High Dudgeon once, and I will return for vengeance upon him. I am the enemy of my enemies. Come take me, filth, if you love the Lord of Bats or despise me, for I have named myself Jack of Shadows!” Oddly, I have run into a number of people over the years who had that passage committed to memory.) I guess I’m a throwback.

This is far from exceptional from a global standpoint. There are many, many people in the world who have the entirety of the Qur’an committed to memory, some who have the whole Bible, and any number who have massive chunks of the Bible committed to memory. Years ago thousands of people had the Book of Changes committed to memory and it wasn’t too long ago that millions memorized Mao’s “Little Red Book”.

This may seem quaint and obsolete in a world with the Internet and Google but I’m not so sure. There’s a difference between being able to find something and actually living with it, between being able to look up a picture of a Persian rug on the Internet and having one on your floor. Committing poetry or other texts to memory makes them part of the cadence and subtext of your thought and speech.

Would Lincoln’s speeches have had their expressiveness and force if he hadn’t read the King James translation of the Bible and Shakespeare’s plays, committing parts of them to memory? He didn’t quote the Bible or Shakespeare in his speeches but his speeches are full of their rhythm and texture.

I think that some of the incredible poverty of our daily discourse is the transition away from memorization of great and wonderful poetry (it’s irrelevant!) in the direction of advertising slogans. We may not know “If we shadows have offended, think but this and all is mended/That you have but slumbered here, while these visions did appear…” but we do know “Great taste! Less filling!” Recall, Sesame Street is explicitly a deployment of the principles of television advertising in the service of education.

Scott Sumner has an interesting post in which he nods to the “Nolan Chart”, the two-dimensional diagram aligning political ideologies along two axes, personal freedom and economic freedom. Rather than the implied four quadrants he proposes a sort of six-sided star with the following points:

1. Idealistic progressives
2. Pragmatic Libertarians
3. Dogmatic libertarians
4. Idealistic conservatives
5. Corrupt Republicans
6. Corrupt Democrats

In this context by “corrupt” he means “pandering to interest groups”. He explains his characterizations:

Thus on values the there are three pairings: utilitarian, natural rights, and selfish. On ideology there are three different pairings: Democrat, Republican and libertarian. Let’s apply this political scheme to public policy issues. I would like to argue that most of the really important public policy issues are not even part of the ongoing debate in the press.

I would be more inclined to organize the topic along Aristotelian lines in opposing dyads: partisan vs. non-partisan, individualistic vs. collective, altruistic vs. self-serving, and so on, virtue being represented by the mean and each of the extremes thought of as less benign.

I’ve discovered another way of figuring out whether prices, generally, are rising and how fast, i.e. the general rate of inflation. It’s MIT’s “Billion Price Project”. Here’s what they’re doing:

…our data are collected every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in a database. The resulting dataset contains daily prices on the full array of products sold by these retailers. Our data include information on product descriptions, package sizes, brands, special characteristics (e.g. “organic”), and whether the item is on sale or price control.

Clearly, that’s not a perfect measure but to my eye it looks better than the highly subjective (and prone to finagling) CPI. What does the Billion Price Project reflect? Viz.:

As you can see the BPP index is systematically higher than CPI. Even if the difference is small over time that becomes significant.

And I certainly think it’s more intuitive than the CPI. Does it really feel as though prices aren’t rising to you? Me, neither.

Hat tip: Tyler Durden

A new Tribune/WGN poll shows that Rahm Emanuel’s support has increased to 49%:

Rahm Emanuel is in striking distance of being elected Chicago’s next mayor on Feb. 22, with Gery Chico emerging as the rival with the best chance of forcing him into a runoff, a new Tribune/WGN poll shows.

Gains among African-American and Latino voters in the last three weeks bolstered Emanuel’s substantial backing from white voters. His rise coincides with Carol Moseley Braun’s precipitous drop in support among black voters and in esteem among voters overall amid campaign gaffes.

Emanuel had 49 percent support to 19 percent for Chico, the former Chicago Board of Education president. Braun fell to third with 10 percent, and City Clerk Miguel del Valle was at 8 percent, according to the poll conducted Saturday through Wednesday.

To win outright in 11 days, a candidate must collect more than 50 percent of the vote. If no one achieves a majority, the top two vote-getters will face off on April 5.

I think that more voters are realizing what has been pretty apparent all along: Carol Moseley Braun is an idiot with little vote-getting power outside of the black community and dwindling vote-getting power there and del Valle can’t win.

IMO the primary will come down to whether Emanuel or Chico will be better able to get his voters to the polls. Emanuel has a big sack of money and I expect he’ll start spending it soon. Does a sense of inevitability work for him or against him?

Chico’s support from the police and firefighters unions is even more significant in this light. They will go to the polls and vote. In a primary in which the turnout is likely to be under 50% of registered voters and black voters will almost undoubtedly not turn out in the numbers they did in 2008 a poll showing 49% of voters supporting Emanuel may not be quite as secure as it sounds.

There aren’t many details on the poll available. I can’t tell whether it’s of Chicagoans, registered voters, or likely voters. It will make a difference.