Returns to education: from a sure thing to a trip to vegas

Paul Krugman has pointed out, here and here that the meme that most of the inequality we have been experiencing of late has much to do with differences in educational attainment is bogus.  Mankiw responds in typical fashion by changing the standards by which that claim is judged.  Krugman presented solid evidence that the returns to education have been declining.  To which one should add that if we did a real ROI calculation the returns have gone negative.  Mankiw counters by saying that may be true but if you do not have an education you are less likely to get a chance to become the top 1%.

The difference between the two as near as I can tell is that Krugman demonstrates that buying a lottery ticket has worse odds of paying out than ever before and Mankiw’s master stroke is apparently that if you don’t buy a lottery ticket you have no chance at winning.

Sad, really.

Krugman pins the tail on the Elephant

Krugman gets it right in both the pith and the substance of the matter on the overcompensated public sector workers in Wisconsin.  Short of it: they are not.  This is a must read.

The Contribution Scam

David Cay Johnston has a terrific piece up about the nonsense of comparing government workers to private-sector counterparts by claiming that the government pays for more of their benefits. As he says,

Why I LUV Naked Capitalism

How fked up is public discourse, pretty fked up if you ask me. All over the world, literally, unionised and non-unionised workers are being asked to take it on the chin for the GFC. Here is the money quote from the blog Naked Capitalism that lets the facts breath some fresh air:

If you live in the world according to the mainstream media, the row between state executives and unions is all about (by implication) greedy unions trying to preserve their perquisites when budget “realities” demand that they suffer. Consider this excerpt from a recent article New York Times article about the fight in New Jersey:

Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy.

Um, the “wounded economy” trashed the state budget? Funny how the article fails to point fingers at the real perp, which is the global financial crisis, brought to you by your friendly TBTF banks. Andrew Haldane, Executive Director of Financial Stability for the Bank of England estimated that the costs of the financial crisis was 1 to 5 times global GDP. If you were, as economists recommend, to try to tax them to recoup the cost of the damage they did over a period of 20 years, the charge would be over $1.5 trillion a year. That’s more than the market cap of the biggest global banks. Funny, their staff and executives got record bonuses in 2009. So maybe the unions have the wrong strategy. They need to screw up in a particularly destructive manner.

Big Lie of 2010 No. 9: We are all middle class

Canadians like to think of themselves as middle class. Notice the fan fare attached to the release of Hulchanski’s and co. study on the trend toward the hollowing out of the middle class.

I had always thought the term “middle class” a little pedantic in light conversation and of dubious merit in an academic setting as it was just too broad of a descriptor–a hanging signifier if I may be permitted–a choose your own adventure work of fiction if you will. But its neo-Weberian pedigree with its black mould like grip on the bulk of the Canadian intelligentsia has ensured that it remains the ontological “work-horse”, plotting along in the back of most educated Canadians self understanding. It never fit the facts (that is indeed why term kept on stretching: plumbing lower then floating higher). Like the statue of liberty and its vacant promise of equal refuge to all, the term is above all an ideological and not a scientific category which expands as needs be with the comfort of the academic’s good conscious.

The big lie then (No. 9) is not that somehow we have finally discovered that the last thirty years have been very unequal. Indeed we knew this; and we know this. No the big lie is not about inequality and the crystal meth that neoliberalism is to that trajectory,but, rather, it is the attempt, by otherwise reputable economists, to paper it over by trying to claim that in fact the great divide is not between those who work for capital and capitalists but between age classes of workers; i.e., workers and retired workers, with the latter being conceptualized as the capitalist class. The degree of dishonesty here is on par with the regular reality defying dissembling of the Fraser Institute.

The idea that wealth disparity is largely a function of age is nothing less than an attempt to paper-over the basic divide between those who work for someone else and those that employ others.

It is all fine and dandy if you want to try to paper this reality over with the idea that the real economic cleavage is between workers earning present wages and workers drawing down differed wages. The problem is that to make this argument the case would have to be, to quote myself from elsewhere that:

“All financial assets WERE somewhere around GINI = 0 AND WERE concentrated in the the generational cohort of say 60 +.

I was also thinking that IF air-planes did not fly but rather traversed the earth on round pneumatic devices they might more properly be called buses.”

However, the need of respectable economists to reduce us all to middle class is as much a Weberian as an Austrian hangover which in terms of intellectual history should not be all that surprising. The term middle class has long been a sop to a faux egalitarianism that attempts to sweep away real class divisions by throwing everyone into the same sink and calling everyone a dirty dish.

On this score I will take Conrad Black’s antiquarian hooliganism over earnest but nonetheless dissembling simplifying assumptions.

At least with the Canard I know exactly why I am not invited to the table: in Conrad’s house the Doctors came in through the servants entrance.

How positively upper middle class of him?

The 10 Big Economic Lies of 2010

So it is the end of the year and what a stunning year it has been for all sorts of creative story telling inside the economics profession (particularly in its conservative manifestation). I am going to kick this list off with No. 10 and take my readers’ input for the remaining nine.

To my mind the No. 10 has to be the revisionist claim that arguments for free trade are not about jobs but rather some other metric of economic goodness. Empirically when free trade turned out to be a job killer in Canada, especially after the low CDN dollar policy had ended, conservative economists began circulating the missive that free trade was never about jobs but rather X efficiency or some other idea that lacked any empirical test / verification. In idiomatic terms we call this “moving the goal posts to infinity”; in layman’s terms we call this chicken !@#$%^&; in scientific terms we call it proof positive of a degenerating paradigm.

En effet, this has been a banner year for the depths to which conservative economists are willing to plumb in order to rehabilitate that snow plough job which is micro-macro 101. There are many more, I will post one a day until Xmas eve.

Krugman looses it and losses it bad: Maybe economics is a morality play

Krugman is precisely what is wrong with American progressives. He thinks after spending a life watching while nobody left of him was left standing; that after mission accomplished, he would be benighted. The reality is that he has been rendered superfluous. The War is over kid and you were used like a peon.

Like Stiglitz, Paul reminds of a good reform liberal who, after coming back from the crusades, realizes that the war he thought he was fighting was not the war he was actually fighting. That hit home for Stiglitz circa his tour at the world bank. Old Joe has never really recovered. Something opened his eyes at the world bank and suddenly almost all the little tightly written mechanical equations he ever employed seemed to evaporate into thin air.

Earth to planet Paul there is a reason Larry gets the plumbs. Hint: and it is not because he is a better economist than you. Larry understands something your naiveté never will. Economic laws are made by Humans (for Larry men) the rest is commentary. Larry does not speak truth to power so much as he cloisters it in shiny white garb serving up technocratic, but nonetheless, ideological resources ready to hand for power. If Larry gets annoyed sometimes maybe it is not because of principle, maybe it is because he thinks the powers he serves are too deft to their own interests. And that really was the conceit of Keynes.

You behave as you believe: public policy is for the betterment of human kind. Here is what is going to happen Paul; 8-10 years from now you will be proven right and nobody will care. Whatever the configuration of economic and political forces at that time will be they will not give one shit about your sage like prevision.

In short, you will be equally as superfluous as you are now. Here is a clue Paul. Keynes, your hero, was in a very interesting milieu with socialists and communists to his ascendant left and self serving, myopic, reactionary forces to his right. Keynes could under these conditions position himself in the centre: You can’t. Your left flank has long since been burnt.

Sorry my dear comrade you are now the indefensible poll-bearer of the left. So please stop Kvetching and pony-up.

Apostle Paul writes:

The point is that it would have been much better if the Depression had been ended with massive spending on useful things, on roads and railroads and schools and parks. But the political consensus for spending on a sufficient scale never materialized; we needed Hitler and Hirohito instead.

Gee Paul and why might that be? Why might capitalists prefer fascism and war to useful things? The answer to that question is where the morality play of economics leaves-off and objective political economy begins.

Black Swans and Scientific Liberalism

My American readers will not understand this post as it uses “liberal” in the the political theory/philosophical sense of the word. If they understood this they would realize they were all liberals and that was the reason they had a two party, single ideological system. But I digress. The point of this post is a workout of what I have come to term scientific liberalism. And it was inspired by a post by none other than a post by Mel Watkins over at the PEF.

At first I was quite struck by Nassim’s idea of Black Swans (indeed I threw a blog post up about it some good while back) but then when I started thinking about what he was saying it seem to me to amount to the fact that risk was not adequately priced in because the models being used on the street had effectively cut the last 5% of the left hand side of the distribution out from their models. His critique is reasonable enough. I think his story about about fat Vinny is compelling: the old wise man who has been around long enough to smell a bubble but whose warnings are ignored because the young bucks’ models only go back ten years and thus not only are rare events viewed as extremely rare they simply are not in the model . But I think the problem is deeper, much deeper.

Some critics have argued that liberal economists merely make the assumption of rational expectations because it makes the model tractable. That is, in absence of needing to solve the model liberal economists would not insist on rational expectations: it is just the necessity of precision.

I do not buy this argument and not because I think that the precision they have purchased is worthless with respect to reality (it bugs me but it is not a deal breaker). The problem I have is that at the ontological level (and let me coin a new term here) scientific liberalism, of which liberal economists are surely the van guard, are busy trying to prove that an economy in which property owners (not cars or houses but means by which society must reproduce itself) are free to do as they please with their property is not only a necessary condition of liberty but will on the whole lead to an ever increasing betterment of society in general.

Viewed from this angle, rational expectations is not merely a simplifying assumption necessary to make the model tractable it is necessary in the ideological sense of furthering the ideological project of liberalism. When a liberal economists demands: why do you not include me in the progressive camp? He (most probably) or she is not being disingenuous. In their mind they are the van guard of progress because they are busy via scientific liberalism of demonstrating the path to human betterment which is of course always defined as growth. Distribution of that growth or catastrophic failures of the system are just the price of the freedom dance.

Of course the high modernist cousin to scientific liberalism is scientific socialism: “just one more five year plan and we will get it right” said the commissar. There was a legitimacy to that position when the system was new, when there was no history; just a series of experiments where time would tell if they got it right. scientific liberalism cheats at this game: they want to prove the maximisation of happiness; and then when the gig is up they want to default to satisficing

So having removed the secondary and tertiary hydraulic back-up systems they proclaim the predetermined plane crash as a natural event when the original claim was that eliminating those systems would not jeopardize safety. It is fundamentally dishonest and a sad commentary on scientific liberalism that it can so effortlessly move from the best of all possible worlds to a necessary evil in the same breath. But unlike its cousin scientific socialism it (scientific liberalism) has yet to meet its Waterloo.

Dictator, Stalinist, Nazi, Communist, Fascist

Sparked by recent events south of the border and the ease with which these terms seem to get thrown around I think is necessary to have a conversation about what these terms actually mean and why it probably is not such a good idea vis-a-vis the level of public discourse to hurl them around. Here is an intervention I made elsewhere when one of the commentators (whose interventions I generally like) referred to Harper as a dictator:

Yes XXXX, and all within the limits of parliamentary democracy and procedure. Sure there is some good degree of dishonesty on the torture file but it took an inquiry of how many years to get to the bottom of the liberal sponsorship fraud?

Terms like dictator have a rather precise meaning in political science. When you call Harper a dictator it sounds like tea-baggers calling Obama Stalinist. I do not disagree with you about the overall, shall we say, lack of reverence the Conservatives have shown both to our democratic processes and institutions but it hardly amounts to dictatorship. That does not make it OK, it just does not make it a dictatorship.

When you hear a coup has been launched; and the military is involved out on streets rounding up trade unionists and every other possible imaginable internal threat; and that the CBC has been shut down; and that parliament is closed; and that the coup leader has indefinitely suspended elections then you can call it a dictatorship.

Further, as XXXX points out, the opposition could bring down Conservatives anytime they liked. That the opposition will not because they refuse to govern together and will not risk that THE PEOPLE will not give one of them a majority mandate at this time is hardly evidence of dictatorship: a sick democracy maybe but not a dictatorship.

So it is we who either need to push for a coalition government or get busy helping our preferred opposition party get elected with a chance of a majority.

And that sounds to me like our parliamentary democracy same as it ever was.

Reform of the Century? US Health Care

To my mind the most interesting aspect of the health care debate south of the border is just how far off the actual legislation was from the rhetorical flourishes and hubris.

Paul Krugman thinks the fact that Markets Yawned is evidence of just how crazy those to the right of him are. What he misses of course is that the Yawn betrays just how little was really accomplished. Between the hyperbolic claims of Stalinistic socialism and the hubris of “Reform of the Century” what the actual legislation would seemingly indicate is just how impossible it is to get good coherent legislation drafted in the US. The markets yawned because they seem pretty convinced it is more or less business as usual in US health care.

The over the top rhetoric may produce good sound bites for the coming elections but they really do serve to mask the degree to which the US political system is almost completely captured by big, especially myopic and above all rich private interests. That all the political actors want to engage in theatrical spectacle is more than a little telling.

Laughed out of the Laffer curve

In class today I presented a seminar on, among other things, the uses and abuses of the Laffer curve. Why it is not called the Laffer bell curve I have no idea; it is always drawn like one. The students were kosher at the extremes: a tax rate of 100% was likely to lead to near zero income tax for the state; similarly they totally grasped as would anyone that a 0 % tax rate times anything was zero. But then the chuckles started.

I suspect it would be a stronger argument if the Laffer curve was bell shaped but at the summit it was flat over say a range of at least twenty percent. The students simply would not buy that a reduction from say 60% on the income of the supper rich to 40 % would not only yield the same but greater tax revenues for the state. And it did not matter how many ad hoc conjectures I threw in: increase in hours worked from the supper rich and the increase in support staff that implied and thus the increase in national output and thus a larger economic pie to tax.

It was more than just that they did not believe that people worked that way it is that they immediately understood it as trojan horse for the rich to decrease their marginal tax rates. 30% of 10 million is still 3 million who would not take that? But I had to explain for the super rich the labour market really is a choice between leisure and income. And when you are super rich you just might ask yourself do I really need another million dollars?

But then there were the questions about the augmentation of state revenues through a reduction in the top marginal rates. And I said I only know of one: Russia. To which we all had to laugh.