Is that really a good thing?

Chad the Elder writes of the new conservative critic-in-chief:

It might seem unlikely that a man who was born in Quebec, trained as a psychiatrist, once a speechwriter for Walter Mondale, and a writer for the New Republic would become one of the foremost conservative critics of the Age of Obama. But fate has worked in favor of conservatives in the case of Krauthammer and we’re fortunate to have his voice leading the resistance.

While I think Krauthammer is a less obtuse individual than most of the big op/ed names, I think the constant elevation of non-conservatives to positions of conservative leadership in the media is one reason that the conservative movement continues to find itself in such intellectual disarray. Why are they so reluctant to elevate those who are genuine conservatives and have always been genuine conservatives rather than liberals who belatedly claim to have seen the light?

But the fact that Krauthammer may be reliably correct in his analysis of Obama doesn’t mean that his ideology is reliably compatible with the conservative grass roots, and indeed, I note that he supported TARP even if he subsequently turned against the automotive bailouts. He has also been generally supportive of the neocon’s world democratic revolution, which is a profoundly non-conservative position of zero national interest to Americans. So, if Krauthammer does, in fact, become the chief voice of the ideological opposition, I suspect conservatives will once again find themselves regretting what was always more of a temporary alignment of anti-Obama interests rather than genuine ideological opinion leadership.

This isn’t a criticism of Krauthammer. He’s just doing his job and I’m merely pointing out what I think to be the obvious. Conservatives need actual conservative leadership and they need to stop settling for liberals, neocons, and nominally reformed liberals as their intellectual leaders. My feeling is that anyone who supported the banking bailouts, much less dismissed opposition to them as “know-nothingism” should be completely disqualified from any sort of conservative leadership, opinion or otherwise. If you’re capable of falling for demands for money from the cynical Chicken Littles of the world, you’re far too much of a naif to be a conservative leader.


Al Gore commits an Igon error

As I have said many, many times before, AGW/CC is a complete crock of steaming bovine ejectus. The “scientists” who subscribe to the theory are either corrupt, ignorant, or ideologically supportive of global governance and this will become increasingly obvious to everyone over time. So, it should come as no surprise that the leading AGW/CC salesman should demonstrate that he has very little grasp of temperature as his numbers are off by an order of magnitude:

Conan: Now, what about … you talk in the book about geothermal energy …
Al: Yeah, yeah.
Conan: and that is, as I understand it, using the heat that’s generated from the core of the earth …
Al: Yeah.
Conan: … to create energy, and it sounds to me like an evil plan by Lex Luthor to defeat Superman. Can you, can you tell me, is this a viable solution, geothermal energy?
Al: It definitely is, and it’s a relatively new one. People think about geothermal energy — when they think about it at all — in terms of the hot water bubbling up in some places, but two kilometers or so down in most places there are these incredibly hot rocks, ’cause the interior of the earth is extremely hot, several million degrees, and the crust of the earth is hot …

The interior of the earth is actually somewhere between 3,700 and 6,000 degrees Celsius, depending upon the estimate. Needless to say, this suffices to show that no intelligent individual should pay any attention whatsoever to Al Gore’s statements about planetary temperature, past, present, or future. Everyone makes mistakes, but in this particular case, as with Gladwell’s infamous Igon Value, the nature of the error indicates the degree of the ignorance.


Krugman and the babysitting coop

Paul Krugman loves to use the story of the baby-sitting coop told in an article published by Joan and Richard Sweeney in the Journal of Money, Credit, and Banking in 1978 and has repeatedly recycled it, all the while failing to understand that it is a very poor analogy for the American economy and that the lessons he draws from it are false. I have updated and modified it to explain what is actually going on in the U.S. economy as well as to show why Krugman’s proposed solution – print more money – cannot possibly work:

Twenty years ago I read a story that changed my life. I think about that story often; it helps me to stay calm in the face of crisis, to remain hopeful in times of depression, and to resist the pull of fatalism and pessimism….

A group of people (in this case about 150 young couples with congressional connections) agrees to baby-sit for one another, obviating the need for cash payments to adolescents. It’s a mutually beneficial arrangement: A couple that already has children around may find that watching another couple’s kids for an evening is not that much of an additional burden, certainly compared with the benefit of receiving the same service some other evening. But there must be a system for making sure each couple does its fair share.

The Capitol Hill co-op adopted one fairly natural solution. It issued scrip–pieces of paper equivalent to one hour of baby-sitting time. Baby sitters would receive the appropriate number of coupons directly from the baby sittees. This made the system self-enforcing: Over time, each couple would automatically do as much baby-sitting as it received in return. As long as the people were reliable–and these young professionals certainly were–what could go wrong?

Well, it turned out that there was a small technical problem. Think about the coupon holdings of a typical couple. During periods when it had few occasions to go out, a couple would probably try to build up a reserve–then run that reserve down when the occasions arose. There would be an averaging out of these demands. One couple would be going out when another was staying at home. But since many couples would be holding reserves of coupons at any given time, the co-op needed to have a fairly large amount of scrip in circulation.

Now what happened in the Sweeneys’ co-op was that, for complicated reasons involving the collection and use of dues (paid in scrip), the number of coupons in circulation became quite low. As a result, most couples were anxious to add to their reserves by baby-sitting, reluctant to run them down by going out. But one couple’s decision to go out was another’s chance to baby-sit; so it became difficult to earn coupons. Knowing this, couples became even more reluctant to use their reserves except on special occasions, reducing baby-sitting opportunities still further.

In short, the co-op had fallen into a recession.

Since most of the co-op’s members were lawyers, it was difficult to convince them the problem was monetary. They tried to legislate recovery–passing a rule requiring each couple to go out at least twice a month. But eventually the economists prevailed. More coupons were issued, couples became more willing to go out, opportunities to baby-sit multiplied, and everyone was happy.

Later in the article, Krugman goes on to explain how the coop’s “central bank” can manage the coupon supply to prevent couples intent on staying in from accumulating too many coupons and acquire coupons on loan if they found it necessary to go out more often than they’d planned. But what he fails to anticipate is the situation where the coop board has provided lots and lots of coupons to the various couples in anticipation of their future use for an extended period of time. In short, he fails to account for the possibility that the “recession” is not caused by a coupon shortage, but rather by the limits of babysitting demand.

There are three limits to the demand for babysitting coupons, one physical, one practical, and one psychological. The physical limit is that a couple cannot possibly make use of more than seven evenings-worth of coupons per week since that is the maximum number of evenings they can go out and leave the children home. The practical limit is the financial resources the couple has to spend on going out, and the psychological limit is based on the amount of the couple’s desire to actually spend evenings with their children. If, in a given time period, any of these three limits are exceeded by the amount of the coupons distributed or loaned out to the couple, the couple will not make use of them regardless of how many more coupons they are given. Therefore, it should be obvious that any decline in the amount of going out that is based on one of these three limits of demand cannot be solved by simply distributing more coupons for babysitting.

In fact, for the coop, the correct policy prescription is to do exactly the reverse of what Krugman is recommending. Not only should more coupons not be distributed, but all coupon distribution should stop so that people can use up the coupons they have. Coupons given out on loan should be either repaid or simply cancelled; more coupons can be distributed once people have used up their existing supply and actually require more babysitting.

Note: the fact that babysitting coupons are less fungible and important to the coop than money is to a national economy means that one cannot concoct an example of the Austrian business cycle utilizing this analogy. The coupon supplier is not causing the problems here; they are exogenous to the coupon supply. But, this invocation of the material and immaterial limits of demand should demonstrate that Krugman’s analogy is not necessarily relevant to the present economic situation, and to the extent that it can be shown that the American consumer has exceeded the limits of his demand, it shows that his conclusions are demonstrably inapplicable.


Malcolm Gladwell is a whiny little liar

His hapless attempt at CYA isn’t going to convince anyone who isn’t already foolish enough to take the silly man seriously:

It is always a pleasure to be reviewed by someone as accomplished as Stephen Pinker, even if—in his comments on “What the Dog Saw” (Nov. 15)—he is unhappy with my spelling (rightly!) and with the fact that I have not joined him on the lonely ice floe of IQ fundamentalism. But since football has been on my mind these days, I do want to make one small observation about his comments.

In one of my essays, I wrote that the position a quarterback is taken in the college draft is not a reliable indicator of his performance as a professional. That was based on the work of the academic economists David Berri and Rob Simmons, who, in a paper published the Journal of Productivity Analysis, analyze forty years of National Football League data. Their conclusion was that the relation between aggregate quarterback performance and draft position was weak. Further, when they looked at per-play performance—in other words, when they adjusted for the fact that highly drafted quarterbacks are more likely to play more downs—they found that quarterbacks taken in positions 11 through 90 in the draft actually slightly outplay those more highly paid and lauded players taken in the draft’s top ten positions. I found this analysis fascinating. Pinker did not. This quarterback argument, he wrote, “is simply not true.”

I wondered about the basis of Pinker’s conclusion, so I e-mailed him, asking if he could tell me where to find the scientific data that would set me straight. He very graciously wrote me back. He had three sources, he said. The first was Steve Sailer. Sailer, for the uninitiated, is a California blogger with a marketing background who is best known for his belief that black people are intellectually inferior to white people. Sailer’s “proof” of the connection between draft position and performance is, I’m sure Pinker would agree, crude: his key variable is how many times a player has been named to the Pro Bowl.

First, describing an eigenvalue as an “Igon Value” is not a spelling error, it’s strong evidence that you don’t know what the hell you are writing about. It’s like an economist writing about Gross Domestic Prada; the nature of the mistake reveals the full extent of the ignorance. Second, as Steve Sailer points out, Gladwell did not write “that the position a quarterback is taken in the college draft is not a reliable indicator of his performance”, instead he claimed that there was “no connection between where a quarterback was taken in the draft… and how well he played in the pros.” This clearly reveals that Gladwell is not only ignorant of eigenvalues, but of the NFL as well. Yes, JaMarcus Russell sucks, as anyone with half a brain knew he would, but it’s not hard to note that the distribution of the excellent young quarterbacks in the league, from Eli Manning, Phillip Rivers and Ben Rothlisberger to Matt Ryan and Joe Flacco, was not random throughout the draft as it would be if Gladwell’s thesis was correct. When it’s Gladwell vs Football Outsiders, who are you going to believe?

Third, Pro Bowls are a perfectly reasonable measure of NFL excellence, the players’ voting bias towards past performance notwithstanding. More importantly, though, it’s only one of several measures that Sailer has cited, all of which demonstrate Gladwell’s ridiculous assertion to be false. And fourth, Gladwell’s attack on Sailer as a source for Pinker is nothing but a naked genetic fallacy and suffices to show what a scrawny little slimeball he is.


Three RGD reviews

Vox Day’s Return of the Great Depression is an short, ambitious book which attempts to make a case that the mainstream economists are very wrong about where things are headed economically, and more importantly that we are headed towards another depression which will be worse than the first. While technical subject matter by nature it is written in a readable style and peppered personal anecdotes, pop culture references, and some humor…. In all an excellent, if too short of a book, which one would do well to read and decide for oneself which way the economic winds are blowing.
J. Simonsen

Interest in economics appears to be inversely proportional to the strength of the economy. When wealth seems to be expanding–when houses can be bought, flipped, and resold quickly and at great profit, or when IPOs of Internet startups make everyone involved filthy rich–only contrarians and pessimists question the soundness of what is universally regarded as a good thing. But when the boom turns to bust, it becomes imperative to understand where things went wrong…. If Saint Bernanke and his fellow central bankers have actually ended the current recession, government intervention will see a boost of popular support, while the doomsayers, Day among them, will be justly ignored. On the other hand, if Day is correct, the coming depression presents an opportunity to diminish the role central bankers, bureaucrats, and politicians play in the economy. A freer, more prosperous world depends on radical adjustments to the structure of our economic system. Although the picture it paints is rather dark, RGD ultimately provides a useful blueprint for a better economic future.
Eric Jackson

Excellent book on the financial crisis with unique perspectives you are unlikely to find anywhere else. I enjoyed this book for the way it elucidates the major perspectives on the crisis, including Keynesian, monetarist, and Austrian economic theories, the latter being the author’s preference. The book critiques much of the mainstream thinking on the crisis, with a particular emphasis on our favorite Nobel laureate Paul Krugman. I now feel I will be able to read Krugman’s columns with more understanding, but not with any less exasperation!
Heather Veinott


Where is the money?

Here’s something I wish I’d been able to devote some space in RGD. Where is all the stimulus money? Where is the TARP money? Consider the non-defense Federal expenditures plus Federal investments in the most recent GDP report.

3Q08 $344.7 billion
4Q08 $355.4 billion
1Q09 $356.0 billion
2Q09 $362.1 billion
3Q09 $368.4 billion

So, according to the GDP reports, non-defense government spending has increased only $23.7 billion despite the fact that we know $700 billion was spent in the banking and automotive bailouts and at least $336 billion was spent in the Bush and Obama stimuli to date. Where is it? Why does it not show up in the GDP reports as government expenditures or anything else? Even if items such as the automotive bailouts are considered loans, it should have showed up as expenditures by Chrysler and GM. And moreover, the $100 billion in TARP loans to bailed-out corporations that went bankrupt should be written off as an expenditure since they’re never going to be repaid.


More Apple technofascism

Lest you doubt my description of Apple’s design philosophy:

Apple has invested in research to develop what it calls an “enforcement routine” that makes people watch ads they may not want to watch. Its distinctive feature is a design that doesn’t simply invite a user to pay attention to an ad — it also compels attention. The technology can freeze the device until the user clicks a button or answers a test question to demonstrate that he or she has dutifully noticed the commercial message. Because this technology would be embedded in the innermost core of the device, the ads could appear on the screen at any time, no matter what one is doing.

I very much look forward to hearing the Macintossers’ rationalizations for how having their machines held hostage to Apple’s advertising revenue stream will provide an objectively superior lifestyle experience for the members of the cult. As I’ve said before, you don’t have to be a techno-retard to prefer Apple products. But nevertheless, that is exactly for whom they are specifically designed.

Forced ad viewing… it’s insanely great!

Now, a patent doesn’t prove that Apple will come out with products designed around the patented technology. But it certainly proves beyond any shadow of a doubt the fascistic elements inherent in Apple’s design philosophy.


Unreliable retail numbers

Karl Denninger explains why the “positive” retail numbers reported today are, in fact, nothing of the kind:

We start with one store in the world that has net sales of “100”.

Store #2 opens with sales of 10. Half of that is new activity, half comes from Store #1. First month shows a sales report of “95”, a decrease. But in the next month Store #2’s numbers come online, the “95” is revised to the (true) 105, and Store #2s numbers (which have climbed to 60, while Store #1 has lost share and now also has an amount of 60) are all reportable. Net activity is now accurate at 120 and the previous month is revised to the (true) net 105.

Store #1 and #2 both are operating with sales of 60. Store #2 fails, and half of its business goes to Store #1. In the month it fails Store #1 shows an increase and Store #2’s numbers are DROPPED ENTIRELY, since it did not report. This is not revised. We now report a “50% increase” in retail activity, which is total crap – we really had a 25% net decrease for the current month. But the revision to the previous month does get posted, and depresses the previous month’s numbers.

Did this just happen?

The August to September 2009 percent change was revised from -1.5 percent (±0.5%) to -2.3 percent (±0.3%).

Oh, it did! Now we know where the revision to the previous month came from – stores closed in the present month and their sales loss was intentionally dropped from the current month.

Of course, it’s relatively easy to tell if the retail sales numbers are cooked or not. If the state sales tax numbers are falling while “retail sales” are increasing, then it’s obvious that the model is an inherently unreliable one.


A smart call

I know Bill Belichick is getting ripped to shreds by the Monday Morning Quarterbacks, but I think his decision to go for it on 4th and 2 was a smart one. The intelligence of a decision isn’t based upon whether the fickle fortunes of Fate smiled upon it or not, but if it was the right way to bet in the circumstances.

Peyton Manning has proven that he can take this year’s Colts 80 yards for a TD in 28 seconds. Given how the Colts were moving the ball in the second half, with Manning taking them 79 yards to score in only six plays, there was no reason to believe that the New England defense was likely to shut them down if the Colts were given the ball on their own 30 with two minutes and three timeouts to spare. The fact that most coaches will mindlessly throw their defenses under the bus by taking the less probable option that conveniently lets them off the hook doesn’t mean that Belichick was wrong to take the responsibility and play the odds even though it didn’t work out for him. In fact, I would argue that his controversial decision demonstrates why he is a great coach for whom players want to play.


WND column

Fallacy of Recovery

A one-time skeptic of fiscal stimulus, [German chancellor] Ms Merkel plans what amounts to a third stimulus package worth about € 7 billion ($10.4 billion), starting on January 1st.
– The Economist, Oct. 31, 2009

The mainstream media is full of reports of economic recovery and an end to the recession of 2008, even though the Business Cycle Dating Committee of the National Bureau of Economic Research has not yet spoken its official word on the matter. The significant rise in the stock markets and a single advance GDP report has been enough to convince nearly every economist and financial analyst that the worst is past, that 10.2 percent unemployment is a lagging indicator, and that the primary concern at hand is now too much monetary and fiscal stimulus leading to inflation.

Read the rest of the column at WND
Karl Denninger at the Market Ticker appears to have reached the same conclusion. Note that I wrote my column prior to reading his post To the Barkers: Answer This Question:

“The recession ended in June”: Dennis Kneale

“The recession was definitely over in September”: Any one of a number of people.

Ok. Let’s say that I accept all this at face value, even though while driving through my definitely-beach-oriented local town here this afternoon I noted even more closed-and-gone storefronts than there were a couple of weeks ago, and last night at the local open-air mall, although the evening was absolutely gorgeous, you could have fired a 155mm Howitzer down the “main drag” without killing anyone – because there was almost nobody there, and literally not one shopping bag was in evidence.

I simply have to ask the pundits and the carnival barkers, of which CNBC is the worst (but certainly not the only sinner) the following – why do we need any of these programs if in fact the economy is growing again:

Something clearly isn’t adding up. So, who is more likely to be correct? The skeptical economists looking at the evidence and seeing that nothing fundamental has changed or the mainstream economists utilizing the very same models that didn’t let them see a recession coming in the first place? And furthermore, if the models are known to be unreliable, then how does it make any sense to put faith in an estimate that is constructed on the bases of those models?