Saturday, October 20, 2012

Flowers of Autumn

I have been meaning to link to Colin Watson's blog for some time now. That he has been diagnosed with Hodgkin's disease makes it that much more important to do so. It is tempting to call people "aspiring writers" but Colin is a writer who simply has not been recognized yet. The quality of the shorts varies, to some extent because they are striving to capture an innate voice that he distrusts, but which shines through in the oddest of ways at the oddest of moments.

The reality is that he was working as a barista at the two story Harvard Square Starbucks, which is a hideous waste of his talent. He diagrams out theories of coffee with an intellectual panache that would be better spent on other problems. Often his best writing is when he addresses the reader, and the powerful undercurrent of performance present in his work, comes out – for example here. The key is that he truly loves his readers, and this saves almost anything for the ersatz attempt to use an audience as social proof in a pick up game.

You want to know why the world of literature is filled with naval gazing next big things? Because we are busy burying the artists while alive. This is merely one example, but a particularly poignant one, since he is sitting on an as yet unpublished novel, which the world ought to read, and which ought to have more company before Colin takes leave.

As for me, I am back now, lord help you all.

Thursday, October 11, 2012

When Economists Drink Tea - III

Forward projection of mega-economic trends proceeds in the reverse fashion – creating a model with the Nash disequilibrium as the output, and then casting that as a trendline. This is superior to simple minded extension of trendlines, because the simple extension does not show where the trend will break down. At what point will those getting out more than they put in be stopped? That which can't go on, won't – but when?

For most of human history, much of human activity has been devoted to subsistence, with almost all of the excess going to population growth. This is the Malthusian equilibrium: reproduction can unilaterally improve its position. Because of this "cereal equivalent" is often used as the measure, and then this is converted into some real dollar equivalent. Since the LCA of human activity is about 1 - that is you get one calorie of work out of people for every calorie you put in, and the LCA of animals is about 2, that is you get 2 calories of work out, this means that historically:'

1. The maximum GDP/capita is twice subsistence.
2. There is very little capital, except to convert work from one form to another, which is frictional capital.

However this creates a problem in searching for the capitalist moment, because the definition of it is the break down of these two long standing results: people value other things rather than the chance to have another child, and there is capital which has an output larger than 2. In otherwords, until the capitalist moment arrives, people value the good of leaving descendants, or leaving them in a better position, more than they value everything else, or, conversely, if they value other things more, they do not leave behind descendants.

What economists refer to as the "Malthusian equilibrium" is this: all of the wages of labor, and any gains in technology, are used for subsistence and population increase, meaning that wages exist under an iron law, where by the fall back to subsistence, and per capita living standards stay very close to flat. This observation is credited to Malthus, from his "An Essay on the Principle of Population." When looked at at very broad aggregate, it might seem as if per capita GDP started to take off in 1820, but this is an illusion created by the extremely uneven period of disequilibrium at the end of the 18th century, and the long depression which characterized the mid-18th century in many areas. There were booms, often driven by war spending, or the reverse, long peaces in certain areas. However, there were extreme climatic events against which the peple of that time.

The breaking of this equilibrium, which with local exceptions had been the human norm, and those local exceptions become the rule when the local exception is sacked and looted, for all of human history. In fact, in Europe, the expansion of per capita GDP has followed two great waves. The first when the Renaissance economy takes hold. European Capitalism 1.0 begins with the trading, exploration, colonization, and conquest era, combined with the internal change brought on by early metallurgy, the printing press, and the growth of civil institutions, including law. These fed each other, contracts to spread the risk of the costs of a voyage or privateering expedition needed lawyers, banking to fund conquest and construction of military capital, then going through a revolution in military affairs. One can see skilled workers with rising real income closest to the ship building areas – for example in London real wages of guild members double 1530-1580, it would take over 200 years to double again. These gains did not translate into higher real wages for day workers or unskilled labor, nor general increases.

But one also has to take into account risk, real wages were rising, but so were outbreaks of disease, which took skilled workers more often in cities than in the country-side. Weighing in risk, city skilled workers were compensated for risk and scarcity – they could choose to work in the cities, and be paid more, but risk dying, or they could work in the country side, be paid less. Unskilled laborers were not compensated for risk – the made similar real wages in both places, and lived much worse in the city. Thus among unskilled workers it feel to those detached from land right or work to move into the cities, or those unusually risk taking.

This tells us where to look, not in the trendline, which will be the result of the change, but at that point where, at a lower level, the consequences of choosing capital goods shifts. Since this is the result of a strategic choice, we can model it by the formalism of the theory of games. However, the simple discrete set of choices does not work, instead, there must be a way of showing the results of actors making distributed choices of options, choosing say 50% reproduction and 50% capital.

Tuesday, October 9, 2012

When Economists Drink Tea - II

To address this question requires the systematization of work that has already been done, and I will refer to this process by a specific term – mega-economics.

Megaëconomics consists of the following procedure:

First nominalization:
1. Using systematic means create a proxy between output and price. This is an exercise in econometrics: measure out put and the relative abstract exchange values with distortions from market failure and inefficiencies.
2. Overtime find a trendline for a market basket of these proxies. This trendline will be represented  by a continuously differentiable function.  This is largely a statistical question and takes no more than the ability to use a spreadsheet.
3. Map the marginal deviation around this trendline. This can often be accomplished by imposing a macroëconomic model with guass distribution around the trendline. While out of fashion because of misuse during the financial meltdown

Second reification:
4. Correlate this nominal model to events which alter the utility preference, or indifference. That is a mesoëconomic model.
5. Verify that inflections in the nominal model (mega- ) model are larger than can be explained by the cyclical (macro-) model and thus represent a potential alteration in the structural (meso-) system.

Third monetization:
6. Show there is an alteration in not merely output, but price relationship which confirms that the imputed mesoëconomic preference change is reflected in micro- preferences in an local manifold of Sayesian equilibirum. That is that supply and demand are local self-correcting to new market clearing levels in response to shocks resulting in full utilization of capacity with an understood level of marginal attachment to the labor force and capital capacity. This should circle back and connect to the original output and price model.

The objective here is to correlate relative value to absolute value through means of price system.

While some of these terms are more concise than current practice, this is a fairly close summary of the bits and pieces of how historical economics is done and how it used. It is also a good corrective for failures in exigesis work.

Now for what is original – as opposed to merely systematic synthesis – to this post.

Since the baseline constructed in (2) is an attractor, it represents a zero in the generating iterative function. The marginal marco-models represent the boundary with other attractors, and the degree of the marginal functions is one less that the minimum degree of the iterative function. This can be determined by the number of convex attractors, but since we do not know the other potential output states, it is impossible to do this with certainty.

From this iterator we can then determine the number of terms that must be included as the equilibrium state of the individual actor. Or, how many things the ordinary economic unit, firm, government, or person, is concerned with.

Often the reification step is sufficient, however, since this correlation is often only the interaction, we must sum it as a <> wave function rather than as a classical function with determinant value.

This method will be used to analyze the twin data series and reach a different conclusion about the relationship to industrial capitalism to the public sector.

Monday, October 8, 2012

Economists, if they must drink tea, should choose Earl Grey I

The Myth

Sometimes an error is sufficiently common as to need periodic debunking, Samuelson recites it, in quest of a thesis that does not bear examination, so it is as good a place to start as any:
What we are witnessing in Europe — and what may loom for the United States — is the exhaustion of the modern social order. Since the early 1800s, industrial societies rested on a marriage of economic growth and political stability. Economic progress improved people’s lives and anchored their loyalty to the state. Wars, depressions, revolutions and class conflicts interrupted the cycle. But over time, prosperity fostered stable democracies in the United States, Europe and parts of Asia. The present economic crisis might reverse this virtuous process. Slower economic expansion would feed political instability and vice versa. This would be a historic and ominous break from the past.
So where is the story coming from? From one interpretation of the work of Angus Maddison, who published on historical economy, and whose final thoughts on the matter are set down in Counters of the World Economy based on his The World Economy. A Millennial Perspective and The World Economy, Historical Statistics. Prof. Maddison spent much of his career with the OECD.

The story he infers from his statistical study is this: comparing per capita GDP between China and Western Europe, the two begin to diverse around 1820, and this leads him to date the modern capitalist-democratic progression from that time. It's a neat story which does not happen to work out that well when lined up against historical facts.

First historical: 1820 does not mark any particular establishment of Democracy in the European world. On the contrary, France is under a restored monarchy, Britain under a conservative government, Germany under principalities. The US is a one party state with limited suffrage. During the 1820's a series of regressions happen, which reduce, not increase democracy, until late in the decade.

Consider the career of the Earl of Liverpool as Prime Minister: in 1819 following the Peterloo massacre he pushed through "The Six Acts":

  1. Training Prevention Act, which outlawed military drilling except as part of municipal or national government.
  2. Seizure of Arms Act, giving essentially unlimited search and seizure powers to magistrates looking for weapons.
  3. Misdemeanors Act, which restricted bail.
  4. Seditious Meetings Prevention Act, which outlawed meetings with a permit by the local sheriff.
  5. Blasphemous and Seditous Libels Act, which is self-explanatory.
  6. Newspaper and Stamp Duties Act, which widen the publications which were required to have stamps.
This is not a list for democracy or free market capitalism, and it does not support the thesis that 1820 marks a turning point. Some of these acts were subsequently repealed or allowed to fall into disuse, but that mere means a return to the pre-1819 status quo, and in the case of the Training Prevention, repeals of sections only began in the 1870's, and some parts allowing warrant-less arrest were only repealed in 2005.

France was still under the Ultras during the reign of Louis XVIII, restored monarch, and then his brother Charles X. One could go on, with Francis I, Emperor of Austria and so on. Thus 1820 can hardly be a democratic turning point. However there is a simpler explanation for a macro-economic upturn here: the ending of the long series of wars which culminated in the Napoleonic War – but which had started with the Seven Years War, ending a half century of destructive global conflict does not require democracy to start having a positive effect on personal GDP.

The 1820-1830 period then is not democracy driving loyalty to a state providing greater living standards, but a decade of reactionary order, which is overthrown later by external political forces. Far from being the beginning of a period of stability, peace, and prosperity, 1820 marks the point were aristocratic groups are trying to maintain power by offering a minimalist compromise, which is the overturned in a series of reverse, the first clustering late in that decade – the Jacksonian Revolt in the US. The one area to rebel successfully during that time was Latin America – but we don't speak of the flowering of Democratic Capitalism as starting with Simon Bolivar.

Instead, it is England, Germany, and the United States that were poised to expand industrially, but the path to democracy and industrialization did not run smoothly, nor was it really evident outside of Britain for almost 30 years afterwards. When one looks at markers of industrial progress, a useful place to look is Bairoch's Economics and World History: Myths and Paradoxes, where he makes it clear on pages 81-82 that the industrialization of core industries based on coal fired and water driven technologies, as well as the densification of agriculture, precede everywhere else in the world by, in many cases, a full century. By 1780, a significant share of English GDP is tied up with coke fired iron, and mill driven production of textiles. 1820 theories, need not apply. Despite this the quality of many critical manufactures from the UK is falling, as seen from the condition of British warships through the period. This despite having a monopoly on graphite, and better iron production. British sea power and production where hampered even with rapid industrialization.

Thus the 1820 date does not accord with historical facts, and it is questionable on economic grounds. While Maddison is an import statistical series, it is not the only one, and the thesis that 1820 marks a jumping off point for their linkage is refuted by an examination of the political facts. A better case could be made for 1830 as the moment of intense democratization. In the US, the Jacksonian Revolt, which in 1828 ushers in almost universal male suffrage for the Presidency, in France the establishment of the July Monarchy which shifted power from the old aristocratic families to the "haute-boursgeoise," and in England the "Great Reform" embodied by the Reform Act of 1832, a question that ended the career of the Duke of Wellington. It ended slavery, expanded the franchise, and change the manner of election to the House of Commons

However, these reforming waves are destined to be swept away by what I term "The Federalist Revolutions," the enshrinement of a two tier structure of government, with a dominant center, as opposed to the Confederal structures that then prevailed. This period, foreshadowed by 1848, which was a series attempts to institute a Romantic, Liberal, and National order, gave way to a structure which was Realist, Conservative – though not reactionary – and Federal. These revolutions were indeed an expansion of participation which clearly mark that the trend to democratization had begun earlier.

Thus the Democracy and Capitalism argument falls apart because there is no good linkage – industrial democracy was largely an English national phenomenon, and a local matter elsewhere. In England the innovations that would lead to industrialization center around coal had been developed in the early to mid 18th century, but the problems with quality and with the lack of improvement in an industrial means of transportation meant that England could produce a great deal of very ordinary quality goods, for which demand was, as yet, weak. Hence the colonial export policies of the time. This is not to say that the transformation in England is unimportant, merely that it does not accord with a Democracy and Capitalism leading to loyalty to the State argument.

Thus a different frame work must be looked at, both for state power, and for the basis of the upturn in fortunes of the large mass of human beings.

Sunday, October 7, 2012

The Republican Vietnam, The Democratic Nixon III

Noam Chomsky called Nixon, "in many respects, America's last liberal President." It is a sentiment that has been expressed by, for example, Eduardo Porter in the New York Times:

That’s right. The Nixon administration not only supported the Clean Air Act and affirmative action, it also gave us the Environmental Protection Agency, one of the agencies the business community most detests, and the Occupational Safety and Health Administration to police working conditions. Herbert Stein, chief economic adviser during the administrations of Nixon and Gerald Ford, once remarked: “Probably more new regulation was imposed on the economy during the Nixon administration than in any other presidency since the New Deal.” 

Nixon bolstered Social Security benefits. He introduced a minimum tax on the wealthy and championed a guaranteed minimum income for the poor. He even proposed health reform that would require employers to buy health insurance for all their employees and subsidize those who couldn’t afford it. That failed because of Democratic opposition. Today, Republicans would probably shoot it down.
Wonkette broke it down to bullet points:

* Saved America’s environment by creating the Environmental Protection Agency and Clean Air Act while approving the most sweeping environmental legislation in history.
* Simultaneously reformed welfare and brought in serious new civil-rights laws and agencies for minorities, women, the handicapped and children.
* Proclaimed the first official U.S. Earth Day/Earth Week in 1971.
* Totally reformed the government’s relationship with Native Americans, bringing new self-determination and civil rights to U.S. tribes while saving such Indian natural wonders as Pyramid Lake — the tribe even renamed its capital “Nixon.”
* Was even described as “the Abraham Lincoln of the Indian people.”
* Loved those Chinese communists.
* Spent more on social programs than defense!
* Fathered screaming ex-socialist lunatic Mojo Nixon.
There you go, hippies: Nixon was more liberal than Clinton.
 One academic site devoted to says that Nixon's era of reform did not just claim to be radical, he was:

From the moment Nixon assumed office, the liberal and radical press, many individual Democrats, and a few liberal Republicans interested in domestic reform, concentrated their attention on his personality and political ethics. They did this, not because Nixon's persona during his first years as president offended them any more than usual, but, in part, because his early substantive programs and specific domestic priorities threatened to co-opt their own positions on a number of issues. They might have endorsed or "accepted" some of these plans and ideas from a president they liked and trusted, regardless of party, but not from "Tricky Dick."  In some instances, blatantly ignoring facts that normally would have made such legislative and administrative innovations appealing to them, Nixon's long-standing opponents refused to support certain of his domestic programs, even though they represented, according to Daniel Patrick [Pat] Moynihan, the "natural constituency" for most of his domestic policies.
If Nixon's domestic reforms were often opposed, as political scientist Paul J. Halpern has noted, by those who "never even bothered to get the facts straight," it may well have been because many liberals simply could not believe that Nixon would ever do the right thing except for the wrong reason. Thus, they seldom took the time to try to determine whether any of his efforts to make the 1970s a decade of reform were legitimate, however politically motivated. Consequently, they never accepted him in the role of a catalyst for domestic reform.
The country had elected only one other Republican president since the onset of FDR's reform administrations over thirty years earlier. Consequently, due to the vacuum created by the breakdown in the New Deal consensus, Nixon faced unprecedented opportunities for changing domestic. He also faced the traditional problems of presidential governance; in this instance, exacerbated by bureaucratic pockets of resistance from an unusual number of hold-over Democrats. Such resistance was not new, but its magnitude was particularly threatening to a distrusted Republican president who did not control either house of Congress. 
In part because Nixon, and to no small extent the Chief Justice of the Supreme Court he selected, Warren Burger, grew up politically in the social shadow of liberal consensus, and wanted to prove that they had mastered the lessons of the previous era. Nixon likened himself to the reforming Republicans of the 1920's, who saw it as their role to protect the system from the bad apples.

But the last of the three paragraphs quote is important: "the break down of the New Deal Consensus."

What we are see now, is a break down of the Reagan consensus, and the dying off of the coalition that made the four Republican landslides – 1972, 1980, 1984, 1988 – possible.

Friday, October 5, 2012

The Republican Vietnam, the Democratic Nixon II

It is, at this point, not difficult to build a case for GW Bush as the Republican attempt to create a LBJ Presidency: use a flush of political capital to remake the society and cement a generation of political gains in the concrete institutions which successive Presidents would have difficulty over turning. It was a case I made at the time, so to repeat the details of how "The Ownership Society" and its props are a mirror of "The Great Society" underlines the depth of the fall of American aspirations, and indeed global aspirations among developed nations.

The first prop is the Global War on Terrorism as the mirror image of the Cold War: a permanent, or quasi permanent program to shape economic and political policy, a constant river of money and support. Bush took power in an American born on the 4th of July, dedicated to the principle that all men are created equal, and left one born on September 11th, dedicated to killing the evil doers.

The second prop was the drive towards housing as the engine of the American economy – which pushed money into the hands of the disorganized, that is Republican, working class. This was bolstered with tax rate reductions, and with a domestic spending binge – which even far right commenters noticed.

These pieces fit together – the Global War on Terrorism increased uncertainty, and this drove demand for US backed securities, while the repackaging of mortgages as those securities funded the economy. It also had subsidiary effects, in that it promoted the purchase of large vehicles, where American makers had an advantage. Did anyone need to mention that trucks were a good indicator of Republican support? Or that talk radio was funded by auto dealer ads, which saw their profits increasingly from sales of light trucks, i.e SUVs and pickup trucks? These subsidiary effects fit in to a system by which falling wages in general were buffered for supporters of the Administration.

The long term weaknesses of this system is that it required very low interest rates – to support home buying, and to drive investors to search for more risk, and greater US imports, because US manufacturing was dominated by war needs. This meant more imports. The positive of this for the policy was that it created a global boom, selling to the US, and hence quiescence abroad. The negative was that this driving dollars overseas lead to those nations that could raise prices to do so, which meant oil.

The glue then, was to invade Iraq, and force its oil onto the market. Saddam had to go, not because he had WMD, but because if he could sell oil, no one trusted him not to try and acquire them. This was a bi-partisand understanding.

Thus the triumvirate was using a foreign threat to reshape domestic policy and create a larger dollar sphere was the same, but both the intent, and the context, where different. The objective of LBJ was another round of universalization of the American economy, this was based on the liberal theory that more consumers and high quality workers meant economies of scale would more than offset materials costs, and that such an improved workforce and market could win either war, or peace. The Guns and Butter theory. GW Bush was to create affluence for fewer people and use the reduced access to the affluent economy to offset material prices. This more dedicated core elite market and military force could win both war and peace.

Thus, Vietnam and Iraq were a test of their respective theories of government, and of society. Two administrations gambled on a theory, and both lost a generation in the process. As I write this, has recently updated their counts that shows a total of 8,001 coalition military dead, and nearly 7,000 US dead. This puts it ahead of all of the small wars in history. But this understates its impact, as it has left more surviving severe casualties, and when contractor deaths are included, the total swells. While not as large a swath as Vietnam, these deaths and casualties represent a culling of a generation of a comparable order.

Thus, each war represented a failed attempt to translate a particular social theory into hegemony, political and domestic.

Both failed, but that was not clear in the same way on the next election.