Education Reform at Harvard

You describe an educational catastrophe, a budget catastrophe and a
big reason why California is beset by repeated budget crises. Classes
must have exams, be rigorous, and teach something useful. CSU has
deteriorated to where most graduates cannot maintain the economy, much
less improve on it. Faculty need to go to meetings and stay current
and not be overwhelmed by masses of students who are not prepared for
college. CSU has deteriorated to a state where they need to fire the
entire administration and merge selected programs into the UC and sell
off excess campuses to National University of Phoenix or other private
colleges. If students want to goof off they should pay for that
themselves and not expect Government support or loans. Harvard has
made some good proposals below on alternatives to college.

Joe

Hi Joe:

I was on campus a few weeks ago and found that Lecturers are few and
far between. None in the Business School, and Professors have been
denied Student Assistants. The budget has all but killed any travel to
meetings, and class sizes have doubled. Really a miserable work
environment. It seems that most Prof’s have gone on line for texts and
working on changing the examinations. They don’t even require them
now. N.C told me that many Prof’s are not even giving exams. This is
what we have on the faculty side in todays world. …Rich

http://www.gse.harvard.edu/news-impact/2011/02/report-calls-for-national-effort-to-get-millions-of-young-americans-onto-a-realistic-path-to-employa/
Despite decades of efforts to reform education, and billions of
dollars of expenditures, the harsh reality is that America is still
failing to prepare millions of its young people to lead successful
lives as adults. Evidence of this failure is everywhere: in the
dropout epidemic that plagues our high schools and colleges; in the
harsh fact that just 30 percent of our young adults earn a bachelor’s
degree by age 27; and in teen and young adult employment rates not
seen since the Great Depression. Today, the Pathways to Prosperity
Project, which is based at the Harvard Graduate School of Education,
is releasing a major new report that examines the reasons for our
failure to prepare so many young adults, and advances an exciting
vision for how the United States might regain the leadership in
educational attainment it held for over a century. Pathways to
Prosperity: Meeting the Challenge of Preparing Young Americans for the
21st Century contends that our national strategy for education and
youth development has been too narrowly focused on an academic,
classroom-based approach. It is now clear that this strategy has
produced only incremental gains in achievement and attainment, even as
many other nations are leapfrogging the United States. In response,
the report advocates development of a comprehensive pathways network
to serve youth in high school and beyond.
http://cms.gse.harvard.edu/about/directory/listing.shtml?vperson_id=85268

Bullish on USA.

I also pay cash for everything, never took out a loan. But I started using debit cards in 2010, and use credit cards sometimes online and travelling. Interest is a straight loss of money that I avoid paying. I too am mystified as to how so many people cannot think in terms real ownership, but only monthly payments. Even some rich people like Don Trump are teetering on the edge of bankruptcy much of the time. Although many rich are cash only types.

The fact that people can spend so much on credit and often pay back the loans is testament to the power of the modern economy. What little work they do supports themselves and all the banks, insurance companies and all the financial parasites collecting that interest and absorbing the losses if they do not pay off. Some debt is loaned by foreigners who help prop up the USA economy a little. But the US economy is in better shape than many. It is hard to find a better country to move to or invest in — I have been looking. Europe is not out of the woods. They probably will collapse / break up within 3 years. Japan is in a deep funk, debt and tsunamis and nukes. China is always a scary oligarchy with immense problems and very expensive, may collapse at any moment and they know it “the bad emperor problem” openly discussed. Other countries are in worse shape or so alien that I cannot move there or understand the people or their investment setup. USA great lakes and farmland is still some of the best. Apple Microsoft Hollywood and our Banks are taking over the whole world.

CPI Changing Basket since the 1950s

I can remember the 1950s, including the July 4th, fireworks when I was 3 years old living in Baxter Springs Kansas. I have been studying my father’s memoirs and connecting our autos and residences with what I remember. There have been many changes since then. People buy different things at different prices. CPI and other price indexes make herculean assumptions to try to compare those apples and oranges. “if you torture the data enough eventually it will confess.” Scientific work needs careful definitions and mathematics to ensure logical consistency. Much work has not been done. Then poorly defined concepts get thrown into the liberal news media where they are further mangled.

My observations are clear: Today people don’t work as hard to get a lot more money with which they buy a whole lot more goods. The cars are much bigger, fancier, faster, more reliable — the trend here is 22 inch chrome plated wheels on a big fat SUV. The houses are much bigger and fancier with about 5 times the square feet on lots twice as big on harder to build sites. Stuffed with fancy appliances and electronics. Huge closets filled with newer and fancier clothes. A huge garbage disposal industry, and some used and recycling of goods. Huge ships to bring in all that stuff from all over the world, and to send back recyclables. Exotic medical treatments become commonplace. Lots of drugs, legal and illegal. Cheap illegal peons to do the unskilled labor.

Other countries are growing faster than the USA, which is slowing its huge rate of consumption. USA problems are of excess, especially overconsumption diseases such as obesity, diabetes, etc. Lifespans are decreasing. Test scores falling. Virility decreasing. Too many labor-saving and convenience devices and foods. Poor layout and utilization of all the fancy stuff the booming national economy has made available. Probably need more quality and less quantity. But people don’t to go back or to be constant. “the only constant is change” http://en.wikiquote.org/wiki/Heraclitus “creative destruction”
http://en.wikipedia.org/wiki/Joseph_Schumpeter Survival of the fittest motivates people to quickly adapt to the new economic environment

Reserve Currency. GPGPU AMD Fusion

I will preface my remarks by admitting I never took any international economics classes, and don’t generally pay much attention to these issues. Economists can’t model single economies very well. Adding more economies is even harder.

I have heard the issues on US$ as reserve and don’t think they are so important, except maybe to some traders and bankers. US$ was lucky after USA came out on top after WWII and the cold war. To the victor goes the spoils, many great economic benefits. Eventually those benefits will expire and the US$ will sink back to equilibrium. The currency markets are to some extent a free market even if some politicians try to peg currencies. Eventually people can bail out of a currency and let its value sink or rise to where free market dictates. Prices rise and fall in a free market to help bring demand in line with supply. Supposedly the free market is better at this than bureaucrats trying to peg exchange rates and manage what currency transactions are conducted in.

The attached chart shows that the trade weighted US$ has fallen in value. As the US$ sinks that will help exporters sell more abroad and increase manufacturing in the USA and reduce consumption in the USA — exactly what the doctor ordered. Americans need to learn to work instead of spending so much and getting so fat and sick. It would be good for the USA reduce international transactions and wars and concentrate on working more at home and reducing debt. Getting rid of reserve currency status would help. However, which currency will they go to? Most or all of those currencies are worse than the US$ or too small. Probably will not happen overnight. If Bernanke raises interest rates we may see a new era of the “superdollar” like back in 1984. Or if the Greeks riot and bring down the Euro. I don’t see any prospect for radical change but maybe a slow increase in use of other currencies such as the Canadian, German, or other such stable currencies. Related article at http://en.wikipedia.org/wiki/Reserve_currency

There are lots of slides on the conference earlier this month in Redmond Washington at the site below. Fancy color pdfs on the important upcoming chips that merge GPU and CPU onto the same chips … essentially desktop supercomputers for general purpose programming, especially with many such chips in the same box. Put analytics in the cloud so can run them from an ipod and dispaly results locally.

http://developer.amd.com/afds/pages/keynote.aspx

War, Deficits, Numbers, Theories, Lion OS X, IOS

I don’t know about the accuracy of the war numbers but to some extent one can find out the history of federal spending and current law forecasts. However, most people looking at this have a staff of PhDs, with decades of experience. It is quite arcane language. It is hard to pick up any government statistics and make much sense out of them. I do not go into much depth beyond the “national income and product accounts” which have been massaged so that the numbers correspond to economic theories and what people take in economics classes.

One of the best tools is from the FRED Federal Reserve Bank of St Louis Economic Data
http://research.stlouisfed.org/fred2/graph/?id=FGEXPND,FGRECPT,
Some web searching is telling me (t = trillion):
fy 2011 1.3t
fy 2010 1.6t
which in the attached graph shows numbers like yours. The official table is done by BEA (Bureau of Economic Analysis) at the site:
http://www.bea.gov/national/nipaweb/GovView.asp
which also shows the deficit at a $1.3 trillion as of March 25 which agrees with your numbers and the attached graph from the fed. Go to FRED first and for more detail go to BEA.

These numbers will not show the cost of the wars but there is some military detail available on the BEA site, but not enough. War cost requires special accounting that probably nobody can do a very good job on but there will be some studies. The best will be by professors not under control of special interest groups. I will add that Joseph Stiglitz called it a 3 trillion dollar war a long time ago, probably more now. War costs are notoriously difficult to calculate in an unbiased manner. I would not hazard a guess.
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article3419840.ece
http://www.amazon.com/Three-Trillion-Dollar-War-Conflict/dp/0393067017

I have not looked at much accounting numbers since 1992 which are boring. I used to know macro data somewhat but it is sloppy and difficult and so hard to understand that nobody knows what questions to ask so not much demand for expertise. Financial data is very accurate and in demand but lots of people know how to use it, like 100,000 C++ programmers at least. I find the models much more interesting than the data — much harder, vital, but fewer people have a good grip on models. Indeed most issues are unexplored or barely explored. Not much use in looking at a lot of data without a good theory and application on how to use that data, so I focus on models.

I downloaded hundreds of apps, and some do interactive graphics similar to the attached. Very good, but the ipod iphone is a weak little machine. Lion OS X is coming out next month and runs on big computers that are much more useful. Probably in the shouting matches you want a fancy presentation and real paper handouts. They still will not agree but gradually people can become more aware of the data with better apps and printouts. I guess Lion will run apps like IOS. I do think with ongoing economic crises and fancy computers and data that more people will learn more about economics.

Response to the questions:
what exactly is the cost of these bases? the article seems to say, annual costs are:
$140b all international military bases
$126b cost of current ongoing wars (afghan, iraq, lybia,etc)
are these figures accurate?

Inflation over the last 50 years

I think prices are about the same as they were in the 1960s if you take into account quality and variety. Most of the stuff sold back then was junk and you could not sell it today, you would have to pay people to throw it away. People have choices and lots of money today and do not have to buy that stuff any more. Sure you can find some of the same products for example Levis but if you look carefully there are lots of little improvements and a huge increase in variety so that old stuff would not sell. People now opt to buy much more expensive fancy items, much of it harmful, wasteful, and ridiculous. Further, you get a lot of social services imbedded in the prices today via taxes and regulations. Further the population has doubled —- prices are so low that many more people can be fed, clothed, entertained at much higher quality than before without much more work, and that work is easier and safer.

The price indexes are Rube Goldberg devices — garbage in, garbage out. They are actually quite complicated but have known defects, as do all the statistics. For example, there is no good theory as to how to accomodate changes in quality. They do a few ad hoc adjustments — a source of great humor if you want to take some time to read it. Indeed the problem is so hard nobody is even working on the theory so nobody would know how to do it right. Further none of the statistics are done very well because I think they do not want people to know what is going on in the numbers. They spend more on toilet paper for troops in Germany than on our national economic statistics — most of which are old computer programs developed in the 40s, 50s, and 60s when the computers were live people with heavy metal computing machinery. I look at the statistics but realize they are not the information I would really like to see. I supplement that with trips into the shopping center, following the news, and reading related professional literature such as
http://www.blackwellpublishing.com/journal.asp?ref=0034-6586

I bought 7 shirts for $7 apiece in 1966. I could have paid less for those shirts but may have shipped out to Vietnam at any time and wanted to fit into the college crowd and barrio crowd and they seemed to fit the bill. You could not get $7 for those shirts today because there are much better choices. I was looking at Izods at around $10 in 2 different shopping centers here which are better quality and style. Similarly I found a pair of sox list price $10 on sale for $2 that were much better than what I remember buying for $1.50 back then. We have more shopping centers here than we had stores back then, and numerous stores in those shopping centers, and many styles in each store. The consumer is overwhelmed with choices, some expensive and high quality. They just don’t buy the cheap junk they used to have to buy back in the 1960s.

I remember paying 36.9 cents for gasoline in 1967 in Porterville CA at the Shell Station at the corner of Main and Morton because they would wash my car for $2 with a fill-up. It was more than the other stations but It was worth it. I remember the 22.4 cent and such gas prices in Los Angeles in the early 1960s but don’t recall that in the late 60s. But gas was so cheap back then that I did not pay any attention to it. I have my records back to 1983 but probably tossed the earlier records.

Gas has gone up but that is not important because it can be avoided easily if one is willing to exercise a little and/or move to where they can walk to work. Most of the fancy cars and houses people have today are just status symbols to make up for a deficient education or obesity. The price and economic statistics do not get at the real problems in the economy or society. For example, the younger generation appears to be sicker than previous generations and will probably die sooner than their parents mostly because they have too much money to spend on cars, gasoline, and expensive but not very nutritious food, and they sit on their testicles too much listening to ipods and become queer and die of aids or addicted to legal and illegal drugs. These problems have become worse than the 1960s. One reason for importing so many Mexicans is because the domestic population has become so dysfunctional.

I don’t think prices are much higher if you factor in quality and variety, and the statistics often do not tell you much in any account. Some prices have gone up, but others have gone down so on balance about the same — if prices tell you anything. The economy has become much larger in terms of the quality and quantity of goods and services. Also the population that consumes those goods and services is much larger. People are getting soft form too much easy living. Higher prices and less debt would probably be a good thing if it can ever happen.

Drugs, Gays and War

Some say Obama is withdrawing troops too fast, others say too slow. So Obama is right? in the middle with extremists attacking him from the extremes? Has he diffused the war as a political issue and ready to stand for elections on the basis of the economy? The question is how to pay for the war — people are not fooled any more that wars cost money and USA is in debt and running a huge deficit and are not happy with politicians spending too much money:
http://www.bloomberg.com/news/2011-06-24/americans-see-debt-threat-reject-tax-scare-.html
Americans say that the $14.3 trillion U.S. debt threatens the economy and that entitlement programs may go broke.

Last night New York legalized gay marriage in violation of the teachings of Prophet Muhammed. Such in-your-face liberalism may bring on more terrorist attacks. Is this war winding down or just getting started?

The Prophet Muhammed disapproved of drugs. The Taliban banned opium production but now some groups use drug money to buy weapons to kill Americans according to the State Department memo below. Americans pay for drugs and pay taxes so essentially are paying for both sides of the war! And then pay for politicians to argue both sides of whether we should be in the war! Political contributors are making money from the war as well as selling and distributing drugs, and financing of the related debt, equipment, and material. This economic drain makes it hard for the USA to compete with countries not so involved in war, drugs, and debt. USA economy has too many embedded costs imposed by politicians and corruption. If these could be reduced, the economy would function better.

http://fpc.state.gov/documents/organization/6210.pdf
On July 27, 2000, the Taliban again issued a decree banning opium poppy cultivation. DEA analysts note that Afghani opium production has declined dramatically from over 3,000 metric tons in 2000 to 74 metric tons through October 2001. The lion’s share of production, in the wake of the Taliban’s July 2000 ban, reportedly takes place in areas controlled by the Afghan opposition. According to U.S. drug enforcement data, the price of a kilo of opium in Afghanistan and bordering regions has jumped almost tenfold from $44 per kilo to between $350 and $400 per kilo. Many terrorist organizations and some rogue regimes pressed for cash rely on the illicit drug trade as a source of income. In the case of Afghanistan, reports indicating that the drug trade is a major source of income for the Taliban have received growing attention. According to some reports, the regime uses poppy-derived income to arm, train and support fundamentalist groups including the Islamic Movement of Uzbekistan (IMU) and the Chechen resistance. There have also been allegations of Osama bin Laden’s personal involvement in drug trafficking to finance al Qaeda’s activities.

Economics Department Rankings

The paper cited below ranks by phd student job placement rather than research productivity. Rather tricky but ranking is similar to a research ranking. Published in RESTAT, a MIT Harvard journal — they come out on top. The third number from the right is the total number of graduates —- the great bulk of scholars come from the top 10 schools. To impact thinking on economic policy, one impact the top schools. Too much research and live bodies are trapped into incorrectly reciting antique literature instead of solving problems using modern tools. Some Ivy-League departments have veered too much into political lobbying and have become a factory and producing clones of like minded fellows and installing them in other universities. Krugman, Stiglitz and Blinder come to mind. And they often run the journals to determine what is politically correct to publish. In contrast, Debreu at Berkeley refused to ever make a comment on politics and just focused on the science.

1 MIT 100 93.11 100 100 255 158 74
2 Harvard U 97.70 100.00 85.36 87.96 252 160 58
3 Stanford U 37.10 38.29 43.69 59.34 166 119 35
4 Princeton U 33.39 37.56 34.91 43.84 131 102 38
5 U Chicago 31.90 35.69 38.09 65.09 154 114 30
6 Yale U 24.01 29.21 22.04 30.13 107 87 29
7 UC-Berkeley 18.58 30.01 17.05 28.95 115 98 20
8 Oxford U 13.55 12.09 7.10 3.97 45 38 6
9 U Minnesota 9.86 9.51 12.43 13.41 75 65 18
10 Northwestern U 9.67 12.68 14.97 29.83 101 85 18
11 LSE 7.03 10.53 9.85 21.33 60 50 8
12 U Pennsylvania 6.22 9.04 4.91 9.79 57 41 6
13 Carnegie Mellon U 6.21 1.90 0.14 0.41 31 18 4
14 U Rochester 5.69 5.84 3.67 4.81 52 40 6
15 UC-Los Angeles 5.53 3.91 8.64 8.65 36 28 3
16 U Wisconsin 4.85 3.46 2.35 3.29 56 47 5
17 U Michigan 3.67 7.34 6.02 6.26 35 29 1
18 Duke U 3.60 2.01 6.59 f.i.t. 15 11 4
19 Cambridge U 3.12 5.21 0.78 0.85 25 22 3
20 Columbia U 2.93 4.01 3.33 f.i.t. 37 23 3
21 Cal Tech 2.68 3.04 f.i.t. f.i.t. 12 12 4
22 UC-San Diego 1.98 1.58 3.01 0.99 20 16 1
23 Penn State U 1.96 5.38 3.78 13.48 6 5 2
24 U Maryland 1.83 3.23 2.69 f.i.t. 13 9 3
25 Johns Hopkins U 1.63 3.40 f.i.t. f.i.t. 19 16 3
26 Brown U 1.53 1.58 1.72 f.i.t. 13 10 2
27 U College London 1.44 1.35 3.28 5.81 8 8 2
28 New York U 1.39 1.00 2.75 4.51 20 14 3
29 U Toulouse 0.93 1.34 2.20 8.02 18.5 17 1
30 Stockholm School Econ 0.89 f.i.t. 0.80 f.i.t. 15 11 1
31 Purdue U 0.87 1.03 f.i.t. f.i.t. 12 10 1
32 Cornell U 0.81 1.48 0.47 2.03 28 23 1
33 U Virginia 0.80 1.14 f.i.t. f.i.t. 6 4 2
34 Boston U 0.76 1.23 1.96 4.94 13 11 1
35 The Hebrew U 0.68 f.i.t. f.i.t. f.i.t. 11 10 0
36 U Illinois-Urbana 0.61 1.13 f.i.t. f.i.t. 12 11 2
37 Free U Brussels 0.57 f.i.t. 0.62 f.i.t. 6.5 6 1
38 Queen’s U 0.50 0.30 0.65 0.33 18 14 0
39 U Aarhus 0.44 1.09 0.73 3.11 15 15 1
40 U Pittsburgh 0.39 0.64 0.85 1.87 7 7 1
41 EHESS-Paris 0.38 3.14 0.69 8.89 9 9 1
42 Pompeu Fabra U 0.34 0.58 0.85 3.02 6 6 0
43 U Iowa 0.29 0.23 0.27 f.i.t. 16 10 0
44 SUNY-Stony Brook 0.28 0.10 0.31 f.i.t. 8 6 0
45 U Western Ontario 0.24 0.48 f.i.t. f.i.t. 11 10 1
46 U British Columbia 0.22 0.40 f.i.t. 0.05 10 9 0
47 U Paris I 0.22 1.75 0.60 4.86 25 25 0
48 ANU-Canberra 0.20 0.39 f.i.t. f.i.t. 10 10 0
49 U Louvain/CORE 0.17 0.47 0.24 1.59 28 28 0
50 U Toronto 0.13 0.08 f.i.t. f.i.t. 13 8 0
51 Rice U 0.12 0.12 f.i.t. f.i.t. 4 4 0
52 U Washington(*)0.12 0.31 f.i.t. f.i.t. 5 4 0
53 Iowa State U 0.08 f.i.t. f.i.t. f.i.t. 8 6 0
54 European U Institute 0.07 0.13 0.31 1.82 13 13 0
55 U Paris 9 0.03 0.24 f.i.t. f.i.t. 6 6 0
56 U Autonoma-Barcelona 0.02 0.06 0.07 0.60 11 11 0
57 UC-Davis 0.01 0.02 0.04 0.39 6 6 0
58 U Carlos III-Madrid 0.01 0.06 0.07 0.61 4 4 0

Source: Rabah Amir and Malgorzata Knauff, Review of Economics and Statistics

Vitamin D Sunshine for Health

Avoid cancer by a bald head or a crew cut (beards and turbans cause cancer?) and lying flat on a sunny nude beach for a half hour around noon every day and drink wine. And the other healthy practices: diet and exercise which also prevent many other diseases. Lack of sunshine also causes SAD Seasonal Affective Syndrome. Explains why so much of the population has moved to the sunbelt and why Negroes are unhappy in the northern cities and are moving back to the deep south. Also explains convertible autos and sunroofs. Northern California smokes more marijuana than sunny Southern California probably due to lack of sunshine. I hear Oregon and WA have grunge pot smokers too in that foggy wet environment — probably depressed due to low Vitamin D levels and cancer. Students should be frequently tested for Vitamin D levels in their blood and banned substances.

I like Boston, New York, Chicago but they definitely get cold and dark for months of the winter, although you can ski or ice skate in the sunshine frequently, but not during storms. Can also get colds, pneumonia, etc. or slip and fall on ice. I like to walk around in short pants and short sleeved shirts in the middle of the day, as in California. California also has a lot of good research, probably more than you would expect given the population and the huge amounts of money spent on ivy-league education and government grants on the east coast. It might be the healthy sunny climate and Vitamin D!

I think the following is right:

http://articles.mercola.com/sites/articles/archive/2011/06/16/sun-can-protect-you-against-skin-cancer.aspx

You’ve Got to Get Enough Vitamin D for Optimal Health

Economic Theories in the News

I have never found any good ‘theories’ in the news that cannot be found in the professional literature. All these ‘theories’ are rehashes and simplifications of old ideas, and the rehashes are by students who did not learn the theories very well in the first place. Better to read the original.

I have been an avid newspaper reader my whole life. Besides ‘theories’, I do see lots of numbers and sometimes names that I will sometimes further investigate. I would not characterize any of them as theories —- that would require careful definitions and mathematics showing how various quantities are related to other quantities — i.e. a model. Most of the discussion is shamanism, witchcraft and rhetoric trying to get people to vote or think in certain ways so as to get elected or to benefit themselves or their cronies.

“Supply side” was a big topic in the 1970s when the oil supply was cutoff by the OPEC embargo. Then the “supply side” term got reused in the 1980s Reagan tax cuts pushed by Stockman who later saw his errors when those tax cuts did not work as intended
http://en.wikipedia.org/wiki/David_Stockman#Office_of_Management_and_Budget

I am suspicious of ‘theories’ that invoke the names of dead economists who would roll over in their graves if they heard what their name was attached to (i.e. Keynes). Commentators who advocate tax cuts should at least be able to find some relevant time series in the database and graph what similar proposed policies performed in the past. In the past the USA has had tax cuts and government spending increases. Maybe not often enough for good statistics but it is a test for the speaker to see if they even bothered to check that history agrees with them to some extent. They should also write down some simple equations and do some simple simulations to see if their idea makes any sense at all. A ‘supply side’ tax cut did coincide with the 2000-2007 boom and the 1982-1989 boom. The huge government deficits of those same booms also helped produce the booms. These two policy results are related by the fact that a tax cut will lead to a deficit unless spending is also cut. As Stockman and others learned, the economy does not grow enough to increase tax receipts enough to eliminate the deficit unless spending is also cut.

>c2. i believe the evidence shows that both major competing economic ‘theories’: have failed.
>e1. supply siders who preach tax cuts for the upper income ‘job creators’
>e2. neo keynesians who seem to want to create jobs via government money,
>c3. the key underlying idea of both e1 and e2 is some form of pump priming; and ‘in the abstract’ pump priming is exactly what we are looking for. but both e1 and e2 seem to miss the point. the way to prime the pump is to have economic sectors catch on like wildfire and self generate tremendous activity, as eg the tech ‘bubble’ in the late 90s etc.

The “government money” and “Federal Reserve holding down interest rates” is called “Federal Reserve accommodation” of the federal deficit (which was caused by the ‘supply side’ tax cuts). If the Federal Reserve does not buy some bonds (and thus expand the money supply) then interest rates would skyrocket when the Federal Government runs a deficit and those high interest rates would kill off demand for houses, cars, loans, plant, equipment, etc and thus kill the stimulatory effect of the Federal Budget deficit.

What you get at in c4 is the ideas of “rational expectations” and “Ricardian Equivalence” http://en.wikipedia.org/wiki/Rational_expectations
That is, when people see the government trying to stimulate the economy, they are not fooled and realize that activity is coming out of their pockets in the future whether by inflation or higher taxes. People therefore cut back their spending by the amount they are losing so government policy has no effect (except to enrich politicians and their bankers and friends).

>c4. there’s a third economic theory playing out: e3. the federal reserve holding down interest rates and making money available. i think this can be justified to some extent as a way of buying time; i think buying time and letting a problem ease out slowly is almost always better. but it looks like this cannot continue indefinitely, and it is unclear whether the people running the fed have any answers once ‘time is up’ (probably soon).

Growth Economy Even with Lots of Debt & Risk

Banking systems are always on the brink of bankruptcy by illiquidity because people and corporations want to save short term but borrow long term. So banks borrow short and lend long — most of their liabilities are checking accounts and short term savings accounts while most of bank assets are longer term loans for autos, houses, plant, equipment, student loans, and credit cards that are never repaid. If savers walk into the bank to demand their money back, the bank will not have the cash on hand so thus will be insolvent — a “run on the bank” that led to the rise of central banks as a lender of last resort.

Similarly democratic governments are voted in by voters who do not want to pay taxes but want a lot of spending by the government. Thus the governments will tend to borrow too much and spend too much, often running up big debts and so like the banks be teetering on the brink of insolvency — not able to pay the bond holders and all the others in line for a government check.

We see a lot of both phenomena in the news today, but these news are not really new, just history repeating itself. Whether governments or banks the tendency toward teetering on the edge of bankruptcy is traceable back to the nature of people, their impatience, greed, and risk aversion. Jesus and Muhammed both preached the evils of usury and that was the law in the USA until the Reagan Revolution that deregulated, let interest rates rise, and overturned other safeguards instituted after the Great Depression such as Glass-Steagall.
http://en.wikipedia.org/wiki/Depository_Institutions_Deregulation_and_Monetary_Control_Act

Debt expansion may have peaked, many see the evils of it, and Greeks are rioting at the cost of debt. The Euro crisis may have repercussions in the USA, despite assurances of the media. This reminds me of summer of 2008 when Lehman was teetering on the brink all summer before the global collapse. We have deregulated back to a free market and may have to get used to constant depressions and recessions as was the case before the wave of rules and regulations imposed in the wake of the Roaring Twenties and the Great Depression. Some bankers were screaming on CSPAN that Basle II is too onerous. I would argue that it is a joke and cannot prevent repeated crises. Essentially it does not require bankers to understand their risks and even worse does not require regulators to understand what they are regulating. It just turns the whole banking system monitoring over to computer programmers who do not understand finance to print out a bunch of reports that they do not understand.
http://www.bis.org/publ/bcbsca.htm

Controlling bankruptcy and crises will require attention to the nature of people and how they interact in the economy and political process. The culture of the 1940s 1950s and early 1960s was a lot different than now. Now we more resemble the 1900-1930s era complete with booms and busts that were controlled since WWII.

Corporate profits are doing quite well. If the dollar declines then business can sell even more overseas. US business is already strong in many countries — all can learn to like Hollywood, drugs, ipods, games, junk food, drugs, software, Lady Gaga…. Some production is being moved back to the USA. Latinos are moving back across the Mexican border and reducing Walmart sales in the USA. Fewer big useless houses are being built, along with fewer shopping centers, banks, roads, infrastructure that is not needed (Drive to Reno the huge areas all around, especially south — nice houses, shopping centers, all empty!) Overall there is a fair amount of productive business activity going on, even while some sectors are getting clobbered by budget cuts and the whole system is teetering on the edge of another meltdown. I think the system could be made safer by re-instituting some old rules and regulations and adding some new ones. But progress can still be made even while on the brink of disaster if policy makers are not too stupid and with a little luck.

Inflation History

I attach graphs of the CPI overall, food, and fuel. All 3 indexes were around 40 in the 1970s and were around 200 in the 2000s for a factor of 5 over 30 years for a ln(5)/30 a little over a 5% inflation rate. However gasoline boomed in the 2000s until it crashed and now has rebounded sharply so the calculation is very sensitive to calculation methods and time interval selected. The bureau of labor statistics has have fixed procedures for collecting data and assembling it into the CPI. There may be leeway for manipulation. The CPI does not take into account changes in the market basket over time or quality very well, both very important factors. They have big books to describe what they do and probably get audited as this is a hot button issue for retirees with lots of time on their hands and who are getting clobbered by low interest rates courtesy Bernanke.

I can remember back in 1966 paying
36 cents for gasoline that now costs $3.60 
$7 for shirts that now cost $11 
$1.50 for sox that now cost $1.50
In most cases it is the exact same brand.

I bought a dozen of eggs for 50 cents last week in my regular grocery store probably the same price as in 1966 as well.
But today tomatoes are about 10 times what they were back in 1966.
I recently bought a $150 laser printer better than the $5000 laser printer that I bought in 1986.
My $200 ipod is much better than more expensive equipment of decades ago — I put on it skype telephone videophone unlimited minutes for $6 per month!
Good music nowadays is free.
TVs work better and cost less.
Tools are cheap.
All sorts of useful gizmos are cheap that did not even exist.
In summary, lots of prices have not changed much, but some have gone way up.

Usually government subsidized or manipulated prices have gone up the most: college, drugs, fuel, housing, war machines….
Get rid of government college loan subsidies, mortgage loan subsidies, ethanol subsidies, corrupt dictator subsidies, food stamps, medicare, medicaid and other such programs and the price of these items would collapse so regular working people could easily afford them.

Illegal Drugs vs Personal Responsibility

People have the responsibility to contribute back to the society that supports them. They need to be sober to do so effectively. Only 25% of the population covers their costs, the rest are more trouble than they are worth. The constitution was written by illegal aliens and is too liberal to be practical. It has been amended, refined, and modified with thousands of pages of fixes and is still too liberal. Liberalism is sinking this country. Drug wars are also endangering other countries such as Mexico Columbia drug wars. Drugs are often paid for by college student loans and food stamps which worsen the federal deficit.

In response to:

Criminalizing marijuana is no different than criminalizing alcohol. It is a huge waste of public funds. If people want to get high, and they are not infringing on the rights of others, they have a constitutional right to do so.

Graph: I remember the super dollar era 1980s when Reagan / Volcker high 20% interest rates sucked money in from all over the world. Now interest rates are near zero and money has fled so the dollar is worth half what it was by raw exchange rates. Interesting data but how was it constructed and what does it mean? Requires some facts and some theory, and quite a lot of reading that many are not willing to do.

Economics Numbers

>i am very interested in some real clarity. a lot of numbers are being bounced around that seem more political campaign rhetoric than reality.

One way the rich are getting richer is they understand reality better and can pay to hire economists who know the data better and thus make better investment decisions.

I would ignore anything in the news media. Most of what you see is just plain wrong and/or deliberately designed to mislead or influence the sheeple. Despite the vast amounts of databases being assembled, very few people have even studied what is available or what is known. The antique government economic data is not usually taught to undergraduates except by accident (there are a few short texts). The larger financial and marketing databases are sometimes discussed or used for projects but not at any depth. Graduate classes do not cover much more. There are 1000 or so reasonably competent analysts usually phds with 10 years apprenticeship who are well paid and keep their work secret. Sometimes they show up on CNBC for advertising public relations of their firms, drum up business, push for government policies, or try to deliberately mislead.

I would focus on refereed academic journals for readable articles although they do take quite a lot of work to understand. Secondly go directly to the source data such as the st louis fed “fred” database, or reports issued by the data originating agencies such as the BEA, Census, Fed, and financial exchanges. All of the biased articles have to use the source data or some re-digested compilation of them with often many errors piled on top of each other. It takes a while to learn to access and manipulate the numbers (some computer skills). Even worse is the technical documents that describe the data to understand what you are looking at. But some of the simpler series can be made sense of. The St. Louis Fed is the easiest place to start with an easy php graphing program:
http://research.stlouisfed.org/fred2/

DNA survival of the fittest is driving the various political economic structures — humans by nature fight each other to take over hunting grounds and produce the most offspring. The smarter DNA knows what is going on and are using the media and slogans to increase their dominance. Often the herd of sheeple can be stampeded into working against their own best interest.

>there is a very interesting competition right now between various economic / political structures. i think this is very good, because it will put competitive pressures to work so as to optimize the western economic political model. simple minded slogan-based capitalism is not the real world. the right structures are much more sophisticated. (i think there are several optimum structures.)

Hyperinflation

The Fed will not let hyperinflation happen. The Fed is owned by the banks which are owned by rich people. Their staff are ivy league rich people. Rich people hate inflation — they are net creditors while poor people are debtors. Inflation hurts the rich creditors who will be repaid in deflated dollars. Rich learned their lesson in the 1970s when they got clobbered. Reagan / Volcker cut back the money supply and killed inflation, since then the rich people have been on a roll. Today they only allow inflation in food and gasoline which hurts poor people. Rich people ride the train and eat in fancy restaurants where food cost is a small percent of the total bill. Most prices are falling such as houses. I walk through three shopping centers per day and am amazed at the low prices not much changed since the 1970s. Electronics prices have fallen 99% or more. Most of the prices that are rising is the result of government debt and spending such as on college loans, medical care, and the military-industrial complex. Republicans are going to terminate many programs and thus cut these costs rather than set off a large scale inflation. Mitt Romney got rich as a hatchet man who took over failing businesses, fired a lot of people and restored profitability. Bernanke has taken heat for QEII. The stage is set for draconian cuts that will hurt the poor by cutting their cash inflows so they cannot spend. Business around here is hurting, people just don’t have money to spend and this is true nationwide. It is all politics but I don’t see any news indicating that another round of stimulus will happen or even that they will raise the debt limit. The Fed will have not have a new supply of bonds to buy and monetize, and will be shedding some of their existing portfolio. In short, the news is all about unemployment, stagnation, and a possible double dip recession not an inflationary boom. Ricardian equivalence is kicking in — there is too much debt to be repaid so people are afraid to buy anything because they know their taxes are going up to repay all those debts from the stimulus program, the wars, unemployment payments, borrowing from the social security trust fund, etc.

There will be hunger and deprivation but probably not much inflation. USA is not competitive in many industries due to the low quality of the USA worker so overseas investments make a lot of sense. Gold and silver and their derivatives have recently become popular with hedge funds so more money is flowing into them so they have become like the housing boom of a few years back — a source of big fees for hedge fund managers. The rich are getting richer while the poor are getting poorer due to lack of money. On average the economy is about the same — stagnant.

Deficits since the Bill Clinton Surplus

I really would like to see a clear, well documented, readable, year-by-year summary of how we got here from the clinton surplus days. such a summary should make some effort to point at areas where the recent economic contraction, impacted tax revenues.

You can print out detailed tables and charts (such as attached) of many such series at the site:
http://research.stlouisfed.org/fred2/categories/107
I downloaded the entire database.

The government also prints out in paper and online detailed tables and reports at:
http://www.bea.gov/scb/
You can probably download the entire database if needed.

Pop summaries and spin are in the Economic Report of the President:
http://www.gpoaccess.gov/eop/
often in the library or sold cheaply at your local bookstore or can order from the Government Printing Office.

You can also find lots of policy wonks online trying to confuse the issue. CBO tends to be rather comprehensive and not so biased: http://www.cbo.gov/

Some scholars will look at such issues but their work tends to be very slow and takes a while to read and digest. Many business analysts look at this as well but their work is proprietary. Some such as economy.com are available for a fee.

UCLA forecasting http://www.uclaforecast.com/ is probably used by Bill Gross and El Enrian. California’s Budget Does Not Solve Underlying Problems State relies too heavily on taxes from top earners Quote Of The Day Economics is the only field in which two people can share a Nobel Prize for saying opposing things.

I watch CNBC and had just figured out who Mark Haines was when he died. I thought he looked in poor condition although he was not very old or fat. He did not suffer fools and was good on pointing out the bullshit and hypocrisy of his guests when they deserve it. Conspiracy theorists say he was murdered

Washington Post