jamesz

Larry Summers: revealed brilliance

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If you’re not an economist you may not have heard of Larry Summers. He’s the nephew of Paul Samuleson and Kenneth Arrow, and has himself received the John Bates Clark medal, been president of Harvard university, Chief Economist of the World Bank, Secretary of the Treasury for Clinton, and Director of the National Economic Council for Obama. So, a fairly stellar CV, really. What makes this interesting? Well, Wikipedia tells us:

Summers resigned as Harvard’s president in the wake of a no-confidence vote by Harvard faculty that resulted in large part from Summers’s conflict with Cornel West, financial conflict of interest questions regarding his relationship with Andrei Shleifer, and a 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a “different availability of aptitude at the high end,” and less to patterns of discrimination and socialization.
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Summers stated in a 1991 interview: “There are no… limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future. There isn’t a risk of an apocalypse due to global warming or anything else. The idea that we should put limits on growth because of some natural limit, is a profound error and one that, were it ever to prove influential, would have staggering social costs.”
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In December 1991, while at the World Bank, Summers signed a memo … stat[ing] that “the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that…. I’ve always thought that under-populated countries in Africa are vastly underpolluted.”

More recently, he has claimed that there is no point learning to speak any language other than English–the native tongue of only 6% of the world.

Whatever you think of the substance of those comments, they’re probably not what you’d put in your firm’s PR material. So Summers is not exactly a stranger to controversy. Just imagine your thought process when faced with a man that has such a history of gaffes: he would have to absolutely stun you with his brilliance to win your confidence such that you’d appoint him to a role under any public scrutiny. Yet, Summers continues to win the most prestigious positions that an economist could hold. If that doesn’t reveal how persuasive and impressive the man must be in person then I’m not sure what would! Unfortunately, it probably also says something about how first-world institutions view statements that appear to demean socially disadvantaged groups.

jamesz

Greece: party like it’s 1999

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The Economist estimates how far back the GFC has set various economies:

They’ve used GDP, consumption, wages, stockmarket indices, house prices, wealth and unemployment to calculate that single index. I really like the concept as a way of showing the effect of the crisis to people who aren’t familiar with macroeconomic statistics, but I wonder how they managed to combine that lot without double counting. The Economist Intelligence Unit has certainly not been immune to criticism of its indicators in the past, with Chris Auld calling their Liveability Index “…an arbitrarily weighted sum of arbitrary measures which can neither be meaningfully summed nor measured.” So, I like the concept, but I’d take the actual numbers with a grain of salt until we can see the methodology.

jamesz

Cuts at MFAT need some context

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The New Zealand Ministry of Foreign Affairs and Trade (MFAT) has today announced that over 300 jobs will be cut. As Phil Goff says, these job losses “…represent one in four Ministry employees”, so there is no doubt that they will hugely affect the Ministry’s capacity; however, the dramatic changes in capacity that will ensue have to be understood in context.

The review of policy expenditure commissioned by the government last year found that:

[Total spending] on policy advice appears to have grown by 24% between 2005/06 and 2010/11 (6% in real terms).
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Most of the growth has occurred in MFAT. MFAT’s expenditure on policy advice grew by 72% in nominal terms (47% real) between 2005/06 and 2010/11. If MFAT is excluded, spending on policy advice by all other agencies is estimated to have grown by a nominal 16% (a decline of 0.6% in real terms). Growth in MFAT’s policy advice-related appropriations, which includes funding for international representation, was an estimated nominal 77% (51% real) over that period.

The report shows that, of the $380 million increase in total, nominal expenditure on policy, $180 million was due to MFAT’s expansion. No other agency’s policy expenditure grew by more than $32 million over that time (MAF, if you’re wondering). It may be that MFAT did a lot more work, too, but unless you think that MFAT was doing a terrible job under great duress prior to 2005, it is hard to argue that these cuts will “…undermine the ability of the Ministry to carry out its basic functions”, as Goff claims. Of course, the job losses will be very painful for all of the staff affected, but the growth of the Ministry over recent times makes the large cuts at MFAT no great surprise, given the government’s stated desire for spending restraint. They are also unlikely to be replicated in magnitude at other Ministries, since none have seen the growth in expenditure of MFAT.

jamesz

Will the pseudoephedrine ban reduce P availability?

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Oregon made pseudoephedrine-based cold medicines prescription-only back in 2006. A new report on the effectiveness in reducing the availability of P concludes:

Oregon’s experience with methamphetamine manufacture and abuse since 2006 does not stand out from its neighbors or other parts of the United States. This potentially calls into question whether Oregon’s Rx-only law had any independent effect on these key measures. Moreover, this law does come at some cost to consumers and government and private payers.

So the ban on selling effective cold medicine over the counter had no observable effect upon the P problem, but does cause inconvenience for people with a cold. It will be interesting to see comparable studies for New Zealand in a few years time, although the lack of neighbouring states makes it harder to find control groups to compare with.

jamesz

Always ask why: Chesterton’s Gate

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Peopl just love to think that they’re smarter than everyone else. They look at a problem they’re not familiar with for two minutes and then say, “Oh, but the answer’s obviously…” Matt will recognise this phenomenon from all the times he’s been told that macro forecasting is a waste of time and the people buying it must be idiots. Economists generally get it from physicists who think Brownian motion solves half the problems in economics. Economists themselves are terrible at it: they look at almost any policy debate and claim that if only X were properly priced then everything would be rosy.

If all these things are so obvious then the question is, why haven’t they been dealt with already? And, “because nobody else is smart enough to see the solution” is unlikely to be the correct answer. More often, the person with the ‘solution’ just doesn’t understand the complexity of the problem and the reasons why things are as they stand.

Now, that isn’t a new insight, but I’m sure I’m not the only one who’s been bothered by the lack of a snappy name for it. After all, it isn’t a real proposition until you can name it after someone. So I was very happy to come across this article by Megan McArdle discussing Chesterton’s Gate. I’m not sure if the name is widespread, but i’m already a fan. Apparently GK Chesterton gave a fairly eloquent description of the problem:

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as an historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.

Matt Nolan

Stats NZ smackdown?

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It may just be me, but this statement by Statistics New Zealand sounds like an (appropriate) smackdown of this speech from the RBNZ (which we discussed in terms of appropriateness here).

In his speech, the Governor had said that the Reserve Bank’s very rough analysis suggested that the measurement differences could mean our GDP was understated by up to 10 percent.

“Based on Statistics NZ’s detailed knowledge of measuring the economy, I am confident that any measured rise in GDP will be significantly less than that amount,” Mr Bascand said.

I have a word that describes that statement.  BOOM!