Monday, July 29, 2013


At least in the field of education, ideas are almost always better than products, and ideas can be free. The mentality that something has to be developed, produced, purchased, and then physically added to the classroom to improve education is based on path dependent thinking that material improvements are always beneficial. The reality is that the marginal benefit from new classroom technology is small…. Technological barriers are not really what is preventing better teaching- it’s the lack of good ideas and teaching strategies, and the failure to find these ideas and implement them across the country (in fact, technology can sometimes be distracting and therefore counterproductive to pedagogical goals).

And unfortunately for lazy or financially motivated policy makers , it won’t be as easy as simply throwing money at the problem.  Things like changing the hours of the school day, serving healthier meals, and having more physically interactive classes to keep students engaged will make the most difference.  The idea that simply extending the school day and having more “math and science” (whatever that means) will lead to better education is not realistic and intellectually lazy.

Eliminating social and psychological blocks to learning, such as feelings of inferiority or unwillingness to seek help and ask questions can make an enormous difference by getting kids more involved and excited about learning. If school age kids can see ways that they can personally improve themselves from what they are learning they will certainly be more motivated. One way to do this is by creating opportunities for field specialization, which at the latest should occur at 8th grade. By this point, the core curriculum's have essentially been repeated at least 5 years, and most kids have a good idea of their academic strengths and weaknesses.

This has a personal meaning for me too. I realized by age 8 or so that I was terrible at math. I hated it and could never seem to learn it as fast as the other kids. Although I was pretty good at writing, reading, and social studies, being forced to do math for every year of my K-12 education made me hate school as a whole. The stress and anxiety from having to take math classes (which I was terrible at) spilled over into the rest of my course work and made me hate school in general. In economics, this is called a "negative externality;  a phenomenon that all economists know is detrimental to societal improvement. And all that stress turned out to be in vain, because to this day I have yet to use anything more than simple multiplication in my daily life.

I always desperately wanted math to be taught to me in some sort of relevant context. One of the reasons I had such mental block towards mathematics was that it was taught as a bunch of abstract rules and theorems that never seemed to have any real world applicability. So instead of just teaching more out of context equations, what the mathematics curriculum going forward should do is be included in real world problems. Basic personal economic education, such as balancing checkbooks, paying taxes, saving money/investments etc. is not only severely lacking from modern K-12 curricula, but if made mandatory could act as a fantastic supplement to traditional mathematics.

Forcing all students to take the exact same coursework, regardless of their talents is foolish, wasteful, and demoralizing. Instead, allowing the prolific writers, the creative artists, the inquisitive scientists, and the few and the proud mathematicians to pursue their talents and differentiate themselves will be a boon to education nationwide, especially with students in their teenage years, where identity formation is so important psychologically.

And what could bring light and warmth to those dark teenage years better than a new realization of ones future potential. In the teenage years where prevailing self-doubt and confusion so often serve to demotivate and undermine academic efforts , giving students the ability to truly see themselves having a successful career and adult life could serve to motivate classroom effort at a time where it is needed most. It is often said that the key to happiness is simply the feeling of progress. And for America’s unmotivated and faltering schoolchildren, a feeling of individual progress will lead to collective progress nationwide.

Tuesday, July 23, 2013

No Confidence

I always get mad when policy arguments move into intangibles such as "confidence, expectations, or structural problems". These terms are used by people who are confused and don't know what they are talking about, or people who's ideology/worldview has failed to describe reality and need a rhetorical escape hatch. Since modern economics has failed to live up to a lot of outdated models, many  arrogant economists, instead of admitting they were wrong, simply start making things up.

It is now obvious that economics is more than just the "dismal science" - it is really a pseudo-science. In no other fields of study do you hear so called experts using intangibles to justify the non-performance of their models. Real scientists are concerned with finding the truth, even if that means scrapping old models, no matter how much time was devoted into developing them. Many high profile economists, on the other hand, seem to be concerned only with maintaining their public reputation to a high enough degree to keep their corporate cash rolling in. There is no need to seek the truth when you get paid to be wrong.

Sunday, July 21, 2013

Now is not the time to be stingy

Concerns about economic efficiency are important, but they are misplaced when the economy is running so far below full capacity as it is now. Right now our top priority should be reducing unemployment. If you really care about waste, nothing could be more wasteful than having tens of millions of our fellow citizens being un or under employed. This represents literally billions of lost man hours every year-hours that could be put to use rebuilding our transportation and energy infrastructure for the 21st century.

Where we should use our concerns about efficiency is when the economy is back up running near full capacity and things start to heat up. This is where you can start saying oh, things are getting wasteful, or overheating or delusional to spend money in a certain way. God knows that concerns over efficiency would have been extremely useful in the past decade when the economy was running hot and the housing bubble was inflating like crazy. But as we have learned over the past decade (actually re-learned from past boom and bust cycles), is that no one wants to be a downer during the good times. When everyone is fat and happy, no one wants to interject and say, hey, maybe we should slow things down a bit and prune out the excess. 


We need to remember that earning interest on savings or investment is an economic privilege, not a right. Being able to use your productive capacity as a human being by being gainfully employed is a right. Societies that forget this will doom themselves to stagnation and decline. And the ironic thing is that they are not mutually exclusive. When the economy is growing and unemployment is low, chances are real yields will actually be higher than during slow economic times that we have now. This is because real goods and services will be making everybody in the economy wealthier, unlike now where stock prices/yields are dependent mostly on the ability of large corporations to extract larger and larger rents from productive workers. 

Wednesday, July 17, 2013

On Sausages and Congress

On sausages and congress:

People famously say that lawmaking is like sausage-making; you wouldn't want to see either in action. I've come to realize that there is even more to this analogy than first meets the eye. What sausages do is take pieces of meat and animal products that would otherwise be inedible and disgusting, and wrap them all together to make something delicious. Congress has a similar function. It takes all sorts of ideas and priorities from the amazingly vast array of constituencies across these united states, some bad and some good, and turns them into something that we can all live with and sometimes enjoy. This process is ugly, slow, frustrating, and seemingly corrupt, but it yields an acceptable whole product made from otherwise unacceptable parts. 

Similarly, I find frustrations about pork a little misplaced. I understand the desire to see politicians acting as cleanly as possible, but I believe that pork is actually necessary to the functioning of Congress. Again, when you have such a wide variety of conflicting priorities emanating from a country as diverse as the United States, you need something to grease the wheels. These pieces of varying size and shape can only come together when the right incentives can be used to get members to vote on an otherwise unacceptable piece of legislation. I’m not sure to what extent this is true, but it cannot be denied that some of today’s legislative gridlock is the result of limitations on pork and earmarks. That, combined with unprecedented right wing partisanship has made it harder and harder for members to convince each other to support measures that may not align with their partisan interests. The great thing about last year's hit movie Lincoln was that it showed how one of the most important pieces of legislation in human history (the 13th Amendment) was only passed after a series of deliberate bribes were handed out to various members.

That being said, I don’t think that even the best written laws can always counteract the moral failings of the most powerful people in business and government, but it is imperative that we try. When there is no justice, no rule of law, no punishment for antisocial behavior, those behaviors will spread and society will decay. The lesson of the past decades is that men in power can make vast sums of money trampling over uncodified social norms and get away with it (remember that Mitt Romney guy?) Because we no longer live in small, intimate societies where social norms can be enforced with personal contact, as many of these norms as possible should be codified at the federal level and enforced consistently.  All actors in our modern society, public or private, and especially the most powerful, must come to realize they are ultimately subordinate to the will of the people, written and enforced by a democratically elected government. This is the essence of our American democracy, and it will fail without it.

Thursday, July 11, 2013

Age of Empires IV, Modern Money edition

Modern monetary policy can be very hard to understand, and I sometimes think this was deliberate. Anyway, everyone know that analogies are usually a good way of explaining complex things in and understandable way, so here goes:

For those of you who may have been real time strategy geeks like I was as a child, you may remember playing some version of the Age of Empires game or something similar. In the game, you use village people to collect resources that you then spend on farms, buildings, and military stuff. The goal of the game is to invade and conquer your opponents on the map, so naturally it has a very military heavy focus. My dad, an economist, originally bought me the game because he thought it would teach me some economic principles about resource distribution, or something. To his dismay, the game turned out to really be mostly about killing your enemies, but I just recently realized that there is in fact an incredibly important economic lesson in the game.

Like most computer games, Age of Empires had various cheat codes that can be found online, that when typed into the game can cause deviations from the tradition script. Some of these cheats are ridiculous, such as instant-win or the creation of corvettes mounted with machine guns, that can be giddily driven through enemy territory to slaughter everything in sight. However, one of the cheats is actually very useful for demonstrating the benefits of a fiat currency. This cheat allows you to simply add 1000 units of gold to your national account by keystroke. While this may seem like cheating, most players will tell you that what this really does is unleash the full potential of the game, and makes it more fun to play. This cheat allows the player to no longer have to sit around and wait for villagers to dig gold out of the ground before being able to spend it on the things needed to win the game.

This cheat effectively ends the "gold standard" of the game, and turns the gold resource into a fiat currency. It allows the player to spend more time on the military strategy component of the game, and less time sitting around waiting for gold to accumulate. It saves the player from wasting his time, just as a fiat currency has the potential to save the time of the unemployed by putting them in productive jobs. Governments that don't have their spending abilities constrained by some ridiculous fixed convertibility are free to spend money into the economy to achieve maximum resource utilization. As any HR rep will tell you, "people are our greatest resource", so the high under/unemployment levels we have been suffering for the last 5 years represent a huge waste of resources. Instead of waiting around for the private sector to gain the "confidence" necessary to hire, fiat currency can get real resources moving as quickly as possible, stimulate demand, and help businesses and individuals pay down their debt sooner. In both cases, fiat currency allows people that would otherwise be sitting in a chair the ability to get up and do something with their lives.

This analogy goes even further, because the creation of modern money occurs in a similar way: it is just keystroke entries into computers. The gnomes at the Federal Reserve no longer have to spend time closely guarding their gold reserves; today they just sit in front of computer screens and make keystrokes into bank accounts. Thats it! Just like Age of Empires. Thanks dad.

Sunday, July 7, 2013

The importance of currency sovereignty

Although it should seem obvious, the ability of democratic governments to issue their own currency is perhaps the most important thing any government does. Economic models that apply to fixed exchange rate currencies simply do not apply to floating currencies, a point that many economists seem to have tragically missed. For some reason, even smart economists like Paul Krugman have been "surprised" that currency sovereigns operate under completely different economic realities than pegged or non-sovereigns do. The reality is that the loanable funds and money multiplier models simply do not apply to currency sovereigns, nor should they.

The ability to issue its own fiat currency is critical to the ability of any government to make public policy for its citizens, and thus is a crucial element to any nation that claims to be a democratic sovereign. Surrendering currency sovereignty, as Argentina did in the 1990's, and the Eurozone nations did in 1999, is an enormous leap away from democratic sovereignty. Any government that does so significantly weakens its ability to move real resources around its country to maximize utility for its citizens (Argentina's currency board basically turned the country into an internationally-financed Ponzi scheme). The importance of this seems to have been greatly under appreciated during the 1990's and 2000's, when countries in Europe were falling all over themselves to join the Euro and abandon their currency sovereignty. And although the British economy has faced its own challenges from misguided policies of the Cameron government, they can at least congratulate themselves on having had the restraint to stay the hell away from the Euro.

Now the Eurozone has been stuck in nearly 6 years of disastrous depression, with sky high unemployment levels and continually contracting economies. The only option sufficient to restore growth, namely default and devaluation from the periphery countries (Portugal, Italy, Spain, Greece, or the PIGS) has been considered Verboten by the policy elite that have been so disastrously ruling Europe. The so called "Troika" of the European Central Bank, the European Commission, and the IMF, have been unbelievably bad economic policymakers, for the precise reasons that they don't understand the benefits of currency sovereignty, have considered default a non-option, and refuse to ever admit their errors. (As a GW student, I regularly walk by the IMF building and witness the international house  of (t)errors of European bankers standing outside and smoking cigarettes in their $2500 Italian suits.)

The callously indifferent responses of these policymakers to the ever growing demonstrations of discontent in the EU have been equally disturbing. This response suggests that in the future, a country that gives up its currency might as well also dissolve its legislature and end elections. Countries that are constrained by foreign central banks or arbitrary debt/gdp ratios simply cannot meet the economic needs of their citizens, especially during times of economic difficulty. Relying on foreign investment or bond market "confidence" to boost an economy has proven to be an incredibly difficult, if not impossible proposition. No government that calls itself politically sovereign can really be so if their economic output is determined by the whims of foreign investors.

Saturday, July 6, 2013

Calm Down about the Debt, Part 4: Kicking "The Can Kicks Back"

I recently stumbled upon a political action group called "The Can Kicks Back" on Facebook. It is a youth-oriented political action group that advocates for entitlement reform and deficit reduction, and does so with "hip" looking website and articles clearly written for a college age audience. It appears that most of its members are of or near college age as well, and a quick glance over the website makes it seem innocent enough. Upon closer inspection however, I quickly realized that it was just another variation on the Pete Peterson-funded theme of disseminating false information about government spending in order to gut our old age benefit programs of Social Security and Medicare. For those of you who don't know, Peterson is an ancient billionaire who has been using his money to advocate for gutting of SS and Medicare for decades now, with little success. (btw Peterson's money dump into this fruitless cause is an excellent demonstration of the low utility of rich people's dollars and the need for higher marginal tax rates!)

Anyhow, while I am always excited to see people my age interested and engaged with federal policymaking, I simply cannot trust any Peterson funded institution, of which "Can Kicks Back" is one of the most recent. It saddens me to see what seem like well-intentioned people wasting their talents on the cause of this billionaire hack. A basic understanding of modern public finance reveals that just about all the claims made on the "Can Kicks Back" site are incorrect. There is nothing to prevent the US from meeting any and all of its liabilities in the future. In no way are "unfunded liabilities" or the federal debt a "burden" to future generations. These funding issues are entirely within our control and are not worth 1/100th of the time we dedicate to debating them . Spending on entitlement programs doesn't really preclude us from investing/spending on anything else.(see my previous blogs for more detailed explanations) Instead, it is climate change, which is several degrees of magnitude more important, than we should all be worrying about. Mitigating and adapting to climate change will be incredibly difficult, since the laws of Nature are most certainly NOT in our control. All economic and financial systems are. For future reference, here is my list of things to worry about:

1) In the short term: Unemployment
2) In the medium term: Health care costs (the primary driver of our deficits)
3)In the long term: Global climate change

So while the deficit reduction fetishists seem to have been silenced for the time being, I'm sure they will return soon. Their over-the-top calls for deficit reduction come not from any real world understanding of macroeconomics; rather they are just further efforts by the PetePeterson medusa to impose on the rest of us his normative preference for smaller, impotent federal government. Thanks to the shrinking deficit, along with valiant efforts from Dean Baker, Paul Krugman, Brad DeLong, and the growing group of MMT economists, the latest Peterson snake head has been lopped off. However this is no time to rest on our laurels: He will be back soon enough.

(my hilari-bad photo editing skills on display)

Tuesday, July 2, 2013

What's Wrong with Washington, Part 1 of ∞

Making fun of the DC press could be a full-time job for comedians (and for my favorite economist Dean Baker it almost is a full time job.) Those outside the Beltway have to realize that most of the people in the media are total morons. They always know what to say, but not what they are saying. They are very keen at picking up the latest buzzwords and zeitgeist, but not at independent analysis and deep thought. And for the most part that is what their job is. Most think tanks and media outlets in Washington are not independent operations. They are mostly funded by billionaires with an agenda, are not tanks, and don’t think. The media’s biggest mistake is that they treat all parties in a debate as if they are arguing in good faith i.e. in the public interest. This is rarely the case anymore. The true talent of Washington’s highest paid “experts” is using the language of government and public policy to promote private interests. They betray the American public on a daily basis, and they, and their audience, are rarely aware of it.

One of the primary roles of government, as mandated by our Constitution, is the pursuit of justice. The pursuit of justice is one of the most basic and most important roles of the federal government. This occurs in two major ways: (1) By ensuring that statutes keep up with changing social constructs and economic realities. As few implicit social constructs should exist as possible. In modern complex societies like ours, every implicit arrangement should be made explicit, thus having the force of law behind it to ensure that individuals do not fool or take advantage of each other. This is just basic fairness; government’s role as the just arbitrator. (2) The government should devote as many resources as possible to enforcing these statutes. 

The problems now it that there is an enormous amount of money to be made in thwarting the public interest and preventing the above two principles from being realized. Whether during the legislative or regulatory process, teams of corporate lobbyists descend on congress and the agencies to prevent the public interest from being served. These actions can save companies billions of dollars, so even paying lobbyists millions of dollars to stop rules is a fantastic bargain from the corporate point of view. It is no surprise then that conservatives have sought to jam and undermine both of the above described principles. They actively prevent government from achieving its maximal social utility, and do so on behalf of moneyed interests.  By corrupting and deadlocking Congress, they prevent new laws from being made, and ensure that existing ones are rendered hopelessly inadequate. By relentlessly cutting government spending where it matters and pursing rabidly anti-regulatory reforms, they prevent existing statutes from being adequately enforced. This has led to the negative view of government felt by many Americans, and the cynicism towards the whole process that consumes the few good souls that remain in our nations capital.