The case for Capital

noahI follow Noahpinion because 1) he provides a helpful window into the abysmal state of modern macroeconomic theory, and 2) he pisses me off. In the latter regard, his latest crime against humanity is a little ditty about Capital (the concept, not the book). His point of departure is a column by my friend Branko Milanovic urging the discard of the term “human capital.” Noah manages to ignore the points raised by Branko. Some elaboration here provides an inkling of the reductionism inherent in mainstream economics, even when practiced skillfully by kinda-sorta liberals.

Of course there are no a priori incorrect definitions. We can apply whatever names we like to whatever we want. The question here is whether it is useful to imply an analogy between an attribute of the worker — a marketable skill, ability, or educational attainment — and durable productive physical assets, or the ownership thereof.

There is no issue here about abstraction for the sake of analysis, or modeling. Capital-c Capital is as abstract as anything. Is what makes it different from Labor sufficiently fundamental to maintain the distinction that prevailed before the economists’ invention of “human capital”? You know I’m going to say yes.

NS noodles around the difference and similarity between Capital and “human capital” by analogies to prosthetic arms and financial options, or he puts it in the context of a narrow modeling problem — decisions about investment in education. Or Jesuitical digressions on is it wealth or isn’t it. More definitional trivia.

Branko approaches the heart of the matter by noting capital is something that most people have little of, while a small minority have a lot. Not only do most have little, but exploitation of their so-called “human capital” takes an important toll on their well-being — to rent your human capital you must give up your own time. Exploitation of your financial capital incurs brokerage fees and service charges. Not really the same thing.

But Branko pulls his punches. Capital assumes a life of its own and informs the organization of society, in the large. Those who seek to accumulate live on as part of the Capital borg; those that don’t become irrelevant rentiers. Capital exercises overweening influence in otherwise democratic systems, for that reason only nominally democratic systems. Capital, not Labor, determines the conditions of work, where most of our lives are spent.

In the conventional wisdom, augmenting human capital cures all ills. Inequality? We will help people raise themselves up, though while you do, others slip back down. Low wages? We will increase productivity, though wages have not kept up with  productivity. And we’re not really doing much for human capital in its own terms either. College becomes increasingly out-of-reach, public schools are under assault by corporate raiders.

Of course, you could model the decision to attend college as some kind of investment, taking account of costs, foregone earnings, one’s preference for making less money sooner vs. more later. If you’re lucky you come up with “statistically significant” elasticity estimates that some other nerd can contradict with a follow-up paper. Meanwhile we face long-term trends in wage stagnation and the so-called ‘college premium,’ support for public education, and student indebtedness, to name a few things that are goin’ on. What a sterile exercise such models are. Think of what college students actually do. Are they rationally maximizing utility with the benefit of long-run foresight and accurate information? If you believe that, delete your account.

nobsWhen I was a graduate student, we had a room in the attic of Tydings Hall reserved for us to study and hang out. On the blackboard, somebody drew a picture that looked a lot like this:

It was labeled “consumer theory.” In the barren world of mainstream economics, people are reduced to atomized pleasure-seekers who solve impossible optimization problems with the benefit of limited information on a featureless social plain with no past and no future. And they call it social science!

Capital likes it that way. Its greatest feat — getting you to forget it exists as an overwhelming, malignant, motive force in history. It’s not only a moral issue; it’s an analytical one.




Blogs are so over

That’s what I’m hearing, after the pending demise of Andrew Sullivan’s venture. Well fuck that. Fuck your monetization. Fuck your SEO keywords. Fuck your snackable content. Fuck your clickbait. Clear your mind of trivialities and inanities. Don’t waste time arguing with idiots. Tune out the noise. Seek a higher level of consciousness. Get laid.

I plan to leave my nine-to-five gig at the end of this year. And. This. Place. Will. Rock.

I’m on Facebook and Twitter all the time, but I predict the endless drive to “monetize” them will make them shittier and shittier. There will always be an audience for discussions deeper and more substantive than are possible on FB or Twitterville. I don’t need thousands of people to have a rewarding conversation, and I don’t need to get rich.

Maintain, people. We have work to do.


I’m with Waldo, that’s where

WaldoHi folks. I’m too fucking lazy to write on hiatus. I still have a full-time job that does not permit me to blog during work hours, and getting up the energy to write after work has been hard. Another factor is the comments here have been pretty sparse, compared to the good old days of MaxSpeak. I miss the give and take. Everybody seems to vent on Twitter, Facebook, and newer platforms I’m too old to figure out.

I’m trying to get up some longer pieces that will have a wider audience. When they publish I will cross-post them here.

I do expect to get more active once my nine-to-five job becomes part-time, or I leave it completely. I’m tanned, rested, and ready. That will happen this fall, I hope.

Thanks for asking.


The Story of Thanksgiving, updated for 2014

“It was wonderful to find America, but it would have been more wonderful to miss it.” – Mark Twain, The Tragedy of Pudd’nhead Wilson

(See also this and this.)

MaxSpeak Summary: the Puritan Christian fundamentalists, of whom the Pilgrims were a subgroup, were murderous, treacherous swine who made a treaty with the indigenous people around Plymouth until they had enough forces to wipe them out. This they later did with smallpox and guns, unless they were able to sell them into slavery, all of course for the greater glory of Jesus Christ.

turkeyWait a minute. That wasn’t quite right. Let’s try it again. Here’s how it goes.

The Puritans in England were subject to religious persecution, lo unto death. They needed a homeland where they could survive as a people and live in peace. They tried to settle in the Netherlands, but it proved inhospitable. Only the possibility of the New World seemed to beckon. It was a land without a people, and they were a people without a land. Puritan leader John Winthrop promised his followers, “If any who dwell in this new lande there bee, they will greete us as liberators.”

Upon settling around Plymouth, the first Puritans (Pilgrims) established amicable relations with the Wampanoag Nation. The Wampanoag had already been depleted by disease brought by previous settlers. They were also subject to aggression by other Native American groups, so their alliance with the Puritans became an outpost of peace, freedom, and enterprise in the New World.

As more Puritans arrived, they required more breathing space. Sadly, Puritan relations with the Wampanoag began to deteriorate. It was discovered that human rights violations had been committed by the Wampanoag sachem, Massasoit. The Puritans suddenly realized their ally was actually history’s greatest monster.

The Wampanoag, like other indigenous peoples, lacked a modern system of property rights. They did not see fit to build fences, put up street signs, or securitize sub-prime mortgages. The Puritans remedied these defects of indigenous culture. Through the workings of the dynamic, efficient market, the Puritans ended up owning all the property, and Native Americans themselves became classified as property.

Taking umbrage at this advance of Judeo-Christian civilization, the indigenous people reduced themselves to terrorism. Some were sufficiently maniacal as to sacrifice their own lives in order to murder innocent settlers. There was a veritable cult of death. Their giant warriors, with faces like demons, would willfully run into hails of bullets. Underlying this irrationality was a primitive religious belief system that celebrated exterminating one’s enemies, as well as the consumption of locoweed and psychedelic mushrooms.

In short, the natives hated the settlers for their freedom and no longer greeted them as liberators. They meant to extend their dominion over the entirety of Europe by summoning the Great Spirit as a weapon of mass destruction.

As a matter of self-defense, the Puritans were compelled to rise to the challenge of this clash of civilizations and wage a preemptive war of extermination salvation for both the terrorists and the societies that nurtured them. There was no middle ground; you were either with them or against them. The settlers’ periodic, totally accidental slaughter of women and children was tragic, painfully regretted collateral damage. Relatives of the victims were amply compensated with beads and trifles.

Those Native Americans who were willing to live in peace and submit to Biblical law were provided with alternative living arrangements, under the protection of the government. Sadly, they proved unequal to the rigors of modern society and eventually disappeared, although they were given the opportunity to experience Democratic Capitalism before their demise.

Today we, “the people who build square things,” celebrate Thanksgiving in tribute to their memory, and to the invaluable assistance they unselfishly
provided for the Christian arrival to America.

Now please pass the gravy.

ScreenHunter_14 Nov. 26 12.49

Memories of development

My comrade the Sandwichman traces the sad devolution of thinking about public investment in the U.S. Check out the signatories to the letter at the top: Henry Wallace, Frances Perkins, Harry Hopkins, Harold Ickes, Wesley Mitchell. Giants! How did we get stuck with Gene Sperling and Rahm Emanuel? Jack Lew?? Oh please.

????One thing that got lost was the idea of taking advantage of economic downturns to launch new public works projects. I think this is still a good idea, and I’m not the only one.

Contrary to one argument in the post, however, I would not include the stimulus resulting from a project in a benefit-cost calculation. The reason is that it is useful to know benefits and costs abstracting from where we are in the business cycle. That should be the principal criterion, in principle. The stimulus piece is worth knowing as an inducement to accelerating investment during downturns, like the one we are still in, so it should figure in the decision, but it’s a categorically different number.

Alas, it is hard to know benefits and costs. There is a sophisticated, finely-wrought methodology for conducting such analyses. Typically the data required is not available. Moreover, the analysis is flawed by virtue of the fact that it is performed by humans who always operate in a political setting. The customer for a study may have a benign view of a project, or a jaundiced one. He will get what he wants, either way. In a political environment that is adverse to new initiatives —  projects, regulations — benefit-cost analysis is routinely deployed as a bludgeon to kill innovation. Nobody did a cost-benefit analysis of welfare reform in 1996, nor have they since. The politicians wanted it and they got it. What they don’t want, they first say should be the subject of cost-benefit analysis. I would not say the practice evolved to preclude new investment; rather, the politics evolved to create a professional environment adverse to progress. I think the Sandwichman is saying that too.

Big projects are risky, but there is a remedy: do lots of big projects. Some will work out well, others will be white elephants, and on average we will be all right. The wisest principle can be found in Tom Cruise’s big debut film, Risky Business.

I was talking about this with the avowed libertarian economist Bill Niskanen before he passed away, and he actually agreed with me. Suppose it was 1870. Should we build a bridge connecting Brooklyn to Manhattan? Would it have been possible to compute a favorable benefit/cost ratio for this project? Quite possibly not. How about the Panama Canal? People died building both of these things. Very great costs.

It’s not so far-fetched in the current context. We think we have a better methodology, but do we have the data and foresight to gauge benefits and costs of new, innovative projects? What’s the benefit of a modern electric grid? I doubt anybody knows, but I still think it’s worth building.

Perhaps the greatest weakness of the methodology lies in the task of measuring costs and benefits occurring over some extended period of time. To this end future flows are discounted by some rate that purports to equate values in different time periods. If the interest rate is ten percent, $1.10 a year from now is worth a dollar today. Put aside that we’re prognosticating future events like crazy people. There is a more interesting thing going on.

Climate change is going to seriously fuck with the human race. You know that, right? So imagine a blow to those living 200 years from now in the amount of $100 trillion. (Assume no inflation.) A discount rate of 3% is pretty modest, as these things go. How much is that $100T worth to us in present value? The answer is less than $271 billion. The implication is that we should be willing to pay no more to eliminate that risk, today, than $271 billion, even though the hit to those living in 2214 would be more than 369 times higher. We are applying a far lesser weight to their well-being than to our own. They might not forgive us, but we’ll be long dead, so what the fuck.

You might be willing to put a price on carbon calculated to bend the curve on emissions, but I hope you won’t be deluded enough to think you can, or should, calculate a price based on the present value of future harm to humanity. The vanity of economists today knows few bounds. But in 1928 one of the greatest economists, by the name of Frank Ramsey, referred to the conduct of such an exercise as “ethically indefensible and arises merely from the weakness of the imagination.”

The better operating principle is to reverse the current and long-standing emphasis in U.S. public policy characterized by the late John Kenneth Galbraith as favoring “private affluence and public squalor.”

Political science

If I need a new career I think I could take up political punditry. Little in the way of knowledge or skills is required. For evidence we could look at the assorted explanations for yesterday’s vote. They include:

Turnout. Democratic voters didn’t come out to vote. Sometimes this is boiled down to younger voters, single women voters, or minorities. In other words, people who might vote for Democrats didn’t come out and vote for Democrats.

The Map. Then we hear about ‘the map.’ It refers to the predominance of so-called ‘red states’ whose senators and governors were up for reelection. Red states are dominated by people who don’t vote for Democrats.

In other words, Democrats lost because people didn’t come out to vote for them, or the people who did vote didn’t vote for them. See? You too could be a political expert.

I’m also dubious about the race argument. People supposedly vote Republican because they don’t like black people. But in two cases, black candidates on the Republican side won. Senator Tim Scott of South Freakin Carolina won in a walk, and Mia Love of Utah got a decent margin of victory to became a new member of the House of Representatives. True, there are only two of them, but they won in two of the most conservative states in the U.S. Why? Whatever bothers white folks about Obama doesn’t bother them about Tim Scott and Mia Love. Or Herman Cain, for that matter. Of course, the GOP doesn’t lack for successful women candidates either. I’m not suggesting the Republicans are a fount of enlightenment on race and gender policies, and underneath their animus in that context is some primordial prejudice, but it’s not as simple as a knee-jerk rejection of non-white/non-male faces.


An Andy Update

Quoth Gov. Cuomo:

Ask yourself: If he were more liberal, he would have done what? What more could I have possibly done? You’re gonna use the tax code just to take money from the rich and give it to the poor? That’s not liberalism. That’s confiscation! Liberalism was ‘Lift up the poor.’

This gentleman could eventually make the Clintons look like Fabian socialists.