Deinonychus antirrhopus

Peter Benenson, Founder of Amnesty International, Dies

Peter Benenson, the founder of Amnesty International died Friday of pneumonia. The reason I actually clicked on the article to read it at all was the story about how Amnesty International was founded.

Educated at Eton and Oxford, Mr. Benenson was a passionate advocate for human rights in fascist Spain, British-ruled Cyprus and repressive South Africa. He was almost 40, a bowler-topped barrister on the London Underground in 1961, when he read a news item about two Lisbon students sentenced to seven years in prison for toasting freedom in Portugal, then under the dictatorship of António Salazar.

[snipped]

He called for a one-year campaign of letter-writing to repressive authorities, demanding enforcement of the Universal Declaration of Human Rights, which was adopted by the United Nations in 1948 but was widely ignored. The result was an outpouring of letters, telegrams and publicity that swelled into a permanent campaign and the formation of Amnesty International.

However, the article makes no mention of the fate of the two Portuguese students and the four others that motivated Benenson to take action. I wonder what happened to them?

Update: Well I've done some googling on the two students and have found zip. My guess is nothing happened and the two students served their term and were released. Ironically, virtually every website I read that discussed the founding of Amnesty International called the letter writing campaign for the two students (and the even more anonymous other 4) an "overwhelming success". Of course, they measured success by the fact that lots of people felt the same way and formed Amnesty International groups in other countries. This WikiPedia entry is typical,

he response was so overwhelming that within a year groups of letter-writers had formed in more than a dozen countries.

I Don't Think Putin Gets It

When George Bush meet with Vladimir Putin and pointed out that in a healthy democracy a free press is important Putin replied by asking what happened to the reporters at CBS and why they were fired for the false TANG documents about President Bush. I just don't think Putin quite understands this whole democracy/free press thing. It sure seems like he thought the people at CBS were fired by President Bush.

Update: According to MSNBC Putin's exact response was,

When Bush confronted his Russian counterpart about the freedom of the press in Russia, Putin shot back with an attack of his own: "We didn't criticize you when you fired those reporters at CBS."

Beyond Homo economicus

[Note: Much of this post is based on Chapter 11 of Game Theory Evolving: A Problem-centered Introduction for Modeling Strategic Interaction by Herb Gintis. For those who find this post interesting, buying this book would be a good place to start. I have also included some of the citations by Gintis in this post so that the interested reader will know where to look for further information.]

The standard model for human behavior in economics is that the individual maximizes his utility subject to a set of constraints. This view of human behavior is described as Homo economicus. But there are problems with this version of human behavior. For example, in public goods game experiments there often starts out with a high degree of cooperation that starts to decay later in the game. Also, there are problems with the way people make decisions under uncertainty. In this last case it is quite often the case that people don't make the right choice given that the model of human behavior is expected utility maximization.¹ Of course this does not mean that Homo economicus is everywhere and anywhere a bad model for human behavior.

Homo economicus has provided a wealth of results when there are well defined markest (double continuous auctions) as well as oligopoly models (Davis and Holt 1993, Kachelmaier and Shehata 1992). So Home economicus is sometimes useful, but at other times it is not. For example, when there is not complete information and there are opportunities for strategic behavior many of the predictions derived from the Homo economicus fail to materialize. Sometimes, the agents will retaliate against defectors even when retaliation comes at a cost. Other time agents will take actions that will reduce their overall welfare but enhance equality. Further, it should be understood that these actions are not necessarily irrational in an over all sense, they are simply irrational given the Homo economicus hypothesis for human behavior. So, the standard assumption/hypothesis used in much of economics is one that needs re-working, or at least one should be careful when invoking that model.

Homo equalis

One new model for human behavior is Homo equalis. Homo equalis actually has preferences for equality and this will mean the behavior for Homo equalis will deviate from that of Homo economicus.

Homo equalis exhibits a weak urge to reduce inequality when on top, and a strong urge to reduce inequality when on the bottom.(Gintis 2000)

The orgin of Homo equalis is from the anthorpological literature (Gintis 2000). In small hunter/gatherer groups there are no centralized governments, and individuals that deviate from voluntary cooperation are often banished from the group or killed. As a result widespread sharing of resources (shelter, food, etc.) is common.

In terms of experimental game theory results such as the ultimatum game depending on the exact "shape" of the utility function of Homo equalis² the offers that are made well vary, but will tend to be well above the sub-game perfect strategy of offering a split of ($9,$1) which the Homo economicus assumption predicts. The modal offer from experimental evidence is around 50% (i.e. an offer of ($5,$5)) with respondents rejecting offers below 30% (i.e., rejecting offers below ($7,$3)) (Camerer and Thaler 1995, Guth and Tietz 1990).

Another game where the results using Homo equalis measure up better than Homo economicus is the public goods game. In this game the players can put a dollar, form their private account, into the public pot. At the end of the round the experimenter will deposit $.5 for each dollar in the public account into the players accounts. The process is repeated ten times. Perfect cooperation will result in $50 in each players account (which the player can keep). If one player were to defect he'd have $55 and the rest of the players would have $45. If everybody defects each player keeps $10. The sub-game perfect equilibrium (and the predicted outcome with the Homo economicus hypothesis) for this game is for nobody to contribute to the public pot and for each player to get $10. The exeprimental evidence on the other hand have very different results. Further, with Homo equalis, again depending on the shape of the utility function, there can be substantial cooperation.

Homo reciprocans

I have blogged previously about Homo reciprocans, but there is more than that short post covers. The problem with Homo equalis is that while it does do a decent job of reproducing what is seen in game theory experiments it does not address the issue of what agents want to see in terms of the intentions of others. In other words, Homo equalis does say much about how "cheaters" are viewed. Typically cheaters are viewed poorly, and often times people will seek ways to retaliate against "cheaters" even at a cost to themselves. Homo reciprocans allows for this kind of behavior.

One experiment that suggests that people care about the intentions of other players is where the proposer in the ultimatum game is a computer and the responders know this. In this case, the number of rejections fall significantly (Blount, 1995). the idea here being that the responder's rejections will have little punishment effect on a computer. The reciprocal nature of play can also be seen in much earlier research such as Robert Axelrod's competitions on game theory. The tit-for-tat startegy has play dependent on reciprocity.

Of course, the first objection that could be raised is that "co-operation" in the above sense is nothing more than "enlightened self interest". That is, in repeated game contexts with discount rates that are sufficiently low cooperative outcomes will result even with the assumption of Homo economicus. However, the problem is that the level of reciprocity that is observed in experimental games could be called strong reciprocity in that it applies in situations where the above doesn't have to hold. That is, there is a tendency to cooperation and punish even when there are costs to doing so. Further, this kind of behavior can be seen in things like one-shot games where the above arguments of "enlightened self-interest" in conjunction with Homo economicus should not hold.

Homo reciprocans offers up a story for such observations as rejecting proposals in the Ultimatum game. Note that with Homo equalis all of the results center around the proposals with regards to the Ultimatum game and not the rejections. With Homo reciprocans we actually can say something about both the proposer and the respondent. Further, Homo economicus behavior is an extreme case (this arises when the individual cares nothing about fairness of others behavior and kindness towards others).

Homo parochius

Homo parochius divides the world in two groups insiders and outsiders. This division can be along racial lines, ethnicity, language, nationality, and even random factors³. While the behavior of Homo parochius is generally condemned by society at large such behavior can often be elicited in experimental games suggesting that even with "moral training" against such behavior it is still present in many people. Some examples one form that is considered innocuous is hometown favortism. Most people in a community with a sports team will likely favor other individuals that support the hometeam. Homo economicus, Homo equalish, and Homo reciprocans all fail to capture this kind of behavior.

The traditional model/assumptions used in economics about the behavior of individual actors is clearly not sufficient to cover all areas where economic analysis can be applied. As such these new models offer additional "tools" to the researcher. One of the past objections to such models is that they are "ad-hoc". That is the models are constructed because this is what we observe in individual/group behavior. The problem with this approach is exemplified in the Phillips curve inflation/unemployment trade off. It is a purely empirical result that could vanish if policy is based on the model. However, as I noted in this post evolutionary game theory has provided a solid theoretical basis for why such models for individual behavior. Caring about reciprocity, equality and even insiders vs. outsiders could provide evolutionary advantages. Thus, this type of thinking becomes dominant while purely selfish (Homo economicus) loses ground or doesn't develop until later.

Note that this does not make Homo economicus worthless or unimportant. In the public goods games for example a percentage of the players do play according to Homo economicus and this could be one reason why the cooperation in early stages deteriorates to the point where in later stages everybody is playing according to Homo economicus.

While the above address some of the problems noted in the first paragraph that face economic theory, it does not address them all. Further, there is still resistance in the economics profession to these ideas. However, as the evidence continues to mount and with Daniel Kahneman's Nobel award, the momentum, in my view, is with those who favor incorporating these new ideas into economics.
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¹A good example of this is the Monty Hall problem. The Monty Hall problem is as follows: You have to pick between three doors. Behind one door is a car, behind the others is nothing. Now, in the first round Monty offers you a choice between the three doors. At this point most people provide the right answer that their chances of winning is 1/3rd. After making your selection Monty does the following: he opens one of the two remaining doors that does not have the car behind it. Upon doing this Monty offers you the option of switching. At this point most people incorrectly asses their probability of winning as being 1/2 and as a result do not switch to the other remaining door. However, this is the wrong strategy. Even though Monty has opened the door with nothing behind it this does nothing to the probability that the car is behind your initial pick. Switching always provides a probability of 2/3rds for winning and is the dominanat strategy.

Davis, D. D. and C. A. Holt 1993. Experimental Economics. Princeton, NJ: Princeton University Press.

Kachelmaier, S. J. and M. Shehata 1992. "Culture and Competition: A Labratory Market Comparison between China and the West." Journal of Economic Behavior and Organization. Princeton, NJ: Princeton University Press.

Gintis, H. 2000. Game Theory Evolving: A Problem-centered Introduction to Modeling Strategic Interaction. Princeton NJ: Princeton University Press..

²The utility function for Homo equalis is

where x = (x₁,...x_n). Note that if there is perfect equality (i.,e x_i = x_j for all j) then the two negative terms in the utility function are zero.

Camerer, C. and R. Thaler 1995. "Ultimatums, Dictators, and Manners." Journal of Economic Perspectives 9, no. 2: 209-219.

Guth, W., and R. Tietz 1990. "Ultimatum Bargaining Behavior: A Survey and Comparison of Experimental Results." Journal of Economic Psychology 11: 417-449.

Blount, S. 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions and Prefernces." Organizational Behavior & Human Decision Processes 63, no. 2: 131-144.

³For example, randomly assigning people to teams. While such a division is random there appears to be affinity for people inside the group than to those outside the group.

Other posts that draw on this material are:

Are Austrian Economists About to Lose Their Cherished Position?

Robert F. Kennedy, Jr.: Prevaricator

More Problems with RFK, Jr.'s "Free Market" Environmentalism

The Tragedy of the Commons

Fourth Quarter GDP

GDP increased at a 3.8% annual rate in the fourth quarter of 2004. This is an increase from the 3.1% annual growth rate from the BEA's advanced report. Overall for 2004, GDP increased by 4.4% which is better than the 3% growth in 2003.

Some are suggesting this higher than expected growth will lead to better job growth. The expectation is that there will be 225,000 new (payroll) jobs next week when the BLS releases its employment/unemployment numbers.

Drum, Bainbridge and Wal-Mart

Hmmmm, I think this is another of those rare instances when I (mostly) agree with Kevin Drum. Kevin has a post on Wal-Mart that points to a post on the same topic by Prof. Bainbridge. Prof. Bainbridge makes the case against Wal-Mart based, at least in part, on the idea of small businesses being forced out of the market.

Note carefully this line: the "policy of encouraging incorporation by persons of modest means 'facilitated the growth of a viable urban democracy by allowing a wide participation in businesses that could most advantageously be organized as corporations.'" By trampling small businesses underfoot, through its mix of volume pricing and subsidies, Wal-Mart and its ilk undermine the possibility of "wide participation in businesses." Prospective entrepreneurs are thus pushed out of fields like retail.

In other words, the small Mom & Pop shops are a good thing worth fighting for (I strongly suggest reading Prof. Bainbridge's post to get the full context of the argument). But this argument is an argument, in my view, against any and all big businesses as well as innovation. What about Amazon.com? Does is push out small Mom & Pop bookshops? Does it drive down wages in the small bookshops by creating competition? Frankly, I find this argument is indeed a conservative one. It is an argument that wants to freeze our economy at a certain point like an insect trapped in amber. The idea is to preserve something that is percieved to be good, but in the end this will probably end up killing the whole affair.

Markets are dynamic and in a sense they evolve. Businesses and the people who run them respond to changes in their environments much like living organisms. Some businesses die (go out of business) and others do not. Is there any wonder that evolutionary game theory has made some fairly serious in-roads into economic theory? I don't think so.

As for Prof. Bainbridge's data based arguments my response is so what? I imagine that similar studies could have been done with the introduction of things like farming machinary that put many small family farms out of business and ushered in an era of large corporate farms. Fortunately Prof. Bainbridge stops just short of taking the interventionist step,

So what do we do? Well, we must strike a balance between respect for private property rights (see my Kelo post) and our other values. How? On the one hand, government should not legislate against Wal-Mart and its ilk.

And he actually ends up at the same position as I do with regards to not just Wal-Mart, but all corporations.

On the other hand, government should not subsidize Wal-Mart either through zoning or tax breaks. Wal-Mart’s a big boy, so to speak, who can take care of itself. We ought to let it compete in a free market.

I think this is correct, but I'm still not completely satisfied here. Why just Wal-Mart? Why not all corporations? It seems to me that Prof. Bainbridge sees some sorts of corporate pork as good, and other corporate pork as bad. If this is true, then it negates his first position of not legislating against Wal-Mart.

The last part is just weird,

And those of us with a bully pulpit out to use it to encourage Wal-Mart to become a better neighbor and citizen.

Wal-Mart is neither a neighbor or citizen it is a business. As a business its main goal is to make money. The complaints about the Wal-Marts actions,

Outside the most heavily urbanized areas, Wal-Mart typically builds on the edge of town, putting up a huge (and butt-ugly) big box building surrounded by acres of bare concrete parking lots. There are few sights in the American scene less attractive or appealing to the eye.

When was the last time you drove out to the City of Industry Prof. Bainbridge? Try it, head on out the 60 freeway, exit Grand Avenue and turn right. As you head down towards Valley you are going to see lots of "butt-ugly" big box buildings with large parking lots. Not one is a Wal-Mart. to see the Wal-Mart exit on Azusa and turn right. Of course, if you turn left you'll see a big boxy "butt-ugly" building surrounded by acres of parking lots that is the Puente Hills Mall (Irrelevant Movie Trivia: Twin Pines Mall from Back to the Future).

This is what modern businesses often do. Find an place to build the business that minimizes costs. If you want aesthetically pleasing buildings then you'll have to violate your first position of not making legislation against these types of businesses. The problem here is classic externality problem and the solution is probably going to involve some sort of legislation (these last couple of points might be one reason why Hugh Hewitt thinks Prof. Bainbridge has "gone Statist"; I should also add I don't think that addressing externalities via legislation is necessarily bad).

The bottom line is that businesses change as the market changes. Trying to prevent this change is going to impose costs and probably fairly substantial costs as resisting change like this is as Kevin notes "like fighting the tides". While I agree there shouldn't be any subsidies for Wal-Mart I think this principle should be applied to all businesses, not just the ones each of us individually (or even groups of us) object too.

Empiricism = Liberalism

No, really. Jonathan Chait says so.

The only way to deem the U.S. system the "best" is if you substitute ideological criteria for pragmatic criteria. Our health care system is indeed the best at minimizing the role of government. France, on the other hand, produces better measurable health outcomes at a vastly lower cost. Yet conservatives would consider the notion that France has a better health care system than the United States to be self-evidently false.

Really? On what does he base this? I've argued that life expectancy is a function of more than simply health care. After all, there is quite a few violence related deaths in the U.S. What about in France? What abou obesity? That isn't simply a function of health care as it is about individual choices and behavior. Americans are said to be some of the most obese people in the world. Is Mr. Chait, in his empiricism, controlling for these features? Child mortality can easily be changed in a command and control economy. Simply divert resources from one sector of the economy to another. However, that has a cost, a social cost. Is Jonathan Chait taking this into his empirical analysis? No!?!?!?! Why I'm shocked (okay, not really). Is Mr. Chait looking at survival rates for patients with specific diseases? Exactly, how is Mr. Chait arriving at this conclusion? Apparently Mr. Chait's version of empiricism does not require him to inform us of his empirical methods.

The conundrum is that the remedy of smaller government is particularly ill-suited for the problem of health care. The market for medical services does not resemble the market for blue jeans. Among other problems, health insurance firms have every incentive to deny coverage to those most likely to get sick, which makes the individual health insurance market inefficient and prohibitively expensive. Economists call this phenomenon "adverse selection," and it is inherent in the private health care market. It cannot be solved without some kind of government intervention.

Uhhhmmmm no Mr. Chait, you have gotten it wrong. Adverse selection is when the insurance company cannot tell which customers are likely to become sick. If you read George Akerloff's seminal paper on adverse selection, "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism" you'd actually know what adverse selection is. In the Lemon model, the buyer is not aware if the car is a lemon or a peach. Hence he faces an adverse selection problem. So the incentive facing the insurance company selling health insurance is to charge the right premium based on how likely one is going to get sick. Yes, if you are highly likely to get sick the insurance company is probably not going to offer you a contract...not that you'd probably take it if they did as the premium would be so high.

Jonathan Chait seems to be completely blinded to his own ideological beliefs. He sees them as being rational and informed by empirical research (i.e., he has arrived at his set of beliefs solely via empiricism), when in reality it is a far more dynamic process¹, and empricism is not something that is either liberal, conservative or specific to any other brand of ideology. On top of this Mr. Chait has gotten on a soap box and broadcast his blindness for everyone to see. In fact he can't even present an honest argument.

Imagine that God were to appear on Earth for the unlikely purpose of settling, once and for all, our disputes over economic policy. And suppose that, to my enormous surprise, he announced that every empirical claim advanced by conservatives was correct. Cutting taxes produces such great economic growth that even the poor benefit....

Now imagine the opposite were to happen. God appears in order to affirm liberal precepts: Current tax levels barely affect economic incentives,....

The second appearance of God is not the opposite of the first. The first one has the claim that cutting taxes results in strong economic growth the even benefits the poor. The second is that current taxation levels have zero economic impact on incentives. These are not not opposite. Why can't the "emprical" Mr. Chait simply re-word the first claim to be the opposite of the first claim? Maybe because he knows that virtually every economist would say, "Uhhhmmm okay God...but how come we have all this evidence that current taxes do affect incentives? Are you some kind of trickster God, and if so are you tricking us now, or were you tricking us when you provided bogus data? Oh, and how can we trust the answer you are about to give?"

Well I guess I should be happy Mr. Chait wrote that screed. Now at least I know not to read anything he writes ever again.

Via Kevin Drum. See also, Will Wilkinson for a nice slap down of Chait's idiocy. Megan McArdle also has some posts on this.

Update: In comments there are two good points raised. TangoMan points out that in the U.S. all live births are recorded even for very premature babies. Further, the mortality rate for such babies is very high. This could be skewing the numbers and should be contolled for when looking at infant mortality rates.

Commenter Ron points out that prescription drugs are often developed here in the U.S. and the since in many cases the drug companies enjoy the benefits of pantents here in the U.S. (i.e. higher prices) the U.S. is in effect subsidizing drug consumption in other countries. This too, should be taken into account when looking at the cost of health care programs.

Another point is that my response to Mr. Chait about the empirical evidence he is using for his conclusion that France provides better health care is that many, many liberals rely on those two measures: life expectancy and infant mortality. My view is that these are imperfect measures of health care in general for the reasons cited. Hence, making statements like Mr. Chaits based on such problematic measures is, IMO, fundamentally unempirical. It is cherry picking data that supports one's preconcieved conclusion.

For example, life expectancy is basically a conditional expectation. What age do people expect to live to given their current age. Now, suppose a person is walking in a crosswalk and a garbage truck runs them over and kills them. Their life expectancy is not the age they died at. Exactly how does a better health care system impact the life expectancy? Suppose there is an increase in murders and life expectancy declines a small amount? Exactly what does this tell us about the state of the U.S. health care system? The point is that health care and the health care system is only one variable in the determination of life expectancy. Pretending the relationship is simply

Is foolish without at least some more research. The answer might be true, but it doesn't have to be true and a person who is truly an empricist would acknowledge that such research is necessary to answer such a question. Chait does not do this, he does not suggest it, and in fact, he seems to have decided what the answer is before doing the research. Chait's position is fundamentally unempirical and puts the lie to his claims.
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¹We all have an ideology, and it informs how we see the world, and interpret data. But the data also influences our ideology as well. For example, I'm pretty pro-market in my outlook. At the same time I am aware of data that has called into question the traditional conclusions about minimum wages. Hence my views on the minimum wage have changed.

Breaking News!

Ward Churchill is a Replicant. Note that in this photo Churchill's eyes glow orange.

Via Instapundit.

See the above link for the bit about how the eyes of Replicant's in the movie Blade Runner glow orange.

Drum on Oil Prices and Supply and Demand Again

I don't know why Kevin feels he is an expert in energy economics, but apparently he thinks he is. Basically a questionable regurgitated post from the past. His conclusion is also highly questionable,

Unless something dramatic happens, demand will permanently outstrip supply sometime in the next few years.--emphasis added

Does that remind you of anything? How about Paul Erlich's predictions in the 70's that the battle to feed humanity is over and nuclear war was coming. You remember the nuclear war of 1993 right? Oh...yeah, nevermind.

The problem is that we don't something drastic to happen, just for prices to stay high. If prices stay high then it becomes profitable to build in extra pumping capacity.

For example looking at Kevin's graph why is there a large gap at the begining of the time series (1980)? Could it be a result of the high prices at the time? Further, the real price of gasoline has been declining for decades. You don't add extra capacity when the price of what you are producing is decreasing. I know this may seem shocking, but the idea of minimizing costs is something that businesses like to do.

Kevin's five points from the older post also suggest a non-drastic solution, IMO.

1. Produce more oil (drill wells, build pipelines).
2. Switch to other, more plentiful hydrocarbons (gas, coal).
3. Increase use of renewable power sources (wind, solar).
4. Increase energy efficiency (higher CAFE standards, energy-friendly building codes).
5. More conservation (less driving, air conditioners set to 80 degrees).

All of these things will happen with the market. As prices go up, people consume less. Granted oil and gasoline are pretty price inelastic, but that doesn't mean people wont respond to price changes. One way is to switch to a more fuel efficient automobile, thus you can consume the same amount of gasoline, but drive even more. This covers both points 4 and 5.

Basically, the high price signals that more resources should be devoted to all of the above points. We don't need to do anything at all save not get weak-kneed and try to do some sort of idiotic political solution which seems to be a favorite talking point on the Left.

Also notice the basic tactic here of the fuzzy headed thinkers. See a problem, and then proclaim that the solution will have to be drastic! Why? Because capacity hasn't changed in 20-25 years! Of course, the idea that there was initially a glut of capacity doesn't seem to enter into the picture as a possible explanation as to why new capacity wasn't built.

So here is my thinking/policy suggestion. Do nothing. Just like President Clinton did nothing when gasoline prices jumped a bit in his second term. Let the market handle it, and watch as people conserve on their own. Actually, come to think of it, for the likes of Kevin Drum that would be a drastic policy.

Update: Victor raises a good point on sloppy terminology and mathematical impossibility. It is impossible for the quantity of oil demanded to permenantly exceed supply save via permenant government stupidity (say for example a permanent fixed price below the market clearing price). So even if Kevin is right that capacity never again has a gap between capacity and demand the price will simply rise to equilibrate supply and demand. The only thing that can prevent this is a government policy that results in shortages.

Shocked! Shocked I Say!

Kevin has a funny post. I think it is funny because of the reaction to an obviously stupid ad run by some Rightwing group, USA Next, that was attacking the AARP. I do admit I find that ad quite tasteless. But what I find quite amusing is Kevin's reaction. Wasn't it the Democrats who had the cartoon of Bush pushing a little old lady in a wheel chair over a cliff?

And this kind of hypocrisy isn't limited to one side. Each side will get indignant over the over the top idiocies of the other side. The above picture is slime, icky, despicable. By the same token, the same description is quite apt for the Democratic Party's cartoon of Bush.

Screwing Children

Not literally, but financially seems to be the gist of Kevin Drum's latest post.

Answer: because we don't want to. Sure, we could continue inexorably raising the retirement age, ensuring that no matter how much richer we get and no matter how many medical advances we make, we're still working til we drop. We could do that, but we don't want to. Most of us like the idea that we'll have more years of "active retirement" (i.e., "free of chronic functional impairment") than we did 60 years ago.

Bottomline: despite the "fact" that we are supposedly getting richer (what happened to the perfidious Bush and economic stagnation, out-sourcing, and so forth?) the children should keep financing at increasing rates the retirement of the elderly.

The level of innumeracy demonstrated here is well...nothing new for Mr. Drum,

And guess what? We can. Federal spending today is about 20% of GDP. Eighty years from now, if we make no changes to Social Security at all, its costs will go up by about 2% of GDP. That's easily affordable, especially since our economy will be far larger in 80 years than it is today.

See if you can afford to give away 10% of your income when you are making $20,000 you can easily afford to give away 12% of your income when you make $40,000. It hasn't apparently dawned on Mr. Drum that as GDP goes up, Social Security is growing at a rate faster than the growth rate of GDP.

Update: Okay, people might be confused by this last point about federal spending as a percentage of GDP. The bottom line is that if federal spending is going to go from 20% of GDP to 22% of GDP then that means that has to grow at a rate faster than GDP. Here is an example one can try in Excel. Start with $100 and then have that increase by 2.5% (for 36 years). Now, 20% of the initial 100 is $20 (this represents the federal spending). But for there to be about 22% of the $237.6 at the end of 36 years the growth rate of the initial 20 has to be (approximately) 2.78%. Now, it should be obvious that 2.78% > 2.5%.

In short, such growth is unsustainable because what happens is that eventually federal spending will someday be equal to 100% of GDP, extending the numbers out far enough. Now, in the example above it would indeed take along time to get to such a point (about 591 years), but the point is that this is unsustainable fiscal policy. Now if we throw in Medicare which is an even larger problem and the problem becomes much more immediate. If when we include Medicare the growth rate of federal spending is 4% per year on average then in 111 years and a few months federal spending will be equal to 100% of GDP.

What The...

I had to wonder for second if I was actually reading the Onion when I was reading Ari Berman's Outrages Outtakes.

** Unfortunately, Myanmar (nee Burma) has no oil, valuable trade goods or Islamic militants. It does, however, have the world's third-worst dictator, a Nobel Peace Prize-winning opposition leader under house arrest and US sanctions that cost 60,000 Burmese textile workers their jobs last year. Condi Rice's addition of Myanmar to the "outpost of tyranny" club was rhetorically impressive, but practically insignificant. The US won't lift sanctions or pressure China to stop arming the military junta. Geopolitical realities transcend democratic goals.

Uhhh...so is Ari's first sentence meant to imply he thinks Bush should invade Myanmar (nee Burma) or does should we drop sanctions with the country as he implies later in the paragraph?

An even bigger question: does it hurt to be this confused?

Eugene Stuerle: Social Security Dialogue Should Be Wide-Ranging

Eugene Stuerle had a commentary piece in USA Today and notes that the current discussion on Social Security is falling into a trap of being too narrowly focused. I think he is being generous in that some are simply repeating a mantra that there isn't even a problem and repeating it frequently and loudly. Stuerle notes the following issues.

Inequality: The current system has issues with inequality in that single parents, single individuals, divorced couples, and even couples with two income earners all get less out of the system than a married couple with one income earner.

But a spouse who doesn't work, doesn't raise children and doesn't pay any taxes can receive hundreds of thousands of dollars more in benefits than an abandoned mother who works, raises children and pays taxes.

Funnily enough you wont find discussion of this over at Kevin Drum's blog (who has ironically spent some time posting on inequality).

LIfe expectancy: People are living longer than ever, and given medical and pharmaceutical advancements will longevity likely continue to increase. Thus, Social Security and Medicare payouts will also increase, and likely at an unsustainable rate.

To get a fix on what's overlooked, let's do a little math. A typical couple with an average income of $53,000 retiring today gets lifetime Social Security benefits worth $400,000. But for today's 40-year-old couple with the same average income, current law promises lifetime benefits worth upwards of a half-million dollars. Add Medicare, and the older couple pulls in about $700,000, the younger one roughly $1.1 million. It's no wonder the government's budget for elderly programs is so out of balance: Tax revenue can't support benefits this big, even if nearly every other government activity is nixed.

And yes, President Bush is avoiding the issue of Medicare, which is a larger problem than Social Security.

Stuerle suggests that it might be a mistake to not try to reform both Social Security and Medicare at the same time. I tend to agree. For one thing the problem with Social Security is by and large the same problem for Medicare with the fast rising costs of medical care thrown on top.

I wish some on the Left would be a bit more honest about this discussion. I hear that Social Security is supposed to be an integral part of the "safety net" in this country. Fine, if it is a "safety net" then shouldn't it ideally work for those who have fallen and not everybody? What is wrong with finding a way to induce people to provide more for their own retirement and possibly reducing how people (current workers) provide for the retirement of others (future retirees)? At the same time I think there are problems on the right. Many think that simply investing the money into the stock market will solve all problems. Would that it were so. You can also lose money in the stock market and by putting funds in the stock market there is the issue of risk. For example, the risk might be too high for many low income people who do not have much money to invest anyways.

Franken, Get Your Head Out of Your Butt

Well it seems that the Media Matters boys are hard at work. This time ginning up a fake controvery (or at worst turning a very minor controversy into a big one...or trying to at least). Al Franken has run with it. Kevin Drum thinks it is a bad thing too. So what is the big deal? Brit Hume said the following,

In a written statement to Congress in 1935, Roosevelt said that any Social Security plans should include, quote, “Voluntary contributory annuities, by which individual initiative can increase the annual amounts received in old age,” adding that government funding, quote, “ought to ultimately be supplanted by self-supporting annuity plans.

FDR's actual statement reads as follows,

In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.--bold to highlight the parts Hume pulled

Is is selective quotation? Yes. Is selective quoting a rather dubious rhetorical trick? Again, yes. Should Hume have used it? Probably not. But is it highly misleading? No, not in this case.

Note that Hume said that FDR felt that Social Security should incorporate a voluntary component that sounds similar to what President Bush is proposing in Model 2. Now of course, that is hard to say with certainty because FDR never got around to proposing the voluntary component so we don't know exactly what he would have proposed.

Hume notes this, and then adds the partial quote that the government funding should be supplanted by the self-supporting annuity plans--that is, the plans for a mandantory annuity (Social Security as we know it now) and the voluntary annuity. I see no big deal here. Especially when we stop and remember that Kevin Drum spread some rather misleading information on Social Security and blacks.¹

Given the past actions of all involved in this (Franken, Media Matters, and Kevin Drum) I see no reason to get the vapors over this. This is a mole hill some are busy trying to turn into a mountain. Give it a rest guys. Oh and for the record, I still think that FDR was a horrible President for in part coming up with this ponzi scheme called Social Security. Have no fear Kevin, Al, et. al., Brit's attempt to portray FDR in a positive light has fallen flat with me.
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¹Note in particular Victor's comments. The studies that refute the claim that Social Security is bad for blacks includes the DI portion of OASDI. This is significant in that blacks apparently benefit disproportionaly from this program more than whites. If we remove this does the result turn out that Social Security, the pension part of it, turn out bad for blacks? We don't know, Kevin doesn't know, but he is confident in calling Bush a liar.

Global Consciousness Project: The New Intelligent Design

You know, I'm begining to wonder if perhaps humans, generally speaking, are hard wired to believe dipshit theories. Here we have scores of scientist who think that black boxes with a pocket calculator microchips that some scientists are starting to believe might be able to predict the future.

But, according to a growing band of top scientists, this box has quite extraordinary powers. It is, they claim, the 'eye' of a machine that appears capable of peering into the future and predicting major world events.

Why? Because apparently the random numbers that thes boxes generates ad nauseam took a weird turn four hours prior to 9/11 and took a weird turn again in December prior to the earthquake that cause the tsunami in South East Asia. In fact, they have managed to link the output of these black boxes to 193 events world wide.¹

The problem I'm having here is that when you look at all the news events in the world there are bound to be some that look like they are predicted by these black boxes. In fact, this statement from the website on how the experiments were conducted sounds alot like some new age woo-woo lunacy.

The early experiment simply asked whether the network was affected when powerful events caused large numbers of people to pay attention to the same thing. This experiment was based on a prediction registry specifying a priori for each event a period of time and an analysis method to examine the data for changes in statistical measures. Various other modes of analysis including attempts to find general correlations of GCP statistics with other longitudinal variables have been considered, and continue to be developed.

This all sounds quite a bit like Dembski's attempts to look for an event that is too unlikely therefore it can't be the result of chance. It also reminds me of one of the old Twilight Zone episodes. The one with William Shatner, where he and his wife wind up in some small town (IIRC their car broke down). While waiting in the local diner Shatner starts playing with a fortune telling machine. Amazingly it seems to make accurate "predictions" (IIRC it "predicted" that the car repair would take longer than anticipated). The story continues and the viewer can see that Shatner is falling into the trap of not doing anything without consulting the machine, but the machine's answers are all to often vague or suggest doing nothing. Finally the wife prevails and gets her husband to turn his back on the machine and they leave. But as they are leaving another couple comes in and the wife (I think) says something like, "Oh good the booth is free." And the husband says, "Maybe today it will let us leave."

Update: Just an update on the Twilight Zone, it was called "Nick of Time" and it did have William Shatner in it. Shatner did two episodes, the other was the one with the creature on the airplane wing ("Nightmare at 20,000 Feet") that was later re-done in the Twilight Zone movie.

Update II: Forgot to put the source for this item, Ian at Truck and Barter.
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¹Yes if you looked at the url and thought you must be going crazy you aren't, apparently this has attracted the attention of scientists at Princeton. But stop and consider, Princeton is also the home of Paul Krugman, so this isn't that much of a stretch.

Social Security Questions

Prof. Bainbridge notes Greenspan's testimony and his comments about Social Security, and has some questions of his own. One question in particular I think has a nice answer.

If we can achieve significant savings and ensure the health of the system with the changes mentioned in # 1, is there a non-ideological reason for introducing private accounts?

One non-ideological argument in favor of private accounts is that it removes the incentive for policitians to pander to a significant voting block. That is, policitians are tempted to try and win the elderly vote by beefing up benefits of either Social Security and/or Medicare. The latest example of this, IMO, is Bush's Prescription Drug Plan for Medicare. Since a private acount would basically contain an individuals own money, there isn't much opprotunity for the government to increase that money.¹ Also, private accounts are less susceptible to the demographic problem we are running into now.
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¹I can't take credit for this idea, I first came across it in this Tech Central Station article by Arnold Kling.

Get Your Russian Escorts Here

In checking my referrals at SiteMeter I noticed that I am at the top of Yahoo's search for Russian escorts. I even manage to beat out New York Escorts and actual escort agency in New York. Maybe I should send them an e-mail and advertise for them.

Holy Cow

This might be the first time I actually agree with former Secretary of Labor Robert Reich. In an article on the lackluster performance of the jobs market Reich said the following,

"I do think we're in a new era now in which job growth will remain sluggish for quite some time," former Labor Secretary Robert Reich said in a comment e-mailed to CNN/Money.

And David Wyss notes something I've been hinting at for the past year or so,

"The times they are a-changing," added David Wyss, senior economist at Standard & Poor's, who's been arguing that the changes affecting the job market -- and the broader economy -- started after the previous recession that ended in 1991.--emphasis added

I don't buy the articles claims about offshoring being one of the reasons. Further, part of the change could be due to changes in technology. Just as the internet and computers have made it possible to offshore jobs previously not capable of being offshored, isn't it also possible it has affected employment here in the U.S. as well?

Any how read the whole article.

Via the Economic Roundtable/Angry Bear.

I Know I Shouldn't Do This...But

Deb Frisch has a post on some recent research about black law students, affirmative action and how the latter leads to fewer black lawyers. Near the end of her post Deb makes the following observation,

The hypothesis predicts that the relative performance of blacks and whites should vary as a function of difficulty of the law school. But Sander’s data shows the exact same pattern across law schools (Fact #1 above).

This would be a potential problem for the hypothesis put forward by Richard Sander if this were what the hypothesis was implying, but is it implying this? How about the effect that Sander is noting applies to all law schools. Law schools and universities in general want to show that they are equal opportunity and are not engaging in discriminatory admission practices. So lets trace it out.

At the top ranked law schools there are not enough qualified black applicants so they lower the standards for blacks and get a number close to what their goal. But at the next level of law schools there is not a lack of students. So they lower their standards and get a number close to the one they are trying to achieve. But this leaves the third ranked schools with a shortage. In effect, there is a cascade effect right on down to the bottom ranked law schools that admit students that otherwise would never make it into law school. The end result is that we get data like what Deb notes in fact 1:

1.At every quintile of the status of law schools, white students had GPAs that were higher than the median GPA for black students.

Elite law schools: 95% whites>black median
Other nationally prominent law schools: 93% whites>black median
Midrange public law schools: 95% whites>black median
Midrange private law schools: 92% whites>black median
Lower-range private law schools: 93% whites>black median

Seems that this story fits the data. Whether it is true or not depends on further research.

Update: I re-worked the second paragraph a bit. To see the original click on the read more link.

Update II: Deb's response in comments presents some interesting questions.

1. The NYT article quotes my former boss, Richard Lempert at UMich Law School as saying the pattern doesn't hold at "elite" schools. It would be interesting to see where the effect is most extreme and where it's least extreme.

2. Comparing medians is kind of strange. You can't tell how big the effect is. Is the average white student getting a 3.9 GPA in law school while the average black student is getting a 3.8? If so, a statistically significant difference might be practically insignificant.

3. The real question is WHY blacks, women don't climb the law school, corporate, academic ladders as effectively as white men. One hypothesis is that white men are smarter than other people. Another hypothesis is that many professions are dominated by old white men who treat white men differently from other people.

Suppose you rank order law schools in terms of how big the Sander effect is. Imagine UCLA is at the top of the list - biggest black/white difference. Michigan is at the bottom of the list - smallest black/white difference.

You could look at whether this rank ordering is stable across years. If so, it would suggest there's something about the social structures at the schools that is causing the difference. If not, it would be evidence for Sander's hypothesis that the effect is due to differences in abililty.

The first comment is simply a claim, and Deb has noted previously that simply claiming something with no data to back it up is a bad thing. Still, it would be an interesting question and one worth looking at. As for the second question, one reason for the use of median grades could be the same reason median income is used when looking at things like tax policy. If a goodly number of students are at either end of the distribution they might skew the mean. Maybe. But still another thing to look at with future research. And Deb is right that we can't rule out the possibility of discrimination as a possibly explanation for the differences. As I noted more research needs to be done.

The original second paragraph read as follows:

This is a potential problem for the hypothesis put forward by Richard Sander, but is there a way of explaining this? How about the effect that Sander is noting applies to all law schools. Law schools and universities in general want to show that they are equal opportunity and are not engaging in discriminatory admission practices. So lets trace it out.

Lieberman Would Be Pilloried

According the Washington Post there is some rumors that Joe Lieberman cuold be on a list of people to replace Donald Rumsfeld. The basis of the rumor is the kiss that Bush planted on Lieberman's cheek right after the State of the Union, and that Lieberman is percieved as being a hawk. If this actually happened I think the Democrats would go all out to get Lieberman.

Stating the Obvious: Regulation and Economic Growth

This article in the September 2003 NBER Digest states the obvious, or what many have thought to be the case, that economic regulation has an impact on capital investment.

In a new paper, Regulation and Investment (NBER Working Paper No. 9560), NBER Research Associate Alberto Alesina and co-authors Silvia Ardagna, Giuseppe Nicoletti, and Fabio Schiantarelli examine the relationship between product market regulation and capital spending. Their study is based on differences in regulation among OECD countries. Alesina et al exploit the fact that while most OECD countries have deregulated product markets over the past three decades, they differ in terms of their starting points and the timing, nature, and intensity of reforms. For example, the United States started deregulating in the 1970s. In 1977, 17 percent of U.S. gross national product was produced by fully regulated industries, and by 1988 this total had fallen to below 9 percent of GNP. The United Kingdom was another early reformer, while the laggards include Germany, France, and Italy.

The researchers demonstrate that a number of measures of regulation – in particular barriers to entry – are negatively related to investment. The implications of the analysis are clear: regulatory reforms – in particular those that liberalize entry – are very likely to spur investment; tight regulation of product markets restricts investment.

This isn't that surprising in my opinion when one considers that capital investments could play a role in the strategic behavior of firms. When there is regulation a firm no longer faces as much competition and the strategic aspect of capital maybe lessened.

Another interesting result is that privatization plays little role in investment. The others note that prior to privatization political pressure might have been influencing nationalized industries to over invest. Hence with privatization investment is curtailed to bring it back in-line with profit maximization.

Dang, will Deb pick on me now?

In Steve's post about Deb Frisch's misrepresenting Professor Bainbridge's blog article about the UCLA diversity program, Deb spews in the comments section:

I've never encountered someone in the blogoshere that I knew was a right wing christian capitalist before. And I think this guys a closeted homosexual, to boot. So he's about as low in my pecking order as a person could be.

1. "right wing" -- I voted alomst straight ticket (except for the congressional race, where the R running was a nutbar).
2. "christian" -- I'm a hardcore Methodist, attend church weekly, and even (horror of horrors) sing in the choir.
3. "capitalist" -- I lke money. In keeping with item 2 above ("For the love of money is the root of many evils"), I'm not obsessed with it or anything, but I like it nonetheless.

I'm not closeted, so I don't know if that raises or lowers Deb's esteem for me. Not that I care all that much what a Lilith* wannabe thinks of me.

If she really wants to get her dander up, she should try reading Gay Patriot or Boi from Troy.

* -- Lilith is a code name for a cyberloon obseessed with SBI's. Her true name is not spoken in polite company.

Moral Hazard

I was reading some blogs, and stumbled across this interesting view of moral hazard,

3. Moral hazard: when insurance companies rather than patients bear the marginal costs of treatments, there is an incentive to overtreat--except where treatment has public-health external benefits, and except where the insurer has written the contract to control utilization.

This one’s a joke, right? The patients will always bear the marginal costs of treatments – the only question is whether they do it sooner or later.

The italics are from Brad DeLong's post, and is correct. The response however indicates that the person does not understand how insurance works or the problem with moral hazard.

Lets try it with just one person and a simple form of insurance where the individual has a $250 deductible. If the person needs to use his insurance he will pay the $250 and then all additional costs are paid for by the insurance company. Hence the marginal costs are paid initially by the insurance company. One could argue that the insurance company is going to pass along any increased costs to the customers via higher rates. There are two things here that provide a problem for the person who wrote the response. The first is that the higher rates will be spread amongst all peopel purchasing isurance not just the person who needed insurance. Second, while a firm would love to pass along all of its increased costs it cannot always do this. The reason has to do with the demand function.

Further, this is one of the problems with nationalized universal health care. When the government is paying for health care for everyone, then there will be an incentive to overtreat. Except when there are external public health benefits this will mean to many resources allocated towards health care. There are ways limit the moral hazard problem which include not insuring for replacment cost (say with automobile insurance) or with deductibles. However, with the deductible, unless it must be paid for each new treatment it will not prevent over treatment. HMOs also have this problem which is why many HMOs limit access to specialists. Further, the fact that Prof. DeLong mentions this and it is a problem for nationalizing health care does not make him an idiot, lame, twisted or unscientific. No, it makes him intellectually honest.

This website actually has an interesting example about a town insurance investigators call "Nub City",

"[T]here is the macabre case of "Nub City," a small Florida town that insurance investigators decline to identify by its real name because of continuing disputes over claims. Over 50 people in the town have suffered 'accidents' involving the loss of various organs and appendages, and claims of up to $300,000 have been paid out by insurers. Their investigators are positive the maimings are self-inflicted; many witnesses to the 'accidents' are prior claimants or relatives of the victims, and one investigator notes that 'somehow they always shoot off parts they seem to need least.'"

Moral hazard also crops up with government programs. For example, a government program that provides assistance to women who have children while in their teens could provide a (perverse) incentive for some women to have more children while in their teens. Wealth redistribution can have the same moral hazard problem as well. In all of these cases, the probelm is that people are not bearing the full marginal cost of the program/actions. Consider the program to help young teen mothers. If the program provides say a monthly cash payment, then the program actually reduces the marginal costs to the teen while raising the taxes (assuming revenue neutrality) for everyone else.

In other words, the response above to Prof. DeLong indicates a complete lack of undertanding as to the nature of the moral hazard problem.

Blogs vs Mainstream Media

You know, I don't get into this discussion much, but this new post at a Crux Magazine blog by Bobby Maddex is interesting. On the one hand we see the complaint by many in the Mainstream Media (MSM) about doing basic research. In this case Maddex's claims that Richard Von Sternberg lost his posts at the Smithsonian Institute and as editor of a journal due to his involvement in having a psuedo-scientific screed published in said journal. These claims are not only false, but reading Von Sternberg's site would have disabused Maddex of these ideas.

On the other hand, Maddex claims he was relying on an MSM article which turned out to be wrong. So ironically it was the MSM that failed initially to do the basic research, and in turn mislead an other. Further, we get the benefit some have claimed with regard to blogs and that is quick response time to errors. I don't know of any correction yet to the misinformation in the Wall Street Journal article, but in Maddex's favor he has posted this article that notes the errors.

However, Maddex does try to salvage the initial misleading post.

Disregarding the fact that both Coleman and I were merely relaying the details of the story as set forth by David Klinghoffer (indeed, I began my post with "In an Op-Ed piece for the Wall Street Journal today, David Klinghoffer reported . . ."), I fail to see how Brayton's corrections excuse the basic injustice of the story, which is that Sternberg was made a pariah by the scientific community for publishing an article on intelligent design---one that was PEER-REVIEWED, no less.

Let us be quite clear here. The only person who offered peer review of the article was Sternberg himself. Again this can be found on Sternberg's website. Why Maddex still hasn't visited that site for information is beyond me...maybe he is still ignorant of it, but you know all people who run web logs should be quite familiar with google....

Second, it isn't clear that Sternberg is a pariah as the Klinghoffer article indicates. Remember, Klinghoffer either through ignorance and shoddy work as a reporter or out of a deliberate attempt to mislead readers, put out false information. This should immediately call in to question the trustworthiness of Klinghoffer as a journalist in general and on this issue in specific.

In fact, Jonathan Coddington, the person Sternberg is accusing of wrong doing, has posted a rebuttal at the Panda's Thumb where he claims the accusations in the Klinghoffer article are by and large false.

So we see that despite this benefit of quick response time to errors that misinformation can still persist. Of course, there are other blogs that can get the story out there, I just wish guys like Bobby Maddex would be honest enough to visit some of them and take a few minutes to do a basic google search.

The rest of Maddex's article deals with the ID controversy and does so very, very badly.

Lest his readers assume that he is calling attention to these peripheral (and entirely unintentional) inaccuracies to avoid dealing with the arguments of ID, however, Brayton goes on to write that Coleman's reference to the "theory" of intelligent design is likewise misleading. "Until ID advocates actually come up with a theory that makes positive predictions (as opposed to 'I predict evolution can't explain this')," he argues, "it will not be taken seriously as a genuine scientific model."

Where do I begin? First of all, as Denyse O'Leary points out in her post "The Intelligent Design Controversy," I think that scientists such as Michael Behe, Bill Dembski, and Jay Richards would be quite surprised to learn that they have not made any positive predictions on behalf of intelligent design. Permit me to reiterate O'Leary's recommendation that people read Dembski's new book The Design Revolution before furthering this oft-repeated (and categorically untrue) complaint about the intelligent design movement.

Exactly what positive contributions have been made? Dembski's Explanatory Filter? Sorry that is a technique. While techniques such as Ordinary Least Squares can be useful they are not positive scientific predictions. In fact, this is especially true of Dembski's filter in that it makes not predictions, but simply eliminates different explanations with the last possible explanation being design. That isn't a prediction so much as arguing as follows:

1. This argument can't be true.
2. This next argument can't be true.
3. Thus, this third one must be true.

This is an elimination procedure and predicts nothing. Further, it is a flawed tool.

Behe's notion of irreducible complexity (IC) could have positive predictions...maybe. At least that is what Kenneth Miller indicated here. However, Behe, et. al. seem totally uninterested in pursuing such tests. Miller for example points out that Behe's example of an IC system, the blood clotting cascade, has a problem in that the Hagemann factor can be removed without disabling the blood clotting cascade in dolphins. Sounds like precisely the kind of work that Behe should be doing on his notion of IC. Why hasn't he done any?

Maddex continues,

Even more frustrating is the extent to which committed Darwinists are engaged in the very practice that Brayton maligns. Aren't scientific naturalists essentially saying, in other words, that they predict creation can't explain the origins of the earth?--emphasis i the orignal

No, creation can explain everything. That is the problem. Creation can explain all hypotheses because there are no restrictions put on the Intelligent Design proponents creator. One must remember that given the arguments that the ID proponents have put forward the only possible creator is a supernatural being like the Christian God who is omnipotent. Thus, we cannot say it was aliens, or some other designer who is advanced, but ulitmately limited like us humans. Why? Because according to ID proponents there is no way for natural processes to create beings like us humans.

Maddex continues with the sleight of hand.

Moreover, aren't they so stubbornly clinging to this prediction that they choose to ignore the mounting scientific evidence against a material cause for the universe? The real question is whether Darwinism can be considered a "theory" in light of its a priori commitment to atheistic assumptions.

First off, this is part of what Brayton is noting. There is no mounting pile of evidence against evolutionary theory. At least not from the ID community. They have tried, but many of their ideas have fallen. The ICness of the cilium? Gone. The ICness of the blood clotting cascade? Gone. Dembski's filter? Found severely wanting and yet to be tested on natural constructs as opposed to man-made constructs. Dembski's "No Free Lunch theorem" argument? Seriously undermined by a misapplication of the no free lunch theorem. The only thing they have left is the flagella, and even that is now coming under severe attack by evolutionary biologists.

Further, even if neo-Darwinian theory is "debunked" that does not meant hat ID or Creationism is true by default. This is the either-or fallacy. When Ptolemy's model of the solar system was debunked it was debunked by an alternate that provided a better explanation. The better explanation explained everything that was observed and did so in a more simplistic manner. Hence using the principle of parsimony the Ptolemian model was rejected.

And finally we see that the IDers simply are not interested in open debate and challenging their ideas.

When first learning of the existence of the Panda's Thumb and hearing that it was leveling a number of attacks upon Crux, I must admit that I was happy that our fledgling publication was being taken seriously enough by the scientific community to warrant some fifty-odd separate posts on our ID coverage. Now that I've seen the substance of those posts, however, I feel somewhat ashamed of my initial enthusiasm. In fact, this is the last reference to the site that I will make in this blog. Such manipulative and decidedly unscientific ire is simply not worth my time.

Of course who can blame them. They have tied their religious beliefs to the success or failure of the ID moevement. If that movement fails it means a crisis of faith for these people. It is rather sad, but it highlights one of the pitfalls of bringing one's faith into science and tying it to one's work in science. In science your ideas can be shown to be false or severly lacking. If your faith rests on scientific arguments found wanting what does that mean for your faith? Nevermind the apparent paradox of having to base one's faith on science which is founded on empiricism and not faith.

I will say this about Maddox's post. When he writes,

Indeed, after wasting the better part of my morning reading through the many smug and mean-spirited comments attached to Brayton's analysis, it's all I can do to keep from telling these people where they can put their Panda's thumb.

He does have a good point. Many of the comments there are nasty, smug and vile. I think Pandas Thumb would be better off by banning some of the more nasty posters there, but that is their blog and they can run it as they see fit.

Unemployment Numbers

In the never ending quest to paint Bush as the second coming of Hoover, Sofla in comment here makes the following claim,

Evidently, Bush's first 4 year term DID see a net loss of some 750,000 jobs-- private sector jobs.

The slight increase in jobs from his first inauguration is the effect of public sector job increases.

So, Bush is indeed the first president since Hoover to see a net negative number of private sector jobs created in a presidential term.

Not true. Dwight D. Eisenhower saw a decrease from his inaugeration in 1957 till he left office in 1961. In January of 1957 private sector unemployment stood at 45,268 but in January of 1961 it stood at 45,119.

Sofla continues with,

And, putting aside the jibe about starting a war, Hoover didn't consider running a deficit of 20-25% of federal expenditures as a fiscal stimulus to the economy.

No, instead Hoover saw such a thing as a horrible state of affairs. As did Roosevelt and to stop it (apparently both had the whacky idea that eliminating the deficit would end the Depression) raised taxes. Now there is an idea, raise taxes during a recession. You didn't know that raising taxes woud stimulate the economy? Why you haven't been studying Clintonomics.

The comment,

Some dissimilarities between the two include no shanty towns (yet) called Bushvilles,....

Is just stupid considering that unemployment went only to 6.3%. When Hoover left office it was at 23.6%. Unless I'm reading the data wrong here, I just don't see the comparison.

How much did Hoover raise taxes? A heck of alot.

In order to pay for these and other government programs, Hoover agreed to one of the largest tax increases in American history. The Revenue Act of 1932 raised taxes on the highest incomes from 25% to 63%. The estate tax was doubled and corporate taxes were raised by almost 15%.--link

Roosevelt was pretty much the same way.

The foregoing projects, and others, were expensive, and the government was not taking in enough revenue to avoid deficit spending. The deficit was made up in part by raising taxes and borrowing money through the sale of government bonds. Meanwhile, the national debt climbed to unprecedented heights.--link

Is Race obsolete?

Rikurzhen has an interesting post on this topic over at Gene Expression. The short version is that while it might be nice to think that there are little or no differences between races it looks very much like checking that box on forms can convey quite a bit of information beyond which continent you were likely born on (or your ancestors) and your skin, hair, and eye color.

Fluff Blogging: More Swim Meets

Well the boy has had two more meets and has done pretty well. At the latest meet he actually improved his 25 yd. freestyle time by a small margin (19.61 seconds). He also did his first 25 yd. butterfly and didn't do too bad (24.94 seconds). He did DQed again in the 25 yd. breaststroke. They are pretty harsh on that one. I saw the officials DQ one swimmer for not having his toes pointed in the right direction!

Evidence Against Evolution

One of the frequent claims by the Creationists (a.k.a. Intelligent Design proponents) is the following,

Regardless of the tin-ear reporting of some journalists, students in Kansas will continue to learn about evolution. The question is will they know ALL about evolution including the scientific evidence against it? Or, will they learn only about the evidence that supports it?--link

The problem for the Creationists is that they don't have any evidence against evolution. I know, I know, the usual argument is to point to the flagellum for the E. coli bacteria. The problem here is that the argument is that a simpler version of the flagellum doesn't exist since removal of any part would render the flagellum useless for the purpose of motility. The problem is that this is overly restrictive. Who says that the simpler verson has to be used for motility? For example, the Type III Secretory System (TTSS) is basically a simpler version of the flagellum, but its purpose is different. This suggests according to Behe's initial definition¹ this discovery would mean that the flagellum is not irreducibly complex (IC).

Further, simply saying that evolutionary theory as currently postulated cannot account for the development of biological structure X, does not automatically convey truth on the claim that there is a designer. For the claim of a designer to be true there has to be evidence supporting the claim. If you read all the ID writings the one thing you will not see is evidence for a designer, but instead arguments as to why current evolutionary theory cannot work on some biological structures.

For example, there was Dembski's Explanatory Filter (EF) which supposedly is able to detect design, but in reality is too easy on the design hypothesis and can produce false positives. Behe came up with the notion of irreducible complexity, but to date he has done no research based on this idea. That is, he has provided no evidence supporting this idea. Dembski again entered the fray, but this time arguing that evolutionary processes can't produce new infomration. This argument relied on no experimental evidence, no field observations, and instead relied solely on a misapplication of the No Free Lunch theorems. Dembski also floated a list of "questions evolutionists would rather dodge". Again, these are all negative arguments, and are evidence in favor of no theory. In the end there is no evidence against evolution or for ID here. All other ID writings, talks, etc. depend on these ideas put forward by Dembski and Behe. These two are the primary source of intellectual ammunation for ID and against evolution, and in the end they have pretty much failed.²

Thus, the claim that students should learn of the evidence against evolution is a deception. It is a sleight of hand that the Creationists want to use to get their views back into the classroom. In some regard Phil Johnson had a grand strategy. His strategy called for postulating alternative, Christian friendly theories of evolution. Further that actual scientific work be done on these theories and that the evidence be presented in journals, conferences, etc. Thus, working the narrow edge of the wedge into the tree of scientific materialism to destroy it, and eventually getting creation back into the high school classrooms. The problem is that the implementation of the strategy failed. They failed to do the scientific work, and by all appearances there is noway to do the scientific work Johnson called for. So these kinds of claims are simply to mislead and confuse people.
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¹If you think that Behe has multiple definitions of irreducible complexity you are correct. As new evidence is found against IC, Behe changes the definition.
²At least so far. I suppose there is always a chance that Behe will actually do some scientific work based on his ID ideas, but I doubt it.

More Intelligent Design Lies?

Looks very much like it. A new magazine, Crux Magazine that is pro Intelligent Design (ID) also looks at the Sternberg affair, and the article by John Coleman in some outright lies.

Sternberg, something of a postmodern Catholic received even worse treatment when he allowed an article proposing the possibility of Intelligent Design (a prominent anti-Darwinian theory of origins) to appear in the Museum of Natural History’s journal. Sternberg lost his post at both the museum and the journal, as noted by Bobby Maddex; his crime—allowing a theory considered unscientific by the academic mainstream to make it through the process of peer review.

However, if we go to Sternberg's site we have the following claim,

Following my resignation in October 2003, a new managing editor for the Proceedings was selected in May of 2004, and the transition from my editorship to the new editor has taken place over the past few months. By the time that the controversy emerged I was finishing up my last editorial responsibilities. Thus, my stepping down had nothing to do with the publication of the Meyer paper.--emphasis added

As has already been noted by others, Sternberg was never an employee of the Smithsonian. He is instead employed by NIH and is a Research Associate at the Smithsonian which allows him access to materials at the Smithsonian. Further, according to Coddington, the man Sternberg is complaining about, Sternberg still has full access to the Smithsonian materials. Even more amazingly, Mr. Coleman references a post by Bobby Maddex, that notes that Sternberg is still "employed" by the Smithsonian. While that is not literally true, Sternberg is still a Research Associate.

At the very least the IDers should at least let the review/investigation process proceed before declaring the "Truth" on this issue. The outright deceptions only does damage to the reputations of the writer and Crux Magazine.

You Gotta Love It

So there I was reading a post by Prof. Bainbridge about how the diversity programs at UCLA really isn't a diversity program. He notes that one under represented groups would be Republicans. But in the track backs we end up at this rather incoherent post.

It is funny that Deb Frisch accuses Prof. Bainbridge of being a statistical dunce when she makes a huge error. Deb posts the following numbers,

• Women: -11%
• African American: -2.5%
• Hispanic: -2%
• Asian: -.25%
• Native American: -.72%

The only problem is that these numbers don't seem to come from the data Prof. Bainbridge posted. Deb seems to have assumed that the "Shortfall" row in Prof. Bainbridge's numbers are precentages when in fact they are not. For example, the 10.64 is derived from subtracting 27.64 (the number of female law professors at UCLA should have) from 17 (the number of law professors UCLA). That is not a percentage.

You gotta love it when somebody screams in outrage about somebody else being a mathematical idiot...but then turns around and makes a blunder like this. And what mathematical idiocy does Deb accuse Prof. Bainbridge of? Well she objects to his back of the envelope calculation for the under representation of Republicans. Prof. Bainbridge notes there are about 5 Republican law professors and then uses the proportion of Republicans in the U.S. population to arrive at his "Shortfall" number of -15.35. Deb misquotes Prof. Bainbridge as follows,

The number of Republicans on our faculty is roughly the same as the number of African-Americans, for whatever that's worth, by the way. Subtracting the expected number of Republican faculty from the number of actual Republicans (5) gives us an underutilization factor of -15.35, which would be significantly higher than the factor for any ethnic group.

But lets compare that to the full quote by Prof. Bainbridge,

According to the University of Pennsylvania’s National Annenberg 2004 Election Survey, 31.8% of the electorate identifies as Republican. Assuming that figure as the availability estimate, the expected number of Republican faculty should be 20.35 (I know that Republican affiliation skews lower among individuals with post-graduate degrees, but I'm having trouble finding that data). Subtracting the expected number of Republican faculty from the number of actual Republicans (5) gives us an underutilization factor of -15.35, which would be significantly higher than the factor for any ethnic group.--emphasis added

In other words, Prof. Bainbridge notes the very problem that has gotten Deb Frisch's underwear in a knot. Even more amusing when commenters point out that she has misconstrued the point of Prof. Bainbridge's post, has misrepresented the data, and selectively quotes Prof. Bainbridge she says she can't see the point. Have some integrity Deb, and just admit you messed up.

Update: Well, well, well. This isn't the first time Deb Frisch has mischaracterized Prof. Bainbridge. That time at least she did manage to come up with a vitriolic little post that supposedly apologized for the error.

Update II: I guess Prof. Bainbridge can declare Victory. Of course, this part is a bit problematic,

His post raised another interesting question. Should religious fundamentalists be allowed to be professors of law or science? It seems like someone who believes morality is derived from a book allegedly written by an alleged guy in the sky isn’t fit to teach law. Similarly, someone who has religious beliefs that cause him to reject the theory of evolution shouldn't be a professor of science.

Why not allow a person with religious views teach law. Does a person who holds religious views reject the law? Not necessarily. Her argument is sloppy and illogical, and a fine example of bigotted thinking.

To the E-Mail Bag

Surprisingly after all these years of blogging I have yet to get any hate mail. I haven't had any stranger send me an e-mail calling me a "running dog capitalist shit" or the like. I must say I'm a bit disappointed by this.

However, we do get some e-mail and today I got one from Nick who writes,

Hey Steve, Happy New Year. I was hoping you might read the above piece and then blog about the Broken Windows Fallacy. I'm still trying to figure out if the fallacy is a fallacy.

I had never heard of the theory. But once when I was pontificating
about how the Y2K incident was all for the best because it spurred new
technologies/problem solving/management techniques and that it was
long run for the good, someone shot me down really fast with BWF.

The Broken Window Fallacy (BWF) is indeed a real fallacy. The example used by Bastiat (thanks to Lynne Kiesling) goes something like this.

A young hooligan tosses a rock through a shopkeepers window then runs off. The shopkeeper calls a glazier who replaces the window. The glazier takes his pay and goes to the cobbler and purchases a pair of shoes. The cobbler takes his money to the baker and purchases some bread and pasteries. The cycle continues bring additional economic prosperity to the town. All thanks to the young hooligan who...may not really be a hooligan. Look at all the wealth he created.

The problem with the above story, notes Bastiat, is that opportunity cost is being ignored. The shopkeeper could have gone to the cobbler, thus enabling the cobbler to go to the baker, and so on and so forth. Thus, the young hooligan is not the source of economic prosperity, but is the source of wealth redistribution (from the shopkeeper to the glazier). Or, think of it this way: suppose it turns out the glazier paid the young hooligan to break the window. In this case, the glazier would be regarded as a theif. How can something which was initially a "good thing" now be bad? The answer is that the initial belief that the actions of young hooligan were good was false.

Given this story the Broken Window Fallacy holds. The broken window does not create any net economic gain. But does the BWF hold anywhere and everywhere? I think that the BWF is much like the slippery slope fallacy. If you venture out on to a real slippery slope there is indeed a chance you could slide down. Hence a slippery slope argument could be completely valid. Similarly simply because there is economic activity after an economic disaster does not mean that there are no net economic gains.

Think of it this way. In the example with the glazier there is no new technology, no investment, and no information problems. We don't live in such a neat an simple world. Information problems alone might mean that profit opportunities are missed. For example the Y2K problem that Nick brings up. What if because there had never been such a problem before nobody thought about a particular application/technology. Further this application/technology was useful beyond the limited Y2K problem and that the rate of return on this application/technology is 2x all other possible uses for those resources used in coming up with the application/technology. In this case, the BWF may not apply. Using the BWF everywhere and anywhere there has been an economic loss then followed by economic activity to replace those losses runs the risk of the fallacy fallacy.

So Nick might very well have been correct about the Y2K problem. On the other hand, the "economic boom" after the hurricanes in the souteast probably fit the BWF. After all, people are rebuilding what they already had. In this case, without the hurricane damage people could have had what they are currently rebuilding and all the things that the money the are spending on rebuilding could have bought.

Design for Lying

Michael Behe has an editorial in the New York Times. Right off the bat we can see that Behe is...errr stretching the truth.

IN the wake of the recent lawsuits over the teaching of Darwinian evolution, there has been a rush to debate the merits of the rival theory of intelligent design.

The only problem is that later in the article Behe writes the following,

Intelligent design proponents do question whether random mutation and natural selection completely explain the deep structure of life. But they do not doubt that evolution occurred.

I'm sorry Prof. Behe, but you can't have it both ways. You can't have a "rival" theory and a theory that is at best adjunct of current evolutionary theory.

Rather, the contemporary argument for intelligent design is based on physical evidence and a straightforward application of logic.

This part is funny considering that the intelligent design argument is basically a fancy argument from ignorance. We don't know of any way for this exact and complete molecular machine to evlove, so therefore creationism. Notice that we have to have evolution of the complete molecular machine and it has to be exactly like what we see today. We can't have something similar or something simpler. Nope, we have to have certain bacterial flagella spring into existence complete as we see it today.¹

The first claim is uncontroversial: we can often recognize the effects of design in nature.

Errr, actually no. This part of the claim is one that ID (Intelligent Design) proponents have yet to test. What Behe means to say is we find design wherever we have found intelligence. Hence all of the examples of ID put for ward by ID proponents are man made. Dembski's Caputo example, Behe's mouse trap, Dembski's SETI, etc. There has yet to be a successful application of a means to test for ID in nature. This has been one of the long standing complaints of ID. When ID proponents do try to apply their ideas to nature they slip in silly assumptions. One example is the "one true form". That is, there is a given form that must obtain. Hence you can't simply have something that provides propulsion for the bacteria, but instead you must have the flagellum. Another assumption that is snuck in is the random assembly. You can't have a step-wise process the flagellum must form completely via random assembly. Naturally, this means a very, very low probability and hence the result is a "successful" detection of design. Of course, a step-wise process would attenuate the probabilities in question so we have to rule that out by assumption.

For example, unintelligent physical forces like plate tectonics and erosion seem quite sufficient to account for the origin of the Rocky Mountains. Yet they are not enough to explain Mount Rushmore.

Uhhh...what? What. The. Fuck? Is Behe claiming tha plate tectonics is an example of design in nature? Or is Behe trying to claim that Mount Rushmore is a natural phenomenon? Is he saying that plate tectonics "designed" the rocky mountains? I think Behe's logic processor imploded.

Of course, we know who is responsible for Mount Rushmore, but even someone who had never heard of the monument could recognize it as designed.

As already noted, this is not an example of design in nature.

Which leads to the second claim of the intelligent design argument: the physical marks of design are visible in aspects of biology. This is uncontroversial, too.

This is uncontroversial? This is one of the major claims of ID. Establishing this claim would be a huge victory for ID. The problem is that ID has not established this claim, and trying to do so via fiat is an amazing display of hubris.

From there Behe goes on to repeat many of the statements of the ID creationists. He even makes a vague argument by popularity (e.g., the public supports design, hence it must be true). There is also, the argument from anonymous authority with the vague claim about the scientists who believe in ID. Sure there are some scientists who believe in ID, but so what, one can find in any group a sub-group with strange beliefs, views, and practices. This is not a valid argument. Fruther, consider this: most people accept that the Holocaust happened, and there is a vocal minority that deny it. Are we to start teaching Holocaust denial in high school classrooms simply because some of the deniers might have advanced degrees? I should hope not.

Note that Behe's argument in favor of Intelligent Design amounts to nothing more than attacks on current evolutionary theory. Even if we grant him every one of his negative claims these are still not positive claims for Intelligent Design. Behe has failed at the very task he set for himself. It must be rather frustrating not to be able to mount a good positive argument, and to simply keep using the tired old creationist ploy of simply attacking evolutionary theory hoping that Creationism will win by default. Perhaps if Behe, et. al. spent less time writing op-eds and instead got to work in the laboratory they'd get a bit more respect.
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¹This was not the initial idea put forward. The initial idea was that something like certain bacterial flagella are irreducibly complex in that a simpler version is useless. However, when the Type III Secretory System was found to basically be a simpler flagellum, the goal posts were quickly moved.

(Deliberately?) Misunderstanding Bush's Plan

Matthew Yglesias decides to weigh in on the Social Security issue and oh boy is it awful. To make things easier for him to understand Matthew breaks Bush's plan down into three parts.

1. Default on the Social Security Bonds (I kid you not).
2. Cuts benefits by an unspecified amount.
3. Implement private accounts.

Right off the bat one should be highly suspicious of Matthew's understanding of Bush's plan. This is one of those statments that is just screaming for more explanation. Is he being flippant, is he being serious. If the latter, how does he arrive at this notion of default? According to the CBO Bush's Plan 2 will require transfers from the general fund to finance it.

The President's Commission to Strengthen Social Security (CSSS) described three reform plans. This analysis considers Plan 2.⁽²⁾ The plan would introduce individual accounts (IAs) and switch from wage indexing of initial benefits to price indexing. It would also introduce a new minimum benefit for workers with many years of low earnings, increase the survivor benefit for some widows and widowers, and transfer some funds from the federal government's general fund to the Social Security trust funds. More information can be found in the analysis of each provision.⁽³⁾

As for the unspecified benefits cuts, while there might not be exact dollar figures known with certainty the nature of the cuts to the guaranteed benefits is well knonw, if a bit arcane. The benefits cuts will be as follows:

1. Index initial benefits to the CPI vs. wages,
2. Redcue guaranteed benefits by the amount diverted into individual accounts plus 3%.

While in both cases the amount of the reduction depends on a number of unkowns this is also true if we did nothing to Social Security. The wage growth that current initial benefits are tied to is not a given, but is typically estimated. As such, we don't know what benefits are going to be with certainty. Further, the trust fund is in actuarial imbalance and this could also impact the size of benefits. So this claim is needlessly vague and strikes me as little more than a scare tactic.¹

Matthew then writes,

Phase three is the proposal to allow workers to divert one third of their payroll taxes into something resembling an account under the Thrift Savings Plan. Once a worker -- call him "Matt" -- chooses to do this, Social Security's cash flow will be messed up. Four percentage points of my wage income that were supposed to be going to pay grandma's Social Security benefits are now sitting in my private account. As a result, the government will need to borrow some money to pay grandma's benefits.

Uhhh, hold on a second....I thought Bush was going to default? What happened to that little nugget of information? Oh well, who knows what Matthew is thinking at this point.

The administration believes that that money can be borrowed at a 3 percent rate of interest. When Matt retires, his guaranteed benefits -- already substantially cut during phase two -- will be cut a second time. The size of this cut will be equivalent to the value of Matt's total contributions to his private account, plus 3 percent interest per year.

Well sort of. This "cut" is only a cut if the return on the private accounts is less than the 3%, see the example in this post.

Thus, once Matt retires, he will have access to all of the money in his private account, but his guaranteed benefits will have been cut twice. His little brother, meanwhile, who didn't put money into his private account, will only have his benefits cut once.

While the above is, to some extent true, it is highly misleading in that it strongly implies that investing in private accounts is always a bad thing. This is not necessarily the case.

Amazingly Matthew then correcly states how the plan will work based on Weisman's description of the plan. Why Matthew felt the need to go through all these bizzare contortions to try and portray the Bush plan as bad is beyond me.

Also, this paragraph is just amazing for its hack factor.

Now, the upshot. The White House says the average worker can expect a 4.6 percent real rate of return on his private account. Under explanation two, this makes borrowing the money at a 3 percent rate turn out to be a smart investment move. You get a 1.6 percent net return. Under explanation two, it's a little hard to see why taking the private account is the right move, but the math comes out the same way, a 1.6 percent net return. Thus, having already implemented phases one and two, the private accounts are a good deal for workers. Phase two and -- especially -- phase one, however, are terrible deals for workers. The cuts undertaken in step two (and made necessary by phase one) are bigger than the gains you can make by starting your account. The important thing, as the chart at the bottom of this page indicates, is that what you're being promised by the Bush administration is worse, on average, not only than what you're being promised right now, but worse than what currently scheduled benefits can afford.

Again Matthew brings up the notion of default, but again fails to explain where he got this notion from. Further, he says that the default is the worst part of the Bush plan, but again doesn't explain why, how, or anything at all about it. In fact, Matthew then goes on to cite a page at the Center on Budget and Policy Priorities that shows the President's plan will increase public debt. Excuse me, but I thought Bush was going to default on the debt owed to Social Security? A quick word search of the Center on Budget and Policy Priorities reveals no usage of the word default. Further, the Center on Budget and Policy Priorities has the following statement,

Matthew then closes with this amazingly absurd claim:

The plan will also reduce the national savings rate (new private savings will be 100 percent offset by new public dissavings, but the new accounts will crowd out some non-account private savings) and reduce economic growth.

If new savings is offset by and amount exactly equal to the increase in savings then savings is unchanged, not decreased.

There are number of issues that make Plan 2 questionable, there is no need to engage in this kind of deception. Why Matthew feels a need to be so misleading is beyond me, and it only hurts his credibility.

Update: The really sad part is that two economists (well one economist, and one graduate student in economics) accept the default claim without anything to back it up either.
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¹Either that or Matthew is too lazy to actually read up on the issue and his just making vague scary sounding claims.

The Interest Rate Charge on Your Notional Account

Victor has been blogging up a storm on Social Security (see the following posts, link, link, and link). One of the issues Victor is touching on is a the notional account. See, with Bush's Model 2 you wont actually "own the funds". The government does. Further, you will be charged for all private account contributions. However, according the President's Commission to Save Social Security you will be charged, if I'm reading Victor and the CSSS report correctly, you will be charged the value of your contribution plus 2%. This will be deducted from your guaranteed Social Security benefit.¹ Your Social Security benefits though earn about 3% rate of return, so in a sense you would get a 1% subsidy, and if your personal account earns more than 2% you win in that the money from your personal account will exceed your deduction from your guaranteed Social Security benefit.

Now that is nice and confusing isn't it? But what caught my eye was this comment from Victor.

I began this post to point out that under Model 2 of the Presidential Commission's plan, everyone was going to get a 1% interest-rate subsidy. This now appears to be off the table. On the one hand, this is a good sign that they are taking fiscal realities into consideration when designing their program. On the other hand, it makes you wonder: what is to prevent future Congresses from fiddling with the interest further?

Well there is, right now according to everything I've seen a big fat nothing. In fact, I'll go even further. They will fiddle with that interest rate. Suppose the optimal time path for the interest rate is {x_t} where t = 1, 2, .... The time inconsistency problem noted by Finn Kydland and Edward Prescott applies. That interest rate will be changed and the outcome will be a sub-optimal outcome. Further, there will be pressure to fiddle with it as it will be a simple and quick way to modify the level of benefits and the burden depending on the political reality of the time. Given that there will be many, many more elderly there pressure from this angle would be to lower it at some future date.

There are others looking at this as well. Arnold Kling explains the logic behind the notional account and the interest rate. He thinks 3% is too high too, but he ignores the "fiddling issue".

Brad DeLong and Jonathan Weisman caused a little controversy. Here is a simple way of thinking about this "controversy" that the Left, in my veiw, are being misleading on. Lets keep it simple with two cases. The first case you do not opt for a personal account, and in the second you do. Further, your personal account earns 4% (compounded monthly) on average. How much do you get. The table below shows the results.