Thursday, December 16, 2010

interfluidity » Links on inequality and the macroeconomy

interfluidity » Links on inequality and the macroeconomy:

"Charles Butler writes:

Steve [Randy Waldman],

With respect, I don’t think you’re framing this properly. The issue is not relative wealth but the surplus accruing to the lower end of the scale. There are absolute values that affect your calculation.

Then Charles Butler writes:

Oh boy! This gets complicated really quickly. That’s why I restricted myself to three sentences.

I’m mostly saying that if you want the growth model to keep functioning that you’re going to get more bang for your buck from increasing median incomes in Nigeria than from diminishing differentials in the U.S. – this completely irrespective of what the rich-poor gap is in the latter country. Conversely, it is possible to imagine a place in which everybody is wealthy beyond their ability to spend and the gap remains unchanged. Absolute levels do matter.

You are quite correct about the transfer of buying power via loans. In the U.S. it was done as such. In Europe it was via the guarantees of the welfare state and the curious practice of sprouting, and rearing, kids at less than the replacement rate. Both cases are debts to be repaid.

That the continued functioning of the growth model in the industrialized countries seems to have depended on this debt to the future makes me think that there is something more fundamentally awry than income distribution.

Don’t be so self-effacing. Almost everybody else who blogged with your rigour has thrown the toys out of the pram and gone home.

January 13th, 2010 at 9:08 am


Is it?

Are places where everyone is wealthy beyond their ability to spend, and yet the gap [in wealth? income? both?] between the bottom and top remains [relatively? absolutely? by formula?] unchanged?

Are there any modern examples? Hmmm... maybe Luxembourg? Nope, I don't think even there everybody is wealthy beyond their ability to spend on consumption; at a $90,000 (US) median annual income, I'd say more than half the population falls below the lack of spending need threshold.

Why are there no current exemplars?

If not now, are there any historical examples? I certainly cannot think of any off the top of my head. But, then I make no claim to be an economic historian. [I am willing to learn.]


And, if we must resort to imagination - which Austrian economists would surely dismiss as invalid, since imagination is not human action (which is the essence of their praexological methodology) - then, under what circumstances & conditions could such places exist? Here, I guess I agree with the Austians [which I don't often do]: merely being able to imagine such a place does not mean it is possible... or even marginally more probable than as to be insignificant. If the necessary conditions turn out to be so rare and/or unlikely as to be virtually inapplicable to the real world, then what's the point?

Finally, do they pass Waldman's sustainability requirement? If these places cannot persist over time, then they have failed on a critical axis.


BTW, I don't disagree: Absolute levels DO matter. Or, perhaps better said: Absolute levels MIGHT matter... if the conditions are right.

However, I am not quite so ready to concede that it doesn't matter how the increase in median Nigerian incomes is distributed. If, say, a 5% rise in Nigerian median income is engineered such that all of it accrued to the pre-rise top 1% households, then how much relative 'bang for the buck' is being generated in the global macroeconomy? What would it imply for the sustainability of Nigeria, economically, politically? Do the top 1% of Nigerian households leave their money in country? How will the countryside react? I'd expect more disruptions to Chevron & Royal Dutch Shell's operations in the Niger Delta.

Sunday, December 5, 2010

To Be Fair: A Methodology Critique in Defense of Those Wascally Wepublicans (Commentary)

Elsewhere I have referenced a study that suggests political conservatism is a mild form of insanity. To be fair, I came across this critique and decided the rules of evidence compel its disclosure.

Smith's critique has valid points of argument. Still, I think Jost is on to something: maybe it is simply confirmation bias (a factor amply argued by Smith), but the psychological factors underpinning Jost's motivated cognition model jibe with my personal observation [admittedly non-professional].

A Methodology Critique in Defense of Those Wascally Wepublicans (Commentary): "IronShrink - Restoring your faith in psychology on brilliant answer at a time...
Home Archive About Ask the Shrink User's Guide for a Human Mind

January 16, 2007
Denver Psychologist
Dr. Shawn Smith

A Methodology Critique in Defense of Those Wascally Wepublicans

(Part 1 of 3)

You may have heard the news by now. People who hold conservative political opinions are suffering from a syndrome in need of a cure. How do we know this? Because a professor of psychology has demonstrated it to be so. The news has been getting a lot of press lately.

Since his graduate school days, John T. Jost, who currently holds position as an Associate Professor of Psychology at New York University, has been studying the reasons by which people adopt conservative political ideology. His most publicized achievement is a 2003 article titled Political Conservatism as Motivated Social Cognition (from here on out, I’ll refer to it as “the study.”) It was touted in the February issue of Psychology Today (Dixit, 2007) as, “the most comprehensive review of personality and political orientation to date.”

Don’t confuse comprehensiveness with integrity. The study maligns half of the U.S. population and much of the population of the world. Research resulting in mass vilification always causes the Iron Shrink to raise an eyebrow, so I examined the methodology that the authors used to arrive at their conclusion. Regular readers will know that I have little tolerance for intellectual sloppiness.

Regular readers will also know that it is not my habit to tear down the work of others. Doing so takes little talent and too much of that sort of thing rightfully drives people away. But at times, one must defend the integrity of one’s profession.

What They Discovered

Jost, along with his co-authors Jack Glaser, Arie Kruglanski, and Frank Sulloway (“the authors”), concluded that there is “a clear tendency for conservatives to score higher on measures of dogmatism, intolerance of ambiguity, needs for order, structure, and closure and to be lower in openness to experience and integrative complexity than [are] moderates and liberals” (Jost, 2006, p. 662). In other words, conservatives are pigheaded, closed minded, anal retentive, and less intelligent than everyone else. The authors also believe that conservative ideology is driven by “the psychological management of uncertainty and fear” (p. 369).
There is “a clear tendency for conservatives to score higher on measures of dogmatism, intolerance of ambiguity, needs for order, structure, and closure and to be lower in openness to experience and integrative complexity than [are] moderates and liberals.”

The study has received glowing reviews from the field of psychology. In its uncritical account of the piece, Psychology Today made reference to its “impeccable methodology” (p. 84). In a short piece ironically titled Psychological Science is Not Politically Correct, the president of the American Psychological Association cited the study as an example of “high quality behavioral research” (Koocher, 2006).

Impeccable methodology? High quality research? Let’s look at the research methods that have the experts all atwitter. But first, I ask for your informed consent.

Buyer Beware

I generally keep free from political ideology because it is irrelevant to discussions on general psychology. But this topic is different. Political beliefs are at the core of the issue, and politics can motivate writers (like me) or researchers (like the authors) toward comfortable conclusions.

One of the most basic responsibilities of a psychologist is to provide informed consent. In my clinic, I have a legal duty to explain my methods and remind clients that I’m not the ultimate authority. That responsibility doesn’t extend to this website, but I think you have a right to know my political leanings before you read any further. Telling you is the right thing to do, so here goes...

I am a libertarian and a capitalist. I trust the free market more than I will ever trust government policy makers or university professors. I have noticed that social programs work only up to a point, after which they create resentment and entitlement in recipients. I find it unconstitutional that gays are not allowed to marry and I am reluctantly pro-choice. Ayn Rand was a sexy goddess and Ronald Reagan was correct when he said that government is the problem, not the solution. And yes, I voted for George W. Bush because his policies were, and sadly still are, better than the alternative.

Now you know where I stand and you’re free to dismiss me as a ranting extremist. Jost and his colleagues offer no such courtesy. They give the appearance of harmless, objective observers rather than armed combatants in the war of ideas.

A Brief Outline

Political Conservatism as Motivated Social Cognition is a long, complex analysis of 88 studies that have examined conservative ideology. It weighs in at a hefty 37 pages and 23,000 densely-packed, agonizing words. (I put myself through a lot for my readers.) It examines more than 20 theories, contains complex statistical operations, and is peppered with political opinion and historical threads. Copyright law prohibits me from providing you with the study, but you should be able to find it at any university library. In the meantime, I’ll do my best to sum it up briefly.

The authors begin by summarizing the struggle of social scientists and psychologists to understand conservatism over the last half century. The rise of Marxism and World War Two figure prominently in this struggle. They point out that there has been no such effort to understand political liberals – that population has barely been studied. The authors hypothesize that the beliefs of conservatives are defined both by psychological needs and by practical motivations.

They offer a two-part definition of conservatism that serves as the foundation for their study and establishes the parameters for the theories and the data they examine. They hypothesize that a meta-analysis [1] of previous studies will reveal that “people embrace political conservatism (at least in part) because it serves to reduce fear, anxiety, and uncertainty; to avoid change, disruption, and ambiguity; and to explain order, and justify inequality among groups and individuals” (p. 340).

The authors outline theories that have been developed by others to explain conservatism, and they describe some of the measures that have been developed to test those theories. After analyzing 48 pieces of literature containing 88 samples, the authors boast that “almost all of our specific hypotheses were corroborated” (p. 366). Unfortunately, proving themselves right involved at least three very serious methodological flaws.

The first methodological flaw is basing the entirety of their work on a definition of conservatism that is both maligning and simplistic. The second is a biased and unrepresentative description of the population of conservatives, including a selective use, disregard, and reassignment of statistical outliers. The third is a degree of confirmation bias that is baffling in its depth.

Let’s take them one at a time.

Methodological Flaw #1: “Webster’s Dictionary Defines Conservatism as…”

If I were setting out to understand a complex social phenomena such as conservatism, I would want to get to know conservatives. I’d want to talk to them and watch them. I would ask open-ended questions about their thoughts on government. I’d try to find out how they relate to their families, friends, and communities. I’d ask about their educations and their religions. I’d look at their voting patterns, the history of their ideology, and their desires for the future. And that’s just off the top of my head.

I would absolutely not forgo all of that in favor of a Webster’s dictionary definition. Yet, that is precisely what the authors did. Worse still, they used a Webster’s dictionary from 1958. (I own a 1949 edition. I’m poised for some serious research, baby!)

The authors’ dictionary states that conservatism “stresses the disposition and tendency to preserve what is established” and “the disposition in politics to maintain the existing order” (p. 342). That’s the first of their two-part definition of conservatism.

The second part concerns equality. Turning to the sentiments of others who have written about conservatives, the authors endorse opinions such as, “the left favours greater equality, while the right sees society as inevitably hierarchical” (p. 342).

Resistance to change and promotion of inequality. That’s the study’s definition of conservatism. It provides the foundation for the research they sought out and the hypotheses they sought to confirm. Let’s look at each of “the two core aspects of conservatism” (p. 343).

Conservatives Resist Change

The authors rely on little more than their dictionary to support this half of their definition. Other evidence that conservatives resist change comes from previous writers who have used similar definitions. If enough people repeat it, it must be true.

This description of conservatism is childishly simplistic and demonstrably inaccurate. To be sure, some conservatives resist some changes. But they also favor changes that are resisted by liberals, who are characterized in the study as open-minded and groovy. (Liberals exhibit “the highest levels of integrative complexity and flexibility” [p. 356]; “tolerance is an important attribute of the cultural worldview for [liberals] but not [conservatives]” [p. 365]; and conservatives are “prevention-oriented” whereas liberals are “promotion-oriented” [p. 348].)

One example of change favored by conservatives is the Fair Tax initiative. American conservatives tend to support the abolition of the IRS in favor of a system that would change the face of federal funding. It is perhaps the most profound change initiative in the public arena, and it is liberals who resist it.
It’s a complex world and sometimes we all want to rearrange the furniture.

Another example is public school vouchers. Conservatives would like to upend the administration of public education. Liberals vehemently resist this change.

A third example is the Civil Rights Act of 1964. Some Republicans (18%; 6 Senators) resisted this change while 31% of the Democratic majority (21 Senators) filibustered and tried to kill the act. Democrats such as Mike Mansfield (Senate Majority Leader), Robert Byrd and Albert Gore Senior resisted that change.

We could go on with examples of changes that conservatives would like to see, changes that liberals resist, and vice-versa. People seek change when it suits them, and they avoid it when it doesn’t. It’s a complex world and sometimes we all want to rearrange the furniture.

There is a massive body of research concerning change behavior. Since the authors base their argument on the assumption that attitude toward change is one of two variables that define political allegiance, one would expect them to have consulted that literature. Instead, they ignored it in favor of a 45-year-old dictionary and a collection of self-affirming critiques on conservative ideology.

Conservatives Support Inequality

This half of the definition relies on the opinions of previous writers and it is an unfortunate illustration of political naiveté. Views on equality comprise perhaps the single most important delineation between conservatives and liberals. It is not a particularly subtle distinction, but it eludes the grade school definition used in the study. The ongoing debate regarding equality – and I’m not sure how the authors managed to miss this – is a debate of over equality of outcomes versus equality of opportunity.

In America, conservative ideology tends to fight for equality of opportunity. Conservatives want everyone to have an equal chance at success. Liberals, on the other hand, tend to fight for equality of outcome. They want everyone to be equally comfortable.

We can’t have both. Equality of opportunity means that there will be inequality of outcome. Some people are more talented or will work harder than others. Conversely, equality of outcome means that there can be no equality of opportunity. In order for everyone to reach the finish line at the same time, some must be hobbled.

The authors’ juvenile definition of conservatism captures none of this nuance, which is vitally important to understanding the differences between conservative and liberal ideology. Americans on both sides of the aisle take equality very seriously. By framing the issue in such simplistic terms, the authors play on emotions and paint conservatives as aristocratic and oppressive.

What’s more, this simplistic definition limits the populations and the studies to be included in the meta-analysis. If you define conservatives as those who support inequality, then you will focus on studies concerning conservative anti-egalitarianism. Ditto for resistance to change. What about other issues?

What about conservative attitudes on micro- and macro-economics? The role of government? The role of business? International policy? Work habits and productivity? Individual rights and responsibility? These seem like important considerations in the definition of a political ideology.

By ignoring inconvenient issues in their definition of conservatism, the authors have fixed the game from the outset. That’s just the beginning of the methodological problems.

Methodological Flaw #2: Finding the “Right” Populations

Statistical operations, no matter how complex, can’t add quality or objectivity. Like a food processor, they can only operate on what the user inserts. If the ingredients are biased, simplistic, or incomplete, so will be the results. Accurate data begins with accurate selection of study participants.
Statistical operations, no matter how complex, can’t add quality or objectivity. Like a food processor, they can only operate on what the user inserts.

One common problem in sample selection is the lack of willing participants, and so researchers frequently resort to populations of convenience. Undergraduate college students are arguably the most heavily studied segment of the population because they are readily available on college campuses, where this type of research typically takes place, and they can be enticed. This sometimes makes it difficult to generalize the findings to the larger population, particularly in matters involving maturity and experience.

A second problem is in defining the target population from which the study sample will be drawn. Before researchers can study a phenomenon, they need to understand what it looks like in the general population. Often, going into a study, they don’t know whether their sample will be representative of the population in question because the population is still somewhat undefined.

For example, in earliest studies of schizophrenia, researchers were unclear about prevalence and symptomology of the disease in the general population. There were many unanswered questions, and this made it difficult to find study participants who were representative of the population of schizophrenia sufferers.

If a researcher doesn’t understand the population in question, he or she may draw an unrepresentative sample and end up studying the wrong thing. Of course, sometimes the population is quite well defined, but the researchers don’t bother to do their homework.

A third problem in sample selection is the presence of statistical outliers. These are people who are so endowed with the quality being measured that they skew the data, much like the genius in high school who blew the grading curve on math tests. These folks must be accounted for statistically. If not, the results of the study cannot be generalized to the larger population.

Political Conservatism as Motivated Social Cognition suffers from each of these problems. In sample selection, population definition, and handling of outliers, we find examples of egregious methodology. Let's look at each.

Sample Selection Bias: Psychology Majors Ain’t CEOs

The authors report that “sixty percent of the samples are exclusively composed of college or university student populations, but they account for only 37% of the total number of research participants included in our review” (p. 352). 53 of the 88 population samples were composed exclusively of undergraduate college students.

It’s rather meaningless to point out that undergraduate students comprised only 37% of the subjects across studies (even though that’s still a phenomenally inflated sample pool, given that the U.S. Census Bureau (1999) reported that college students comprise roughly one half of one percent of the general population). What really matters in a meta-analysis is each study’s effect size, not the distribution of subjects across studies. Even though effect sizes are weighted (meaning that studies with larger numbers of participants count more), meta-analysis measures the simplified results of multiple studies, not the actual participants or particularities of those studies. Effect sizes go in, effect sizes come out [2].

Alan Kazdin (2003), author of one of the most widely accepted textbooks on research design, discusses the problem of using undergrads in psychological research:

“Typically, students are enticed into participation in an experiment by receiving credit toward an undergraduate psychology course, by being given monetary incentives, or by being solicited as volunteers by experimenters who circulate among psychology classes. An issue of concern is whether the findings obtained with college students will generalize to other samples (p. 101).”

According to the research, says Kazdin, those who volunteer for experiments tend to be, among other things, higher in need for social approval, more socially active, less authoritarian, less conforming, more altruistic, more self-disclosing, and are more maladjusted when volunteering for experiments that involve unusual situations (p. 103). Each of these factors could greatly confound studies concerning dogmatism, openness to experience, and the other characteristics sought after by the authors. However, they seem to have made no effort to explain or account for these possible interactions.

Another potential problem is the possibility that undergrads tend to be – pardon my bluntness – politically, professionally, and economically illiterate. I know I was. For the most part, this tiny segment of the population has little or no experience of life outside the safety of academia. They have not been educated by the real-world trials that shape political ideology over the course of a lifetime.

In addition, there’s good reason to believe that students spend most of their educational career with left-leaning public school teachers and college professors [3]. This is another source of subject selection bias and a potential source of interaction; the authors acknowledge this (p. 366).

Ill-Defined Study Populations and Creative Use of Statistical Outliers

Before the authors could measure the negative traits associated with conservatism, they had to define the target population. What societies exemplify conservatism? Which ones illustrate liberalism? What historical figures serve as useful examples? Admittedly, the answers to these questions are subjective, but what the authors came up with doesn’t comport with my history books.

The face of conservatism, some say.

In their attempt to identify the qualities of left-leaning or socialist populations, the authors lament that “unfortunately, little or no empirical data are available from the major communist or formerly communist countries such as China, Russia, and Cuba” (p. 343). They thus eliminate leftist outliers from their data pool.

Nevertheless, they say, “we have made a special effort to seek out and incorporate results obtained in 12 different countries, including those with historical influences of socialism or communism,” including Sweden, Poland, East Germany, West Germany, Italy, England, Canada, and Israel. All of these, despite their “historical influences” are currently pleasant, peaceful, productive countries. If you are an American liberal, this is your comparison group.

In their search for examples of right-leaning populations, the authors turn to Hitler’s Germany [4], Stalin’s Russia, and Pinochet’s Chile. If you are an American conservative, your comparison group contains the likes of Dr. Mengele. In a separate article, Jost (2006, p. 658) painted what most people consider to be mainstream, thoughtful conservatives such as William F. Buckley, Milton Friedman, and Barry Goldwater as right-wing “fringe activists.”

In this meta-analysis, left-leaning populations are devoid of ideological extremists or statistical outliers, while the right is defined almost exclusively by outliers. The authors quote Robert Altemeyer's feigned attempt to locate left-wing dictators:

“I have yet to find a single ‘socialist/Communist type’ who scores highly (in absolute terms) on the [Left-Wing Authoritarianism] Scale.... the ‘authoritarian on the left’ has been as scarce as hens’ teeth in my samples” (p. 353; brackets in original).

Perhaps the reason that Altemeyer is unable to locate authoritarian leftists is because this line of research tends to plead the Fifth (as with China and Cuba) or define them away (as with Communist Russia).

Perhaps the reason that Altemeyer is unable to locate authoritarian leftists is because this line of research tends to plead the Fifth (as with China and Cuba) or define them away (as with Communist Russia). You may be wondering how the authors managed to lump Stalin in with conservatives, thereby avoiding the sticky business of Marxist authoritarians. The authors explain that Stalin,

“…secretly admired Hitler and identified with several right-wing causes (including anti-Semitism). In the Soviet context, Stalin was almost certainly to the right of his political rivals, most notably Trotsky. In terms of his psychological makeup as well, Stalin appears to have had much in common with right-wing extremists” (p. 343).

So there ya’ go. Stalin was less Marxist than others, mind readers have determined that he had a crush on Hitler, and he kinda looked like a conservative by our defnition. Ergo, Stalin was a conservative. Impeccable logic.

Let’s review the ideological assumptions that underlie the study’s sample selection: left wing societies are best represented by contemporary Sweden, while right-wing societies are exemplified by Nazi Germany. Joseph Stalin – the same Stalin who murdered tens of thousands under the banner of Karl Marx – is a conservative, while Milton Friedman – who earned the Nobel Prize in Economics for his work on consumption analysis – is a right-wing fringe activist. Meanwhile, authoritarianism does not exist on the left, or at least it can’t be located because there are no records of such things. Mao? Castro? Lenin? Guevara? Chávaz? Pol Pot? Never heard of ‘em.

Now that’s creative use of statistical outliers! The authors have built a wonderful foundation and are set to prove their point. All that’s needed to complete the job is a healthy does of confirmation bias.

Methodological Flaw #3: May I Help You Find What You're Looking For?

It seems as though the authors weren’t interested in studying conservatives as much as they were interested in studying the opinions that liberals hold in regard to conservatives. Many of the theories included in the meta-analysis stem from the work of Theodor Adorno. The authors themselves appear to embrace Adorno's ideas, though they never openly admit as much. They don’t tell us much about Adorno other than a brief, offhand observation that he was a member of the Frankfurt School. They also explain that he “sought to integrate Marxist theories of ideology and social structure with Freudian theories of motivation and personality development to explain the rise of fascism throughout Europe in the 1930s and 1940s” (p. 345).

As a member of the Frankfurt School, Adorno was a Marxist ideologue, a vehement anti-capitalist, and a supporter of communism. Among his beliefs were that humans are motivated by fear. This is the same conclusion reached by the authors, with the exception that the authors confine this shortcoming to contemporary conservatives. Adorno’s beliefs are the ideological thread that connect many of the theories the authors chose to include in their meta-analysis. How did they go about confining fear-based motivation to conservatives? By forgoing open-ended research in favor of a narrow, almost incestuous lineage of ideologically-charged political theory.

Take the example of Right Wing Authoritarianism (RWA) theory, which figures prominently in the study and is held up as an unquestioned explanation for conservative ideology. RWA theory was advanced by the Frankfurt School and seeks to explain the development of fascist cultures. According to RWA theory,

“harsh parenting styles brought on by economic hardship led entire generations to repress hostility toward authority figures and to replace it with an exaggerated deference and idealization of authority and tendencies to blame society scapegoats and punish deviants” (p. 345).

If this seems overly complex and theoretical, the kind of pointy-headed, impractical nonsense that only a privileged intellectual could devise, it is. There are too many unanswerable questions for this to be supported empirically. How is “harsh parenting style” quantified? Where is the evidence that entire generations “repressed” hostility? Is it possible to locate a repressed hostile act in a person’s brain? What is “exaggerated deference” and how is it quantified? What is the mechanism by which one feeling is “replaced” by another, and how is that measured? How does one measure scapegoating? And how can all of these questions be brought together into a coherent, empirically-supported theory?

The questions can go on and on, but one gets the sense that the answers don’t really matter to the authors. And never mind that theories such as this fly in the face of demands for parsimony (the rule that researchers should accept simple explanations over more complex ones). Once a theory like this takes hold, others begin to repeat it and devise measures to support it.

For example, Robert Altemeyer, following the theories of Adorno, has devised ways of measuring obedience to authority in an attempt to “test” RWA theory. When such measures support the theory, they tend to be adopted into the body of work (recall the above quotation in which Altemeyer concludes that, according to his measures, there are no authoritarians on the left). Eventually, a mountain of patchwork evidence accumulates for supporters.

The beauty of theories like RWA is that, while they can’t be proved, they can never be disproved. Once a group of theorists and researchers begin quoting and citing each other, the body of work takes on an air of legitimacy, regardless of the quality of empirical evidence.

The upshot of all this? When researchers look for evidence to support their theories (as opposed to searching for objective truth) they tend to find it. Using just that approach for each of the following, the authors found affirming evidence in 22 domains of “research” that has accumulated regarding conservatives. They are:

* The theory of Right-Wing Authoritarianism (see above)
* Intolerance of Ambiguity (in relation to conservative prejudice)
* Mental Rigidity, Dogmatism, and Closed Mindedness (as characteristics of conservatives)
* The Theory of Ideo-Affective Polarity (black and white thinking in conservatives)
* A Dynamic Theory of Conservatism as Uncertainty Avoidance
* Regulatory Focus Theory (a theory related to parenting styles that explains the supposed lack of closeness in conservative homes and other conservative characteristics)
* Terror Management Theory (fear of death as a motivation for conservative ideology)
* Social Dominance Theory (group subjugation as a conservative goal)
* System Justification Theory (blind self-interest as a motivation for conservative ideology)
* Dogmatism (as a characteristic of conservatives)
* Intolerance of Ambiguity (in relation to ethnocentrism in conservatives)
* Integrative Complexity (the conservative lack of, including the desire to obtain new information)
* Openness to Experience (the conservative lack of)
* Uncertainty Avoidance (as a motivation for conservative ideology)
* Personal Needs for Order and Structure (as a characteristic of conservatives)
* Need for Cognitive Closure (as a characteristic of conservatives)
* Threats to Self-Esteem (as a motivation for conservative ideology)
* Fear, Anger, and Aggression (motivations of conservatism)
* Pessimism, Disgust, and Contempt (characteristics of conservatives)
* Fear and Prevention Loss (as motivations for conservative ideology)
* Fear of Death (as motivations for conservative ideology)
* Threats to the Stability of the Social System (as a motivation for conservative ideology)

If these pre-selected domains sound unflattering to conservatives, they are. In each case, the authors found precisely what they were looking for - unquestioned arguments that conservatives are mentally deficient. Clearly, the authors are not interested in discovering what makes conservatives tick, they are interested in demonstrating that conservatives have damaged souls.

It’s Tough to Get Respect

According to the authors, “we now know” (p.369; such unequivocal claims are generally not tolerated in respectable research) that variables significantly associated with conservatism include fear and aggression, dogmatism and intolerance of ambiguity, uncertainty avoidance, need for cognitive closure, personal need for structure, terror management, group-based dominance, and system justification. Conservative ideology is a “syndrome” (p. 347 & 369) and those who are caught in its dogmatic clutches are “ideal candidates to follow the next Hitler or Mussolini” (p. 346).

Beneath such rhetorical excess is a thinly veiled contempt for those who hold conservative beliefs. In a discussion concerning System Justification Theory (one of the lead author’s pet projects), the authors note that the theory is “especially well suited to address relatively puzzling cases of conservatism and right-wing allegiance among members of low-status groups, such as women and members of the working class” (p. 350).

The authors are “puzzled” as to why a woman or someone with a job (both of whom they categorize as low-status) would disagree with their viewpoint. Could it be that the woman or the worker weighed the evidence and simply arrived at a different conclusion than the authors? Impossible. Commoners cannot be trusted with such matters.

I won’t take it upon myself to apologize to conservatives on behalf of my industry. That seems presumptuous. But I am embarrassed by the methodology in this study and I am deeply troubled by the response from the psychology community. This study is being held up as exemplary research when it is better suited to the editorial pages of Mother Jones than a peer-reviewed journal.


Hear the Iron Shrink on 850KOA's Mike Rosen Show, Feb 01, 2007. 10:00 A.M.; 11:00 A.M.

The first round of reader comments is available here.

1. Meta-analysis is a study of several other studies; it is a numerical evaluation of a body of research. Since different studies use different measures, meta-analysis uses each study’s effect size as the common metric. Effect size is a way of describing differences between experimental conditions. The goal of meta-analysis is to draw inferences from a multitude of studies that cannot be drawn from single studies alone. Return to article.

2. Imagine a company board of directors in which each member holds a different number of voting shares. They are asked to vote on how much money to invest in a given venture – a little or a lot? The distribution of shares matters, but not as much as the fact that each board member is being asked to invest some amount of money. In this meta-analysis, the authors are essentially asking each study, “how screwed up are conservatives – a little or a lot?” The weight of each answer matters, but not as much as the answer itself. Return to article.

3. In a 2006 National Education Association survey, 36% of members reported having voted for “mostly Democrats,” while 8% reported having voted for “mostly Republicans.” (Education Intelligence Agency, 2006). Among 1,208 college professors surveyed in a different study, 79.6% reported having voted for mostly Democrat candidates over the last 10 years, while 9.3% reported having voted for mostly Republican candidates (Current Review, as quoted in Saunders, 2006). Special thanks to Ben DeGrow of the Independence Institute for his help with these statistics. Return to article.

4. Some readers may wonder, as I did, why the authors categorize Nazi Germany as a right-wing dictatorship when, functionally, there was little difference between the National Socialist party and the Communist party of Russia. Both believed in government control over production, property, education, and resources. Both insisted that the desires of the collective are more important than the rights of the individual, and both followed a philosopher-king (to quote Plato) for the glorification of the collective. These all appear to be far-left ideals and actions. However, I don’t wish to be drawn arguments over peripheral issues so I will remained focused on the methodology of the study. Return to article.

Dixit, J. (2007). The ideological animal. Psychology Today, 40(1), 81-86.

Education Intelligence Agency (2006). Data from NEA’s most recent member and local president survey. Downloaded on January 15, 2007 from

Jost, J.T., Glaser, J., Kruglanski, A.W., & Sulloway, F.J. (2003). Political conservatism as motivated social cognition. Psychological Bulletin, 129(3), 339-375.

Kazdin, A.E. (2003). Research Design in Clinical Psychology. Boston: Allyn and Bacon.

Koocher, G. P. (2006). Psychological science is not politically correct. Monitor on Psychology, 37(9), 5.

Saunders, D.J. (2006). Don’t think outside the college box. Downloaded on January 15, 2007 from:

U.S. Census Bureau (1999). Scholarship of all ages: School enrollment in 1998. Population Profile of the United States, 35-37. Downloaded on January 14, 2007 from:

Copyright © 2005-2010 Mesa Psychological Services, Inc.

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Friday, December 3, 2010

Budget Matters - The Moment of Truth - National Priorities Project | Bringing The Federal Budget Home

The latest on deficit reduction proposals:

Budget Matters - The Moment of Truth - National Priorities Project | Bringing The Federal Budget Home: "Budget Matters
The Moment of Truth

Written by Chris on December 03, 2010 in General Budget , Government .

Earlier today, the 18 members of the President's National Commission on Fiscal Responsibility and Reform voted to approve the final version of the proposal issued by the Commission's Co-Chairs, Sen. Alan Simpson and Erskine Bowles. The vote was 11-7, short of the 14 votes which, according to the panel's rules, are needed to prompt congressional action.

Failure to reach the 14 vote threshold also means that the Simpson-Bowles proposal is not the Commission’s final report. Yet despite this, the question of federal deficit reduction and controlling the national debt will not go away. In addition to the Simpson-Bowles proposal -- the final version of which is called 'The Moment of Truth' -- seven other major deficit reduction proposals have been released in recent weeks, by foundations, think tanks, and even individual members of the Commission who found serious fault with the panel's work. Links to the various reports are included below.

There is also a large contingent of policy experts who believe that given the nation's troubled economy, discussing ways to control the federal deficit by cutting government spending is absolutely the wrong conversation to be having at this time.

This is the debate of our lifetime. More than Iraq, more than Afghanistan, even more than health care reform, this debate has the potential to impact our nation, and even the world, for decades. None of us can afford to sit this one out. For anyone who doubts this, you need only think back to the November elections. People are worried about their futures and deeply concerned about the role that government will play in healing our nation.

NPP is committed to helping our constituents inform this critical debate. Through our major products such as 'the President's Budget' and 'Tax Day' we provide a wealth of information on the federal government's priorities and how your tax dollars are spent. Using our 'Federal Budget 101' website and webinars we bring you vast amounts of information on the federal budget process and how you can take part in decision-making. Our newest products, NPP's 'Jobs, Deficits and Taxes' webinar and our two new blog series 'DC Speak' and 'On The Block' all focus on demystifying the on-going discussion of these vital topics. Links to NPP resources are also included below.

We cherish your participation, both as participants in the national debate and as drivers of our work. As our vision statement says, 'We hold the vision of an informed and engaged democracy where all people affected by federal spending priorities have the ability and opportunity to shape our nation's budget.' We also encourage you to share with us your ideas and suggestions on the kinds of materials that will help you become a better and more effective player at this important time.


The Moment of Truth (Final Simpson-Bowles proposal)

Restoring America's Future (Rivlin-Domenici plan)

Report by Commission Member Rep. Jan Schakowsky

Toward Common Ground: Bridging the Political Divide to Reduce Spending (US Public Interest Research Group and the National Taxpayers Union)

Investing in America’s Economy: A Budget Blueprint for Economic Recovery & Fiscal Responsibility (Demos, Economic Policy Institute, and the Century Fund)

Getting Back in the Black (Peterson-Pew Commission on Budget Reform)

How to Cut $343 Billion from the Federal Budget (Heritage Foundation)

The 21st Century Plan for America’s Leadership (Commission Member Andy Stern)


Annual analysis of the President's budget: NPP's analysis of the FY2011 federal budget spans FY2008 to projected FY2012. The publication offers state-level data for health, education and energy and cross budget category comparisons: .

Tax Day 2010: NPP issued a breakout of the allocation of individual tax-payer dollars, in spending categories which correspond to our President's budget analysis. View the report, as well as our individual tax chart: .

NPP's Database: Our one-of-a-kind database contains state and local level data on federal spending and correlated social well-being indicators. In 2010/11, NPP broke ground on the Data 2.0 Project to overhaul the database and its contents in partnership with Sunlight Labs and Forum One. Due for completion early in 2011, this work will greatly expand the usability of NPP's information: .

Federal Budget 101 on the website: A comprehensive guide to the federal budget with associated charts: and

Data for Democracy webinars: This initiative is dedicated to helping our constituents use NPP's localized federal spending data and tools more effectively. Launched recently with the webinar Out of Balance, the feedback on this series is incredibly positive. State-level figures are available to help participants “bring home” the webinar's main messages. Out of Balance's success prompted us to hasten the development of Federal Budget 101 and Jobs, Deficits & Taxes, available here:

Tags : deficit federal budget

At some point, I need to sit down and create a comprehensive cross-plan comparison... but I haven't read any but the Simpson-Bowles plan.

Rivlin's plan, I have read elsewhere, includes a quasi-VAT-like consumption tax, which I am usually opposed to on regressivity grounds, although I have heard it argued that Rivlin's particular consumption tax purports to be more progressive than the current overall tax structure. I don't know if that's true; I'd have to read the details, and get analysis from, e.g., the folks at the Tax Policy Center.

Schakowsky's plan is likely more progressive, based her remarks from yesterday's C-SPAN televised committee meeting. So far, I'm liking the Demos-EPI proposal, especially in terms of budget priorities... but I haven't finished reviewing it yet. Peterson-Pew & Heritage Foundation's plans I can easily guess to be far more to the conservative right than I am likely to find acceptable. The rest, I don't know anything about.

All of which leaves me to comment on the final [so far] Simpson-Bowles proposal:

  • First, as a matter of general principle, I approve the concept of broadening the tax base and lowering rates. Hardly anyone disagrees... except of course those who are effected by the removal of the special exemptions and credits.
  • The "simplification" of reducing the number of individual income tax brackets is gimmicky. I still think there should be MORE brackets, not fewer. In particular, more brackets at the upper end, to further differentiate between the upper 10%, 5%, 1%, and 0.1% percentiles. Pre- and after-tax income distribution analyses I've seen suggest that relative to their somewhat less well-off neighbors, the upper 1% and 0.1% don't quite [IMO] contribute their fair share [although this is likely due to their incomes being disproportionally sourced from capital gains, which are [currently] taxed at much lower rates than ordinary income; if capital gains and dividends are to be taxed at normal ordinary income rates, this goes away.] Off the top of my head, I'm thinking 5%, 10%,15%, 20%, 25%, 30% and 35%.
  • I am pleased by the somewhat improved effects on tax progressivity / incidence. I just still don't think it's gone far enough. The upper income groups have disproportionally benefited from government largesse (read tax expenditures), both during Reaganomics and under Bush, Jr. The bill has come due, and it is time for them to repay the favors given... especially since the favors given have not translated into jobs or financial stability for the vast majority of us.
  • The Estate Tax should be reinstated. I'm open to various specific levels of exemption, rates, etc. 
  • Not a nickel of SocSec benefit cuts - including not raising the retirement age - until and unless the cap on wages subject to the payroll tax is removed (entirely). Not only would this set SocSec on actuarial solvency for as far as the eye can see, but it further shifts the overall tax burden upward (where it belongs).
  • A Financial Transactions Tax (e.g., see Baker/CEPR) needs to be incorporated. As does a Financial Activites Tax (see Slemrod et al). And an Excess Reserves Tax.
  • Corporate governance needs to be reformed to require a binding majority shareholder approval of executive pay. Corporate boards and compensation committees have done a horrible job of properly structuring incentives and/or evaluating the value of CEO performance. As fiduciaries, they have lost the right to continue setting their own course without oversight from shareholders.
  • The corporate income tax for multi-national corporations must be reformed... but NOT to a territorial system! A territorial system is nothing but another giveaway to large corporations, and does nothing to reduce the incentive to offshore jobs. It is a race to the bottom, benefiting no one but the MNCs; why should the United States be obligated to adopt the tax structures of banana republics? Instead, a Global Formulary Apportionment system must be implemented.
  • Medicaid/Medicare prescription drug costs must be subject federal government negotiation of prices. There is really no excuse for leaving this money on the table.
  • Automatic triggers for:  a) a public option health care plan by the end of 2015 if the of government health care expenditures exceeds GDP+1%, and;  b) a single payor system by 2020 if still not reduced to GDP+1% by then.
  • Discretionary spending budget needs to be re-prioritized to first promote domestic job creation, next to education investment. Everything else follows.
  • Reconsider cap and trade or a carbon tax. The externality needs to priced into energy. Global climate change deniers are  number than a pounded thumb.

Thursday, December 2, 2010

PolitiFact Florida | Alan Grayson going down swinging on Bush tax cut extension

PolitiFact Florida | Alan Grayson going down swinging on Bush tax cut extension: "'The Republican plan for tax cuts is to give each millionaire -- the top 1 percent of income in this country -- $83,347 a year in tax cuts.'

Alan Grayson on Wednesday, November 17th, 2010 in a speech on the House floor.
Alan Grayson going down swinging on Bush tax cut extension
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Alan Grayson says the wealthiest Americans can buy wine from 1787 with the money they'll save if the Bush tax cuts are extended for them.

File this under the category of things that won't surprise you -- Alan Grayson isn't leaving office quietly.

The Orlando Democrat who lost his bid for re-election took to the U.S. House floor on Nov. 17, 2010, to rail against Republicans who want to extend the Bush 2001 and 2003 tax cuts for all Americans, including the wealthiest 1 percent of income earners.

With a series of cardboard posters, Grayson mocked Republicans for more than five minutes. 'The Republican plan for tax cuts is to give each millionaire -- each person who makes $1.4 million a year on average, the top 1 percent of income in this country, the high and mighty -- $83,347 a year in tax cuts,' Grayson said, turning to his posters.

Grayson said the wealthiest could use the money to buy a 2011 Mercedes-Benz E-Class sedan, once a year, every year for the next decade. Or they could buy a Hermes 'Birkin' handbag every year or a bottle of 1787 Chateau d'Yquem wine.

'Here's something else they can do,' Grayson said, showing the next poster. 'They can buy 20,000 jars of their favorite mustard, Grey Poupon. Twenty thousand jars. That's certainly enough for them, their family, their friends, even a few poor people.

'Thank you Republican Party.'

Grayson came back on Nov. 18, 2010, and continued poking the GOP -- saying the money could be used to buy three tickets to the most expensive suite at the Super Bowl, to climb Mt. Everest, or for a 110-day couple's cruise around the world. ('Not just one year, but every single year,' he said.)

Grayson's point is that the money could be better used creating jobs than going to America's top earners. That the country could essentially take the money and hire 3 million people at $30,000 a year, creating jobs instead of lining the pockets of the rich. There's some false logic in his thinking, at least from the Republican point of view. Republicans say it's those top earners who create jobs and taking money out of their pockets will cost jobs. Grayson also certainly is guilty of hyperbole in suggesting that the rich will use the money saved from the tax cuts only on outrageous luxury items.

But that's all a philosophical debate we'll let you have at your dinner tables.

For PolitiFact Florida, we wanted to zero in on his baseline number, that the Republican plan for extending the 2001, 2003 and other Bush-era tax cuts would result in the top 1 percent of earners paying $83,347 a year less in taxes.

Grayson said his figure comes from an analysis provided by a liberal public policy group called Citizens for Tax Justice.

Citizens for Tax Justice Legislative Director Steve Wamhoff backs up Grayson's numbers, saying that if all of the tax cuts scheduled to expire at the end of this year remain in place, the top 1 percent of earners will save $83,347 on average. But there's more to the story, Wamhoff said.

First, extending all of the Bush-era tax cuts for everyone isn't exactly 'the Republican plan.'

Senate Minority Leader Mitch McConnell introduced a bill on Sept. 13 that would extend most of the Bush-era tax cuts, and would restore the estate tax, at some level, for some people. The effect of the McConnell bill is that the top 1 percent of income earners would see a total cut of $74,621, according to Citizens for Tax Justice.

Another bill filed on Nov. 17 by Republicans Rep. Mike Pence of Indiana and Sen. Jim DeMint of South Carolina would permanently repeal the estate tax for everyone, meaning the top 1 percent would see the cut suggested by Grayson -- $83,347, using Citizens for Tax Justice numbers.

And there's a second caveat. Democrats, including President Barack Obama, want to extend some of the tax cuts for the wealthiest 1 percent of Americans too. Just not to the extent that Republicans do.

While President Obama's preferred alternative is to extend the 2001 and 2003 Bush tax cuts for only those individuals making $200,000 or less and couples making $250,000 or less, he does support extending other tax cuts that would benefit wealthier Americans, including restoring a reduced estate tax. Under Obama's plan, the top 1 percent of earners would pay $28,728 a year less in taxes than they would if all of the tax cuts were allowed to expire at the end of the year, according to Citizens for Tax Justice.

How does this all add up?

If all of the tax cuts are allowed to expire, the wealthiest 1 percent will pay around $83,347 a year more in federal taxes on average.

If President Obama's plan is approved, the wealthiest 1 percent will pay about $54,619 a year more in federal taxes than they do now.

If McConnell's bill passes, they'll pay $8,726 a year more.

And if the DeMint/Pence plan passes, they'll pay the same amount.

Now we know you're probably wondering if Citizens for Tax Justice's numbers are credible, especially since they define themselves as being liberal. We did, too. So we also checked with the Tax Policy Center, an independent, nonpartisan think tank. They didn't measure things exactly like Citizens for Tax Justice, but they did corroborate one critical fact. They found that if President Obama's tax plan becomes law, the wealthiest 1 percent of Americans would pay $53,674 a year more, on average, in federal taxes (CTJ's number was $54,619).

We also found research from the Congressional Joint Committee on Taxation -- a nonpartisan committee with a professional staff of economists, attorneys and accountants -- that helps illustrate the same point, though by using slightly different criteria. The Joint Committee on Taxation found that, for those who have income of $1 million or more, extending all of the Bush tax cuts would mean $32.7 billion that the government would not collect in 2011. That amount would apply to 315,000 tax filers. Divide the foregone tax revenues by the number of filers, and you get $103,809 per tax filer. That's a bigger number than Citizens for Tax Justice, but also applies to a different pool of people.

And it substantiates Grayson's broader point, which is that extending the tax cuts for the wealthiest Americans means they will save a lot of money in federal taxes.

In a pair of dramatic House floor speeches, he said that the Republican plan to extend the Bush-era tax cuts would result in the wealthiest 1 percent of Americans saving $83,347 a year. He's quoting a study from the group Citizens for Tax Justice accurately, and the math is largely backed up by the more independent Tax Policy Center. But he neglects to mention that another GOP-embraced tax plan would shrink the tax savings of the wealthiest Americans slightly and that a significant chunk of the tax cuts he's talking about are also supported by Democrats and President Obama. So we rate this claim Mostly True.

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PolitiFact | John Boehner says "the American people spoke pretty loudly. They said stop all the looming tax hikes"

PolitiFact | John Boehner says "the American people spoke pretty loudly. They said stop all the looming tax hikes":


The Jan. 1, 2011, expiration of George W. Bush's tax cuts is approaching, and the parties are working feverishly to win public support for their position. Republicans have taken a firm stance in favor of extending the tax cuts for everyone, while President Barack Obama and many congressional Democrats want to extend them only for families earning less than $250,000.

Following a Dec. 1, 2010, meeting between congressional Republican leaders and newly elected Republican governors, Rep. John Boehner, R-Ohio, who is poised to become House speaker early next year, said the Democrats were out of touch with public opinion.

'I don't know what my colleagues across the aisle didn't hear during the election -- the American people spoke pretty loudly,' Boehner said. 'They said stop all the looming tax hikes and to cut spending.'

Our friends at NBC's First Read noticed a discrepancy between Boehner's comment and national exit poll data. 'Actually,' First Read wrote, 'here’s what the public said about the Bush tax cuts, according to the exit polls last month: 40 percent said to continue ALL of the cuts, 36 percent said to continue them for families who earn less than $250,000 a year, and an additional 15 percent said to expire them for all. So a majority -- 51 percent -- backed either the Democratic position or wants all the cuts to expire.'

We thought we'd expand upon First Read's research and look at additional polls. We found four taken since the election that address the question of what to do with the expiring Bush tax cuts. (We're keeping the focus narrow by not addressing the question of whether the American people support spending cuts; we found a wide variety of different questions on that issue in these polls, making it a harder question to gauge.)

Here are the questions on the Bush tax cuts in each survey:

USA Today/Gallup poll, Nov. 19-21, 2010

What do you think Congress should do about the income tax cuts passed under George W. Bush that are set to expire at the end of this year?

Keep the tax cuts for all Americans regardless of income: 40 percent

Keep the tax cuts but set new limits on how much of wealthy Americans' income is eligible for the lower rates: 44 percent

Allow the tax cuts to expire: 13 percent

A follow-up question clarified where Americans would draw that income line, using some widely discussed income thresholds.

Keep tax cuts for all: 40 percent

Keep tax cuts up to $1 million income: 5 percent

Keep tax cuts up to $500,000 income: 12 percent

Keep tax cuts up to $250,000 income: 26 percent

Let tax cuts expire: 13 percent

Associated Press-CNBC poll, Nov. 18-22, 2010

The tax cuts that were passed in 2001 will expire this year if they are not continued. Which of the following best describes what you think Congress should do about the tax cuts?

Continue the tax cuts for everyone: 34 percent

Allow the tax cuts for people earning more than $250,000 to expire, but continue them for other people: 50 percent

Allow the tax cuts to expire for everyone: 14 percent

NBC News/Wall Street Journal poll, Nov. 11-15, 2010

Congress will soon decide whether to keep in place the existing tax cuts enacted during President Bush’s time in office, or allow them to expire. Which one of the following options would be your preference for what they should do?

Keep in place the tax cuts for everyone permanently: 23 percent

Keep in place all the tax cuts for everyone for another year to three years: 23 percent

Eliminate the tax cuts for those earning more than $250,000 per year, but keep them for those earning less than that: 39 percent

Eliminate all the tax cuts permanently: 10 percent

Quinnipiac poll, Nov. 8-15, 2010

How should Congress vote on the Bush-era tax cuts: continue them for all, continue them only for families who earn less than $250,000 a year, or let them expire for all?

Continue for all: 35 percent

Continue for those below $250,000: 43 percent

Expire for all: 14 percent

How about if this was the choice on tax cuts; continue them for all, continue them only for families who earn less than $500,000 a year, or let them expire for all?

Continue for all: 33 percent

Continue for those below $500,000: 40 percent

Expire for all: 18 percent

While each poll asked the question with slight variations, some general patterns emerge.

It's true that overwhelming majorities favor extending some of the tax cuts -- greater than 80 percent in every poll. But Boehner said Americans want to 'stop all the looming tax hikes,' and the polls don't support such a sweeping claim.

The percentage of people who favor extending the tax cuts for every income level -- which is the formulation Boehner used in his comment -- ranges from 23 percent to 40 percent. That is quite a bit short of a majority.

More important for our analysis, in the three of these polls that asked the question the same way, Boehner's position didn't even achieve a plurality from poll respondents. Instead, the highest level of support for any specific course of action was actually the Obama position -- extending tax cuts for those below $250,000 and not for those above that line. Support for this position ranged from 39 percent to 50 percent.

When pollsters widened the range of policy options, the pattern broke down somewhat. In the USA Today/Gallup poll, for instance, a significant minority of those who favored an income cutoff for the tax cut extension wanted that cutoff to be higher than Obama's preferred $250,000. And when NBC/Wall Street Journal pollsters asked about a instituting a temporary tax-cut extension for another one to three years -- a widely discussed compromise option for the White House and Congress -- it won the support of about one-quarter of poll respondents.

Still, the general pattern we see in these polls is that Americans are more likely to side with the Obama position than with the Republican position, though neither view won a clear majority.

When we contacted Boehner's office, a spokesman said that the poll results were shaped by the wording. 'The question should be, 'Do you think taxes should go up on January 1?'' the spokesman said. 'In the real world, if I make the same salary next year and I pay more taxes, that’s a tax hike. If I pay less, that’s a tax cut.'

We don't doubt the results would have been more favorable to the GOP position if the wording had been changed, but we're not convinced by that argument. It is not an all or nothing choice. In fact, it's a choice between Democrats who propose letting the tax cuts expire for those earning more than $250,000, and Republicans who want to extend the cuts for everyone. The wording in the polls seems like a perfectly accurate reflection of those options.

So we find that Boehner is wrong to claim the public supports his position. The polls show that while many Americans oppose an across-the-board expiration of the Bush tax cuts, it is not accurate to say the public spoke 'pretty loudly' that Congress should 'stop all the looming tax hikes.' A plurality of the 'American people' actually support what amounts to a tax hike for the wealthiest Americans. So we rate Boehner's comment False

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Conservatism as a Mild Form of Insanity

By far the most convincing research on left–right differences
pertains to epistemic motives associated with mental rigidity and
Finally! Some confirmation that right-wingers have the cognitive agility of a concrete wall and the intellectual receptivity of a broken ham radio.

In the American Psychological Association's Psychological Bulletin 2003 (Vol. 129, No. 3, 339–375), John T. Jost (Stanford University), Jack Glaser (University of California, Berkeley), Arie W. Kruglanski (University of Maryland at College Park) & Frank J. Sulloway (University of California, Berkeley) theorize that conservatism is akin to a mild form of insanity.

I concur, whole heartedly.

Some of my favorite snippets follow:

[D]ogmatism has been found to correlate consistently with authoritarianism, political–economic conservatism, and the holding of right-wing opinions...
[I]ntolerance of ambiguity has been found to correlate positively with ethnocentrism and authoritarianism.
[T]here is a clear indication in [the] data that conservative ideologues are generally less integratively complex than their liberal or moderate counterparts.
[C]onservatives are less inclined to seek out strong external stimulation in the form of other people as well as in the form of nonsocial stimuli.
[C]onservatives are less likely than others to value broad-mindedness, imagination, and “having an exciting life”.
[P]eople who hold politically conservative attitudes are generally less open to new and stimulating experiences.
 [A]mbiguity and uncertainty are highly threatening to conservatives.
In diverse aesthetic and organizational contexts, then, evidence from three countries suggests that conservatives are generally motivated to eschew ambiguity, novelty, and uncertainty.
[P]olitically conservative adolescents were more likely to describe themselves as neat, orderly, and organized than were liberal adolescents.
[I]n the realm of political attitudes, authoritarians long for order and structure, advocating such diverse measures as firm parental discipline, comprehensive drug testing, core educational  curricula, and quarantines for AIDS patients.

In general, conservatives are associated with:
Mental rigidity & closed-mindedness
Intolerance of ambiguity
Cognitive simplicity
Resistant to new experience
Uncertainty avoidance
Personal needs for order & structure
Need for cognitive closure
Low & threatened self-esteem
Motivated by fear, anger & aggression
Pessimism, disgust & contempt
Fear of loss & death

And then, there's their nice model:

Saturday, November 27, 2010

Great Minds Think Alike

I am constantly disappointed to find that what I thought were my own original ideas have already been deeply explored by other, far more expert, minds. If the experience were not so frequent, I might even be surprised. Oh, well... if I am not being original, I can take solace that at least I am on the right track.

In the linked paper below, Dean Baker, co-Director of the progressive think-tank Center for Economic and Policy Research in Washington, DC., discusses the concept of a Financial Transaction Tax (FTT), an idea I had been mulling over since the first causes of the Great Financial Meltdown of 2008 began coming to light. I must have not been paying attention at the time, but apparently there was even some consideration given to doing just that in policy circles around the globe, as recently as November 2009. It was short-lived, apparently beaten back by the special interest lobbyists on the payroll of Goldman Sachs, JP Morgan et al, at least for the time being. I am hopeful the idea will be resurrected soon, perhaps once we begin once again tackling comprehensive tax reform?

An FTT is essentially a sales tax on financial asset transactions. The idea is to impose a very small tax on trades of [virtually all] types of financial instruments - stocks, bonds, mortgage- & other asset-backed securities, mutual funds, exchange-traded funds (ETFs) & notes (ETNs), commodity-/currency-/index-contracts, options, futures, forwards, interest rate swaps, credit default swaps and all the other kinds of derivatives & other infinite varieties of complex Wall Street financial instruments - for a number of potentially useful reasons:
  1. To discourage the kinds of excessive and socially useless speculation that resulted in the recent cases of "irrational exuberance" in various markets (e.g., the tech stock bubble of the late '90s ~ early '00s; the housing bubble of the mid '00s), which, in turn, ended in burst asset bubbles that nearly caused the collapse of the global financial system, which, in turn, exacerbated the Great Recession of 2007-09, generated severe unemployment & continues to threaten deflation;
  2. To broaden and deepen the tax base and thereby (arguably) increase "fairness" of the distribution of the overall tax burden;
  3. To provide additional sources of revenues to the government to reduce deficits & the national debt, and/or to provide funding for a kind of social insurance program to protect from the impacts of potential future dislocations from speculative asset bubble bursts.
[Not to mention that there is a certain sense of sweet, ironic justice to imposing such a tax on the sector that is largely responsible for our current difficult state of affairs... especially one that benefited so greatly from government's willingness to use public funds to stave off their self-induced imminent demise.]

FTTs are not a new idea. As Baker writes:
There has been a long historical experience with FTTs in both the United States and around the
world. Substantial transactions taxes were imposed in most financial markets until the last two decades, when political pressure from the financial sector, coupled with the threat from increased global competition, led most countries to substantially reduce or eliminate their taxes {my emphasis added}. Nonetheless, many taxes still remain in place, most notably the 0.5 percent stamp tax imposed on each trade on the London stock exchange. This tax raises more 4 billion pounds annually, the equivalent of almost $40 billion in the U.S. economy.
Somehow, despite The Who's anthemic assurance that "We Won't Get Fooled Again", the financial industry pulled the wool over our leader's eyes - no doubt through a toxic combination of unsubstantiated fear-mongering assertions about the loss of global competitiveness and a steady, mountainous stream of campaign contributions. When will we learn?

Of, course, I don't pretend that there are not problems to overcome with this basic idea, nor that such a tax is sufficient, on its own, to address all of the issues that lay at the root of our current economic mess.
But, it's a start.

financial-transactions-tax-2008-12.pdf (application/pdf Object): "- Sent using Google Toolbar"

Baker's paper highlights a number of areas that require aggressive research:

1. As Baker notes, whether an FTT is efficiency-enhancing is arguable. Mark Thoma, in his Economist's View blog posting of Sept. 2, 2009, sums it up succinctly:
The efficiency properties of the tax depend upon how speculation is viewed. If you believe speculation is efficiency enhancing, and it can be, then reducing speculation would reduce rather than increase efficiency. But if you believe speculation is destabilizing, and it can be this too, then reducing speculation would be beneficial. I am not as negative toward speculation as many, and believe that while it can be both good and bad from a market efficiency perspective, on net, it does good. A general tax would reduce both the good and bad types of speculation, so it is not clear to me that this would be beneficial. I would prefer a mechanism that targets that bad speculation, but leaves the good type alone, but since it is difficult to tell the two apart, even ex-post, it is not practical to levy a tax on just the bad transactions while giving the good ones a free pass.
Hmmm... cause for pause, but hardly rigorous or convincing research. I would like to see something more thorough than a couple of sentences of gut-level thought experiments before conceding on the premise.


Reforming Corporate Taxation in a Global Economy: A Proposal to Adopt Formulary Apportionment - Brookings Institution

I think this makes sense:

Reforming Corporate Taxation in a Global Economy: A Proposal to Adopt Formulary Apportionment - Brookings Institution

Tuesday, November 23, 2010

A Suggested Reading List

A friend of mine, who wanted to debate the "fairness" of a flat (Proportional) tax proposal, was surprised to hear me cite Adam Smith as to why an overall progressive income tax structure was "fair". He asked me to send him links to various economists & moral philosophers, which I did (drowning him in a deluge of fully commented suggestions, including some names who I believe to be ultimately flawed).

Thinking about it sometime later, I started pasting together a more organized, ordered list. Here it is:

Leviathan Thomas Hobbes
Two Treatises on Government John Locke
The Social Contract Jean-Jacques Rousseau
Treatise of Human Nature David Hume
An Inquiry into the Nature and Causes of the Wealth of Nations Adam Smith
A Treatise on Political Economy Jean-Baptiste Say
Principles of Political Economy and Taxation David Ricardo
Principles of Political Economy John Stuart Mill
Elements of Pure Economics Leon Walras
Capital: A Critique of Political Economy Karl Marx
The Protestant Ethic and Spirit of Capitalism Max Weber
The Division of Labor in Society Emile Durkheim
Money, Credit and Commerce 
The Debt Deflation Theory of Great Depressions

Alfred Marshall
 Irving Fisher

The Theory of Credit and Money Ludwig von Mises
The General Theory of Employment, Interest and Money John Maynard Keynes
The Road to Serfdom Friedrich A. Hayek
Human Action: A Treatise on Economics Ludwig von Mises
Capitalism, Socialism and Democracy Joseph A. Schumpeter
The Economics of Information George J. Stigler
The New Industrial State John Kenneth Galbraith
The Affluent State John Kenneth Galbraith
A Theory of Justice John Rawls
Capitalism and Freedom Milton Friedman
The Conscience of a Liberal Paul Krugman
Stabilizing An Unstable Economy Hyman Minsky
Debunking Economics Steve Keen
Crisis Economics Nouriel Roubini
Irrational Exuberance Robert J. Shiller
Freefall Joseph E. Stiglitz
The Predator State James K. Galbraith
Animal Spirits George A. Akerloff
Predictably Irrational Dan Ariely
Neuroeconomics Ernst Fehr
The Conservative Nanny State Dean Baker
Fault Lines Raguram G. Rajan
ECONned Yves Smith

There are, of course, others that I would include on a fuller list.  What others would you include?  Suggestions welcome.

Thursday, November 18, 2010

Unequal countries did worst – some stats on inequality and economic performance « Real-World Economics Review Blog

I have been wondering about the correlation - if there is any (and I believe there is!) - between macroeconomic performance and wealth/income inequality. My theorem is that high and increasing levels of inequality lead to economic difficulties and eventually Minsky moment instabilities - asset bubbles, for instance.

Recently, I stumbled across some empirical evidence that I am on to something:

Unequal countries did worst – some stats on inequality and economic performance « Real-World Economics Review Blog: "Unequal countries did worst – some stats on inequality and economic performance
October 4, 2010 merijnknibbe

from Merijn Knibbe

Do western countries with an unequal distribution of income do better, economically?

One might think so when he or she listens to neo-classical economists. Welfare has to be cut, shareholder value has to increase, and managers should get more power to sack employees.

But what do the statistics tell us? Are these economists right? Well, they do have something to explain. Below, I have lumped (in a quick and dirty way) some western countries together in regional groups. As inter group variability is low (except for unemployment in Spain and Belgium), the ‘quick and dirty way’ is acceptable when we compare different groups. It can be argued that of these countries the most Anglo-Saxon ones, the United States and Great-Britain, at least tried to be the most neo-liberal ones. And they do not do well. The next questions can be asked:

1. Were Anglo-Saxon countries more unequal? Yes they were. Also, according to the LIS Gini indices, inequality increased fastest in these countries after about 1980.

Table 1. Gini indices, LIS data, latest figure.

Anglo-Saxon 0.37

European offshoots 0.32

Northern Europe 0.27

Southern Europe 0.31

2. Did high and increasing inequality lead to a more efficient economy, characterized by a positive current account? No, it did not. Especially countries with relatively low inequality had positive current accounts.

Table 2. Current account, % of GDP

Anglo-Saxon - 2.9

European offshoots – 2.8

Northern Europe + 5.2

Southern Europe – 3.2

3. Neo-liberal theory emphasizes low budget deficits. Did unequal countries have a low budget deficit? The opposite was the case!

Table 3. Government deficit, % of GDP

Anglo-Saxon – 9.2

European offshoots - 3.9

Northern Europe – 3.6

Southern Europe – 7.6

4. Neo-classical theory emphasizes flexible labor markets which increase productivity: the right man or woman on the right job. Did this have happened? Yes, on one hand it might: Total Factor Productivity increased fast. When we look at (un)employment there however seems to be a somewhat one sided flexibility: out: yes, in again: no. Remember also that neither the USA or Great Britain have, at the moment, any kind of ‘super productivity’ which is clearly higher than that of any of the other countries.

Table 4. Growth of factor productivity, compound growth rate, 1995-1997

Anglo-Saxon 1.4

European offshoots 0.9

Northern Europe 1.1

Southern Europe 0.3

5. Neo-liberal ideas emphasize a win-win situation: productivity growth leads to increased production and employment. Did this happen? No, it did not. In fact: historically the most remarkable phenomenon of the 2000 – 2010 period. Indeed, somewhat longer than the data from the tabel is the dismal growth of jobs in the USA (compared with other countries as well as other periods in the USA post 1939 history). An absolutely alarming fact.

Table 5. Total employment growth, 2000 – 2009 (%)

Anglo-Saxon 0.1

European offshoots 16.0

Northern Europe 6.2

Southern Europe 11.2

6. Did low growth of jobs lead to high unemployment? Demographics or a changing culture can lead to a low growth of the labor force. Might this be a reason for a low increase in employment? No, it is not. Unemployment has increased, there is plenty of labor, surely when we add ‘discouraged’ workers to unemployment. Remarkably, southern European countries had a high increase in employment and have, despite this high unemployment. Fortunately, productivity did not increase too much, which meant that many more people could be employed in these countries!

Table 6. Unemployment rates

Anglo-Saxon 9.3

European offshoots 7.1

Northern Europe 7.0

Southern Europe 12.1

Summarized: it seems that countries like the USA and the U.K. have embarked upon a path of intensive growth, where more extensive growth still is needed. In this perspective, neo-liberal ideology (and its economic counterpart: neo classical economics) might overrate the economies of ‘The west’. Also, the ‘neo-liberal’ experiment does not seem to be very downturn proof. Also, it might literally pay off to regard labor as a valuable resource again, instead of as a disposable factor of production.

Sources: Current account, government deficit en unemployment: latest data according to The Economist, Gini index latest data according to the Luxemburg Income Study, Productivity growth according to the OESO, employment growth according to OESO, CBS, Eurostat.

Anglo Saxon: Great Britain, USA. European offshoots: Canada, Australia. Northern Europe: Germany, Netherlands, Belgium, Sweden, Norway, Austria, Denmark. Southern Europe: France, Italy, Spain, Greece

Things make you go "Hmmm..."

Monday, November 15, 2010

Economist's View: Why No Financial Transactions Tax?

Economist's View: Why No Financial Transactions Tax?:
Saturday, November 13, 2010

Why wasn't a financial transaction tax part of the Bowles-Simpson deficit reduction proposal?

It would raise substantial revenue and has desirable properties in terms of cooling speculative money flows.

I guess the problem is that the tax falls largely on the wrong people -- those who can afford to pay it.

Posted by Mark Thoma on Saturday, November 13, 2010 at 09:09 AM in Budget Deficit, Economics, Politics
Comments (52)

Reply Saturday, November 13, 2010 at 10:20 PM
don said...

If (as I suspect), the effect on quantity of transactions would be large, the standard economic analysis would indicate that it would have a bigger welfare deadweight loss attached to it than most other taxes.

To offset this, one could argue that the financial transactions are somehow 'evil,' that those who 'trade' add less to society than those who 'invest.' This may have some validity when the trading is pernicious, but I am unconvinced that this describes more than a minimum of transactions. For example, the recent oil price 'speculative' bubble can be seen as a reasonable guess that the future value of oil would be much greater than the present and that we should conserve more now (so prices should change to encourage such behavior).

Speculators win when they are right, in which case they reduce price swings and produce a more efficient outcome for society. If they exacerbate price swings, they lose along with society. I see no need to throw sand in the market mechanism that brings these results. If you say rank speculation helped bring us the financial crisis, I would counter that the crisis was the result of other forces that created huge imbalances, and that speculators brought it to a head more quickly than would otherwise have occurred.

Reply Saturday, November 13, 2010 at 05:17 PM
johnchx said in reply to don...

Don wrote: the standard economic analysis would indicate that it would have a bigger welfare deadweight loss attached to it than most other taxes.

No, the analysis you're thinking of applies to taxes which reduce the output of the taxed good or service. Asset swaps -- such as the exchange of cash for financial instruments -- are not analogous to the purchase of real goods and services. The volume of asset-swap transactions is not a measure of the quantity of goods and services created. So a transaction tax could lead to a drastic reduction in trading volume with minimal loss of welfare.

Reply Sunday, November 14, 2010 at 01:33 AM
don said in reply to johnchx...

? I take the production decline to be the reduction in financial services provided to effect the transactions, including commissions, book keeping costs, etc. The net profits and losses to the traders from asset price changes cancel each other, so they should never be confounded with the social benefit provided by speculative trading ...

While I'm at it, the IRS treats speculation more harshly than other income producing activities. For example, capital gains from futures transactions are marked to market for gains, whereas losses cannot be recognized against most other income, such as interest income. Thus, there is a net taxation of the capital gains from speculative activity, even though the net gains are zero (futures trading losses cannot be netted against most other income, such as interest income). This already discourages futures speculation relative to other income producing activities. It's as if the IRS agrees with those who think 'investing' is a superior social activity to 'trading' (on some quasi-religious grounds not clear to me).

Reply Sunday, November 14, 2010 at 08:18 AM
Bozat said in reply to don...

johnchx gets it right, don wrong.
Applying std econ analysis
to assert welfare deadweight loss,
inappropriate here.

[Nevermind std econ analysis
flawed anyway
re: rational actors,
perfect & symmetric information,
Minsky, Stiglitz,
Akerloff, Fehr,
Loewenstein, Baker,
Galbraith, Ariely
unclog their noses
in Don's general direction.]

Maybe not 'evil', but
to extent 'trading' = speculation
(as opposed to 'investing' or even hedging);
certainly doesn't contribute
to productive output.

'When trading is pernicious... unconvinced'???
With support offered equal
to that offered for your view
(to wit, none... at least so far),
I say systemically calamitous
and positively persuaded.

Ballooning trading volumes,
ballooning weight of Fin sector
in S&P 500 index,
ballooning derivatives'
(CD swaps & otherwise)
notional values greater than
real global GDP,
too many clown-crafted
balloon animals to cite...
particularly while
real economy sputters
and median household income suffers
and income/wealth inequality concentrates
[Gilded Age blossoms again... Huzzah!].
Suggest checking your dictionary again
for definition of 'pernicious'.

'Speculators win when they are right'...
or just plain lucky.
But 'reduce price swings'?
Interesting how VIX correlates
to bubble growth & bursts
and ensuing recessions.
Efficient outcome for society is
explosively carbonated fluid dynamics?

'If they exacerbate price swings,
they lose along with society.'
Unless of course they exit
the trade before the bubble pops,
and the greater fool - society -
is left holding the bag.

'Trading' is a net zero sum game?
Ready, set, debate:
Most evidence suggests it is,
some suggests sub-zero.
Hard to find empirical
(or even logical)
evidence it is above-zero.
Open-minded to proof otherwise,
just don't see it yet.

'... the crisis was the result
of other forces
that created huge imbalances...'
Including 'rank speculation'
or exclusive of such?
Can't tell which is your view?
The latter is pure turd-polishing.

What 'other forces' and why
are these alone culpable?

When speculators all make
the same mistake(s)
in the same direction,
they don't just
'bring it to a head more quickly',
but rather exacerbate it
[the crisis]

Who says speculative bets
are nicely normal distributed
around a Pareto optimal
equilibrium price?
Behavioral econ suggests otherwise.

And why is
'bringing it to a head
more quickly'
an efficient, socially utile
macro result?

Allowing air to escape
from bubbles
more slowly, not faster,
seems more socially utile
than increasingly frequent
and increasingly precipitous
chaotic concussions
of irrational exuberance.

Markets fail
and fail to self-correct.
Sand in gears not full answer,
but better than
c'est la vie, c'est la guerre.

Especially considering
cost/benefit equation.

Agree that unintended consequences
need to be factored
and properly structured around.
But, so far, the only
secondary/tertiary effects
raised to date
have been from parochial self-interests
wringing their hands
over the fate of their
dubious business models.

Reply Sunday, November 14, 2010 at 06:58 AM
don said...

The coloring of speculation as somehow 'evil' relative to good christian 'investing' reminds me of nothing so much as the ignorance Alexander Hamilton had to battle in the debate over establishing a 'modern' system of banking and financial markets. In one notable episode, Jefferson and others wanted to deny the profits to speculators who had bought up Continental script from the soldiers who were paid with it during the Revolutionary War. When the new government honored the script, its value soared. I suppose there are a good number of people visiting this board who would have agreed with Jefferson. I fear the result if they ever start to get their way.

My view - a special tax on speculation will do little more than give markets a case of arthritis, causing them to lurch from one equilibrium to the next with discrete movements after pressures build up sufficiently to overcome the tax. Sort of like friction that prevents movement of the earth's crust until pressure build up sufficiently for an an earthquake.

Reply Sunday, November 14, 2010 at 08:44 AM
Bozat said in reply to don...

Nice piece of history,
will have to read for myself.
Thanks for interesting anecdote.

Don't, however, mistake anecdotes
for evidence.

If proposed FTT rate(s)
were sufficiently high
your view might have
(some) merit.

If, say, they were
so high as to bring
trading volumes to
screeching halt.

But, as presently proposed,
they are not.
Most analyses I've seen
suggest return to
pre-dot com bubble levels.
Don't recall seeing threat
of systemic melt down then.

More like impedance circuit
than tectonic friction.

Heat given off by such an
'impedance' tax
might generate $70B/year;
would help provide resources
for recovery and/or resolution authority,
which is needed given tough
fiscal/political constraints
government faces now.

Especially if deliberately reserved
exclusively for such purposes.

Speculation not 'evil',
just socially non-utile, at best.
Investment IS socially utile
(raises capacity for productive output),
hedging less so
(neutral to marginal positive),
but not objectionable.
Speculation can/does distort
real capital formation,
and offers nothing for
the common weal.

Not 'evil', per se,
but clearly not 'good' either
from a social perspective.

has nothing to do with it.
Stop proffering the red herring.
Like pagan sacrifice of same name,
your straw man is already in ashes.

Reply Sunday, November 14, 2010 at 12:22 PM
don said...

'Heat given off by such an
'impedance' tax
might generate $70B/year;
would help provide resources
for recovery and/or resolution authority,'

Agreed. But I think there are more efficent ways to do this. In particular, requiring insurance payments for implicit insurance now received by the TBTF's.

'Speculation not 'evil',
just socially non-utile, at best.'

Here, we disagree strongly. The classic arguments on this issue were made by Milton F in the context of currency markets. The arguments cross over nicely to most financial markets, and almost certainly to large commodity markets such as oil.

Reply Sunday, November 14, 2010 at 05:03 PM
Bozat said in reply to don...

Glad we agree on something. ;@)

TBTF institutions' assessments
fine idea IMHO,
'tho why we allow TBTF
in the first place
is Bizzarro world logic.

Expand anti-trust
to include systemic risk,
not just monopoly/anti-competition et seq...
Volcker Rule appropriate, too,
tho it seems destined
to be emasculated
by Spencer Bachus
and/or gamed by TBTF institutions.

Haven't seen numbers...
How much would/will
such additional assessments
generate in receipts to fund
resolution authority?

Is it enough
(frankly, would $70B+ from FTT be enough)?

Comparative efficiency analysis
would be nice, too.
Curiouser and curiouser!

Yes, we do disagree strongly
re: social utility of pure speculation.

I don't dispute
price stabilizing function.
Just see crowd behavior
& positive feedback loops
creating ever larger
bubbles, bubbles everywhere
more rapidly & frequently.

Last one triggered
10+% peak unemployment
and 18% underemployment
and massive bailout
and risk of deflation
and so on and so forth.

At the end of the day,
net net,
scales tilt towards
social non-utility.

Anyone done
an inter-temporal,
infinite horizon
study that calcs
and compares
the NPVs?

Til then,
I will remain skeptical...
open to being persuaded,
but classical arguments
fall short (so far).

I love Uncle Miltie!
Slept with 'Free To Choose'
under my pillow
as a young man.
Then I grew up.

Problem is, MMT
- like classical, neo-classical,
neo-liberal, et al schools -
suffers from faulty first principles:
Assumes perfectly rational actors
and symmetric information,
among other things.

Behavioral econ refutes the first,
Information econ refutes the second.
Where's that leave Uncle Miltie?

Not wrong, at least completely.
But not entirely right, either.
MMT works within limits,
but can burp wildly at the extremes.

Above the entrance
to the temple of Phoebus Appollo
at the Oracle of Delphi
was inscribed:
μηδέν άγαν (mēdén ágan = 'nothing in excess').
True then, true now.

A minuscule FTT
is an attempt to set
a reasonable limit.

The goal is not
to sound the death knell
for speculative trading.
Witness the LSE's stamp duty:
Trading not dead in London.

Finally, I'm not dead set
in favor of an FTT.
Just more in favor of such
than I am
of classical econ logic.

Reply Sunday, November 14, 2010 at 08:39 PM
derangedlemur said in reply to don...

Given that the swings in price caused by speculation are observably faster than the underlying produciton can react to, the theory you quote is plainly bollocks.

Reply Monday, November 15, 2010 at 07:23 AM
don said in reply to derangedlemur...

It is precisely the limits of production that give speculation its greatest potential social benefit.

The notion that speculation is destabilizing is highly suspect. It is possible, but it requires that the (weighted) sum of speculators must lose, which would make the endeavor a curious economic phenomenon.

Yes, I know that the vast majority of speculators (by number) who participate in the Chicago market lose on net - the answer must lie in the utility of wagering in a venue with much, much fairer odds than offered by Vegas. And no, I can't see the majority of these markets being gamed by insiders - certainly not currency markets or those of major commodities.

Bubbles don't require speculators. Our housing bubble could have appeared with only home owners making what they viewed as 'investments.' In fact, I doubt true speculation played much of a role in the housing market - those buying with intent to sell short term (flip). In the first place, the opportunities for taking naked short positions were lacking (I know - I was looking for them since in 2005, 2007 and 2007).

Reply Monday, November 15, 2010 at 09:43 AM
Bozat said in reply to don...

'Potential' social benefit
is not actual social benefit.
don speculates again
- clearly it's in his make-up -
apparently believing
that the possible
better represents true value
than the actual.
I think he ignores
big externalities.

'The notion that speculation is destabilizing is highly suspect.'

You seem to conflate
'is' with 'is always'.
How very Clintonion.
Do we really have to debate
what the meaning of 'is' is?
Change the first 'is'
to 'is sometimes'
and the second 'is'
becomes 'is not'.

'It is possible, but it requires that the (weighted) sum of speculators must lose, which would make the endeavor a curious economic phenomenon.'

So close, yet so far,
and so stubborn.
If 'is possible' = HAS happened
then '(weighted) sum' = HAS lost,
n'est-ce pas?
Then curious but real nonetheless.
Curiouser and curiouser, indeed.

[Some] Bubbles don't require speculators,
that's true,
but on the other hand
some do, too.
Your housing market analysis
is incomplete.
Credit default swaps
on mortgage backed securities
totaling $70 Trillion (notional)
more than entire global GDP
all based on models
that assumed *and then magic happens*
(i.e., housing price growth always > 0%)
at the center of all their equations.
CDS are derivatives,
but not 'true' speculation?
Maybe you have a different definition?

To whatever extent
speculation contributed
to the financial meltdown
and ensuing real economic recession,
I doubt John Paulson's winning bets
or Goldman's or whoever's
compensate for the externalities
imposed on the rest of us.

As Jack Sparrow said,
'Ah-ha! So, we’ve established my proposal
[in this case, an FTT]
as sound in principle.
Now, we’re just haggling over price.'
I'll even stipulate to tailoring
rates by type/category.
Number of bips worth
of sand in the gears
needed to adequately compensate
and/or to mitigate is debatable
and worth quantifying.

Reply Monday, November 15, 2010 at 05:21 PM
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