Zombie economics gets a mulligan: or, how Obamacare caused the Global Financial Crisis

I’m adding a little section to each of the chapters in my Zombie Economics book called “Reanimation”, about the attempts that are already under way to revive economic ideas killed (at least according to the standard rules of hypothesis refutation) by the global crisis. I wasn’t surprised to find plenty of examples for the efficient markets hypothesis (easy to render immune from any kind of refutation by an appropriate formulation) or for policy ideas that yield big benefits to the rich and powerful, such as privatisation and trickle-down economics. But I was surprised a little while ago to see the crisis described as a transitory blip in the continuing Great Moderation. Still that pales into insignificance compared to this piece by Casey Mulligan of Chicago (h/t commenter Daniel ), in which (I swear this is true!) the crisis is the result of financial markets correctly anticipating the adverse labour market impacts of possible legislation under Obama, such as a health plan that might include means tests.

Read More »

Two kinds of ignorance

Also, in yesterday’s Fin, Geoffrey Barker accused Abbott of going for the bogan vote (paywalled), where bogan is taken to mean ignorant. Leaving aside the class/cultural analysis implicit in the term “bogan”, which I think is wrong, the argument is the same as I made in my post on agnotology, as his characterization of Rudd as a technocrat, not really at ease with the kind of politics that includes demands for authenticity and so on. Coming back to “bogan”, the big issue in agnotology is not ignorance in the ordinary sense of the term (people who don’t know much about political issues, and don’t care to learn – that is certainly part of the stereotypical bogan image, and may perhaps be descriptive of the actual demographic groups commonly associated with the term, though I don’t know of any evidence of this).

The ignorance associated with climate change delusionism and other rightwing factoids is metacognitive and has much more to do with the Dunning-Kruger effect of overestimating one’s own competence. The classic example is the kind of person who eagerly circulates reports that there has been no statistically significant warming since 1995. The only information content in such a report is that the person doing the reporting doesn’t understand the concept of statistical significance[1], and therefore is incapable of assessing any issue involving statistical analysis, of which climate change is a prime example.

The stereotypical candidate, in relation to climate change, is that of a 50+ male[2] with a business background in engineering or some similar field where practical judgement is accorded more value than theoretical expertise, and where a willingness to push on regardless is an important element of success. Journalists and opinion columnists[3], accustomed to “mastering a brief” at short notice are also highly susceptible – lawyers who may actually have to master briefs involving technical issues seem mostly to recognise that this is the kind of problem where expert judgement is required, as does the more sensible kind of economist[4]

fn1. Note for pedants. A Bayesian statistician would say that confusion over the concept of significance reflects the logical problems of the concept and the underlying classical theory of statistics. But that only makes sloppy misuse of the concept even worse. I’ll have more to say on this soon, I hope.

fn2. A demographic group to which I belong

fn3. This one, too.

fn4. This one, too, I hope.

Greece: Haven’t we seen this movie before

My piece in today’s Fin compares Greece with some Australian states who also play games to conceal debt. The emerging news (also in today’s NY Times) is that the same banks who facilitate the dodgy debt deals established a CDS market for Greek sovereign debt and some have large short positions (translated from marketspeak: they are betting that the deals they set up will go bad and Greece will default). This can of course be defended as insurance, but it obviously changes your relationship with your bank or financial advisor if they can steer you into a deal and then bet on its failure. The potential for moral hazard in the CDS market has yet to be fully explored, but I think we will get to find out the hard way before too long.

Read More »

Ideology and agnotology

The way in which I’ve generally thought about politics is in terms of ideology and particularly, the divide between the left (socialists, social democrats, labour and related groups) and the right (various strains of conservatives, market liberals and business advocates). But increasingly I doubt that this is the right way to look at things.
Read More »

What should Greece do?

There’s been a lot of discussion of the problems of Greek sovereign debt, its implications for the euro and so on. But I haven’t seen much discussion of what the Greek government should do in dealing with the simultaneous problems of an economic downturn and unsustainable debt (feel free to point me to good discussions).

The course of action being demanded by the bondholders and their advocates, as well as by the EU governments that are likely to bear the costs of a bailout is that of drastic retrenchment on the lines the IMF would normally advocate in cases of this kind. But that is obviously not a desirable policy response when considered in macroeconomic terms. I’m not well informed on the details of Greece’s budget problems, so I’m mostly going to make generic suggestions that are applicable to a case like this.
Read More »

Monday Message Board

I’ve been travelling, in and out of Internet contact, as well as being overloaded with work, so updates have been scarce lately. Also, comments threads have been getting out of control. I’m making a special request for increased civility, meaning that personal criticism of other commenters (and of me) should be avoided altogether. If you can’t make your point without such criticism, leave it for another time. I’ll try for a more nuanced version of this policy when I have time to formulate it, but for the moment, I’ll be handing out red cards to anyone who violates it.

With that, it’s time, once again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

Climategate revisited

Now that the main charges of scientific misconduct arising from the hacking of the University of East Anglia email system have been proven false, it’s possible to get a reasonably clear idea of what actually happened here. For once the widely used “X-gate” terminology is appropriate. As with Watergate, the central incident was a “third-rate burglary” conducted as part of a campaign of overt and covert harassment directed against political opponents and rewarded (at least in the short run) with political success.

The core of the campaign is a network of professional lobbyists, rightwing activists and politicians, tame journalists and a handful of scientists (including some at the University of East Anglia itself) who present themselves as independent seekers after truth, but are actually in regular contact to co-ordinate their actions and talking points. The main mechanism of harassment was the misuse of Freedom of Information requests in an effort to disrupt the work of scientists, trap them into failures of compliance, and extract information that could be misrepresented as evidence of scientific misconduct. This is a long-standing tactic in the rightwing War on Science, reflected in such Orwellian pieces of legislation as the US “Data Quality Act”.

The hacking was almost certainly done by someone within the campaign, but in a way that maintained (in Watergate terminology) “plausible deniability” for the principals. Regardless of what they knew (and when they knew it) about the actual theft, the leading figures in the campaign worked together to maximize the impact of the stolen emails, and to co-ordinate the bogus claims of scientific misconduct based on the sinister interpretations placed on such phrases as “trick” and “hide the decline”.

The final group of actors in all this were the mass audience of self-described “sceptics”. With few exceptions (in fact, none of whom I am aware), members of this group have lost their moral bearings sufficiently that they were not worried at all by the crime of dishonesty involved in the hacking attack. Equally importantly, they have lost their intellectual bearings to the point where they did not reflect that the kind of person who would mount such an attack, or seek to benefit from it, would not scruple to deceive a gullible audience as to the content of the material they had stolen. The members of this group swallowed and regurgitated the claims of fraud centred on words like “trick”. By the time the imposture was exposed, they had moved on to the next spurious talking point fed to them by the rightwing spin machine.

To keep all this short and comprehensible, I haven’t given lots of links. Most of the points above are have been on the public record for some time (there’s a timeline here), but a few have only come to light more recently. These Guardian story brings us up to date, and names quite a few of the key players (see also here). For the role of allegedly independent journalists in all this, see Tim Lambert’s Deltoid site (search for “Rosegate” and “Leakegate”).

Update I should have mentioned that much the same team had their first outing in the controversy over the Mann et al “hockey stick” graph. All the same elements were there – supposedly disinterested citizen researchers who were in fact paid rightwing operatives, misuse of accountability procedures, and exceptional gullibility on the part of the “sceptical” mass audience. Details are here (h/t John Mashey). Note in particular the role of Edward Wegman, who had the great appeal of being an apparent cleanskin without the kind of paper trail associated with the majority of delusionist “experts”. Here are my comments on Wegman’s silly and dishonest critique of Mann.. It was obvious at the time that Wegman had agreed in advance to do a hatchet job, a fact confirmed by his later appearance on delusionist petitions. But until now we didn’t have the details of the connection.