Saturday, December 20, 2014

Does the NSA Demonstrate the Innovative Dynamism of the Public Sector?

One way to think about the shock of the Snowden revelations is that the NSA was much more skilled at surveillance, hacking and data-parsing than most of us thought.  Whatever else it is, this is an organization that excels at technical innovation.  It hires very smart people and motivates them to devise ever more sophisticated methods and products.  And for all its secrecy and lack of accountability, it’s public sector.  No doubt there are opportunities for spinoffs and lucrative insider contracts, but at its core it is not driven by the imperative of shareholder value.

Does this mean that state enterprises are capable of much greater dynamism than they are usually given credit for?  To be fair, the same question arose during the Soviet era with the relatively advanced profile of the military and its space program, although in retrospect it is clear that the Soviets were not exactly the world-beaters they appeared to be at the time.

Of course, the NSA can draw on the world’s most advanced private tech industry, which the Red Army couldn't.  Still, the fact that the NSA can play in that league and stay at the frontier says something.  And this is more than just a claim about research productivity (as with, say, DARPA); the NSA is an operational enterprise.  It deploys as well as invents.

One aspect of its work that favors public ownership—public monopoly, in fact—is that, for the most part, it has a single customer, the national security leadership.  (It also serves private commercial interests in its espionage, as part of its public-private portfolio.)  Thus, the “subjective” component of quality does not need a market to identify it à la Hayek.

I wonder, however, whether the NSA’s mission suffers from its centralization of R&D.  When technical or productive questions can be tackled from many points of view, and where time matters, there is an advantage to a decentralized structure in which autonomous units can pursue trial and error projects simultaneously, along with a mechanism for weeding out the projects that underperform.

The Austrian mistake, in my opinion, is in failing to recognize that, while market institutions can provide a sufficient basis for this type of competitive simultaneity, they are not necessary to it.  In principle, this can be approached in various ways.  One is an enterprise that deliberately permits a substantial amount of autonomy to its subunits and encourages them to try out different solutions to common problems.  (Hayek needs a Beer.)

What I would really like is a second round of disclosures, this time directed at students of organization and innovation.  How effective is the NSA at what it does?  How is it internally structured, and what can we learn from it about fostering innovation in an economy with a much greater measure of public control—which, of course, the NSA itself does not represent.  (Its mission encompasses control of the public.)

Friday, December 19, 2014

Report of Panel of Consultants on Secondary or Indirect Benefits of Water-Use Projects

Part I

A. Instructions of Michael W. Straus, Commissioner, Bureau of Reclamation, to Panel of Consultants on Secondary or Indirect Benefits

The Panel of Consultants will have as its goal the preparation of a report which (1) will indicate its views on the adequacy of Bureau of Reclamation procedures for recognizing and evaluating secondary or indirect benefits and costs, and (2) will set forth a recommended basis for the evaluation of secondary or indirect benefits and costs. The Panel will study carefully the Bureau of Reclamation's principles and procedures for the identification and measurement of benefits and costs of water resource development projects, and will consider related materials such as reports to the Federal Inter-Agency River Basin Committee by its Subcommittee on Benefits and Costs and reports on the accomplishments of operating Reclamation projects. The Panel should indicate the secondary benefits and costs which it feels should be taken into monetary account and should propose methods of measuring them, particularly for irrigation, hydroelectric power, and municipal and industrial water supply. The report of the Panel should be submitted by July 1, l952.

Some of the more important questions to be resolved by the Panel are as follows:
  1. Are the basic assumptions and procedures contained in the Bureau of Reclamation Manual for the determination of secondary or indirect benefits and costs sound and defensible? If not, where, to what extent, and in what way should they be modified?

  2. Should it be assumed that needs met by a project would be met if the project were not constructed? By what procedure should the analysis account for stimulating expansion of the Nation’s productive capacity?

  3. Can the procedures for primary benefits and the general principles of the Subcommittee’s May 1950 report be logically expanded to provide adequate evaluation of secondary benefits? If so, what procedures and assumptions should be used?

  4. Should project costs, associated costs, and secondary costs, of market value, be considered an adequate measure of benefits foregone from alternative uses? If not, how should such costs be measured? Should the effects of alternative uses be compared with or deducted from the benefits of project uses?

  5. Should the same basic assumptions govern the analysis of primary and secondary benefits?

  6. Federal expenditures are required for water development projects, and therefore it is believed that all benefits should be evaluated from a national public viewpoint. How can measurements of benefits from a local viewpoint be converted to represent the national public viewpoint? If direct irrigation benefits (increases in net farm income) represent a national as well as a local viewpoint, should increases in net income in secondary activities represent both viewpoints?

  7. Do secondary benefits vary substantially for different types of commodities and different projects? If so, how can the analysis take account of such variations?

  8. Can an identical procedure be used to evaluate secondary benefits from irrigation, power, municipal and industrial water supply, and other purposes? If so, what procedure should be used? If not, what procedure should be used for each purpose? Should savings to power consumers from lower power rates be considered a primary or secondary power benefit?



Thursday, December 18, 2014

Cost-benefit analysis as "unacceptable nonsense"

Little, I.M.D.. Ethics, Economics, and Politics: Some Principles of Public Policy, 2002:
Cost-benefit analysis compares states of affairs with and without the project that is being analysed. It is applied welfare economics. Indeed it comprises almost all that is of interest in applying welfare economics. (p. 22)
Doubtless influenced to some extent by Robbins, economists gave up the idea of cardinal utility, claiming that all the propositions of positive demand theory could be derived from ordinal utility. They even tried to base normative economics on ordinal utility and the incommensurability of individual utilities. Thus one state of affairs was held to be better than another if those who gained could overcompensate those who lost. This was unacceptable nonsense, as was soon pointed out. However, the idea of compensation, and its possibility or otherwise, has remained important in applied welfare economics (that is, cost-benefit analysis...). (p. 11)
Little misinterpreted Robbins's 1938 article, which Robbins characterized as "a long story about the genesis of two or three pages in an essay that was written some time ago, and which was never expected to be the subject of much discussion." Robbins wasn't advocating the abandonment of interpersonal comparisons of utility. Rather he was arguing that it was not helpful "to speak as if interpersonal comparisons of utility rest upon scientific foundations..." The justification for making such comparisons, in Robbins's view, was ethical rather than scientific. He concluded his 1938 article affirming that "it is fitting that such assumptions should be made and their implications explored with the aid of the economist's technique."

In light of what Robbins wrote, the "unacceptable nonsense" of the compensation criterion is even more unacceptable and nonsensical. It was an attempt to concoct "scientific foundations" for avoiding the necessity of making ethical judgments. It is hard to say which is more reprehensible -- the pseudo-scientific pretension or the craven ethical evasion. Fortunately, it is not necessary to decide. The compensation criterion at the heart of standard cost-benefit analysis is functionally inept. Any semblance of conclusiveness derives from the arbitrary use of the "same yardstick" as both the standard of measurement and the thing being measured.

"Unacceptable nonsense" is an understatement. The Kaldor-Hicks compensation criterion is Duck Soup. "Now I ask you one: what is it has a trunk with no key, weighs 2000 pounds and lives in a circus?"


"Gentlemen, Chicolini here may talk like an idiot and look like an idiot but don't let that fool you. He really is an idiot."

Wednesday, December 17, 2014

A Carbon Cap for Washington State?

My governor, Jay Inslee, has proposed a state-level carbon cap for the largest business emitters.  By auctioning the permits, he expects to take in about a billion dollars in new revenue, about a sixth of which would be rebated to low-income residents to defray the extra costs they will have to pay.

This is a less-than-ideal system, but in fairness to the gov, he was backed into a corner.  State revenues haven’t fully rebounded from the Great Recession, there is hardly any help from the feds, and the courts have imposed a deadline on compliance with the McCleary decision, which will require hundreds of millions of dollars in extra spending annually on K-12 education.  Republicans control the state senate and will veto any tax increase.  The budget is headed for a crisis.

By instituting the cap, Inslee would make good on his campaign pledge to take action on climate change while maneuvering himself out of a fiscal jam.  It’s hard to see how he could do this differently.

The best thing about his plan is that he would auction all the carbon permits—no giveaways, as in California.

Other aspects of the plan are less wonderful, but there is minimal political space.  Focusing on the largest businesses is administratively simple and avoids the political conflict that would arise from a broader-based cap—particularly one that included transportation directly.  Also, using auctions as a revenue-raiser is effectively an increase in the sales tax which the state already employs.  From the point of view of progressivity, it would be much better to rebate all the permit earnings and institute an income tax for the equivalent amount, but the inability to break the tax logjam is why this is on the table in the first place.

On balance, I applaud this move, but I worry that, with nearly all states and the federal government facing a Republican fiscal chokehold, there will be more temptation to use carbon policy as just another kind of tax.  This is poor tax policy and will further muddy the confused politics of climate protection.

Is our reporters learning?

From today's Times:

(On Ebola) "scientists on the new study estimated that 70 percent of cases in West Africa go unreported. That is far fewer than earlier estimates, which assumed that up to 250 percent did."

I laugh to hold back the tears.

The Wiggle Room

Rarely is the question asked, how is our university students learning?

True or False? The theory of anthropogenic climate change attributes the greenhouse effect to the unregulated proliferation of green houses.

On the final exam, nine out of twenty students in the upper-division university labour and the environment course answered "true."

So far this semester, I've had six requests for reconsideration of grades. One student was "frustrated" that she only got a B- on her paper instead of an A because she hadn't gotten a B- since first year and her writing has improved since then. She pointed out that if I just set aside what I knew about the topic and "kept an open mind" using her definition of key terms, her paper made sense.

Another student asked for an A- instead of a B+ because he rarely got A's. A third student was upset that he got a B- instead of a B because his low grade point average meant he had to get all B's in the last three semesters to be eligible to graduate. He thought with a small wiggle his B- could become a B.

Rarely is the question asked, do they care about their grades or do they care about learning something about the subject?

Quote of the Day on Topics Pertaining to Cost-Benefit Analysis

From Mark Bittman:
This brings us to the Food and Drug Administration, which is responsible for carrying out nutrition labeling in restaurant chains. (This is part of the Affordable Care Act.) When federal agencies propose new regulations, they’re required to do an evaluation to make sure the costs do not outweigh the benefits. Sounds logical enough. But this is the government we’re talking about, and recently the F.D.A.'s interpretation of this order has taken a turn for the absurd. This summer, the F.D.A. discounted by 70 percent the benefits of increased tobacco legislation. Why? That was the value of the “pleasure” lost by smokers, according to the agency, pleasure these addicts would miss by giving up a nasty habit. 
Mass- and hyper-produced food, of course, is ostensibly not as dangerous and arguably more pleasant in its consumption than cigarettes. So the agency was required to discount the “pleasure” lost by eaters who would be discouraged from buying fast food because they determined that its massive calorie load and pathetic nutrition profiles were perhaps not desirable. In an “alternative” analysis, the cost of that pleasure was put at $5 billion over 20 years, which is about the same as the low end of the estimated value of the health benefit we’ll derive by eating less junk..... 
There are, of course, the obvious and almost inane questions like, “How could the F.D.A. possibly know that eaters will lose ‘pleasure’ by eating healthy food as opposed to unhealthy?” “Who is the F.D.A.'s pleasure analyst?” “How can a voluntary choice by a better-informed person to eat better food and improve his or her life possibly be a ‘cost’ ”? And finally, “How can you possibly fix a monetary value on this?” (By the way, this whole scheme, and that’s what it is, was cooked up by a lone graduate student, who determined that “healthier foods are worse off on other dimensions such as taste, price, and convenience.” Clearly, this is a person who’s never prepared broccoli raab with oil, garlic and chiles.)
Emphasis added.

Cuban Socialism Hanging by a Thread

Normalization of relations between the US and Cuba is a mortal threat to the version of socialism that has survived on that island.  Its demise would be all but certain if the economic embargo were lifted.

Every country with a state-controlled economy that has been opened to the rest of the world has seen this control crumble; it is simply not sustainable in a world in which production networks, knowledge and innovation have become global.  If trade and the movement of people are liberalized and Cuba somehow retains dominant public ownership, it will be a miracle.  I make this prediction separate from any value, positive or negative, that might be attached to it.

Only one thing can possibly keep Cuban socialism alive—the intransigence of the new Republican majority in congress.

This Just In!

From Timothy Noah at Politico Morning Shift ("your daily speed read on labor and employment policy):
The machines-mean-fewer-jobs view is known as the “lump of labor” fallacy, first articulated in 1908 by an English economist named Sydney Chapman. But Chapman never lived to see the invention of the silicon chip. Is lump of labor still a fallacy?
Somebody's been "speed reading" the Sandwichman but ought to  s l o w  d o w n. No, the lump-of-labor fallacy was not "first articulated" in 1908 by Chapman.

Walker, T. "Why economists dislike a lump of labor," Review of Social Economy, 2007, vol. 65, issue 3, pages 279-291.

Abstract: The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.

Tuesday, December 16, 2014

I Dunno? ¯\_(ツ)_/¯

Does anybody really give a shit about the "genealogy and critique of applied welfare economics"? Apparently not. Ninety-nine views and no comments. One whole comment ("Important.") on "#NUM!éraire, Shmoo-méraire."

I was going to write a couple of more installments on theory of welfare economics and practice of cost-benefit analysis but what's the use? It has all been said -- and ignored. So if I say it again and it is ignored again what difference does that make?

This is only the nuts and bolts of how total bullshit ("unacceptable nonsense") is molded into unyielding policy certainties. There are no sinister conspiracies lurking in the shadows. Just half-witted theoretical "brilliance," dull-witted bureaucratic appetite for "formulas" and feeble-witted inattentive inertia.

People really don't care that the economic models used to inform international climate negotiations are built with factory-reject tinker-toys? Apparently not.


Motivate me.

Greg Mankiw Endorses William Kristol as the GOP’s Health Care Economist

Actually Mankiw gives a nod to this. Skipping the Republican spin – this plan lists three things (I guess):
“Ending the Unfairness in the Tax Code—by Offering Tax Credits to the Uninsured and Individually Insured”; “Solving the Problem of Expensive Preexisting Conditions”; “Lowering Health Costs Across the Board”.
The first one sounds like a very old GOP line and the last two sound more like goals than credible means to achieving those goals. So who is this The 2017 Project? It Board of Directors includes:
William Kristol, chair; Spencer Abraham; Yuval Levin; Dan Senor
I’m sorry but this sounds more like a 2016 campaign stunt rather than a serious proposal regarding health care policy.

Monday, December 15, 2014

They Said, We Said

From the New York Times: “The Europeans regard the settlements [on occupied Palestinian territory]  as illegal; Washington regards them as unilateral actions and calls them ‘obstacles to peace.’”

The Europeans regard the surface of the earth as curved; Washington regards it as “an obstacle to horizontal vision”.

Sunday, December 14, 2014

Torture and TV

Reading several articles in WaPo and various blogposts by various people in the last few days inspires me to this post.  I wish to deal with an unpleasant reality, that apparently over recent years torture has become more acceptable to the American people according to published polls. Ironically it appears that the biggest jump in this respectability came in the first year or two of Obama's presidency, with it being more or less a draw, while after 2010 or so, while  the gap has never been huge, those approving of torture under at least some conditions has consistenly outnumbered those who do  not.  What is going on here?

While I am sure  it is not all there is to it, and I hope  the recent release of the Senate  report, perhaps combined with widespread outrage over police brutality, might shift the balance back somewhat, a major input to how we got to this position of such widespread approval despite President Reagan signing anti-torture treaties, has been TV.  Many think it was 9/11 that led to the shift, and clearly that led to the increase in the actual use of torture.  But it looks as if the public approval of torture, or an increase in that approval, came quite a bit later.

That TV may have played a major role was highlighted in an excellent WaPo column on Friday by Catherine Rampell.  She noted several shows that may have played a role in this, starting with "24" but including "Homeland" "The Blacklist,"and others.  She brings out in light of the recent report that these shows have spread two serious falsehoods about American intel/military people and their use of torture.  One of these is that those that are tortured are terrorists, and the second is that torture works, those so  viciously interrogated do provide useful information against their fellow terrorists.  These two myths have been shown so frequently over such a long time on these shows that it is no wonder so many have come to believe them.

The Senate Intelligence Committee report makes it clear that both of these are profoundly wrong.  Out of the 119 people who suffered from "EIT," in the report, it turns out that 26 were completelyl innocent, several of these actually (previously) useful informants for the US.  Secondly, case by case, the report demolishes the claims that useful facts were drawn from those so interrogated. Jose Rodriguez and Dick Cheney (who has not read the report by his own admission) might continue to claim otherwise, but it is  now clear both that the CIA lied to Congress and others about the efficacy of torture, but even those really in the know really know it does not work, with current CIA Director, John Brennan, just now admitting that he cannot name a single clear case where torture provided anything useful.  Those getting their information on this from TV shows are completely deluded.

I would also note that not just John McCain, himself a super hawk who was tortured extensively in Vietnam, but military personnel who have fought abroad, are far more against torture than the US population, with two articles in the Post today confirming this latter fact.  They know what is involved and how readily those being tortured will lie to save themselves.  Quite aside from the morality, those who know the most, are the most opposed to this atrocity.  I only hope that many Americans come to realize that reality is not what they have been seeing on all these TV shows regarding this matter.

Barkley Rosser

Saturday, December 13, 2014

Torture, Fuck You

Sorry about my socially unacceptable title, but if you do not like it, well, fuck you.

So, my wife and I, like John McCain, have been tortured.  What was done to my wife is sort of in the public record. What was done to me I promised I would not reveal publicly, and I am a man of my word, as I think every person who is reading this knows.

Needless to say, we support the release of this report about what was done by our country, just as does our fellow torturee, John McCain, whom I once had a long private conversation with and whom I respect, despite having disagreements with him on various issues.

I am not into demanding that those who degraded the moral foundaton of the US be prosecuted (see Dick Cheney especially). I think that those attempting to demand that this report be withdrawn or rejected should just cut it.  As near as I can tell, pretty much all of you who are defending this abomination have not been there or experienced that.  Be grateful if you have not.

Barkley Rosser

Friday, December 12, 2014

Genealogy and Critique of Applied Welfare Economics

When he was little, Ian Malcolm David Little lived in a big house. It had 20 servants and 23 bedrooms. Little's mother, Iris's grandfather, Thomas Brassey, "was perhaps the greatest 'captain of industry' the world has ever seen." According to Little's obituary in the Independent, his great grandfather was made an earl in 1911, which would have been remarkable since Thomas Brassey Sr. had died forty years earlier.

It was actually I.M.D. Little's great uncle, Thomas Brassey Jr., who was made an earl in 1911. In 1872, Brassey Jr. wrote Work and Wages, an empirical study of wages, hours and output using the extensive labour accounting records accumulated by his father. Brassey's book had quite an impact on economic thinking. The prominent American economist, Francis Amasa Walker, extolled the authoritative status of Brassey's evidence:
[B]y far the most important body of evidence on the varying efficiency of labor is contained in the treatise of Mr. Thomas Brassey, M.P., entitled Work and Wages, published in 1872. Mr. Brassey's father was perhaps the greatest "captain of industry" the world has ever seen… The chief value of Mr. Brassey, Jr.'s work is derived from his possession of the full and authentic labor-accounts of his father's transactions....
Subsequently, in what is "regarded to be the first modern economic textbook," Alfred Marshall credited Walker for "forcing constantly more and more attention to the fact that highly paid labour is generally efficient and therefore not dear labour…" Marshall judged that fact to be "more full of hope for the future of the human race than any other… [although it] will be found to exercise a very complicating influence on the theory of Distribution."
That is to say it was Brassey's evidence that lent weight to Walker's theoretical arguments that "complicated" the theory of distribution. In the early twentieth century, Marshall's star pupil, Sydney Chapman, collaborated with Brassey Jr. on a three-volume continuation of his Work and Wages, which included an analysis of the hours of labour that incorporated the more theoretically-advanced analysis of that topic first elaborated in Chapman's 1909 Economic Journal article, "Hours of Labour." In his 1872 review of Brassey's book, Frederic Harrison had written:
To this first proposition — that the rate of wages affords no indication of the cost of production — Mr. Brassey adds a second, which is quite as significant. "It is equally true," he says, " that the hours of work are no criterion of the amount of work performed." Now this is very instructive, especially at the present time. Throughout the movement to substitute the day of nine hours for that of ten, the public instructors invariably assume that this is equivalent to a loss in productive power of 10 per cent. Nothing can be more utterly belied by facts. 
Chapman's analysis of the hours of labour was reiterated 11 years later in A. C. Pigou's Economics of Welfare, which, according to Little in his Critique of Welfare Economics, "appears to have popularized the use of the word 'welfare' by calling his book The Economics of Welfare." In his footnote (p. 78) discussing the evolution of terminology, Little nominated 'satisfaction' and 'happiness' as precursors to welfare. But why not 'distribution'?

Pigou's discussion of the hours of labour firmly adhered to the empirically-grounded theoretical "complication" of the theory of distribution that was launched with Brassey's Work and Wages and was elaborated by Walker, Marshall, Chapman and finally Pigou. J. R. Hicks and Lionel Robbins shared Pigou's confidence in Chapman's analysis of the hours of labour. In his 1929 article "The economic effects of variations of hours of labour" Robbins wrote:
The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it.
Of course those days weren't gone. Or if they were gone, they soon returned. The complication was undone by "a simple book-keeping artifice," which is to say by a sleight of hand.