Saturday, February 28, 2009

The Big Rip

Who exactly, is all that bank bailout money going to, and why? For me, that's the central mystery of the TARP.

George Bush, the Republican Congress, and their market fundamentalist allies apparently enabled the greatest financial swindle in world history. What they did was to recklessly and egregiously fail to carry out their legal responsibilities to oversee and regulate American financial markets. Instead, they tolerated and cheered on a culture of dishonesty and theft. Joe Nocera, writing in the New York Times, looks at how it worked at AIG, which he calls ground zero for the mortgage backed securities scam. (Hat tip to Arun G)

So far, the US government has poured $150 billion dollars into this one company, money that the taxpayers are unlikely to ever see again. AIG lost all this money by selling a type of insurance called a credit default swap, insuring banks, hedge funds, and others against the risk that the vast pile of toxic assets in mortgages would not go bad. Unlike other types of insurance, AIG failed to keep realistic reserves to pay claims on this insurance and in addition, very dishonestly evaluated the risks of those securities.

Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry status as the most crippled of all the nation’s wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup — “only” $15.4 billion and $8.3 billion, respectively — pale by comparison.

At the same time A.I.G. reveals its loss, the federal government is also likely to announce — yet again! — a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock. Not that it’s worth very much; A.I.G. shares closed Friday at 42 cents.

That 150 billion amounts to about $500 for each American man, woman, or child - thousands for each American family. Why should I want to put up that kind of money to pay the debts of one American company? Who exactly, again, is that money owed to, and why should I have to make them whole?

Nocera offers some hints:

If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.

Bailing out nice European banks, pension funds, hedge funds, and others sounds very worthy, but why again should I have to take the loss? Wouldn't it have been fairer to simply apportion the losses to all those worthy banks, rich people, hedge funds, pension funds, widows and orphanages who bought the rotten assets and the phony insurance? Isn't that what a bankruptcy would have done? After that, if the taxpayer's representatives thought that some of those widows and hedge funds looked pitiful and worthy enough, wouldn't that have been the time for us to put up the cash?

I realize that there is a counter argument that such a course would have irretrievably have collapsed the world financial system, but how exactly would that have happened? And why, again, is there no fix that doesn't leave all the perpetrators of this catastrophe with their own personal jets and even bonuses intact?

I really don't approve of torture, but if water boarding Hank Paulson and the CEOs of Citi, Lehman, AIG, etc could clarify this point, I might be willing to make an exception.

UPDATE: Tyler Cowen tells us why the banks are hard to fix. The final wordbite:

The outlook is bleak. Perhaps true and irrevocable insolvency will force the hand of the regulators to act more decisively. In the meantime, the banking system will be very hard to fix.

Also, via Cowen, Megan McCardle:

It's easy to blithely say "Why don't they just make the bondholders take a haircut?" Harder when you think about who those bondholders are: insurers. pension funds. the bond component of your 401(k). Financial debt makes up something like a third of the bond market, and the largest holders are pensions and insurers.

The insurers are the biggest problem, because they're just so heavily regulated. They're not allowed to hold risky assets. Convert their bonds to equity and they will be forced to dump that equity at prices that will trend towards zero. Many insurers will see their capital impaired below the regulatory limits, requiring a government bailout.

Pension funds are the next biggest problem. They're already in big trouble because of stock market declines. The bonds are the "safe" portion of their portfolio, the stuff that's supposed ot be akin to ready cash. Convert their bonds to equity--or worse, default--and suddenly they're illiquid and even further underwater.

Nor is the 401(k) problem small. Bond funds are typically held most heavily by the people closest to retirement; they're for income, not capital gains. What is your mother going to do when a third of her mutual fund income gets converted to equity that produces no cash and can't be sold because the insurers have all had to dump their shares on the market at once? Or simply disappears into the land of bankruptcy lawsuits

Ah yes, the widows, orphans and hedge funds.

My favorite part of her article though:

Why is the government so reluctant to hand losses to the bondholders? The standard explanation on both far left and far right is that Treasury and the Fed are in the pocket of the banking industry, and Geithner et. al. are simply bailing out their corporate masters. I don't entirely discount this theory, though I would (and did) put it more nicely: all the information the regulators has comes from the people they are trying to regulate. This naturally biases them towards the regulated. Every time I am tempted to get outraged about this, I think through the alternative: regulators who don't have much interaction with those they oversee. I'll take Tim Geithner over Maxine Waters any day of the week, and twice on Sunday.

The dismissal of the "standard explanation" looks pretty weak to me. It's sort of like saying that the greatest expertise on cat burglars is among cat burglars, so only they can be trusted to make laws concerning cat burglary.

UPDATE II: Tyler Cowen (the-banking-crisis-as-a-foreign-policy-issue) says it in print:

No one wants to say it, but essentially the Fed has been bailing out European banks.

The inflation-adjusted cost of the Marshall plan has been estimated at about $115 billion in current dollars. If we end up spending $250 billion on AIG, how much of that sum will go to European financial institutions and might it someday exceed the scope of the Marshall plan? (I do not, by the way, think that central banks ought to treat foreign creditors differently.)

Stupidest Movie Ever

Or at least the stupidest one I can remember at the moment.

If The Dark Knight doesn't manage to kill the Batman franchise it won't be for lack of trying. Despite two academy awards and a whole potful of excellent actors, this utterly incoherent piece of crap is as bad as Batman Begins was good.

I suspect that some of these excellent actors did a good job, but unfortunately it was almost impossible to detect any acting through the monumentally idiotic plotting and preposterous situations presented here.

This movie was seriously missing a writer and a director.

Woolly Bully

Drillbit Taylor is a completely forgetable teenage movie that taps into one of the classic school story themes: bullying. Skinny, shy and nerdish freshman and friend get crosswise with nasty senior bullies. I'm not quite sure that this is a universal experience, but is surely is common.

Aside from being skinny, shy, and nerdish, I was hardly classic bully bait - I was tall and on the football, basketball, and track teams, but I did manage to attract a few, so my guess is that being bullied is more the rule than the exception. I imagine that bully and bullied are re-enacting ancient rituals of dominance competition that go back to our apelike ancestors and beyond - chimps do it, monkees do it, and quite likely birds do it.

Natural though it may be, for many adolescents it makes life a living hell, promoting drug abuse, gang membership and occasionally, suicide and murder. Adults can ignore it, try to rigorously suppress it, or even channel it via rituals such as hazing.

Somewhat to my own surprise, I find myself somewhat in sympathy with the last approach. Under the control of a stupid or sadistic adult, such rituals can become quite monstrous, but properly regulated they can actually smooth the rites of passage. Organizations from the cub scouts to the Green Berets have adopted some form of this.

In the movie, the hoodlums reign of terror was facilitated by the school principal's policy of studied indifference. There is a fair amount of verisimilitude in this.

The Devil You Say!

One of Bobby Jindal's more exotic talents is exorcism, or the casting out of devils. Joe Klein quotes an excerpt from an article on his participation in an exorcism written by Jindal about 15 years ago:

Strangely, I found myself repeating the Hail Mary until it became a chant. Being a recent convert to Catholicism, I had yet to accept the Catholic doc­trines concerning Mary and considered any form of Marian devotion to be idolatry. Though I had never before prayed a Hail Mary in my life, I suddenly found myself incapable of any other form of prayer. Somehow, Mary's intercessions allowed me to find peace during that long night; I knew that I had sur­vived the worst and that I would exit with my faith intact. It terrified me to recall how close I came to turning away from Christ out of fear.

The crucifix had a calming effect on Susan, and her sister was soon brave enough to bring a Bible to her face. At first, Susan responded to biblical pas­sages with curses and profanities. Mixed in with her vile attacks were short and desperate pleas for help. In the same breath that she attacked Christ, the Bible's authenticity, and everyone assembled in prayer, Susan would suddenly urge us to rescue her. It appeared as if we were observing a tremendous battle between the Susan we knew and loved and some strange evil force. But the momentum had shifted and we now sensed that victory was at hand.

While Alice and Louise held Susan, her sister continued holding the Bible to her face. Almost taunting the evil spirit that had almost beaten us minutes before, the students dared Susan to read biblical passages. She choked on certain passages and could not finish the sentence "Jesus is Lord." Over and over, she repeated "Jesus is L..L..LL," often ending in profanities. In between her futile attempts, Susan pleaded with us to continue trying and often smiled between the grimaces that accompanied her readings of Scripture. Just as suddenly as she went into the trance, Susan suddenly reappeared and claimed "Jesus is Lord."

With an almost comical smile, Susan then looked up as if awakening from a deep sleep and asked, "Has something happened?" She did not re­member any of the past few hours and was startled to find her friends breaking out in cheers and laugh­ter, overwhelmed by sudden joy and relief.

I personally found the part about his fear of "turning away from Christ out of fear" very credible, because I seem to remember Frodo and Harry Potter having somewhat similar experiences.

Charles Blow, writing in the New York Times, has some other details:

According to Jindal, Susan was a “charismatic Christian.” She had recently been diagnosed with cancer. Weeks before the diagnosis, one of her “closest friends from home” had committed suicide. She was hysterical and erratic (I wonder why), and started having “visions” and smelling like sulfur “which supposedly accompanies the devil.”

Blow notes that a lot of details follow the Linda Blair movie, "The Exorcist."

I might actually have seen that movie, but I have never caught a real life exorcism. On the other hand, I never dropped acid, either. So who you gonna trust for next Repu President: the preacher/talk show host, the witch finder, or the exorcist? I'm sort of leaning toward the guy who believes in space gods myself.

Friday, February 27, 2009

Citi Citi Gang Bang

The headline this AM says Citigroup gets a new deal from US, but not this time at Taxpayer expense. I don't believe it. I think that the principal effect of conversion of the government's loan to common stock is to put us lower on the list to be paid back.

Wednesday, February 25, 2009

Please Don't Feed the Zombies!

Paul Krugman is not happy with Geithner's apparent plan to keep feeding cash to the zombie banks. He has a nice quote from the guy he calls the leading expert on Japan's lost decade, Adam Posen:

The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses. The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch.

These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble’s burst in 1992 through to 1998 …

{From Posen's prepared testimony for congressional hearings}

Maybe Geithner is not the guy who can pull the trigger on his old colleagues and Wall Street buddies. When the "stress test" results start rolling in, it might be time to call in the out of town button man.

Tuesday, February 24, 2009


Various wack radio wingnuts have decided that it's time to secede from the Union, presumably because it was such a rousing success last time they tried it. Last time it was about slavery, but this time it seems to be more about the rest of the world considering them to be a bunch of dope and alcohol addled racist nuts.

The new nation, if anybody should join, will be known as the CSA, for "Cracker States of America."

I have no idea what that means.

Nervous Krugman

Paul Krugman can't figure out what it is the Tim Geithner is really planning to do, or how it's supposed to solve the zombie bank problem.

I just don’t get it. And my sinking feeling that the administration plan is to rearrange the deck chairs and hope the iceberg melts just keeps getting stronger.

Sounds like a pretty good reason for us all to worry.

Winter in New Mexico

Today was another bitterly cold February day in NM. The temperature was 81 F. It's supposed to be 82 tommorow. Seems like it was 28 F just last week. Oh yeah, it was.

The Exorcist

Well I saw Bobby Jindal for the first time, and while he seemed a lot brighter than the Saracuda, I still wasn't terribly impressed - he just trotted out the same old failed Republican policies and repeated some of the same old Republican lies - like the story about the Maglev from Disneland to Las Vegas.

The camera didn't do him any favors by consistently cutting off parts of his rather low hand gestures - his hands seemed to be some kind of frenetic fish trying to jump up on the screen but never quite making it. He's no orator yet, with a rather fast and uninflected delivery, but at 36 he has plenty of time to learn.

On the positive side, I never got the impression I listening to a wacko like Palin or a dolt like Bush.

State of the Union

I'm unclear on why nobody is willing to call Obama's speech on the state of the union a State of the Union speech. The Constitution doesn't limit the time, number or nature of the President's reports on the state of the union. If the President so chose, he could do weekly reports on the SOTU on his blog.

Monday, February 23, 2009

More Wisdom from Coach C.

They are bigger than us. They are faster than us.

Hell, even their cheerleaders are prettier.

Nobody deserves that kind of luck. Let's kick their asses.

Academic Entitlements

Eli takes down Brad DeLong.

But I predict DeLong has a freebe before the week is out.

The Wisdom of Coaches

Sprinting is 20% mental, 30% conditioning, and 40% form.

The other 99% is talent.

Sunday, February 22, 2009

Uncle Sam, Venture Capitalist?

Tom Friedman, previously famous for idiotic predictions about Iraq (something he actually knew something about) has lately concentrated oninternational economy, a subject he doesn't know about. Previously his economic researches have discovered that Erastosthenes was wrong obout that spherical Earth thing.

His latest column suggests that the government should forget trying to prop up losers like GM and get into the venture capital business.

G.M. has become a giant wealth- destruction machine — possibly the biggest in history — and it is time that it and Chrysler were put into bankruptcy so they can truly start over under new management with new labor agreements and new visions. When it comes to helping companies, precious public money should focus on start-ups, not bailouts.

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves

It's hard to overstate just how many levels this is wrong on, but his title, "Start up the Risk Takers" provides a hefty hint. It was the risk takers in big banks who got us here. In no way is the government prepared to do the work of trying to figure out who to bet on in the technology marketplace. It has neither the expertise nor the right incentive structure. Such an enterprise would be a call to every swindler and con man around to take the sucker's money.

Saving GM is a dirty job, but it probably has to be done. Unlike Friedman's proposal, it could save hundreds of thousands of American jobs this year. If we got really, really, lucky, Friedman's idea might create some jobs five, ten or twenty years from now.

Scumbucket of the Week

Richard Shelby

So many Republicans - so few weeks.

Neo Neo

Are neoconservatives really conservative? What they seem to believe in is fiscal jingoism, military adventurism, torture, and trashing the constitution. None of these is a traditional conservative value. They are more aligned with Nazi values however. Let's call these people what they are: neonazis.

Just because Bill Kristol, Robert Kagan, and Charles Krauthammer don't have prominent tatoos and shave their heads doesn't mean they aren't neonazis. Hitler didn't either.

Exes and Texas

Bryan Burrough has a witty and illuminating article on the rise and fall of political power for Texas in the Washington Post: Death and Texas

A favorite quote (Wendell Wilkie):

: "You know the Good Lord put all this oil into the ground, then someone comes along who hasn't been a success at anything else, and takes it out of the ground. The minute he does that he considers himself an expert on everything from politics to pettycoats

What these wealthy Texas experts mostly were was very conservative, and they spent billions buying politicians by the bucketfull to protect their empires. At the very top level though, their investments didn't pay off that well. LBJ turned liberal and Murchison, one of his prime (and illegal) funders wouldnt even take his calls. HW Bush wasn't wingnut enough for them either. W was, but we all know how he turned out.

Saturday, February 21, 2009

Clap Louder

What's the percentage in being a contrarian? Well, if you are pretty sure that the herd is stampeding off the cliff, it makes Darwinian sense to try to get out of the flow. Skepticism about the perceived wisdom is the intellectual equivalent of a biological mutation - the odds are very heavily against it, but when it pays off, it can win big.

Contrarians don't necessarily lack the herd instinct, of course. They like to think that they are part of their own crowd. Thus the high school goths all congregate under the same tree, just as the jocks, nerds, and beautiful people each have their own territory. Thus it is also with climate skeptics.

Via Brad DeLong, Ryan Avent wonders about the link with political conservatism.

My question is why conservatives think it advances their purpose to continue this demonstrably wrong adherence to climate change denialism. This isn’t like, say, evolution. Scientific evidence of evolution is quite strong and will only continue to get stronger, but that growing evidence won’t be ever more obvious to the layperson. Birds, for instance, won’t start evolving faster and faster until it’s frighteningly clear that evolution is real and all those deniers were, in fact, cranks.

But the planet is getting warmer, and people are going to notice. Will can talk about global cooling all he wants, but arctic ice is actually disappearing. Snowpacks are shrinking. Droughts are intensifying. Sea-levels are rising. And this isn’t going to stop.

Climate change denialism is like arguing at three that in two hours it won’t be five. However convincing you think you are, you will ultimately be revealed as a fool and a charlatan.

In particular, his musings are inspired by George Will's recent anti-AGW column in the Washington Post, which cites or quotes "facts" from various scientists so out of context and distorted in interpretation that those quoted/cited have angrily demanded retractions.

In George Will's case, this is just standard operating procedure. His audience demands it. If he were to publish a column that objectively presented the facts, he would suffer the same fate as the KKK leader who told his followers that he had seen the light and had decided to marry his black male hair stylist.

Like George Will and Exxon-Mobile, many are unscrupulous opportunists, but they are the exception. The great mass are true believers with no obvious pocketbook agenda.

The best answer for the association between conservatives and AGW denial was suggested by commenter Roger Albin to Brad DeLong's site. The problem is the challenge AGW poses to free market fundamentalism. A classic problem of markets is the problem of externalities, or side effects of a transaction that affect those who aren't parties to that particular transaction. AGW and other environmental effects are the ultimate externalities - they affect everybody in every country. This is a beam in the eye of the free market fundamentalist religion, so they choose to wish it away.

And being exposed as a fool and charlatan is hardly as severe a fate as might be imagined. The air waves are crowded with those who make an excellent living being just that. All you have to do is shut your eyes tight and clap louder.

Friday, February 20, 2009

Stats - See Updates Below

Lubos is back in the climate wars, and he appears to have a point. I haven't read the paper or done the calculations, but his Mathematica principal components calculation seem to show that there is something fishy about some recent Antarctica data. The data is represented as time series of temperatures from 5509 locations. However, essentially all the variance turns out to be captured by the equivalent of just four [Karhunen-Loeve transformed virtual] meaurement locations.

If you represent each time series as a vector, the 5509 measurement points produce a 5509 dimensional vector space - but all the vectors lie within a four-dimensional subspace.

This is quite odd, and suggests a degree of bogosity. Of course it's not odd at all that the temperatures at different locations in Antarctica should be correlated, but the enormous differences in scale of the eigenvalues do not appear compatible with that being the full explanation.

Anybody know what's really going on here?

UPDATE: OK, I looked through the Steig et. al. paper as well as Tapio Schneider's paper developing the statistical methodology they used: Journal of Climate, 14, 5 (March, 2001) "Analysis of Incomplete Climate Data: Estimation of Mean Values and Covariance Matrices and the Importance of Missing Values."

The problem they were dealing with: they wanted to find the best estimate of means and covariances and their behavior over time for the Antarctic Continent from irregularly spaced and sporadic weather station records. The frequent gaps in the record mean that those matrices are underdetermined (the time series vectors have unknown components). Consequently, the statistical estimation problem can be ill posed. That problem can be dealt with by "regularizing" the data (in effect smoothing it). It is a non-linear estimation problem, and Schneider's method is an iterative smoothing method.

The method has some features and effects in common with the more ad hoc method of truncation of principal components, but has more formal justification. The point is that you wind up with only a few principal components because the others would contribute only noise - their effects are smaller than the other known noise sources.

In any case, the methodology explains Lubos's results - he only sees a few principal components because the others have been filtered out in the RegEM estimation. You should try your method on raw data, Lubos. I predict a lot of large (and spurious) principal components due to the data gaps.

Arun's comments are very nearly correct, with the only qualification that the values in question are not so much modeled as the results of an estimation process.

Another virtue is that the principal components have natural interpetations in terms of familiar large scale weather or climate features.

UPDATE II: The Schneider paper is very clear and available online:

Tuesday, February 17, 2009

Doubting the Stimulus

I'm glad that the stimulus passed, because we had to try something, but I have some doubts. The usual story is that deficit spending during the depression was too small to break the cycle and that the really big stimulus of WWII was needed to drive the stake through its heart.

The thing is, WW II had a couple of other effects on the economy. Since everything was going into the war, the stock of goods and capital was greatly depleted by the end of the war. Second, since everybody had a job, and savings was essentially forced, everybody's bank balance kept improving. Thus, by the end of the war everybody had money but no consumable goods. A stimulus isn't really intended to reach that state.

One trouble with economics is that the classic examples used to prove a point are never precisely relevant to the current circumstances. The question is, which aspects are essential to the result.

But see a really good and balanced pro-stimulus argument by Greg Clark at Brad's Place

Bill Gray's Jihad

The American Meteorological Society (AMS) decided to give its highest award, the Rossby Research Medal, to James Hansen this year, and emeritus Professor William Gray is not pleased. He sent a long, angry letter to the AMS denouncing the award.

Much of the letter has the familiar lament of old coots everywhere about the failing of the new generation:

I am appalled at the selection of James Hansen as this year’s recipient of the AMS’s highest award – the Rossby Research Medal. James Hansen has not been trained as a meteorologist. His formal education has been in astronomy . . .

We AMS members have allowed a small group of AMS administrators, climate modelers, and CO2 warming sympathizers to maneuver the internal workings of our society to support AGW policies irrespective of what our rank-and-file members might think. This small organized group of AGW sympathizers has indeed hijacked our society...

Gray is also angry that the the AMS has been giving its top medals to AGW believers for some time, and never to his fellow doubters:

Since 2000 the AMS has awarded its annual highest award (Rossby Research Medal) to the following AGW advocates or AGW sympathizers; Susan Solomon (00), V. Ramanathan (02), Peter Webster (04), Jagadish Shukla (05), Kerry Emanuel (07), Isaac Held (08) and James Hansen (09). Its second highest award (Charney Award) has gone to AGW warming advocates or sympathizers; Kevin Trenberth (00), Rich Rotunno (04), Robert D. Cess (06), Allan Betts (07), Gerald North (08) and Warren Washington and Gerald Meehl (09). And the other Rossby and Charney awardees during this period are not known to be critics of the AGW warming hypothesis.
The AGW biases within the AMS policy makers is so entrenched that it would be impossible for well known and established scientists (but AGW skeptics) such as Fred Singer, Pat Michaels, Bill Cotton, Roger Pielke, Sr., Roy Spencer, John Christie, Joe D’Aleo, Bob Balling, Jr., Craig Idso, Willie Soon, etc. to ever be able to receive an AMS award – irrespective of the uniqueness or brilliance of their research.

The substance of the complaint has the usual story: global warming is a hoax perpetrated by a the media and a small but sinister cabal controlling the AMS. The models are all wrong, because they fail to take into account deep ocean currents and various small scale effects.

So is Gray just another sad example of the distinguished elderly scientist going off the rails and becoming a crank? I think so, but given his career and accomplishments, he deserves at least the respect of a refutation. The most substantive claim in his letter is that all the models fail by overpredicting the water vapor feedback and consequently the warming, and that this is shown by satellite measurements. From Appendix A to his paper:

1. Models assuming that an increase in atmospheric CO2 will cause weak global warming and an increase in global precipitation that will lead to a large increase in upper-level water vapor and cloudiness. They simulate that this increase in water vapor and cloudiness will block large amounts of infrared radiation emitted to space. New observations by satellite and reanalysis data however, do not support these GCM model assumptions. The global warming that has occurred since the mid-1970s has been associated with a general decrease of global upper tropospheric water vapor and an increase of Outgoing Longwave Radiation (OLR) to space. These measurements are opposite to what the models predict.

Where are these measurements? He doesn't say. Perhaps some expert (Prof Rabett?) could comment on this.

From Appendix B:

Skillful initial-value numerical GCM climate prediction will likely never be possible. This is due to the overly complex nature of the global atmosphere/ocean/land system (Figure 12) and the inability of numerical models to realistically represent the full range of this physical complexity and to be able to integrate this overly complex physics forward in time for hundreds of thousands of time steps. Skillful initial-value numerical forecasts currently cannot be made for more than a few weeks into the future. This is because any imperfect representations of the highly non-linear parameters of the atmosphere-ocean system tend to quickly degrade (the so-called butterfly effect) into unrealistic flow states upon integration of longer than a week or two. Skillful short-range prediction is possible because there tends to be a conservatism in the initial value momentum-pressure fields which can be extrapolated or advected for a week or two into the future. But after 1-2 weeks, one must deal with the far more complex variation of the moisture and energy fields. Model results soon decay into chaos as indicated in Figure 13.

Note here that he is attacking the whole idea of physics based computer modeling of climate. Also, it seems, he really doesn't seem to understand the effects of chaos on a statistical ensemble of systems. While prediction of any given trajectory is highly uncertain, the envelope and statistics are not necessarily so limited.

Monday, February 16, 2009

Liberals and Others

K. Anthony Appiah has a Slate article on the essence of liberalism. He was reviewing a book by Alan Wolfe, and one or both of them came up with seven qualitites that they thought characertized the liberal:

Four of these dispositions will be quite familiar: "a sympathy for equality," "an inclination to deliberate," "a commitment to tolerance," and "an appreciation of openness." We're used to the portrayal: liberals as talky, tolerant, open-minded, egalitarians. It's not surprising, then, that these types are at home in the garrulous world of the academy—or that bossy preachers, convinced they have the one true story, do not care for them much. But Wolfe's sketch of the liberal adds three unfamiliar elements to the picture: "a disposition to grow," "a preference for realism," and "a taste for governance."

The disposition to grow is really not the best slogan for the element of the liberal tradition that Wolfe is trying to capture with this phrase. What he means to resurrect is the faith that we can remake ourselves.

The two the especially interest me are tolerance and openness - because those are the qualities most missing in the ideologues of extremes. Facist, communist, and religious fanatic abjure and abhor these qualities. Such people seem compelled to divide the world into us and them, ally and demon. These qualities are what make them so dangerous - they are always trying to fight battles. They are incapable of seeing common purpose or goals.

Rush Limbaugh is typical. At a time of maximum danger for the country, he sees only an opportunity to damage his internal foes - and to hell with the country in the process. His ideas have failed, so all he thinks of is taking America down with him. That's why he and his fellow wingnuts want Obama to fail, even though the future of the country is at stake.

Of course such people exist in every sort of political context. Even, oddly enough, in science.

Saturday, February 14, 2009

Friedman Quote

Sabine H found this great quote by Milton Friedman:

“Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense). The reason is simple. A hypothesis is important if it “explains” much by little, that is, if it abstracts the common and critical elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained.”

Lubos has now also weighed in.

It is no exaggeration to say that the quote is paradoxical sounding, and deliberately so. It comes from Friedman's 1953 essay The Methodology of Positive Economics (ppg 13-14).

Bee and Lumo each take a crack at explanation, and I think Bee is more or less on target. Lubos is, well, Lubos - this time with Bayes Theorem. Read it if you're interested.

Friedman himself is more helpful. His next two paragraphs read:

The converse of the proposition does not of course hold: assumptions that are unrealistic (in this sense) do not guarantee a significant theory [no shit Sherlock!]
To put this point less paradoxically, the relevant question to ask about the “assumptions” of a theory is not whether they are descriptively “realistic,” for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions. The two supposedly independent tests thus reduce to one test.

The less paradoxical version is not only more coherent, it is also quite different. In particular, it doesn't pretend that the unrealism of the hypotheses is important to the theory but merely states that the theory abstracted must be predictive.

Consider a comparative case in physics: frictionless classical motion as taught in elementary freshman physics. The theory is indeed useful when the approximation is good enough "for the purpose at hand" but it's not that the assumption of no friction is false that makes the theory important, it is the fact that there are cases when the assumption is very nearly true. The "unrealism" => "importance" business is just a bit of squid ink thrown up to cloud the next issue he wishes to discuss, the assumption of "perfect competition" in classical economics.

The question in that case, as in all such cases, is whether the "assumptions are sufficiently good approximations for the purpose at hand."

Impressively unrealistic assumptions are no virtue, but insufficient fidelity for the purpose at hand is indeed a vice.

UPDATE: There is a sense of the word "unrealistic" which permits one to make sense of Friedman's quote. We sometimes consider "realistic" and "idealized" to be opposites, and if you equate "unrealistic" with "idealized" then the comment takes on some rationality. More idealized models have fewer moving parts, and hence are easier to compute with. This is an unusual and somewhat unnatural meaning for "unrealistic," which more commonly is used to mean:

Not compatible with reality or fact; unreasonably idealistic

From the Free Online Dictionary

The above meanings turn Friedman's F-twist into nonsense and the logical fallacy I mentioned previously. I thought Friedman was a native speaker of English. It seems odd that he would make such an obvious semantic error.


The European Union expanded dramatically after the Soviet Union fell, and now they are feeling some indigestion. The current tiff between French President Sarkozy and the Czechisa Vclav Klaus is a minor symptom.

The real problem is more fundamental. The Europeans can't decide whether they want to be a loose economic coalition or a "United States of Europe." Trying to occupy some middle ground is apparently impossible - there doesn't seem to be any stable state there.

The United States under the Articles of Confederation faced a similar problem - as a loose confederation they had no military power and considerable problems with internal trade. Even after the Constitution was adopted, it took a civil war to establish clearly the relative roles of state and nation. Europe's problem with unification is harder, mainly because of linguistic and cultural differences, but also because of the long history warfare and division. The Eastern European countries want the military shelter of NATO but don't want a European state - nor, probably, do most of the Western countries.

Ever since the Second World War, the US provided Europe with some adult supervison, especially through its military power. That era is over. The US no longer has the resources or interest to play that role. It seems likely that Europe will evolve into a collection of independent and competitive states without any real power in the world. That shouldn't present a problem unless Russia returns to superpower status. In that case Europe will be a prize that the US and China will not be able to afford to let fall into Russian hands. What exactly they will be able to do about it is another question.

Or perhaps Europe will find some elusive middle ground that allows it to protect itself without becoming a nation - but I wouldn't count on it.

Friday, February 13, 2009

Religious Differences

Recent genetic studies make it clear that in the male line Jews are just a subgroup of the Palestinian Arabs. Plotting up a bunch of the world's Y chromosomes shows that all the Semitic Middle Eastern peoples are closely related, with Jews from various diaspora populations scattered about with Palestinian Arabs very nearly in the middle.

The good news is that the genetics of Arabs and Jews have been pretty extensively researched. The classic study dates to 2000, from a team lead by Michael Hammer of University of Arizona. They looked at Y-chromosome haplotypes - this is the genetic material passed from father to son down the generations.

What they revealed was that Arabs and Jews are essentially a single population, and that Palestinians are slap bang in the middle of the different Jewish populations (as shown in this figure).[see the linked article]

The situation in the female line is more complex, with a wide variety of populations represented, typically characteristic of the population where the Jewish subgroup was located. Thus, Jews from two different regions of India carry the the mitochondrial DNA characteristic of those Indian regions. Similar relationships are common with Jewish groups from other countries.

The most likely scenario is that the diaspora consisted mostly of Jewish men, who travelled to foreign countries and recruited local wives. Those who never left Palestine mostly converted to Islam, and represent the original strain, slightly diluted by a modest amount of immigration of Arabs from other nations.

The differences between Israelis and Arabs seem thus to be mainly religious rather than racial - not that that hasn't always been a good enough excuse for people to slaughter each other. Meanwhile, I will probably use this as an excuse to annoy my Jewish friends and relatives by referring to "Jews and other Arabs" on suitably inappropriate occasions - like when they are spouting racist anti-Arab stuff.

What Republicans Dream

David Brooks conjures up a Republican wet dream. With their theories destroyed and the results crashing over us, the Republicans have decided to bet that the typhoon they conjured up will overwhelm Obama (and America) and give them a chance to rule the wreckage.

Economists and policy makers had no way to peer into this darkness. Their methods were largely based on the assumption that people are rational, predictable and pretty much the same. Their models work best in times of equilibrium. But in this moment of disequilibrium, behavior was nonlinear, unpredictable, emergent and stubbornly resistant to Keynesian rationalism.

The failure to generate a recovery led to a collapse of public confidence. President Obama’s promises of 3.5 million jobs now seemed a sham and his former certainty a delusion. The political climate grew more polarized. That meant it was impossible to tackle entitlement debt. That and the economic climate meant it was impossible to raise taxes or cut spending or do anything to reduce the yawning deficits. Federal deficits were 15 percent of G.D.P. and growing.

Obama offered the Republicans a hand, and they tried to knife it, but I think that he, and the Democrats, have a gun or two for this fight.

So what would have happened if three Republicans had not conveniently provided the critical margin on today's vote? My guess: the S&P drops 150 points in an hour, and the screams of their wealthy patrons wake the Republicans up - but probably too late to prevent the really big world crash.

Thursday, February 12, 2009

Happy Birthday Chuck!

And Abe!

I attended a birthday party for Charles Darwin at the Church of Evolution tonight. There was original music, readings from the Master, Hymns, and a nice brief lecture. The not-so-reverend bob presided.

Bob Diven, minister and factotum of thechurchofbob, is a local artist, playwright, actor, musician, and composer.

The Zombie Test

Tim Geithner's bank bailout plan has engendered lots of suspicion and a fair amount of hostility. The most important element, I think, is the Zombie Test, which would force bailout recipients to show their financial hands and thus reveal whether they are in fact solvent - are they real banks or zombies.

One way or the other, the taxpayers are picking up much of the tab for the blunders and excesses of the financial sector, but we really shouldn't keep pouring resources in to banks that are already bankrupt. The real zombies need to be disposed of if the merely sickly are to be saved.

Wednesday, February 11, 2009

25 Things You Might Not Know About Me

1. I have trouble completing tedious assign



DeLong on Monetarism

Catch this excellent short article by Brad DeLong on the uses and abuses of the Friedman school: End times for Milton Friedman:

After World War II, laissez-faire economists had a big intellectual problem: the Great Depression. How could you argue for dismantling the post-WW II social insurance states and returning to the small-government laissez-faire of the past when that past contained the Great Depression? Some argued that the real problem was that the laissez of the past had not been faire enough: that everyone since Lord Salisbury and William McKinley had been too pinko and too interventionist, and thus the Great Depression was in no way the fault of believers in the free-market economy. This was not terribly convincing. So advocates of a smaller government sector needed another, more convincing argument.

It was provided by Milton Friedman.

Friedman proposed that with one minor, technocratic adjustment a largely unregulated free-market would work just fine. That adjustment? The government had to control the "money supply" and keep it growing at a steady, constant rate--no matter what. Since money was what people used to pay for their spending, a smoothly-growing money supply meant a smoothly-growing flow of spending and, hence, no depressions, Great or otherwise. In Friedman's view, if the task of monetary stabilization could be accomplished via technocratic manipulations by a non-political central bank, there would be no need for much of the apparatus of the post-World War II social insurance state.

In the 1950s Friedman's doctrines were considered way out there. But his Keynesian adversaries overreached, and claimed that clever governments could maintain price stability and a high-pressure economy with "full" (rather than merely "normal") employment. By the 1970s, it was clear they were wrong. Since then, advocates of expanded social democracy have been on the retreat more often than on the advance. By the 1990s, even left-of-center politicians had come to respect central bankers' mastery of the money supply, giving them a wide berth.

The power of Friedman’s theory was, in part, rhetorical. "Keep the money supply growing smoothly" sounds like it means to keep the presses in the Bureau of Engraving and Printing rolling at a constant pace, printing out a steady flow of pictures of George Washington. But that is not how "money supply" actually works. In economic reality, "money supply" means not just cash money but also credit entries the Federal Reserve has made in commercial banks' accounts at the Fed; plus all the credit entries commercial banks have made in households' and businesses' checking accounts; plus savings account balances; plus (usually) money market mutual-fund balances; plus (sometimes) trade credit and the ceilings between credit card limits and consumers' current balances.

No central banker controls all these vast and varied sluices of the money supply – at least not in economic reality. When banks and businesses and households get scared and cautious and feel poor, they take steps to shrink the economic reality that is the "money supply." Businesses extend less trade credit. Credit card companies cut off cards and reduce ceilings. Banks call in loans and then take no steps to replace the deposits extinguished by the loan pay-downs. Without a single bureaucrat making a single decision to slow down a single printing press, the money supply shrinks—disastrously in episodes like the Great Depression. Thus in emergencies, to say that all the central bank has to do is to keep the money supply growing smoothly is very like saying that all the captain of the Titanic has to do is to keep the deck of the ship level.

For the past eighteen months the collective central banks of the world have been trying as hard as they can to keep the deck of the ship level. Traditionally, central banks boost the money supply by buying government bonds from the Treasury for cash. Buying government bonds for cash cuts the supply of bonds the private sector can acquire, boosting their price while lowering interest rates, making businesses more eager to spend to expand and making asset holders feel richer and thus more eager to spend to consume.

The central banks and finance ministries of the world have purchased so many government bonds for cash that they have pushed the prices of short-term government bonds up as high as they can possibly go. With interest rates practically zero, there is no extra interest return to be gained in the short run from bonds. Yet it has not been enough.

So increasingly over the past year, the central ministries of the globe have taken extra measures: they have guaranteed debts, they have partially or completely nationalized banks, they have forced weak institutions to merge with stronger ones, they have expanded their balance sheets to an extraordinary extent. And yet this, too, has not been enough.

So now the central bankers have thrown up their hands, and asked for help to stimulate spending through tax cuts and government expenditures. Because they have run out of means to "keep the money supply growing smoothly."

Today, we have reached the end of the line for the Chicago view of financial deregulation. Friedman thought (a) that the central bank could exercise enough influence over the money supply to effectively control it, and (b) that banks and other financial intermediaries would be regulated tightly enough that what is now happening would be impossible. But he never resolved the tension between his view that banks need controls and the Chicago view that business must be unfettered.

Monetarism may well make a comeback -- as a doctrine that is good enough for normal times. For in normal times "keep the money supply growing smoothly" does appear to be a relatively easy task, a minor adjustment to laissez-faire that can be performed by a small number of qualified technocrats. Unfortunately, not all times are normal.

Mistakes . . . Will Be Made

Joe "Bigmouth" Biden mentioned the other day that the President and he discussed that whatever they did, 30% of it would be wrong. This was like a second Christmas for the Faux News guy, who jumped on it. Obama evaded the question, and moved on, but it's a simple fact. In novel and difficult situations where conflicting advice is being offered by lots of apparently qualified people, human decision makers make lots of mistakes.

A look at the greatest American presidents shows tha they each made lots of mistakes. Lincoln, the greatest president, had the toughest problem and made as many mistakes as any. One of the things that made Lincoln great was his ability to recognize his mistakes and try something else.

George Bush, perhaps our worst president, seemed utterly unable to recognize his errors, even though he made blunder after blunder.

Despite this fact, it's not good policy for the leader to admit this in advance during times of crisis. Leaders need to look strong and decisive when they choose new policies, even if they are less than confident in the outcomes.

As I mentioned, even the best leaders make mistakes. But does Biden have to keep making the same stupid mistake over and over?

Tuesday, February 10, 2009

Climate Science

Once upon a time climatology was a quaint Victorian sort of a science dominated by rather dull statistics. A big day for a climatologist would be discovering an anti-correlation between the Summer temperature in Lisbon and the rainfall in Honolulu.

That changed utterly when advances in computing made it possible for climatology to become an application of physics. Physical models of climate require vast computing power, the kind of computing power that permitted chemistry to start computing molecular structures and aerodynamics to become a predictive science. I wouldn't be surprised if a lot of the old time climatologists resented the new kids on the block.

Is it just coincidence that all the new kind of climate scientists seem to be believers in anthropogenic global warming? I can't think of any who aren't. I can easily imagine what it must feel like to see your hard won insights and statistical tables displaced by physics and nasty old computer calculations.

So why isn't anyone running a real physical climate model in the doubter camp? Or is there someone? Anyone?

Darwin in the NYT

Carl Safina has a singularly obtuse essay in the NYT today: Darwinism Must Die So That Evolution May Live. As a title: cute but dumb. As an idea: huh?

He seems to be under the impression that identification of evolution with Darwin is some kind of dangerous cult. He argues nonsensically, for example, that Darwin created Creationism.

Into the breach: intelligent design. I am not quite saying Darwinism gave rise to creationism, though the “isms” imply equivalence. But the term “Darwinian” built a stage upon which “intelligent” could share the spotlight.

He notes that the idea of evolution came before Darwin. Quite so. So did the idea of intelligent design.

He trivializes Darwin's real idea, natural selection, while ignoring it's central role in explaining everything about evolution. No, Darwin didn't understand everything about biology, nor did he understand the genetic mechanism through which natural selection did its work. It was characteristic of his genius, though, that he understood what it was that he didn't understand.

Safina's remarks reveal at every point his ignorance of the history and historical importance of Darwin's dangerous idea, as Daniel Dennett described it.

Safina's final paragragh encapsulates his misunderstandings:


But our understanding of how life works since Darwin won’t swim in the public pool of ideas until we kill the cult of Darwinism. Only when we fully acknowledge the subsequent century and a half of value added can we really appreciate both Darwin’s genius and the fact that evolution is life’s driving force, with or without Darwin.

The first sentence wouldn't make sense even if there really was a "cult of Darwinism," which there isn't. The final sentence is even stupider. Who does he think is in this mysterious cult of Darwin worshipers is that doesn't acknowledge the subsequent 150 years of progress in biology? The cult doesn't exist, and the advance of biology since Darwin is universally acknowledged. Evolution is not "life's driving force," it's an explanation of why life is the way it is. Darwin's natural selection, though, is what drives evolution.

Safina is apparently a MacArthur fellow. He is also an idiot.

Sunday, February 08, 2009

Talking He3ads

Saw some of the Sunday yakkers today. Larry Summers was annoying enough to get me to switch channels quickly. He had clearly been given instructions not to say anything of substance, so the interview quickly got tedious. I can see why some people don't like him. If he's not going to say anything, why is he there? Couldn't he just announce that he's only going to answer questions on A and skip the tedious circumlocutions?

Other channels had Republicans, which was worse. They clearly have decided to stake their politicals futures on the hope that the Bush recession/depression will still be going strong in 2010, giveing them a chance to avoid extinction. Obama, for some reason, has chosen to indulge them. I suspect that this is a mistake. Republicans have learned only the politics of fear and have jumped on the opportunity to exploit what they think of as weakness.

I think he needs to bring the fire. Democrats are trying to argue policy details while the Republicans continue to spew a cloud of lies and nonsense. Democrats should be out there reminding the public how we got here - by practicing exactly the policies that the Republicans keep still trying to push.

Cooperation needs to be based on both trust and fear. We should be spending every moment reminding the public and the Republicans exactly how we got into this mess. Every Republican from the Midwest and East needs to start hearing from angry constituents whose jobs they voted out of existence.

Saturday, February 07, 2009

Economics Debate

I posted a version of the following to a comment on Brad DeLong's site, but he deleted my last three paragraphs and gave me pretty much a non-answer to the second, citing some source he liked without giving a hint as to whether economists generally agree.

I have been reading the opinions of a variety of distinguished economists on the proposed stimulus, and I'm a lot more discouraged than edified. It seems that prominent economists from famous institutions variously think that there is no stimulus multiplier, that the multiplier is greater for spending than for tax reductions, vice-versa, or that the stimulative multiplier effect can be specified to three significant figures. I am led to wonder whether economics has anything useful to say about the world - is it a science or just mumbo-jumbo whose only connection to reality is via the credulity of the gullible?

There is a lot of debate in the economic blogosphere, but an unsatisfyingly large portion of it consists of assertions that the other side is ignorant or deluded. So are there any facts that can be brought to bear on the issues?

If so, perhaps a more formal public debate would help. My idea is that such a debate should be confined to a crucial but narrow topic, (for example: What is the evidence for the multiplier effect of various stimulative strategies?) that the debate should be conducted via blog or similar internet medium, that the discussion should be intended to be intelligible to the public, and that the format be strict: Each side gets an opening statement (say 1000 words), A set of questions to pose in cross examination of the opponent, and a rebuttal. It might be useful to allow each side a limited time to revise and extend their remarks.

If successful, such a debate would be a great public service. Even if not, it ought to be interesting and even educational.

Is there any chance that there might be takers?

Friday, February 06, 2009

Purely Personal

My mother died last week. She was a few days short of her 98th birthday, and had had a long life of many triumphs and sorrows. She was ill and enfeebled for the last few years, but her mind was still sharp and she retained her sense of humor. She was ready to go, and had prayed to be allowed to join my father for many years, but she was the most important person in my formative years and I miss her terribly.

Some of my earliest memories are of the endless questions I asked her and her remarkably patient answers. She had been trained as a microbiologist and had a lively interest in all the sciences. She had been greatly cheered by the election of President Obama.

We had a very nice funeral with all of her children and many of her grandchildren and great-grandchildren, but that really doesn't help much.