The Free Thinker

Abuse of Numbers

Sometimes what makes me want to blog is that I'm highly irritated by something I read. The danger is that it will make me seem bad-tempered. Oh well. Fareed Zakaria's article, "Obama's speech shifts focus from deficits" really irritated me. He begins:

With his speech in Kansas, President Obama has begun a national conversation about the economy and the role of government. In presenting his view, Obama shifted the economic conversation from deficits to the crucial issue of growth. After all, deficits matter because they could have a harmful effect on growth. The question we should all ask is: What would make this economy grow?

One theory heard a lot these days is that the economy is burdened by excessive government regulation, interference and taxes. All these pressures on business, especially small business, are keeping the economy down. Cut them, the Republican candidates all say, and the economy will be unleashed. It’s a compelling picture, but the data simply do not support it.

Now right here, already, the proper reaction to this is something like "Who does he think he is to be writing about numbers at all?" If you think a claim like this can be dismissed because "the data do not support it," then you don't understand the use of data. Data is not a substitute for theory. Theory is needed in order to interpret data. Disraeli said "there are three kinds of lies: lies, damn lies, and statistics." That's too cynical, but it's true that many, many uses of statistics are misleading to the point of being worthless, and people who think they can resolve big questions like this merely by quoting a few numbers are just the types of people who abuse statistics. Even so, I didn't think it would be as bad as it would turn out to be.

A World Economic Forum survey that ranks countries on their overall economic competitiveness puts the United States fifth; the countries ahead of it, including Singapore and Finland, are tiny, with populations around 5 percent that of the United States. The World Bank publishes a report that looks at “Doing Business” across the globe. The United States ranks No. 4, again behind a handful of tiny countries. As is the case with the World Economic Forum, that ranking has not changed much over the years.

Of course, there's plenty of controversy around the way these numbers are compiled, and the whole idea of "overall economic competitiveness" of countries is, in my considered judgment, baloney. To put it bluntly, it is totally eviscerated and refuted by Ricardo's theory of comparative advantage. But even if you take the number at face value, it does not support Zakaria's claim. The US has a light burden of government relative to other advanced countries, so it's quite "competitive." If it had a still lighter burden of government, the crude logic would suggest, we would be still more "competitive." What is Zakaria's point?

The Kauffman Foundation, which looks at the level of U.S. entre­pre­neur­ship, found that in 2010, 340 out of every 100,000 Americans started a business each month. That rate hasn’t changed much in the past few years; it is only slightly higher than in 2007, before the recession. Regarding regulations, Bloomberg News has crunched the numbers and found that the Obama administration has not reviewed or issued significantly more rules than its predecessors.

Again, what is Zakaria's point? That the pace of business development hasn't been stalled by over-regulation? But, first of all, while these raw numbers are interesting, they are hard to interpret. Not all rules are alike, after all; some are much more burdensome than others. And then, how are they enforced? That can change from administration to administration too. As for the number of Americans starting a business each month, we might expect that number to rise, since one reason for starting a business is to escape unemployment, and there are a lot more unemployed Americans now than in the past. Also, not all business expansion takes the form of individuals starting businesses; it can consist of established firms embarking on ambitious new projects. Really, not much can be drawn from these numbers.

The Organization for Economic Cooperation and Development (OECD) released a study last week measuring tax revenue as a percentage of gross domestic product. The United States came in 27th out of 30 countries. Taxes are low in historical terms as well, the lowest since the early 1950s. But the complexity of the U.S. tax code clearly exacts a price in terms of economic growth and competitiveness. The World Bank study finds that the only category in which the United States is not in the top 20 is “paying taxes,” where it ranks a miserable 72. (The U.S. ranking has shifted from 76 in the 2008 report to 46 in 2009 to 61 in 2010.) Tax reform that gets rid of the loopholes, deductions and credits — and the inherent corruption related to them — would clearly help the economy.

The point that taxes are low right now is well taken, as far as it goes. I think most small government advocates right now are not so much focused on lowering taxes as on reducing the deficit, about which Zakaria says nothing. The problem, of course, is that while taxes may be low now, everyone is afraid that they will rise. And that deters investment, entrepreneurship, risk taking, etc.

So, outside of the tax code, the United States does not seem to have slipped very much in terms of competitiveness and ease of doing business. What has changed? The answer is pretty clear. Only five years ago, American infrastructure used to be ranked in the top 10 by the World Economic Forum. Now we’re 24th. U.S. air infrastructure has gone from 12th to 31st, roads from eighth to 20th.

And so what? First, is this change because our infrastructure has gotten worse, or because other countries' has gotten better. But, more importantly, what is the evidence that infrastructure is an important constraint on the economy, at the margin? My own experience doesn't suggest that road quality is a significant constraint on the economy. The highways pretty much get me where I want to go. Potholes and other road quality issues are a negligible annoyance. If Zakaria wants to make this case, let alone to say that "the answer is pretty clear," he needs to cite data showing that companies are being significantly held back by the quality of infrastructure.

By the way, I think there might be some 21st-century infrastructure project that really would help to revive the economy-- something along the lines of universal free wi-fi, or better search engines, or a government-funded, much more comprehensive and smarter, Wikipedia, available through government kiosks anywhere, plus IP buyouts... But these guys always want to build the infrastructure for the last generation of technology, which we already have. It's a great plan... for the 1930s.

The drop in human capital is greater. The United States used to have the world’s largest percentage of college graduates. We’re now No. 14, according to the most recent OECD data, and American students routinely rank toward the bottom of the developed world. The situation in science education is more drastic. The number of engineering degrees conferred annually decreased more than 11 percent between 1989 and 2000. Even with the increase in college attendance over the past two decades, there were fewer engineering and engineering technologies graduates in 2009 (84,636) than in 1989 (85,002). Research and development spending has risen under Obama, but the basic trend has been downward for two decades. In percentage terms, the federal share of research spending — which funds basic science — is half of what it was in the 1950s.

Two problems here. First, decisions about how many people go into engineering and science are made by individuals. I suppose you could subsidize higher education in the natural sciences more, but that would just be helping people who are generally going to come out on top anyway. Second, it's up to the market to decide how much reward to provide to engineers, and thus, how much incentive to create for people to become engineers. My cousin got an engineering degree and it took him a year to get a job. He's doing all right now, but his experience does not suggest that demand is white-hot. It's just not smart to second-guess the market in such matters. If not that many people are going into engineering, the likely explanations are either that there's not really that much need for engineers after all, or that not many people have the aptitude and/or desire to do the job, even if the rewards are fairly good. Either way, the market outcome is optimal.

The irony is that Zakaria's own article is a good example of the ineptness in the use of numbers which he deplores.

In other words, the big shift in the United States over the past two decades is not a rise in regulations and taxation but a decline in investment — in physical and human capital. And investment is the crucial locomotive of long-term growth. Michael Spence, the Nobel Prize-winning economist, points out that the United States got out of the Great Depression because of the spending associated with World War II but also because during the war, it dramatically reduced its consumption and expanded investments. People spent less, saved more and bought war bonds. That surge in investment — by people and government — produced a generation of growth after the war. If we want the next generation of growth, we need a similarly serious strategy of investment.

I'm all in favor of investment! But the way to get it is to reduce the deficit so that investors are less afraid of future taxation and savings aren't being soaked up by government bonds (plus some loose money a la Scott Sumner). If Zakaria understood the ramifications of his own argument here, he'd be making common cause with those he mocks at the beginning. It makes me wonder: why is he taking this side of the argument at all? The numbers certainly don't compel him to it. I think the reason is his temperament and his social milieu: he likes elites, he likes arguments that empower elites, he likes arguments that ingratiate him to elites.

Anyway, back to where I started, my irritation. Zakaria's Olympian tone in "the data do not support it" is, to say the least, unwarranted. Maybe I should say insufferable.

The Civility Deficit

So Congress has agreed to $900 billion, and later $2 trillion+ of spending "cuts," which doesn't actually mean cuts of course, but cuts relative to a steeply rising baseline. The government will still be spending well over $3 trillion and, I think, well over its historic average even as a share of GDP. Most of the cuts are spread out, in good Keynesian fashion, into the later part of a ten-year horizon. It's very moderate; it's really not enough. Steep tax hikes are already scheduled: first, the expiration of the Bush tax hikes; second, Obamacare taxes; but the deal doesn't add any more tax hikes, for now. Which makes sense in a recession. The rich continue to pay most of the taxes, but unfortunately, the government is still giving massive handouts to farmers and seniors that dwarf the benefits to the neediest Americans, who of course are well enough off by international standards that it's rather mystifying what the underlying philosophy could be of those who think it's compatible with justice, if handouts are to be given to anyone, that they be given to any native American rather than be channeled abroad. Meanwhile, as usual, the most regressive policy in the world, immigration restrictions, continue to shut out the poor, huddled masses, yearning to breathe free, the truly-deserving truly-poor, in order to protect the wages of American high school dropouts. This is not, by a long shot, the end of government. The government is still there. It's still big, really really big, and bad. But it's been trimmed a little bit. It's a little bit closer to being of manageable size. Disturbingly, as in the 1990s, it took a political crisis-- then a shutdown, now something like a threat of default although it was really only a threat of shutdown-- to rein in runaway government spending and restore something like fiscal sanity so the economy could have room to grow. But it didn't actually come to that, and now we have a deal, modest and inadequate, but a step in the right direction.

So far, so good. But now, look at what people are writing about it:

The Tea Party's War on America (New York Times):

You know what they say: Never negotiate with terrorists. It only encourages them.

These last few months, much of the country has watched in horror as the Tea Party Republicans have waged jihad on the American people. Their intransigent demands for deep spending cuts, coupled with their almost gleeful willingness to destroy one of America’s most invaluable assets, its full faith and credit, were incredibly irresponsible. But they didn’t care. Their goal, they believed, was worth blowing up the country for, if that’s what it took.

And

Washington Chain Saw Massacre (Maureen Dowd)

Even before Emanuel Cleaver, the Democratic congressman from Missouri, called the debt deal “a sugar-coated Satan sandwich” and Nancy Pelosi tossed in a side of “Satan fries,” the whiff of sulfur was rising from the Capitol...

Most of the audience staggered away from this slasher flick still shuddering. We continue to be paranoid, gripped by fear of the unknown, shocked by our own helplessness, stunned by how swiftly one world can turn into a darker one where everything can seem familiar yet foreign.

“Rosemary’s Tea Party,” an online commenter called it.

If the scariest thing in the world is something you can’t understand, then Americans are scared out of their minds about what is happening in America.

As William Friedkin, the director of “The Exorcist,” observed 27 years after Linda Blair’s head spun 360°, horror movies, like Hitler, pose a chilling, unanswerable question: “Why do bad things happen to good people?”

The horror director Brian De Palma once described the simple essence of his genre: “There is just something about a woman and a knife.” But, in this case, it was the president — and the federal government — being chased through dim corridors by a maniacal gang with big knives held high.

And

Joe Biden compares the Tea Party to terrorists. Is this the most crass and nasty US presidency in decades?

Where's the accountability for these insane slanders? Of course we have free speech in this country, and people should be allowed to say this, but public opinion should be decent enough that there is a de facto tolerance to calling legislators exercising their constitutional powers in response to the demands of the electorate in perfectly legal fashion "terrorists." Who are the people to whom the New York Times can publish this stuff without immediate cancellations of subscriptions? What happened to those people's sense of civic decency?

"What Our Declaration Really Said" (E.J. Dionne)

WASHINGTON -- Our nation confronts a challenge this Fourth of July that we face but rarely: We are at odds over the meaning of our history and why, to quote our Declaration of Independence, "governments are instituted."

Only divisions this deep can explain why we are taking risks with our country's future we're usually wise enough to avoid. Arguments over how much government should tax and spend are the very stuff of democracy's give-and-take. Now, the debate is shadowed by worries that if a willful faction does not get what it wants, it might bring the nation to default.

This is, well, crazy. It makes sense only if politicians believe -- or have convinced themselves -- that they are fighting over matters of principle so profound that any means to defeat their opponents is defensible.

We are closer to that point than we think, and our friends in the tea party have offered a helpful clue by naming their movement in honor of the 1773 revolt against tea taxes on that momentous night in Boston Harbor.

Whether they intend it or not, their name suggests they believe that the current elected government in Washington is as illegitimate as was a distant, unelected monarchy. It implies something fundamentally wrong with taxes themselves or, at the least, that current levels of taxation (the lowest in decades) are dangerously oppressive. And it hints that methods outside the normal political channels are justified in confronting such oppression.

We need to recognize the deep flaws in this vision of our present and our past.

A few points to make here. First, the main problem is not that taxes are too high but that deficits are so high as to be a profound threat to the very legitimacy of the United States government. There is never really all that good a reason why a new generation of Americans should accept the debts incurred by a previous generation, but when the debts aren't too large, the merely utilitarian logic of not defaulting so as to hold down one's costs of borrowing tends to prevail. But with deficits of 10% of GDP or so, we are forfeiting the legitimacy of asking our children to pay for the reckless spending of today's politicians. Such deficits amount to a rampant degradation of our institutions. Second, taxes are far higher than anything the founders imagined. Third, the federal government's powers today extend far beyond anything the founders would have believed they were sanctioning. To that extent the "Constitution in exile" school is right. In deriding the idea that "the current elected government in Washington is as illegitimate as was a distant, unelected monarchy," Dionne elides the distinction between whether the government is legitimate at all and whether there should be any limits on what it can legitimately do, implicitly rejecting the latter with an idea of democratic absolutism, i.e., since the government is elected, it can do whatever it wants. An important question is thus begged.

Michael Tomasky writes:

Last month, the CBO released a little-noted document, which I first encountered via Bruce Bartlett, breaking down the debt this country has accumulated since 2001. The grand total of debt is $11.8 trillion. Of that, more than half, or $6.2 trillion, was added because of lost revenue, while $5.6 trillion was added because of spending. Now you may look at those numbers and say, well, spending is almost half. And yes, it is. But what’s interesting in this chart is that the lost revenue figure matches exactly the actual current deficit.

For those who reside in the world of fact, it’s beyond question that the decrease in tax revenue because of the Bush tax cuts and the economic meltdown that resulted from conservative deregulatory policies has done more than spending to create the crisis.

Now, according to the evidence Tomasky himself cites, spending has gone up a lot, and revenue has gone down a lot, and we have a higher deficit. Of course, the decline in revenue doesn't mean a decline in revenue, it means a decline in revenue relative to a counter-factual in which revenue rose a lot, but never mind. By Tomasky's own evidence, yes there might not be a deficit without the Bush tax cuts, but there also wouldn't be a deficit without all the extra spending. So surely, the rules of a basic, honorable discourse, interpreting the words of other side with the minimal charity that is demanded by justice, one would have to say that "spending caused the deficit" and "tax cuts caused the deficit" are both true, and about equally true, and the difference between the two statements being merely semantic, either side can without dishonesty use either formulation for rhetorical purposes. Right?

But no, Tomasky calls Pawlenty a liar. If he wants to make such charges, it's a strategic mistake to cite evidence in his articles.

The last argument against Mitt Romney is not convincing:

MITT ROMNEY: The closest thing to a front-runner, the 63- year-old former Massachusetts governor has business and economic expertise, is solid in New Hampshire, where he finished second in 2008, and can raise plenty of money. The downside: Some Christian conservatives remain skeptical of his Mormon faith; Iowa, the first test, isn’t friendly, though Tom Rath, the longtime national committeeman from New Hampshire, dismisses the impact of a loss there: “No Republican ever wins Iowa and New Hampshire.” Most of all, the Massachusetts health-care measure, enacted when Romney was governor, looks like a state version of the national plan put in place by President Barack Obama. “It’s hard to distinguish the two,” says one of his likely rival candidates. “Most Americans don’t like Obamacare; almost all Republicans don’t.”

But there's an easy and very compelling defense here, namely that to enact Obamacare on the national level is bad policy and unconstitutional, but that to adopt a similar policy on the state level is perfectly appropriate if that's what the voters want. The fact that residents of Massachusetts who don't like Romneycare, or its economic effects, can move to other states makes Romneycare far more consistent with consent of the governed than Obamacare.  Of course, Romney should explain what he plans to do about health care, but if he does, his policies in Massachusetts shouldn't count against him.

WikiLeads, Pots and Kettles

One of the reasons it's a bit difficult to get indignant about the WikiLeaks revelations is that what WikiLeaks did to the State Department is just what the State Department does to everybody else all the time, as WikiLeaks reminds us. Thus, we hear information secretly passed on to the State Department by informants in, say, Germany. Someone in Germany betrayed a tacit or explicit commitment to secrecy in order to inform the State Department, whether from pique, or a conviction that the world was better off with the Americans in the know, or because the Americans had corrupted him somehow, blackmail or bribes or whatever. (The last case is morally the worst; I'm not sure if it actually happened that way in Germany, though it probably happened that way somewhere.) Well, that's just what Julian Assange did to Bradley Manning. And if the State Department punishes Bradley Manning, well, if they were consistent they would punish their own informants in the same way.

We may regard ordinary government secrecy and espionage as morally dubious, but we usually don't condemn too strongly the people who participate in it, because we know they have a belief, and a plausible belief, that their activities are good for the world. Well, Julian Assange believes that government secrecy is bad for the world, and that in exposing government secrets he is doing a service to mankind, and this belief, too, is quite plausible. Indeed, in this case it seesm as if he benefited the target of his expose, the United States. WikiLeaks helps to dispel conspiracy theories by showing what the State Department really does. It's particularly useful to have some of the frank things the State Department says about bad foreign regimes exposed without the State Department's consent, because that means they can't get blame us for saying it, but they still get the bad press.

Wow-- imagine if WikiLeaks could leak the secrets of the Russian government! What a snakepit that would expose!

Immigration and Election 2010

Great post here from Brothers Judd:

DID LINCOLN CAMPAIGNING ON RETURNING DRED SCOTT TO HIS MASTER:

Whitman says her former housekeeper should be deported (Seema Mehta and Maeve Reston, 10/29/10, Los Angeles Times)

Republican gubernatorial nominee Meg Whitman has reignited a controversy that roiled her campaign for weeks, saying the undocumented housekeeper she employed for nine years should be deported.

The comment, her toughest yet on the matter, came in an interview with Fox News' Greta Van Susteren, who asked Whitman on Wednesday whether the former housekeeper, Nicandra Diaz Santillan, should be deported.
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"Well, the answer is: It breaks my heart, but she should be deported, because she forged documents and she lied about her immigration status," Whitman said.

Latinos turn out to vote in record numbers (Martin Wisckol, 11/04/10, OC Register)

California Latinos turned out to vote in record numbers Tuesday, driven largely by the governor’s race where they favored Jerry Brown over Meg Whitman by more than 2 to 1, according to this analysis of exit polls by Cathleen Decker of the Los Angeles Times.

Latinos accounted for 22 percent of the total ballots cast in the state and while they largely turned out to vote for Brown, they then voted for other Democrats as well.

Meg Whitman-- a mountain of money couldn't make up for a missing conscience.  This is another good one:

THE GOP WILL WIN THE WEST WHEN IT STOPS HATING ON BROWNS:

Did Polls Underestimate Democrats’ Latino Vote? (NATE SILVER, 11/03/10, NY Times)

There is another theory, however, which was proposed to me last night by Matt Barreto of the polling firm Latino Decisions.

 

“There is one overarching reason why the polls were wrong in Nevada,” Mr. Barreto wrote in an e-mail to FiveThirtyEight. “The Latino vote.”

His firm, which conducts interviews in both English and Spanish, had found that Latino voters — somewhat against the conventional wisdom — were relatively engaged by this election and for the most part were going to vote Democratic. Mr. Barreto also found that Latino voters who prefer to speak Spanish — about 40 percent of Latino voters in California meet this description, he told me — are particularly likely to vote Democratic. Pollsters who don’t conducted bilingual interviewing at all, or who make it cumbersome for the respondent to take the poll in Spanish, may be missing these voters.

Mr. Barreto had noted to me earlier this year that he felt polls might be overestimating support for Republican candidates in California. Indeed, the polls in that state called the right winners — Democrats Jerry Brown and Barbara Boxer — but underestimated their eventual margin of victories.

Colorado, the other state where most polls picked the wrong winner, is also a state with a fairly heavy Latino population.

As a back-of-the-envelope test of Mr. Barreto’s theory, I compiled results from the eight states with the largest share of Latinos in their population: these are Arizona, California, Colorado, Florida, Nevada, New Mexico, New York and Texas. There were 15 gubernatorial and Senate races last night between these states.

I don't mean to say that Republicans should embrace just immigration policies for electoral gain, of course.  They should do it because it's the right thing to do.  But it might also help them win elections-- though perhaps only if that's not their motive.

More Thoughts on the Election

1. The Tea Party prevented the Republicans from retaking the Senate. With Murkowski in Alaska, Castle in Delaware, and almost anyone else in Nevada, Republicans would have clear the 50 hurdle.

2. It was a no-brainer. 1990s: small(ish) government, good economy. 2000s under Bush and Obama: government got bigger, economy got worse. Which do you want, Option A or Option B?

3. Kudos to Harry Reid for winning by appealing to Latinos against a nativist opponent. Let's hope other Democrats follow his example and succeed by doing the right thing. It's the only issue where Democrats are right.

4. Whether this is a victory for fiscal sanity depends on what Republicans do with their new mandate (and how Obama responds to this rebuke). But it was definitely a victory for the democratic process. No bill, at least not a major bill that fundamentally affects the social contract, should ever become law the way Obamacare did, in the face of a clear negative verdict from the American people. Even if it were good policy-- but it's terrible policy-- there would be a strong case for repealing it solely to defend the integrity of the democratic process. It was one of the many reason the Democrats deserved to lose.

5. Has any Congressional majority ever had as miserable a record as the Democrats in 2006-10? A plunge in Americans' net worth, a financial crisis and soaring unemployment, a deterioration in freedom worldwide, losing a war-- that's probably how history will see it in hindsight-- in Afghanistan.

I would have loved to join in the Republican revolution today, but alas, the candidate in my district, Keith Fimian, has this on his website:

I am 100 percent opposed to illegal immigration. We need to secure our borders for security and economic reasons.  We need to build a wall, both physical and virtual. People who want to come here must follow the rules. I oppose amnesty for those who have broken the law and entered our country illegally. When someone is arrested for the committing a crime, the police should check their immigration status and turn them over to Federal authorities. We must be tough on those who break our laws.

As I am 100 percent in favor of illegal immigration, and that's the issue I care about most, I voted for Fimian's opponent, the incumbent Gerry Connolly, who probably also opposes illegal immigration but doesn't say so on his website. Silent is better than wrong.

Is the Tea Party Losing Its Strength? (David Corn, Politics Daily):

What a surprise: The Tea Party is not as popular as it once was. That was part of the news contained in a Washington Post/ABC News poll released this week. (The other hardly shocking and bad-for-Democrats news: only 29 percent are inclined to vote for their current representative in Congress.) Fifty percent of the respondents said they hold an "unfavorable impression" of this conservative, anti-Obama, anti-government movement -- an increase from 39 percent in March (when the health care reform slugfest was under way). Those with a favorable view dropped from 41 to 36 percent, and those folks with no opinion fell from 20 percent to 14 percent. Put this all together, and it appears that the more Americans see of the Tea Party, the less they like it.

I think the turning point was Arizona. If the Tea Partiers were really against Big Government, they'd have been leading the fight against the Arizona law. When the Tea Party was at best indifferent and some Tea Party stars, like Palin, supported it, the movement became ideologically incoherent.