Red Mosquito

stip wrote: What this really comes down to, in large part, is how we want the benefits of productivity and technological development distributed. Do we want them belonging exclusively to the people who have legally positioned themselves to be able to control them, or do we want them spread throughout society?

"But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride, or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich – will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt – and of his life, as he deserves.

"Then you will see the rise of the double standard – the men who live by force, yet count on those who live by trade to create the value of their looted money – the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law – men who use force to seize the wealth of disarmed victims – then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

stip wrote: Our historical answer has been the former, but we accepted that because we believed that someday we could be the person in that position, and that advancement was commensurate with hard work, that opportunity existed for everyone. As more and more people come to see this is as no longer true (bracketing how true it ever really was) we're likely to call more and more of this into question. And the commitment of younger people to capitalism and markets as a method of distribution is weaker than it has ever been, and it is hard to blame them for feeling that way

Researchers Finally Replicated Reinhart-Rogoff, and There Are Serious Problems.
Apr 16, 2013Mike Konczal

In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, "Growth in a Time of Debt." Their "main result is that...median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth." The Washington Post editorial board takes it as an economic consensus view, stating that "debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth."

Is it conclusive? One response has been to argue that the causation is backwards, or that slower growth leads to higher debt-to-GDP ratios. Josh Bivens and John Irons made this case at the Economic Policy Institute. But this assumes that the data is correct. From the beginning there have been complaints that Reinhart and Rogoff weren't releasing the data for their results (e.g. Dean Baker). I knew of several people trying to replicate the results who were bumping into walls left and right - it couldn't be done.

In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed.

They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result. Let's investigate further:

Selective Exclusions. Reinhart-Rogoff use 1946-2009 as their period, with the main difference among countries being their starting year. In their data set, there are 110 years of data available for countries that have a debt/GDP over 90 percent, but they only use 96 of those years. The paper didn't disclose which years they excluded or why.

Herndon-Ash-Pollin find that they exclude Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950). This has consequences, as these countries have high-debt and solid growth. Canada had debt-to-GDP over 90 percent during this period and 3 percent growth. New Zealand had a debt/GDP over 90 percent from 1946-1951. If you use the average growth rate across all those years it is 2.58 percent. If you only use the last year, as Reinhart-Rogoff does, it has a growth rate of -7.6 percent. That's a big difference, especially considering how they weigh the countries.

Unconventional Weighting. Reinhart-Rogoff divides country years into debt-to-GDP buckets. They then take the average real growth for each country within the buckets. So the growth rate of the 19 years that the U.K. is above 90 percent debt-to-GDP are averaged into one number. These country numbers are then averaged, equally by country, to calculate the average real GDP growth weight.

In case that didn't make sense, let's look at an example. The U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K.

Now maybe you don't want to give equal weighting to years (technical aside: Herndon-Ash-Pollin bring up serial correlation as a possibility). Perhaps you want to take episodes. But this weighting significantly reduces the average; if you weight by the number of years you find a higher growth rate above 90 percent. Reinhart-Rogoff don't discuss this methodology, either the fact that they are weighing this way or the justification for it, in their paper.

Coding Error. As Herndon-Ash-Pollin puts it: "A coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49...This spreadsheet error...is responsible for a -0.3 percentage-point error in RR's published average real GDP growth in the highest public debt/GDP category." Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).

Being a bit of a doubting Thomas on this coding error, I wouldn't believe unless I touched the digital Excel wound myself. One of the authors was able to show me that, and here it is. You can see the Excel blue-box for formulas missing some data:

This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

So what do Herndon-Ash-Pollin conclude? They find "the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim]." [UPDATE: To clarify, they find 2.2 percent if they include all the years, weigh by number of years, and avoid the Excel error.] Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly.

This is also good evidence for why you should release your data online, so it can be properly vetted. But beyond that, looking through the data and how much it can collapse because of this or that assumption, it becomes quite clear that there's no magic number out there. The debt needs to be thought of as a response to the contingent circumstances we find ourselves in, with mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are. The past guides us, but so far it has failed to provide evidence of an emergency threshold. In fact, it tells us that a larger deficit right now would help us greatly.

[UPDATE: People are responding to the Excel error, and that is important to document. But from a data point of view, the exclusion of the Post-World War II data is particularly troublesome, as that is driving the negative results. This needs to be explained, as does the weighting, which compresses the long periods of average growth and high debt.]

[UPDATE: Check out the next post from this blog on Reinhart-Rogoff, a guest post by economist Arindrajit Dube. Now that 90 percent debt-to-GDP is no longer a cliff for growth, what about the general trend between the two? Dube finds significant evidence that reverse causation is the culprit.]

Hamburger-making machine churns out custom burgers at industrial speeds
By David Szondy
November 25, 2012


Hamburgers are a multi-billion dollar business, and while fast food chains have got the process down to an efficient production line process, making them is still labor intensive with armies of burger flippers and sandwich assemblers. In a move that could put millions of teenagers around the world out of their first job, Momentum Machines is creating a hamburger-making machine that churns out made-to-order burgers at industrial speeds and aims to use it in its own chain of restaurants.

According to Momentum Machines, making burgers costs US$9 billion a year in wages in the United States alone. The company points out that a machine that could make burgers with minimum human intervention would not only provide huge savings in labor costs, but would also reduce preparation space with a burger kitchen replaced by a much smaller and cheaper stainless-steel box.



This self-contained, automatic device sees raw ingredients go in one end and the completed custom-made burgers come out the other at the rate of up to 400 per hour. The machine stamps out the patties, uses what the company says are "gourmet cooking techniques never before used in a fast food restaurant,” applies the toppings (which are cut only after ordering to ensure freshness), and even bags the burgers.

The company plans to open its first restaurant in the near future and to market the machines to third parties, arguing that one can pay pay for itself inside of a year. The company is targeting restaurants, convenience stores, food trucks and vending machine applications. In the meantime, the device is still undergoing development with a feature to allow for custom-ground and mixed beef to be included in the next generation.

Bob Loblaw wrote:Shit's getting real, yo.

malice wrote:The Brittle Grip, Part 2

If you've been in the media slipstream today you know the outrage and mockery directed at Tom Perkins, one of the world's wealthiest and most successful Silicon Valley venture capitalists, for an oped he wrote in the Wall Street Journal comparing the rising critique of income inequality and "the 1%" to Kristallnacht. Just so we're all on the same page, Kristallnacht ("the night of shattered glass") was essentially the opening act of Hitler's Final Solution. It took place on November 9th and 10th, 1938. This claim manages simultaneously to be so logically ridiculous and morally hideous that Perkins deserves every bit of abuse he's already receiving.

But I think we're missing the point if we see this as the gaffe of one aging, coddled jerk. Because it's only a more extreme and preposterous version of beliefs that have become increasingly widespread in the wealthiest sectors of American society, especially since 2008 and the twin events of the global financial crisis and the election of Barack Obama.


read the rest here, it's worth a few minutes:
http://talkingpointsmemo.com/edblog/the ... rip-part-2

broken iris wrote:

malice wrote:The Brittle Grip, Part 2

If you've been in the media slipstream today you know the outrage and mockery directed at Tom Perkins, one of the world's wealthiest and most successful Silicon Valley venture capitalists, for an oped he wrote in the Wall Street Journal comparing the rising critique of income inequality and "the 1%" to Kristallnacht. Just so we're all on the same page, Kristallnacht ("the night of shattered glass") was essentially the opening act of Hitler's Final Solution. It took place on November 9th and 10th, 1938. This claim manages simultaneously to be so logically ridiculous and morally hideous that Perkins deserves every bit of abuse he's already receiving.

But I think we're missing the point if we see this as the gaffe of one aging, coddled jerk. Because it's only a more extreme and preposterous version of beliefs that have become increasingly widespread in the wealthiest sectors of American society, especially since 2008 and the twin events of the global financial crisis and the election of Barack Obama.


read the rest here, it's worth a few minutes:
http://talkingpointsmemo.com/edblog/the ... rip-part-2

Perkin's idiocy aside (took a while to find his actual op-ed amongst the hundreds of bashing articles), his fears for himself and kin are not completely unfounded. A populist driven wealth confiscation (probably titled "one time wealth tax") is not out of the question for the US or EU. Total federal liabilities for the good ol' US of A are roughly $127 trillion, more than the value of all assets on Earth, so money for that is going to have to come from somewhere since we have shown no taste for reducing benefits and seem unable to produce the required (but not too much) inflation.


"[French] Society was cut in two: those who had nothing united in common envy; those who had anything united in common terror.”
― Alexis de Tocqueville, Recollections on the French Revolution

stip wrote:Unless there is a government match (is there?), and even if there is, it doesn't get around the fundamental problem with the IRA/401k model--you need to have income to save for it to work.

stip wrote:

broken iris wrote:
Perkin's idiocy aside (took a while to find his actual op-ed amongst the hundreds of bashing articles), his fears for himself and kin are not completely unfounded. A populist driven wealth confiscation (probably titled "one time wealth tax") is not out of the question for the US or EU. Total federal liabilities for the good ol' US of A are roughly $127 trillion, more than the value of all assets on Earth, so money for that is going to have to come from somewhere since we have shown no taste for reducing benefits and seem unable to produce the required (but not too much) inflation.


"[French] Society was cut in two: those who had nothing united in common envy; those who had anything united in common terror.”
― Alexis de Tocqueville, Recollections on the French Revolution

If the 1% was smart (it's not) they would double down on a much more generous and expansive welfare state. It'll be much cheaper for them than maintaining the infrastructure required for a security state designed to repress class conflict or a radical restructuring of how wealth is distributed within society

broken iris wrote:Malice, so long as our 401k's go up every year no one gives a shit what Jamie Dimon or any of these like him do. In order to stop that kind of thing we need to all be willing to take a hit and that's not politically or socially possible.

broken iris wrote:Malice, so long as our 401k's go up every year no one gives a shit what Jamie Dimon or any of these like him do. In order to stop that kind of thing we need to all be willing to take a hit and that's not politically or socially possible.

malice wrote: what else needs to happen?

broken iris wrote:

malice wrote: what else needs to happen?

Starve the beast. If everyone took a stand and stop investing with Chase they wouldn't behave like that. But with 40%+ y/y returns, who is going to doing that?

malice wrote:

malice wrote: I think it's distressing that average people- the ones who go to work everyday and do their jobs (unlike me) have accepted the current economic environment as the new normal. we are reasonably fine with the super rich remaining the super rich, with pay rates being sub-standard, with corporations calling all the shots, with just about anything the power holders are strategically manipulating in order to maintain their status.

My point was that those with the power to make a change are being bought off with asset bubbles. Until the 2-10% are willing to stand up to 1%, nothing will change.

malice wrote: what's worse to me is this is relatively new. 20 years ago the middle/upper middle class was doing better, had better jobs, and did not live with a sense of impending doom hanging over their heads.

I question what else needs to happen because I don't know how much longer the country can sustain this imbalance, and yet no one actually does care about the economy.