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DREAM or Nightmare

December 1, 2010 Leave a comment

I’ve collected a decent back-and-forth between two respectable thinkers offering divergent views on the DREAM Act. I’ll post some excerpts but read the whole posts, none is very long.

Back on November 21st Will Wilkinson wrote a thoughtful piece on The Economist’s DiA blog about the decency of the DREAM Act.

The DREAM Act sends the message that although American immigration law in effect tries to make water run uphill, we are not monsters. It says that we will not hobble the prospects of young people raised and schooled in America just because we were so perverse to demand that their parents wait in a line before a door that never opens. It signals that we were once a nation of immigrants, and even if we have become too fearful and small to properly honour that noble legacy, America in some small way remains a land of opportunity.

David Frum at The Week challenges Wilkinson and explains why he thinks the DREAM Act will be a “nightmare.”

DREAM stands as an ongoing invitation, forever and ever. DREAM’s benefits extend not only to people who happen NOW to be illegally present inside the United States. DREAM’s benefits will be extended to all those who may enter illegally in future. DREAM’s message goes forth to Indonesia, to Egypt, to India, to China, to anywhere where teenagers find $7 an hour more attractive than $7 a day: come now and come early. Don’t waste your time acquiring an education before you arrive. We’ll subsidize your education right here in America.

Wilkinson responds and asks Frum for a correction.

Suppose DREAM becomes law in 2011. Your kid applies right away and earns status as a “conditional legal resident” (or “CLR”). Now, can you your kid sponsor you for legal permanent residency? No, she cannot. Only citizens can sponsor their parents. Suppose your kid goes to college and stays out of trouble. The earliest she can apply to become an “LPR” or “legal permanent resident” (ie, get a green card) is 5 1/2 years after approval for conditional permament residency. That’s some time in 2016 at the earliest. Now, a green card-holder can apply for citizenship after five years. Under DREAM, as I understand it, once a CLR is approved for a green card, the time spent as a CLR counts toward citizenship. So someone approved for a green card under the auspices of DREAM ought to be able to apply for citizenship right away. Let’s assume miracles from the bureaucracy and say all these applications are processed and approved at the speed of light. So, thanks to DREAM, your daughter will be a citizen no sooner than 2016, at which point she can finally sponsor you (as long as she’s over the age of 21). But don’t get excited yet! You entered the country illegally, and were working illegally before applying for a green card, and that means you aren’t eligible for a green card. ( See question 10 here.) So, sorry, DREAM can’t help you.

I often enjoy Frum, but I think Wilkinson holds the correct position on this. Make up your own mind. I’ll update if David responds. Until then, please read this perspective from a undocumented Harvard student that would be affected by the DREAM Act.

It is November and I have already lost the ability to think in the future tense, as if my heart had anesthetized my mind in preparation for the possible disappointments of the next several months. I sleep without setting any alarm clocks. I speak faster in hopes that I might get more English words in. I kiss slower to feel more, here, longer. I’m at a road that bifurcates into continents and I am terrified because I know I might once again have to live with a decision that is not mine to make. It would hurt to be forced to leave, but it hurts to stay the way I’m staying now. I belong to this place but I also want it to belong to me.

I’m always surprised and saddened when people are so eager to throw out immigrants like this talented young woman.

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Printing Money and Predictions in Print

November 14, 2010 7 comments

I try not to make too many predictions on this blog. If I do the only prediction I’m likely to correctly make is that my predictions will be off. Jonah Lehrer shares the results of a big study that calls into question the ability of experts to accurately forecast.

How did the experts do? When it came to predicting the likelihood of an outcome, the vast majority performed worse than random chance. In other words, they would have done better picking their answers blindly out of a hat. Liberals, moderates and conservatives were all equally ineffective.

The reason so many experts were wrong was due to confirmation bias – they were confident they were right so they ignored evidence that undermined their preconceptions. While reading up on whether or not anyone should be concerned about inflation right now (due to Obama’s or the Fed’s policies) I feared ending up in that pitfall. So in my quest to find diverse viewpoints I discovered some older Art Laffer and others making predictions about future inflation because of Obama’s policies. Determined not to prove Lehrer wrong, who writes, “Famous experts were especially prone to overconfidence, which is why they tended to do the worst,” Laffer and gang’s predictions turned out to be almost exactly antithetical to reality.

On June 11, 2009, Laffer wrote a column Ehrlichianly titled, Get Ready for Inflation and Higher Interest Rates: The unprecedented expansion of the money supply could make the ’70s look benign. Now that we stand over a year later, let’s take a look at accuracy of some of his and other inflation Chicken Littles’ predictions.

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits.

His primary evidence for his fears is this chart:

[Our Exploding Money Supply]

But let’s now check out this updated chart (upper-right), courtesy of Martin Wolf, from a few days ago.

Martin Wolf charts for Comment

The rate of change in M1 has plummeted and the new data doesn’t look so scary or out of place with history now, does it? M2 (the money in circulation) also dropped to very low levels. We can also see US inflation rate/expectations (lower-left) hit negative levels and currently floats under 2 (below the Fed’s target rate). With all the current talk about QEII and deliberately raising inflation expectations, the inflation alarmists are back, but as Martin Wolf points out, even if we were to see inflation growing too fast (which there is currently no evidence for) we could always just scale it back.

The hysterics then add that it is impossible to shrink the Fed’s balance sheet fast enough to prevent excessive monetary expansion. That is also nonsense. If the economy took off, nothing would be easier. Indeed, the Fed explained precisely what it would do in its monetary report to Congress last July. If the worst came to the worst, it could just raise reserve requirements. Since many of its critics believe in 100 per cent reserve banking, why should they object to a move in that direction?

Mark Thoma at his blog, Economist’s View, discusses further some mistakes that people worried about the growth in currency are currently making. It’s worth reading but here is the graph that he uses, which shows that the currency in circulation is not outside the historical norm.

Logcurr

Over at the American Principles Project, a conservative Christian organization, Samuel Gregg (who cites Laffer) also worries (7 July 2009) Obama’s policies are going to lead to 1970s style inflation – he even mentions Mugabe’s Zimbabwe.

More than one economist believes that it is only a matter of time before the third member of the 1970s trio – growing inflation – will be back to wreck havoc upon us.

Most amazingly, Gregg’s article stumbles onto an important insight about inflation. Since he takes for granted inevitable skyrocketing inflation, he spends the bulk of his article explaining why having to lower inflation will be so terrible.

Seriously fighting inflation entails a willingness to tolerate increasing unemployment. This is the price of reducing the excessive amounts of money sloshing through an economy.

So if lowering inflation will increase unemployment, what might raising inflation do? Yup, increase employment. Considering 15 million sit out of work right now, which is about 4 million people greater than the entire population of Greece, I think we could stand to raise the inflation rate a tad.

We can see that inflation expectations are low right now; it’s also worth going over some other measures of inflation and potential inflation. Here’s the Consumer Price Index.

FRED Graph

And here is core inflation (which is the CPI minus volatile items like food and energy):

FRED Graph

(By the way, you can have more fun data like this at the St. Louis Fed’s great website.)

Here’s our current core inflation overlaid with what happened in Japan (via Krugman):

DESCRIPTION

Here’s the Treasury Maturity Spread (via DiA). Yup, also low.

 

 

 

 

 

 

 

 

 

Many alarmists point to rises in gold and other commodity prices. What about those? First it is important to remember that we don’t usually consider volatile commodities when looking at inflation because unpredictable spikes can occur. They’re also traded on world markets so judging US inflation can be thrown off because of that. Consider if a huge new supply (or disruption) of oil or gold was discovered that could suddenly change the price of those commodities, but that wouldn’t really represent a significant change in inflation. Commodities aren’t entirely useless (they’re not all constantly and extremely volatile) and inflation predictors keep using them, so let’s take look at some of them anyway.

On gold, many have been unnerved by the “record high” of its price. Yet, as David Leonhardt points out, it’s not true.

Gold is at a record only if you fail to adjust for inflation. And you should almost always adjust for inflation.

[…]

This isn’t simply a question of math. Anyone who says gold is at a record high (or who said oil was several years ago) is getting the story wrong. Why? Because $10 today is not more valuable than $9 a few decades ago. Claiming otherwise is tantamount to saying that 10 rupees is more valuable than $9 because 10 is a bigger number than 9.

Here’s a graph (via Krugman) that isolates commodity prices for us.

DESCRIPTION

I don’t know about you, but it doesn’t really look like any historically high jump in commodity prices going on.

Everyone is entitled to make some bad predictions, but I’m not sure what Sarah Palin’s excuse is for her inability to predict the past. Here she is on grocery inflation.

“Everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so.”

The Wall Street Journal reporter who had the gall to question her responded.

The Nov. 4 Wall Street Journal article noted, in its first sentence, “the tamest year of food pricing in nearly two decades.” It does indeed report that supermarkets and restaurants are facing cost pressures that could push their retail prices higher — but it hasn’t happened yet on a large scale. Critics of the Fed’s quantitative easing policy are focused primarily on concerns about potential future inflation.

Let’s now take a look at few other predictions on inflation at about the time Laffer and Gregg wrote their pieces.

Paul Krugman (28 May 2009):

It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

Seems he was correct.

Paul La Monica, CNNMoney Editor (4 June 2009):

So with all due respect to the Fed chair, he can talk as much as he wants about how he’s not too worried about inflation. But investors disagree. And Hoenig thinks that the Fed would be unwise to dismiss what’s going on with bond rates, currencies and commodities.

Score that one: Bernanke 1 – La Monica/Hoenig 0.

The Economist (22 Oct 2009):

In short, the likeliest triggers of an acute crisis—a lenders’ strike, a crash in the dollar or inflation—seem remote.

Cheers to the Brits on that one.

None of this should suggest that Krugman or The Economist is always correct or that La Monica, Laffer, and Gregg are always wrong (Palin I’m not so sure about). Remember Lehrer told us that “Liberals, moderates and conservatives were all equally ineffective.” But it does suggest to me that we shouldn’t keep listening to the same voices on a topic they’ve been so utterly wrong about until circumstances change (or they change) and indicate things might be different. For example, here’s Laffer –again in a WSJ Op-Ed– from 2 days ago.

Outlining his growth agenda he recommends,

2) Price stability. Congress should revise the Federal Reserve’s mandate, making it serve only the goal of price stability (and not also full employment). In addition, the Fed should follow a monetary rule, targeting either the quantity of money or the price level. There can be no prosperity without price stability. (my emphasis)

He’s still worried more about inflation than our current unemployment crisis. Can editors explain to me why we keep hearing more and more from those with such bad records? The inverse correlation between the voices of inflation alarmists and the actual inflation rate is surreal. We have plenty to worry about without concerning ourselves with phantoms and problems that only occur if we’re more successful.

I hope I’m not giving the impression that I think I know what will happen with our inflation rate or commodity prices. If I did I’d be in the markets right now, not writing blog posts. But what I can tell is that the bizarro Chicken Littles (“The ground is rising?!”) keep being wrong and the available data suggests we’re not in imminent danger of turning into Zimbabwe. So if you think Greece’s economy is bad and you realize that just because the overall health of our economy is better doesn’t mean that virtual unemployed nation we have living within our borders isn’t feeling real pain. Unconventional ways to further loosen monetary policy aren’t likely to solve all our problems but it could help alleviate a lot of needless suffering.

I’d rather not make a prediction, but I think we should put some money on this.

TARP, the Louisiana Purchase, and my Low Bar for Success

October 8, 2010 1 comment

Can something be considered a success if its intended goals aren’t all met? Just yesterday, I was defending TARP to a friend who was suggesting TARP was just a giveaway to Wall Street and “theft” from “the people” (I assume he means average taxpayers). Taking my cues from people like Matt Ygelsias, I wrote,

I’m not crazy about how the bailouts were structured either. But of course, that’s looking at it in hindsight. Given that TARP was rushed through on the edge of complete financial collapse it seems that the bill was remarkably successful. So successful in fact that it seems the money that went to the banks will not only be repaid but could actually net taxpayers a profit (yes, you read the correctly).

In fact, what will end up costing taxpayers money are the funds that went to car companies and homeowners – but the cost is justified since it helped middle and working class people. Yet let’s not pretend that saving the nation’s largest banks from going under didn’t help middle and working class people – imagine what our economy would look like if the financial system collapsed. Who do you think would bear the brunt of that suffering? The rich? Try again…

But just today DiA has an excellent post taking people to task for writing things like,

TARP has been one of the most successful single pieces of legislation in the history of American government. It saved the world financial system for somewhere between $66 billion and $0 (or, perhaps, a profit of a few billion dollars).

I didn’t write quite that of course, but I admit that was largely my sentiment. The most recent DiA goes on to quote Felix Salmon approvingly on why TARP isn’t obviously a success and really a failure if you consider the goals of the policy.

[It] failed to get banks lending again; it failed to do anything about the foreclosure crisis; it failed to make any kind of a dent in the unemployment crisis; it failed to hold bankers accountable for their actions; and it succeeded in generating a broad-based mistrust of institutions: the government and the financial-services industry certainly, and the judicial system possibly as well.

TARP was always a rushed, ad hoc policy; even its architects never really had much of a vision for how it should be used. As such, its failure comes as little surprise. But let’s not try to pretend that it was some great success. Yes, it’s good that most of the money is likely to be repaid. But that’s neither necessary nor sufficient for TARP to be considered a success.

I walked right into the trap of falling into agreement with “those experts whose opinions support our ideological prejudices” when no expert consensus exists. I hope airing this disagreement about the policy will aid me in getting out of that ideological pitfall. But at risk of cutting my own ladder let me make a gambit and redefine success.

Salmon is right that TARP failed at everything he lists – most notably, bank lending. But while recognizing that it isn’t very courageous or impressive to lower standards or to redefine success in hindsight consider 2 scenarios. 1. TARP never passed. 2. TARP passed.

In scenario 1, there are devastating bank failures, unemployment is far worse, and the world economy is in a much bigger hole than it is in now – in other words the banks aren’t lending, the foreclosure crisis is worse, and all the other “failures” of passing TARP are pretty much the same, worse, or don’t even seem like concerns in comparison. In scenario 2, we saved the banks at little to no cost (or even a profit) for taxpayers, held the economy from catastrophe, and set up a situation where government could have, theoretically, come in and used fiscal and monetary stimulus to jump start the recovery.

Looking at those options, the public after all isn’t calling for a better TARP they say they would have preferred no TARP, is it fair to call scenario 2 a failure?  If Rep. Brad Miller is right that if a similar situation happens again anything like TARP can’t be passed, Salmon and others will be wishing for a failure on the order of the original TARP. This isn’t to say that critics have no place to point out the failures of TARP so we can learn from them and hope to improve on them if something like that is needed again – but I just don’t think TARP as a whole can be called a failure.

If you told a policymaker in a vacuum that they could pass a policy that costs either very little, nothing, or earns money and saves the financial system and wider economy from collapse and depression, who wouldn’t jump at the chance to support that? Some critic could come along and say, “true, but this policy also doesn’t make banks lend, doesn’t increase employment, and doesn’t solve the housing crisis!”  That policymaker might reasonably wonder if the critic is also hung up on the fact that Thomas Jefferson didn’t get more from the French in the Louisiana Purchase. If Jefferson had set out to also get the land northwest of the Louisiana Purchase’s boundary, should we consider it a failure? Keep in mind, many thought the Purchase was unconstitutional, it may have weakened state’s rights, and it increased the slave holding states. I still think anyone who calls the Louisiana Purchase for those reasons a failure is unappeasable. Can’t we just work on those specific breakdowns with subsequent legislation?

I hate having a low bar, but if all legislative failures were like TARP, we’d be in a much better place.

Media Reports On Burning Paper

September 9, 2010 3 comments

Most of us are aware of the religious crank that wants to burn some paper in Gainsville, Florida. I think “Democracy in America” has the perfect reaction to the controversy.

What a great way to report objectionable or violent publicity stunts, right? What could be more frustrating for a publicity-seeking extremist than to have the media refuse to report their cause? “Men set off bomb to publicise their message.” “Youths insult people to publicise their message.” Or, more recently, “Group will burn texts to seek media hype.”

There is no need to put a spotlight on a guy like this. But we also need to step back and notice a few of things. First, we can’t hope to prevent every individual from doing stupid things. Second, his right to burn paper is protected by the First Amendment. Third, we shouldn’t be excusing religious overreaction to an individual burning paper that he doesn’t believe is sacred. PZ Myers, noted desecrator, makes the case.

The lesson of that incident wasn’t that you can find some jerk somewhere who will disrespect what some group finds holy — that was trivial and uninteresting, and I actually had to ignore many of the elaborate suggestions for cracker disposal sent my way to emphasize the absolute triviality of tossing a cracker/piece of Jesus in the trash. No, the real lesson was that mobs of people will react with irrational freakish hysteria to the idea that other people don’t believe as they do.

The problem isn’t the desecrators. The problem is the people who have an unwarranted sense of privilege, that their beliefs wil not be questioned or criticized, ever, by anyone. What I was saying was that it was crazy to believe a cracker turns into Jesus, and what all the outraged Catholics were doing is confirming to an awesome degree just how mad their beliefs were, with their prolonged and excessive outrage.

So I’m looking at this recent episode with Terry Jones — a fellow I don’t like at all, and I think he’s a fanatical goofball — and I see that the serious problem here isn’t Jones at all…it’s all the lunatics who are insisting that burning the Koran is a major international catastrophe. (my emphasis)

I fully concede that actions like burning holy books might inspire violence against our troops. But that just suggests that we shouldn’t be publicizing the actions of a stupid man. I appreciate all the people trying to persuade (not including public officials) this pastor to not hold this event, but where is all the energy at trying to persuade fanatics from carrying out horrific acts of violence because some other fanatic decides to burn a freaking book? What does it suggest that people keep worrying that “peaceful” people will react with spectacular violence if they feel the slightest sense of offense? Also, I thought people weren’t supposed to judge the actions of an individual as representing the whole (I guess that was a one-way street). Of course this all ties into the whole New York Mosque controversy. Leon Wieseltier in The New Republic hits all the right points. Read the whole thing.

If the standpoint of broadly collective responsibility was the wrong way to explain the atrocities, so too was the standpoint of purely individual responsibility. There were currents of culture behind the killers. Their ideas were not only their own. I am reminded of those complications when I hear that Islam is a religion of peace. I have no quarrel with the construction of Cordoba House, but not because Islam is a religion of peace. It is not. Like Christianity and like Judaism, Islam is a religion of peace and a religion of war. All the religions have all the tendencies within them, and in varying historical circumstances varying beliefs and practices have come to the fore. It is absurd to describe the perpetrators of September 11 as “murderers calling themselves Muslims,” as Karen Hughes recently did. They did not call themselves Muslims. They were Muslims. America was not attacked by Islam, but it was also not attacked by Jainism. Mohammed Atta and his band (as well as the growing number of “homegrown” Islamist killers and plotters) represent a real and burgeoning development within Islam, an actualization of one of Islam’s possibilities, an indigenous transnational movement of apocalyptic violence that has brought misery to Muslim societies, and to us. It is not Islamophobic to say so. Quite the contrary: it is to side with Muslims who are struggling against the same poison as we are. Apologetic definitions of Islam will not avail anybody in this struggle.

The more we give into cultural blackmail which demands that we respect beliefs we don’t hold, that we yield to the sensitivities of Christians and Muslims, or that we embrace American conservatives’ convenient willingness to tout “the moral superiority of victimhood” the tougher our task will be to break the stranglehold these forces have on liberty, reason, and uncontrived peace. Real harmony will not be won through a cultural version of M.A.D. Be tolerant or else. Don’t criticize or else. Close your eyes to hypocrisy or else. Excuse away our immorality or else. 

The Wisdom of Silence

August 24, 2010 12 comments

Better to remain silent and be thought a fool than to speak out and remove all doubt. 

      Mark Twain 

When Twain made this remark he probably didn’t have American presidents in mind, but it captures an important lesson in an unintended way. Of course, Twain meant that if you’re a fool and you speak, your intellect will be more obvious to others than if you kept your mouth shut. Presidents often aren’t fools (yes, I did just write that) but speaking out even with wise words may be a foolish move. 

Over at The Economist’s “Democracy in America” blog, the writer, while staking out an odd position on gay marriage (one I happen to disagree with), observes that “for presidents, words are political actions.”

What would have been the actual political consequences of a decision by Barack Obama to come out in favour of gay marriage in the past year and a half? I don’t think there can be any doubt that such a move would have re-politicised an issue that, remarkably, has become steadily less partisan in recent years. Presidents can’t simply speak their minds. For presidents, words are political actions. A president who voices an opinion without considering the political consequences is acting irresponsibly. Presidents’ voiced opinions about social justice are very sharply constrained by whether voicing those opinions is likely to advance their visions of social justice at that political moment. And that means that presidents’ spoken views on such questions may lag far behind the pace of progressive opinion, and may become much less progressive when they are in power than they were before they were elected.

I happen to believe that Obama speaking out in favor of gay marriage would be beneficial to the cause (and would certainly put him on the right side of history), but it’s not preposterous to think that the opposite effect would result. There is no question that it would further politicize the issue just when a majority of Americans now believe in full marriage rights for gays and lesbians. 

On August 11th Matthew Yglesias wrote a post arguing that often presidential leadership can be counterproductive. He was talking about immigration, but this clearly applies to all issues. He was piggybacking off of Ezra Klein’s post on Francis Lee’s book Beyond Ideology which argues that “presidential positions” increase the partisanship on issues.

[The] American people — and the media — expect a lot of bully pulpit leadership. But that bully pulpit leadership polarizes the other party against the initiative, even when the messaging is effective.

Grasping this dynamic is key to understanding the wisdom of President Obama in not offering his full opinion of the Islamic center near Ground Zero. If anyone has any doubts of the effect, notice how the issue became more polarized when he just commented on the constitutionality of it. This isn’t to say that presidents shouldn’t ever speak out on controversial issues; it is to only notice that “A president who voices an opinion without considering the political consequences is acting irresponsibly.”

Given that, I think it’s unfair for writers on the left, right, and center to blast President Obama for being cowardly for not commenting on the wisdom of the choice or to give his personal opinion. Clive Crook’s latest FT column is a perfect illustration of this. This expands on his previous blog post on what Crook thinks Obama should have said. Of course, all this presumes Obama is, in fact, in favor of the mosque and thinks it is wise. If he thinks it is unwise and insensitive, does Crook still think it’d be unifying? Lee’s research suggests that had Obama spoken out by praising the wisdom of the mosque it would have made the polarization of the issue even worse. If he strongly argued that equating this mosque and Sufi Islam with the Islamic fanatics that attacked the US is completely irrational he would have been skewered for being insensitive to the 9/11 families. 

Presidents’ words also have effects diplomatically. Had Obama given too much sympathy for the sentiments of the 9/11 families by saying that it isn’t completely irrational to feel disgust at putting a mosque so close to the site of a horrendous attack by Islamic terrorists, how would that have played with our Muslim allies? To not consider the unintended consequences would be ill-advised. 

None of this is to argue that presidents shouldn’t take politically unpopular or politically dangerous stands if strong principles are at stake. Commentators just need to recognize the possible effects of a president’s words; after all, a president speaking out may be counterproductive to justice or diplomatic goals and these effects aren’t necessarily going to run in the same direction. Crook or Krauthammer or whoever can plausibly argue that the president should take a stand that they agree with because it is the right thing to do, but to argue that it is cowardly not to or that it would be “unifying” if he did is disingenuous or foolish – on this they’d be better off remaining silent. 



(image: abc news)

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