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May 10, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Paul Krugman: Sex & Drugs & the Spill

Posted: 10 May 2010 12:24 AM PDT

The "degradation of effective government by anti-government ideology" during the Bush years, and, I'd add, the belief that markets take care of these problems on their own that pervaded regulatory culture, undermined the ability of government regulators to require companies to take precautions that might have prevented the disaster in the gulf. This was also the story of the financial crisis, and these two recent disasters illustrate the more general need for a reversal of "the collapse in government competence and effectiveness that took place during the Bush years":

Sex & Drugs & the Spill, by Paul Krugman, Commentary, NY Times: "Obama's Katrina": that was the line from some pundits and news sources, as they tried to blame the current administration for the gulf oil spill. It was nonsense, of course. ...
Yet there is a common thread running through Katrina and the gulf spill — namely, the collapse in government competence and effectiveness that took place during the Bush years. ... BP failed to take adequate precautions, and ... federal regulators made no effort to ensure that such precautions were taken.
For years, the Minerals Management Service, the arm of the Interior Department that oversees drilling in the gulf, minimized the environmental risks of drilling. It failed to require a backup shutdown system that is standard in much of the rest of the world, even though its own staff declared such a system necessary. It exempted many offshore drillers from the requirement that they file plans to deal with major oil spills. And it specifically allowed BP to drill Deepwater Horizon without a detailed environmental analysis.
Surely, however, none of this — except, possibly, that last exemption, granted early in the Obama administration — surprises anyone who followed the ... Interior Department during the Bush years.
For the Bush administration was, to a large degree, run by and for the extractive industries — and I'm not just talking about Dick Cheney's energy task force. Crucially, management of Interior was turned over to ... J. Steven Griles, a coal-industry lobbyist who became deputy secretary and effectively ran the department. (In 2007 Mr. Griles pleaded guilty to lying to Congress about his ties to Jack Abramoff.)
Given this history, it's not surprising that the Minerals Management Service became subservient to the oil industry — although what actually happened is almost too lurid to believe. According to reports by Interior's inspector general, abuses at the agency went beyond undue influence: there was "a culture of substance abuse and promiscuity" — cocaine, sexual relationships with industry representatives, and more. Protecting the environment was presumably the last thing on these government employees' minds.
Now, President Obama isn't completely innocent of blame in the current spill. As I said, BP received an environmental waiver for Deepwater Horizon after Mr. Obama took office. ...
And it's worth noting that environmentalists were bitterly disappointed when Mr. Obama chose Ken Salazar as secretary of the interior. They feared that he would be too friendly to mineral and agricultural interests, that ... there wouldn't be a sharp break with Bush-era policies — and in this one case at least, they seem to have been right. In any case, now is the time to make that break — and I don't just mean by cleaning house at the Minerals Management Service. What really needs to change is our whole attitude toward government. For the troubles at Interior ... were part of a broader pattern that includes the failure of banking regulation and the transformation of the Federal Emergency Management Agency, a much-admired organization during the Clinton years, into a cruel joke. And the common theme in all these stories is the degradation of effective government by anti-government ideology.
Mr. Obama understands this: he gave an especially eloquent defense of government at the University of Michigan's commencement... Yet anti-government ideology remains all too prevalent, despite the havoc it has wrought. In fact, it has been making a comeback with the rise of the Tea Party movement. If there's any silver lining to the disaster in the gulf, it is that it may serve as a wake-up call, a reminder that we need politicians who believe in good government, because there are some jobs only the government can do.

links for 2010-05-09

Posted: 09 May 2010 11:03 PM PDT

Agreement in Europe

Posted: 09 May 2010 06:48 PM PDT

An agreement emerges from the late night meetings in Europe:

E.U. in Deal to Aid Troubled Economies, NY Times: Pressured by sliding markets and doubts over their ability to act in unison, European leaders agreed on Sunday to provide $640 billion in new loans to the Continent's debt-riddled nations in a sweeping effort to regain lost credibility with investors.
After more than 10 hours of talks, finance ministers from the European Union agreed on a deal that would provide $560 billion in bilateral loans and $76 billion under an existing lending program managed by the European Commission, the union's executive body. Elena Salgado, the Spanish finance minister, who announced the deal, said the International Monetary Fund was prepared to give up to $280 billion separately.
Officials are hoping the size of the program will signal a "shock and awe" commitment that will be viewed in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008. The leaders were making yet another attempt to stem a debt crisis that has engulfed Europe and global markets. ...
While the sums being discussed are eye-catching, some bankers questioned whether they would be enough to calm the markets. One banker said that with more and more European economies coping with rising deficits that raising, guaranteeing or backing such a large number would not be an easy task — unless the European Central Bank stepped in a more forceful and specific manner. The bank has so far rebuffed calls to inject liquidity into the markets by buying back European bonds.
There were many complications in trying to forge a consensus on a new package. They included defining the role of Britain, which lies outside the euro zone and had said it would not help in propping up the euro, as well as the European Central Bank. The fractiousness underscores the frailty of a monetary union in which its richest member, Germany, is also the most opposed to a financial rescue. ...
Even now, despite the lashing rhetoric and the Sunday night pan European meeting, there is still a feeling that Europe should be doing more — notably with regard to freeing the European Central Bank to go against its charter and print money by buying back distressed European bonds from the secondary market. ...

Speaking of central banks, the Fed announced that it is reopening liquidity swap facilities to send dollars to Europe:

Press Release
Release Date: May 9, 2010
For release at 9:15 p.m. EDT
In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.
Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.

One thing I learned from the recent financial crisis is that measures that seemed more than adequate at the time were never enough in retrospect. Is this response of sufficient magnitude? It's a good chunk of change, no doubt about that, but a larger response would have provided more comfort.

Update: From Real Time Economics at the WSJ:

The European Central Bank, in a stunning change of position, said Sunday night it will buy government and private debt on "dysfunctional" European markets as part of a concerted show of force by European authorities to persuade financial markets that they are, in fact, responding to the spreading sovereign debt crisis in the euro zone.

Urban Inequalities and Social Mobility

Posted: 09 May 2010 10:17 AM PDT

Daniel Little returns to the topic of social mobility:

Urban inequalities and social mobility, by Daniel Little: Most American cities commonly look a lot like this poverty map of Cleveland when it comes to the spatial distribution of poverty and affluence.  There is a high-poverty core, in which residents have low income, poor health, poor education, and poor quality of life; there are rings of moderate income; and there are outer suburbs of affluent people with high quality of life.

We can ask two different kinds of sociological questions about these facts: What factors cause the reproduction of disadvantage over multiple generations? And what policy interventions have some effect on enhancing upward social mobility within disadvantaged groups? How can we change this cycle of disadvantage?

The persistence of inequalities in urban America was addressed in a special 2008 issue of the Boston Review in a forum on "ending urban poverty."  Particularly interesting is Patrick Sharkey's article "The Inherited Ghetto." Sharkey begins with a crucial and familiar point: that racial inequality has changed only very slightly since the passage of the Fair Housing Act in 1968. The concentration of black poverty in central cities has not substantially improved over that period of time, and the inequalities of health, education, and employment associated with this segregation have continued. And the association between neighborhood, degree of segregation, and income and quality of life is very strong: children born into a poor and segregated neighborhood are likely to live as adults -- in a poor and segregated neighborhood.

Sharkey documents these statements on the basis of his analysis of the data provided the University of Michigan Panel Study of Income Dynamics, the first major statistical study of several generations of families in terms of residence, income, occupation, health, and other important variables. Using a computer simulation based on the two-generation data provided by the Panel Study, Sharkey indicates that it would take five generations for the descendants of a family from a poor, black neighborhood to have a normal expectation of living in a typical American neighborhood. (That's one hundred years in round numbers.)  In other words: the progress towards racial equality in urban America is so slow as to be virtually undetectable.

Particular frustrating is the persistence of segregation in the forty years since the passage of the Fair Housing Act. Sharkey argues that this fact is partially explained by the fact that the policy choices made by federal and local authorities concerning housing patterns have more or less deliberately favored segregation by race. Beginning with the initial Fair Housing legislation -- which was enacted without giving the Federal agencies the power of enforcement -- both federal and state policies have reinforced segregation in housing. Sharkey notes that federal housing programs have subsidized the growth of largely white suburbs, while redlining and other credit-related restrictions have impeded the ability of black families to follow into these new suburban communities. The continuation of informal discrimination in the housing market (as evidenced by "testers" from fair housing agencies) further reinforces continuing segregation between inner-city black population and the suburban, mostly white population.

So racial segregation is one important mechanism that maintains the economic and social inequalities that  our society continues to embody.

How about policies that would work to speed up social progress?  It is commonly agreed that improving access to higher education for disadvantaged people is the best way to speed their economic advancement.  The theory is that individuals within the group will benefit from higher education by enhancing their skills and knowledge; this will give them new economic opportunities and access to higher-wage jobs; the individuals will do better economically, and their children will begin life with more economic support and a set of values that encourage education. So access to higher education ought to prove to be a virtuous circle or a positive feedback loop, leading to substantial social mobility in currently disadvantaged groups.

This theory appears to be substantially true: when it is possible to prepare poor children for admission to college, their performance in college and subsequent careers is good and lays a foundation for a substantial change in quality of life for themselves and their families (link).

However, most of our cities are failing abysmally in the task of preparing poor children for college.  High school graduation rates are extremely low in many inner-city schools -- 25-50%, and performance on verbal and math assessment tests are very low.  So a very substantial number of inner-city, high-poverty children are not being given the opportunity to develop their inherent abilities in order to move ahead in our society.  This is true in Detroit (link), and much the same is true in Cleveland, Oakland, Miami, Houston, New Orleans, and dozens of other cities.  (Here is a survey of the issues by Charles Payne in So Much Reform, So Little Change: The Persistence of Failure in Urban Schools.  And here is a striking report from 1970 prepared by the HEW Urban Education Taskforce.)  High poverty and poor education go hand in hand in American cities.

One important research question is whether there are behavioral or structural factors that predict or cause low performance by groups of students.  Here is a fascinating graph of high school graduation rates broken down by freshman-year absenteeism (MDRC report).  Important research is being done at the Center for the Social Organization of Schools at Johns Hopkins on the dropout crisis in urban schools (link).  (Here is an earlier post on CSOS and its recommendations for improving dropout rates from urban high schools.)  The topic is important because research findings like these may offer indications of the sorts of school reforms that are most likely to enhance school success and graduation.

It is clear that finding ways of dramatically increasing the effectiveness of high-poverty schools is crucial if we are to break out of the multi-generational trap that Sharkey documents for inner-city America.  Here is a specific and promising strategy that is being pursued in Detroit by the Skillman Foundation and its partners (link), based on small schools, greater contact with caring adults, and challenging academic curricula.  This turn-around plan is based on a specific set of strategies for improving inner-city schools developed by the Institute for Student Achievement, and ISA provides assessment data that support the effectiveness of the plan in other cities.  With support from the United Way of Southeast Michigan, several large high schools are being restructured along the design principles of the ISA model.

But the reality is that this problem is immense, and a few successful experiments in school reform are unlikely to move the dial.  Somehow it seems unavoidable that only a Marshall Plan for addressing urban poverty would allow us to have any real confidence in the possibility of reversing the inequalities our cities reveal.  And none of our political leaders -- and few of our taxpayers -- seem to perceive the urgency of the problem.

Neanderthal Science

Posted: 09 May 2010 10:08 AM PDT

Are you part Neanderthal? The answer isn't as clear as you may have been led to believe, and this illustrates a problem I see in economics as well. There is often a large difference in the way academic results are reported in the news and what the underlying academic research actually says (this happens frequently, especially with working papers that have not yet been through the refereeing process). The academic work is often much more qualified and tentative than the way it is presented in the media. The problem is that even when subsequent research calls into question or overturns the original work, many of these "facts" live on:

All in the (human) family?, by Rosemary Joyce: Big news in anthropology this past week:... we are all 1% to 4% Neanderthal– or rather, humans of non-African ancestry are. Or maybe not.
As Serge Bloch of the New York Times framed the story, there are "cavemen among us" because "the species most likely had a dalliance or two in the Middle East 60,000 to 100,000 years ago".
Nicholas Wade's science story for the Times played it somewhat straighter, but still went for the sex angle with the headline "Signs of Neanderthals Mating with Humans".
The distance from the more clinical "mating" to Bloch's cartoon of a Neanderthal man holding a club offering flowers to a woman in a dainty skirt may seem like the span from science to popular imagination. But as UCSC Professor of Anthropology Diane Gifford-Gonzalez, Berkeley Anthropology Professor Margaret Conkey, and University of Southampton Professor Stephanie Moser have all shown in different ways, the science of human origins is drenched in the same images as the popular press.
So I have to ask: why is the man in Serge Bloch's cross-species couple the Neanderthal? Shades of Clan of the Cave Bear! Apparently, in the popular imagination it takes a more evolved woman to make a husband out of a man…
The researchers sequencing Neanderthal DNA from three fragments of bone recovered from a Croatian cave have reportedly completed 60% of the Neanderthal genome. And while other researchers applaud the technical work done at the Max Planck Institute for Evolutionary Anthropology in Germany, they are cautious about the interpretation of the data.
The problems start with the proposed time and place for Neanderthal-human romance: not in the Europe of 40,000 to 30,000 years ago imagined in Clan of the Cave Bear, but in the Middle East, and at least 20,000 years earlier, maybe as much as 60,000 years before the period when we know Neanderthal and early modern humans co-existed in Europe. To quote the Times again, "There is much less archaeological evidence for an overlap between modern humans and Neanderthals at this time and place."
The times draws the line of disagreement along disciplinary lines:
Geneticists have been making increasingly valuable contributions to human prehistory, but their work depends heavily on complex mathematical statistics that make their arguments hard to follow. And the statistical insights, however informative, do not have the solidity of an archaeological fact.
Archaeologists do have well-developed models for recognizing human and Neanderthal populations in Europe during their period of overlap through different stone tools and other cultural features. It is the lack of such well-defined models for the Middle East of 100,000 to 60,000 years ago that gives archaeologists pause.
As an archaeologist, I found the idea that archaeological "facts" have solidity interesting for other reasons entirely. Like the image of the club-toting Neanderthal with stubble on his chin, it is a commonplace of everyday understanding of my discipline. And it is not quite true, or not true in the way that writers think it is.
The image of "solid" archaeological facts stems from the idea that our discipline studies hard, visible things that everyone can agree about. And there are lots of things involved in every archaeological analysis. But we quarrel all the time about what exactly they mean; how best to measure them and quantify them; and how the solid things in archaeology relate to the not-so-solid theories we develop.
And increasingly, our studies are not limited to, or even dominated by, the "solid facts" of popular imagination of archaeology. Instead, archaeologists today may study microscopic grains of starch invisible to the naked eye, or the traces of past human actions like sweeping a dirt floor visible under a microscope, or simply the chemical traces left behind when people sit in one place or do some everyday task in a particular location.
So, are we "part caveman"? the question is meaningless. If the findings of the Neanderthal genome sequencing hold up, they will tell us that the history of humans and our closest relatives was even more intimate than many had thought.
But the popular image of the crude Neanderthal should long ago have been set aside, replaced by our understanding of this human species as a cold-adapted contemporary of early modern humans. The visible differences in Neanderthal stature and facial shape would not necessarily have given a contemporary human pause. Those humans occupied the caves of Europe that gave us the scene for our cave man image as much as Neanderthals did.
As Stephanie Moser has shown us, we have populated those caves in our professional and popular imagination... Less reflections of what the "solid facts" of archaeology tell us than mirrors reflecting our own vision of our past, the cavemen are us.

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