Monthly Archives: December 2012

The Problem Isn't the Question, It's the Second Half of the Answer

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After thinking about it for a week – and eating a lot of Christmas cookies – I don’t think the problem is that I don’t understand what question I’m trying to answer.

The question is:
If we know the economy isn’t natural or inevitable,
then what’s the alternative?
How do we take back our country and build a future worth having?
(or something like that – the exact wording isn’t critical right now)

The first part of the answer feels pretty strong:
Take back control so that everyone, not just the wealthy and big corporations, gets a real say in how we shape our economy – and do it in a way that builds our power so our say can’t be taken away.
(a little cumbersome, but again exact wording isn’t critical right now)

The real problem is the second part of the answer: We’re Not As Smart As We Think We Are.

As soon as I get into dealing with our limits – that good intentions & planning aren’t enough – that’s when it falls apart. At that point, it goes from big, grand, emotionally powerful themes to a technocratic/nerdy “don’t forget your umbrella when it looks like rain” blah blah blah.

It’s not that a lot of the pieces of We’re Not As Smart don’t have some juice to them. I like my hammering on folks for not scaling up. I like using parklets as a metaphor for creating room to experiment.

But together they aren’t sexy enough, they aren’t satisfying. It feels like I haven’t gotten to their emotional core. At one point this week I tried writing them up. I sat with it for a minute, then scribbled on the bottom, “this is true but boring.”

That’s harsh, but now that I’ve gotten to this point I’m actually feeling a little optimistic. The first key to getting unstuck is to figure out where I’m stuck. Now I think I know.

Revisiting "Why Power to the People Isn't Enough"

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I reread my “Why Power to the People Isn’t Enough” post from 2 weeks ago, and my gut reaction was: so what?

So power to the people isn’t enough. So what?
I don’t think folks don’t know that?
It’s just a simplification – like all models or metaphors are.
Why are the points I’m making big enough to matter?

The truth: I’m not sure why they are.

I think what I need to do is to slow down a little and dig deeper. I don’t have a good answer to the question, what is the problem I think we need to solve? And if I’m not clear enough on what the question is, I’m probably not going to find the answer.

Is Nate Silver Naïve?

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During the election I became a big fan of Nate Silver’s FiveThirtyEight blog. If you wanted to know what was going on in the polls without freaking out over the latest blip, it was the place to go. A lot of Beltway & right-wing political hacks/columnists trashed him, but at the end of the game it was Hacks 0, Silver 1.

Silver also came out with a book this year, The Signal and the Noise, that got mostly great reviews. But mathbabe, a really sharp modeler who worked on Wall Street and then Occupied it, is less impressed. When Silver is covering his own worlds – politics and baseball – she thought he was spot on. But when it came to Wall Street, she says, he drops the ball.

The problem, she says, is that he assumes that the financial crisis was caused or driven by the results of inaccurate models.

Silver confuses cause and effect. We didn’t have a financial crisis because of a bad model or a few bad models. We had bad models because of a corrupt and criminally fraudulent financial system.

Take the example of the ratings agencies.

The ratings agencies, which famously put AAA ratings on terrible loans, and spoke among themselves as being willing to rate things that were structured by cows, did not accidentally have bad underlying models. The bankers packaging and selling these deals, which amongst themselves they called sacks of shit, did not blithely believe in their safety because of those ratings.

Rather, the entire industry crucially depended on the false models. Indeed they changed the data to conform with the models, which is to say it was an intentional combination of using flawed models and using irrelevant historical data (see points 64-69 here for more).

In baseball, a team can’t create bad or misleading data to game the models of other teams in order to get an edge. But in the financial markets, parties to a model can and do.

Ditto for the other pieces of the financial crisis. The problem wasn’t that the models failed – as mathbabe points out, they were very successful for a lot of the people calling the shots, who made out like bandits.

The underlying problem, she says, is with Silver’s model of the world:

Silver has an unswerving assumption, which he repeats several times, that the only goal of a modeler is to produce an accurate model. (Actually, he made an exception for stock analysts.)

This assumption generally holds in his experience: poker, baseball, and polling are all arenas in which one’s incentive is to be as accurate as possible. But he falls prey to some of the very mistakes he warns about in his book, namely over-confidence and over-generalization. He assumes that, since he’s an expert in those arenas, he can generalize to the field of finance, where he is not an expert.

The logical result of this assumption is his definition of failure as something where the underlying mathematical model is inaccurate. But that’s not how most people would define failure, and it is dangerously naive.

I haven’t read Silver’s book yet; I’m waiting for it to arrive courtesy of Santa’s elves. Once I’ve read it, I’ll post my thoughts on her take on his book.

Summing Up so Far, Next Steps for We're Not As Smart

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(Time for a little more “stumbling towards”)

So far, my revised argument goes like this:

Q: if the economy isn’t natural or inevitable, if it’s massively shaped – both in ways we don’t and do like – by big corporations, the wealthy, and occasionally the rest of us, what’s the alternative?

A: if we’re inevitably going to massively intervene in the economy, big corporations and the wealthy shouldn’t get to make most of the decisions about how & why we intervene. Everyone should have a real say – a.k.a. “Power to the People.”

Q: but if “Power to the People” isn’t enough, if it can have unintended consequences that can be quite terrible and produces visions of a more just economy that are little more than they handwaving or wildly extrapolating from a few examples – “blueprints” of an economy that wouldn’t pass inspection – what else do we need?

A: balance it out with We’re Not As Smart As We Think We Are.

 

To make this work, I need to figure out what We’re Not As Smart is really about, and that requires fleshing out the details. But I want to make sure I don’t lose myself in the details (as I’ve done on previous trips down this path). So where will it take us?

Here’s where, I think:
If we pay attention to what We’re Not As Smart is telling us, it’ll take us right back to Power to the People – only with a deeper, richer understanding of it.

 

(There also might be an interesting pattern in We’re Not As Smart that mimics/learns from the best of how “the market” is supposed to work – that in effect it’s a way of fulfilling some of what we like about “the market” fairytale. But it’s making me very nervous – which is usually either a sign that it’s spot on or completely missing the mark.)

Okay, that’s about as much Big Think as my brain can take for now.

Obama Can Move on Jobs, Too – If He (or We) Can Get the Fed to Go along

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The “Obama can’t really do anything” meme is starting to crumble. Last week, we saw that even if Obama can’t get any bills passed, he’s got the power the power via the EPA to make a real difference on climate change. Turns out the same is true for creating jobs. Or to be more precise, the Fed does – and that’s an audience that he, or we, could move a lot easier than the House Republicans.

As William Greider explained in the Nation a few weeks ago, Fed chairman Bernanke is starting to get really worried about the long-term effects of unemployment – which, Bernanke says could “wreak structural damage on our economy that could last for many years.” Since the rest of the government isn’t doing anything about unemployment, he’s tiptoeing towards more radical steps. For example, Bernanke is

exploring a special program recently launched by the Bank of England dubbed “funding for lending.” The British central bank will reward commercial banks with favorable rates if they provide more generous credit to help businesses wanting to expand—that is, to create jobs. The scheme will also penalize banks if they fail to meet those goals.

And if banks wouldn’t go along, “it could offer the same deal to financial institutions that are not banks.” Similarly,

The Fed could help restart the enfeebled housing sector by collaborating on debt reduction for the millions of underwater home mortgages. It could help organize and finance major infrastructure projects, like modernizing the national electrical grid, building high-speed rail systems and cleaning up after Hurricane Sandy—public works that create jobs the old-fashioned way. The Fed could influence the investment decisions of private capital by backstopping public-private bonds needed to finance the long-neglected overhaul of the nation’s common assets.

How do we know the Fed could actually do this? Because that’s exactly what it did the last time our economy was in really bad shape.

During the Great Depression, the Federal Reserve was given open-ended legal authority [via Section 13.3 of the Federal Reserve Act] to lend to practically anyone if its Board of Governors declared an economic emergency. This remains the law today. The central bank can lend to industrial corporations and small businesses, including partnerships, individuals, and other entities that are not commercial banks or even financial firms. The Fed made thousands of direct loans to private businesses during the New Deal, and the practice continued for twenty years.… Fed governors must now get approval from the treasury secretary, but they do not have to ask Congress for permission.

In fact, the Fed used Section 13.3 several times during the 2008 crisis, “lending $29 billion to grease the JPMorgan Chase takeover of Bear Stearns” as well as repeatedly using it during the massive bailout of the insurance company AIG. Its bailout of AIG so aggravated Congress that Congress changedSection 13.3 so the Fed can no longer intervene to save a single company. But the very fact that Congress still left the Fed with loads of room to maneuver via Section 13.3 makes it pretty hard to argue that using it to help save the economy and the middle class wouldn’t be kosher. Continue reading →

How Obama Could Stop Climate Change Without Passing New Legislation

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So Obama has gotten reelected, but there’s not a lot he can do, right? No way is anything progressive going to get through the House Republicans – especially not on something as controversial as trying to prevent climate change.

Not so fast, writes Grist’s David Roberts. The Natural Resources Defense Council has come up with a nifty plan based on the Clean Air Act (CAA) that would get the job done. Here’s how.

In 2007, the Supreme Court ruled that the CAA could cover carbon emissions if they were deemed a threat to public heath. In 2009, EPA determined that they are such a threat. At that point, a cascading series of legal obligations (and battles) kicked in.

The EPA was now required to regulate 2 buckets of carbon emissions: “mobile sources,” a.k.a. vehicles, and “stationary sources,” which include power plants – and they make up about 40% of the US’ yearly emissions.

The NRDC’s plan shows how to tackle the latter in a way that gets around a seemingly insurmountable problem.

The thing about a conventional coal power plant is, there’s not much it can do to reduce its carbon emissions. There are efficiency measures — modern boilers and the like — that can push emissions down at the margins, but nothing that can get such a plant anywhere close to 1000 lbs/MWh. Coal just is carbon. If a power plant wants to meet any serious carbon standard, it has to burn less coal. That’s done by “fuel-switching” to natural gas or some kind of coal-biomass mix, which is a substantial investment and, for many, many coal plants, won’t be worth it. They’ll shut down instead.

As long as the unit of regulation is the individual power plant, EPA 111(d) regulations will either be so mild as to be meaningless (efficiency upgrades) or so severe as to shut down most of the coal fleet at a stroke and produce untenable economic and political blowback (fuel switching, CCS). A firecracker or a nuke.

How does the NRDC propose untying this knot?

by making a state’s power fleet the unit of regulation. Rather than each power plant having to meet the standard, a state’s utilities have to keep their fleet averages at or below the standard. (Just as automakers don’t have to hit fuel-efficiency targets with every car or truck, only for their fleet averages.)

That immediately expands the range of compliance tools available to utilities. They can buy efficient boilers for some plants; they can shift generation from their coal fleet to their natural gas fleet; they can build out renewables; they can expand cogeneration and waste-heat capture; and they can reduce demand through energy efficiency. All these things can add up to a steady decrease in the fleet average CO2 lbs/MWh.

What’s particularly sharp about this plan is that it makes it worthwhile for power companies to focus on energy efficiency – something a lot of them have been loath to do.

If avoided carbon counts toward reducing average fleet emissions, then every utility, in every state and region, has access to inexpensive compliance measures. Efficiency is ubiquitous and in almost every case cheaper than new power sources.…

Remember: Efficiency saves ratepayers money. According to modeling of the NRDC proposal done by ICF International, by complying through efficiency measures, utilities could achieve the proposed carbon standards while slightly reducing power bills. And every dollar not spent on power is a dollar of annual economic stimulus.

The end result: a 17% reduction in CO2 emissions from 2011 levels, which works out to a 10% reduction in our overall emissions by 2020.

Combined with reductions from mobile sources, that could help the U.S. hit the goal Obama pledged at the 2009 Copenhagen climate talks: 17 percent cuts from 2005 levels by 2020.

And on top of that, “even the lowest estimate of benefits wildly outweighs the compliance costs.” As NRDC puts it:

Carbon dioxide from power plants contributes to the severity of heat waves, droughts, floods and rising sea levels, all of which bring an enormous toll in human lives, devastation and economic disruption. The value of reducing carbon pollution is estimated at $25 to $59 per ton, or more. The proposal also brings cuts in emissions of traditional pollutants like sulfur and nitrogen oxides spewing from power plants beyond what current regulations would achieve. The emissions reductions delivered by implementing the proposal would prevent more than 23,000 asthma attacks, avoid more than 2,300 emergency room visits and hospital admissions per year and prevent thousands of premature deaths.

The bottom line:

The benefits of reducing CO2 and the traditional pollutants are both substantial, and add up to $25 to $60 billion. That’s 6 to 15 times higher than the costs of complying with the proposal.

Obviously, if Obama has the EPA go down this route, the House Republicans aren’t going to stand still. I’m sure they will, at a minimum, attach riders to just about every thing they can think of that would kill this plan. But at least there’s a fighting chance – if enough folks on our side mobilize to make it happen.

Why "Power to the People" Isn't Enough

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If the economy isn’t natural or inevitable, if it’s massively shaped by the government, then the first step to an economy that works for everyone is to ask, why should big corporations and the wealthy get to call the shots? Why shouldn’t everyone have a real say?

That’s the story most progressives tell: Power to the People! Some also add, Small is Beautiful.

I don’t think that can be the end of the story.

First, the track record of Power to the People isn’t very encouraging. Stalin, Mao – somewhere along the way beautiful visions of people power got twisted into grotesque totalitarian horrors. Mind you, there are plenty of lefties who have pretty convincing explanations as to how these nightmares happened and how to prevent them. And of course there are a variety of flavors of anarchists who argue examples like these demonstrate why we shouldn’t create any concentrations of power – a vision which I’d argue helped both create Occupy Wall Street and drove it into the ground in a matter of months. Now this is no argument against Power to the People. But to me it suggests we need a deeper form of skepticism than an awful lot of lefties can tolerate.

Second, and even more importantly, when you look at most (although not all) progressive/lefty visions of what an alternative economy would look like, I think you see the limits of Power to the People + Small is Beautiful. Most of these “blueprints” consist of a laundry list of high-level points plus an awful lot of handwaving – or wildly extrapolating from a handful of examples. If the economy was a house, these blueprints wouldn’t pass inspection.

The problem isn’t that these folks aren’t serious or smart enough. The problem is that it’s really, really freakin’ hard to come up with a good blueprint. And that’s why I think Power to the People isn’t enough.

So what’s the alternative? I think it’s balancing Power to the People with We’re Not As Smart As We Think We Are – once, of course, I flesh out We’re Not As Smart a little more.

I freely admit, this piece isn’t entirely fair. There are plenty of progressives/lefties whose version of Power to the People is a lot more subtle than I’m giving credit for here. Part of it is that I’m having trouble laying down my snark – some of these folks are good souls who drive me absolutely batshit. I’m having trouble untangling my anger at the degree to which our side shoots itself in the foot from what I think is an important point about confronting our limits head-on. And I think part of that difficulty in untangling & letting go of my anger is that I’m still not clear enough on what I’m arguing.

But hey – that’s why I gave my blog the “stumbling towards” tagline.