Is Niall Ferguson Right?

Seems implausible, doesn't it? In fact, I'm sure that after reading the title to this post, many of you are already preparing to launch another round of pleas to Noah to cast me into the outer darkness, where there is weeping and gnashing of teeth. But hear me out for a bit.

I pretty much agree with everything our beloved blog owner said in his response to Ferguson on Friday. Professor Ferguson has clearly let his critics get under his skin, and he really ought to have better uses for his time than writing a series of extremely long anti-Krugman articles which, like the Police Academy movies, get less compelling with each installment.

Nevertheless, in his first installment Ferguson does land a direct hit on the issue of the Euro, documenting Krugman's repeated and sometimes confident predictions that the Eurozone would collapse between 2010 and 2012:

By my reckoning, Krugman wrote about the imminent break-up of the euro at least eleven times between April 2010 and July 2012:
1. April 29, 2010: "Is the euro itself in danger? In a word, yes. If European leaders don't start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible."
2. May 6, 2010: "Many observers now expect the Greek tragedy to end in default; I'm increasingly convinced that they're too optimistic, that default will be accompanied or followed by departure from the euro."
3. September 11, 2011: "the euro is now at risk of collapse. ... the common European currency itself is under existential threat."
4. October 23, 2011: "[the] monetary system ... has turned into a deadly trap. ... it's looking more and more as if the euro system is doomed."
5. November 10, 2011: "This is the way the euro ends ... Not long ago, European leaders were insisting that Greece could and should stay on the euro while paying its debts in full. Now, with Italy falling off a cliff, it's hard to see how the euro can survive at all."
6. March 11, 2012: "Greece and Ireland ... had and have no good alternatives short of leaving the euro, an extreme step that, realistically, their leaders cannot take until all other options have failed - a state of affairs that, if you ask me, Greece is rapidly approaching."
7. April 15, 2012: "What is the alternative? ... Exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what's truly inconceivable."
8. May 6, 2012: "One answer - an answer that makes more sense than almost anyone in Europe is willing to admit - would be to break up the euro, Europe's common currency. Europe wouldn't be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation."
9. May 17, 2012: "Apocalypse Fairly Soon ... Suddenly, it has become easy to see how the euro - that grand, flawed experiment in monetary union without political union - could come apart at the seams. We're not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months."
10. June 10, 2012: "utter catastrophe may be just around the corner."
11. July 29, 2012: "Will the euro really be saved? That remains very much in doubt." 

 Reading this section of Ferguson's article was particularly painful for me, as I was very much in agreement with Krugman on the likelihood of a Eurozone breakup. And, in fact, I still think the economic arguments Krugman used to support his position were sound.

And yet, it didn't happen. The Euro not only didn't implode, but as Ferguson notes, new countries continue to join.

The fact that Ferguson turned out to be wrong about hyperinflation or the budget deficit is easy to explain: he didn't know what he was talking about. Yet Krugman and others did know what they were talking about. And yet they were still wrong. 

As the political scientist Philip Tetlock has demonstrated, experts tend to be pretty bad at making accurate predictions even on areas that involve their subject of expertise:

In the most comprehensive analysis of expert prediction ever conducted, Philip Tetlock assembled a group of some 280 anonymous volunteers—economists, political scientists, intelligence analysts, journalists—whose work involved forecasting to some degree or other. These experts were then asked about a wide array of subjects. Will inflation rise, fall, or stay the same? Will the presidential election be won by a Republican or Democrat? Will there be open war on the Korean peninsula? Time frames varied. So did the relative turbulence of the moment when the questions were asked, as the experiment went on for years. In all, the experts made some 28,000 predictions. Time passed, the veracity of the predictions was determined, the data analyzed, and the average expert’s forecasts were revealed to be only slightly more accurate than random guessing—or, to put more harshly, only a bit better than the proverbial dart-throwing chimpanzee.

Not only do experts only do slightly better than chance, on average, but it turns out when it comes to making accurate predictions, level of expertise faces rapidly diminishing marginal returns:

In political and economic forecasting, we reach the inflection point surprisingly quickly. It lies in the vicinity of attentive readers of high-quality news outlets, such as The Economist. The predictive value added of Ph.Ds, tenured professorships and Nobel Prizes is not zero but it is disconcertingly close to zero.

When experts do turn out to be wrong, Tetlock reports, they typically do not concede that they have made a real error. Instead, they are inclined to make excuses: my predictions were right, it's just that the timing was off. I would've been right, but an unforeseeable factor changed the equation. And so on.

Certainly when it comes to the Eurozone crisis, these are the excuses that jump readily to my mind. Sure, Europe has managed to stave off collapse for now. But the problems with the Euro are still there, and eventually they will out. The Eurozone would have collapsed if Draghi hadn't said that the ECB would do what it took to prevent it, and who could've foreseen that? And is Niall Ferguson really the best person to being making accusations here? Back during the height of the crisis he was speculating about a Eurozone break up too. 

I would like to go along with such excuses, but I can't quite make myself do it. While Draghi's intervention wasn't foreseen by a lot of people, it's hard to say that it wasn't foreseeable. And claiming that the Eurozone will collapse "someday" is all but unfalsifiable. I'm afraid the lesson here is that even getting the economics right doesn't help you much in predicting an outcome that depends not only on economics but also on politics (which, broadly speaking, most macroeconomic issues do).

According to Tetlock, there are ways to improve one's predictive accuracy. Experts "who tended to use one analytical tool in many different domains... preferred keeping their analysis simple and elegant by minimizing 'distractions'... [and] were unusually confident" were less accurate on average. By contrast, the better predictors:

used a wide assortment of analytical tools, sought out information from diverse sources, were comfortable with complexity and uncertainty, and were much less sure of themselves—they tended to talk in terms of possibilities and probabilities and were often happy to say “maybe.” In explaining their forecasts, they frequently shifted intellectual gears, sprinkling their speech with transition markers such as “although,” “but,” and “however.”

So I think that Ferguson is right that a little more humility is in order, even if he himself doesn't really practice what he preaches. 

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Online Vocabulary by Gender

Do men and women use language differently in the real world? It may seem obvious, but yeah, they do, at least on Facebook. A recent paper in PLoS sheds light on the issue. I thought the following graphic was interesting. (Click it to get a bigger version.) The data come from 75,000 users of Facebook.

Language usage by women is depicted above, with male vocabulary below. The size of the word indicates the strength of the correlation whereas color indicates relative frequency of usage. Underscores connect words of multiword phrases. Words and phrases are in the center; topics, represented as the 15 most prevalent words, surround.

The paper from which this diagram comes, "Personality, Gender, and Age in the Language of Social Media: The Open-Vocabulary Approach," by Schwartz et al. (Univ. of Pennsylvania and Univ. of Cambridge), contains a good many additional great nuggets of information, including a great set of graphs showing (among other things) how hate words correlate with age. The unsurprising result: Hate words go down as age goes up. Also interesting: Older people talk more about the future. The older you are, the more future-oriented you become. This makes sense. When you're young, you don't think about the future quite as much. Why should you, when you're going to live forever?

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The Ferg-beast attacks

I'm breaking my blogging hiatus to briefly respond to Niall Ferguson, not because I'm mad, but because it's fun. For those who haven't seen it, Ferguson has posted a massive three-part rant (part 1, part 2, part 3) in which he attempts to take Paul Krugman to task for making wrong predictions, for being a big meanie, etc. etc. The series is titled "Krugtron the Invincible", after my blog post of the same name. In fact, Ferguson references me in part 1 of his rant:

The resemblance between Krugman and Voltron was suggested by one of the gaggle of bloggers who are to Krugman what Egyptian plovers are to crocodiles.

...and again in part 3:

For too long, Paul Krugman has exploited his authority as an award-winning economist and his power as a New York Times columnist to heap opprobrium on anyone who ventures to disagree with him. Along the way, he has acquired a claque of like-minded bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. I would like to name and shame in this context Dean Baker, Josh Barro, Brad DeLong, Matthew O'Brien, Noah Smith, Matthew Yglesias and Justin Wolfers. Krugman and his acolytes evidently relish the viciousness of their attacks, priding themselves on the crassness of their language.

Having been named, but not successfully shamed, I feel I ought to make a few points in response:

1. The Egyptian plover does not, in fact, eat meat out of the mouths of Nile crocodiles. That is a myth.

2. Ferguson attempts to peg me as a Krugman yes-man. This is lazy and uninformed on his part, since everyone who reads my blog or Twitter feed knows that I am a Brad DeLong yes-man, not a Krugman yes-man.

3. Some of Krugman's critics have good points. Others seem driven mainly by personal dislike for Krugman's polemical style or liberal politics. But a few seem to be motivated by a peculiar type of intellectual inferiority complex. They seem to believe that by catching a famous "smart guy" like Krugman making a mistake, they can prove themselves to be highly intelligent. Naturally, this doesn't actually work. Ferguson should worry about whether he falls into this latter category of Krugman detractors.

4. Of course, there is a fourth reason for criticizing a public intellectual: pure enjoyment. Ferguson seems too angry and bitter for his Krugman-bashing to be motivated by pure fun, but my own occasional Ferguson-bashing (see here and here) was motivated each time by the peculiar glee that comes from giving a really bad article the thorough point-by-point thrashing that it deserved.

5. My advice to Ferguson would be: Unless you're aiming for your legacy as a public intellectual to be "that British guy who constantly went after Paul Krugman", I'd suggest finding something else to write about. History, for example. I hear you're a very good historian.

6. To readers: If you really want to read more Ferguson-bashing, see Matt O'Brien and Josh Barro.

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Richard Brautigan's Best Essay?

You can't expect to become a good writer without reading good writing. Below, I present what I feel is one of the finest short essays written by a 20th-century American: "Corporal," by Richard Brautigan. I present it in exactly the form I found it online, which is to say, as an image (rather than a text file), at Google Books, here.

It's short, it's simple, it's honest.

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Borrowing from the Future — Except that We Aren't

This morning’s New York Times featured an utterly clueless op-ed by Stephen D. King (not the horror writer, at least not intentionally).  It would take too long to go through all the errors and misrepresentations he managed to pull together, but one in particular deserves mention, since it is a common meme: fiscal deficits mean that “we are borrowing from future generations”.

Let’s look at this calmly.  First, suppose we have a closed economy; there is no trade and no international flows of lending and debt service.  In this state of happy isolation, the government may choose to run a budget deficit.  If it does, it issues bonds.  People who want this kind of asset buy the bonds, and it is their purchase that funds government spending not covered by tax revenue.  These bonds have maturities, so what happens when their time is up?

One of three things.  First, the bonds could be redeemed with no new bonds issued.  This would reduce the amount of bonds in private portfolios, but it would give the ex-bondholders an equivalent amount of cash to spend on something else.  The cash comes from a budget surplus, which means that taxpayers have paid in extra.  Those who don’t own bonds are now net payers to those who do.  From an accounting standpoint, however, they also gain in the sense that they are no longer liable to pay a stream of interest on the bonds into the future.

Historically, this doesn’t happen very much.  The best example is the huge deficits that the US and Britain used to finance WWII.  Neither country ran equivalent surpluses later on to “pay off” the debt.  Their economies grew, inflation eroded debt claims, and over time the debt-to-GDP levels slid back down to more reasonable levels.  Specifically, when the war bonds came due these governments simply issued more bonds to finance their redemption; they rolled over the debt.  That’s what happens in 99% of the cases, and you can see this by looking at how small and infrequent fiscal surpluses actually are.  This refinancing through issuance of new debt is option number two.

The third possibility is default.  Banana republics and governments under the influence of suicide cults sometimes do this.  ‘Nuf said.

So where is “borrowing from the future”?  Well, all government is borrowing from some people to pay other people, and paying back these debts, should it ever happen, simply reverses that flow.  Either way, money is making its way from one group to another at the same point in time.  Note that interest on the debt has nothing to do with present vs future either: the current generation, which incurs the debt, begins paying interest immediately in exactly the same way their distant descendants will.

None of this means, of course, that deficits are innocent in every respect.  To run them, the government has to be able to sell its bonds or, if the central bank is going to monetize them, the economic environment has to permit this.  (It can’t be too inflationary.)  That can break down.  Past experience can guide us in assessing how close we are to the upper limit of our fiscal space.  (The struggling countries in the Eurozone are a special case, because they don’t borrow in their own currencies.)

Ah, but you say, we are not in a closed economy.  Some of our borrowing is from foreigners, and debt service transfers money from us to them.  Some responses:

1. This is not about present versus future, but our people and their people.  After all, international interest payments, like intranational ones, don’t wait to be paid; we begin paying them right away.

2. The world as a whole is a closed economy.  If “we” are everyone in the world (and in some senses we are), there is no outside, at least economically.

3. The amount of foreign borrowing to finance fiscal deficits is not directly a function of the size of the deficit but of whatever determines our international payments position—our current and capital accounts.  To make the case that government borrowing increases the current account deficit, you have to, well, make the case.  For instance, is there a historical relationship between the size of US fiscal deficits as a proportion of GDP and corresponding current account deficits?  Show this if you can.  (In general there isn't, although the current account and the sum of net domestic borrowing, both public and private, is an accounting identity.  If two things are an identity, one does not "cause" the other because they are both the same thing.)  On a theoretical level, the idea is that issuing more public debt raises domestic interest rates, which in turn raises exchange rates, which in turn increases trade deficits.  OK, try to show that.  (The US record doesn’t provide much support.)

So there you have it.  At an individual level, borrowing is truly borrowing from the future.  At a population level, borrowing is the creation of assets and liabilities across different people.  People like King are committing a fallacy of composition.

Incidentally, we are borrowing from the future.  We are shirking the investments we need to make so that our children and grandchildren can live in a habitable world with a well-educated population that enjoys a productive infrastructure.  No fallacy of composition there.

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In Defense of the Constitution

Democracy is dead, and the Constituion is responsible. That, at any rate, seems to be the emerging consensus among some of America's smarter left of center bloggers. Last week, Dylan Matthews of Wonkblog laid the blame for the current government shutdown not on President Obama or Ted Cruz, but on James Madison: 

This week's shutdown is only the latest symptom of an underlying disease in our democracy whose origins lie in the Constitution and some supremely misguided ideas that made their way into it in 1787, and found their fullest exposition in Madison's Federalist no. 51.

Matthews' opinion was seconded by Matt Yglesias, who argued that ultimately "America was doomed" because of our presidential system of government. And this weekend Jonathan Chait argued that the current budget battles might have been "destined all along" due to our constitutional structure. 

Matthews, Yglesias, and Chait all based their claims on a 1990 essay by political scientist Juan Linz, The Perils of Presidentialism. Written during the wave of democratization that coincided with the end of the Cold War, Linz's essay lists a number of dangers arising from a strong presidency, and argues that newly democratic nations ought to consider adopting a parliamentary system of government (like that of Germany) rather than a presidential one (like we have here in the U.S.).  

It's a good essay, and if one were designing a system of government from scratch, particularly in a society without a long tradition of democratic self-government, Linz's concerns ought to be taken seriously. But there is something a little odd about seeing The Perils of Presidentialism being cited as an argument by those who wish that the House of Representatives would be more accommodating to the President. As the title suggests, The Perils of Presidentialism is chiefly concerned that come from the president having too much power. 

For example, Linz argues that because the president alone is elected by the whole nation, he and his supporters "may be tempted to define his policies as reflections of the popular will and those of his opponents as the selfish designs of narrow interests." This certainly is a temptation. In fact, it seems to be a strong temptation for Chait himself, who describes today's GOP as "a party large enough to control a chamber of Congress yet too small to win the presidency." Matthews likewise suggests that his personal favorite theory of democracy is summed up in a statement by Max Weber: "In a democracy the people choose a leader in whom they trust. Then the chosen leader says, 'Now shut up and obey me." 

It gets worse. According to Linz, there is also a danger that the president will "use ideological formulations to discredit his foes," perhaps, for example, by referring to them as nihilists, anarchists, terrorists, etc.

And then there is the timing factor. Linz' also argues that, because of presidential term limits, a president's 

awareness of the time limits facing him and the program to which his name is tied cannot help but affect his political style...  This exaggerated sense of urgency on the part of the president may lead to ill-conceived policy initiatives, overly hasty stabs at implementation, unwarranted anger at the lawful opposition, and a host of other evils. 

Ultimately, Linz fears, frustration with legislative unwillingness to go along with presidential policy might lead to a military coup, or other forms of violence. 

While it's fun to speculate about alternative systems of government, America is not at risk of devolving into a military dictatorship any time soon. For all our faults, the U.S. is in fact one of the most successful countries in the history of the planet, and our constitutional structure, with its system of divided power, is one of the reasons for that. If you want to attack the House Republicans, be my guest. But leave James Madison out of it.   

UPDATE: On Twitter, Adam Gurri directs me to a piece of his that sums up my thinking perfectly: 

Rather than judging institutions on the basis of theory, we ought to be looking at their resilience; how they stand the test of time. The electoral college is frequently a target of criticism and ridicule by people who feel it is outdated, but it is precisely because its life can be measured in centuries rather than decades that we should trust it by default. At least, we should trust it more than the simple stories proffered by pundits and scholars. 

The more I learn about the Swiss canton system, the crazier it seems to me. Yet there are some cantons that have been in continual existence for something like 700 years—and Switzerland is a very wealthy and very peaceful nation. We should not conclude from this that their system of government should be spread to every corner of the Earth, but it is clear that there is something about the system as it operates in Switzerland that works.  

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Metaphysics and the Breaking Bad Finale

If we spirits have offended, think but this and all is mended

That you have but slumbered here, while these visions did appear

Last weekend was the series finale of Breaking Bad, the critically acclaimed drama about an Albuquerque chemistry teacher who becomes a meth dealer after being diagnosed with cancer. From what I can gather, most fans were satisfied by the show's resolution. There is a small but growing cadre of viewers, however, who found parts of the episode a bit unrealistic, and have responded by arguing that the ending was in fact all a dream. Here, for example, is Emily Nussbaum:

[H]alfway through, at around the time that Walt was gazing at Walt, Jr., I became fixated on the idea that what we were watching must be a dying fantasy on the part of Walter White, not something that was actually happening—at least not in the “real world” of the previous seasons. … I mean, wouldn’t this finale have made far more sense had the episode ended on a shot of Walter White dead, frozen to death, behind the wheel of a car he couldn’t start? Certainly, everything that came after that moment possessed an eerie, magical feeling—from the instant that key fell from the car’s sun visor, inside a car that was snowed in. Walt hit the window, the snow fell off, and we were off to the races. Even within this stylized series, there was a feeling of unreality—and a strikingly different tone from the episode that preceded this one. 

This isn’t the first time that a show or movie has inspired some creative theorizing. The end of The Sopranos sparked debates over whether Tony Soprano had or had not been killed at the moment after the episode ended. Fans and critics alike engaged in elaborate exegesis over whether Leonardo DeCaprio was awake or dreaming at the end of Inception. And the ending of Lost, well, what can you say.

These sorts of arguments come so naturally to people that it is easy to gloss over a certain strangeness underlying the whole debate. Breaking Bad, after all, is a work of fiction. Walter White does not exist. As such, it’s not entirely clear what it means to say make claims about what happened to him or other fictional characters outside explicit descriptions of what happened on the screen.

This sort of attitude is perhaps best expressed by the late novelist Douglas Adams (of Hitchhiker’s Guide to the Galaxy fame). Responding to a fan question about some detail of Arthur Dent’s life not mentioned in his books, Adams responded:

The book is a work of fiction. It’s a sequence of words arranged to unfold a story in a reader’s mind. There is no such actual, real person as Arthur Dent. He has no existence outside the sequence of words designed to create an idea of this imaginary person in people’s minds. There is no objective real world I am describing, or which I can enter, and pick up his computer, look at it and tell you what model it is, or turn it over and read off its serial number for you. It doesn’t exist.

 On one level, Adams is perfectly correct. Still, there is something unsatisfying about this point of view. It’s not clear that one could enjoy fiction were it to be held consistently. 

                                     You may say I'm a dreamer, but I'm not the only one.

An alternate perspective was offered by the philosopher David Lewis in his paper Truth in Fiction. Lewis is best known as an advocate of Modal Realism (the view that every possible world really exists). But while Truth in Fiction utilizes Lewis’ possible world semantics, I don’t think one need to accept Modal Realism in order to accept his basic argument.

According to Lewis: 

A sentence of the form 'In the fiction f, x is non-vacuously true iff, wherever w is one of the collective belief worlds of the community of origin f, then some world where f is told as known fact and f is true differs less from the world w, on balance, than does any world where f is told as known fact and x is not true. It is vacuously true iff there are no possible worlds where f is told as known fact.   

 Okay, so that's a bit of a mouthful, but basically Lewis is saying that the claim "Walter White froze to death at the end of Breaking Bad" is true if a world in which that happened is closer to the actual world than a world in which everything before that point depicted in the show happened and he did not die in that way (the bit about collective beliefs is to deal with a situation where a society might have factually wrong beliefs that are depicted in the story, e.g. the solution to the Sherlock Holmes story "Adventures of the Speckled-Band" is based on an error about snakes, but Lewis doesn't think we should therefore conclude that Holmes got the wrong man).

This, however, poses a bit of a problem. There are, after all, plenty of fictional tales containing elements that are implausible or even impossible in our world. A world in which everything past the first couple of scenes of Buffy the Vampire Slayer was a dream would be more similar to the actual world than a world in which it all really happened (and this isn’t simply because the viewers of Buffy mistakenly thought that vampires were real). On the other hand, it’s not clear that Lewis is entitled to rule out dream explanations per se. After all, there are works of fiction where large portions of the narrative turn out to be a dream (the ninth season of Dallas perhaps being the most famous example).

So while I don’t find the Breaking Bad dreamers’ arguments terribly plausible, their theories seem to have done something I would have thought even less plausible, namely, refute one of the Twentieth Century’s most capable philosophers.   

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