Negoiating with "moderate republicans" is foolish

It seems to me that it was stupid to negotiate with the "moderate" republicans as a way to break the filibuster on the stimulus package. The compromise was not worth it. It would have been much smarter simply to put the republicans on the spot. Let them filibuster until the country was completely fed up with them.

When the republicans want the democrats to do something, like support some war effort, they say that if the democrats don't support it and the country is invaded it will be on the democrats heads. The republicans don't compromise. They simply threaten the democrats with political suicide. The democrats should do the same thing. Stop giving away the store for minimal republican support.

Stock analyst recommendations

Amazingly optimistic. They don't ever seem to recommend selling anything!

Stimulus Package: If You Jump Halfway Across a Chasm You Fall Into the Abyss

Great piece by Arianna Huffington on the Stimulus Package

Obama has added or talked about adding several new cabinet-level positions, such as chief technology officer, climate czar, and car czar. How about an advisory cabinet of economic thinkers who can offer the president big ideas for a 21st century economy?

A good place to start would be among those who sounded the alarm about our current financial crisis -- all of whom are critical of the short-sighted, ad-hoc nature of the stimulus bill. People like Nouriel Roubini, the New York University economist who was so prescient about the collapse. Lawmakers, he says, are 'injecting populist politics into economics decisions. Companies and sectors that should be left to drown are being floated lifeboats.'

Jeffrey Sachs, the Columbia University economist who was instrumental in transitioning the economic system of the former Soviet Union, is also no fan of the stimulus bill, calling it a 'a fiscal piñata,' an 'astounding mish-mash of tax cuts, public investments, transfer payments and special treats for insiders,' and 'a grab bag of hasty short-run spending.' He warns that 'without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good.' This is especially true, he says, 'if we allow further tax cuts during a timeof fiscal hemorrhage, or give into 'bipartisan' demands to make the Bush tax cuts permanent."

Joseph Stiglitz is equally leery of the tax cuts that have been included in the stimulus package. "We are in uncharted territory in this crisis," he says. "But household tax cuts, except for possibly the poorest, should have no place in the stimulus. Nor should business tax breaks, except when closely linked with additional investment... Increased investments in infrastructure, education and technology, relief to states, and help to the unemployed need pride of place."

Bad banks

I must be completely confused about the bad bank idea. Here's one version as explained by Max Holmes in a NYT op ed piece. Holmes' idea is that the

banks would … convey [their toxic] assets at year-end, audited book values. … [After such a transfer] the stock prices of the good banks are likely to soar, as they will be the … best capitalized and cleanest banks in the world.

Here's what I don't get. If the banks are going to sell their toxic assets at "year-end, audited book values" why don't they just do that now and sell them in the market at that price? If those are real values, there will be buyers. On the other hand, if these "year-end, audited book values" are unrealistically high, the taxpayer is getting screwed, and the bankers, who should be paying the price, get off free.

Worse, the toxic assets are probably not assets at all but liabilities. Otherwise, banks could simply give them away and have clean books. But if they are liabilities, why should the government (or anyone else) pay anything at all for them? We, the taxpayers, should be paid to take them. The minimum we should be paid to take them is ownership of the banks that are holding them as liabilities. That may not cover the liabilities, but it's probably the best that can be done.

Holmes is not a stupid guy. According to a brief bio, "He holds a BA degree from Harvard College, a JD degree from Columbia Law School, and an MBA degree from Columbia Business School." So what am I missing? The only thing that occurs to me is the disclosure Holmes made in his article.

The government could hire professional money managers, working under an incentive-heavy compensation plan, to oversee the liquidation. (Disclosure: firms like mine might be potential candidates for such a job.)

So is that it? Is this all a con to get a lucrative money management contract? I'm normally not that cynical. But I sure can't think of any other explanation. It seems that the only people who are pushing the bad bank idea are those (like bankers and now potential money managers) who will make lots of money from it. Will someone tell me why I'm wrong.

Book Review - 'Lewis Carroll in Numberland,' by Robin Wilson.

In a review of a biography of Charles Lutwidge Dodgson, better known as Lewis Carroll, John Allen Paulos quotes this puzzle from the book—and from Dodgson's lessons.

A cup contains 50 spoonfuls of brandy, and another contains 50 spoonfuls of water. A spoonful of brandy is taken from the first cup and mixed into the second cup. Then a spoonful of the mixture is taken from the second cup and mixed into the first. Is there more or less brandy in the second cup than there is water in the first cup?

This is a nice example of a problem that's trivial if you know how to look at it and more complex if you approach it in a straightforward, brute force way. One could do the calculation. It's not that difficult. But the easy way to see that the amount of brandy in the water cup is the same as the amount of water in the brandy cup is to realize that both cups end up with the same total amount of liquid—the same amount as they started with, 50 spoonfuls. A certain amount of brandy is in the water cup. The amount of water that was displaced was transferred back to the brandy cup. Therefore, the two amounts are the same.

This is related to what has come to be called point free programming, which is programming by composing functions rather than by describing the effect of functions on their arguments. For example

f(x) = 2*x +3

is the same as

f = (+ 3) . (2 *)

The second defines f as the composition of the two functions that, in order, double the argument and add 3 to the argument.

Four Things the Republicans Don't Want You to Know About the Economy

Great post by Keith Boykin.

In the past few weeks, I've heard lots of Republican talking heads make some pretty damning arguments about "liberal" Democratic economic policies and Barack Obama's "wasteful" spending plans. The arguments may sound convincing at first blush, but the Republicans aren't offering any serious alternatives. So I did some research and came up with a quick list of four things Republicans don't want you to know about the economy.

1. Tax cuts don't always work.
In 1929, Herbert Hoover cut marginal tax rates to the lowest level in modern history (24 percent) and the economy still collapsed. In 1982, Ronald Reagan slashed taxes to the lowest level in 50 years and, in return, unemployment soared to the highest level in 50 years. In 2001 and 2003, George Bush cut taxes twice and yet unemployment rose to 6 percent. And that's to say nothing of the 2.6 million jobs lost in the final year of the Bush administration.

Tax cuts are politically popular, but they are not a panacea for our nation's economic woes. Cutting corporate tax rates won't stimulate the economy or create new jobs if there's no demand for the goods and services that businesses produce. And cutting estate taxes and capital gains taxes will primarily benefit the wealthy. Despite the GOP claims to the contrary, when you give rich people money, there's no guarantee they will use it in ways that will trickle down to the masses. If we're going to cut taxes, then tax cuts should be targeted to businesses that hire new workers or invest in infrastructure, or they should go to middle-class Americans, who have been losing their jobs, their homes, their health care, and their savings in the Bush economy.

2. Higher taxes don't necessarily hurt.
Nobody likes to pay taxes, but don't believe the hype that tax increases on the wealthy will hurt the economy or kill jobs. In 1944, Franklin Roosevelt raised marginal tax rates to an astoundingly high 94 percent and yet we still had almost full employment (1.2 percent unemployment), thanks to the war. Taxes fell after the war, but in 1951, Harry Truman raised taxes again (from 84 to 91 percent) and yet unemployment dropped by 50 percent. In fact, from 1947 to 1973, median family income rose 2.7 percent a year, even while the top marginal tax rate was never lower than 70 percent, twice the current rate.

Perhaps the best example of the utility of tax increases comes from recent history. In 1993, Bill Clinton defied every single Republican in the House of Representatives and raised marginal tax rates to almost 40 percent. Despite GOP predictions that businesses would go bankrupt and workers would be laid off, the U.S. enjoyed the longest peacetime economic expansion in history.

That doesn't mean we need to raise taxes right now in the midst of the recession, but it does mean we shouldn't be afraid of higher marginal tax rates or of allowing the Bush tax cuts to expire in 2010. Republicans often complain that higher taxes will kill the economy, but there's not much evidence to support those fears.

3. Democrats are better at balancing the budget.
Republicans love to talk about balancing the federal budget...when somebody else is in charge of it. But during eight years of the Bush administration, we hardly heard a whimper from Republicans about balanced budgets, even as Democrats complained about the huge cost of fighting two wars and cutting taxes.

The truth is that no Republican president in my lifetime has ever balanced the budget. But the Democrats have balanced the budget five times during the same time span. Clinton did it four times and Lyndon Johnson did it once. The last Republican president to balance the budget was Eisenhower.

Yes we do need to balance the budget eventually, but this is not the right time. To do so would mean cutting government programs that serve those most at-risk in society and it would slow down the chance of recovery as the lack of government spending would contract the economy. But still, if you really want to balance the budget, the Democrats, historically speaking, are far more likely to do it.

4. Democrats create more jobs.
Republicans love to crow about the Reagan economy, but it pales in comparison to Bill Clinton's record. The U.S. economy created 21 million new jobs in the Clinton administration. That's more than the last three Republican presidents, including Ronald Reagan, combined. And despite the GOP argument that the Republican Congress deserves credit for the Clinton economy, the truth is that seven million of those jobs were created in the first two years when Democrats, in control of both houses of Congress and the White House, raised taxes with virtually no Republican support.

But it's not just Clinton. Despite the well known economic woes the country faced under Jimmy Carter, the U.S. economy added 8 million new jobs from 1977 to 1980. That's more new jobs under 4 years of Carter than under 12 years of both Bush presidents combined. And for all the right-wing complaints about the failures of LBJ's "Great Society," they fail to mention that the economy created 10 million new jobs during Johnson's tenure, with a Democratic president and a Democratic Congress, while fighting the Vietnam War and authorizing a massive expansion of the welfare state to include Medicare and Medicaid.

The truth is that nobody has all the answers to our current economic problems. But to believe Republicans lately requires us to forget the successful history of Democratic presidents and to ignore the failure of the most recent Republican president. It was George W. Bush, after all, who squandered the Clinton surpluses, ran up the biggest deficits in history and doubled the national debt.

While we embrace President Obama's spirit of bipartisanship and unity, Democrats should not forget their history and must not let the GOP browbeat them into silence and submission.

Extracting energy from the environment

Recently I've been thinking how amazing it is that we—by which I mean living beings (see dynamic entities)—came to be. By that I mean that before there were dynamic entities, physics and chemistry ruled. Strange as quantum mechanics is, the universe was mechanical—in a very broad sense. The underlying rules of physics were the best way to understand the universe.

But at some point, nature built an entity (a cell?) that was able to sustain itself by extracting energy from the environment. Such an entity differed from other, static entities. It persisted as an entity not because of its material composition but because it could be seen as a persistent pattern of activity. Living beings are not persistent material constructs. It's standard science that the materials in our bodies replace themselves regularly. What persists is a pattern of activities or processes.

The processes that persist are not equilibrium processes, like planets orbiting the sun. Nor are they quantum processes, like particle emerging from the void or particles decomposing into other particles though random quantum processes. The processes I'm thinking of are for the most part macro processes that require energy. But what's amazing is that these processes, i.e., living beings, have developed in such a way that they are able to extract the energy necessary to power themselves from the environment.

The two most familiar kinds of energy extracting and persisting processes are biological organisms and social organizations. Both are processes that persist only if they extract enough energy to power their processes.

Sounds like a losing proposition. Perhaps hurricanes (which fit this description) will come into existence through some random combination of circumstances. But it seems unlikely that processes such as these would ever become widespread. After all, it's almost like perpetual motion. A processes is developed that will run down unless it finds energy in the environment to keep itself going. How likely is that? Yet as we know it is very likely. Look around. There are an enormous number of different ways nature has found to build processes that succeed in keeping themselves going. Not only that of course, these processes reproduce and make copies of themselves—which through evolutionary processes produce variations, etc. Furthermore, these processes join together into groups to create larger processes (such as colonies, corporations, and countries), which themselves persist only if supplied with external power. In all cases of these larger processes, the external energy is supplied to them throgh the efforts of the smaller processes of which they are composed, i.e., colony members, corporate employees, county citizens. These larger processes don't extract energy on their own. They do it only as a result of the combined efforts of their component smaller processes, i.e., us.

OK. So that's amazing. Yet there is a second amazing observation. Almost all energy extractig processes go out and get the energy they need. The best and clearest example is that of an animal that hunts, kills, and eats its prey. It requyires energy; it goes out and gets it.

Plants are a bit different. They don't for the most part go out and hunt. They make use of energy, typically sunlight, that streams down upon them. That may be a bit easier in that the energy is given to them freely and straightforwardly. They don't have to hunt it down and capture it. All they have to do is find a way to exploit it once it is bestowed upon them.

But think our our human economic society. For the most part people don't do either. We don't go out and hunt down energy; we don't make use of energy that is freely bestowed upon us. We sell services. That seems especially strange. Biological often speak of animals as "making a living," especially insects, which "get paid" in energy for services that they perform.

But I don't think that's the same. Insects hunt down energy. It happens that the processes they perform are also useful to other processes. So they is synergy. But it doesn't seem to me to be the same as selling a service. They don't get paid by a customer.

Perhaps it's not quite that simple. Apparently E. coli farm. They gather other bacteria, which they cultivate and use for (whatever it is they use them for). So just as we farm—and thereby support the plants that we grow—E. coli also support the bacteria that they cultivate. So the cultivated processes do sell services to other entities that pay them for those services by supplying them with the energy they need to survive.

Our economic system has generalized that model. Most of us sell services for money—a form of proxy energy. It is quite amazing how peaceful this process is—for the most part. Most people don't have to hunt down and (forcefully) take the energy they need. Most people have services which they can sell for enough returns to sustain themselves. Ultimately, of course human society must extract enough energy from the environment to sustain its population. But we are so good at that that it takes very few people (farmers, miners, oil workers, etc.) to extract all the energy we need. The rest of us take in each others' laundry—and it all seems to hold together. There is enough energy produced and it is distributed sufficiently well throughout the culture that the widely diverse set of services that we sell can be used to sustain ourselves—and used in a relatively peaceful way. Amazing.

Nano-levitation

From HarvardScience.

Researchers see exotic force for first time
Discovery may be ‘pivotal’ in building nanoscale devices
January 7, 2009
Michael Patrick Rutter and Alvin Powell
Harvard News Office

For the first time, researchers have measured a long-theorized force that operates at distances so tiny they’re measured in billionths of a meter, which may have important applications in nanotechnology as scientists and engineers seek new ways to create devices far too small for the eye to see.

The advance, by researchers by Harvard and National Institutes of Health (NIH) researchers, used a novel combination of materials to create a repulsive Casimir force, which pushes apart certain materials when separated by distances so tiny — between 20 nanometers and 100 nanometers — that they’re nearly touching.

The force, which decreases in strength as the distance between the two materials increases, may provide a new means to build ultra-low friction and other nanoscale devices, such as new types of compasses, accelerometers, and gyroscopes.

“Repulsive Casimir forces are of great interest since they can be used in new ultra-sensitive force and torque sensors to levitate an object immersed in a fluid at nanometric distances above a surface,” said Federico Capasso, Robert L. Wallace Professor of Applied Physics at Harvard's School of Engineering and Applied Sciences (SEAS), who led the study. “Further, these objects are free to rotate or translate relative to each other with minimal static friction because their surfaces never come into direct contact.”

The results from Capasso’s and his colleagues’ work will be published in tomorrow's edition of the journal Nature. Capasso's co-authors are Jeremy Munday, formerly a graduate student in Harvard's Department of Physics and presently a postdoctoral researcher at the California Institute of Technology, and V. Adrian Parsegian, senior investigator at the NIH in Bethesda, Md.

The discovery builds on previous work related to the Casimir force, which was theorized by Hendrick Casimir in 1948 as both attractive and repulsive, pulling materials together under some circumstances and pushing them apart under others.

Until now, however, researchers have only been able to measure the attractive Casimir force, which, in some cases, has created headaches for nano-engineers because it can cause the components of tiny devices to stick together. Discovery of the repulsive version of the Casimir force can potentially help researchers overcome this problem.

“When two surfaces of the same material, such as gold, are separated by vacuum, air, or a fluid, the resulting force is always attractive,” explained Capasso.

Instead of using gold-coated materials, Capasso and colleagues swapped out one of the gold surfaces for one made of silica, then immersed them both in a liquid, bromobenzene. That combination did the trick, switching the attractive Casimir force to repulsive. The Harvard researchers have filed for a U.S. patent covering nanodevices based on quantum levitation.

Yale University Physics Professor Steve Lamoreaux, in an accompanying article in Nature, called the advance “pivotal for both fundamental physics and nanodevice engineering.” Though applications of the repulsive Casimir force in nanoscale devices have yet to be explored, Lamoreau said that “the prospects look exciting.”

The work was supported by the Center for Nanoscale Systems at Harvard University, a member of the National Nanotechnology Infrastructure Network; the National Science Foundation; the Intramural Research Program of the NIH; and the Eunice Kennedy Shriver National Institute of Child Health and Human Development.

Arianna Huffington: got the essence of Obama's Speech

From Obama's Sober Sermon on the Steps. Exactly the right spin.

The new president and the throng that turned out to cheer him and hear him today were on two very different missions. The crowd had come to celebrate. Obama had come to deliver a sober sermon.

I arrived at the Capitol early, and as the morning progressed, and the time for the Inaugural ceremony grew near, you could feel the anticipation and the excitement building. Chants of "O-ba-ma... O-ba-ma" washed forward from the hundreds of thousands crowding the National Mall, including right after he was first introduced as president.

But the new president wasn't in the mood to be distracted, and cut the chant short with a quick "thank you." The first line of his speech -- "I stand here today humbled by the task before us" -- was a solemn reality check. His mention of the "gathering clouds and raging storms" that greet his new administration was intended to immediately distinguish his presidency from others that began amidst "rising tides of prosperity and the still waters of peace." It was clear from the beginning that the speech was a warning bell.

For me, the most compelling moment of the speech came when he quoted the Bible. While we remain a young nation, he said, "the time has come to set aside childish things."

There was something very powerful about watching this relatively young man, one of the youngest to ever hold the highest office in the land, telling the American people to grow up.

He touched on the same theme when he described our "badly weakened economy" as a consequence of not just "greed and irresponsibility on the part of some but also our collective failure to make hard choices and prepare the nation for a new age."

Mature people make hard choices; childish ones, in the words of the new president, "prefer leisure over work" and "seek only the pleasures of riches and fame."

Time to grow up.

Obama also made a point of honoring "the doers, the makers of things." As opposed to those who make thing up -- like, say, credit default swaps.

The speech was ultimately optimistic: "The challenges we face are real, they are serious and they are many... But know this, America: They will be met." Indeed, the speech was reassuring in a Rooseveltian "the only thing we have to fear..." way. But the reassurance came with a caveat. We will overcome the many challenges facing us -- but only if we grow up.

"The greatness of our nation," he reminded us, "is never a given. It must be earned." And it will only be achieved if we realize that we are not, as a child believes, the center of the universe but a part of a greater whole. A whole built on values that "are old": "honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism."

The new president also signaled that he will put the need for service front and center in his presidency, lauding those who demonstrate "the spirit of service: a willingness to find meaning in something greater than themselves."

And he brought things full circle, closing his Sermon on the Steps by reminding his buoyant flock "that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task."

The times are hard and they are clearly a-changing.

Another Bush administration failure: Just say "No" to Just say No

From the National Vital Statistics Report via the NYTimes.

The birth rate for teenagers 15–19 years increased 3 percent in 2006, interrupting the 14-year period of continuous decline from 1991 through 2005. Only the rate for the youngest adolescents declined in 2006, to 0.6 per 1,000 aged 10–14 years. Rates for teenagers 15–17 and 18–19 years rose 3 to 4 percent each. These increases follow declines of 45 and 26 percent, respectively, in the rates between 1991 and 2005. Between 2005 and 2006, birth rates increased 3 to 5 percent each for non-Hispanic white, non-Hispanic black, and American Indian or Alaska Native teenagers and 2 percent for Hispanic teenagers. The rate for Asian or Pacific Islander teenagers was unchanged. Teenage birth rates increased significantly between 2005 and 2006 in 26 states, representing nearly every region of the country.