Friday, February 19, 2010

A Primer on Supply-Side vs Demand-Side Economics

Russ Daggatt's latest missive discusses whether the Stimulus Bill has had good effects.  His analysis is well worth perusing... and spreading the link.

My own take on things is more abstract. So let's step back and examine how Democrats and Republicans have become identified with two quite opposite economic theories. We'll start with the Republicans, who still clasp fealty to Supply Side Economics (SSE), a theory once labeled "voodoo" by the elder George Bush, but now mainstream conservative catechism for three decades.

A PRIMER ON SUPPLY SIDE VS DEMAND SIDE ECONOMICS

Supply Side holds that you best stimulate economic activity by Increasing the net wealth possessed by society's top echelons -- people and groups who have no urgent material needs.  Instead of spending it on direct "demand" purchases, these wealth-owners will invest any marginal wealth-gain (say from tax cuts) on things that increase "supply" -- factories, new businesses, innovative goods and services.  Thus the name Supply-Side. 

Interestingly, the most famous proponent of this approach was Karl Marx, who maintained that the owner-capitalist class propels industrial development by re-investing profits in plants and equipment, thus building up society's capital stock and the means of production. SSE is, in that respect, an entirely Marxist theory.

Of course, Marx then looked farther ahead.  He hypothesized an eventual "completion" of this capital-formation process, a final phase when all the factories are finished - an image we now find ludicrous, since productive capacity must be updated at an accelerating pace. (Hence there will always be a need for capitalists.)  Still, it seems kind of sad that SSE supporters won't ever acknowledge this fundamental root of their theory. They do not study their ideological forebear. Nor do they try, as Marx did, to extrapolate where their prescription may eventually lead.

But let's examine the key SSE predictions. (All theories should make confident predictions that are clearcut and testable.) For thirty years we have heard Supply Side zealots forecast that reducing taxes on the rich will:

1) result in direct investment of the released wealth into "supply" capacity for producing innovative goods and services.

2) stimulate so much new economic activity that even lower tax rates will rake in enough new revenue to erase any deficit caused by reducing taxes on the rich.

3) eliminate government debt, resolving any apparent conflict between reducing revenue and fiscal responsibility.


EFFECTS UPON POLICY

This lengthy definition is needed understand why a credibility deficit now burdens the Republican Coalition.  All through the 1980s, 1990s and 2000s, the mantra was:

- if the federal budget is in deficit, cut taxes on the rich, in order to repair that deficit.

- if the federal budget is in surplus, cut taxes on the rich, because it's their money, not the government's, and there will henceforth be no rainy days.

- in times of peace, cut taxes on the rich, because government has lower priority in peacetime.

- in times of war, cut taxes on the rich, because...
well, this one never made sense even by conservative logic. Indeed, this was the first time in US history that the clade of uber-wealth demanded ever-increasing state largesse even while the nation was under deadly threat.

In any event, we must admit that the core demand of SSE believers has been utterly consistent. Reducing taxes on the uber-wealthy is good for America, across all circumstances, under all conditions and without limit.

TESTING SUPPLY SIDE THEORY

book-cover-krugmanFor three decades, SSE proponents told skeptics "just watch and see what will happen!"  (Whenever top tax rates were cut.)  Okay, we've watched. And absolutely every large-scale forecast made by promoters of Supply Side Economics failed -- diametrically -- without major exception.

The uber-rich did not take their tax-break largesse and invest it in innovative/productive equipment.  They poured it into either passive investments -- what Adam Smith derided as "rent-seeking" -- or else risky financial instruments and asset bubbles.  Above all, the direct forecast that reduced revenues would erase federal deficits went directly opposite to observed fact.

TESTING THE OPPOSING THEORY

The one period over which deficits decisively vanished came right after Bill Clinton got moderate increases in taxation on the rich, in 1991, followed by stringent pay-as-you-go budgetary management. What we saw then was a combination of budget balancing, strong economic activity and revenue-based debt reduction.

So now let's examine the competitive theory - Demand Side Economics (DSE)... also called modified-Keynsianism.

Named for long-ago FDR advisor John Maynard Keynes, this theory holds that economic activity is driven by demand for goods and services. Moreover, money in the hands of the middle and lower classes has greater inherent VELOCITY -- meaning that a given dollar will be spent and then re-spent more often, if the middle class is passing it around with sequential purchases, than if it is stockpiled in a rich person's portfolio.

(Mind you, by this theory, tax cuts for the rich might actually make sense when rapid inflation in an overheated economy calls for decreased monetary velocity!  I never said that such cuts are NEVER called for. Indeed, JFK's tax cuts did achieve all of its intended goals.)

Under Keynsian or Demand-Side theory, the government should spend heavily, even deep into debt, when the nation is in recession, in order to get high-velocvity economic activity going again.  Hence the recent surge in stimulus activity, in the first year of the Obama administration (see Daggatt's article)... in sharp contrast to the equal-scale "stimulus" measures taken in the last year of George W. Bush's term, most of which went to shoring up the positions of those at the top of the social-economic order.

Now, to a person who genuinely despises all deficit spending, both SSE and DSE methods may seem horrific.  Both claim to use deficits and state-largesse to stimulate the economy, under a notion that economic activity will thereupon surge ahead and resulting revenues will later erase the incurred debt.  Only there are some truly major differences.

1) Demand-Side (Keynsian) deficit spending goes to where each dollar will have high velocity impact, as their theory predicts. In contrast, Supply Side largesse for the rich definitely did NOT go into predicted capital formation. (Marx was wrong.) It simply made the rich richer.

2) Completely aside from macro-economic effects, the beneficiaries of Demand Side largesse - the poor and middle class - may have some actual direct need. Fulfilling that need (if done well) may result in creation of either more-skilled workers or more small businesses. In contrast, it is hard to see how Supply Side sends the money to a place (the rich) where a direct need merits government intervention.

3)  Supply Side is a monotone.  "Give money to the rich under ALL circumstances, at all times and conditions, no matter what.

In contrast, Keynsians have proved that their policy is adaptable and variable, un-dogmatic and contingent upon circumstance.  They spend lavishly in order to get out of recession, because that is what Keynsians do. (Right-wing rants and rails against the current governing party acting consistently with its own economic theory is simply hypocritical.  You had your turn, now it is theirs.)

But the 1990s prove that Democrats have credibility for being situationally flexible.  When a recession ends, they spend more cautiously, remove the largesse, and start building up savings. In fact, had Bush continued the Clintonian policy of debt buy-down in good times, a considerable reserve fund would have been available to help us ride out the present crisis.

4) The experts -  professionals who have actually spent their lives studying this difficult field - generally despise Supply Side Economics. That may seem a good thing from the perspective of those who increasingly call expertise a disqualifying trait. From contempt for the Civil Service and the US Officer Corps to distrust of universities and the climate experts who have achieved miracles in weather forecasting, it's become clear that one side in our tragic, debilitating "culture war" does not want to hear the professionals on any matter, least of all economics.

.Economy5) In fact the situation is not entirely black and white! Keynsianism has had its failures. Economics is a dismal "science" and Demand-Side has many problems dealing with a complex economy.  Furthermore, pre-Clintonian Democrats sometimes acted as if the law of gravity did not apply. That potential always lurks on the left (witness Greece, today.) Moreover, Democrats did play some (lesser) role in the unleashing of our recent Asset Bubble.

Nevertheless, Keynsianism has a long, eighty-year record of being right in the most general sense.

Government should outspend its revenues in recession, directing high-velocity stimulus toward the middle class.  Then, in good times, it should use adequate revenues to build up reserves.  The Pharoahs knew this. It is even in the Biblical story of Joseph.  It is common sense.

What does not make sense is to hold fast to an alternative "voodoo" theory - Supply Side Economics - that has always and universally failed in every major prediction, after being tried repeatedly for three decades.

A theory that is quasi-Marxist, in that it openly aims to propel the rise of an all-powerful aristocracy of wealth in exactly the manner that Marx prophesied, taking us toward the sort of class divisions that had old Karl chortling and rubbing his hands, murmuring "Yessss!"

== Addendum November 2012  R.I.P. "supply side economics" ==

Only... in that context take this proof of what I've long held. The blatant fact that Supply Side economics has never been true. In a November 1 report we learn that that Senate Republicans applied pressure on the nonpartisan Congressional Research Service (CRS) in September to withdraw a report finding that lowering marginal tax rates for the wealthiest Americans had no effect on economic growth or job creation

"The pressure applied to the research service comes amid a broader Republican effort to raise questions about research and statistics that were once trusted as nonpartisan and apolitical," the Times reported. Democrats in Congress resurfaced the report. Republicans objected that it underminde the governing fiscal philosophy of the party, that tax cuts for the wealthy will spur growth and benefit everybody.

Changes over 65 years in the top marginal tax rate and the top capital gains rate do not correlate with economic growth. Reduction in top rates appears to be uncorrelated with saving, investment, and productivity growth. However, top rate reductions do associate with increasing divergence of national income going to the top 0.1%

This is important... and was always obvious.  Even in 1776 Adam Smith described what the rich actually do with sudden cash infusions. They put it to work in "passive rent seeking" and only rarely into capital equipment or risky new products and services. (Risk taking can be rewarded in other ways.) And that cash flow to the rich reduces the velocity of money. If there were ever a time not to do that, it is during a recession, when we want high money velocity, put cash in middle class pockets! (In fairness, during runaway inflation, largesse to the rich - reducing money velocity - actually makes some sense.) 

George H.W. Bush called Supply Side "voodoo economics. It was and is.

See more articles on The Economy: Past, Present and Future

141 comments:

Carl M. said...

How long have the Japanese been applying Keynesian stimulus to no avail? QED to you too.

And in what alternative universe was the Clinton era Keynesian??? Clinton was the last of the old southern Democrats; he was in the tradition of Andrew Jackson in many ways -- especially after he stopped listening to his wife after being clobbered in the midterm elections. He and Newt Gingrich -- another evil Southerner -- worked together to make balanced budgets happen.

And give the tinfoil hat crowd some credit. Perot is the guy who fostered interest in balanced budgets. I'm thinking about donning a tinfoil hat myself -- speaking of predictive power...

Robert said...

The problem is, Dr. Brin, that we owe such a large amount of money at this point that we very well may be tapped out. Probably the wisest thing Obama has done as President is insist that the banks are going to pay back what they owe (though he's being too conservative - he should be getting them to pay for the stimulus package as well as the bailout).

Naturally, this has caused tremendous squealing from bankers and other rich folk who feel they are about to be sodomized. And they are mobilizing people to try and shut down government. A recent article linked in your previous commentary talked about various Tea/Patriot parties forming with the notion of not only cutting taxes, but every single area of government, including eliminating Social Security in its entirety and having the Federal Government in charge only of the military. It's insanity and old-school libertarian thinking (and quite defective at that)... and it's obviously being pushed by people who didn't think things through or who don't want to think things through because it's easier to get rid of Big Government than to rein control of the megacorps that have seized so much of this nation.

Most of these Tea Party/Patriots obviously haven't studied history. There was a long run of boom/bust economic bubbles before the era of Big Government as envisioned by Roosevelt and his controls on business. Looking at history and at the recent past with what the banks did when controls were eased on them... and it's certain that if government was taken out of the equation and business was allowed to do what it wants carte blanche, that they'd say "#### Social Responsibility of Business, we're going to make as much money as possible before they wise up!" and then screw everyone every single way possible.

(This is, by the way, why I've shifted away from true Libertarianism and toward what I call "Social Libertarianism" - I feel the government should stay out of the lives of its citizens for the most part, but that it is needed to protect us from businesses, other nations, and religious groups that would screw us over unless something prevented that from happening. Maybe this is a cynical perspective of mine... but while I have a bit of trust for most of my fellow men and women... I do not trust private organizations that operate under the assumption of gaining as much power for themselves as they can. Heck, look at how businesses currently are situated... they can fire a long-time totally loyal employee without any reason given, but you are required to give advanced notice... and then they may try to find something in those two weeks so they can terminate your employment and screw you for references and the like.)

Robert A. Howard, Tangents Reviews

TCB said...

Supply-Side economics can be seen as simply a "fresh coat of paint" for feudalism. The poor and middle class wouldn't want to go back to feudalism because most of them would be peasants. So those who wish to "sell" feudalism must call it something else, as if it were somehow new and not the same thing at all.

The reason I call it a form of feudalism is that in a feudal society, taxes are something the peasants pay so that the aristocracy can spend money on castles, jewels and assorted finery, but also on military power that is used as much to put down peasant revolts as it is to defend against foreign intrusions. Also, feudal military forces are not citizen's militias but private armies: so one would have spoken of "The Earl of Shrewsbury's men," being that private army under the Earl's control. In a feudal world, most armies were private armies, not at all answerable to peasants. Blackwater/Xe represents a dangerous revival of this atavism.

Supply-Side economics is thus a challenge to all that is modern and democratic in governance, a challenge to the idea that taxation is meant to support a sturdy and honest central government that affords the common citizens the basic necessities of life and the amenities of civilization. Under a Supply-Side model, any boon to the commoners is due to the generosity of their "betters" who rule by divine right. Leona Helmsley earned notoriety for stating this principle baldly: "We don't pay taxes. Only the little people pay taxes."

Naum said...

Wow, David, one of your best posts here ever…

An absolutely spot on summary assessment of supply side v. demand side economics.

Further fleshing out could pose how U.S., in the shift from Keynesianism to monetarism, went from leading creditor to leading debtor, from leading exporter to heavy importing.

Need to get this in front of as many eyeballs as possible…

Brian said...

I agree with your assessment but have one question. Why doesn't the trickle-down theory hold up? I know the evidence is pretty clear that it doesn't, but I haven't seen a clear explanation of why not. Theoretically, the rich should either spend their extra money on luxury items which are built by companies that employ people that then spend their wages; or they should save their money which really amounts to investing in other businesses that can then grow and employ more people. But it clearly doesn't work that way.

I have two theories. One is that the money does cycle around but it mostly cycles among the rich, i.e. the proportion of wages that get paid out by increased spending is small.

The other is that we don't look at it from a global perspective - maybe a lot of that spending is ultimately trickling down to Asia, whose conditions obviously have improved during the sse craze.

Thoughts?

Brian

Tony Fisk said...

Interesting observation (I think, anyway):

Virtually all large scale manufacturing processes these days are based on the philosophies of 'just in time' (aka 'zero-inventory'). We've discussed the potential downsides of that in the past (eg brittleness), but it works spectacularly.

And this is most decidely demand-side.

Robert said...

One of the best things about fiction (and especially science fiction) is how it can bald-face reveal what is broken in society. Given the recent recall by Toyota and questions on why they waited so long... I present this old update of the scifi webcomic Freefall.

It's funny because it's true... and the fact that a conman - er, con-creature like Sam is stating that lawyers make him look good is telling.

Rob H.

David Brin said...

Robert, your version of libertarianism sounds like mine, from my long LP essay, in which I see government as a tool that does good as long as its general direction is toward producing generation after generation of more capable autonomous citizens. Hence state universities and federal research and school lunches and civil rights and environmental preservation are all right on and help push in the right direction, EVEN IF they seem short term paternalistic/patronizing/meddlesome. Many other govt "programs" do not propel us in that direction and are far less justifiable impositions.

Yes! Japan sure proved the Keynsians fallible! Priving that Kensianism is also culturally-dependent. Stimulating the middles class helps drive economic activity IF the people actually spend the money, instead of simply socking it away. Americans did this, but the Japanese have been uncooperative with government stimulation measures for two decades, refusing to spend.

TCB be careful. Yes, feudalism is the core impulse driving the anti-enlightenment putsch. But Supply Side is much more clearly a manifestation of Marx's prediction of an ever tightening oligarchy of bourgeoise wealth, moving toward BOTH "completion" of the formation of capital and the shattering of any enlightenment social contract, leaving the proletariat with no option but to rebel. Historically, Marx was wedged because he did not expect FDR to (1) force capitalism down fair-play channels and (2) to reinforce a social contract that co-opted a happy and fully vested working class. But Marx's scenario was actually pretty savvy. It would perhaps have played out if the "FDR phenomenon" had not sidestepped the matter for 80 years. It may happen yet. If the uber-rich are stupid.

Brian... the rich are somewhat satiable. In other words, most of them aren't interested is simply buying shit, hand over fist, as they are in BEING rich, at ever higher scales. If they bought endlessly, then it might trickle down. Instead, they invest... though seldom in innovative goods and services, as SSE expects. Rather, in rent-seeking. (Read Adam Smith about that.

CulturalEngineer said...

Agree!

And a very funny and true enumeration of the Right's cut taxes on the rich as the ideal solution for everything. It no doubt would also be their suggested plan of action for an impending meteor strike.

Though, for last years stimulus... and thinking outside normal parameters a bit... I'd probably favor direct transfers to the poor and middle-class of a dedicated currency specified for domestic-only products and services and/or commons-oriented functions.

Promoting high velocity energization of our own seriously underused social energy!

BCRion said...

Excellent article! In the comments, I think Dr. Brin hits a good point by saying the rich are typically satiated. The thing that stops wealth from flowing comes down to risk aversion. When one has a lot to lose, they tend to only make mostly safe bets. Indeed, the safest bets do not involve the building of capital or the production of goods, but rather manipulation of the system, aka rent seeking.

So yeah, Marx had a point with the end of capitalism, but for the wrong reason. Capital does not achieve an endpoint, rather those who drive it become lazy and stop pushing the envelope because that would risk their position of power. Of course, there is the equally bad situation where the populous as a whole becomes risk averse, as we see with Japan.

Satiation in many ways is an enemy of civilization, and an insidious one at that. The US, it seems, has, excepting some fits and starts like the internet boom, been largely satiated since the 1970s. During a period of satiation expansion stops, investment into institutions declines, and society plays it safe. Over time, this comfort causes a degradation of basic capabilities and understanding of how one got to that point in the first place.

The distrust of experts may indeed be from this phenomenon. The intellectuals tend to want to disrupt the status quo, to meddle. Little do the masses understand that this meddling led, a long time ago now, to much of what they now take for granted. For example, could we build an interstate system in today's culture? I highly doubt it. The opposition to "big government" would trump all arguments of its benefits that we barely even consider nowadays. Imagine if you had to take loosely connected backroads and state highways to get from New York to Denver.

As an aside to science fiction, we see this with the Spacers in Asimov's Robot series. The Spacers, once an adventurous and expansionist lot, had, by the time of Daneel Olivaw, eradicated disease, terraformed palnets, mastered space travel and genetics, and created an army of robotic servants so they could live in utter comfort. They stopped expanding not because they could not, but because they were satisfied and became risk averse. I can only hope the US does not go the way of the decadent Spacers.

Nacho said...

Roosevelt once said all he did was done "for fear of a revolution". He was a smart politician, that's for sure. I wonder, though, if we'll see Obama pursue such big employment schemes, public works, etc., without that "fear of a revolution" knocking the doors, which it isn't today. Though if this kind of plans don't appear, anger and desperation amongst the unemployed may force them finally.

What I don't understand is your point about Marx's idea of capital completion. What he did predict -correctly- was that wages would eventually get so far behind profits that there wouldn't be anything left to buy the goods this wages produced - ergo, a demand crisis. What happened after this was anyone's guess. How smart would the rich be to preserve their priviledge position in society by spending on the poor to stop an angry uprising? Well, Keynes and Roosevelt -as well as others in europe- were smart enough.

Ian said...

"How long have the Japanese been applying Keynesian stimulus to no avail? QED to you too."

Define "no avail".

Due to a combination of deflation (which boosts the value of savings) and a declining population, Japanese real per capita consumption has been growing continuously through the the last decade (prior to the GFC) despite static nominal GDP.

Your comments about Clinton only make sense if you buy into contemporary US demonising of Keynesianism as a far-left doctrine.

Essentially every US administration from the Roosevelt to Carter was Keynesian.

Ian said...

Robert: "The problem is, Dr. Brin, that we owe such a large amount of money at this point that we very well may be tapped out."

Unlikely on current projections, which strike me as overly pessimistic US debt to GDP will peak at around 100% of GDP.

Several European countries have demonstrated much higher debt can be supported for extended periods.

Ian said...

"I agree with your assessment but have one question. Why doesn't the trickle-down theory hold up? I know the evidence is pretty clear that it doesn't, but I haven't seen a clear explanation of why not."

It does, to some extent. But, for one thing, the rich are more likely both to invest overseas and to purchase imported products (and to spend money on overseas travel).

That money is pretty much a direct loss to the domestic economy (which admittedly may be offset in the long run by an income stream from foreign investments.)

TCB said...

Dr. Brin writes: "Yes, feudalism is the core impulse driving the anti-enlightenment putsch. But Supply Side is much more clearly a manifestation of Marx's prediction of an ever tightening oligarchy of bourgeoise wealth, moving toward BOTH "completion" of the formation of capital and the shattering of any enlightenment social contract, leaving the proletariat with no option but to rebel."

But that doesn't mean it was Marx's idea that the oligarchs should act this way, it was his diagnosis that they would. Marx was a brilliant diagnostician, but a lousy prescriber, if only because the medicine he prescribed was far from being perfected. My thinking is that the oligarchs believe they can make feudalism stick this time around because the peasants can't win against 21st Century weapons.

Which is why the oligarchs scare me ten times more than al Qaeda ever did.

Anonymous said...

A wealth circulation primer:
Household financial balance + Business financial balance + Government financial balance + foreign financial balance by definition must = 0.

Our experiment with SSE has depleted Household balances and replaced them with debt. The credit for this debt has largely been provided by our foreign trading partners to whom our Financial Services industry deemed it would be worthwhile to export all manufacturing.

Thus household balances and foreign balances are interconnected in a way that strips the local economy of demand. This leaves Government and Business to pay for the debt. Therefore if you want the Government to be fiscally neutral or positive you are insisting that Business will bear the full brunt of rebalancing the economy. How Business will do this without Household demand has never been explained.

BCRion said...

"Household financial balance + Business financial balance + Government financial balance + foreign financial balance by definition must = 0."

I suppose this depends on how one defines "financial balance", but this assumes that there can be no value added, wealth must be taken from somewhere. If memory serves, and correct me if I'm wrong, this is the sort of thinking espoused by Marx. On face, this idea is laughable. For this to be true, the overall wealth of the world is the same as it was in the bronze age.

Wealth can be gained or lost from a system. The investment of human effort into growing crops, mining metals, harvesting energy from various sources, and fabricating completed goods from raw materials are examples of things that add wealth. Likewise, wealth is reduced through natural attrition and the destruction of goods through natural or manmade causes.

Now, what you say is totally true in a system that is pure rent-seeking. Sadly, the US system has been growing in that respect and less so in the production of goods itself.

BCRion said...

More evidence of the pure madness of the previous administration arises. Legal advisor to the Bush administration John Yoo claimed that the president's wartime power has the right, in time of war, to nullify all laws by Congress and may even be used to "exterminate" a village.

This line of reasoning has no logical limit as any action can be justified so long as we are at some nebulously defined war. What stops the president from using his wartime powers to "exterminate" his critics when no laws or Constitutional protections apply?

You want a return to feudalism? Here's you're philosophy. Scary. Truly scary.

LarryHart said...


I have two theories. One is that the money does cycle around but it mostly cycles among the rich, i.e. the proportion of wages that get paid out by increased spending is small.


I have no training or expertise in economics, so caveat emptor. But my personal take is that it make more sense if you think of money as something that naturally trickes UP rather than down. Instead of envisioning money as water (which does work as it trickles downward), try envisionig it as the heat inside your oven (which does its work as it rises from the burners through the food).

Thus, if you infuse cash at the BOTTOM of the cycle, it eventually "trickles up" to the rich people and companies anyway, but does "work" in the process of getting there. If you infuse cash at the top of the cycle, it just circulates around between rich entities and never does anything tangible to the rest of the cycle.

Ilithi Dragon said...

From what I can tell (hopping on to Larry's caveat emptor here, of course), is that when you give money to people who have a lot of it, it doesn't circulate through the economy, but either ends up adding to their existing large (and stationary) stockpile of money, or if it does circulate, ends up going through a small circulation in the industries that cater specifically to the well-to-do, which represent only a small percentage of the economy as a whole (where you pay $120 for a lump of gold-flecked chocolate that cost probably less than a dollar to make).

In theory, if all that money were re-invested in companies, and increasing supply, and providing innovative goods and services, it would work, to a degree - you can have all the supply of and innovation in a product or service you want, but if there is no demand for that product or service, you're still SOL. The problem is two-fold. The biggest problem is that the majority of that money is NOT going to be re-invested into supply and innovation by the majority who get it (or rather, the majority of the few people who have control over what's done with the money received). The majority of those people are either going to vote themselves big pay raises and bonuses, spend it instead on ultra-high-risk/ultra-high-reward investment "schemes" (aka scams), or spend it on 'safe-bet' rent-seeking that produces a net decrease in circulation of funds. The other problem is, as I already said, even when the money IS invested in supply and innovation, there is no guarantee that there will be demand for that supply and innovation, as just having a supply of a product or service, however innovative, does not guarantee a demand for it, or that people will be able to buy it even if they do need or want it.

When you give that money instead to the lower- and middle-class sections of society, preferably in the form of projects that provide extended employment while also building infrastructure, cultivating resources, etc., you are getting the most circulation of funds for your money, because the money spent by the lower-class and middle-class is going to circulate much further, much faster than the money spent by the richest 0.5% - 1%. It also gives power to the lower- and middle-classes, which are the main driving force behind demand, increasing the demand for various products, which allow the money to trickle up through the various companies, and give them incentive to find ways to provide better products faster and cheaper.

Larry's analogy of heat rising through an oven instead is pretty good, and much more accurate than the image of water trickling down that is often applied.

David Brin said...

Interesting!

"Most now agree that the cold decades from the 1940s to 1970s had little to do with either anthropogenic pollution or planetary wobbles. The mid-century cooling, Bryson now agrees, was associated with the eruptions of a cluster of medium-sized volcanoes that pumped sunlight-scattering sulphate aerosols into the upper air."

http://www.newscientist.com/article/mg19225822.300-the-ice-age-that-never-was.html?page=2

Ian Gould said...

David, you might want to add a section on the empirical results of Keynesian policies under Bush 41 and Clinton.

Increasing taxes had the exact opposite results to what the advocates of supply side economics would have predicted: the economy expanded; unemployment fell; interest rates fell; investment boomed and there was a sharp increase in the stock market.

When asked to explain this, most D-siders will claim the boom was the result of Reagan era policies. These same peopel will try and blame the 87 stock market crash on Carter (seriously).

funnily enough the believe the recovery from the (unusually mild) recession of 2001 was entirely due to the contemporaneous tax cuts.

This is not economics, this is a series of moral fables where every economic success is the result of the last Republican President's actions and every economic failure is the result of the last Democratic President's actions.

I lookk forward to a discussion a few years from now about how Clinton caused the Global Finnacial Crisis and how the current recovery is the result of Bush-era policies.

That or once Obama has left office his "tax cuts for 95% of American tax payers" will get the credit.

Which brings me to one quibble with your essay David - as I've pointed out here before - Kennedy cut nominal tax rates but at the same time greatly expanded the tax base and introduced the alternative minimum tax. This resulted in an increase in the effective tax rate paid by the richest Americans.

At the time, this was denounced as - you guessed it - the introduction of socialism by stealth and the harbinger of a massive economic collapse.

It took Kennedy's assassination and the economic boom of the 1960's to convince the mainstream right otherwise. They then immediately started rewriting a redistributive tax increase that increased taxes on the rich substantially as a massive stimulatory tax cut.

For a group who like to talk about personal responsibility, they seem somewhat adverse to accepting it.

Carl M. said...

Ian,I do not consider Keynesianism to be far left. It is reversion to the Old Order: subsidies to the rich and alms/welfare to the poor.

As David pointed out correctly, you can have left-wing/dirigiste government that is anti-Keynesian, such as the old Soviet Union, or you can have right-wing Republicans taking the Keynsian Kool-Aid.

The Clinton year policies should have caused economic slowdown or even contraction according to Keynesian doctrine. He raised taxes and fired government employees. I salute many of Clintons policies. I salute them because they were anti-Keynesian.

As for supply-side: Clinton did not raise taxes on the rich to pre-Reagan levels. They were at 70 effing percent! Reagan pulled taxes on the upper classes below the Laffer Curve maximum. Clinton probably came as close to the Laffer Maximum as possible.

Believe it or not, I actually favor some tax increases currently, especially on capital gains. Were I king, capital gains would be taxed at exactly the same rate as ordinary income. The distinction is artificial, especially when distinguishing capital gains from dividends or interest.

I, like Perot and the tin foil hat league, believe in balanced budgets except in time of major war. Deficit spending is regressive.

BCRion said...

"The Clinton year policies should have caused economic slowdown or even contraction according to Keynesian doctrine."

While I am not an economist, I can tell you from my readings in the area that this is not the case. You may have a superficial understanding of the Keynesian school of thought. Keynesian economics says that large government spending should be applied during times of persistent, high-unemployment. The 1990s was hardly like that and therefore would not apply.

Tony Fisk said...

The mid-century cooling, Bryson now agrees, was associated with the eruptions of a cluster of medium-sized volcanoes that pumped sunlight-scattering sulphate aerosols into the upper air.

Interesting. Flannery (in 'The Weathermakers', 2005) ascribes it to aerosols from pollutants (even pondering, after a trip to polluted cities in China whether the demise of spittoons had more to do with improving air quality than improving personal hygiene!).

He also writes:

"The 1991 eruption of Mt. Pinatubo in the Philippines offered an exceptional test of the new global circulation model's capacity to predict the influence of aerosols. It ejected 20 million tonnes of sulphur dioxide into the atmosphere, and a group led by NASA scientist James Hansen forecast that the result would be around 0.3 degrees of global cooling - and this figure is *exactly* what was seen in the real world."

smscle: a texting based language which has discarded all vowels for greater compactness

Tony Fisk said...

... and, just to show I can talk about things other than the weather:

Dolphins have diabetes 'off' switch (interesting discussion of similarities between dolphin and human biochemistries due to brain-size)

Ian Gould said...

"Ian,I do not consider Keynesianism to be far left. It is reversion to the Old Order: subsidies to the rich and alms/welfare to the poor."

I'm sure the entire economics profession will revise their thinking in line with your latest proclamation.

You might want to ask yourself why a policy you describe as "subsidies to the rich" has almost universally been opposed by the rich.

Ian Gould said...

"The Clinton year policies should have caused economic slowdown or even contraction according to Keynesian doctrine. He raised taxes and fired government employees. I salute many of Clintons policies. I salute them because they were anti-Keynesian."

Actually, raising taxes and cuttign government expenditure during an economic expansion is EXACTLY what Keynes recommended.

It's how you pay for the expansionary measures during a recession without running up excessive levels of public debt.

Tony Blair effectively summarised Keynesianism early in his premiership: no net increase in GDP as a percentage of GDP over the course of a full economic cycle.

Catfish N. Cod said...

@Anonymous: Household financial balance + Business financial balance + Government financial balance + foreign financial balance by definition must = 0.

This equation is true at any one moment. It is not true over any period of time: wealth is created as resources are collected, discoveries are made, manufactures are performed, and services are rendered. The money supply expands over time, as well. The method of money supply expansion varies and may or may not track well to wealth creation. In a gold standard, full-reserve economy, money supply expansion occurs via business, i.e., gold mining. In the Federal Reserve system, money supply expansion occurs as a result of Fed Open Market Committee actions (interest rate setting, buying and selling of Treasuries, and outright digital press-running). The Fed does its best to correlate money supply expansion to wealth creation.

How Business will [pay off our debt] without Household demand has never been explained.

Here's an original idea. Maybe we could try exports? Do you think a positive trade balance might help?

China has been sucking wealth from all over the world because they have pursued a horrendously aggressive export policy -- so horrendous, in fact, that they are now backpedaling furiously to create domestic demand. We're not selling enough overseas to pay for the debt we have sold off and the imports we have bought. So we need to import less, export more, and make money. Why is this complicated?

Ian Gould said...

"Here's an original idea. Maybe we could try exports? Do you think a positive trade balance might help?"

why would you.

It hasn't helped Japan.

And persistent trade deficits haven't seemed to harm Australia much.

Here's another "accounting identity" for you: current and capital accounts sum to zero.

Countries running a current account surplus by definition must be running a capital account deficit (i.e. they're bringing in more capital than they're exporting). Countries running a current account deficit need to improt capital to do this.

The US does this and has done this fo decades by selling more of its assets to foreigners than its purchases of foreign assets.

Since as you correctly point out, the capital stock is not constant but grows over time this is entirely sustainable so long as the growth in the capital stock exceeds the increase in foreign holdings.

The reason the US has been able to do this is that it remains the most dynamic and efficient major capitalist economy in the world (and one in which the returns are more heavily weighted than average to the owners of financial capital as opposed to the owners of human capital). US investments remain highly attractive to foreign investors which allows the US to finance its current account deficit.

Australia is in a similar situation
but our capacity to attract capital relies primarily on the supernormal profits generated by our resoruce sector.

Tony Fisk said...

Sorry, but here's another off-topic tidbit (with amusing overtones for Uplift afficionados)

Singing rewires the brain

Ian Gould said...

A quick off-topic question for the assembled brains trust.

First some background

In most of the developed world, early-term abortion is legal and politically noncontroversial. There's a substantial minority of the population who believe the practice is sinful or oppose it on other moral grounds.

Many of the same people, have similar beliefs about adultery, in neither case do many of these people feel obligated to seek to make the practice unlawful.

The members of the anti-abortion minority are generally spread across the political spectrum and on those occasions when there's an attempt to change the law its relatively common to see leftists voting to restrict abortion and rightists voting to keep it legal.

Now the question: why is the US different in this regard as in so many others?

How and why did abortion become not only a largely partisan issue but for many on the right the overriding all-important partisan issue?

(Please note that I am not interested here in discussing the morality of abortion, simply in discussing its different political role in the US. If you do wish to discuss the morality of abortion you are, of course, free to do so but I may choose not to respond)

Tony Fisk said...

It's a puzzle, Ian. Whatever memic virus it is that's taken root in the US seems strangely specific to the US. It's not that you *don't* get kooks cropping up in other nations like Australia (hey.. Abbott!!? Sorry, a cheap shot I couldn't resist!) but they don't seem to project any great influence... or be organised.
Well, all right, Pauline Hanson's wagon went a ways before the wheels came off

===

More off-topic (you can tell I'm into economics!)

The decline in moral standards continues:
Saudi women to be allowed to argue cases in court

cideri: Apple marketing division: Somerset branch

Ian Gould said...

"Well, all right, Pauline Hanson's wagon went a ways before the wheels came off"

Australians have their own specific phobias and quirks, Hanson tapped into a couple of those: anti-immigrant fears (see White Australia) and anti-aboriginal fear ( based on the deep-down knowledge that pretty much all private land in Australia is in effect stolen property).

Living in Queensland I saw One Nation operating up-close and personal (picketed their meetings, got used to being tailed home afterwards). to the best of m recollection they never even mentioned abortion even though.

Carl M. said...

@Ian again: since economics is primarily an observational science, quackery such as Keynesianism can persist. (Climate science has the same problem, which is why I don't consider scientific consensus to be definitive.)

BTW, my position on deficit spending being regressive comes from reading Adam Smith. As capital accumulates, the price should go down, which over time raises wages and lowers consumer prices. Keynes' prescriptions foil this natural progression; they try to keep us in that early capitalist stage where we have more investment opportunities than savings.

And it's not government investment per se that leads to economic stimulus. It's government investment funded by deficits.

As for the Right opposing Keynes: the tinfoil hat Right does, as do all those follow Mises and Hayek. The Republican Party has been Keynesian ever since Reagan failed to reign in spending.

---

Finally, regarding abortion: Nixon was pro choice on the matter. During the late 1970s the Republican Party got religion in order to have some blue-collar members of its coalition. Thus, the culture war.

The current Democratic Party majority comes from the Dems backing off a bit on the issue and electing some pro-life "blue dogs."

David said...

Wonderful comments (for the most part) to a wonderful blog post; thank you David, and thank you all. Just one little quibble: Kennedy's tax cuts, however they were construed at the time and after - they put US on the road to perdition. When Reagan (perhaps, yes, with the Kennedy cuts as 'permission granted')doubled down on Kennedy's cuts, we absolutely deregulated greed in this country and have never recovered an iota of moral sense in our economics.

LarryHart said...


Larry's analogy of heat rising through an oven instead is pretty good, and much more accurate than the image of water trickling down that is often applied.


Mindful as I am that a stopped clock is right twice a day, I think I may be right about this one. The more I think about it, the more sense it makes.

The operative question is, in which direction does wealth flow naturally (doing useful work along the way), and in which direction does work have to be done TO it to get it to flow?

"Trickle-down" supply side economics presumes that money infused at the top will spill downward, doing its work as it falls into pools at the bottom. My own hypothesis is that money tends rather to "float" TO the top of the cycle, doing its useful work on the way up. Either theory predicts that a wealth-infusion pays off increased wealth (for the rich) and with with jobs and subsequend demand (for the not-as-rich).

In both cases, the "increased weatlth (for the rich)" part seems to hold, but only in the "trickle-up" version do we see the actual work done through the rest of the system.

The reason is self-evident in hindsight. "Money goes to money." To get it to pass through the entire system rather than to stay where you put it, you have to infuse the wealth at the BOTTOM, not at the top.

David Brin said...

David, 92% marginal tax rates were just plain stupid and morally indefensible. All they did was propel cheating. When Kennedy slashed those top rates, he also imposed the Alternate Minimum Tax. As a result, MORE of the rich paid taxes than before ... but fewer ran away to tax havens.

It's not Kennedy's fault that others later took it too far.


Carl, your history is a bit off. All the ancient kingdoms knew to buy and store grain in surplus years and release it during lean ones. At the most fundamental level... that is Keynsianism. Moreover, that is best done by an entity that is impartial and paid to think long-term. Hence government. You know I share the dream of gov't gradually withering away from many areas of paternalistic meddling. But it IS the group that we pay to think long term.

Ian, I doubt efforts to criminalize adultery will go very far. The regions in the US where sanctimony about this is greatest are also the regions where actual practice of adultery is most prevalent.

The standard practice is "sin then repent and be forgiven, if you are like us and on our side. This convention becomes more difficult if some smartypants district attorney who was trained at a blue university starts getting involved,ignoring your sobs of contrition and demanding lawful sentencing according to actual facts.

David Brin said...

Re: abortion, I have earlier made clear my diagnosis of why abortion became a right-wing obsession. Just look at any image of Jesus of Nazareth for a minute or two and think about his words. The guy is a flat-out, blatant, no reservations hippie, and a socialist at that. This clear fact presented a horrific problem to the right. Pick any issue, and Jesus comes down with those goll-durn liberals! Civil rights? Taxation? Entitlements? Emphasis on the poor over the rich, who must pass through the eye of a needle to get into heaven?

Conservatives were reduced to saying "but we live in a real world and our program is more practical, it helps capitalism to grow the economy and create more wealth, so that a rising tide lifts all boats!"

That would be a cogent and persuasive argument... if it weren't flawed in an important way. Yes, I agree that capitalism is necessary to create wealth that then lifts all boats, including the poor. Speaking as a true and bona fide believer in competitive enterprise, I gladly avow that market competition can generate the cornucopia that feeds both charity and tax revenues to do all the generous "Jesus things."

Alas, the cockeyed wrong part of that older conservative mantra was "our program is more practical and helps capitalism." In fact, as my Supply Side Primer shows, their economic program was little more than voodoo and an ill-disguised exercise in outright theft. Every economic statistic of the last 50 years shows that classic liberalism, as envisioned by Adam Smith, is generally better implemented by democrats than republicans, with far better ensuing results.

But that's beside the main point, which is the "Jesus Factor." Because, even if the conservative program had been better economics, better for markets, better pragmatics, better for long-term success (again: it wasn't) -- you still had the galling problem that Jesus would still be a democrat, siding with the lib'ruls, like the hippie that he clearly was.

What the right needed was a single issue that would tip Jesus over to their side. Something simple, on-off, up-down, totally obligatory and decisive, so that he'd be a Republican, even if he held his nose over every other GOP policy. And they found just such an issue. Murdering babies. All you have to do is define fetuses -- even early embryos -- as "babies" and you had your Jesus Switch. At least to your side's satisfaction, which is all that matters.

Put aside any thought of taking care of all the extra unwanted babies. And put aside the fact that your policies actually increase the total number of abortions. It isn't about numbers. It is whether the other side is a bunch of baby-killers.

Anonymous said...

Ian said, "It does, to some extent. But, for one thing, the rich are more likely both to invest overseas and to purchase imported products (and to spend money on overseas travel)."

Why is it always so attractive to the rich to invest in countries and businesses other than their own? Many of our multi-billionaire families have their money tied up overseas, yet the Chinese and other countries are buying up our own debt in whacking great chunks (whether they feel now that it is a good investment remains to be seen). Some of it is probably attributable to the tax dodges that can be played if you don't live in the same place you invest, but the rest is a mystery to me. Rich investor seem to internationally have their hands in each other pockets around the world.

TheMadLibrarian (still unable to log in)

weekswot: what management gives you if you ask to use vacation time when the shop is busy

SteveO said...

On the global warming topic...

I write a monthly column dealing with business and statistical topics. One month, I was interested in writing an article using historical temperature data from Boulder, near where I live.

This taught me two things. First, all the data that any skeptic would want to analyze is out there. Of course, you may not have the analytical ability to do anything with it. That is where I come in as an educator. :)

Second, I don't know of anyone else who has used a cumulative sum chart to show temperature changes, but once you learn to read them, it makes it REAL obvious what is going on.

If you are interested, here is the article about cumulative sum charts.

The article shows you the traditional way of displaying the data (a line chart through time). The yearly variation makes it really hard to see subtle shifts in climate. (Most researchers therefore use some sort of a moving average, which will obscure and lag changes...) Then I show the cusum, which is the cumulative sum from some target. (I used the average temperature from 1893 to 1900.) The article also tells you how to read that chart.

A cusum chart makes the cooling from 1960 to 1985 really really obvious, as is the huge warming from 1933 to 1957 and the even huger (!!!) warming starting in 1993 and persisting to today.

Dr. Brin, if any of your climatologist friends might find this interesting, let me know.

Corey said...

SteveO, you might be onto something as far as presentation of data, at least as far as giving a good additional method to show what's going on, but while I'm sure you're fully aware of this, I would just remind you of the difference between localized climate and global climate.

It's really hard to say what Boulder will do over the next 50 years or so. *IF* the AGW theory is correct, not just about our influence, but about the amount of climate sensitivity to various forcings an feedbacks, it wouldn't be unreasonable to assume some amount of overall warming (and actually, Boulder follows a trend that's not far from the global trend, even if the cooling period is offset by about 10 years), but it's hard to say exactly what local variability will do there.

That's also a problem with historical data before the 1850s or so. Proxy data can be subject to local variability (especially when looking at ice cores, which only give antarctic temperatures). It makes sense that on large time scales, localized climate will more or less match global climate, but it would certain affect resolution when trying to get an idea of smaller time frames.

Corey said...

David Brin said...
"All you have to do is define fetuses -- even early embryos -- as "babies" and you had your Jesus Switch. At least to your side's satisfaction, which is all that matters."

Well keep in mind too, that this really helped tip a big part of the historical democratic base to the GOP's favor, so it wasn't just about convincing themselves that they deserve a pat on the back.

Practicing Catholics were actually very solidly democratic only a few decades ago, and, as I said, were actually a significant part of the Democratic base (because Jesus WAS a socialist Hippie). In the 1960s/1970s, it also wasn't an issue with Abortion, because pro-life stances were really the LIBERAL position. To quote Ted Kennedy from a private letter: "While the deep concern of a mother carrying an unwanted child merits consideration and sympathy, it is my belief that the institution of abortion on demand is not consistent with the value our civilization places on human life".

Of course, certain interests gained precedence in sectors of the democratic base (propelled, perhaps in part, by the free sex movement), the politicians acquiesced to keep their jobs, and the GOP, being the politically smart group that they've always been, capitalized on it hard core and made it a center pillar of their set of issues (though one they only trot out at election time).

Now, thirty years later, we're here.

Ian Gould said...

"Why is it always so attractive to the rich to invest in countries and businesses other than their own? Many of our multi-billionaire families have their money tied up overseas, yet the Chinese and other countries are buying up our own debt in whacking great chunks (whether they feel now that it is a good investment remains to be seen). Some of it is probably attributable to the tax dodges that can be played if you don't live in the same place you invest, but the rest is a mystery to me. Rich investor seem to internationally have their hands in each other pockets around the world."

There's two basic reasons:

1. Diversification

Imagine, for example, a major US or UK investor who only invested in their home sharemarkets.

At the peak of the GFC (Global financial Crisis) they woul have lost soemthing like 40% of their capital.

Spreading the same money across say the top 10 bourses might have limited that to 10 or 20%.

2. The other is monopoly restrictions in their home markets.

Rupert Murdoch originally invested in the US and UK because the already owned one of the three boradcast TV networks here in Australia and roughly half the daily newspapers with the other half being owned by his rivals the Fairfax family.

There just weren't a lot of media asse3ts left in Australia for him to buy.

(His great rival, Kerry Packer, who owned another broadcast network and a majority of Australia's magazine market, chose to diversify primarily within Australia putting money into coal mines; cotton and beef farming and gaming. But even Kerry had significant offshore holdings in film and casinoes.)

David said...

M Brin, I still take exception to your defense of the Kennedy tax cuts. A story: In 1959, a local businessman came to my high-school social studies class to talk about being in the grain business (almost entirely wheat in my part of Oklhoma) and despite the fact that he handled over $15M of locally grown wheat per year at his elevator he was vexed because he was still not a millionaire. Later, when he became a millionaire, he spent his wealth traveling back and forth to Washington DC trying to influence Bob Kerr and others to reduce taxes further - and to South America where he preyed on child prostitutes. When he died he had squandered everything; his widow was bankrupt, lost their house in foreclosure, and was lucky to have a daughter, married to my best friend, to take her in.

You are absolutely wrong - 92% marginal tax rates are neither stupid nor morally indefensible. What was needed in 1963 was not a reduction in the rate but indexing annually for inflation. By my quick calculation we would now have the 92% rate on incomes over $13M. As someone noted in these comments it has been the periods of high taxation which have also been the periods of US's greatest periods of prosperity. The tax haven problem is still with us and can be solved as easily as tax cheating - but it takes the political will to do it.

Your dissection of the Jesus/abortion/political re-alignment issue is extremely compelling - brilliant really.

LarryHart said...


I lookk forward to a discussion a few years from now about how Clinton caused the Global Finnacial Crisis and how the current recovery is the result of Bush-era policies


I've already heard from conservatives who think that the bubbles of 2001-2006 were boom times, whose downfall came when the DEMOCRATS took over congress.

LarryHart said...

Carl M:

Believe it or not, I actually favor some tax increases currently, especially on capital gains. Were I king, capital gains would be taxed at exactly the same rate as ordinary income. The distinction is artificial, especially when distinguishing capital gains from dividends or interest.


Well, I have to agree 100% with THAT statement. I'm still waiting for an answer to the question I posed here a long time ago as to what rationale there IS for treating those types of income as separate for tax purposes.

The past several years though--does it really matter what the tax rate is on capital gains? Who is showing capital gains at all? I've joked to my wife that I wish they'd increase the capital gains tax rate so that our LOSSES would be worth more.

Robert said...

The latest Denier Bullshit coming out is that climate data is unreliable because it's recording localized heat effects from urbanization. In short, all of the data showing global warming is in fact showing heat islands caused by urbanization instead of carbon dioxide increases.

Also, the Deniers have one last massive weapon they are using: weather. While weather doesn't equal climate, plenty of people see us having several cold days, a lot of snowy days, and shiver and say "global warming is a farce!"

I seriously wonder what the Deniers will do when hydrogen sulfide starts bubbling up out of the oceans and killing island inhabitants and coastal towns. Will they claim it's God's Work, striking down the heathen sinners? Or will they blindly accept it's just a natural cycle (ie, mass extinctions) and that there's nothing we can do about it.

Rob H.

Tim H. said...

I wouldn't describe the heat island effect as "The latest denier bullshit", skeptics have been talking about that one for a long time. We will probably keep hearing about it until NOAA gets funding (If they even want it.) to relocate reporting stations away from immense acreages of pavement and air conditioning units.

Ilithi Dragon said...

Tim, I believe Corey noted on here that NOAA was actually in the process of doing that, or had the plans in place/scheduled to start that project, with the data expected to be available within the next couple years.

Or maybe he mentioned in a conversation... Er, no, it was on another forum.

Anyway, it's a new network that they're commissioning that will include 100 observation stations positioned far enough away from urban areas to make urban heat island effects a non-issue for a very long time. It's called the US Climate Reference Network. http://www.ncdc.noaa.gov/crn/

Corey said...

Well what's more, the urban heat island effect, while very real as a phenomenon, has also had no appreciable effect on temperature records for ages, because it's long been corrected for in the data.

The claim that the UHI taints data despite the efforts to correct for it has also been tested thoroughly, but to no avail as far as finding a problem (explained Here and Here)

SteveO said...

Corey,

Oh yes, I am fully well aware of the difference between global and local climate. I was writing an article about the tool (cusum) in a way I hoped would interest people, while specifically staying away from making any assertion about global climate. Not my area of expertise.

BUT, that said, of course a few people went nutso anyway, which I found intriguing. The audience was people in quality control in business, right? So I asked them, "If you saw the exact same data on a machine at your business, would you adjust the machine because it was shifting up off of target?"

Well the undeniable answer was, "Yes," since that is what they do every day. But once those data are said to be temperatures in Boulder, the rules change and all sorts of talking points get thrown out.

And I was thinking to myself, "Geez, if we had this many excuses in business to not react when we see data that indicates we should, we wouldn't be in business."

So this isn't a predictive model or anything, it is only enumerative of what has happened in the past. But a basic premise for how we run processes in business is that if a change is happening and we don't understand why, it will keep happening unless we do something about it. Sure we might be wrong (alpha error) but we can't bet that way. Hoping that something else will come along and fix our process in the face of data like these IN BUSINESS would be seriously deranged and a very expensive mistake to make...which is why I don't need an exact mathematical model about a business process in order to know when it is time to react versus leave a process alone. Similarly, it is why I don't need an exact prediction about Boulder, CO from a model to conclude reaction is called for, given the large price for being wrong (and as our esteemed host has said, when the actions are things we should be doing anyway).

So the question I had for the people I was corresponding with was, "Should we look at these data and react AS IF the temperature in Boulder will keep increasing (with predictive models backing up a call to action) or should we bet on some unexplained and heretofore unobserved effect that will damp it back down?"

...and they went with the second option every time. Which I KNOW they would not do for a process making $0.01 parts.

This taught me a very valuable lesson about selection bias as applied to statistical tools - given the exact same data on their process, they would conclude a shift up had occurred, while on Boulder temperature it "didn't prove anything."

Ian said...

"I'm still waiting for an answer to the question I posed here a long time ago as to what rationale there IS for treating those types of income as separate for tax purposes."

The investment activities which generate capital gains are innately higher risk than, say, buying government bonds.

If you want people to engage in those activities (like,say, building rental housing or financing high-tech start-ups) there has to be some recognition of that.

There are other ways to do that (like allowing the sale or carry-forward of capital losses or allowing such losses to be offset against other income) but the most common approach is to tax them at a lower rate.

It's worth noting that Australia experimented with taxing capital gains at the full marginal tax rate back in the 1980's. The result was a sharp decline in housing investment, business investment generally and in R&D.

SteveO said...

OK, business geek time...

On "just in time" = more brittleness...

Spot on if done incorrectly.

But it actually does just the opposite - it builds a more robust system - if done correctly.

This is contra-intuitive, I know, but that is because businesses in the US hear "just in time" but they usually implement it brainlessly.

When done correctly, a JIT system highlights the problems in the process. I tell my students it is like lowering the water to see the rocks.

At this point, you can either a) fix the problems so that the process is actually more robust to unanticipated occurrences, or b) hope that nothing bad happens. Oddly (to my way of thinking) most US businesses choose the latter.

The real benefit of JIT is that it makes it painfully obvious when we have a process that is broken where this fact was previously hidden by the sloppiness of "economies of scale" and work in progress.

If properly implemented, JIT will result in a much faster response time to a customer inquiry. True example: in the US it will take about six months to start manufacture of a new electronic engine control module. Nippondenso can do it in 24 hours.

So you can leave with the impression that Nippondenso is "more brittle" if one of their suppliers' plants burns down and their production comes to a screeching halt for a month while they join forces with their supplier to find another way to get what they need.

But you would still get that part five months before the US manufacturer with lots of work in progress and multiple suppliers.

So which system is more brittle, really?

Carl M. said...

@David. Keynes was game to balance budgets etc. when the economy was overheating. That's how you "cool it down" supposedly. The economy kept growing when Clinton pursued sound fiscal policy, because as Clinton noted, money not borrowed by the government can be borrowed by homeowners, businesses, etc. Keynes is crap. See this video:

http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded

(It's short and entertaining.)

@Ian:

The rationale for lower rates on capital gains is that gains include inflation. Thus, you can pay taxes even with a negative real gain. Capital gains taxes are property taxes.


But that is also true for dollar denominated income instruments -- bank accounts, CDs, dividend yielding stocks, etc. If inflation times capital gains rate is greater than real interest rate, then tax exceeds 100%. The same logic that applies to capital gains applies to any investment income.

My preference: cut inflation. And if it were practical/constitutional, I'd ditch income taxes altogether in favor of a combination of consumption and property taxes.

Francois said...

Speaking for France, the Pro-life movement is strictly right wing, very much associated with traditional Catholics and anti-Europeanism. The Center right and Left-leaning catholic accept abortion as a lesser evil (After all abortion was legalized by President V. Giscard-D'Estaing center right government, against the moral objection of his Prime Minister J. Chirac) and the further to the left the more Pro-choice.
The main difference with the US is that something like 75% to 80% of the population consider the debate closed and law satisfying as-is.

Tony Fisk said...

JIT enhances production efficiency, but isn't resilient to hard knocks: particularly to supply lines, or to sudden surges in demand.

What risk might affect global supply lines? I was hard pressed to think of one when we last covered this topic, but there is one astronomical event that has a significant chance of skittling a modern civilisation: a massive solar flare such as the one observed in the 1860s (the so-called 'Carrington Event') If that were to occur today without warning, the currents induced in transmission lines would blow most transformers in the US power grid. Estimated time of repair? 1-2 years.

Contemplate the prospect of large areas of a highly JIT-dependent US (or *any* developed country) without power for 1-2 years.

(Before you start gibbering too much, there *is* a space probe in a position to give sufficient warning of such an event to allow power station to shut down safely. The bad news is that there's only one, and it's coming up for retirement!)

====

Whilst I'm on happy topics, if anyone goes back to the comments a couple of posts back, they will see Corey getting lambasted as an AGW alarmist scam artist, or words to that effect. The attacker concerned had certain sad elements (or, perhaps, lack of elements?) in common with the Black Knight.

So spare a thought for the more organised and concentrated brand of vitriol being directed at climate scientists who dare comment in public these days. I await Hamilton's next instalment concerning who's doing the bullying with interest. (I suspect a few botnet sock puppets are involved. That's certainly the impression I got on the 350 site)

They ignored, then laughed, and now fight.

LarryHart said...

Ian said of lower capital gains rates:

If you want people to engage in those activities (like,say, building rental housing or financing high-tech start-ups) there has to be some recognition of that.


That does make a certain amount of sense, so thanks for the first good answer I've ever heard to the question. However, it seems to me this incentive is a rather blunt instrument being applied to what should be a much more surgical one. See below, but first...you also said:


The investment activities which generate capital gains are innately higher risk than, say, buying government bonds.


But...but...a low capital gains rate applies equally to BOTH of those things, so how does it incentivize one over the other?

That's really the gist of my lack of comprehension. The guy who builds a factory or uses his life savings to start a small business does indeed get to pay less tax on his (eventual) profit, but so does the day-trader or the money manager who does nothing for the economy at large but profits from the issuing of "buy" and "sell" orders on his PC.

Meanwhile, in a sort of outdated 1890s model of the economy, employees who actually do work for their pay are taxed at a higher rate, I presume because their income is "safe" as opposed to the "risk" involved in investment. But that so-called "safe" salary can be relocated to Cheaplaborstan at an employer's whim, and we've seen all too often how ephermeral is a pension a worker might expect at the end of a long working life. To me, working for a living is a much greater (long-term) risk than the modern version of "investing" is.

LarryHart said...

Carl M:

The rationale for lower rates on capital gains is that gains include inflation. Thus, you can pay taxes even with a negative real gain.


But...but...that sounds good at first blush, but upon further examination makes very little sense (to me). Consider...

What you SEEM to be saying is that there's no incentive to invest if your gains are less than inflation. Here's what it sounds to me like you're saying (correct me where I am wrong). "If I'm going to have to pay taxes on my investment gains that don't even keep up with inflation, then I might as well keep the cash in my mattress and pay zero taxes."

But keeping the money in your mattress isn't a hedge against inflation. It puts you even further behind. The incentive to invest isn't to keep up with inflation, but to have more money than you would have without investing. The increase (whether it keeps up with inflation or not) is profit, and profit is what is taxed.

Another poster made a somewhat good case why "selling for more than you bought it for" should be taxed less than money earned by "laboring or servitude in exchange for wages." I've explained why I'm not sure I completely buy that. But in either case, I don't see that inflation has anything to do with anything. Profits on a sale don't lose any more to inflation than wages do.


Capital gains taxes are property taxes.


No, they really aren't.

A hypothetical tax on the value of one's HOLDINGS (regardless of what one initially paid for them) would be a property tax. But a tax on the net gain one receives after selling a property or commodity is a tax on a form of income.

If the problem is that that gain has been damped down by inflation over the time one has held the stock (or whatever), then it seems to me the correct way to deal with this is to temporally separate the "buy" from the "sell". Instead of taxing net gain at the time of sale, one should get a tax credit for the purchase price at "buy" time, and then pay tax on the gross sale price at "sell" time. Seems to me that would accurately account for inflation without having to treat one type of income as different from other types of income.

Corey said...

@SteveO

Heh, you know, that's very fascinating. In fact, I would go as far as to say that if you took formal surveys comparing the responses to the climate data and to questions of how people would react to that same data if it was regarding their industrial processes, that you'd actually have the makings of a very publishable and relevant paper there. :)

LarryHart said...

I said:


If the problem is that that gain has been damped down by inflation over the time one has held the stock (or whatever), then it seems to me the correct way to deal with this is to temporally separate the "buy" from the "sell". Instead of taxing net gain at the time of sale, one should get a tax credit for the purchase price at "buy" time, and then pay tax on the gross sale price at "sell" time.


Or maybe a good compromise between that and the current system would be to continue to tax on net gain ("sell" price minus basis), but index the basis to inflation based upon the year the stock or property was bought.

Point being--if the issue is inflation, then deal with inflation. Don't sidestep the issue by pretending one kind of income has a natural right to be taxed less than a different kind of income.

SteveO said...

@Tony,

You missed my point about JIT. Read Liker's "The Toyota Way" about how low-inventory systems are far more able to respond to supply shocks and changes in demand than "traditional" production practices. I will also say that we generally mess it up in the US since we stop with the tools (and see JIT primarily as a way to reduce inventory and thus taxes). So there is cause for concern...

Believe me when I say that it is contra-intuitive to the paradigm we were trained in, but once you see it you will understand. The key point is that if all you do is reduce work in progress, you have screwed up and put the business in danger. You need to change the process *so that* it can exist with lower work in process. That is where the robustness comes in, not from the act of reducing work in process itself.

Just did a presentation to Boulder County Leadership on this. :)

(There is also a discrimination of "single supplier" vs. "sole supplier" that people miss - another topic...)

Now this is a separate issue than a worldwide supply line breakdown, which would cause a breakdown of a large portion of business regardless of how wasteful or inefficient they are. Considering the predicates of such a breakdown itself raises some interesting questions to think about. Like, "Why is it cheaper to make useless plastic toys in China and then ship the low-density mess on a huge container ship to the US, then distribute via trucks to the local store of your choice?" Not to mention the question of why we buy them.

Interestingly, Toyota (the leader in JIT/Lean) does a lot of co-locating of vendor and production plants. Doesn't help if you can't get raw materials to the plants though...but they probably would be the first back up once supplies were restored.

SteveO said...

Corey said,

"In fact, I would go as far as to say that if you took formal surveys comparing the responses to the climate data and to questions of how people would react to that same data if it was regarding their industrial processes, that you'd actually have the makings of a very publishable and relevant paper there. :)"

You sir have a devious mind, and I salute you!

The problem is that cusum is the only visual representation I have seen that shows it that obviously, and there is a background required in order to read them. (Other, simpler visual techniques require using a lot more data resulting in the "hockey stick" before you can see something over the noise.)

But I am teaching a class on the topic this summer. Maybe I will try it out on my students and see what happens. >:)

David Brin said...

Carl, I agree that property tax is best, since it spurs rich folk to engage in active, rather than passive wealth-generation. It also recycles inter-generational wealth that is the great enemy of open competition, across 4,000 years. But it only works if first we (the whole world) KNOW who owns what. Transparency of ownership is not at all socialist... it is what's needed for market systems to work well. But it won't happen in my lifetime.

Just-in-time needs to be modified by changed tax laws that allow tax-free accumulation of stock and parts on-site. Current laws punish robustness.

Duncan Cairncross said...

Hi Steveo
I have another take on JIT

When you are dealing with manufacturing people the "Feed the Machine" mindset is overpowering
"Make scrap faster" is the underlying mantra all talk about quality is heard as Wa wa wa

By stealing their "safety stock" they have to pay more attention to quality!

A somewhat cynical look at JIT

rewinn said...

When one percent of an entire economy goes to salary and bonuses for investment bankers ($14T USA GDP 2009; $160B salary+bonuses), shortly after that same economy went into a crisis caused by those same institutions, we may not be able to state the entire problem with precision, but it is clear there is a problem.

==========

SteveO: let me join in the chorus of congratulations concerning use of cusum in QC: clever and fair!

SteveO said...
This comment has been removed by the author.
SteveO said...

Duncan,

Not cynical at all - realistic. I speak as an engineer when I say that JIT forces engineers to actually engineer the process rather than optimizing machines and suboptimizing the process. They feel the pain when the whole line is shut down due to a quality problem and will make sure that NEVER HAPPENS AGAIN!!! The principle of using electric shocks to elicit a response, rather than depending on them to do the intellectually right thing.

Hey, engineers are people too!

If you want to learn more about how we deal with the "Feed the Beast" mentality, I can offer you this article...

------

Thanks rewinn! Though I will emphasize again that cusum (as used with those data) is enumerative, not analytical. So the only contribution cusum could make to the climate debate is in creating a graphic that makes it more visually obvious. And possibly juxtaposing how you would react if it were, say, making widgets vs. global warming...

-Steve "Don't know much about the economy..." O

BCRion said...

Carl,

On Keynes. Now we're on a multilayered argument. You can point out one aspect that you happen to disagree with, that's fine. I'm sure Keynes was wrong about a few things. However, rejection of the part does not necessarily mean rejection of the whole. That's a logical fallacy that's commonly used by evolution and climate deniers.

It would be the same as me saying that Einstein's later cosmology ideas turned out to be wrong, therefore all of Einstein's ideas in the area are wrong. Clearly this is not the case.

SteveO said...

tl/dr at the bottom of next post... :)

Dr. Brin says...

"Just-in-time needs to be modified by changed tax laws that allow tax-free accumulation of stock and parts on-site. Current laws punish robustness."

David, I'm going to call you on this one in the spirit of CITOKATE.

This would be a terrible idea that would only be mitigated if there were actually a cost to robustness by doing JIT. It turns out that this is exactly the wrong direction to encourage.

Consider:

-JIT processes are MORE robust to perturbations than traditional manufacturing. Example above, and many more in the literature. Because of our mental habits, JIT *seems* like it should make a process brittle. It actually does the opposite, and there is tons of data to prove it. Why? More below...
-With such a tax break, we encourage all the resources tied up in all the stuff that is sitting around in the "just-in-case" warehouses to be wasted (or at least to be tied up not doing something it could be doing), and if time has an effect, is lost due to expiration/rusting/etc.

Stockpiling is not equal to robustness and nimbleness, in fact we now know that it is the opposite.

The current industrial practice of accumulating work in process and huge warehouses full of product is currently costing us far more than the apparent cost in taxes because it *hides* the huge inefficiencies and brittleness in the business. I have numbers, if anyone is interested.

After Liker (2004), this waste comes in the form of:

1.Overproduction - overstaffing, storage costs, transportation costs due to excess inventory
2. Waiting - workers stand around waiting to be supplied by the previous operation, or for the next one to free up, or due to out of stock or downtime (note - LESS stockouts and downtime with a JIT process)
3. Unnecessary transport into and out of storage - no value there
4. Overprocessing - unneeded steps are allowed to persist because there is no apparent cost/pain
5. Excess inventory - longer lead times, obsolescence, damaged goods, excess stock that hides late deliveries, equipment downtime, long setup times
6. Unnecessary movement by individuals involved - walking 100 meters to get a measurement device is 10 wasted minutes of your life
7. Defects - allowed to persist because we are accumulating somewhere else, so no pain is felt
8. Unused employee creativity - losing opportunities by asking for more more more rather than using employee's creativity and brains.

Basically, "big buffers lead to suboptimization." (Liker again)

...continued...

SteveO said...

...continued from previous post...

Raw materials go in, resources are used, stuff comes out and is stored. It is very inefficient, though because of the hidden costs. Where does the wasted raw material/labor/energy/money go? It evaporates from the wealth of the nation just as truly as mining bauxite, using huge amounts of electricity to refine it, and then dumping half of the aluminum into the Mariana Trench would.

Really, I do know how backwards this seems - I went through it myself and I confront it my students and at at my clients. But huge inventory *allows* a process to be broken and *trains* us to believe the apparent process limitations are absolute. It *seems* to be more robust, but given shocks the system collapses. By removing this crutch, we can begin to see what needs to be done to actually make the process robust.

And Dr. Brin, (and others) if you say this to people in modern-thinking manufacturing, you will instantly lose all credibility, because it is easy to show why it would be a disaster. Give me one hour of someones' time and they see it too. Give me four hours of their time and they can prove it to themselves with a simulation using bits of paper and Legos.

Now there are times that you need to suboptimize. For example, the holding furnace near a blast furnace. Blast furnaces are monsters that must be fed and bled, and if they are not, the monster gets angry and really bad things happen. So 98% of the time, that holding furnace is just going to sit there, hot, wasting money and resources. But when you need it, you REALLY need it and all that wasted wealth is the alternative to pouring liquid pig iron on the ground, or worse.

So slimming down the process is not always the answer, but it is the goal for which we should aim.

Consider: clinics throughout Port-au-Prince, but each one is devoted to one medical intervention. Must be efficient, right? Donors happy? They get really good at (economies of scale) because that is the one thing they do. But then the earthquake strikes. Versus the same number of clinics, but each one can efficiently perform a number of different procedures. Because they have *had* to preform all these procedures on next to no money, they are efficient at them, and can handle whatever medical emergency happens, earthquake, hurricane, whatever.

tl/dr Summary: If you want an industrial base that can respond quickly to changes in demand, perturbations in supply, and nimbly in the event of a disaster, what you really want is a base that has a fully integrated JIT process (and other stuff - JIT is necessary, not sufficient). Why? Because they will have already fixed the problems that will come to light in a traditional process during such events.

Ian said...

"The investment activities which generate capital gains are innately higher risk than, say, buying government bonds." - Me


"But...but...a low capital gains rate applies equally to BOTH of those things, so how does it incentivize one over the other?" - Larry

Because government bonds produce a reliable revenue stream in addition to the potential for some limited capital gains.

Venture capital produces little or no revenue in the early stages and needs to offset this by larger capital gains.

One of the alternative measures we tried in Australia was massive as in 150-200% of the investment write offs for R&D - which led to abuses such as companies buying land and claiming "well we're going to build a lab there and do some ... research ... on something ...some day .... I guess."

Ian said...

"Or maybe a good compromise between that and the current system would be to continue to tax on net gain ("sell" price minus basis), but index the basis to inflation based upon the year the stock or property was bought."

Australia does exactly that.

Now if only we did it with income tax rates.

David Brin said...

I agree that JIT is a marvelous tool for forcing quality and efficiency down the throats of stodgy production staff. No question. But you miss the point. Companies can run quality/efficiency exercises at regular intervals AS-IF they had no inventory. What matters is a management that is determined to pursue that goal. JIT is a series of terrific practices. It does NOT require an utter absence of reserves.

--

Carl is right. Consumption taxes let you modulate money velocity and encourage savings, while singling out certain commodities (tobacco, sugary drinks, CO2) for discouragement. They are regressive, so the Flat Taxers are nuts, but they have an important place.

Property tax goes to the rich inherently and forces them to keep trying to earn an income, or else sell the property to someone more dynamic. Indeed, it should be graduated and progressive and (above all) transparent. And it should be big enough to let us crank down and simplify the income tax, which has some real moral problems.

Oh, the state has a right to a fee for protecting the property rights of those who would have it all taken from them, if the citizenry turned into an angry mob. So yes, PropTax is morally defensible.

David McCabe said...

TED talk: Four Ways to Fix a Broken Legal System (18 minutes). In summary: (1) Judge law mainly by its effect on society, not individual situations; (2) Restore trust in the law; (3) Set boundaries around definitely lawful behavior; (4) Simplify the law while restoring authority to judges and officials.

SteveO said...

...by the way, JIT is, I think, the less interesting of my posts, so I hope everyone took a look at my cusum post and graph back up there. :)

DB: "I agree that JIT is a marvelous tool for forcing quality and efficiency down the throats of stodgy production staff. No question."

Mistaken premise. Production usually genuinely wants to do a good job, and would love to increase quality and efficiency. We don't need a lever to open their jaws. They just can't break out of the way they think about their process because of the way they were trained about processes. This is the major issue with implementing JIT - getting people to see how it makes the process better - because it is so antithetical to what we think we know. Or because we can see the first step (lower inventory! we're gonna die!) and miss the next step (so how can we fix the process to be robust to perturbations so lower inventory is no big deal? Eliminate the failure mode.)

DB: "But you miss the point. Companies can run quality/efficiency exercises at regular intervals AS-IF they had no inventory."

Either I don't understand this sentence or it is a misunderstanding of the modern definition of quality and the modern understanding about how it is achieved. I can't paraphrase what you are saying here. Quality is *defined as* "the reduction of variability around a customer-defined target in the absence of defects." Quality is *achieved by* both continuous improvement activities (numerous, small, local process improvement) and occasional big breakthroughs (few, focused projects requiring specific allocation of resources and alignment with a strategic plan). Therefore a "quality or efficiency exercises at regular intervals as if they have no inventory" is a null phrase to me. The terms "quality" "efficiency" and "inventory" do not relate to the terms "exercise" or "intervals" in my understanding, though clearly quality, efficiency, and inventory are interrelated.

DB: "What matters is a management that is determined to pursue that goal. JIT is a series of terrific practices. It does NOT require an utter absence of reserves."

I call strawman on that one. No sane person proposes such a thing.

Some managers' whose entire education in "Just in Time" consists of reading that phrase once in a business journal a few months ago, may very well go out and do EXACTLY as you fear, until they get fired (or, sadly, promoted). But you won't find one expert on the subject who will say that they are anything but idiots. If someone shoots themselves in the head by playing Russian Roulette with a semi-automatic, one should question whether the person really understood the tool they were using.

However, we should view inventory, reserves, stock, etc. with great suspicion, since they conceal broken processes. c.f. my post above on Haitian clinics and think through the consequences.

Further, JIT is not a goal in and of itself. It is only one component of a management system - a part that identifies built-in waste and frailty in a process and in turn generates a driving force for creatively making the process robust.

Not nearly enough room (or nearly enough on-topic) to write more in this posting, though I will refer readers to my posts above. Read Likert's book The Toyota Way if you have a desire to get in-depth.

And I'll gladly keep answering posts. Criticism (might be) the only known way to learn new stuff.

But I thought it important to mention, since if someone were to, say, be up in front of a group of businessman and had a lot of interesting and important things to say, one could find the audience looking at one as if they had just stepped in a pile of poo, and would henceforth consider one "Man with Poo On His Shoes" no matter what else one may have to say.

Rob Perkins said...

@SteveO

They just can't break out of the way they think about their process because of the way they were trained about processes.

That's what "stodgy" means, Steve.

You're arguing theory; what's possible with robust JIT supply chains. David is arguing that no one applies the theory correctly.

Too often, all too often, it becomes a buzzword for justifying some bad decisions about cost cutting and tax savings, so that there can be a bonus for the shortsighted decision maker when stock prices go up because of cut costs.

This happens all. the. time. I've worked for people like this before; it's the way they think about things.

I can't forget that glue shortage which skyrocketed microchip prices for months a few years ago. It made RAM memory very, very expensive, because only one factory sourced the glue, and no one kept reserves. Or the way my gas prices increase 30% whenever a refinery goes down for maintenance.

So yeah, it can be a good tool, implemented right. But I think it's used as an excuse for companies to stockpile parts next to manufactories in tax haven countries with cheap labor.

Ian Gould said...

Australian economist John Quiggin blogs on the right-wing war on science - or as he calls it agnotology - the manufacture of ignorance.

http://johnquiggin.com/index.php/archives/2010/02/22/ideology-and-agnotology/#more-8340

Tony Fisk said...

And, not that far away, Clive Hamilton continues his analysis of cyber-bullying of climate scientists (pt II: Who is Orchestrating the Cyber Bullying?)

===

SteveO: I first encountered JIT over twenty years ago, and I am aware of its benefits (I also encountered Goldratt's variation of process bottlenecks, which sounds good in theory)

I might have missed your point about removing the inefficiencies of excessive inventory (no argument) but was pointing out that the weak point then becomes supply. (Then again, you appear to be arguing that JIT is resilient to supply and demand fluctuations (which is what the power blackout scenario would cetainly produce).

So, maybe I'd better retrieve my lego set from my daughter...!

Pondering your point about process engineers forced to 'feel the breeze' without an insulating layer of storage and therefore having an incentive to ensure the process works. It reminds me a bit of the Agile programming approach of unit testing (as opposed to the code then test waterfall... which always provides a comforting layer of code to test). It's best to do unit tests from the very start, but I still find it instructive to apply them to a well established architecture and ask 'How on earth do I test this interlocking mass of Gordian code loops?'. (hint: you start with machetes...)

favoid: a favourite activity that comes and goes so quick you don't know whether you enjoyed it or not.

SteveO said...

"That's what "stodgy" means, Steve."

From The Free dictionary: " Dull, unimaginative, and commonplace."

Not at all the same.

No, I am absolutely NOT talking theory. I am an engineer first and it does work in the real world, it just does not conform to how we engineers were taught to think about a process and how we manage it.

There is a clear path from "here" to "there" with all the steps along the way. Numerous companies have done a greater or lesser job.

"No one applies the theory correctly." Incorrect, numerous examples exist across the world, and there is a continuum of what they can claim to achieve. Best at it is, of course, Toyota. (Note that their current troubles look to be related to not anticipating a failure mode in design, not with this.) But there are plenty more examples.

Over my career I have consulted at a large number of companies. These companies had problems, which is why they called me in, but even so, I have seen bad, good, and adequate implementations of this stuff. So I think I have a realistic appreciation for what it can (and cannot) do.

Companies do screw it up, absolutely. There is nothing magical preventing stupidity or assuring success. But it has something fundamental to teach us about processes that for some reason is really hard for us Western-trained process engineers to get.

"But I think it's used as an excuse for companies to stockpile parts next to manufactories in tax haven countries with cheap labor."

You do realize that this is the exact opposite of what JIT would, even at a surface level, suggest to do? Provide one example of this committed under the rubric of JIT or Lean. Oh, and stockpiling would be encouraged by Dr. Brin's tax proposal...

Look, I am not a big proselytizer of this stuff - it is not my main area of interest. For me, the process of strategic planning and the tools of industrial experimentation are much more interesting and fun. But those of you who have encountered a "bad" version of this, consider that your experience is not generalizable. Process engineers (and many people without that job title do that job) would benefit from thinking this through.

Hmm, consider this analogy. Look how a biologically evolved system is different from a human-engineered system. One is flexible, robust to environmental change, yet doesn't have a lot of unnecessary capacity to do things that are not needed for survival (but things to have a reasonable chance at survival and adaptation are present). The other is optimized *in the designer's mind* for a specific task, and is typically not robust to change. We can only design up-front the system that we can envision, so it is always limited by our preconceptions. Evolution is a much harsher "designer" with its many opposing driving forces, and so results in much more elegant systems. Because we don't subject our system to an analogous selection pressure (low work in process, etc), we end up with inefficient, brittle processes that we don't even know are that, until things change and the process fails.

Maybe too poetic. Though I am interested in learning more about Tony's Agile testing...

Actually, my original purpose was to cause Dr. Brin to pause and perhaps investigate the concept further before advocating a tax that will drive businesses the wrong direction and reduce the very robustness he calls for. I have seen him speak, and it would be a shame if his insights were lost due to a surface understanding of what JIT means in the modern context. It is not a panacea and you can mess up doing it, but it also is the mechanism whereby robustness can be achieved.

Just looking out for our esteemed host's revenue streams! :-)

Goldratt's theory of constraints is mumbo-jumbo (or, at best, obvious). There are analytical ways to accomplish what he hoped to do by hand-waving that account for the real complexity of business.

Rob Perkins said...

Good grief. This is just like Catholics and Mormons arguing about Trinitarianism: we're talking past one another and probably in more agreement than either could ever imagine.

"They just can't break out of the way they think about their process because of the way they were trained about processes." is the same thing as "unimaginative." Think about it! Hence, "stodgy!"

Yes, it's perfectly clear you're an engineer by trade.

Dell is a JIT company. They absolutely stockplie parts in manufacture-friendly countries. They're certainly doing it because the tax and wage regime in the U.S. is too prohibitive for the prices they want to hit. It works. We get it.

But you're missing the center point here: Don't. JIT. Essentials.
Ever.

Because: if a calamity comes along and your supply chain is disrupted because a ship can't sail, or a plane can't fly, or a truck can't roll, then people suffer, starve and die.

The idea that our supermarkets and homes never have more than a few days' supply of food is anathema. I store a year's supply of staples and a few months of basic fuel (propane tanks) and two weeks of water so that I and my neighbors can cook some bread if it gets that far.

That's where we don't JIT, because it's a bad model for things that should never be so efficient.

If you're talking about iPhones and car radios, or even plastic molded chairs or garden implements, hey, fine, JIT away, I believe you 100%. The next glue factory to go up in smoke will raise the price a few bucks and return to normalcy sometime after the factory is rebuilt.

Carl M. said...

Wow, it looks like my comments on capital gains generated a flurry of activity. Some further explanation is in order.

Inflation increases the real tax burden of capital gains and of savings accounts, etc. In effect, you get clobbered with an accumulated property tax for the years you held the property. Effective property tax rate = capital gains rate times inflation rate.

I actually FAVOR propterty taxes, because as David points out protection of property is a service provided by government. And a look at the middle ages reveals that the Roman government was providing the rich with some pretty valuable services. Villas and pleasure slaves were replaced with castles and henchmen after Rome fell.

I would like capital gains to be the same rate as other income in part for simplicity's sake, and in part to reduce the dangerous financial games played to convert income into capital gains. But I would like to keep inflation low to prevent the property tax component from being unreasonable.

But my bigger preference is for property taxes over income taxes. Property taxes hit those who ARE rich vs. those GETTING rich. The fellow who collects $50K/year in dividends is much better off that the fellow who has to work for $50K/year.

---

Now, for those who were incredulous that inflation combines with capital gains. How you dodge capital gains taxes is you buy income producing properties that you never intend to sell. No sale = no capital gains. Rental property is a good example.

When capital gains taxes were cut some years back, the government received a surge in tax revenues as owners sold long term holdings.

The inflation of the 70s made growth stocks unattractive as investment vehicles because of the effective property taxes thereon. Stock prices went on a tear when Volker put an end to the inflation.

Were it not for capital gains taxes, stocks would be good inflation hedges. With them, it is better to hold income producing property like real estate.

SteveO said...

@Rob,

Hard to convey correct emotion online, I know. Wait 'til I tell you about statistical sampling to help calculate the number of angels that can dance on the head of a pin!

Regarding "stodgy." This is (in my experience) just not how people work. I have met brilliant, creative people who nonetheless are stuck for whatever reason, in odd preconceptions. In fact, their very creativity is harnessed to continue to allow them to be stuck there. It is a very human characteristic, and we all have incorrect preconceptions we are locked into, I believe. This is the strength of the scientific method - it can cause us to question these preconceptions.

But it ain't a natural (or comfortable) way of thinking!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I love your example of JIT on the essentials! Let's use groceries to see what JIT would have us do.

Well, first principle is move the place of manufacture close to the place of use. Minimizes unnecessary travel. OK, so make sure we have food production close to population centers.

Now, another principle is to manufacture the entire diversity, not make in batches. So our food production needs to provide a number of different types of groceries all close to where they are consumed. Check!

Only grow what people are asking for, so we don't waste resources growing food that is just going to spoil.

...and what do we end up with? A more, or a less robust system than large monoculture farm centers located across the nation and the world that benefit from "economies of scale?" In the event of a catastrophe, which system would be the quickest to recover and prevent people from starving?

See how, properly applied, JIT actually creates a robust system?

And THAT is my point. QED. :)

SteveO said...

...and to build on my anecdotal observation about data from my business tells me to react, but the same data showing a temperature rise in Boulder does not...

Belief In Climate Change Hinges On Worldview

It has some really relevant points for talking to "deniers" (as distinguished from "skeptics).

exill: what we are gonna do to deniers when their seaside properties sink into the sea and they ask for a government bailout... ;-)

Tony Fisk said...

SteveO: a closer analogy to JIT in software programming is 'function point analysis' (an attempt to convert lines of couch grass code into roughly equivalent blobs of product... which can then be used to emulate production lines, sort of)

Still, Agile is worth pursuing. See what it tries to address here (warning: may contain satirical material). The original Manifesto is here, and a nice primer on unit testing can be found in Mark Pilgrim's 'Dive Into Python'.

That's just a small part of the Agile paradigm though (I rather like Alisdair Cockburn's 'Crystal' approach)

I think Rob nailed the basic concern with JIT: you don't have control over the *entire* production process: just the bit from where you receive your nuts and bolts to where you ship the crates. The rest merges into that thing that dare not speak its name in traditional economic theories: the environment (OK, but that's changing!)

Hmmm... who needs solar flares?

Sat-nav systems under increasing threat from 'jammers'
"GPS gives us transportation, distribution industry, 'just-in-time' manufacturing, emergency services operations - even mining, road building and farming, all these and a zillion more," David Last, a consultant engineer and former president of the Royal Institute of Navigation, told the conference.

"But what few people outside this community recognise is the high-precision timing that GPS provides to keep our telephone networks, the internet, banking transactions and even our power grid online.""


With worries like this, I can see why Rob goes to extremes with food inventory. (all he's got to worry about is spoilage ... and bears with can-openers! ;-)

squebe: the sound of tins being nibbled...

David Brin said...

If only more libertarians were like Carl. Freedom lovers who see government as a necessary vice, to be watched warily... but necessary nonetheless.

I JIT i did NOT "advocate a tax" I advocated removing the tax disincentives on warehousing resiliency materials.

I sometimes wonder if only mormons and jews "get" the fact that bad shit can happen. I don't mean loss of a couple of fedex shipping planes. I mean complete closure of the mIssissippi for two months. Supply chain "agility" isn't gonna save your business -- or life -- then. SPARE STUFF may do it, though.

Carl M. said...

David: why stop at spare stuff? Why not have some spare capacity as well?

And do you realize that your call for spare stuff goes against the Keynesian grain? Spare capacity more so, of course. The term in Samuelson is "unemployed resources."

I'm a big fan of "unemployed resources." I have a bunch of unemployed tools in my garage. My car is unemployed most of the time. I'd rather not deal with "just in time" transportation.

I guess I am something of a semi-libertarian post-Marxist. Drop the over-extrapolation of the value of economies of scale and several other errors, but hold onto to that diminished need for capitalists as capital builds up.

Why do we have ultra-gigantic car companies? Answer: to conserve capital, to reuse overhead to the max. Imagine a world in which farmers build cars during the slow winter months, and the factories close down during the farming season. Why not?

One answer: this would reduce economic growth -- even as it dramatically improves the quality of life.

But as my hippie friends like to say: we have enough "stuff" already. It's time to stop living like machines in the quest for "growth" and start living like free range humans.

Rob Perkins said...

With worries like this, I can see why Rob goes to extremes with food inventory. (all he's got to worry about is spoilage ... and bears with can-openers! ;-)

The food is stored in 30-year steel cans, or in 15 year mylar bags. It's had the curious effect of taking us "off the grid" for something as basic as a loaf of bread. Spoilage? Nah. The preserved wheat even germinated last spring!

We rotate through it, and make home made breads each week with the grain. (That BlendTec guy on YouTube? Mormon! He also sells "Nutrimill" grain mills.)

If a "bear" with a "can opener" comes at us, we throw one of the cans at him. And follow it up with a prepared loaf of bread. He can either drop the "can opener" and catch the can, or be struck in the head with it. His choice.

David Brin said...

From The Daily Show.

http://daggatt.blogspot.com/2010/02/progressivism.html

Tim H. said...

Steve, the "JIT" food network you described sounds like what the United States has pretty much destroyed in the name of efficiency, with tax disincentives and carefully aimed subsidies. But it's not collectivism when we do it.

"thillore", a popular fast food on Proxima II.

Tim H. said...

More difficulties for Toyota:
http://www.nytimes.com/2010/02/24/business/global/24anger.html?hpw

And a lengthy essay on externalized costs:
http://www.theatlantic.com/doc/201003/jobless-america-future

SteveO said...

Tim H,

Yep, you got it. At one time "economies of scale" seemed to make sense, so farms (and factories) got bigger, more specialized, and more monocultural. We now know that they are at higher risk of disease and disaster. Modern JIT pushes back in the opposite direction, because it recognizes that the apparent efficiencies are in fact weaknesses and inefficiencies.

Dr. Brin, I wish you could see how driving up inventories and stockpiling actually hurts your objective of being robust to "bad stuff happens." I had hoped my groceries example would illustrate that.

Rob's stockpiling of food is OK (and necessary) for short-term events like a bad snowstorm. But if we are talking serious events (like the nuclear winter that would occur if Pakistan and India decide to trade nukes) then it is less robust than a seeds and greenhouse large enough to grow whatever he needs. (Which I bet he has too! Or at least plans to build it.)

JIT should drive us to have a more robust and diverse manufacturing base located closer to where the consumers are.

Well, if I haven't communicated that by now, I guess I can't. Just please do consider that what you think of as JIT could be a mistaken impression. Don't take my word for it, read up on the subject and come to your own conclusions.

Gilmoure said...

SteveO said... ...huge inventory *allows* a process to be broken and *trains* us to believe the apparent process limitations are absolute. It *seems* to be more robust, but given shocks the system collapses.

Sounds like using dampeners and shocks in a suspension system, rather than designing it correctly.

I guess the real problem is then implementation. How is a JIT system to be set up so that, as it makes evident poor processes, it doesn't impinge on production levels. I know there's a lot of development work that goes in to qual before a system moves to production but I've never seen a project upgrade or evolution go smoothly. Seems to be one of those human bean issues.

Rob Perkins said...

I know how to build greenhouses and distill water, like any good Eagle Scout. (Which is part of why it's so stupid to elevate Scouting's prejudices above all the other good it does, in order to forward other putatively good causes.)

And like i said, the 6-year preserved wheat germinates. Since we use the stockpile back-to-front that means we're also stockpiling seed grain.

I'm not trying to convey that I have a mistaken impression of JIT (though your having explained that exposes more of my naivete than I thought it would). I'm trying to say that short sighted people are using the term "JIT" as a buzzword to talk people into doing things that cause year end bonuses rather than actual improvements.

Sort of like the "core competency" ideas, when taken to an absurd extreme. Or the notion that a joint stock company consists only of its shareholders, with employees treated as non-stakeholders. (And no, a 100 share option is not going to make them stakeholders.)

I say that because I've seen it. The PHB exists everywhere.

Tony Fisk said...

Well, I can see how reducing supply lines helps (it can be expressed in terms of reducing inventory as well as reducing risk)

Localising production sounds like what the transition town movement are advocating (although they tend to put their case in terms of peak oil and anti-globalisation: they could do with an argument like this as well, I think)

Rob, your practices don't scale. I don't know your situation (sounds like backwoods, hence the bear quip) but storing a year's worth of food takes a year's worth out of circulation. 300 million people doing this is going to lead to shortages. (OTOH, if you built that greenhouse, you'd be producing rather than consuming)

trougo: the mythical final resting place for lost trouser buttons.

Rob Perkins said...

Tony, I'm a bona-fide, fully internet connected suburbanite, seven miles from a busy international airport.

A year's supply of survival grain and other staples, in 30-year #10 cans, for a family of seven, fits under the kids' beds, and on one garage shelf stack about eight feet high, consuming 120 cubic feet. Total for the canned preserved food is probably 300 cubic feet.

The water is in two 60-gallon drums in a garden shed, consuming about 16 cubic feet.

The fuel is in the shed and one bottle is installed in the grill; about a two week's supply now, but two months of fuel for cooking amounts to five of those bottles.

In a real calamity, of course, that food goes to the neighbors as well as us, which makes it more of a month's supply than a year.

As to whether that creates shortages, I think you're assuming that 100 million households try to purchase a full year of reserves all at once.

Not true. We built it by obtaining 1.5 months of food supply every month, instead of one month's supply, until we had a year's supply.

This doesn't strain national supply lines; if anything, it could enhance them by redirecting a little bit of consumer demand onto the country's surplus grain.

So, of course it is possible to scale this to prevent a catastrophe. There is more than enough food being raised worldwide to feed everyone and for there to be surpluses built, gradually, over time.

And, of course, it actually works. I was raised a suburbanite in this same city, and we always ate self-canned and preserved foods when I was growing up, and replenished the stockpile. And in the 70's, my family survived off the storage for almost a year, when better work was impossible to find and the bills were high.

Ian said...

The "supermarkets have only a few days supply of food" meme is an annoying one because it's sort-of true but misleading.

Got into your kitchen, look in the pantry, odds are you have enough food there (and in the refrigerator) to feed your household for a month or more - even if the last two weeks of that are a bowl of rice or pasta or a pack of ramen twice a day.

You might also want to take note of all the other places that have stores of food - like convenience stores and restaurants.

Short of a planetary-level emergency - major meteor strike; massive solar storm that kills most electrical equipment; Yellowstone supervolcano goes Deccan Traps - few people in the developed world are likely to be in danger of starvation. And in those sort of scenarios food stores are unlikely to be much protection.

New Orleans during Katrina is about as bad as it's likely to get - how many people starved to death?

I should mention here I have a pretty decent veggie garden in the back yard, carry about an extra months worth of canned goods and have a bug out bag next to my bed which includes another couple of weeks rations.

David said...

I hate to just post links and snipe at people in the comments, but I'm generally too ignorant of the topics discussed to contribute otherwise. (How do you guys know so much about so many things?) That said...

Which is part of why it's so stupid to elevate Scouting's prejudices above all the other good it does, in order to forward other putatively good causes.

Would you say the same if the Scouts discriminated against black people? How about against Jews? Then why are gays and atheists fair game?

Rob Perkins said...

Would you say the same if the Scouts discriminated against black people? How about against Jews? Then why are gays and atheists fair game?

You're begging the question.

The correct approach is to start a youth activities organization which doesn't do the things you hate about Scouting, not to spit vitriol and hope to close them down through lawsuits and city council demagoguery.

And in point of fact, there are several such organizations, many very successful.

That's non-zero-sum, and doesn't beg the question.

Tim H. said...

The Boy Scouts are mostly a good thing, when they function as intended. Which they do, nearly all the time. What would replace them?

David said...

The idea behind lawsuits against the Scouts is to make them stop misbehaving, not to shut them down.

I ask again, and want a direct answer. Would you excuse the Scouts if they banned Jews from being Scouters? How is banning gays different?

Rob Perkins said...

This presupposes that they have misbehaved. That is in controversy, which is why you're begging the question. It's in that manner that I've chosen to answer your fallacy, by naming it.

Mu.

David said...

The form of your original statement seems to presuppose misbehavior, but dismiss its importance. My apologies if I have misunderstood.

David Brin said...

Purists - like Penn Jilette - can no more be reasoned-with about Boy Scouts than you can persuade a pro-lifer that abortion isn't pure murder. (Go buy Penn's wonderful -if maniacal- DVD "Bullshit!" He sure does make his point, vividly.)

To pragmatists, the issue is "how do we reduce the number of abortions while preserving the opposing value of choice?" It assumes a practical optimum of best (or less-bad) outcomes. Likewise, I see scouting as so vastly more effective a force for good that I look to the PRAGMATIC effects of its purported "anti-atheist, anti-gay" policies and see if they can be minimized enough to let me have the good stuff.

Naturally, purists see such pragmatic outcome seeking as treacherous, un-principled compromise with pure evil. But I look across human history and see self-righteous indignation junkies standing behind almost every horrific mass crime, always propelled by guys who were so so so sure they had right on their side.

But back to scouts. Anti- atheist? So the BSA top-mavens refuse to formally change the Oath and Law to accommodate diversity? I wish they would, but big deal. Because it isn't the national organization that matters... not where the boys themselves are concerned! I know of troops where nonbeliever boys simply replace "reverent" with "respectful" and "God" with "life". Others can hear them and nobody cares or says a thing. BFD.

Heck, I've modified the Pledge of Allegiance all my life. I refuse to swear allegiance to a piece of cloth! So I remain silent for a second, and leave out "the flag of" and "for which it stands." The Republic has my loyalty. Moreover modifying the oath is my right and prerogative, so long as I am honest.

Penn says that the scouts insist on oppressing his son into having to "be a liar" in order to join. In Penn's own words... Bullshit. Any troop that wouldn't accommodate Little Penn can go do a circle jerk for all I care. There are others. And it is that self-organizing aspect that oughta appeal to an independent soul.

--> more

David Brin said...

-->


But is it vile to ban homosexuals from leadership positions? Hm, let's see. What if a single hetero male tries to sign up to be a girl scout leader? Unmarried and without a daughter in the troop? Um... you don't expect suspicion? Dig it, males are inherently dangerous! Till verified as reliable, they merit skepticism, especially when they seek to be around innocent and helpless members of the sex that they desire.

In that light, the BSA policy is no more anti-gay than the Girl Scouts are anti-hetero. True, they are dullards who need to be dragged into the 21st Century by innovating better ways to protect the boys, moving on from troglodytically oversimplifyingy paranoia and (frankly) dismal laziness. Hey, target the problem correctly.

In fact, at 16 I was part of a 7 day expedition led by an adult who was clearly gay. But he practiced Don't Ask Don't Tell (in 1967) and kept it zipped (in all ways) and nobody made an issue. Sure, you can curse "he shouldn't have had to practice DADT!" Sorry. Yes, he had to. And if I led a girl scout expedition, I'd act like a complete eunuch. I would have ZERO right of "self-expression."

My boys are better men, thanks to scouts. And I am a better man for being a pragmatist-progressive, a militant for moderate reasonableness and vigorous, incremental problem-solving. It is how we made Locke's civilization, after millennia of Hobbes and Rousseau.

Dig it. We're still bloody cavemen! Culture war is the latest crisis in a long slog to drag our fellow citizens toward a light that even the best of us can barely make out... and that ALL of us misinterpret in some way. Those who prescribe formulae for INSTANT achievement of ideal living have always, always proved later to be wrong, and that personality type is simply not to be trusted anymore.

We're getting better NOT by pure dogma, but by baby steps forward. So long as forward remains the direction. And those cautious steps stay vigorous and ceaseless and strong.

David said...

You do have a way with words.

I commend you in trying to get the good stuff. No reason to deny your boys the experience of scouting because of politics. Then again, if, as Mr. Perkins says, there are many scouts-like organizations that don't discriminate, why not take part in those instead?

I am not "so so so sure I have right on my side"; actually, your argument gave me genuine pause. After some thought, though, I believe it to be wrong.

What if a single hetero male tries to sign up to be a girl scout leader?

A better analog might be a lesbian woman (seeing as scouting is largely about role modeling). And, in fact, the Girl Scouts do not discriminate against lesbians.

Dig it, males are inherently dangerous! Till verified as reliable, they merit skepticism, especially when they seek to be around innocent and helpless members of the sex that they desire.

If you really believe that half the human race should be held guilty until proven innocent, then should we fire all the male elementary school teachers? (Except, of course, those that are "verified"; How would you verify them?)

And if the boys aren't safe from a potential homosexual predator, they certainly aren't safe now. What if their scoutmaster is only pretending to be straight? What if he's simply a sadist? Banning gays is a totally ineffectual protection.

But you seem to under a misapprehension about some basic facts. First, the BSA has disbarred long-standing, proven scoutmasters, solely for being gay. This is to be expected, since, secondly, their stated reason for banning gays is not for the boys' safety. Rather, they hold that homosexuality is morally wrong, and that gays are bad role models. Thus,

...the BSA policy is no more anti-gay than the Girl Scouts are anti-hetero...

only if you ignore their official statements and real-world actions.

True, they are dullards...troglodytically oversimplifyingy paranoia...

Agreed. This is why I'm criticizing them. Their policies have pragmatically undesirable outcomes, among them the promulgation of a stodgy, stuffy, bullying, machismo-based notion of masculinity. Adding a little more friction to our long slog.

CITOKATE. The BSA should be criticized relentlessly until it shapes up, even if it does wonderful things for your kids. I point out that the BSA's discriminatory policies are unacceptable, and you seem to think I'm a dogmatic firebrand calling for their dissolution.

And I still say that you wouldn't be content to stay silent for a few words if the words were, say, "the blood of Christ be upon the children of the Hebrews forever". Since the child-safety objection to gay scoutmasters is a red herring, I invite you to provide another reason that discrimination against gays is more acceptable than discrimination against Jews.

(Note: I am not one to make light of the persecution of Jews. I feel this analogy is usable only because gays, and indeed atheists, have been persecuted and put to death for just as long.)

Robert said...

I was a boyscout. During my time as a scout, I witnessed a fellow scout beat a chipmunk to death and as punishment be forced to skin-and-eat what he killed, resulting in him being considered a hero among the other boys, another boy beat a perch repeatedly against the canoe we were in because he was sick and tired of catching perch and didn't want to unhook it, and had a couple hundred dollars of first edition AD&D books stolen from me after I kindly loaned them out to another kid. And this was in the early 80s.

Boyscouts taught me about snobbery, treating other children as inferior, classism, and hate. This was, no doubt, a part of our being a suburban troop that was whiter than the falling snow, but even in Boyscout summer camp there was no diversity and no tolerance.

(That's not to mention the fact those neckerchiefs make excellent nooses; as a cubscout (around eight I think) I had a taller bully pick me up by the 'kerchief and hang me until I passed out. That taught me the value of family; after the fact my brother proceeded to beat up said bully, his big brother, threatened their big brother, and said if anyone touched me again, he'd take out the whole family, including their dad. And he was only 3.5 years older than me.)

So. Scouts. The bar in Mos Eisley is a more wholesome environment, from my own experiences. But as a sociological study on the intolerances of children, it might have some merit.

(And yes, there may be scout troops which are decent and worthwhile; Dr. Brin, it sounds like your family went to one. But my own cynical side suspects that even 26 years after I left, it hasn't changed tremendously.)

Rob H.

Ilithi Dragon said...

I spent 13 years active in Scouts, both as a scout and an adult leader, and would still be active today if I had the spare time. Some of the best experiences of my life I had because of scouting, and it definitely made me a better person.

That said, I'm a non-religious pagan, and actually quite atheistic in all the areas of significance in the scouting vs atheism issue. Most of the guys in my troop knew that, and some of the adults. It wasn't much of an issue in my troop, though, because we never made an issue of stuff like that in the troop. We focused primarily on the activities of scouting, and when it came time for the religious activities (which largely amounted to the single vespers service at summer camp and some camporees), I attended with the troop but remained silent, not participating in the songs and prayers.

I didn't like it, and would have preferred to have been able to show my beliefs openly without having to half-pretend to share someone else's beliefs, and ideally I shouldn't have to, but the other experiences I found in scouting far out-weighed that discomfort.

I actually hope to get back involved with scouting again, when I have the time, with the added intention of being a voice for change from within.

I do have to agree with David(non-Brin)'s points about the arguments against atheism and homosexuality, though.

Most of the arguments that I was confronted with while in scouts (almost all of which were from the leaders of other troops) were mostly the same bunk arguments and flawed reasoning that is used in the religious anti-abortion arguments, religious anti-homosexuality arguments, and the institutionalizing of prayers in school. The argument that homosexual men aren't safe was used, but only peripherally; it wasn't a main driving point. Part of that is because many of them recognized that that argument was BS. It is still used, though, and actually it is used in the opposite direction almost as much, because scouts have a paranoid stance on adult-child interactions, which is just as much for the protection of the leaders as for the kids (two-deep or better leadership, with the adults always being within sight of at least one other adult is required not just to keep an eye on the adults, but also to provide witnesses to protect against false allegations from the kids, who are smart enough to know that even a rumor of, let alone a flat-out allegation of "he touched me!" can be ruinous).

Ilithi Dragon said...

That said, even the well-intentioned 'for their own protection' argument is bunk there, and is only used secondarily. David is right that the main argument is moral. The keyestone argument is that, because the scout oath includes the promise to be "morally straight", non-straight homosexuality is forbidden, because it is not morally straight. This is also usually couched in the same Christian-centric arguments that anti-abortion, anti-gay, and pro-school praying are all couched in. "This nation is a Christian nation, founded on Christian principles" is a very common argument.

What it ultimately boils down to, though, is the favoring of one set of religious/moral beliefs over another, or any other, and discriminating against the non-favored religious/moral belief(s).

There is really no valid defensible argument against it, in any way, just as there would be no valid defensible argument against it if the discrimination were against blacks or Jews.

So change should be called for, continuously and loudly, and pushed for continuously, and the fact that this is an injustice and that if we were to see justice done now this would be changed immediately should be continually pointed out. This is not to say that nothing less than immediate and complete change should be accepted - Dr. Brin is right in that the best way to make these kinds of changes (save where real harm is actively being done, such as slavery, lynching, etc., not just passively through lost potential) is incrementally, gradually, to avoid the chaos and destruction of rapid revolution, and the residual resentment and resistance that would linger and possibly fester after said rapid revolution.

Ilithi Dragon said...

Rob,

Speaking from my own experiences, I almost never saw anything close to that level of viciousness. The one time I saw anything like that from my own troop, was against a kid from another troop in our district who had paired with our troop for summer camp because they only had a handful of boys going that year. He got a 'spread eagle' from some of the other boys for being something of a self-superior ass, so had brought some of it on himself, but those boys also received a severe talking-to from the scoutmaster afterward.

The kind of behavior you're describing would not have been tolerated by the adults in my troop, or any of the other troops in our area, or most of the troops I interacted with. And even within my own troop, we policed ourselves on that to a fair degree - the handful of bad apples who prompted that kind of behavior ostracized themselves further and further from the rest of the troop the more they tried to bully, with the older boys stepping in when things got too far and the younger boys couldn't handle the situation on their own, and the couple bad apples we had eventually left the troop all together, after attending less and less (though, sadly, those were often the boys who needed Scouts the most).

Even interacting with other troops, from across the country, I rarely saw that kind of extreme behavior. Joshing, pranks and teasing, yes, because we were all teenage boys, but most of it was harmless and treated as good fun by everyone (even if they weren't happy about the pranks at the time), and things that went too far or shifted into bullying were noted or brought up, and discouraged (by the adults and/or the other boys).

In my troop, it helped that we had a good set of leaders, mostly dads, but also some moms who knew how to keep an eye on their kids, even when the kids didn't always know it, and most of the leaders in the other local troops were of similar caliber (even if some of them were stodgy and backwards-leaning on other issues, they knew how to maintain and/or encourage discipline with the boys).

Abilard said...

Rob said:

"Boyscouts taught me about snobbery, treating other children as inferior, classism, and hate."

As with all institutions (and our perceptions of institutions) it depends on the individuals in them at the given time. My experience of academia, for example, was largely negative once in grad school. That has altered the lens through which I look at science.

My experience of scouts was largely positive, unlike yours. It was probably also more physical. When I moved from Webelos to Scouts, for example, I voluntarily walked the gauntlet. The bruises which covered my body shocked my mother but I felt a tremendous sense of strength for having faced the pack with courage and without falling.

The troop also hazed others by taking them snipe hunting. This involves going hunting at night deep into an unknown section of the forested Appalachian foothills and leaving the n00bs in the darkness. They then have to find their way back to camp using their wits. Of course, these were not suburban scouts, so everyone managed it.

The current troop in this area is nothing like this. Different people. Different times. And, while I do not regret having gone through the above, I will not tolerate such brutality where my own children are concerned (not exactly criticizing my parents here - I have different boundaries).

David said:

"Would you say the same if the Scouts discriminated against black people? How about against Jews? Then why are gays and atheists fair game?"

My wife and I are both atheists. One of the boys is in scouts. Another soon will be. My daughter will likely be in girl scouts a few years after.

If physical violence were a factor (as was sometimes the case when I was young) they would not be. If discrimination were evident they would not be. If the goal of the scout leaders were religious indoctrination, we would have a short and direct conversation where I explained the nature of reality and our kids would be removed. This has not been necessary.

Apart from the occasionally cursory mention of the great sky fairy there is little religious about it. I do not care if my kids say oaths that involve the great sky fairy, santa, leprechauns, or elves. When they are old enough they can decide for themselves whether such things exist. At their age they are not atheists or believers. They are children. I do hope that when they are adults they, like me, drop the sky fairy part from the pledge of allegiance.

Boy Scouts teaches brotherhood, self-reliance, situational awareness, discipline, problem solving, wilderness survival skills, and several other valuable things. Our goal in having the boys join scouts (and our daughter in a few years) is for them to acquire these skills and characteristics. The moment scouts ceases to serve that purpose we will withdraw them from it.

Ilithi Dragon said...

Abilard,

My old scout troop has a long tradition of scaring the crap out of the first years at winter camp, the early-March weekend cabin camp-out that's the first camp-out experience with the troop for the boys who just crossed over from Webelos. The camp-out is at our summer camp (Bucktail Council has one of if not the nicest campgrounds out of all the councils in the northeast, and it's used year-round), which includes an area called Spooky Hollow, with a 100+-year-old stone bridge across a stream that has a few ghost stories associated with it (there's also a bank-robbery treasure story associated with Spooky Hollow). So the first night there, we take all the first years up on a night walk through Spooky Hollow, telling them the various ghost and monster stories along the way. Some of the older boys 'stay behind', 'not wanting to go for a walk', but secretly slip out and run up to the hollow via another route. The specifics vary from year to year, and some are better than others, but we usually result in a half-dozen scared-out-of-their-pants first-years, who are then laughing with the rest of us afterward (and excitedly recounting the experience with varying levels of accuracy (especially regarding their personal bravery) later). It's all in good fun, so we don't get mean about it, and a couple times we've sent one of the first years back down to the cabin because they were seriously frightened, but usually a good time is had by all (especially the second-years, who really enjoy taking their turn at doing the scaring).


We never had any actual physical hazing, though, partly because the scoutmasters wouldn't have tolerated it, and all our 'hazing rituals' were carried out with the intent of fun for all, largely being harmless pranks on the new guys, or anyone in the troop (scaring them at winter camp, hauling their bunk into the middle of camp and using it as a fireside bench, with them still in it, when they sleep in at summer camp, giving the bald scoutmaster a shaving cream hat while he's asleep (he later conspired with the other leaders to dump a cooler full of icewater on me while we were posing for pictures the last day of camp), etc.). We did tie one of the kids to a tree the one time... But the kid half-played the 'troop ninkompoop' for attention (the other half wasn't playing), and despite the hullabaloo, would not have had any challenge untying himself if he actually tried.

Will (Astra Navigo) said...

Supply side is a Marxist notion; back in college (well before all of this nonsense became policy), we discussed at length the fact that a lot of Marx's economic theory sounded much like ultraconservatism - which led us to the discovery everyone makes in Econ 101 - that there is no 'right' and 'left'; there's a circle, and both extremes meet there.

We live in an era when no one can be believed, even to the highest levels of leadership in government, business, or that most morally-bankrupt of 'professions', religion.

Turns out Orwell was right, after all: "During times of universal deceit, telling the truth is itself a revolutionary act."

--W

http://subversify.com

David Brin said...

David said: "A better analog might be a lesbian woman (seeing as scouting is largely about role modeling). And, in fact, the Girl Scouts do not discriminate against lesbians."

David please look at what you just did. You arbitrarily simply declared "a better analog" in order to return to your previously held position and in order to ignore my FAR more relevant analogy. The danger to either young girls OR young boys from male sexual predators is far greater than from lesbians.

"If you really believe that half the human race should be held guilty until proven innocent, then should we fire all the male elementary school teachers? (Except, of course, those that are "verified"; How would you verify them?)"

Good question... and silly. You know darned well that "verifying goes on in the hiring of elementary school teachers. And I had to get fingerprinted just to be an adult supervisor for my son's robotics team. Nobody is saying "all males are guilty till proven innocent." But we live in a murky world and those responsible for children aren't judging people re imprisonment, they are judging whom to allow close to their kids!

"Banning gays is a totally ineffectual protection."

Nu? Didn't I say that? A more nuanced and less lazy-blanket approach is called for... and it has been adopted in the "two-deep" policy that forbids any adult to be alone with the boys. But YOU deliberately (again) miss my point. That purist, oversimplifying screeching at this fantastically effective movement is just as stupid as the BSA's purist, oversimplifying policy.

And no... sorry... there are NO alternatives that are like scouting. If you think so, then you just don't know what you are talking about.

"CITOKATE. The BSA should be criticized relentlessly until it shapes up..."

I do not mind the criticism. Have-at! What I am saying is that I will not cut off my nose to spite my face. I will not deprive my sons of a 99% fantastic way to help them be better men, out of purist dogmatism toward a National Board that has little influence on my local troop.

Your comparison with the "Christ-killer" blood libel and consequent outright murder of millions is so plain outright offensive that I am simply done talking to you.

Robert, I never saw anything like the horrible stuff you describe, though my troop as a kid was rough. My answer is that shit was happening all the time and that troop was led by assholes.

I can tell you this, things have changed. Boys are BETTER than we were, as kids. None of my boys has ever been bullied, or even SEEN bullying, ever, on the macro scale that you and I grew up with regularly. None has been in a true physical fight or been harrassed by a gang... nor have they ever even seen it happen. The worst thing that happens in our troop is some young putz snarls "that's stupid!" at another kid. It is like seeing a different species.

Have any of the rest of you experienced this phenomenon?

Ilithi... "morally straight" long predated any sexual meanings to that term.

And yes, there are jerk-troglodytes who oppose gays for "moral" reasons. So? Attack them, not the local troops that can help make your sons spectacularly trustworthy, capable, kind, responsible and reliable men.

-->

David Brin said...

-->


Abilard, hazing is verboten, now. Sigh, even snipe hunts are forbidden. Even the mild boot camp yelling that older guys gladly endured in Order of the Arrow is gone, gone. And such overcompensation is probably a good thing, lest the really bad stuff creep back. But wow, you said it, man. Great post.

Ilithi, I am surprised your troop is still allowed to do the scare thing. It will stop when one kid's parents complain, sigh. But then... our troop runs a haunted house, every year. So maybe all the juice hasn't been squeezed out, after all.

Will... yes, Supply Side is totally Marxist... without any thought of the long run consequences of the trend. In contrast, Marx carries the story to its inevitable conclusion. Neocons refuse to look that far ahead. So did Ayn Rand. That's the whole difference.

Ilithi Dragon said...

David Brin said...
Ilithi... "morally straight" long predated any sexual meanings to that term.

And yes, there are jerk-troglodytes who oppose gays for "moral" reasons. So? Attack them, not the local troops that can help make your sons spectacularly trustworthy, capable, kind, responsible and reliable men.


Yeah, I do. My criticism is directed solely at those who co-opt the 'morally straight' segment of the Scout Oath to enforce their particular view of the morality of a very specific issue on everyone else. And, as I said, I hope to get involved in scouting again, both for its own sake, and as a voice for change from within.

I'm surprised that my troop hasn't hit any issues with the Spooky Hollow tradition yet, either (though I wouldn't be surprised if parental complaints leading to being told "You're not allowed to do that" would be outright ignored by the boys in the troop, with an eyeroll at 'silly, over-protective parents'). Maybe we've just been lucky, or maybe people aren't quite as lacking in sense and reason as they sometimes appear to be... The fact that we take steps to make sure that we don't cross the line between being scared in a fun way and being truly frightened on the emotionally disturbing level probably helps, too.

Jeff said...

Dr. Brin, a brilliant post worth sharing with every politician and would-be politician in DC.

Regarding the Scouting debate, I'm a 19 year scout/scouter, Eagle Scout, Pack Committee Chair, and Webelos Den Leader. One of the firmest lessons I ever had, and one that I try to instill in my den and pack, is that the best way to effect change with unjust laws is usually change from within. Ironically, this now applies to BSA, but as a private organization they do not have to listen to members' critiques, and there have been some indications that in some areas, those who try to organize a coordinated change campaign are subject to harassment and expulsion.

I agree wholeheartedly, however, that the positives far, far outweigh the negatives. We teach our boys toleration and patience, and I think most packs and troops do as well. The unpleasant experiences some have had is a reflection on the (lack of) proper leadership, not the organization as a whole.

Speaking of good-natured ribbing, newbies in our old troop were subjected to more subtle rites-of-passage, and by the adults. Boys who would doubt everything an older boy told them would eagerly scamper off when a straight-faced adult asked them to go find a skyhook, or left-handed smokeshifter. And I continued the tradition with my own children, who still exasperate their mom over our summer cookouts chanting "I hate rabbits" when the smoke blows there way.

David said...

Hitler systematically murdered homosexuals, too. So did every Western regime since classical times. You seem to think that gay-bashing a triviality; that is an offense against those who, in living memory, were arrested and imprisoned in America -- and those that are murdered as we speak around the world. The Jews are safe and sound by comparison, these days.

Homophobia and anti-Semitism are comparable precisely because homosexuals have been persecuted and systematically murdered, just for being alive, for centuries.

But YOU deliberately (again) miss my point. That purist, oversimplifying screeching at this fantastically effective movement is just as stupid as the BSA's purist, oversimplifying policy.

Not deliberately, no. I do think your "pedophile" point is a red herring and a libel. And who's screeching?

I do not mind the criticism. Have-at! What I am saying is that I will not cut off my nose to spite my face.

We may be misreading each other, but it seems like you do mind the criticism. And didn't I just say, "No reason to deny your boys the experience of scouting because of politics." I just said that. Now who's deliberately missing the point? I am criticizing the BSA, not calling for your local troop to be disbanded.

I think that, in your militant moderatism, you see fire-breathing dogmatists where there are none.

David said...

"Banning gays is a totally ineffectual protection."

Nu? Didn't I say that?


Yes, after you smeared homosexuals with the libel of pedophilia. Why bring up that absurd and unworkable point, then retreat from it without even acknowledging a change in position?

Anonymous said...

David: Homophobia and anti-Semitism are comparable precisely because homosexuals have been persecuted and systematically murdered, just for being alive, for centuries.

Perfect case in point for this audience, Alan Turing arguably saved thousands of Allied lives during WWII and yet was persecuted by the British government for being a homosexual.

http://en.wikipedia.org/wiki/Alan_Turing

Turing's homosexuality resulted in a criminal prosecution in 1952—homosexual acts were illegal in the United Kingdom at that time—and he accepted treatment with female hormones, chemical castration, as an alternative to prison. He died in 1954, several weeks before his 42nd birthday, from an apparently self-administered cyanide poisoning, although his mother (and some others) considered his death to be accidental.

My mother was an antique dealer in the fifties and sixties, I grew up around gay men before any were out of the closet. My experience as a rather strange (but hetero) little boy and teen was that I was treated with more respect and kindness by my mother's gay friends than by virtually any other men in my life, certainly better than by the jerks that ran the scout troop to which I briefly belonged.

Robert said...

After the latest Daggatt Blog on the Republican Party hijinks, I have to wonder when someone in the media is going to call bullshit on these assholes. And sorry, but what many of the Republican Senate have become is assholes. They try to block bills that they later vote unanimously for. They protest secrecy and then protest when secrecy goes away. They are whining like little children who didn't get their way... and feel that non-neoconservatives are wrong and need to be taken down without admitting to any of the damage they are still doing.

My goddess... if one of the four major news networks (CNN, NBC, ABC, or CBS) ran with this, showing how the Republicans have been blocking EVERYTHING, even things THEY RECOMMEND... why doesn't 60 Minutes run with this? Or 20/20? This is news! This is something that needs to be told to the people, so they will wake up and realize just what is going on here.

Because the Republicans have betrayed a sacred trust. By refusing to negotiate, by blocking everything even after Democrats give them what they want, they have taught Democrats to not negotiate and to just push through what they want. As a result? We lose balanced legislation. The result is an insidious treason by the Republican Party... and a betrayal of what it means to represent America in Congress.

Rob H.

David Brin said...
This comment has been removed by the author.
David Brin said...
This comment has been removed by the author.
Rob Perkins said...

I hope it's clear why I didn't even try to answer his leading questions, now.

I'm very glad David (Brin) got to post his position on Scouting again, though.

Anonymous said...

Jesus Christ, remind me not to get on Brin's shitlist.

David Brin said...

I should never have even tried to speak to that can of worms and should not let deliberate provocateurs provoke. I withdrew my angry response within an hour. I can do nothing more.

On to other topics, less likely to provoke bizarre accusations.

Brian Dodge said...

When I was a scout in the 60's, most of the leaders were more interested in outdoor skills than the fact that I was agnostic, and they taught me how to recognize the intolerant and lie to them about my beliefs. I got an occasional eye roll or sharp look when I said "brave, clean, and (ir)reverent" sotto voce, but I never said it quite loud enough to get called on it.

Robert said...

Okay. I truly hope it wasn't my comments on the Daggatt Blog that got Dr. Brin's ire (which I missed thanks to power outages). If it were... I apologize profusely.

Rob H.

(If it wasn't me, no need to explain what got him angry, just saying it wasn't my words would be enough. And if it was? Again, I'm sorry.)

Corey said...

Relax, it wasn't you Robert (at least not by any indication from what was said).

It was just another poster drawing analogies that were way out of line between our society and others (from those moments in history we're less proud of), and it prompted Dr Brin to say things that were characteristically un-Brin-like :)

Kelsey said...

Don't worry Robert, it wasn't you. I saw his comments, but I won't repeat them.

Perhaps Blogger should give users a five-minute wait timer after they click 'publish your comment'. They could cancel their comment any time before then and they would get time to double-check the rules and make sure they're saying what they actually mean to say.

Abilard said...

"... it prompted Dr Brin to say things that were characteristically un-Brin-like"

Rumor has it that Mr. Brin has a temper. :-) A couple years ago some folks who run science fiction conventions mentioned it to me. Apparently, if a dose of Brin is mixed with an equal or greater measure of certain authors verbal fireworks may ensue.*

I was completely scandalized by the comments. Just viewing them secondhand was enough to cause my thin skin to bruise. No wait. That wasn't it. Let me think. Oh right, I did not care.

This blog is not a Sunday afternoon social.

-----

*This was years ago. I wish now I could remember which authors they mentioned. I would have used quotes from them as bait to see what would happen. But then, I am thin skinned.

Hal Finney said...

Apologies for a belated OT comment, but David Brin's definition of supply-side economics does not seem right. From Wikipedia:

"Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices.

"The term supply-side economics was coined by journalist Jude Wanniski in 1975... and popularized the ideas of economists Robert Mundell and Arthur Laffer. Today, supply-side economics is often conflated with the politically rhetorical term 'trickle-down economics,' but as Jude Wanniski points out in his book The Way The World Works trickle-down economics is conservative Keynesianism associated with the Republican Party."

(I realize that Wikipedia is not authoritative, so if someone wants to point at a more scholarly source for a definition I would appreciate it.)

It is unfortunate that in what purports to be an introductory primer, David apparently gets the fundamental definition of his principle topic wrong.

Health Blog said...

Demand and supply is a basic fundamental concept of Economics.
Thanks for the given difference between these two. I Would like to
read more concept in Economics from you. keep posting.

Steve Emanuel said...
This comment has been removed by the author.
Elvie Nehrt said...

Why you think its a "voodoo" theory.They were not success with the SUPPLY SIDE THEORY and Demand Side Economics.
cell phone lookup

Jon Hall said...

Supply is dependent on demand. If there is less demand, obviously there will be less supply.

Marcus Lassiter said...

Supply and demand is an economic model of price determination in a market.

Metatrader Programming said...

Further fleshing out could pose how U.S., in the shift from Keynesianism to monetarism, went from leading creditor to leading debtor, from leading exporter to heavy importing.

Tyler Shamburg said...

This is, to some degree, the situation we're already in (albeit with very small crowds) when several professionals are asked to interpret medical data (such as an MRI scan): Ambiguity.

San Diego County Jail said...

Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation.

Anonymous said...

Here's a website that explains supply-side economics well: http://www.investopedia.com/articles/05/011805.asp

On the website it shows the supply/demand curve model. With demand-side economics prices increase and output increases minimally. With supply-side economics prices lower and output greatly increases. According to the supply/demand curve model supply-side economics would be better for the economy than demand-side.

Supply-side economics is not just about tax cuts either.

In the past when tax rates were cut federal revenues did in fact increase not decrease.

In the 1920's Warren G. Harding and Calvin Coolidge cut taxes for everyone. The top tax rate was decreased from 73% to 25%. Income taxes were eliminated for many people. The tax base expanded and tax revenues increased substantially. Economic growth spiked and the decade was called the "Roaring 20's" due to the strong economy.

In the 1964 LBJ cut the top tax rate from 90% to 70% and many people thought revenues would decrease but they increased. Economic growth was also great.

In the 1980's Reagan cut the top tax rate from 70% to 28% and other income tax rates were cut. Tax revenues increased but Reagan had deficits because he increased spending instead of cutting it. Reagan created 16 million new jobs which is the second highest jobs a president has created.

Bush's tax cuts also increased revenues but like Reagan Bush increased spending and ended up with large deficits.

Clinton is not a Keynesian. If he was a Keynesian then the extra revenues from his tax increase would have been put back into the economy instead of going towards paying off the national debt instead. One reason the economy boomed during Clinton's presidency is due to the rise of the internet the dot-com boom. It's likely that the economy would have seen even more growth if Clinton did not increase taxes.