Worst-case economic scenarios...

Mark Thoma (via Paul Krugman) says:

I think the stimulus package is like driving up an icy hill. If you don't have enough momentum from the start and fail to provide enough "stimulus" to get the car over the crest of the hill, you can slide all the way back to the bottom, crashing into things along the way and ending up worse off than when you started.

Krugman and Thoma have been trying to figure out just how big a stimulus will be sufficient for the economy to pull itself up by its bootstraps, and both are worried that a trillion dollars isn't enough.

Here's a best guess on what unemployment will look like over the next few years with and without the Obama stimulus (from Krugman's blog):

I have very little faith in macroeconomic models of the economy, so naturally I'm skeptical that the data on this graph will have any relationship to reality. I think that we understand the economy about as well as we understand the weather-- we can make reasonably precise predictions about what conditions will be like over the next few days. And we can make some very broad, imprecise guesses about what will happen over the next decade or two. But I think both the weather and the economy are impossible to predict with any certainty in between.

But I'll swallow my doubts, and pretend that the experts will be right. So: should we do nothing, suffer from 9% unemployment for three years, and let the economy recover on its own?

Should we spend a trillion dollars, suffer from 8% unemployment for two years, and risk "sliding down the icy hill" and ending up worse than we were before?

Or should go all-in: spend three (or four or five?) trillion dollars to get to the top of the hill? What if the hill is bigger than THAT? Or what if the Keynesian theory of economic stimulus is wrong?

My brain kind of understands numbers as large as a couple of million dollars. Billions and Trillions are just way too big for me.

So, lets break it down: Lets say we spend an extra trillion dollars to get up the icy hill. And lets be wildly optimistic and assume the unemployment rate immediately drops from the current 7% to the normal, "full employment" rate of around 5%.

Two percent of the US workforce is 3.2 million people.

One trillion dollars divided by 3.2 million people is about $300,000 per person.

Somebody please check my math; are we really talking seriously about spending THREE HUNDRED THOUSAND DOLLARS PER JOB SAVED?!?

I don't have a PhD in economics, but common sense tells me that just cannot be a good idea.

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Update: I checked my own math, and I goofed on the first version of this post. It's "only" $300,000 per job saved, not $600,000 as I originally thought.

10 Predictions for 2009

Image by OlivIreland via Flickr.

I can't resist: I got a new crystal ball from a Certified Authentic Psychic who tells me I can't possibly go wrong this year.

1. Oil prices will continue to be wildly volatile; oil will cost more than $100 per barrel again on at least one day in 2009.

2. Congress will pass, and Obama will sign, an economic stimulus package larger than $900 billion.

3. The economic recession will last through the entire year.

4. Conservatives will claim that the stimulus is causing the recession to last longer.

5. Progressives will claim that without the stimulus we'd be in the Second Great Depression.

6. General Motors will declare bankruptcy after getting billions more dollars of bailout money.

7. Now that Home Depot is open, Rocky's Ace Hardware in Hadley and Leader Home Center in Amherst will close in 2009.

8. Mark's Meadow school in Amherst will be closed.

9. Lance Armstrong will not win the Tour de France again.

10. I'll only get 7 of these 10 predictions right. I really hope I'm wrong about #3...

2008 Predictions Revisited

Exactly one year ago I made eleven predictions. So it is time for me to face up to cold, hard reality and see how accurate I was:

Mitt Romney will be the Republican presidential nominee.

Oops. I thought McCain was too "maverick-y" for the Republicans.

Barack Obama will be the Democratic presidential nominee, and will be elected President.

Yay! I got these two right! A year ago it looked like Hillary would be the Democrat's choice, but I figured she wouldn't because as many people hated her as liked her.

Pro football will have a major "athletes taking performance-enhancing drugs" scandal.

Yup.

Oil prices will go over $100 per barrel at least twice.

Yup. I didn't expect them to stay above $100 per barrel for most of the year, though.

Troop levels in Iraq will go down until the November elections. Immediately after the elections, another troop surge will be proposed.

Yes, and No. Troop levels in Iraq have been slowly declining this year, but there's no talk of another surge in Iraq. I'm not even going to give myself half-credit for the talk of a "surge" in Afghanistan, because I had no idea that would happen (I thought the Iraq surge would be a failure, but it looks like it worked).

Around 200,000 people in Massachusetts will still not have health insurance at the end of 2008 (down from 500,000 without health insurance in 2006).

According to the Urban Institute, the number is about 170,000; I'm going to call that close enough (rounding to the nearest 100,000...).

The increase in the minimum wage will mean fewer teenagers working during the summer of 2008.

Yup, it looks like teen unemployment is way up, beyond the base level of unemployment being caused by the recession.

Inflation-adjusted "total compensation" (wages plus benefits) will be up more than 1% for all income brackets over the year.

The numbers aren't in yet, but it looks like I'll be wrong on this one. According to the Bureau of Labor Statistics, it looks like total compensation will be up something like 3% in 2008, which is less than inflation*. Interestingly, it looks like government workers are doing a little better (their total compensation will increase something like 4% in 2008).

And my wrongest prediction of 2008:

The New England Patriots will win the Super Bowl.

Go Giants?

So, overall I give myself a score of 7 out of 11 correct. Maybe I'll do better this year...

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* Update, 30 Jan 2009: The inflation numbers are in: "Core" inflation was just 2.2% last year-- overall inflation (including food and energy) was NEGATIVE last year. So if you didn't get fired, you're actually better off than you were a year ago (and my prediction that inflation-adjusted total compensation would be up was correct).

Pools and Unintended Consequences

Pools all across the country are being closed because of the Virginia Graeme Baker Pool and Spa Safety Act.

"Better safe than sorry," right? "If it saves even ONE child's life" then it's worth it?

Rationally evaluating risks is one of my hobbies. We're all (myself included) bad at estimating risk; situations or things that feel risky often aren't, and we can easily shoot ourselves in the foot by overreacting to small risks (the Iraq War being the largest recent example).

I can think of two ways this well-intentioned law will almost certainly end up killing more children than it saves.

First, if fewer children learn to swim because pools are closed, then more children might end up drowning over the next few years. I have no idea whether or not there will be a measurable increase; hopefully any change will be small enough to get lost in the statistical year-to-year noise.

Second, if a lot of money is spent fiddling with pool drains, then that makes us poorer overall. And, statistically speaking, poorer kids are more likely to get killed than richer kids. In the book Risk and Reason (very wonky; I've been slowly digesting it for a while now), Cass Sunstein cites economists who estimated that somewhere between $2 million and $10 million spent to comply with regulations costs about one life. The congressional budget office estimates that it will cost "less than" $40 million for state and local governments to comply.

The thought of Virginia Graeme Baker drowning at the bottom of a pool is horrible. It's a lot harder to imagine the children who might be saved because they learned to swim, or to image the handful of people who will die because we spent money on pool drains instead of programs to improve childhood nutrition or encourage immunizations or prevent kids from joining gangs or...

Refinancing through the Productivity Lens

I'm impressed, the Feds accomplished something they set out to do: they said they wanted mortgage rates to be lower, and now they're lower.

That means good news and bad news for me personally. The good news is that I can refinance my mortgage and pay less to live in my house (the phrase "the rich get richer" seems pretty relevant; I'm incredibly rich compared with most people in the world).

The bad news is that refinancing a mortgage is not a productive activity. I have better things to do with my time than talking to a loan officer, filling out paperwork, yada yada yada. And all the people who will be involved in the refinance (the appraiser, my lawyer, the loan officer) will be getting paid to do unproductive work, too.

I have no idea where the money to pay for all of that unproductive activity comes from. I suspect that we're in the middle of a really big inter-generational Ponzi scheme-- that the government is running up huge debts that will eventually be paid by my kids (or maybe their kids). And maybe that's OK, because our kids will be rich.

But I bet they could be even richer if we spent more of our time doing productive work to make the world a better place.

Why the Auto Bailout Won't Work

A quote from Steven Spear (Senior Lecturer at MIT, Senior Fellow at the Institute for Healthcare Improvement, Former assistant professor at Harvard Business School) in the December 15'th issue of Time Magazine caught my eye:

"...what's inherent about anything complex is that it becomes impossible. You can't design it perfectly," he says. What matters, he argues, is swarming problems from every direction to create high-speed, low-cost discovery and learning.
("Is This Detroit's Last Winter?")

Japan beat Detroit because the Japanese companies realized this, and abandoned (or never adopted) the top-down, central-control approach.

So now Congress wants to appoint a "Car Czar" to fix Detroit. And they want the automakers to present their five-year plans for restructuring.

Or, in other words, the companies are failing because they relied too much on top-down command and control. So Congress is planning on fixing them by adding even more top-down command and control.

Do politicians really believe that they have the power to Fix Things, or is it all just hot air to try to fool us into re-electing them?

Zoning Priorities

Image by Carol Esther via Flickr.

The Amherst Planning Board Zoning Subcommittee is going to meet today to get feedback on their list of priorities for next Town Meeting. Here's what I'm planning on saying:

Yay infill! Concentrating development where there is already existing infrastructure (roads, plumbing, transportation, businesses) should be a no-brainer; it's gentler on the environment and puts less stress on Town services.

Yay downtown/village center development! Putting businesses closer to where people live and work should also be a no-brainer.

Yay Mullin Rule! I had to look this one up-- the Mullin Rule makes it a little easier for projects to make their way through the permit approval process; if a board member misses a meeting, they can still vote on the approval as long as they promise that they thoroughly reviewed the meeting they missed. Making the permit approval process more predictable is a good thing.

Boo recreational facilities in residential development. The proposal was to require 1,000 square feet of "recreational space" per unit for developments that have more than four units (with a bunch of exceptions, and lots of verbiage defining "recreational"). This was referred back to the Planning Board last Town Meeting, and the more I think about it the less I like it. Why am I opposed? Let me count the ways:

1. It would encourage sprawl. I thought we were aiming for denser development in general, because that will mean less pressure to develop in outlying areas.
2. It will not solve the underlying problem. The real problem is a lack of competition in the Amherst rental market. Vacancy rates in Amherst are under 2%; a rental market with a healthy amount of competition should have a vacancy rate in the 6-8% range.
   With little competition landlords can keep rents high and improve their properties as little as possible. So we get expensive, run-down rentals with no recreation facilities.
3. If the recreational facility requirement is just a pro forma hoop that developers jump through to get a permit, then they'll do nothing to maintain them over time. Every development will end up with a sad, rusty swing set and a couple of weedy horseshoe pitching pits, put in just to satisfy the recreation requirement and then promptly forgotten.

Oh, and I'll probably mention my pet zoning peeve-- the silly, antiquated rules for home businesses, although it probably doesn't have much practical effect on life here in Amherst, and shouldn't be a high priority.

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Update after the meeting: I'm wrong about the recreational requirement increasing sprawl; apparently Amherst already requires un-built, un-paved space of at least 1,000 square feet per unit, so basically the change would require that some of that empty space be turned into "recreation" space. I still don't like it for the other two reasons, and because it goes against the KISS principle. Amherst zoning is way too byzantine already and needs an overhaul (as the head of Amherst's planning department, Mr. Tucker, mentioned at tonight's meeting).