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Saturday 26 April 2014

Biased Journalism and Capital in the Twenty-First Century

It's been way too long since I last posted. The delay was due to my "day job" of running a small business. One can only procrastinate so much when it comes to accounting and taxes. Trying to sort out the needless complexity of federal income taxes is enough to convert anyone into a progressive on tax reform - but I'll save that rant for some other day.

Piketty and his Book, Capital in the Twenty-First Century

Today's blog offering is about the recent brewhaha over Professor Thomas Piketty's brand new book Capital in the Twenty-First Century (we will refer to this book as just Capital for the rest of the post).

There are whole farms of editorial misstatements in this week's and last week's newspapers and sponsored blogs over this book. When I compare op-ed pieces on Piketty's opus, it seems like every editorial or review is about a different book. For example, Capital as read by Nobel-Prize winning economist Krugman (http://www.nytimes.com/2014/04/25/opinion/krugman-the-piketty-panic.html) appears to be a different work compared to the Capital read by right-leaning editorialist David Brooks (http://www.nytimes.com/2014/04/25/opinion/brooks-the-piketty-phenomenon.html), by Wall Street fund manager Daniel Shuchman (http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592), or by engineer and part-time journalist David Auerbach (http://www.slate.com/articles/technology/technology/2014/04/thomas_piketty_capital_in_the_twenty_first_century_surprisingly_entertaining.html). I could list more articles on Piketty's Capital, like the ones found in the venerable weekly Economist (http://www.economist.com/news/finance-and-economics/21592635-revisiting-old-argument-about-impact-capitalism-all-men-are-created) or the American Business flagship magazine Forbes (http://www.forbes.com/sites/scottwinship/2014/04/17/whither-the-bottom-90-percent-thomas-piketty/). It seems like the world has exploded with numerous reviews and commentary on this French economist's book while I was on vacation for the last two weeks.

I have not read Piketty's book and therefore am not in a position to produce my own critique. Regardless of what Piketty actually wrote, I am both intrigued and disappointed that I can predict the overall tone and much of the content of most reviews and commentary on Capital by author or publication for most of the news outlets I visit (with the one exception of Salon, as discussed below). For example, Krugman uses Piketty's analysis of growing income equality to go straight for the jugular of the voodoo economics favored by the modern American neo-con rightwing. But that's Krugman's bread-and-butter for his New York Times column. The man just can't resist taking those potshots at the supply-side economic theories of the American right wing because the former lives in a data-driven universe and latter does not.

Obligatory Tangent: Voodoo Economics

Okay, I admit it - that was a cheap shot. You caught me red-handed. I like Krugman's stuff and therefore must come clean that the above statement may be biased. Let's look at that for a moment before moving on. The term "voodoo economics" was coined by George Bush Sr. when he was running against Ronald Reagan for the Republican nomination as the party's presidential candidate in 1980. Voodoo economics was Daddy Bush's label for what is known as supply-side economics or "Reaganomics" on this side of the Atlantic. The lynchpin of Reaganomics is the theory that cutting taxes on capital-based income will create incentives to reinvest this formerly-taxed income in new business development, thus stimulating the economy and creating jobs. The tax revenue lost would be recouped through taxes on the new economic growth, namely the newly-created wages and business profits. By reducing the tax expense for businesses, the money saved would then "trickle-down" to the rest of the economy through new business spending. Deregulation of industry and shrinking the size of government were also part of Reaganomics, on the grounds that removing governmental meddling for both businesses and individuals would also stimulate the economy. The BBC has a nice bite-sized overview of voodoo economics at http://news.bbc.co.uk/2/hi/americas/270292.stm and the Stern School of Business at NYU has a nice in-depth overview at http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM.

Federal deficit reduction has been and still is integral to the current economic philosophy of the right wing; but if you give it a minute of thought, I believe you will realize that deficit reduction is actually a separate issue from supply-side economics. This is important only because right-wing pundits believe that policies which are the opposite of those recommended by supply-side theory, namely increasing taxes, regulating industry and not shrinking government, will lead to recession along with a growth in the federal deficit and in interest rates. The irony here is that the federal deficit exploded under Reagan's and Bush Senior's terms as President with their policies of deregulation and tax cuts, from $40 billion in 1979 to $221 billion in 1986. As to the economic impact of Reaganomics, numbers from the Congressional Budget Office show that the growth in GDP abruptly slowed during the Reagan administration, indicating a drop in economic activity.

In actual fact, the Clinton administration approach to federal deficit reduction did everything that supply-siders hate: taxes were increased while the growth of federal spending was slowed but not reversed. By the start of Clinton's second term, the federal deficit was cut in half. When Clinton left office, he left Bush Jr. a budget surplus of $236 billion. During that time, real interest rates and the growth rate of the GDP were both stable. (Federal deficit data is from the Congressional Budget Office, www.cbo.gov/publication/45249; GDP data is from the U. S. Bureau of Economic Analysis, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=4).

So what's the gig with voodoo economics? Simply that they don't work as advertised, particularly in recessionary economies. At the risk of sounding like Krugman, cutting both taxes and government spending make recessions worse. This isn't arm waving. This is a statement based on data, and more data than just comparing Reagan/Bush Sr., Clinton and Bush Jr. The numbers aren't even exclusively American, especially when looking at the effect of taxes or consumer and government spending on measurements of economic health, namely unemployment, real wages, and prices indices. Krugman covers much of this ground in his 1995 book, Peddling Prosperity (ISBN 978-0393312928) but for an up-to-date look at the failure of supply-side economics, I refer the reader to the 2013 data-intense analysis of Stuckler and Basu in their book The Body Economic (ISBN 978-0-465-06398-7). Don't be fooled into thinking it's a book on public health policy. Read this book for its number crunching of international economic and societal data. Admittedly, the progressive rhetoric of the authors is strident but what they have to say is backed up by data, lots of data, and even more data. I'm a data-driven person and so I recommend this book highly.

To conclude this verbose tangent on voodoo economics, it was no surprise to me that Krugman's op-ed piece on Piketty was really just another another platform for one of his attacks on right wing economic theorists who are long on wind and arm waving and short on real numbers. I don't like Krugman because I'm a liberal because I'm not a liberal. I like Krugman because he pays attention to real-world economic data and eschews theoretical economic models regardless of the political orientation of their supporters. So much for my bias on Krugman.

More Predictable Reactions to Piketty's Capital

David Brooks is one of the New York Times' token op-ed conservatives. Mind you, what I have to say here is personal opinion and that the reader's opinion may be different from mine. I find that Brooks is no Krugman and that most of his stuff is unfocused and underwhelming, though I do enjoy his regular tiffs with New York Times liberal editorialist Gail Collins because of their good-natured humor. Brooks' piece on Piketty is like Brooks himself: full of fuzzy thinking and fuzzy, often incorrect assumptions. Here's an example from Brooks' Piketty article:

If you are a young professional in a major city, you experience inequality firsthand. But the inequality you experience most acutely is not inequality down, toward the poor; it’s inequality up, toward the rich. You go to fund-raisers or school functions and there are always hedge fund managers and private equity people around. You get more attention than them at parties, but your whole apartment could fit in their dining room. You struggle with tuition, but their kids go off on ski weekends. You wait in line at the post office, but they have staff to do it for them.

The first time I read this, my inner smart aleck protested that you'd never see the Wall Street elite at school functions since all their kids are off at Choate or Emma Willard or some other private school. And what's that bit about struggling with tuition? Young professionals I know in New York or San Francisco can't afford private schools for their kids, many of which carry price tags as expensive as tuition at an Ivy League university. Most professionals of my acquaintance, like my sister or my cousins, have to settle for moving to a bedroom community with a good public school system. And somehow, I find his take on inequality really very odd: that Brooks believes that observing the wealthy 1% is more common than seeing the homeless in Union Square or MacArthur Park, or seeing the slums every commuter observes from the windows of the subway or BART or from one's car on the Nimitz Freeway on the south side of Oakland. I have a hard time with that since the signs of poverty are as common and frequent as every person holding a "will work for food" sign at busy intersections and highway onramps, an unavoidable sight unless you live in a gated community that you never leave. This is just one example of why I find Brooks to be a fuzzy thinker and a fuzzy writer.

The quality of the New York Times' conservative editorialists has suffered since the late William Safire retired, sad to say. I do find it interesting that Brooks seems to assume that the reader has already read Piketty's book with its hefty retail price of $39.95 (and only $21.99 on Kindle!) but the devil's advocate in me wants to point out that Brooks' piece is an editorial, not a book review.

Out of the several of pieces from the Wall Street Journal ("WSJ") on Piketty's book, I will use just the one I mentioned above since I find it representative of many of the WSJ editorials I've read in recent years. I have to delineate between the old WSJ and the new because I find the WSJ just isn't what it used to be after Murdoch bought it. The amount of criticism of business and politics on the editorial page has declined and some topics, like racism and workplace discrimination, don't even appear anymore. I'm not alone in thinking the WSJ has strayed from its former standards of superior business reporting and analysis as any search on "Wall Street Journal changes since Murdoch" will show. The discussions on the changes at the WSJ at journalism.org would be a good place to start for those who are interested.

For me, the new style of WSJ editorials tend to feel like varsity versions of the junior varsity "commentary" reporting at Fox News. Strawman arguments, name calling and other forms of ad hominem attacks never used to show up at the WSJ but subtle forms of these are now not uncommon. Here's an example from the WSJ book review by Wall Street insider Shuchman:

"the author believes that no CEO could ever justify his or her pay based on performance. He doesn't say whether any occupation—athletes? physicians? economics professors who sell zero-marginal-cost e-books for $21.99 a copy?—is entitled to higher earnings because he does not wish to 'indulge in constructing a moral hierarchy of wealth.' "

Wow. Strawman and ad hominem all in one sentence! I'm going to resist the temptation here to ponder whether Shuchman perhaps found Piketty's commentary on exploding executive salaries a little too close to home. Someone please pass me my 6-pack of mice! For myself, I find nothing wrong with Piketty's desire to avoid the creation of a "moral hierarchy of wealth" where one's worth in life is measured only in terms of how much you earn. Despite the common American failing to use wealth as a measure of social standing and personal worth, it is not true that any given physician is a better person than a house wife raising a pack of children, or that a best seller author is a better person a truck driver, or that a Wall Street fund manger is a better person than a bank teller. Methinks that Shuchman doth protest too much.

I find that this sort of subtle nastiness has infected the op-ed pages of the WSJ since its takeover by Murdoch's media empire. As I pointed out in an earlier blog post (http://blog.someonewaswrongontheinternet.com/post/2013/09/23/Pipeline-Pathways-and-Foot-In-Mouth), this is the new Murdoch-owned WSJ where one editorialist claimed that:

"Pipelines also tend not to go straight through exposed population centers like Lac-Mégantic."

If you recall, this brilliant example of cluelessness was out of an editorial titled "Can Environmentalists Think?" It makes me wonder if the op-ed page editor was asleep when this was submitted. Unfortunately, this is the sort of snarkiness one can expect out of the WSJ these days. I find it incredibly sad because I used to really love the WSJ with its deep and nuanced reporting on business, which was unique and every bit as good as the Economist but on a daily basis. But things have changed since the buy-out of the WSJ's parent corp Dow Jones and over a hundred journalists fled for other news outlets, which would be a devastating loss for any news organization (ref: http://mediamatters.org/blog/2011/04/25/exodus-former-wsj-staffers-speak-out-against-mu/179020). I think the only reason I still subscribe to the WSJ is for fodder for this blog. Really.

Moving on to the book review in the Economist, it has everything that one expects from this premier European economic weekly: a good overview of what the book is about, an appreciation of Piketty's attempt to tie economic trends to modern philosophical and cultural trends and a list of both good and bad aspects in Piketty's analysis. Where the WSJ book review ridiculed Piketty's invocation of literature and culture in his analysis of the use of capital in modern societies, including Communist ones, the Economist's review discussed the value of examining economic theory from different cultural perspectives that change over time. This review was comprehensive, nuanced and sophisticated. The unnamed author of the review did not pull punches where he or she saw gaps in Piketty's assumptions or disagreed with Piketty's conclusions, but those criticisms were delivered ever so politely, demonstrating that disagreement doesn't have to be wrapped in nastiness or sarcasm. The review in the Economist makes me want to read Piketty's book for myself. This is the sort of journalism that one expects from the Economist and it's one of the reasons why I adore this weekly. If you have never sampled the joys of intelligent business-oriented news and analysis in the Economist, you should take the time to check it out.

The treatment of Piketty's book by Forbes is interesting and in-character for this maverick of American business reporting. While the article I cited earlier is intelligent and perceptive, it's only one in a whole series of a planned examination by Forbes on the different aspects of Piketty's book. Going over to the Forbes website, a search on "Piketty" returns 15 already-written articles and blogs on his book plus several others discussing Piketty in general or in comparison to other economists of international standing. Well, that's Forbes for you. Like the eccentric and flamboyant members of the Forbes family who founded and ran this magazine, one never knows quite what to expect but whatever it turns out to be, it will be interesting. Given the sheer number of divergent opinions on Piketty reflected in the Forbes articles, I know I have revised my opinion on Forbes upwards.

Red Bashing

Now there's one thing about the Piketty book that I've not discussed yet, and that is Piketty's treatment of Marx. Piketty's specialty in economics is economic inequality and on that subject he apparently takes some of what Marx said seriously. Keep in mind that Piketty is a French economist working and teaching in France, a place where words like "socialist" or "communist" are not necessarily the lies of Satan straight out of the Necronomicon. Since he doesn't have to worry about the American tenure system for academics, examining the theories of Marx with something other than condemnation does not carry the risk of career suicide that it would be in the U.S. of A. Apparently, Piketty makes some very un-American suggestions to combat what he believes is an irreversible run-away spiral of wealth inequality a la Marx, like a world-wide 80% tax on income from capital gains - well, that's the impression I get from that pile of informative Forbes articles. David Brooks at the New York Times was dead on the money for once when he wrote that such a global wealth tax was the product of a utopian idealist.

Now saying that something in Marx might be right is enough to invoke a lynch mob in these parts. Only one of the Piketty reviews (Auerbach at Slate) noted that not only did Piketty agree with some observations by Marx but that he also had lots to say about where Marx got it wrong. This left me wondering about the potential lack of balanced reporting on Piketty's book and about possible trends of pinko commie bashing in Piketty book reviews and editorials. So I made a completely unscientific random survey of reviews and commentary, and my results are listed below:

  • New York Times - Krugman: no mention of anything like Marx or commies (http://www.nytimes.com/2014/04/25/opinion/krugman-the-piketty-panic.html)
  • New Tork Times - Brooks: offhand neutral remark about Marxism (http://www.nytimes.com/2014/04/25/opinion/brooks-the-piketty-phenomenon.html)
  • Wall Street Journal - Shuchman: red bashing (http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592)
  • Wall Street Journal - Paletta: no mention of Marx (http://blogs.wsj.com/economics/2014/04/14/5-takeaways-on-wealth-and-inequality-from-piketty)
  • National Review - Pethokoukis: red bashing (http://www.nationalreview.com/article/374009/new-marxism-james-pethokoukis)
  • Slate - Auerbach: neutral observation on Piketty's treatment of Marx (http://www.slate.com/articles/technology/technology/2014/04/thomas_piketty_capital_in_the_twenty_first_century_surprisingly_entertaining.html)
  • Slate - Weissmann: offhand neutral mention of Marx (http://www.slate.com/articles/business/moneybox/2014/04/thomas_piketty_capital_how_america_s_liberals_fell_for_a_french_economist.html)
  • Economist - anon.: neutral mention of Marx's theories (http://www.economist.com/news/finance-and-economics/21592635-revisiting-old-argument-about-impact-capitalism-all-men-are-created)
  • Forbes - Winship: neutral mention of Marx's theories (http://www.forbes.com/sites/scottwinship/2014/04/17/whither-the-bottom-90-percent-thomas-piketty/).
  • American Enterprise Institute - Hassett: neutral mention of Marx's theories (http://www.aei.org/speech/economics/remarks-on-thomas-pikettys-capital-in-the-twenty-first-century/)
  • Salon - O'Hehir: rightwing conservative bashing (http://www.salon.com/2014/04/26/the_new_gilded_age_a_bigger_con_job_than_the_first_one/)
  • Salon - Donovan: rightwing conservative bashing (http://www.salon.com/2014/04/24/the_rights_piketty_nightmare_coming_of_age_in_the_era_of_post_exceptionalism/)
  • New Yorker - Cassidy: neutral mention of Marx's theories, neutral observations on Piketty's treatment of Marx (http://www.newyorker.com/arts/critics/books/2014/03/31/140331crbo_books_cassidy)
  • Rush Limbaugh Show - Limbaugh: red bashing squared (http://www.rushlimbaugh.com/daily/2014/04/24/the_left_is_giddy_over_new_marxist_book)
  • Bloomberg - Crook: minor neutral mention of Marx (http://www.bloombergview.com/articles/2014-04-20/the-most-important-book-ever-is-all-wrong)
  • Naked Capitalism - "Rumplestatskin": no mention of Marx (http://www.nakedcapitalism.com/2014/04/corrupting-piketty-21st-century.html)

This list is interesting. I was surprised by the lack of red bashing from Hassett at the right-wing American Enterprise Institute. Pethkoukis, a career red basher at the the National Review also publishes stuff through the American Enterprise Institute and he seldom passes up the opportunity to spout anti-commie utterances. I guess this means that the American Enterprise Institute doesn't insist on red bashing but they don't ban it either.

What really surprised me was Salon, which I have liked over the years. A double whammy of conservative bashing was not what I expected but the facts are staring me in the face: Salon does not ban the bashing of conservatives and conservative ideas. My opinion of Salon has been revised downward. Sic transit gloria salon.

Biased Journalism

My big point in this digression is that a review or commentary of someone's controversial work can be more reflective of the person who writes it or the publication in which it appears than it is of the work being discussed. This idea popped into my brain after I read Krugman's column and Brooks' column back-to-back. Neither column told me much about Piketty's book but each spoke volumes to me on the signature writing styles of these two columnists. I then visited several other newspaper and magazine websites to test my hypothesis. To a first approximation, I think my observation is correct with one caveat. Here's the caveat: the shorter the review or commentary, the more likely it reflects the opinions of its author or publisher and the less likely it is to inform the reader about the content of the work under discussion. But don't take my word for this. Run your own test of this hypothesis and make up your own mind on this matter.

I think it's good to test this hypothesis on a subject you don't care much about or on a issue where you don't already have a strong opinion formed. Like me this morning, if you know nothing about the celebrated international French economist Thomas Piketty, then run your experiment on his book Capital. If you are already informed about Piketty's Capital, then pick a different subject you don't know much about. Next, make a list of news outlets and/or authors along with your own evaluation of whether they are liberal vs. conservative and cursory vs. detailed. Then visit each news outlet or author on your list and look at the political orientation for each article you find discussing your chosen subject. The gig here is not whether you agree or disagree with the opinions you find, but rather what the political orientation might be for any author or news outlet. Also look at each piece of reporting as to whether it delivers facts and observations and whether it resorts to arm-waving, grandstanding, ad hominem attacks and other opinion-manipulation tricks like strawman arguments. Be aware that any given piece of writing may include both factual content and rhetorical tricks. The purpose of the exercise is to measure factual reporting vs. political bias. You might learn something new about who does a good or bad job reporting the news. I certainly did.

Post Script 1:

I haven't read Piketty's book. At $22 for an ebook version, I find the price a bit too high. I'll wait for the library to get a copy or will pick up a copy in a few months for a few bucks at a used book store. While I will slap down $40 for a good science book, like the American Chemical Society overview on the chemistry of paper that I just picked up, I find that most tomes on economic theory are tedious and uninteresting. Molecules are much more engaging that monetary supply and macro-economibarf. I dropped the one economics class I tried in college. I'd rather decline verbs in Latin or wash dishes. So no, I'm going to pass on reading this tome of economic theory until I can borrow it or buy it cheap. That's why this post is about bias in the journalistic reactions to this book and not about the book itself.

Economics. Blech!

Post Script 2:

Of all the articles I've read on this book, John Cassidy's review in the New Yorker (http://www.newyorker.com/arts/critics/books/2014/03/31/140331crbo_books_cassidy) is by far the best: balanced, detailed and interesting. I almost bought a copy of Capital in the Twenty-First Century after reading this review before sanity reasserted itself.

Economics. Blech! Just because I sometimes write about economics doesn't mean that I like economics.

Notes on References: all the URLs listed in this blog post were accessed on 26 April 2014.

Monday 9 December 2013

Gush Lim-Blah and the Poop

Today's title was inspired by the ending to a now very dated satirical webcomic on Rush Limbaugh. A link to it is provided at the end of this blog post. There are so many forms of being wrong on the internet today that I have provided a list.

Today's varieties of wrongness:

  1. Name-calling
  2. Ad hominem attacks
  3. Straw man arguments
  4. Lying with Statistics
  5. Smoke and mirrors word redefinition
  6. Ignorance of the facts

Willful self-congratulatory stupidity just makes me mad, especially when the target of that stupidity is good man taking a stand against the insidious and subtle evils of the modern world. You've likely seen this subject already in the news, but unlike real paid journalists, I just can't drop everything to write stuff in an optimally timely manner. Welcome to the world of amateur blogs.

Let's introduce the players in today's melodrama of being wrong on the internet. The representative of self-congratulatory stupidity, well known throughout the free world as the flag-bearer of anti-intellectualism, is none other than that paragon of bombasticism, Rush Limbaugh. And in the role of the good man is one of the world's foremost professional good men, Pope Francis.

Okay, I admit it. I just slammed Limbaugh with some name-calling. To split hairs, it's not an ad hominem attack unless I use someone's real and/or alleged character defects as part of my argument for why someone is wrong. I haven't done that and I'm not going to do that. The messenger is not the message. All I've done so far is express my dislike for Limbaugh by sharing my opinion that the pundit is as sharp as a marble as far as critical thinking is concerned, based on my personal experience of listening to his radio show. I find he's good to listen to when I'm trying to ward off fatigue on long-distance drives: I don't fall asleep at the wheel if I'm yelling at the imbecile on the radio!

Opening Salvos

For those of you following the news, it's pretty obvious that Pope Francis has been making a lot of smart and smooth moves as covered by the world's news media, which is even more impressive when you consider that just about every thing he's done shines with authentic sincerity. On November 24, he issued his first Apostolic Exhortation called Evangelii Gaudium. The title translates to Joy in or joy of the gospels. For those of you who remember your Latin, you know there isn't an exact one-to-one mapping between evangelii and gospels. The evangelii here refers to the four evangelists, i.e. the four authors of the canonical gospels; the term evangelii can be used to refer to them or to their works. It is in this latter context that the Pope has used evangelii, so the word carries a nuance that is lost upon translation into English. It's really a lovely title with all its Latin nuances, something that only the older generations of Catholics with their exposure to church Latin would pick up on without coaching or explanation. I sometimes feel a little sorry for younger Catholics who missed out on hearing Latin mass as children, who might be forgiven for thinking that Agnus Dei was a sister of Doris whose name had been misspelled. (You can take the gal out of parochial school but you can't take the parochial school out of the gal...)

I confess that I did not bother to read Evangelii Gaudium when it came out. I tried when I was younger to slog through the various writings of Pope John Paul II. For example, I do not doubt the value of John Paul II's catechism (1,2) when it came out, but in comparison to my old Baltimore Catechism, I find the latter is clearer and easier to use. Brilliant post-Vatican II theology is all well and good but your average parishioner needs explanations of doctrine that one can put on and wear for everyday use without struggling for an out-of-reach zipper. I didn't even bother reading Pope Benedict since Benedict is a modern Catholic theologian, and like most traditional modern Catholic theologians, the man is guilty of writing truly treacle-like prose.

My familiarity with Evangelii Gaudium is all Rush Limbaugh's fault. Maybe I shouldn't feel quite so vexed with the man since I would not have sampled Pope Francis's wonderful and simple prose without Limbaugh's extraordinary reaction to it. If you're feeling brave, you can sample Limbaugh's comments on Evangelii Gaudium here: http://www.rushlimbaugh.com/daily/2013/11/27/it_s_sad_how_wrong_pope_francis_is_unless_it_s_a_deliberate_mistranslation_by_leftists (accessed 07 Dec 2013).

It's forgivable if you give up a third of the way through. Limbaugh repeats himself in a disorganized way; and if you've read the first ten paragraphs, you've really read the whole thing. You can actually listen to the show that this transcript is from since there are links on Limbaugh's website that let you do just that. Given that I didn't need to stay awake on any long-distance drives, I myself opted to read the transcript rather than listen to the recorded show.

Reading this wonder got to me. Even without looking at Evangelii Gaudium, I knew there were a number of things where Limbaugh was way off base. Here's an example: Pope Francis's condemnation of capitalism is no great first for the Catholic Church so why is Limbaugh going off the deep end over Pope Francis's version of this? Limbaugh never said boo back in 2007 when Pope Benedict said the same thing (3) about capitalism – and in a rather public way too. For more than a century, several popes have had unkind things to say about modern market capitalism and/or the exploitation of labor (e.g.: 3,4,5,6). This stance is hardly news to your attentive Catholic. What has changed is the Catholic condemnation of communism. One used to hear the Catholic condemnation of marxist communism and its descendents, leninism and stalinism, all the time. Then after John Paul II's Centesimus Annus (4) and the subsequent post-1989 collapse of communist governments, the Church's prominent and rather constant disapproval of communism evaporated with those governments' implosions.

Centesimus Annus was hailed as one of the great all-time critiques of communism, as great as Churchill's if not more so, and its author Pope John Paul II became the darling of the free world. So great was the Church's focus on communism that people missed John Paul II's critique of capitalism in that very same document. The Church's stand on soulless capitalism, the exploitation of labor and the cult of consumerism has always been there but the condemnation of communism drowned it out before the collapse of the iron curtain. Limbaugh's radio rant on the Pope got this wrong. Limbaugh notes what he calls a switch from Catholic condemnation of communism 50 years ago to a condemnation of capitalism today; however, he is ignorant of the facts since popes have been criticizing the abuses of capitalism since at least Leo XIII's Rerum Novarum (6). By the way, Leo XIII's 1891 encyclical could be considered the template from which all subsequent papal pronouncements on communism and capitalism are descended, as it employed a rigorous scriptural basis through which it protested the excesses of unrestrained capitalism; urged the intervention of governments to regulate labor conditions and economic inequality; supported unions; and slammed all things with the taint of Marx. It's forgivable for most people not to know stuff like this, since after all, the fine details of what some pope said in an encyclical over a century ago is not everyday fare over breakfast; but for a professional pundit like Limbaugh, getting this wrong through an inability or disinterest in doing one's research is rather shoddy in my book. For someone like Limbaugh this is inexcusable since he can certainly afford to hire professional researchers to prevent this sort of foot-in-mouth blunder.

What Pope Francis Really Said

At this point, it wouldn't be a bad idea to read Pope Francis's apostolic exhortation – or if you're pressed for time, just read chapter 2. It's the economics of chapter 2 that set off Limbaugh and a few others. You can check out Evangelii Gaudium here: http://www.vatican.va/evangelii-gaudium/en/index.html (accessed 07 Dec 2013).

Reading chapter 2 of Evangelii Gaudium is a good idea, at least in terms of this blog post. The rest of the Pope's document deals not with economic ideas but with a critique of the internal structure of the Church and with appropriate vs. inappropriate faith-based behaviors for Catholics in the context of the modern secular and technologically-advanced world. To oversimplify the Pope's message outrageously, Pope Francis wants his Catholics to put down the Wii, the iPod and the smart phone and instead become engaged in the upfront face-to-face life of the Church and the ministry of all believers to those in need. One of his main points is that you need to follow in the footsteps of Christ, and that you can't do that if you're distanced from those in need by the isolation of our newly-born technological infrastructure; by the pursuit of wealth or material things; or by hiding behind the dogma, liturgy or bureaucracy of the Church.

The Pope was not at all speaking in theoretical terms. He did plenty of pointing fingers and serving up examples in Evangelii Gaudium. In one example, he is very specific in his criticism of armchair Christians who sit passively at comfortable distances from all forms of human trafficking and exploitation; he pulls no punch in calling such people complicit in the crimes and injustices that oppress the powerless and disadvantaged, and accuses them of having “blood on their hands” for doing nothing. In another example, he asserts that it is not enough to champion the unborn and their right to life without also responding to the disadvantages and hardships of their mothers, and to the unjust social conditions and lack of real workable alternatives that make abortion look like the simplest and easiest solution for unwanted pregnancy and the creation of broken and untenable families.

If you take the time to read Evangelii Gaudium, the global perspective of its author is clear by its end. The Pope invokes specific examples citing conditions in Africa, Oceania and Asia; he cites the failure of Western economic theory by name; and if you're up on your world affairs, you can hear the sounds of the collapsed economies and juntas of Central and South America screaming at you from between the lines. This is the first pope ever with his roots in the New World and the Third World – and those roots are definitely showing here.

What Limbaugh Got Wrong - A Partial List

Now it's a bit of a chore to slog through Limbaugh's disorganized ramblings to distill out his major criticisms of Evangelii Gaudium:

1. Limbaugh believes Catholic Church would not exist or thrive in its present form if it were not for some undefined quality of capitalism, i.e.:

“If it weren't for capitalism, I don't know where the Catholic Church would be.”

This is an interesting statement of Limbaugh's which is unsupported by any sources or real arguments. If you take a few seconds to think about it, the Roman Catholic Church was founded in the Roman Empire, a society whose economics for a half a millenium depended on slave labor, the influx of plunder from foreign conquests, and the economic rape of foreign provinces. After the fall of Rome in the West, the Church flourished for over a millenium under the feudalism, a system based on a form of slavery called serfdom and on wealth based on the finite resource of agricultural land.

Early forms of capitalism were introduced in the 16th century in Europe with the creation of the first stockholder companies, invented to fund the large capital requirements of overseas trade adventures to the East and West Indies, coastal Asia and the Americas. It is noteworthy that Spain, the largest colonizer of the Americas and Oceania, developed its colonies through initial direct investment by the crown followed by subsequent investment funded by plunder; and where colonial government was based on a hybrid feudal system which employed enslaved natives. Like Rome before it, the dominance and power of Spain declined as the influx of silver, gold and slaves from the colonies declined in the eighteenth century as South American mines were mined-out and land available to the crown for land grants vanished.

It is difficult to say when modern market capitalism really came to the fore but the 1776 publication of Adam Smith's The Wealth of Nations is as good a marker as any: Smith's take on free markets and the creation of wealth marks the decline of colonial mercantilism and ushers in the foundational ideas of modern economic theory. Smith recognized that in market-driven economies, wealth was not tied to finite resources like land, but rather that wealth was created through knowledge, investment, labor and market conditions. Using The Wealth of Nations as our sign post, this implies that modern capitalism based on theories of wealth creation has been around for a bit over two centuries. If we do the math, the Catholic Church has spent a huge 10% of its existence under modern capitalism. For a religion that has survived and often thrived under almost every form of government, including religion-hostile communism, Limbaugh's assertion that the Catholic Church owes its existence to capitalism seems somewhat suspect, especially when no sound argument to support the assertion was given. Saying that something ought to be doesn't make it so.

2. The Straw man argument about the Vatican and money.

Rush stated:

“I gotta be very careful.  I have been numerous times to the Vatican.  It wouldn't exist without tons of money.”

Maybe I should break these three sentences apart into smaller bites for analysis and critique; but I wanted to present them in their original arrangement to give the reader an idea of the incoherent presentation innate in this Rush Limbaugh transcript. Perhaps the first two sentences reflect Limbaugh's concern that the Inquisition may be after him. Maybe Limbaugh should stop making trips to the headquarters of a church to which he does not belong for fear that the papal secret police from the Congregation for the Doctrine of the Faith might disappear him. Maybe Limbaugh should be seeing some professional help for that paranoia of his. Certainly if Rush Limbaugh vanishes off the streets of Rome, we now have a good idea where to start searching for him...

Now about that last sentence: I think it's a no-brainer that the Vatican would not exist without a lot of money. Buildings and their decoration cost money to build, and the Vatican houses the headquarters of the world's largest faith community. Does Limbaugh think this is not the case? Many of the world's most-famous structures were built with the resources and labor of their respective faith communities: the Shinto Temple at Nara, the now-destroyed Buddhas of Bamiyan, the Hagia Sophia, the Acropolis of Athens, the Pyramids of Gaza, the Church of St. Peter on Vatican Hill, the Blue Mosque, the Dome of the Rock, the cave temples at Petra... The list could easily fill pages. My question here is what did Limbaugh intend with this statement? That money is more important than God for the inhabitants of the Vatican and the church it represents? That the great monuments of faith are somehow sullied by the wealth used to build and maintain them? Even if Limbaugh the non-Catholic Christian subscribes to the abhorrence of idolatry that's a major theme of American Protestantism, how can he justify a condemnation of adorning the places and objects of worship by the faithful when such practices are described in the Bible itself? Neither Solomon nor Josiah nor Cyrus nor Ezra were condemned for lavishing riches upon the first and second temples in Jerusalem. God himself gave Moses a shopping list of expensive luxuries for the construction of the Arc. It's okay to spend a few bucks to glorify God and adorn his shrines on Earth, so say the scriptures.

Personally, I believe this utterance about money at the Vatican is an attempt by Limbaugh to introduce a straw man argument into his critique of Pope Francis's economic criticism of the modern market economies. How much money there is or was at the Vatican has nothing to do with what the Pope thinks about the soullessness and materialism of modern culture. But that's the beauty of the straw man argument in any debate or argument: it looks related to the matter at hand when in reality it is not.

3. Limbaugh mistakes a secondary report as a primary source.

Limbaugh takes an excerpt from a Reuters wire service article (http://www.reuters.com/article/2013/11/26/us-pope-document-idUSBRE9AP0EQ20131126 , accessed 06 Dec 2013) and uses it as the direct utterance of the Pope rather than the secondary source that it is. Worse yet, he picked it up out of the Washington Post, not realizing that the article was off a wire service. Limbaugh then attacks various expressions from the Reuters article on the assumption they were direct quotes from the Pope when it turns out that the Pope said no such thing. This would be humorous if it weren't so pathetic.

For reference, here's what Limbaugh quotes out of the Reuter's article:

Pope Francis attacked unfettered capitalism as 'a new tyranny' and beseeched global leaders to fight poverty and growing inequality, in a document on Tuesday setting out a platform for his papacy and calling for a renewal of the Catholic Church. ... In it, Francis went further than previous comments criticizing the global economic system, attacking the 'idolatry of money.

I think it's worthwhile to compare the above excerpt from the Limbaugh transcript with the original article since the former is cheery-picked. It's instructive to see what got left out by Limbaugh:

(Reuters) - Pope Francis attacked unfettered capitalism as "a new tyranny" and beseeched global leaders to fight poverty and growing inequality, in a document on Tuesday setting out a platform for his papacy and calling for a renewal of the Catholic Church.

The 84-page document, known as an apostolic exhortation, was the first major work he has authored alone as pope and makes official many views he has aired in sermons and remarks since he became the first non-European pontiff in 1,300 years in March.

In it, Francis went further than previous comments criticizing the global economic system, attacking the "idolatry of money", and urged politicians to "attack the structural causes of inequality" and strive to provide work, healthcare and education to all citizens.

Okay, the second paragraph doesn't say anything about what the Pope wrote in Evangelii Gaudium, so dropping it isn't fatal in terms of content; however, leaving out the second half of the sentence in the third paragraph makes me wonder why Limbaugh didn't want to expose the Pope's call for politicians to address the very real problems of employment, healthcare and education in many countries around the world.

4. Limbaugh puts words in the Pope's mouth:

This is just pure Marxism coming out of the mouth of the pope. Unfettered capitalism? That doesn't exist anywhere.”

Of course the problem here is that the Pope never said that. “Unfettered capitalism” is from the Reuters wire service article. In fact, if you bother to do searches on the text of Evangelii Gaudium, you will find that the Pope never once uses the word “capitalism” in his text. Not once!

It occurs to me that my point 3, mistaking secondary sources for primary sources, may be the same as my point 4, putting words into the Pope's mouth. It's a good day to split hair so go for it if you want to split this one.

5. Limbaugh does not demonstrate a basic understanding of the economic systems he discusses.

I'm not sure that “discuss” is the right word here for what Limbaugh does. Invoke? Mention? Throw out as pejoratives? I'm open to suggestions.

Limbaugh is correct in recognizing that there is no pure unregulated market economy based on the modern capitalistic concepts of wealth creation. That's not really saying much since there never has been a pure unregulated capitalistic economy anywhere in all of history. Such a thing is impossible, for the simple reason that as a bare minimum every modern market economy regulates at least its money supply. On the flip side, in his next breath, Limbaugh equates the Pope's non-quote about the evils of the unfettered capitalism with pure Marxism.

I have to wonder if Limbaugh knows what pure Marxism is or if he has ever tried to read and understand Marx. After all, if you don't understand the political and/or economic theory of the system that you oppose, then how do you know what it is that you're really against? The simple answer is that you can't. You have to know and understand your opposition in order to effectively oppose them. Calling a criticism of unfettered or unregulated capitalism an utterance of pure Marxism says to me that Limbaugh does not know what he's talking about. He displays no real understanding of what Marxism is, nor does he understand the differences between pre-Marx theories of socialism, communistic vanguardisms such as Leninism or Stalinism, and the many non-Marxist forms of socialism, theoretical or applied such as the theories of John Stuart Mill or the hybrid Doi Moi socialist market economy of Vietnam. If Limbaugh took the few hours it takes to understand the words he uses, he might not have said anything so stupid as equating criticism of capitalism with pure Marxism, assuming that this isn't just a cynical exercise of demagoguery on his part After all, if we take criticisms of unregulated capitalism and put them into the mouths of politicians and economists who made the same or similar utterances, we would have to label Teddy Rooseveldt, Dwight Eisenhauer, and Milton Friedman as persons all guilty of having pure Marxism coming out of their mouths.

I'm all ears, actually if Limbaugh could possibly discuss how the Pope's criticism of unregulated capitalism is the same as the two fundamental concepts of Marx's theories, that 1) the goods and services produced by a society be divided according to both the contributions and the needs of each individual; and that 2) political and economic systems evolve through time, moving beyond primitive systems like superstitious God-shackled feudalism and refining to more advanced forms like capitalism, followed by socialism and finally reaching a pinnacle in communism. Given that Limbaugh seems to know nothing substantial about non-capitalistic economic theories, since he never uses words like Marxism, communism or socialism in ways that might exhibit that knowledge, but rather since he uses these words only as interchangeable pejoratives, I have no expectation that he understands anything outside of the voodoo supply-side economics he espouses – and to be truthful, I have to wonder if he even understands that. The bulk of his utterances over the years seems to suggest that he does know the meanings of the terms he throws around with such disregard, and that he cynically does not care since accuracy and intellectual honesty would not serve his purposes of rabble rousing and demagoguery. Well, to be honest, that's my personal opinion of Limbaugh's purposes; your own take on what it is that Limbaugh hopes to achieve may vary.

There are a lot of people out there on the conservative side of American politics like Limbaugh who are unrestrained in labeling anything they don't like as Marxism or communism or socialism or unamericanism or liberalism; and the reality is that they are using these words as pejoratives in contexts well outside of their dictionary definitions. Frankly, this is a form of intellectual dishonesty which people like Limbaugh exploit and unfortunately, there is no way to prevent this abuse of words so long as the these merchants of cultural discord do not cross the legal line of committing torts of slander and libel. What I find most disturbing is that this cynical shifting of the meaning and usage of words isn't harmless. It actually is a rather effective tool in the practice of propaganda, one that was employed brilliantly by the Nazis, no less. I don't think I exaggerate here. I have several sources on my bookshelf that describe this practice. Two I would recommend are the comprehensive but sometimes difficult Inhumanities, by David Dennis (2012, Cambridge University Press) and the shorter, accessible and beautifully presented State of Deception: The Power of Nazi Propaganda, by Susan Bachrach and Steven Luckert (U.S. Holocaust Memorial Museum, 2009).

6. Examples of Limbaugh's Pejoratives

Here's something interesting and germane from Limbaugh's radio transcript on the subject of what constitutes Marxism:

Now, by the way, in fairness to the pope and in fairness to the Catholic Church, I will admit that communism years ago was much easier to see and identify than it is today.  And the obvious evil that was communism was easy to see.  Soviet-sponsored communism, the gulags, the First World military with the Third World economy, the blustery behavior of Soviet Communist Party bosses, the constant Soviet expansionism into Cuba and Sandinista land and Nicaragua and everywhere. Communism today is much more disguised. Communism today, in large part, is the Democrat Party.  Communism today is in large part the feminist movement. Communism today is found in most of the AFL-CIO-type unions.  As such, it seems just a political point of view.  It's just an alternative political point of view.  It's just the Democrats, and it's a much tougher thing to identify and target, because it can be your neighbor.  It's not some foreign country easily identified as "the Evil Empire."  Communism has a much different face today.  Identifying it is, I think, much more difficult today and takes much more guts to identify it today than in the past. 

Apparently Limbaugh feels that he's above paying attention to what professional economists and political scientists define as different economic theories. Keynes, Mill, and Friedman all would have agreed on the basics of what constituted socialism or communism, or the different branches of capitalism and market economics, but Limbaugh can't be bothered with what the real experts think. According to Limbaugh, if you belong to the AFL-CIO, you're a communist. If you belong to the Democratic Party, you're a communist. If you support anything espoused by the feminist movement, you're a communist. Well, I'm not a member of the Democratic Party and I don't belong to any unions other than the one that's my marriage; but I do rather support equal pay for equal work for women, meaningful maternity leave (i.e., more than a week or two) and affordable child care for working women too, so I guess that makes me a communist in Rush Limbaugh's eyes since all three of those are foundation planks of the so-called feminist agenda. Well now - what a revelation! According to Rush Limbaugh, I must be communist! And here I thought I was an old fashioned William Simon-style Republican, but it turns out I've been mistaken all these years.

Sarcasm aside, the whole communist rant in this Limbaugh radio program transcript is rather sad and pathetic. And it's really another straw man construct on Limbaugh's part since I fail to see how inaccurately labeling unions and the democratic party and feminists as communists has anything to do with any substantive critique of the Pope's comments on economics. It's really lovely classic Limbaugh rabid-dog froth but as a critique communist and marxist name-calling lacks any true substance.

7. It's all about America – NOT.

As I've already mentioned, if you take the time to read Evangelii Gaudium – and it takes a few hours – you will definitely walk away with the knowledge that this is a document that has the whole globe and everyone one on it in its focus. You can't accuse Pope Francis of short sightedness or a lack of perspective from what he wrote here. He doesn't think small.

In contrast to the universality of the Pope's message, here's Limbaugh's take on who the Pope is addressing and why:

Unfettered capitalism is a liberal socialist phrase to describe the United States.

Limbaugh then takes the next twelve paragraphs to discuss how the democrats, the liberals, the progressives and the socialists, who are all communists by the way, are doing everything to regulate, fetter, and control our great American economy, destroy small business, force Obamacare down everyone's throat, prevent anyone from following the American Dream (tm), prohibit anyone for building wealth, etc., etc., etc. He managed to work in some nonsensical statements about how trickle-down economics are the only valid and true economics, how anything else is the tool of the liberals who are the same as democrats who are the same as progressives who are the same as socialists who are not different from Marxists which is same as the communists whose only goal is to destroy the great economic engine of America and destroy everything worth having and working for. Limbaugh didn't manage to work into his rant how regulating American small businesses and the passage of Obamacare threaten mom, baseball and apple pie, but I think he would have if he could have figured out how. Well, okay, maybe not – especially since baseball has been ruined by unions, and unions are a tool of big labor, which is a branch of liberal leftist feminist progressive democratic party, which is run by Godless communists.

Yes, yes, yes...that funny odor you're smelling is the scent of sarcasm. It's so hard not to cave into sarcasm when trying to write intelligently about anything Limbaugh says or writes.

My point here is that Limbaugh criticizes the Pope for spouting “pure Marxism,” misquotes the pope on capitalism, and then dances an allamande to the left on how everything is really all about the left's liberal socialist machinations to destroy the capitalist economy of our great country. That's right, it's all about the United States.

It matters not that the Evangelii Gaudium covers the world with its inclusion of problems, issues and examples from the First World to Africa to Asia and everywhere inbetween. For Rush Limbaugh, it's always all about America, even when it isn't.

I suspect if Botswana declared war on Maurentius over kiwi tarriffs, Rush Limbaugh would find a way to make it all about America.

8. Bogus Unemployment Statistics

There's a certain amount of satisfaction over nailing a pundit for lying with statistics. Rush Limbaugh has earned my awe for the most ridiculous off-the-wall fib using statistics I think I've ever seen. Now remember, this Rush rant is about the Pope spouting Marxism and unAmerican anti-supply-side economics, right? So here's the actual quote where Limbaugh lies using statistics.

We have a president who has attacked the structural causes of inequality, and what's he done?  He's raised taxes on the producers and the achievers for the express purpose of redistributing it.  All he's done is create massive debt.  He has destroyed jobs.  There are 91.5 million Americans not working in America today, 91.5 million not working.   All the while the president, 19 or 20 times, says that he's doing nothing but focusing on creating jobs, but he can't.  No government can create jobs, not in the private sector.

I really love how Limbaugh stays on topic. (Is that more sarcasm I smell?)

Now if I were to take to task every demonstrably incorrect thing Limbaugh has to say in this quote, I'd be busy for two to three thousand more words. There just isn't enough time in one's life to chase after every lunatic concept out of Limbaugh's mouth. Let me just address that unemployment statistic. I've already done one blog post on how the official government statistics on unemployment will always underestimate actual unemployment (7), something to be wary about for when politicians want to brag about the economy recovering from a recession or improving due to someone's stimulus or job creation legislation. Instead what we have here is Limbaugh arguing that the current president is responsible for 91.5 million American not working while claiming to be focused on job creation. Watch the number, folks: 91.5 million people are not currently working. This is a really beautiful lie because if you go and look at how people are not currently working today in America, you will discover that Rush Limbaugh did not lie. What he did, however, was not tell the whole truth in such a way that what he said was really quite dishonest. Now, 91.5 million is a lot of people, especially when you consider that the population of the United States is currently estimated at just under 320 million people (8). That 91.5 million people not working works out to be 28.5% of the country's population. That's a huge number as far as unemployment goes. And there's the catch. That 28.5% is not an unemployment rate. It's the total number of warm bodies who do not work, including babes in arms, retired folks, the chronically indigent, kids in school, convicts on death row, people who are counted in the official unemployment rate, the long-term unemployed no longer receiving unemployment compensation, the out-of-work self-employed who never were eligible for unemployment compensation, and those out of work who gave up looking after months to years of finding nothing. Given that Limbaugh did not say 91.5 million were unemployed – he used the term “not working” - then he didn't actually lie per se, but he sure didn't deliver the information in an honest manner, because that would show his insinuation about the job situation was unsupportable. If you go and look at the real unemployment numbers from the Bureau of Labor Statistics (8), what you'll find is that both the official and unofficial unemployment rates have fallen every year since the official end of the recession in 2009.

It really is a beautiful lie, using a truthful statement to lead his audience to believe the exact opposite, an amazing work of art in prevarication.

Making an End to Limbaugh

I originally intended to say something about Limbaugh's really sorry rant on how millions of iPhones being made in China proved the validity and veracity of trickle-down economics; but in the wake of the Pope's eloquent critique of modern technological materialism, pointing out that Limbaugh completely missed the point just doesn't float my boat at this juncture.

Seriously, since it is obvious that accusing the Pope of Marxism is an exercise in demagoguery through the propagandized misuse of former real words as pejoratives, it probably wasn't necessary to go through all the trouble that I did to nail all the other problems with Limbaugh's rant on Evangelii Gaudium, like putting words in the Pope's mouth, mistaking an article off the Reuters wire service for a papal apostolic exhortation, willful ignorance of the history of published papal opinions on capitalism and communism, and demonstrating a lack of a basic generalist knowledge of economic systems. To be truthful, if I elucidated every problem Limbaugh has with the truth in this radio transcript, I would still be writing. I certainly would have had more spare time to spend on other pursuits if I had just skipped to the punch line about propaganda and pejoratives and left out all the other stuff – but it wouldn't have been anywhere near as fun.

I am hoping it will be a long long time before I feel the urge to detail why Limbaugh was wrong on the internet again. It's just too much work! Life is too short to waste of someone like Rush Limbaugh.

The Post Scriptural

Yes, the bad pun was intended.

Just because today's target was Rush Limbaugh, I went searching for a web comic I read years and years ago, back when people around Sacramento (where I lived at the time) could still remember Rush Limbaugh's annoying put-downs of the little farming town of Rio Linda from the time when he was just a local jerk on local talk radio. Well, the Way Back Machine at archive.org has most of the pages of this very early Patrick Farley (of Apocamon fame) web comic and if you're game for a good though dated jab at ole Rush and his talent on loan for God, you can find it at: http://web.archive.org/web/20030610043541/http://e-sheep.com/rusheats/000.html (accessed 9 Dec 2013). Page 70 appears to be the only page that didn't load for me but all the other pages of this classic take-down of Rush Limbaugh are there. The artist, Patrick Farley, has done some wonderful stuff. Out of all his early stuff, done when he was a kid in high school and college, Rush Eats Everything is the one piece I wish he would put back up on his website, electricsheepcomix.com. If you decide to check out the Electric Sheep Comix site, I highly recommend his delightful take of the Apocalypse of St. John the Divine meets Pokemon, the unfinished but still worthy Apocamon, at http://electricsheepcomix.com/apocamon/ (accessed 9 Dec 2013).

Brief and Sloppy Citations

  1. John Paul II. (1979). Catechesi tradendae. Vatican: Holy See , http://www.vatican.va/holy_father/john_paul_ii/apost_exhortations/documents/hf_jpn -ii_exh_16101979_catechesi-tradendae_en.html (accessed 7 Dec 2013).
  2. Catechism of the Catholic Church, 2nd. Ed., 1995, USCCB Publishing, ISBN 978-0385479677, 846 pp. (I have to confess that my first edition personal copy is in a box somewhere in storage and that the citation here is one I found online for the 2nd edition.)
  3. http://www.nytimes.com/2007/05/14/world/americas/14pope.html?pagewanted=all&_r=0 (accessed 7 Dec 2013).
  4. http://www.vatican.va/holy_father/john_paul_ii/encyclicals/documents/hf_jp-ii_enc_01051991_centesimus-annus_en.html (accessed 7 Dec 2013).
  5. http://www.vatican.va/holy_father/paul_vi/encyclicals/documents/hf_p-vi_enc_26031967_populorum_en.html (accessed 7 Dec 2013).
  6. http://www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html (accessed 7 Dec 2013).
  7. http://blog.someonewaswrongontheinternet.com/post/2013/07/06/Oil-Prices%2C-Middle-Eastern-Unrest-and-Unemployment (accessed 7 Dec 2013).
  8. The Federal Reserve Bank of St. Louis. (2013). FRED (“Federal Reserve Economic Database”) (Android version 1.0.3, January 30, 2012) Mobile application software retriev... (Data accessed 08 Dec 2013).

Monday 8 July 2013

Oil Prices, Middle Eastern Unrest and Unemployment

I'll warn you now, this post is a little on the long side and I confess to have thrown in a couple of tangential digressions...so feel free to skip the idylls on why the unemployment rate doesn't actually measure the proportion of people out of work or why old-time drillers use to take actual swigs of oil out of the ground...

JOB STATISTICS IN THE NEWS

Have you ever wondered about reports of prices and economic indicators which change due to national or international events? For example, a news report might say something like:

Prices for Batmobiles dropped by 7% on Tuesday after the Gotham City Police Department reported that violent crime decreased last month, leading to projected lowered demand for vigilante transportation .

Since the housing bubble popped in 2008, such reports often deal with the impact of the monthly job statistics issued by the federal government. Here's an example from Friday's Wall Street Journal (1):

NEW YORK–Crude-oil futures climbed 2% Friday as violence in Egypt increased oil-supply concerns and better-than-expected U.S. labor market data pointed to higher demand.

Light, sweet crude for August delivery settled up $1.98, or 2%, at $103.22 a barrel on the New York Mercantile Exchange, the highest settlement since May 2012.

Brent crude on the ICE futures exchange settled up $2.18, or 2.1%, at $107.72 a barrel, a three-month high.

After a few paragraphs with some details about the situation in Egypt, this article goes on to say:

As supply worries increased, economic data suggested the possibility of increased fuel demand in the U.S., the world’s largest oil-consuming country. The Labor Department said U.S. employers added 195,000 jobs in June, surpassing expectations for a gain of 160,000 and offering a sign of strong improvement in the labor market.

These statements in the Wall Street Journal are the subject of today's blog post. There really isn't a problem with tying the military ouster of the elected Islamist government in Egypt with a spike in the price of oil. Any any unrest or political instability in the Middle East usually causes short-term price spikes in the spot price for crude. The reason this article is today's target was the addition of tying the spike in oil prices to the release of the US labor statistics for the month of June. On the first Friday of every month, the US Bureau of Labor Statistics releases several statistics dealing with employment for the previous month. The figures that get the most attention are the number of jobs added and the rate of unemployment for the month prior.

WHY THE UNEMPLOYMENT RATE ISN'T THE REAL UNEMPLOYMENT RATE (Tangential)

The unemployment rate that's commonly reported in the news every month is somewhat of a misleading number. The government defines the unemployment rate as the percent of unemployed people in the labor who have been actively looking for work during the previous 4 weeks. The Bureau of Labor Statistics takes a survey every month in order to determine the unemployment rate. The data behind the unemployment rate have been assembled monthly by the government since the 1940s using commonly-accepted and -vetted methods of statistical data collection and extrapolation. The actual methodology is the sort of thing that statistician geeks really grove on - and I've worked with enough of those to know this first hand - but the rest of us would likely ossify after working with those numbers for a few hours. If you really want to know the nasty details behind calculating the unemployment rate, you should check out the Bureau of Labor Statistic unemployment faq page at http://www.bls.gov/cps/cps_htgm.htm.

The government's definition of unemployment leaves out a lot of people: a recent write-up in Forbes estimates that the number of unemployed people in the USA is almost twice the official rate (2). Anyone out-of-work person who hasn't actively looked for a job during the last 4 weeks will fall into a category that is not included in the unemployment rate. The unemployment rate doesn't include all those people who have given up looking for a job after searching but not finding any. It also doesn't include people who are engaged in non-renumerative work like unpaid internships who are hoping to convert that into paying work, nor does it include people who want full-time work have taken temp or part-time employment wherever they can find it in order to make ends. Another set of workers left out are the self-employed: someone who works as an independent tradesman, handyman or professional consultant is not considered unemployed even if the number of paying jobs coming through the door has completely dried up for months on end. Even after the raw unemployment rate is generated, the number most often reported as the rate has also been tweaked to smooth out the effect of seasonal jobs like summer jobs for college and high school students or winter-only jobs at ski resorts. Government unemployment statistics sometimes leaves me feeling like the time-dependent Schrödinger's Equation is easy math!

FALSE OPTIMISM OVER JOB CREATION

While the Wall Street Journal article did mention the number of jobs added, it skipped any mention of the unemployment rate for June, which was 7.6% (3). This rate is unchanged from May. The reason that the addition of 195,000 jobs did not decrease the unemployment rate is because the rate also accounts for the estimated increase in the number of new entrants in the job market. The number of job market entrants, i.e. new job seekers, increases every month because the overall working population of the country increases every month. When the unemployment rate remains constant from one month to the next, the number of jobs added is balanced by the number of new job seekers entering the labor market. For the constant unemployment rate from May to June, there were 195,000 new job hunters who were not yet employed and looking for work.

Government economists originally projected that only 160,000 new jobs would be created in June - so the good news here is that ~35,000 more jobs were added in June than expected. The Wall Street Journal article is saying that the addition of this extra bounty of jobs is a situation

surpassing expectations for a gain of 160,000 (jobs) and offering a sign of strong improvement in the labor market (1).

Furthermore, the Wall Street Journal asserts that this economic improvement was reflected in the price of oil on Friday after the jobs figures were released. Here's the reasoning behind that: economic improvement from more jobs means more economic activity all the way around. More economic activity means a greater demand for commodities in general and that includes oil. What the article left out is that the supply of oil can't be suddenly increased to meet demand because the supply is limited by the capacity of currently-producing oil fields and currently-existing oil transportation networks. It takes years to bring new oil wells online and years to add new pipelines, trucks, trains and ships capable of transporting oil. There really is no such thing as big increases in the supply of oil in the short term. This means we can assume that the supply of oil is usually a constant in the short-term of days and weeks. Basic supply and demand dictates that if demand goes up and supply stays the same or decreases, then price will go up. That's how added jobs can lead to increased oil prices.

I hope that everyone has noticed the interesting sleight of hand in describing these good and improved economic conditions as reflected in the US employment statistics. When we clear away the the verbiage about the number of new jobs exceeding expectations, what we are looking at is a claim by this Wall Street Journal article that the economy is showing signs of improvement because the unemployment rate didn't get any worse from May to June! This sort of double-speak is perhaps worthy of George Orwell's Animal Farm and it is not confined to the Wall Street Journal. For example, looking around the internet Friday morning turned up several similar articles about all those new jobs. The website splash page for the Dallas Business Journal proclaimed (4):

Sun shines on economy -- 195,000 jobs added!

If you take the time to look, you will see this overly optimistic trend in reporting labor statistics across news outlets both conservative and liberal. I've been seeing headlines like this since at least 2011 - and I have to wonder whether journalists are really aware of what they are writing. Is everyone merely copying what some economist or pundit says about job creation without questioning the basic math? Where is this spin coming from? I see this happening with labor statistics and other economic indicators but I have never been able to unravel a root source for spinning mediocre labor figures into the heralded improvements in the economy that never seem to reach the anxious unemployed. Given the spread of such misinformation, it should be no wonder then that no one really seems aware that our currently steady unemployment rate of 7.6% (plus or minus 0.1%) is about 2% higher than before the housing bubble collapsed in 2008. Welcome to the new normal state of things.

I looked at several major news outlets Friday and Saturday, many of which repeated the misplaced optimism of the Wall Street Journal; however, I found two major outlets covering business news that managed to see the real numbers behind the cacophony of mistaken employment reporting. Despite the fact that I love to thump on the liberal myopia of certain editorials in the New York Times, that venerable institution is one of the only American news sources that didn't mistake those added 195,000 jobs as an improvement in the job market (5). The other news outlet that got it right was the aforementioned Forbes article (2).

Thus far we have looked at the misrepresentation of the lackluster June labor statistics as a sign of economic improvement. It's time now to move onto the price of oil.

THE SPECIFIC GRAVITY OF OIL (tangential)

There are several different oil markets and price indices. The prices you commonly see in the news, especially in the USA, are the spot prices per barrel oil, where one barrel is equal to 42 American gallons or ~158.99 liters. The index that is most commonly reported in the USA is the NYMEX price of oil which is currently defined as the per barrel price of West Texas Intermediate ("WTI") sweet crude. Oil is defined as light, intermediate or heavy based on its specific gravity. The New York Mercantile Exchange ("NYMEX") defines domestic light crude as having an API gravity between 37° API and 42° API (816 kg/m3), intermediate crude as between 20° API and 37° API and heavy crude as anything heavier than 20° API. The details on the numbers are important only to refinery engineers who have to crack the stuff into gasoline and other usable fuels. It suffices to know that light crude is fluid even into lower temperature and has lots of lighter short-carbon-chain organic compounds that are easy to separate into gasoline; whereas heavy crude is gooey, gloppy stuff that doesn't flow well when it gets cold and has lots of heavier organic compounds more suitable for heating oil, diesel fuel and lubricant greases. Obviously, intermediate crude has properties inbetween light and heavy crude.

SWILLING A SWIG OF SWEET TEXAS CRUDE (tangential)

The word "sweet" when applied to crude refers to sulfur content. The lower the sulfur content, the sweeter the crude. The terms sweet and sour as applied to crude oil originated in the early days of the American oil business. In the 19th century, oil drillers would actually smell and taste the stuff out of the ground to classify it. Depending on the taste buds of the oil taster, the line between sweet and sour will vary from one person to the next. For most people the sweet/sour boundary is between one to one-half percent sulfur. NYMEX defines sweet crude as having less than 0.47 percent sulfur content by weight. The percent value of sulfur to define sweet crude varies depending on where you are in the world; and it has also changed a bit through time. The old Rockefeller pre-Anti-Trust act Standard Oil Company definition of sweet was less than 1% sulfur. As lab analyses and modern chemical engineering replaced taking a sip of the black stuff out of the drill steel, the modern domestic definition of sweet crude has slid down to the modern values of around a half percent.

OIL MARKERS

An oil marker is the Oil Patch name for what most normal people call a price index. Since the world of the petroleum is its own insular club, it has its own jargon. Economists have price indices for petroleum but the exploration and production ("E & P") world calls them "oil markers." There are a handful of oil markers that refinery operators, oil future traders and other "downstream" oil businesses consider the most important. These include the domestic WTI (West Texas Intermediate traded on NYMEX), the North Sea's Brent Blend (traded as "B" on Europe's Intercontinental Exchange or "ICE"), and well-known light but sour Dubai Crude. Tracking these three oil markers is currently considered sufficient to survey of the price of oil worldwide.

Having worked on occasion in "the Oil Patch," I could probably write a lot more about oil definitions and how oil is bought and sold on the various exchanges around the world. For now it suffices to know that in the USA, the domestic price of WTI crude is quoted per the American 42-gallon barrel. On the NYMEX, both Dubai Sour and North Sea Sweet Brent Blend are tracked and quoted for American traders in US dollars in units of American barrels. (One 42 gallon American barrel = ~158.99 liters)

Since oil futures contracts specify the delivery point, the buyer who intends to take delivery is responsible for the cost of shipping from the point of delivery. The delivery point for WTI is Cushing, Oklahoma whereas the delivery points for Brent Blend and Dubai Sour are various terminals in the North Sea and the Persian Gulf, respectively. An American refinery is more likely to buy WTI contracts due to the easier and usually cheaper transport and due to the price gap between WTI and Brent over the last 5 years. Brent Blend has been more expensive than WTI for a variety of reasons by approximately 3 to 12 US dollars per barrel during this interval. Since 2010, WTI has been priced lower than Brent Blend partly due to over-stock in Cushing that has depressed the domestic market for crude and due to a gradual decline in the supply of Brent from the aging North Sea reservoirs, some of which are approaching effective depletion. These factors are important since any effect on the price for crude due to a supposed improvement in the economy should show up as an impact on the price of domestic WTI whereas the European Brent Blend should be insensitive to the effects of American job creation on the domestic American economy.

DATA FOR OIL PRICES AND UNEMPLOYMENT RATES

So let's look at some data:

Umemploy_oil2.png

(Unemployment data from ref. 3; oil price data from refs. 6 through 8)

So, there are the numbers. There's an immediate problem and that is the unlike nature of the two datasets. Unemployment rate is reported only once a month, on the first Friday of the month. An extremely irreverent imp in the back of my head is making some noise right now about the neglect of the First Friday Devotions to the Sacred Heart of Christ and its replacement by the sacrilegious utterances of the secular false prophets of manna, a.k.a. the U. S. Departments of Commerce and Labor; however, it is well known that my inner child is a badly-behaved fiend who spent too many recesses at parochial school writing sentences under the watchful eye of Sister Superior due to bad behavior, so it is safe to ignore whatever pops out of my inner fiend's psyche.

In contrast, spot prices for oil markers change by the minute and for the sake of ease of reporting, close-of-market prices are available for all days that exchanges are open for bidding on the various crude oil futures available. This means that there is once a month data on jobs and near-daily close-of-market prices for crude. WTI and Brent are traded at sufficiently impressive volumes on NYMEX that the US government tracks and reports on both those oil markers on the publicly-available US Energy Information Administration website, thus saving interested taxpayers from paying for real-time professional-grade commodities price reporting, which used to be the only way to get this sort of info other than waiting for the next day's New York Times or Wall Street Journal.

The problem here should be apparent, especially when reporters claim a reaction in commodities prices due to the announcement of a once-a-month economic index figure like jobs created and unemployment rate. The issue here is whether the transient effect of a once-a-month employment index number has any true significant in time frames less than a day.

If the Wall Street Journal article is taken seriously in its claim that an improved job market can affect the spot market price of crude, then what we need to examine is the price of crude as measured by one or more of the important oil markers and to compare it to the unemployment rate. To do this, I have plotted WTI and the seasonally adjusted unemployment rate from the beginning of 2012 until this Friday, July 5, 2013. Here's what it looks like:

WTI_unemploy_rate.png

There aren't any obvious trends that leap off this graph. Since the claims of effect on spot price may be very short term, one could argue that we need to look at the change in unemployment from the previous month vs. the change the WTI price. To do this, I calculated the percent change in the price of WTI from market close on the first thursday of the month to market close on the first friday of the month. Then I plotted it vs. the change in unemployment rate from the previous month, for every month from January 2012 through last week. This is what it looks like:

WTIchange_unemploy_change.png

If there are any trends in this plot, then they aren't really strong ones or our eyes would have sorted out the patterns already. But since we're trying to find a relationship between unemployment change vs. crude oil spot price change, let's drop the plot with respect to time and make a direct plot of the change data plotted against each other on a scatter plot. With time as a variable removed from consideration, if there are any real trends between WTI and unemployment, then they should show up on a scatter plot with clumping in opposite quadrants that we can regress to a line. Here's the scatter plot

WTIchange_unemploy_change_scatter.png

There is scatter in all quadrants, not just in two opposing quadrants, and that indicates there is no relationship between the monthly change in unemployment and the price of crude right after the Labor Department's announcement of job statistics on the first Friday of the month. Regardless of whether unemployment or job creation has gone up or down, there is no observable effect on the price of crude, at least in the period that we looked at. Bottom line: the Wall Street Journal got it wrong.

There's another way to test if the announcement of job statistics impacts the spot price of oil and that's if the change in domestic price of oil is significantly greater or less than the change in the foreign price as represented by one of the overseas oil markers. To do this, I have listed the market close spot prices of both WTI and Brent as reported on NYMEX. Since some data was not listed in the middle of last week due to the Fourth of July holiday, we have to look at the three day change to compare WTI and Brent. As you can see from the table below, the change in price for both oil markers is very close, where the numbers for the price differences are within 10% of one another. That's good enough to claim that the differences are not significant, supporting the previous claim that job statistics did not impact the price of oil at least domestically. It's safe to say that all the change seen last week was mostly due to concerns about supply due to the military coup in Egypt.

Date WTI, $ (1,6, 7, 8) Brent, $ (1,9)

7/2/13 99.65 103.96

7/3/13 101.24 N/A

7/4/13 N/A N/A

7/5/13 103.6 107.72

3-day change +3.95 +3.76

Endnotes/References

  1. Day, M., and DiColo, J. (2013, July 5), "Crude Climbs on Egypt Concerns, Upbeat U.S. Jobs Data," Wall Street Journal, http://stream.wsj.com/story/markets/SS-2-5/SS-2-269736/, accessed 5 July 2013.
  2. Diamond, D. (2013, July 5), "Why the Real Unemployment Rate is Higher Than You Think," http://www.forbes.com/sites/dandiamond/2013/07/05/why-the-real-unemployment-rate-is-higher-than-you-think/, accessed 6 July 2013.
  3. US Bureau of Labor Statistics (2013), "Unemployment Rate," http://data.bls.gov/timeseries/LNS14000000, accessed 5 July 2013.
  4. Hoover, K. (2013, July 5), "Sun Shines on Economy - 195,000 Jobs Added," http://www.bizjournals.com/dallas/news/news-wire/2013/07/05/economy-added-195000-jobs-in-june.html, accessed 6 July 2013.
  5. Schwartz, N. (2013, July 5), "U.S. Adds 195,000 Jobs; Unemployment Remains 7.6%," New York Times, http://www.nytimes.com/2013/07/06/business/economy-adds-195000-jobs-as-unemployment-rate-remains-at-7-6.html, accessed 6 July 2013.
  6. US Energy Information Administration (2013), "Cushing, OK WTI Spot Price FOB, "http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D," accessed 5 July 2013.
  7. http://online.wsj.com/mdc/public/page/2_3023-cashprices-20130705.html?mod=mdc_pastcalendar, accessed 5 July 2013.
  8. http://online.wsj.com/mdc/public/page/2_3023-cashprices-20130703.html?mod=mdc_pastcalendar, accessed 5 July 2013.
  9. US Energy Information Administration (2013), "Europe Brent Spot Price FOB, "http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=D," accessed J6uly 2013.

Sunday 3 March 2013

US DOT Secretary LaHood on Seqestration and Political Negotiation

This is in regards to an online article at http://skift.com/2013/02/22/dot-reveals-the-airports-that-will-close-if-sequester-goes-through/

It's about the effect of the sequestration on the operations funded by the US Dept. of Transportation (US DOT). Specifically it's about a quote made by the Secretary of the US DOT Ray LaHood. Here's the excerpt from skift.com:

LaHood, a former Republican congressman from Illinois chided lawmakers from his own party for not working with their Democratic colleagues.

“They’re hoping that maybe I can influence some of the people in my own party,” LaHood said of his appearance today at the White House.

LaHood suggested that the lawmakers watch the movie Lincoln to put the current matter in perspective and get a lesson in how hard it is to negotiate matters that are actually difficult. ”This is not rocket science,” LaHood said, referring to the budget talks.

Now while I acknowledge that anecdotal experiences are not good strong data for evidence-based arguments, that's all that's available here. My point today is based on my limited dealings with politicians during my career, regarding mostly environmental matters , and also based on teaching myself a fair bit of rocket science over the last decade. Using these experiences, I believe LaHood's implication that even difficult budget talks are easier than rocket science is not justified. Compared to trying to persuade any politician about evidence-based realities, I have personally found that rocket science is a lot easier!

Wednesday 27 February 2013

How to Cite References 101 -OR- Corporate Welfare Out-Spends Social Services Spending!

I just can't ignore this one. It's too egregious - and from a journalist at the gold-standard New York Times!

Here it is, from a NYTimes blog at http://opinionator.blogs.nytimes.com/2013/02/26/dependents-of-the-state/:

Just about every aspect of America’s economic and legal infrastructure — the laissez-faire governance of the markets; a convoluted tax structure that has hedge fund managers paying less than their office cleaners; the promise of state intervention when banks go belly-up; the legal protections afforded to corporations as if they were people; the enormous subsidies given to corporations (in total, about 50 percent more than social services spending); electoral funding practices that allow the wealthy to buy influence in government — allows the rich to stay rich and get richer.

Did you see it? Did you catch that??? 50% more than social services spending!

Shall we? The brave journalist, to be commended for courage here, has a link for specifically that 50 percent statement, and here it is: http://www.cato.org/publications/policy-analysis/corporate-welfare-federal-budget

Well, there's that! The Cato Institute, that bastion of Friedmanesque Reaganomics, neo-con scourge of all that is bloated and entitled Keynesian! Need we look farther than this? Well, sorry...we do. The source of a citation is not the citation - and I wish more people would remember this, and not just at news outlets but in academe too where the practitioners of the cited research paper can kill good research with a well-placed accusation of "doesn't know the litereature."

Let's follow the citation. It's a nice and well-written four paragraph position piece that is the obvious cover page to a lengthy study on the costs of corporate welfare. There is a single number mentioned: that corporate welfare has a price tag of around $100 billion a year. Sounds horrible, yes? Look at what is not said here though. The author of the Cato four paragraphs does not make a claim that corporate welfare costs 50% more than social services spending.

We can approach this three ways. Let's do all of them. First, what is $100 billion? I like to think of these things in terms of Trident submarines, using roughly 1990 dollars, which was the last time I priced a Trident submarine - not an illogical pursuit for someone who grew up in the town where Trident subs were built and who worked in the shipyard there at one point. A trident sub costs about $2 billion dollars from budget allocation to commissioning. So in Trident submarine units, $100 billion is 50 trident submarines. If we bought 50 trident submarines every year, the entire of economy of southern New England would go from the current blight to prosperity overnight! Oh fling me in that briar patch!

So, let us look at just Medicare. Referring to https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2010.pdf, specifically Table II.F1, we find that projected expenditures for Medicare Parts B and D ONLY (no Part A at all) for the year 2013 are $327.6 billion dollars - or 163.8 Trident submarine units.

I think my point makes itself. Even a fraction of our yearly social services spending exceeds that $100 billion - or 50 Trident submarine units.

Now, let us approach the problem in the second way. Where did this 50% number come from? From the Cato Institute report for which the four paragraphs were the obvious cover piece and lure? I don't know. I didn't take the time to investigate. That's not the point. The point is that the journalist who bothered to make a citation for the "50% more than social services spending" used a citation that didn't support the numbers actually cited. If the Cato Institute report was the real source, then that should have been cited instead. If I were still grading undergraduate essays at UC Davis, where I did nasty things like check citations, using bad referencing style would be worth a half to a whole grade down all by itself.

Correct citation is important. Without it, the value of the news media secondary sources upon which society depends can be completely undermined - though that's just my personal opinion, mind you.

The last approach to looking at this statement on corporate welfare: perhaps the journalist meant something different by "social services spending" than what I have chosen to interpret. This is easily answered with another quibble I would have delivered to those poor undergrads whose misadventures in writing I was once privileged to grade: when definitions matter or vary from common assumptions, define your terms! 'Nuff said.

On the flip side, a corporate welfare price tag of 50 Trident submarine units is a lot of money, says this practiced observer of the effects of defense contract cut-backs on a local economy. Of please fling some of that as contracts to the shipyard in the town where I grew up. My hometown could use the boost!

Saturday 9 February 2013

Oh My Gasketgrease! Five Lies About Social Security!

Today's target is a website for something called the Capitalism Institute, specifically an article on that site about social security. You can find and read it at http://www.capitalisminstitute.org/5-lies-the-government-continues-to-tell-you-about-social-security/

The webpage under discussion today is entitled "5 Lies the Government Continues to Tell You About Social Security." The article is undated but the letter it refers to was sent in Dec., 2012. I found the complete text of this letter at http://skokie.patch.com/articles/dems-to-boehner-exclude-social-security-from-budget-negotiations.The article on the webpage begins:

Two days ago, 87 House Democrats sent a letter to John Boehner about Social Security. Apparently, they were concerned that Republicans might try to use Social Security funding as a bargaining chip throughout the fiscal cliff negotiations this month. Consequently, they wanted to let Speaker Boehner know about the concerns that they have for the well-being of the American people who are relying upon the 'promise' of Social Security.

This webpage then goes on to list 5 lies about social security, of which some, but not all, were contained within the letter. This webpage also claims that it's our government which is telling these lies. To split a snarky hair, I find it's amazing that 87 Democratic congresscritters were now the whole federal government of the United States of America.

Well yeah, it a quibble and a minor one too. It's just that I dislike this sort of sloppy thinking.

Lie #1 is apparently the phrase that "Social Security is a promise." I for one thought that Social Security was a retirement and orphans' benefits program enacted by Congress, signed into law by FDR, and expanded in various ways by subsequent administrations. What the commentary does here is to claim that a metaphor (soc. sec. = promise) should be treated instead as a literal fact. To agree with the author here, the reader must implicitly agree that the Democrats who wrote the letter to Boehner are not allowed to use common and acceptable figures of speech for some reason. This is a bit of an underhanded ploy since it is unreasonable to deny the other side of a debate the commonly accepted tools of rhetoric like the figures of speech. For a Democrat to claim that social security is a promise is no different from the Republican Party claim that the Republican congressional majority achieved in the 1994 midterm elections constituted a "contract with America."

After the attack on the use of metaphors by Democrats, the website goes on to state: "The only way we can understand that there is a 'Social Security promise' is to understand that it’s a promise that politicians will continue to rob us of our retirement savings." I'm having a hard time here trying to figure out how Social Security allows politicians to rob anyone's savings. There are no savings involved in Social Security. Moneys from the FICA Payroll Tax go into the Social Security system and a well-defined number of benefits are paid out from exclusively those moneys. Like most insurance trusts, it's mostly a throughput system, always has been, and has never paraded as anything else. When the number of people retiring is less than the number of new wage earner paying FICA payroll taxes, the social security system can build up surplus funds - which was the case before the baby boomers started retiring. But when the number of retirees increases relative to the number of new workers paying FICA taxes, that surplus gets used; and if the number of retirees continues to grow with respect to new wage earners, social security funds will eventually be depleted unless FICA tax rates and/or FICA tax caps are increased. This is the weakness of the system since by law, the social security administration is barred from using any federal moneys from sources other than the FICA payroll tax - and only Congress can increase FICA tax caps and rates.

According to the author of this webpage, Lie #2 is that social security is a trust fund. The text begins its commentary by saying:

"'But wait a minute,' the politicians will say, 'There’s a trust fund! That’s where the money goes!' False. This is another blatant and disturbing lie. Social Security taxes are immediately swallowed up to pay for whatever Congress wants to use it for."

The commentary then proceeds with a convoluted paragraph that mostly mistakes how social security works ending with the statement that:

"...there is no money deposited anywhere for anyone. All of it has already been spent years ago to support the unconstitutional policies that the federal government imposes on our nation."

If you want, you can to this webpage and read this yourself. The muddled gymnastics of what I didn't quote here displays a misunderstanding of financial and accounting concepts, describes government money "flow" of social security funds which appears backwards, and once again implies that social security is a politician-created fraud because it doesn't operate like some kind of glorified retirement savings account. Given that social security has always operated as a closed and self-contained system of FICA payroll taxes in, benefits out, I'm at a loss to see how this is some kind of fraud or theft on the part of the government. The structure of social security isn't exactly a secret especially since it's been around for almost 8 decades now. And given that the FICA tax is kept separate from the federal government's other revenues, and that by law those funds can not be used for anything other than social security benefits, the claim on this web page that Congress has spent these years ago, before they were even collected, is just plain wrong.

It does appear that the author of this webpage seems to be stuck on the idea that social security should be a retirement savings deposit plan.

To be technical, claiming that social security is not a trust is not correct, but I suspect the author doesn't understand this or is deliberately ignoring what constitutes a trust. A trust is any fund which is governed by a board of appointed or elected trustees, and is set-up to administer some class of assets to generate benefits for individuals or groups. That definition certainly covers social security, which is a fund governed by trustees appointed by the President, and which administers the assets derived from the FICA tax as a benefits program. If you go and look at the US Code, you will discover that the social security trust is really the "Federal Old-Age and Survivors Insurance Trust Fund" as described in part 42 section 401(a)of the US Code. If the author of this webpage had bothered to research the definitions of things like insurance and trusts, and had investigated beforehand how agencies like the U.S. Treasury and the social security administration actually operate, there would have been a lot less for someone like me to target in my little blog.

Lie #3 is that social security is social insurance. I will grant you that calling it social insurance, rather than just insurance, is political hot air. The use of social as an adjective here is pretty meaningless unless you're a speech writer. Regardless, the author should have given some thought to what insurance is and how it works.

So what is insurance? There are many definitions out there, ranging from Websters to NOLO to Wikipedia to the glossary for investors on the website of my favorite mutual fund. Here's the one we'll use here: insurance is "A promise of compensation for specific potential future losses in exchange for a periodic payment" (www.investorwords.com, accessed 2/11/13). The periodic payments in the case of social security are the FICA payroll taxes; for commercial insurance the periodic payments are your monthly insurance premiums. Potential future losses in the case of your auto insurance would be having your car totaled in an accident; or your medical insurance, it might be emergency surgery. For social security, those potential future losses are things like being blind, being orphaned or being too old to work. The way insurance works is that many small payments are collected for insurance against some kind of risk; when some mishap occurs to someone covered under the respective insurance policy, then compensation - often larger than one of premium payments - is issued by the carrier.

Commercial insurance aims to collect more money in premiums than it has pay out for compensation; any surplus is actively loaned to generate interest income and invested to generate dividend interest. Interest and dividends are important secondary streams of income for commercial insurance companies. If compensation payments are in danger of exceeding the amount of insurance premiums coming in, an insurance company usually resorts to raising its rates and/or refuses to insure consumers who are at higher risks for covered mishaps.

Social security is insurance though it is very limited by law in what it can do. It was set up on the premise that a large number of small payments (FICA taxes) would be greater than the smaller numbers of benefit payments - a premise that held true until the baby boomers began to retire. In addition, the social security administration does not invest any surpluses in the financial markets the way commercial insurance companies can and do - it is restricted to investment in Treasury bonds which are low yield, so this secondary income stream is very limited compared to commercial insurance companies. Unlike a commercial insurance company, social security has no ability to restrict the number of potential beneficiaries. Unlike commercial insurance, social security can not refuse someone who has a high likelihood of collecting benefits; benefits are available for anyone who paid or pays FICA payroll taxes, as well as some spouses, widows, orphans and certain disabled people like the blind. And since life expectancy has increased over the last century, the number of people who will live long enough to collect benefits as retirees has also increased. Last, unlike a commercial insurance company, social security can not raise its rates even in the face of both rising benefits payments and beneficiaries. Only Congress has the power to do that.

So yes, social security really is insurance, though it is really limited in what it can do to adjust its own income and benefit obligations.

At this point I'm going to bail. I might return to this wonderful diatribe of a webpage sometime but frankly, the faults that the last two "lies" have (i.e., insolvency, pyramid scheme) are the same as the previous "lies" in two ways: 1) the author is really stuck on this gig that social security is a fraud because it is not a retirement savings plan like an IRA, and 2) the author uses terms (e.g., insurance, pyramid scheme, trust fund, insolvency, etc.) whose definitions he doesn't fully understand. After a while, critiquing someone's arguments because of using incorrect vocabulary gets a bit old. In a way, it's a shame since there is so much one could criticize about social security based on the way it was set-up to operate in early 20th century deflationary conditions when those conditions no longer apply today. For example, an actuarial analysis of social security as insurance is pretty damning - but this is not the road this webpage article took.

Monday 4 February 2013

Glenn Beck's Obamanomics = inflation up, unemploment up, gas prices up, GPD down

In case some of the figures are unreadable on different computers, all of the figures have been saved in a pdf file attached to this post.


I shouldn't really pick on Glenn Beck, He's way too easy a target. But I'm not picking on the guy because he's a neocon pundit or because I'm some kind of fan of Obama economic policy (I'm not, if you care to know). I'm picking on Mr. Beck today because he used Friday's release of the unemployment rate to lie using statistics. Yep, he was wrong on the internet.

Here's the link to Beck's statement from Friday: http://www.glennbeck.com/2013/02/01/obamanomics-unemployment-7-9/ (accessed 2/3/13). You really should read it for yourself. (In case it goes missing off of Beck's website, I have saved a copy as an attachment to this post.)

Much of Beck's statement is not grammatical and makes little sense in spots, but it seems as if he's claiming the following:

  1. Things are getting worse and the latest unemployment figures along with other trends prove this.
  2. Obama blames this all on Bush.
  3. Obama's blame game here is and has been a political ploy on Obama's part to stay in power and further his own economic policies which aren't working, as shown by economic trends like this last Friday's 7.9% unemployment rate.
  4. Obama's blame game ploy is exactly parallel to what FDR did to stay in power and to promote his New Deal economic policy that failed through all four of his terms as president.

Right off the bat, the FDR statement is really out there. And most of Beck's audience will let it slide and not call him on his falsification of history because they are ignorant of history or so biased politically that they ignore history. I am familiar with the latter phenomenon since my late father was one of those people, so deep was his hate for FDR and the Keynesian economics he espoused.

Here's some history on what actually happened during the FDR era, redacted mostly from my ancient and well worn copy of The American Heritage Guide to American History and articles on the American Heritage history webpage (www.americanheritage.com, accessed 2/3/13). One of the factors that aided FDR's initial 1932 campaign for president really was Hoover's rep as a businessman's businessman and Hoover's well-publicized disdain and lack of empathy with the victims of the Great Depression. I don't think anyone would dispute that. Colonies of the economically-displaced homeless during the Depression were called Hoovervilles in his honor - not exactly the kind of legacy one would want after being President.

FDR won his first reelection by the biggest landslide in American history up to that point with over 98% of the electoral college - a feat that only Ronald Reagan has surpassed. FDR was reelected because, like Reagan, he had the common touch and because the provisions of the New Deal that he managed to pass were extremely popular. In addition, improving economic conditions certainly helped FDR's 1936 campaign.

FDR was reelected in 1940 for a variety of reasons, not the least of which was an ideological split in the Republican Party which lead to the compromise nomination of Wendell Willkie for president, a New York businessman who lacked the stature and charisma of FDR. FDR was reelected a fourth time simply because the electorate didn't want to see a change of administration in the middle of a world war. So if you bother to review your history, it becomes clear that FDR was reelected three times, not through blaming Hoover and other 1920s Republicans for the Great Depression, but for other very different reasons. And Beck's insinuation that the economy did not improve under FDR is also not supported when you look at the economic trends during his presidency.

depression.png (source: an annotated graph generated at http://measuringworth.com/usgdp/ and displayed at http://en.wikipedia.org/wiki/Great_Depression, accessed 2/2/13)

I'm not going to bother discussing any Obama blame-Bush tactics as to their role in the election and ongoing policy formation. Testing Beck's implication that this is a deliberate and personal policy of Obama's isn't going to be possible until this administration's presidential documents are made available to the public for research. Until such time, what Beck said on this subject is an opinion that he is entitled to. But even if it is proved that Obama has an active policy of blaming his predecessor for his own administration's economic failures, Beck's statement that it is a parallel situation to an FDR blame game is false as I have already argued above.

Let's look now at what Beck said about Friday's 7.9% unemployment rate and other economic factors. Yes, the unemployment rate went up, but only relative to the previous month's figures! What Beck didn't discuss was that overall unemployment has been decreasing since shortly after Obama took office. This is using short term data to support a statement that things got worse while neglecting the long term trend that show things are getting better. This is a common political pundit trick and both of the major parties do this. The fact that all political types pull this trick is no excuse though - just because they all do it doesn't mean that it's right. It's still one of the most common tricks of lying with statistics. This is one of the reasons that you should question what journalists and pundits report along with verifying the underlying facts that are presented in the press and on the internet.

Beck claimed that unemployment was up, gas prices were up, inflation was up and GDP was down. Let's test this. Below I have presented some graphs of data from the US Bureau of Labor Statistics. First, the unemployment rate in percent, where is appears that unemployment starts to drop a little while after Obama becomes president.:

unemployment.gif source: http://data.bls.gov/timeseries/LNS14000000 (accessed 2/3/13)

Next is a graph of the CPI-U, the consumer price index for urban regions, which is what everyone uses to track inflation. When someone reports on the rate of inflation and give some number, they are actually quoting the US Bureau of Labor Statistics consumer price index figures.

CPI.gif source: http://www.bls.gov/generated_files/graphics/CUUR0000SA0_3105491_1359919267604.gif (accessed 2/3/13)

I really like this inflation graph because it shows the volatility of oil & gas prices, and food prices. Oil and gas prices fluctuate because of international factors over which presidents have little to no control. The things that control the price of gas are supply and demand on the international market and the whims of OPEC. The only things the President can affect are crackdowns on price fixing and speculation and short-term relief by releasing oil from the national petroleum reserves. Other than the great volatility of petroleum products and food, inflation has averaged around 2.5% for quite a while now - but because of the constant ups and downs in food and fuel prices, it doesn't feel that way. The problem here is that everyone needs food and fuel, and both variability and uncertainty undermine the ability of people to budget their money. Variability in the price of these necessities also undermines consumer confidence, which is a bigger problem than people realize since it is perception that drives public opinion, not reality. Long-term stability in the rate of inflation is no consolation to people who can't afford their fuel oil bill because of market fluctuations. In this respect, it doesn't matter that Beck is wrong about increasing inflation when people see no stability in the cost of necessities.

Next is a graph of gas prices through time, both unadjusted and adjusted for inflation:

gasprices.jpg source: http://inflationdata.com/Inflation/Inflation_Rate/Gasoline_Inflation.asp (accessed 2/3/13)

There's something ugly going on in this graph. Quite simply, we had two decades of very stable gas prices in the 80s and 90s. Then we entered a period of rising petroleum costs. These costs rose because of the events of the last decade: loss of refinery capacity in North America, expensive wars in the most productive oil-producing region of the world, declining production in the oil fields in the politically-stable regions of northeastern Europe and the Americas, and political upheaval and violence in emerging fields in Africa - to name some of the major events that affect price. The averaged price of petroleum fuels has been stable for the last four years, but because of the huge volatility in price, it certainly doesn't feel like its stable. People see only the short-term fluxuations. Stability in averaged annual prices is both meaningless and unbelievable for almost everyone. It doesn't matter that Beck is wrong about increasing inflation when people see no stability in the cost of necessities. Perception trumps reality.

Last up is a graph of gross domestic product, also known as GDP:

gdp.jpg source: http://www.cbpp.org/images/chartbook_images/2.1.1-GDP-gap-OPT.jpg (accessed 2/3/13)

If you look at the inset in the graph, GDP was on the rebound even before Obama tool office. One could justifiably claim that Obama and his administration have less to do with this turnaround than the Bush administration - but that's not the point. Regardless of who claims credit for the reversal of the GDP, Beck is still wrong about it.

If you use your own eyeballs, you can see for yourself that since Obama took office, the unemployment rate has consistently dropped and GDP has gone up. Annually-averaged CPI, the surrogate for measuring inflation, has remained stable at a low two and a half percent for several years now. The only wrench in the works is the extreme market volatility in the price of petroleum; however, despite several years of price volatility, the annually averaged cost of fuel has been steady since before Obama took office, even if it doesn't feel that way.

In one respect, Beck blew it since one could make a case that the turn-around in unemployment, GDP and CPI was due to the economic recovery measures initiated by the Bush administration during Bush's last year in office and that Obama had little to do with the economic rebound that would happen naturally in the wake of the housing bubble collapse. One could even argue that Obama has opportunistically taken advantage of an economic turnaround that was crafted by Bush who left office before he could reap the credit for it. But I will refrain from taking the cheap shot that a such nuanced argument is beyond someone like Beck.