08 November 2011

What is Wrong with America? Ferguson vs. Sachs

Jeff Sachs takes Niall Ferguson to the woodshed in this exchange. Sachs however falls short in his argument as it is not enough to call for more investment by governments, but it is also necessary to explain what those investments will be -- specifically, not in generalities like education and science and technology. Pointing to Europe as a model of success in governance is probably not the best analogy to apply these days, either.

Sachs wins this debate.


  1. Ferguson: "important to avoid criminalizing 1% of the population"

    Good point; I made a similar one on a local (Dayton) activist's site. Demagoguery is blameworthy. Mobs are ugly.

    Ferguson: "look how the federal government fares in the programs it does spend a lot of money on"

    So if government gets 27% of GDP in taxes we're reckless, ungodly heathens, but if it gets 35% we're saints (and competitive to boot!)? Can I buy some carbon indulgences with that extra 8% while I'm at it?

  2. -1-jstults

    I agree about the 1% vs. 99% -- That isn't really much of a policy analysis -- If you make $340k per year you are OK, and at $345k you are evil? Silly.

    And you have hit on the weakest part of Sachs argument -- that total government spending is a valid metric. Investment is necessary, I'd agree, but not sufficient -- a lot hinges on that those investments are actually made.

    That is the discussion we need to have. It is difficult to have such a discussion when some seem to think that government is unnecessary (or that smaller is necessarily better -- the same bad logic that bigger is better).


  3. Govt is corrupt. And taking property by force is bad. One can argue that some govt is morally the best of bad options and I will agree. But govt should always be the last option because it uses the threat of violence to "enforce" its mandates on those who disagree.

    Anyone who can't see the moral preference for voluntary action over forced compliance is too deep into the maze to see clearly.

    Roger -- you may not enjoy this blog post, but it is worth the read http://www.eternityroad.info/index.php/weblog/screeds/14/

  4. The real scandal wasn't the illegal behavior. That didn't cause many real problems. The real problem was the legal behavior which was, in fact, the intended behavior from the laws and regulations that were set up.

    If Sachs wins, it's not on the merits of his arguments.

  5. Frankly Nial Ferguson paints himself in this video as a prototypical Koch-type rentier defender.

    Quite disappointing given the few other articles I've seen that he's written.

  6. Sachs does mention the specific of early-childhood education and programs to support early-childhood cognitive development.

    Comprehensive economic studies show that investment in those areas brings up to a 20 to 1 return on investment.

  7. -6- Joshua,

    Can you provide some links about those studies? There was a recent study that showed that the crown jewel of the Federal early childhood development programs, Head Start didn't really do much beyond a year or so. After that, you couldn't tell the Head Start kids apart from non-Head Start.

  8. Banks demanded handouts? The technical term for that is 'lie.' The government called in banks and demanded that they take money, whether they liked it or not. The point of the policy was to prop up the American banking system to avoid a total collapse of our economy, not go give bankers gold plated toilet seats. It was the right policy at the time, and it worked. Sachs lies his way through as much as I bothered listening to.

    There is much to call out the bankers and investment firms for. But they didn't start the problem. Toxic mortgages existed in the first place because Democrats in Congress demanded that more loans be made to minorities and low income people in general. The old mortgage requirements existed for a reason - to be sure the borrower could pay back the loan. Barney Frank, et. al. forced changed in the mortgage lending rules that opened the floodgates to bad loans being made. The easily debunked Boston Fed study that supported this move is the founding document of the disaster, and Franklin Raines was the inside man at Fannie Mae. These people created the bad loans that Wall Street spun into toxic investments - after the fact. The finger needs to point in BOTH directions, but of course it never will. All the 1% talk is just a misdirection effort to take your eye off the origin of the ball.

  9. Matt -

    As is often the case with research on educational outcomes, there is some ambiguity. Researching a field with so many uncontrollable variables is inherently problematic. When you narrow it down to a specific program like Head Start - you gain some advantages (realistic analysis of a government-funded program) against some disadvantages (running the risk of a facile generalization from one program only). I have seen a variety of reports on the value of Head Start.

    Here are some links. It's been a while since I've looked at them and I don't remember them well-enough to comment specifically. That said, I think that there is a solid body of evidence to conclude a **potentially** solid return on investment (depending on the quality of the programs invested in) - very specifically connected to the observation of greater return the earlier in a child's life the investments are made. We're talking pre-preschool here.






    The benefits might be particularly notable for at-risk, urban youth.


  10. Mark B. -

    "Toxic mortgages existed in the first place because Democrats in Congress demanded that more loans be made to minorities and low income people in general. "

    You say that the finger should point in both directions - so I just wanted to make sure that you've researched the history of the programs your referring to and a "time series" analysis of the correlated magnitude of related toxic loans. You should also look up the % of the programs you're speaking about were connected to subprime loans (as compared to other lenders).

    As well as looking at the impact of contributions from Raines, you should be sure to look at the impact (abetted by Clinton's administration) of politicians who were responsible for the CFMA.

    Finally, consider this. How were the problems resulting from subprime loans affected by huge financial institutions (that reflect a very significant portion of our GDP) leveraging at up to 40 to 1 to buy packages of bad debt, rebundle them, and then sell them to other massive financial institutions that also leveraged at similar rates to purchase the re-bundled packages (and insured their bad debt with "insurers" who also leveraged themselves massively to provide the insurance)?

  11. -9- Joshua,

    I skimmed a few of those, and I see a lot of hand waving. Still, if the states want to take some of the bloated budgets of elementary and high school and put it into preschool, I could be persuaded.

  12. Matt -

    Perhaps you could describe in a bit more detail what you consider to be "hand waving?" That tends to be a very subjective term. Where do you see problems in the methodology of the research conducted by James Heckman and Art Rolnick?

    Keep in mind:

    "James Joseph Heckman (born 19 April 1944) is an American economist and Nobel laureate. He is the Henry Schultz Distinguished Service Professor of Economics at the University of Chicago, Professor of Science and Society at University College Dublin and a Senior Research Fellow at the American Bar Foundation.

    Heckman shared the Nobel Memorial Prize in Economics in 2000 with Daniel McFadden for his pioneering work in econometrics and microeconomics. He is considered to be among the ten most influential economists in the world."

    And Art Rolnick is the former Chief Economist at the Minneapolis Federal Reserve.

    Now of course, their research can be flawed just as anyone's can, no matter their credentials - but I would think that their credentials merit a more substantive criticism than an unqualified characterization of "hand-waiving."

  13. -12- Joshua,

    The most obvious was the RAND study. They looked at some preschool stuff for disadvantaged kids, and extrapolated to Universal Preschool. This is not really different that the caveat you gave about studying individual programs. Also, as you said, there are a lot of variables, so attribution is difficult.

    Either way, I don't think there's much evidence that this would significantly change the direction of the country, economically or educationally, which is the larger topic of this post and thread.

    Hey, I've sent both of my kids to preschool, so I'm not saying it's a bad thing. I'm just skeptical of throwing public money at it thinking that it's going to do much for macro problems in America.

  14. - 13 - Matt

    I'm not sure who's talking about "throwing public money."

    "In estimating costs and benefits, the RAND researchers assumed a high level of program quality, meaning that the universal preschool program would meet nationally recognized standards for class sizes, staff ratios, staff qualifications, and other features associated with better outcomes for children. They also assumed a part-day, voluntary program that would enroll 70 percent of the state’s 4-year-olds. Cost estimates were based on data on teacher salaries and other costs in California."

    I don't agree that they "look[ed] at some preschool stuff for disadvantaged kids, and extrapolate[d] to Universal Preschool.

    They did an analysis of the potential economic benefits of a systematic development of a qualified preschool program - and they discussed a differential in advantage based on the SES status of the kids involved.

    And I'm not sure that anyone is suggesting that investing in early childhood education will, as a single variable, "change the direction of the country."

    IMO, you still haven't made a case to assign the characterization of "hand-waiving."

  15. Sorry Roger, but I don't see any woodshed here. Just two (presumably) bright guys making the same ideological arguments we see everywhere these days.

    Occupy Wall Street is basically correct? The banks etc. are to blame for the economic crash? The top 1% control society and the rest of us pick up the scraps? This is a winning argument?

    It's just another example of people looking for someone to blame because the causes are too complex for humans to handle. The reality is that free markets sometimes go wrong, and no government is smart enough to stop it.

    And is Sachs really serious about claiming that the U.S. has been all free market and little government intervention (that's what he implies when he says we need "two pillars")? And this is due to Ronald Reagan's demonizing of government? Really? Did the government actually get smaller or was this just rhetoric? Please. Sach's arguments are just more of the "vast right-wing conspiracy" rhetoric. These are not serious arguments. Very disappointing.

    Ferguson, for his part, blames institutions like teacher's unions, for the lack of social mobility. Same old, same old.

  16. My 2 cents:

    The big banks got away with murder with gov help. Raines got $90M while bankrupting FannieMae (tax payers)! Criminal.

    The plight of the lower income groups is due to globalization (competition with Chinese/Indian labor) not the top 50% of earners who, by the way, pay 90% of taxes.

    Regulated capitalism is the best way. "Crony Capitalism" is a big problem.

  17. What is wrong with America is that it accepts an ultra right wing Neocon financial gangster like Sachs as left wing.

    Along with his global warming partner George Soros, they were part of the process that sacked Russia and handed it over to a small number of Oligarchs.


  18. -10-Joshua

    There's a saying I remember from grad school: If you have a talking dog, you don't need statistics.

    My parents saved from 1947 to 1960 to buy a house. My father was a police man, so he had a reliable income. They had sufficient down payment to satisfy requirements, and also had enough money in the bank to cover emergencies, plus the house had two three-room apartments in it for income.

    If the requirements of 1961 had stayed in place, sub-prime mortgages would not exist and could not have been bundled into toxic securities. So what changed in the mortgage market? How did the 30 year mortgage - a perfectly safe loan for decades - become "toxic?" It wasn't an accident, and it didn't happen on Wall Street. It happened in plain sight, at the direction of Congress.

    The effort to 'get more Americans into home ownership' was a conscious, deliberate effort by Democrats. It could only be enacted by increasing incomes - which was happening very slowly - or by lowering mortgage requirements. There is nothing to argue about - facts is facts. Congress ordered lenders to lower requirements in the name of bringing the 'American Dream' to African Americans. Once the decades-long practices of rational lending were breached, the disaster was inevitable. Later came bundled mortgages for sale and extreme leveraging - Wall Streets part of the blame. The economic collapse that ensued required both.

  19. -17- eric144,

    You have removed any meaning from the Left / Right political spectrum. How does someone with such strong statist views on the economy end up anywhere near the Right?

  20. Matt

    I stand by what I said. Sachs and Soros record in Eastern Europe goes before them. Soros was behind the coloured revolutions. They are classic cases of fifth columns or 'create your own enemy'. Like Obama, Clinton and Blair.

    You must have a pretence of an alternative for elections, but each is further to the right than the previous one.

    The other point I would make is that with the revolving door system, the banks own the government anyway.

  21. -20- eric144,

    I have no idea, then, what you believe it means to be left or right.

  22. Matt

    Politics is a puppet show. The players are chosen.

    I strongly recommend you watch this BBC video. This market trader says Goldman Sachs run the world, not governments and that's why the Euro is on its way out.


  23. Former BBC and Guardian journalist Greg Palast

    Lazy Ouzo-Swilling, Olive-Pit Spitting Greeks Or, How Goldman Sacked Greece

    In 2002, Goldman Sachs secretly bought up €2.3 billion in Greek government debt, converted it all into yen and dollars, then immediately sold it back to Greece.

    Goldman took a huge loss on the trade.

    Is Goldman that stupid?

    Goldman is stupid—like a fox. The deal was a con, with Goldman making up a phony-baloney exchange rate for the transaction. Why?

    Goldman had cut a secret deal with the Greek government in power then. Their game: to conceal a massive budget deficit. Goldman's fake loss was the Greek government's fake gain.

    Goldman would get repayment of its “loss” from the government at loan-shark rates.

    The point is, through this crazy and costly legerdemain, Greece's right-wing free-market government was able to pretend its deficits never exceeded 3 percent of GDP.

    Cool. Fraudulent but cool.


  24. -22- eric144,

    The euro is on its way out because it was doomed from the beginning.

    That clip (or your follow up post) doesn't really clarify anything you've said regarding Sachs, Soros or political philosophies.

  25. Matt

    I'm saying that Soros and Sachs represent the financial hierarchy. Soros is one of the biggest players on Wall Street. They don't mean what they say. They can be guaranteed not to change anything that matters. The mugs think they have someone on their side, but he is really a wise guy.

    As I said before, governmemnt represents the banks anyway, so more state control means more Wall Street control. We can't win the way things are.

    That is my last reply to a question.

  26. Eric/Matt
    For clarification; Right and Left are a bit too one dimensional as indicators nowadays. Try this link instead:

    Note that since the rise and rise of free market economics theory the traditional left has died out and virtually every politician anywhere is a right winger so the distinction now is mainly whether they are authoritarian or libertarian; ie how much they like to nanny/bully us. I found I was slightly left and slightly libertarian.

    Many of us think that modern economists bear the brunt of the blame with their idiotic notion that markets are self-correcting and that big debts don't really matter. With this philiosphy they seemed to assume that if we haven't crashed yet then we are not going to crash :). These jokers influenced politicians and bankers. And of course, everyone then seemed to assume that as long as Greenspan was in charge then everything would be hunky dory. Quite funny really!

    Both traditional leftists and libertarians predicted the financial collapse (while the mainstream politician of either hue remained like puppets quoting meaningless platitudes). This doesn't however mean that either of their proposed solutions are any good, especially since they are diametrically opposite ;).

    But everybody must surely, eventually conclude that the solution is to encourage more entrepreneurism yet so far nobody seems to actually do anything about that, preferring instead to presume that saving big banks is the first priority. The words cart and horse spring to mind!