08/13/2013 archive

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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New York Times Editorial Board: Racial Discrimination in Stop-and-Frisk

Judge Shira Scheindlin of Federal District Court in New York upheld the bedrock principle of individual liberty on Monday when she ruled that the tactics underlying New York City’s stop-and-frisk program violated the constitutional rights of minority citizens. She found that the city had been “deliberately indifferent” to police officers illegally detaining and frisking minority residents on the streets over many years. [..]

Mayor Bloomberg, who has steadfastly supported this corrosive and socially damaging program, seemed unchanged on Monday. He arrogantly dismissed the suit and this ruling as the work of “one small group of advocates – and one judge,” repudiating the outrage about stop-and-frisk that has been growing in the city for years.

He has promised to appeal, but, fortunately, he will be leaving City Hall soon. His successor should retract the appeal and begin the process of bringing New York City’s police practices in line with the Constitution.

Richard (RJ) Eskow: What Should We Think About the Arrests at JPMorgan Chase?

Four years after Wall Street’s malfeasance dealt a telling blow the economy, and long after tens of billions of dollars have been paid out for banker fraud, reports say that we’re about to see the first arrests of Wall Street bank employees. What’s more, the suspects work at JPMorgan Chase — a bank which, ironically enough, politicians and pundits insisted was the “good bank” after the financial crisis hit in 2008.

In fact, Chase CEO Jamie Dimon spent years speaking out forcefully against additional bank regulation. (Lately, not so much…)

Financial cases can seem complicated. What should we think about these recent announcements in the “London Whale” case?

Rajan Calls Krugman "Paranoid" for Criticizing Reinhart and Rogoff’s Research

By William K. Black, New Economic Perspectives

Posted on August 13, 2013

The original feud was most famously between Stiglitz and Rogoff.  Stiglitz, who led the movement at the World Bank to throw off its support for austerity, memorably claimed that IMF was staffed with “third rate” economists.  Rogoff famously blasted Stiglitz in a July 2, 2002, “open letter” (only months after Stiglitz was made a Laureate) that, inter alia, referred to him as a “loose cannon” who had “slandered” the IMF staff, slammed him for refusing to “admit to having been even slightly wrong about a major real world problem,” suggested he was so arrogant that he doubted that Paul Volcker was “really smart,” admitted that Stiglitz had a few ideas with which the IMF would “generally agree” because most of them were “old hat,” described Stiglitz’s most recent book as “long on innuendo and short on footnotes,” derided him as pretending to see himself “as a heroic whistleblower” when he was actually peddling “snake oil,” described Stiglitz views as being most analogous to Arthur Laffer’s “voodoo economics” (cleverly and deeply insulting on multiple levels), accused Stiglitz of lacking faith in markets and having faith in increasingly democratic governments (“you betray an unrelenting belief in the pervasiveness of market failures, and a staunch conviction that governments can and will make things better”), and ended with a wonderfully nasty “compliment” that compared Stiglitz to a famous scholar who suffers from often disabling mental illness (“Like your fellow Nobel Prize winner, John Nash, you have a ‘beautiful mind.’ As a policymaker, however, you were just a bit less impressive.”)  To top off this list, Rogoff told Stiglitz that he should pull his book from publication because it “slandered” a senior IMF official.

But those are only the gratuitous insults that Rogoff launched at Stiglitz.  His real attack was that Stiglitz had done incalculable damage to the developing world by criticizing the IMF and by opposing austerity as “battlefield medicine” for nations thrown into severe recessions.

…

Rogoff’s claim is that the “impulsive” Stiglitz’s criticism of the IMF during the Asian crisis endangered the economic recovery essential to “indigent people in Asia” because it could have reduced “confidence” in the IMF’s policy of imposing austerity as “battlefield medicine” for Nations that were in sharp recessions.

…

Having analogized Stiglitz to a murderous war criminal, Rogoff returns to his subthemes that Stiglitz is arrogant, a terrible economist, and personally responsible for the IMF’s failed austerity programs because Stiglitz “ignominiously sabotaged” those programs by criticizing them.  Rogoff asserts that the key to economic recovery from a recession is the appearance of what many economists now refer to as the “confidence fairy” and that austerity is the sole elixir that can summon the confidence fairy.  The confidence fairy only appears if one believes, really believes, in fairies so Stiglitz’s criticism of austerity was an act of sabotage that prevented the IMF from summoning the fairy.

…

Rogoff’s criticisms of Stiglitz and his (and the IMF’s) embrace of Greenspan, Rubin, and Summers’ assaults on financial regulation produced the criminogenic environments that led to the epidemics of control fraud that drove the global financial crisis and the Great Recession.  Reinhart and Rogoff (R&R) published a book claiming that government stimulus programs were counterproductive and that austerity should be the response.  They asserted in policy recommendations that there was a cliff when a nation’s debt reached 90% of its GDP that led to untenable interest expense burdens that served as a long-term brake on economic growth.  Their book was widely and favorably cited by proponents of austerity.  The proponents were able to restrict the size of the U.S. stimulus program, remove its vital “revenue sharing” component that could have prevented so much harm to states and communities and speeded the recovery, and force much of the stimulus to be in the form of relatively ineffective tax cuts for the wealthy.  The impact of R&R in the Eurozone was far worse.  It led to austerity programs that forced the Eurozone into a gratuitous recession and much of the periphery into a second Great Depression that continues.

…

There were strong, immediate criticisms of R&R’s claims about austerity and the asserted debt cliff, including those of my colleague Randy Wray that proved correct.  R&R failed to distinguish between nations with fully sovereign currencies and other nations and engaged in selective data that excluded nations and years that ran counter to their claimed findings.  Graduate students from two of the Nation’s few remaining heterodox economics departments (University of Massachusetts, Amherst and the University of Missouri-Kansas City) devastated the R&R book by examining its data – and the data R&R excluded.  The U. Mass graduate student won deserved fame for finding that R&R had made serious data entry errors that when corrected revealed that the purported 90% cliff was fictional and greatly reduced the relationship that R&R reported between increased debt and reduced growth.  Our graduate students demonstrated that if one were to infer causality from the data the direction of causality ran the opposite of what R&R claimed in their policy arguments.  Recessions led to high levels of debt, not the other way around.

…

For reasons that pass all understanding, Reinhart and Rogoff decided to claim that the U. Mass study had confirmed the R&R study that higher debt was associated with lower growth and to claim that they had never argued that there was a cliff or that high debt led to lower growth.  This was a strategy that had to fail in the modern era, which retained records of their statements and statements of policy makers about the cliff and about their claim that high debt led to low growth.  (Note that Rogoff’s 2002 letter lambasting Stiglitz made that same claim.)

…

Reinhart and Rogoff’s disingenuous response to the revelation of their many errors prompted Krugman to call them out on their claims.  Note that Reinhart and Rogoff’s response (immediately above) did not complain of Krugman’s (quite mild) comments one week before they wrote their April 26, 2013 response.

…

Reinhart and Rogoff reprised some of the tactics of Rogoff’s 2002 open letter attacking Stiglitz with an open letter (May 25, 2013) attacking Krugman for criticizing R&R.  The famous line in this iteration was: “it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks. You have attacked us in very personal terms, virtually non-stop….”

…

Just when one might have hoped that R&R’s flawed study, their disastrous support for austerity, and the feud would become a bit of arcane economic history, Rajan, on the way to India to lead its central bank, decided to rally around his IMF colleagues and to (by innuendo) accuse Krugman of being “paranoid.”

…

There are three obvious things to say in response to Rajan’s title and claim.  First, having read Rogoff’s open letter to Stiglitz, if Rajan wants to criticize a “paranoid,” “spectacularly uncivil” style of discourse containing myriad ad hominem attacks he has aimed his pen at the wrong economist.

Second, Krugman did not make ad hominem attacks on Rajan’s IMF colleagues.  Krugman made substantive criticisms of Reinhart and Rogoff’s arguments and practices.  One can debate the accuracy of his criticisms, but they were addressed to the merits of their research.

Third, Rajan makes an ad hominem attack on Krugman in this article.  Worse, he does it by innuendo, implying that Krugman is “paranoid.”  Rajan and Rogoff have reason to be personally upset with Krugman.  Krugman wrote a June 9, 2011 (2010) column that explained that Rajan and Rogoff gave spectacularly bad advice not only in favor of fiscal austerity, but raising interest rates, at a time when doing so would have been disastrous and was unsupported by any economic model.  Krugman quoted Keynes’ famous passage in which he noted that many economists viewed the willingness to inflict misery on others as the hallmark of a real economist.

…

Readers will likely ignore Rajan’s column because they will consider his attack on Krugman as an understandable, but disingenuous, payback for Krugman criticisms of the three former IMF economists.  That would be a shame, for Rajan’s article contains two enormously important admissions that my colleagues who specialize in macroeconomics have long emphasized.

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Theoclassical economists did not simply assume away finance and money.  By assuming finance and money away they implicitly assumed away fraud and the essential regulatory cops on the beat.  Theoclassical economists pushed to eviscerate the institutional protections such as effective financial regulation and regulators that had helped ensure “that the financial plumbing worked in the background” and created the criminogenic environments that led to the epidemics of control fraud that drive our recurrent, intensifying crises.  Economists ignored the warnings and the policies recommended by another Laureate, George Akerlof.  Akerlof and Paul Romer wrote a classic article in 1993 entitled “Looting: The Economic Underworld of Bankruptcy for Profit.”

…

Neoclassical economists overwhelmingly continue to ignore Akerlof, Romer, and their former colleague Jim Pierce’s findings about control fraud and the findings of criminologists.  Rajan’s book about the crisis, for example, asserts that fraud played no material role in the crisis and describes a hypothetical scam that he says illustrates the (lawful) causes of the crisis.  The scam, however, requires two felonies and would fail as a scam.  Rajan does not understand the law or fraud.  The accounting control fraud “recipe,” by contrast, works and has great explanatory power.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on image to enlarge

August 13 is the 225th day of the year (226th in leap years) in the Gregorian calendar. There are 140 days remaining until the end of the year.

On this day in 1521, the Aztec capital, Tenochtitlan falls to Cortes:

After a three-month siege, Spanish forces under Hernan Cortes capture Tenochtitlan, the capital of the Aztec empire. Cortes’ men leveled the city and captured Cuauhtemoc, the Aztec emperor.

Tenochtitlan was founded in 1325 A.D. by a wandering tribe of hunters and gatherers on islands in Lake Texcoco, near the present site of Mexico City. In only one century, this civilization grew into the Aztec empire, largely because of its advanced system of agriculture. The empire came to dominate central Mexico and by the ascendance of Montezuma II in 1502 had reached its greatest extent, extending as far south as perhaps modern-day Nicaragua. At the time, the empire was held together primarily by Aztec military strength, and Montezuma II set about establishing a bureaucracy, creating provinces that would pay tribute to the imperial capital of Tenochtitlan. The conquered peoples resented the Aztec demands for tribute and victims for the religious sacrifices, but the Aztec military kept rebellion at bay.

After the conquest

Cortes subsequently directed the systematic destruction and leveling of the city and its rebuilding, despite opposition, with a central area designated for Spanish use (the traza). The outer Indian section, now dubbed San Juan Tenochtitlan, continued to be governed by the previous indigenous elite and was divided into the same subdivisions as before.

Ruins

Some of the remaining ruins of Tenochtitlan’s main temple, the Templo Mayor, were uncovered during the construction of a metro line in the 1970s. A small portion has been excavated and is now open to visitors. Mexico City’s Zócalo, the Plaza de la Constitución, is located at the location of Tenochtitlan’s original central plaza and market, and many of the original calzadas still correspond to modern streets in the city. The Aztec sun stone was located in the ruins. This stone is 4 meters in diameter and weighs over 20 tonnes. It was once located half way up the great pyramid. This sculpture was made around 1470 CE under the rule of King Axayacatl, the predecessor of Tizoc, and is said to tell the Aztec history and prophecy for the future.

During his press conference on Friday, President Barack Obama admitted, without giving him credit, that the reason the conversation on the NSA is now taking place is thanks to Edward Snowden.

“The leaks triggered a much more rapid and passionate response than would have been the case if I had simply appointed this review board,” Obama said, while adding, “I actually think we would have gotten to the same place-and we would have done so without putting at risk our national security.”

With public opinion rapidly eroding over the surveillance, the president still refused to concede that the program was abused:

“America is not interested in spying on ordinary people,” Obama said. The surveillance programs, he said, were valuable and “should be preserved.” The flaw, if there was one, he said, lay in his assumption that the public would trust that the “checks and balances” in place between the administration, Congress, and the courts was enough to secure personal freedom. Instead, he said, after Snowden’s revelations, “I think people have questions about this program.”

While Obama promised a to create an an independent advisory group made up of “outside experts” who will review controversial surveillance programs, it’s pretty clear that [the group won’t exactly be completely independent of the NSA, as Marcy Wheeler reports:

In the memo Obama just released (pdf) ordering James Clapper to form such a committee, those words “outside” and “independent” disappear entirely.

   I believe it is important to take stock of how these technological advances alter the environment in which we conduct our intelligence mission. To this end, by the authority vested in me as President by the Constitution and the laws of the United States of America, I am directing you to establish a Review Group on Intelligence and Communications Technologies (Review Group).

   The Review Group will assess whether, in light of advancements in communications technologies, the United States employs its technical collection capabilities in a manner that optimally protects our national security and advances our foreign policy while appropriately accounting for other policy considerations, such as the risk of unauthorized disclosure and our need to maintain the public trust. Within 60 days of its establishment, the Review Group will brief their interim findings to me through the Director of National Intelligence (DNI), and the Review Group will provide a final report and recommendations to me through the DNI no later than December 15, 2013. [my emphasis]

And neither Obama nor the Intelligence Committees get to hear from this Group themselves. It all goes through James Clapper.

And the other group members

President Obama and Director Clapper may solicit advice from notable figures in the technology industry; the president reportedly met with several leaders last Thursday, including Apple CEO Tim Cook and Google VP Vint Cerf. But with both Apple and Google implicated in some level of cooperation with the government under PRISM, the government may need to solicit input from a broader coalition of stakeholders.

So, Obama is putting the liar in charge, asking advice from those who willingly aided and abetted the spying and isn’t going to make the report public but expects this will win over public opinion. Yeah, right. If the public falls for this malarkey, I have a bridge to sell, too.

U.S. District Court Judge Shira Scheindlin handed down her ruling on the New York City Police Department’s Stop and Frisk Policy. In her official summary, Judge Sheindlin found the policy unconstitutional calling it a “form of racial profiling’ and a violation of the Fourth and the Equal Protection Clause of the Fourteenth Amendments rights of minorities in New York City. From the official transcript:

In conclusion, I find that the City is liable for violating plaintiffs’ Fourth and Fourteenth Amendment rights. The City acted with deliberate indifference toward the NYPD’s practice of making unconstitutional stops and conducting unconstitutional frisks. Even if the City had not been deliberately indifferent, the NYPD’s unconstitutional practices were sufficiently widespread as to have the force of law. In addition, the City adopted a policy of indirect racial profiling by targeting racially defined groups for stops based on local crime suspect data. This has resulted in the disproportionate and discriminatory stopping of blacks and Hispanics in violation of the Equal Protection Clause. Both statistical and anecdotal evidence showed that minorities are indeed treated differently than whites. For example, once a stop is made, blacks and Hispanics are more likely to be subjected to the use of force than whites, despite the fact that whites are more likely to be found with weapons or contraband. I also conclude that the City’s highest officials have turned a blind eye to the evidence that officers are conducting stops in a racially discriminatory manner. In their zeal to defend a policy that they believe to be effective, they have willfully ignored overwhelming proof that the policy of targeting “the right people” is racially discriminatory and therefore violates the United States Constitution.

The ruling does not end the program. In a separate opinion, the judge ordered federal monitoring and, among other remedies, a pilot program in which officers in at least five precincts across the city will wear cameras on their bodies to record street encounters.

Naturally, Mayor Michael Bloomberg and Police Commissioner Ray Kelley reacted angrily claiming that the city did not get a fair trail:

“The judge conveyed a disturbing disregard for the good intentions of our officers, who form the most diverse police department in the US,” he said during a press conference Monday. It was a “dangerous” decision by the judge, Bloomberg added, while claiming that the policy had helped bring down crime in New York.

Kelly was likewise forthright in his condemnation of the judge’s ruling, describing it as “disturbing” and “highly offensive”. He rejected the claim that his officers had engaged in racial profiling. “This is simply, recklessly untrue,” he said, though he added that he had not yet read the ruling because he had spent the morning having dental work done.

It’s unknown of this ruling will effect President Barack Obama’s high opinion of Comm. Kelley and take e him out of contention for the head of Homeland Security.

The mayor vowed to appeal but he will be out of office at midnight on December 31 of this year. Hopefully the new mayor will have drop the appeal and work harder to protect the rights of NYC’s minority residents and their safety.

The best line of Judge Scheindlin’s ruling is her last one:

” I conclude with a particularly apt quote: “The idea of universal suspicion without individual evidence is what Americans find abhorrent and what black men in America must constantly fight. It is pervasive in policing policies – like stop-and-frisk, and . . . neighborhood watch regardless of the collateral damage done to the majority of innocents. It’s like burning down a house to rid it of mice.”