Cross posted from Naked Capitalism.
A bit more than a week ago I went to a panel discussion at the Met about the global financial crisis. The panel consisted of Paul Krugman, Edmund Phelps, Jeffrey Sachs, and George Soros. They were each given 15 minutes to talk about what they thought about the Eurocrisis, especially Greece, the U.S., and whatever else they felt like.
It was well worth the $25 admission fee, but maybe not for the reason I would have thought when I went. I ended up deciding something I’ve suspected before. Namely, economists don’t understand the financial system, and moreover they don’t get that they don’t get it. Let me explain my reasoning.
The panelists all are pretty left-leaning guys, and each of them basically talked about how the U.S. government should stimulate the economy in one way or another. Krugman kept saying that hey, this isn’t too hard, we’ve seen financial crises before, and this is no different: we should immediately pass a massive stimulus package, that’s the one and only thing that we should be discussing. Sachs was very consistently saying we should do something else: namely, start planning long-term for the future. He focused on the percent of tax dollars going into infrastructure and basic education and research. Phelps also wanted stimulus, but he consistently referred to his own economic models in how exactly it should work. I didn’t completely follow his train of thought.
Soros was the most interesting of the four, in my opinion. He started by saying that we should all acknowledge that, as nice as it would be to think we can model the economy and feel control over the situation, this is a pipe dream and we should get used to not really knowing what will happen when we do one thing versus another. He suggested that we should instead work together to develop a theory, or perhaps even an philosophy, that assumes uncertainty itself. He ended by saying that, even with the three colleagues on the panel with him, who are essentially all united in thinking we need to be proactive, his ideas are essentially being ignored.
The rest of the evening essentially consisted of everyone ignoring Soros and arguing about how Keynesian they all were and how exactly different kinds of stimulus would work and which way they should use 2% of GDP to jumpstart the world’s economy. So basically exactly what Soros said would happen.
It got me more and more riled up. Here are these expert economists, two of whom have Nobel Prizes and the third who runs the Earth Institute at Columbia and is considered a huge swinging dick in his own right, and they don’t seem to acknowledge how much power they actually have over the situation (specifically, not much). For that matter, they clearly don’t know the nitty gritty of the financial system. To listen to them, all you need to do is spread a thick paste of money on the system and it would revive whole cloth. Soros is the exception, probably for the reason that he actually traded and made money inside the system.
At the end I asked a question, since they allowed a few questions, and as you know I’m not shy. I asked how we are going to make the system simple enough to actually make it possible to regulate it. Krugman basically said that Dodd-Frank is going to do it. My conclusion from that is that Krugman must really have only an outline in his head of how this stuff works- the devil, as we know, is really in the detail, and I’m too acquainted with the Volcker Rule’s list of exemptions to have a lot of hope on this score. To be fair, Phelps mentioned Amar Bhide’s book A Call for Judgment, which I’m reading and seems pretty good and at least addresses this exact issue head-on.
Overall, the evening brought me back to the credit crisis, and working at D.E. Shaw, when Larry Summers was consistently quoted at the firm as saying that the “magical liquidity fairy” needed to come and “spread some magical liquidity dust” in the markets to make everything better. No, I’m not kidding.
What I felt then and what I still feel is that these super influential economists are so high on their clean, simple economic models of the world (about the only variables of which are GDP, stimulus, and tax rates) that they focus on the model to the exclusion of the secondary issues. Sometimes you get important results this way: simplifying models can be really useful. But sometimes it’s really truly misleading to do so, and I believe this is one of those cases.
I’m left thinking that they (the economists) are so entranced with their simplified world view that still don’t understand what actually fucked up the world in 2007 and 2008, namely the CDO market’s implosion. Message to Krugman: this is not exactly like other financial crises, because it’s partly caused by complexity, and nobody seems to have the balls to fix it. The problem is that the financial system has been allowed to get so complicated and so rigged in favor of the people with information, that normal people, including homeowners, credit card users, politicians, and regulators have been left in the dark, and many of the little guys are still stuck in ludicrous contracts left over from the outrageous securitizations that took place in the CDO market.
What is especially enraging is how these same economists are still the experts that people turn to to help figure out how to get out of this mess, when they don’t actually understand the mess itself. Why else would a large audience be willing to pay $25 a piece to hear them talk about this? Why else would Obama be considering Larry Summers to lead the World Bank?
As an aside: please, Mr. President, do not let Summers lead the world bank. He does not understand the system well enough to lead it. And he is too arrogant to admit what he doesn’t know. I can introduce you to a bunch of people that may be less imposing but are more informed, more ethical, and wiser. Give me a call any time and we can chat and form a short list of candidates.
By the way, I’m not saying we shouldn’t have a major stimulus, or that we shouldn’t do longer term planning and invest more in infrastructure. I think we should do both. But I also think those efforts will be futile unless we enforce a basic system that is simple enough to be regulated. Otherwise we will be reliving this entire ordeal in another 15 years.
Here’s the coverage from Business Insider.
Here’s the letter (also posted on Naked Capitalism):
Dear Mr. Pandit,
Last October, in an interview with Fortune Magazine, you extended an invitation to Occupy Wall Street for a face-to-face meeting. The Alternative Banking Group, an official working group of Occupy Wall Street, hereby accepts.
As CEO of Citigroup, you recently announced “a new Citi.” You said that you are now “working hard to create a culture of responsible finance.” Our mission as the Alternative Banking Group is exactly the same. We look forward to a fruitful dialogue.
Since this conversation is of importance to the general public, we will have a small camera crew with us to document it. The video will be shared on the websiteoccupy.com, an emerging media platform for the Occupy movement.
Please respond to this email at your earliest convenience to schedule a time and place.
The Alternative Banking Group
Occupy Wall Street
Please comment with questions we can ask Vikram if he accepts our offer.
The Columbia Chapter of SIAM (Society for Industrial and Applied Mathematics) invites YOU to:
Spring 2012 Math-Startup Collaborative Wednesday, February 29 | 6:00 – 8:00 PM | Davis Auditorium, Schapiro Center
Meet Columbia alumni from NYC startups, including Bitly, Foursquare, and Codecademy, and learn about the role of math and engineering in their companies. Students interested in startup careers and internships, or those simply curious to see how math is applied in the wild, are especially welcome. The event, which consists of a series of presentations from our startup members, will be followed by a reception (with free food!). This is sure to be the largest applied math event of the semester!
Startup presenters include:
- Bitly –> http://blog.bitly.com/
- Foursquare –> https://foursquare.com/about/
- Codecademy –> http://blog.codecademy.com/
- BuzzFeed –> http://www.buzzfeed.com/about
- Sailthru –> http://blog.sailthru.com/
Space is limited! Contact Ilana Lefkovitz (firstname.lastname@example.org) for more information.
Co-sponsored by the Application Development Initiative (ADI). Reception sponsored by AOL Ventures.
My friend Tara sent me a message:
The President’s Council of Advisors on Science and Technology submitted a report on the challenge to producing more college graduates with STEM degrees. In particular, they point out mathematics as a bottleneck, and recommend (on p. 29) that “teaching and curricula [be] developed and taught by faculty from mathematics-intensive disciplines other than mathematics, including physics, engineering, and computer science.” Of course, there are physicists, engineers, and computer scientists on the Council, whereas there is no mathematician.
On some level, they do have a point. They seem to say that we (as a nation) are not doing a good job of teaching K12 mathematics. I strongly disagree with their conclusion that we should therefore take the college-level teaching of mathematics away from the experts in mathematics.
Hmm. I don’t know. I’ve been sounding a warning for a while now that math departments are way too complacent about the way they teach undergrads. I try to make people think of a math department as, to some extent, a brand, and that we should be trying to attract good majors and we should be trying to get more people psyched about math. To that end I am constantly trying to get people to care about the calculus curriculum, which is always at risk of being taken over by the physics, engineering, and economics departments, and I’ve consistently introduced “introduction to higher math” courses which explicitly teach proof techniques.
But there’s a major problem, at least in the very top research departments. Namely, the professors actually think math should be a hard and elite major, and that gives them an excuse to not care about the quality of the undergrad classes. That’s not how they say it, of course, but my experience is that’s how it works.
The other reason I think it makes sense to be a bit concerned about the brand is that if we mathematicians don’t start doing it, then someone else will start doing it for us. This President’s Council of Advisors report is exactly saying that. On the one hand it could be the kick in the ass that math departments need, but on the other hand considering how much reporting they are asking for, it could mean a tremendous amount of paperwork as well as a loss of independence of the math community.
I say mathematicians respond to this by admitting there’s a problem and coming up with a good plan that they organize and control. Otherwise I do think something else will and should be done.
Interestingly, there also seems to be a call in this report for more good math tutors. It reminds me of a commenter from yesterday who wants to start something called “Tutor for America”, which I think is an excellent idea.
Anyone who reads this blog regularly knows how detestable I think it is that the teacher value-added model scores are being released but the underlying model is not.
We are being shown scores of teachers and we are even told the scores have a wide margin of error: someone who gets a 30 out of 100 could next year get a 70 out of 100 and nobody would be surprised (see this article).
Just to be clear, the underlying test doesn’t actually use a definition of a good teacher beyond what the score is. In other words, this model isn’t being trained by looking at examples of what is a “good teacher”. Instead, it derived from another model which predicts students’ test scores taking into account various factors. At the very most you can say the teacher model measures the ability teachers have to get their kids to score better or worse than expected on some standardized tests. Call it a “teaching to the test model”. Nothing about learning outside the test. Nothing about inspiring their students or being a role model or teaching how to think or preparing for college.
A “wide margin of error” on this value-added model then means they have trouble actually deciding if you are good at teaching to the test or not. It’s an incredibly noisy number and is affected by things like whether this year’s standardized tests were similar to last year’s.
Moreover, for an individual teacher with an actual score, being told there’s a wide margin of error is not helpful at all. On the other hand, if the model were open source (and hopefully the individual scores not public), then a given teacher could actually see their margin of error directly: it could even be spun as a way of seeing how to “improve”. Otherwise said, we’d actually be giving teachers tools to work with such a model, rather than simply making them targets.
update: Here’s an important comment from a friend of mine who works directly with New York City math teachers:
Thanks for commenting on this. I work with lots of public school math teachers around New York City, and have a sense of which of them are incredible teachers who inspire their students to learn, and which are effective at teaching to the test and managing their behavior.
Curiosity drove me to it, but I checked out their ratings. The results are disappointing and discouraging. The ones who are sending off intellectually engaged children to high schools were generally rated average or below, while the ones who are great classroom managers and prepare their lessons with priority to the tests were mostly rated as effective or above.
Besides the huge margin of uncertainty in this model, it’s clear that it misses many dimensions of great teaching. Worse, this model, now published, is an incentive for teachers to develop their style even more towards the tests.
If you don’t believe me or Japheth, listen to Bill Gates, who is against publicly shaming teachers (but loves the models). From his New York Times op-ed from last week:
Many districts and states are trying to move toward better personnel systems for evaluation and improvement. Unfortunately, some education advocates in New York, Los Angeles and other cities are claiming that a good personnel system can be based on ranking teachers according to their “value-added rating” — a measurement of their impact on students’ test scores — and publicizing the names and rankings online and in the media. But shaming poorly performing teachers doesn’t fix the problem because it doesn’t give them specific feedback.
If nothing else, the Bloomberg administration should also look into statistics regarding whether it’s become a more attractive or less attractive profession since he started publicly shaming teachers. Has introducing the models and publicly displaying the results had the intended effect of keeping good teachers and getting rid of bad ones, Mayor Bloomberg?
A few nights ago I went to a CFPB Town Hall Meeting after work. The discussion in the kitchen that morning went something like this:
me: “I’m going to be late tonight, guys, because I’m going to a CFPB Town Hall meeting… I’m really excited about it!”
my husband: “What the hell is CFPB?”
me: “Oh, it stands for the Consumer Financial Protection Bureau. You know, the thing that Elizabeth Warren started but then didn’t get to be in charge of? I need to go see if this guy Cordray is going to be pushy enough to lead an effective government agency. Today the issues at the meeting are things like checking accounts and debit cards and overdraft policies. I totally need to go, can you guys eat leftovers?”
my husband: “You are the most boring person in the world”
my three sons, simultaneously: “Yeah mom, he’s right. You are the most boring person in the world.”
Whatever. I guess they’re right, but I went anyway. After lots of incredibly congratulatory introductions, including a 5 minutes speech from New York Attorney General Eric Schneiderman, there were a bunch of questions from the audience.
There were lots of community groups represented, as well as individuals. Two themes emerged through the questions that seem like particularly egregious consumer issues affecting poor people.
First was the issue of pre-paid debit cards and the corresponding fees. This guy stood up at the microphone and described his friend who get a debit card for child support, court-ordered. But this debit card extracts enormous fees every time she takes money out, including things like $5 just to check the balance. The guy was saying, you know my friend needs that money for her children, and it’s not fair that so much of it goes to fees- it’s abusive. I was totally crying. I mean, I’m an easy cry, but still. That wasn’t the only story about such debit cards where there was no choice in the matter but the fees were extortionist.
Second the issue of Walmart issuing its pay to people in debit card form came up time after time as well. So it seems that Walmart is not only a retailer, but also a financial institution of the crappiest kind now. It issues debit cards as payment to people who don’t accept direct deposit or don’t have checking accounts, and again it seems that the money on the cards is somehow deeply tied to a fee structure. I need to look into this more (as does the CFPB) but I’m wondering off the top of my head whether people can just demand to be paid in cash instead. It’s like these people are being paid really badly, with very few benefits, and even when they get paid they’re being nickeled and dimed every step of the way. It’s like it’s not really their money even then.
So in other words, debit cards are the new check cashers, but maybe worse since their fee structure doesn’t seem to be as transparent.
Of course, I took the opportunity to ask a question too, since I am not shy. And I was told not to ask a question but rather to tell a story, but whatever, I decided to phrase is as “making three suggestions.” After introducing myself as coming from the Alternative Banking group, I mentioned the following:
- The CFPB should use its powers to bring together mortgage investors and homeowners to the same table, in order to align their interests and bypass the banks as servicers, since the banks are only endlessly delaying the process in order to extract fees.
- I mentioned that our group is working on a “find a credit union app” but that the CFPB should really be doing that with us, to help underbanked people find alternatives to crappy banking solutions (like debit cards).
- I mentioned that we had submitted a public comment letter demanding that the credit score models be open sourced, since there was no legitimate reason for such models, which directly affect consumers in their daily lives, to be kept proprietary.
Akshat was there too, from Occupy the SEC, and he asked about the Volcker Rule.
Condray took notes. I mean, what’s he going to say.
Well actually sometimes he did say stuff, like to Akshat, and for the most part it was something along the lines of, “that is not in our jurisdiction”, although there was one exception when he talked about how Walmart, being a retailer, is not in his jurisdiction but since it’s acting as a banking institution it actually is.
Overall I’m a bit disappointed. Although I did certainly like the fact that he held a town hall meeting at all, I am worried that he’s just too nice, and that he’s going to try to please everyone and be kind of wishy-washy. I would have loved to see him manage to sustain disgust at the abuses he was hearing about, but instead he sounded more concerned than angry, and I would put my money on angry any day. I want the CFPB to be led by a son-of-a-bitch that pisses people off and constantly tried to enlarge his jurisdiction rather than keeping well inside the lines. Time will tell.
Maybe it’s because I grew up with an unapologetic working mother, but I am confused and enraged by all the cultural norms concerning mothers and how everything is their fault.
When I grew up in the 1970’s I had all sorts of role models of mothering. I was lucky to live next door to Sally, I met MA (Mary Ann) in puberty, and of course there was my own mom. All of these women were fiercely devoted to their choices: Sally and MA stayed home with their young kids but as their kids grew up, devoted more and more time to other things. My mom was a computer science professor my entire life. It goes without saying (but just for the record I’ll say it here) that I support people doing what they want to and need to for their own private reasons, no questions asked.
Sure, there were differences in interactions between my mom and these other surrogate moms. My mom didn’t have a lot of extra time to shop or cook, for example. But on the other hand she was a great role model for me in showing me how to be happy with what you do and have kids at the same time. And some things she didn’t have time for I was lucky enough to get from other things and people.
Here it is, thirty years later, and lots things have changed for working mothers. Some things have gotten easier: there’s online shopping, so I can provide my three sons with clothes and food without leaving home, which was a major struggle for my mom. Some things have gotten harder: school and daycare has gotten more expensive (more on that below). Other things haven’t changed so much, which itself is strange.
Here’s an article that got me pissed off enough to write this post. It’s a New York Times piece about an Olympic swimmer who, after taking time off and having two children, has returned to swimming and is actually competitive at the age of 40. I am so completely impressed by her, but for some reason the Times sees it as appropriate to deliver the following lines:
Evans said she had been criticized on social networking sites for training when she should be home with her children. But she has set up her schedule so her main swimming workout takes place in the morning, from 5:30 to 7:30, so she can make it home in time for breakfast. Her crazy hours are not lost on her daughter, who recently asked, “Why do you swim in the dark, Mommy?”
Willson’s job in technology sales allows him to work from home. He can chip in with the children when needed and behold the force of nature that is his wife.
First of all, how is it appropriate to mention idiots on Facebook? It is so entirely defensive and out of place. If I’m training for the Olympics, probably for the very last time in my life, my kids will be psyched for me to do my best, even if it means missing breakfast sometimes. And why is there always a mention of the martyred husband? Just imagine this was a male swimmer coming back to the Olympics after not swimming for 15 years, do we hear about his wife? No we don’t. Ridiculous, and the New York Times should do better. If they mention idiots on Facebook, they should also mention how they are idiots.
Here’s another story that got me incredibly pissed (if you were looking for a happy post this morning, I apologize). It’s about a public ad campaign in Georgia with billboard pictures of fat kids looking unhappy. This is insane and insulting on so many levels I don’t really know where to start, but let me start with the intended target: the mom. Yes, it’s mom’s fault that there are fat kids, and these billboards are telling mom not to let their kids get fat.
As an aside, it’s also now officially okay to blame mom for making her kids fat, as it’s also officially okay to blame the kids themselves. It’s government-sponsored bullying. Never mind the fact that they’ve shown nutrition education and exercise doesn’t actually cause people to lose weight (i.e. understanding where calories are hidden in food doesn’t magically make them leave cheeseburgers). Never mind that nobody has come up with a viable plan for how to address this issue. Let’s blame moms anyway, because then we are taking this issue seriously.
It makes you wonder why women want to become moms at all considering all the things we are signing up for. Oh and wait, actually lots of women aren’t having kids, but interestingly a recent paper came out showing women who are highly educated are having more kids. Here’s the abstract for that paper:
Conventional wisdom suggests that in developed countries income and fertility are negatively correlated. We present new evidence that between 2001 and 2009 the cross-sectional relationship between fertility and women’s education in the U.S. is U-shaped. At the same time, average hours worked increase monotonically with women’s education. This pattern is true for all women and mothers to newborns regardless of marital status. In this paper, we advance the marketization hypothesis for explaining the positive correlation between fertility and female labor supply along the educational gradient. In our model, raising children and home-making require parents’ time, which could be substituted by services bought in the market such as baby-sitting and housekeeping. Highly educated women substitute a significant part of their own time for market services to raise children and run their households, which enables them to have more children and work longer hours. Finally, we use our model to shed light on differences between the U.S. and Western Europe in fertility and women’s time allocated to labor supply and home production. We argue that higher inequality in the U.S. lowers the cost of baby-sitting and housekeeping services and enables U.S. women to have more children, spend less time on home production and work more than their European counterparts.
Also interesting is this interview, where they describe the results of another paper which tracked women vs. men in various fields of science, including math. It looks like evidence for my post about meritocracy and horizon bias, i.e. the idea that women self-select out of certain fields because they are just not very appealing. From the interview:
The women who come in to academic science careers tend to be so highly motivated that they stay. They limit the number of children they have. Other studies have shown that female academics have fewer children than other professional women, such as lawyers. Female graduates see women scientists working very hard in what they feel are less fair conditions, and it puts them off. Societal factors also make it harder for women to have such demanding careers–women tend to manage family problems, for example.
By the way, I am not insufferably sad about mothers and their fates. I make fun of mothers too, and this article about passive parents is one I could have written. From the article:
But seriously, what is the deal with asking our children to behave? “Maybe you should get down?” What the hell is wrong with you lady? She’s four. There’s no room for negotiating here. I’m all for giving my kids choices to make them feel like they’re in control of something, blah, blah, blah, but this is not the time. “Maybe” should be reserved for times like: “Do you want to wear a dress today or MAYBE a skirt?”
I could go on and on about the passivity of modern yuppie parents, and I’d be right (hey I live in the Upper West Side so you know I’d be right). But if you think about it for a minute, this is just another manifestation of the same thing: it’s all mom’s fault. These women are performing a mother role instead mothering from the stomach, and it’s because they are made insecure by all the incredible bullshit out there about how to be a good mom and what other people are going to think if they scream at their kid in public or if their kid starts to scream. We have taught our mothers to be insecure, and to feel at fault, and oh yes, to be the target of bullying ad campaigns as well.
People, let’s get it together and solve problems instead of pointing fingers. I’m looking at you, Santorum.