Intuition, projection, and the forgetting of Keynes

Are we doomed to forget inconvenient intellectual achievements?

Paul Krugman gave an outstanding talk to an English economics conference about the current "little depression", or great recession.. take your pick. To encourage you to read it directly, I will try to be brief myself. We are reliving the essentials of the great depression, and had even gained a more recent preview via Japan's meltdown and stasis over the last two decades. Yet our central bankers declare themselves "puzzled", and worse still, we are all forced to relive the intellectual battles from great depression which had already been won by Keynes.

Relevant book on the topic.

Economists have forgotten a great deal. However painful it is to realize, the ideology of ever-increasing progress in education and intellect seems to not be true- it is possible for whole institutions and generations to revert to prior ignorance, at the hands of lazy textbook writers, ideologs pushing simplistic mantras, and greed posing as enlightenment. The paradigmatic case is of course the fall of Rome and the ensuing descent into metaphysical darkness. Krugmann's message, at the end, is that the forgetting of Keynes may be a history we are doomed to repeat, over, and over, and over, and over ...

"By ―unstable, I don’t just mean Minsky-type financial instability, although that’s part of it. Equally crucial are the regime’s intellectual and political instability."

...

"If we’re living in a Dark Age of macroeconomics, central banks have been its monasteries, hoarding and studying the ancient texts lost to the rest of the world."  ... "... sooner or later the barbarians were going to go after the monasteries too; and as the current furor over quantitative easing shows, the invading hordes have arrived."

Such mantras as crowding out, Say's law, monetarism as the sole regulatory tool, and most flagrantly, the government-as-household analogy, are all convenient, easy to teach, and easy to digest fallacies, shown to be fallacies by Keynes 75 years ago. But understanding Keynes is hard- it is often counterintuitive. Thus people, even economists, and most especially economics journalists, fall back into intuitive, relatively mindless slogans that may work on the micro level, but are inapplicable, even dangerous, on the macro level.

This has religious implications, if I may digress. Religion represents easy intuitions and superficial analysis perpetually competing with difficult to understand, or at least difficult to stomach, concepts of realism- of the void and of our true place in the universe. And especially the projection of whatever we value most, fear most, or most hope for onto the cosmic tapestry. In a similar way, classical economics, as Krugman presents it here, is a projection of micro-thought to the macro level.

So the problem is very similar- how to preserve learning, especially counter-intutive learning, in the face of our intution which is always gets the first at-bat? Our most important, devilish problems are precisely those with counter-intuitive forms or solutions. The easy ones were dealt with long ago. Quantum mechanics, religion, most of the remaining problems of philosophy, and macroeconomics are prime examples. When easy intuitions converge with the agendas of interested parties, like the rich in the case of anti-Keynesianism (taking a myopically short-term view of their interests), or the clergy and their brainwashed sheep, the retreat into ignorance can look inevitable and tragic.

• Krugman on greedism.
• Romney- just as nuts as the rest of them.
• Republicans attach sign to self: "We are idiots".
• Al Gore, on science, reason, and the media.
• The importance of better batteries.
• As far as I am concerned, no fish are OK to eat, ever. But if you need a fix...
• RIP Clarence Clemmons.
• But in a bit of positive economic news, another economics quote, from Bill Mitchell

"The news from those that opposed the MFI [Milton Friedman Insitute, at the University of Chicago, which was just closed] is that the University of Chicago has had trouble raising funds to support the institute partly because of the 'declining value of the Friedman name and reputation'"

Consciousness vibrations

New method assesses consciousness in people in vegetative and similar states.

The world has recently become aware that some paralyzed or comatose people may be more conscious than previously assumed. The medical profession had assumed that there is always some modality of behavior available to a conscious person- perhaps a finger point, and eyelid raise, or an eye-roll. But fMRI studies show that consciousness can exist in a fully "locked-in" state. Doctors have also assumed, with perhaps more cause, that some sensory modality is always preserved. If not vision, then at least hearing or touch. Whether exceptions exist here is unknown, and may be impossible to tell without much more knowledge and invasive methods of stimulation.

It is a deeply frightening prospect- to wake up from a coma, but be completely paralyzed, unable to tell the world you are there, and thence sentenced to a life of vegetative warehousing or worse. A recent fMRI study demonstrated that when one subject was asked to imagine a tennis game, the scanner could pick up distinct patterns of the characteristic activity, yet nothing else transpired.. no hand motions, no head nods, no meaningful eye blinks.. nothing. This subject's hearing was fine, evidently.

The current paper extends this work by using a different and cheaper method of diagnosis, (EEG scalp surface electrical wave monitoring), and develops out of it a deeper theory of what is going on during consciousness. MRI scans are expensive enough in usual practice (about $4000), and functional MRIs take more still time and expense. EEGs, in contrast, are easier to administer and are normally performed anyhow in cases of doubtful brain function, though they only "see" the brain's surface, and at quite low resolution.

In other ways the data from EEGs are quite rich, however, comprising the superficial brain waves that can come in many frequencies and locations. Could it provide a map of the brain's communications that reflect the long-range connections thought to be characteristic of consciousness? These authors devise a dense matrix of sixty electrodes for the patient's head, with data processing methods that provide a geographic and temporal map of electrical activity. They use two classes of patients- vegetative state (VS) and minimally conscious state (MCS) along with conscious controls, to ask whether the three groups can be reliably differentiated.

The patients had been pre-evaluated by an extensive panel of more conventional criteria, to separate some cognition without communication (MCS) from the non-cognitive VS state. For example, "... if visual pursuit of a mirror is present at least two times in the same direction, the patient is then considered to be MCS". The researchers didn't reclassify anyone based on their EEG analyses. They also wheel in a form of analysis called "Dynamic Causal Modelling" (DCM), which "... allows for for inferences about the neuronal architectures that generate hemodynamic [fMRI] or electromagnetic [EEG] signals." This is the key to their work- a model devised in their own prior work (drenched in Bayes-style statistical methods) that uses the timing and amplitude relations between EEG signals to develop simple models of communications links between major areas of the brain.

These areas are:
The inferior frontal gyrus (IFG), which is involved in decision making and risk assessment. This is in the lower part of the frontal cortex.

The superior temporal gyrus (STG), which is involved in auditory and speech processing. This is in the upper part of the temporal (side) lobe.

The primary auditory cortex (A1), which it says is at the first stage of auditory processing, is very close to STG in the temporal cortex.

The model is that not only do signals flow upward from A1 to STG and thence to IFG, but signals return back from IFG to STG while the patient is conscious, perhaps as the mechanism of attention.

The test the researchers did was very simple, offering the patients auditory tones where strings of monotonous tones were sporadically shifted to new pitches. The signals they were looking for were of the brains "noticing" the shifts.

The top diagram shows tones used, including noticeable deviations. The bottom diagram shows a sample trace (ERP) from one EEG electrode in a control subject, where the shifted sound is reflected/recognized in a later blip (red) which is proposed to be the conscious recognition of ... something different.

Here, all sixty electrodes are mapped out spatially on a notional scalp, and temporally relative to tone shifts. One can see that the controls have far more active resonating activity after such a shift than either the MCS or VS patients. Yet the MCS patients show a discernable peak at 172 milliseconds that the VS patients don't. Below in black are shown the same data thresholded to a significance level of P<0.001 for each population.

The theory is that auditory processing is intact for all the subjects, reflected in early activation (~60ms) of difference detection in the primary auditory areas. Yet consciousness, which is known to lag sensory processing by larger intervals (up to 0.5 second), happens later on, and would necessarily be picked up later on in the EEGs. The question is where exactly the conscious signal lies, what does it mean, and can its detection be automated in a practical EEG test that can be widely applied in hospital settings?

The researchers apply their home-grown DCM model of intra-brain communication, and conclude that by far the best model (of all the theoretically possible connection schemes among the A1, STG and IFG regions) that matches the data is one where the missing ingredient in VS patients is not conduction of auditory information all the way up the chain from A1 to STG to IFG, but where recurrent conduction back from IFG to STG was absent, shown in red below.

They note that by their model, recurrent connections are still active in all cases between the lower STG and A1 levels, but while these may have important roles in auditory processing, they are all unconscious. "These findings stress the importance of recurrent processing in higher-order associative areas in the generation of conscious perception and do not support the view that recurrent processing in sensory cortex can be equated with consciousness."

VS patients lack the long-latency EEG signals that indicate reaching-back of the cortical areas back to the sensory areas. The authors characterize the role of such connections as Bayesian predictive modelling that is executed by the cortical areas and constitutes "inference on the causes of external stimuli". But the inference isn't enough on its cortical pedestal. It needs to continually check back on its inputs to validate its modelling, and perhaps thus create the sensation of "realness" and the sensation of time passing as differentiable events.

Another group puts the thought similarly:
"These findings challenge the pivotal role of the prefrontal cortex in consciousness. Instead, it appears that specific brain areas (or cognitive modules) may support specific cognitive functions but that consciousness is independent of this. Conscious sensations arise only when the brain areas involved engage in recurrent interactions enabling the long-lasting exchange of information between brain regions. Moreover, recent evidence suggests that also the state of consciousness, for example, in vegetative state patients or during sleep and anesthesia, is closely related to the scope and extent of residual recurrent interactions among brain regions."

• Modern monetary theory, in basic terms.
• Haircuts are still needed.
• Those darn Afghan soldiers. Not to mention our own darn soldiers & bad intelligence.
• China doubles coal consumption.
• IBM, helping a nation's physician with his examinations.
• Children, imagination, science, and causality.
• Vibrations of the rastaman kind.
• Economics quote of the week: Jonathan Swift, courtesy of Bill Black.

"The Lilliputians look upon fraud as a greater crime than theft. For, they allege, care and vigilance, with a very common understanding, can protect a man’s goods from thieves, but honesty hath no fence against superior cunning. . . where fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage."

The not-so-great society

Do we even care about unemployment?

Suppose we enter a world of increasing efficiency, where what once required labor is done by robots, or done overseas, out of sight and mind. Anti-trust concerns have continued to whither away, so the US might have only a handful of corporations that bring us all we need: MegaAgCorp, MegaRoboCorp, MegaMediaCorp, MegaCareCorp, and MegaBankCorp. Indeed efficiencies are so high that each of these corporations has one CEO and just a few programmers tending the machines. Everyone else in the country can do as they please ... they are not really needed. Because of the excess of trained programmers, the CEO hardly has to pay the programmers anything, so he gets all the profits, shared to some degree with the CEO of MegaBankCorp, which is a major shareholder.

This is entirely acceptable and plausible in the capitalist model of laissez-faire, given the technological premises. The CEOs in this model would have to spend furiously to keep other citizens in the country supplied with the funds to buy food and goods, if they wished to do so. They might be prodigious philanthropists, supporting tens of millions of people each with handouts, arts, circuses, and make-work. An entire trickle-down economy could be modeled in this way, resembling in some ways the extremely concentrated wealth conditions of imperial Roman antiquity.

On the other hand, the CEOs might pile up their profits as money- or even as gold if they were infected with Austrian economics. The rest of the population could then go to hell, so to speak. Unfortunately that system wouldn't get very far because with no spending, there is no income, whether in the form of gold or other money. This economy, while perhaps a model of Ayn Rand go-Galt-ism, wouldn't even work on its own terms, let alone larger moral terms. The CEOs would quickly cease to get income, along with everyone else.

It is a problem we are increasingly facing as we live in a new economic landscape with new types of shortages and excesses. For the last two centuries, new machines and cheap energy challenged us to find ever more complex uses for labor. Indeed, labor virtually ceased being labor at all, and turned into thinking. Now with the advent of computers, thinking is getting increasingly displaced as well, and we may end up doing little more than entertaining each other.

It would be a fine pass to come to, but only if the essential supports coming from the concentrated, automated parts of the economy are distributed widely. The idea that everyone should do something for others as far as they are able is certainly important and virtuous. But who evaluates who is able, and what is the worth of their work? If all of this is judged by the Mega CEOs who are the vaunted "producers", the culture is impoverished, and if taken to its economic extreme, such policy becomes rapidly fatal to any semblance of an economy or society.

I think the lesson should be obvious. The productive capacity of our hyper-developed economic system is largely the patrimony of past inventors, researchers, innovators, educators, and laborers. (Matrimony, if one wants a more feminist-friendly spin!) I don't even mention its more general dependence on cultural & natural resources. The managers and capitalists of the means of production are important cogs in the machine's current instantiation and productivity, but are also custodians on behalf of a much larger society of stakeholders. They may deserve a larger than average share, but they do not deserve the whole pie, no matter what market forces or cronyism may say to the contrary.

The idea that workers who are no longer needed in some corner of this vast enterprise can be simply "voted off the island" and sent into jobless penury seems callous to say the least. When amplified to the 10 to 20% levels we see today in the under- and un-employment picture, it amounts essentially to society-wide masochism. Not only are individuals and families reduced to destitution, for which food stamps are not a reasonable and dignified answer, but the entire system is, as Keynes pointed out, made poorer by the waste of so much labor.

Solution 1
I think there are four paradigmatic solutions that the leading ideologies put forward for such a condition. In the idealistic Republican Horatio Alger story, the unemployed work their fingers off inventing new products, services, and business models which so melt the hearts of reluctant bankers that new lending happens, new businesses arise, and more spending occurs in the economy generally. This investment both brings forth new money (via lending) and also brings money out of the savings of the rich as investment and consumption, thereby redistributing income downwards and keeping the economic cycle turning.

Solution 2
A more realistic, hard-headed version of the Republican approach would be that the unemployed remain invisible to the larger economy and good riddance. Perhaps they subsist on alms from private charities, redistributing small amounts of money downwards on a sporadic basis. Money that is rapidly re-collected to the higher levels by the usual mechanisms of private enterprise- payday loans, tobacco and alcohol addiction, and other advertised necessities. Perhaps the unemployed start their own gardens, bartering goods with fellow outcasts and starting an underground economy that remains invisible to the top end of town. They may even develop alternative currencies and markets. Back in the erstwhile conventional economy, contraction occurs and labor becomes cheaper, but as long as the remaining money concentrates upward, all is well.

Solution 3
On the Democratic side, there are two basic approaches, both slightly more socially responsible. The classic counter-cyclical balancing approach is to redistribute public money (from taxes or from de novo money creation) on a more systematic basis than alms, paying unemployment insurance, health insurance, income support of other sorts, and tax cuts weighted to the middle and lower classes. These are designed to raise aggregate demand, raising economic activity and enployment in the private economy back to self-sustaining levels. A very simple relationship, really, which is proven Keynesianism.

Solution 4
Last is the public works approach: direct employment of the unemployed, in public works the country needs so desperately. Our roads are recognized to be of third world status. Our bridges are falling down. Our energy system is antiquated. Our seniors need aid and assistance. Our broadband is sub-par. There is plenty of work to do, and it doesn't take a rocket scientist (also government supported!) to see that unemployment + work that needs doing = solution. The many public works of the Depression, such as Hoover dam, are still paying dividends today. In the wake of enormous money contraction / credit destruction in the private banking collapse, we have plenty of scope for the government to create money needed for such programs. It doesn't all have to go to the banks through various rescue packages, pumped up reserves, etc!

The stakes could not be more serious, both for individuals being crushed by the current downturn, and for our general prosperity and well-being. The simple fact is that we are not "broke". We may be intellectually, politically, and compassionately broke, but that is a different issue!

• Skidelsky thinks about it..
• Paul Solmon thinks about it.
• Executives rake in billions.
• Tech and the concentration of useful work.
• Bill Black agrees that Goldman Sachs was doing god's work.
• Krugman on debt and interest payments ... not a big deal.
• Solar capacity is growing and getting cheaper.
• Planet wrecking heads to new heights.
• Black hats and white hats in the cyberworld.
• On corruption in Afghanistan.
• The State Department bunker in Iraq. What on earth are we thinking?
• Our new Senate: nothing gets done.
• And the civil war, still going.
• Be good to your dog.
• Bill Mitchell quote of the week: A graph of unemployment duration, which is indefensible in a civilized country, putatively the richest and smartest on Earth.

Sustainable energy when?

Notice anything weird about the weather? It is high time to reform our energy system.

Climate change is bringing is raging tornadoes, floods, wildfires, droughts, famine, and probably an active hurricane season, not to mention untold harm to the biosphere for millennia to come, especially via permanent extinctions. Putting aside the political and ideological battles, what do we need to address it? We have the technology. What we need is the economic and political will to use it. Truthfully, the only thing we really need is a price on fossil carbon.

Right now, a few cars are being run from electricity, and various carbon-free options exist for generating electricity, including nuclear, hydro, wind, and solar. The elephant in the room is cheap fossil fuels- coal and gas for electricity, and oil for transportation. If we avert our eyes from their various environmental costs, as is the wont of mainstream economics, they are very cheap, and as long as they remain cheap, carbon-free energy will not be economically viable.

They may not be cheap forever- oil is already hitting global peak production and higher prices. But coal and gas seem less supply-limited, with fracking all the rage. Coal is particularly noxious in this regard- incredibly dirty, and evidently endlessly plentiful, in the US, India, and China. Some existing regulations on coal pollution raise the effective price of coal-fired electricity, but not enough to make carbon-free sources economically viable, or as the aim should be, economically superior.

Prices of wind and solar energy have been trending downwards, however, so the state of affairs seems very close to tipping. Unfortunately, good information is very hard to come by, since each source pushes its story with various related costs put in or left out. I attempt to quote final electricity prices from various sources, in rough terms:

Source	¢ per kWh
coal	5 to 10
gas	5 to 20
wind	5 to 10
nuclear	10 to 15
geothermal	5 to 10
solar plant	12 to 20
residential solar	20 to 30

So we are certainly within striking distance of economic parity for several forms of non-fosssil energy production. Adding a carbon tax of $0.10 per kWh, summing over annual electricity production of 3,101 TWh gives a cost of $310 billion yearly. Is this a lot? Not in a $14 trillion dollar economy, especially when the entire amount stays in the system. It can be used to displace other, less efficient taxes, or pay off the debt, give back credits on income taxes, build parks, employ the unemployed, give more money to bankers, or whatever else we would like to do with it.

Adding in oil consumption with a comparable tax of roughly $1 per gallon, over 7.3 billion barrels consumed per year nets another $300 billion- another significant increment to all those who are concerned about the federal debt!

The point of all this isn't, of course, to make money for the federal government, but to put a proper price on all the harms flowing from our use of fossil fuels- which extend to foreign policy, our endless support of enemies like Iran, Venezuela, and Saudi Arabia (woops they are a friend ... a friend!), destruction of landscapes through mining, horrors of ash disposal, not to mention the emissions. The new normal should be concern for future generations and the environment, not for the easy guzzling of today.

A couple more issues come to mind- the role of nuclear power, and the intermittency of solar and wind power. Fukushima was an honest-to-goodness disaster, and will incidentally increase Japan's fossil energy consumption for a long time to come. But it was also a very old design. Future nuclear plants will have safer designs, benefitting from experience, including that at Fukushima. And there are also very interesting reprocessing schemes that could eventually make the nuclear fuel cycle far more benign and manageable than it is today. So nuclear shouldn't be counted out. But like fossil fuels, its costs, including enormous design margins, waste costs, and occasional catastrophic (or at least highly dramatic and disruptive, if not terribly lethal) events, need to be factored in.

Solar and wind power are inherently intermittent power sources, so current policy is reluctant to make them more than 10-20% of the mix on any grid. The solution is energy storage, in the form of water reservoirs, flywheels, compressed gas, or other mechanisms. Such mechanisms will become more efficient with a sufficient market, another important goal of carbon taxes. The situation is reminiscent of the key problem with the electric car- its battery. Indeed, these problems may connect through smart electricity grids that use the fleet of connected cars to stabilize and even out loads on the grid itself. The difficulty of storing energy at both small and large scales certainly highlights the amazing convenience of concentrated, reduced, fossil carbon.

Do electric utilities even care about fuel costs? Aren't they regulated monopolies that pass on all their costs to the consumer, whatever they are? Haven't they been given free passes to charge customers for the enormous and unforeseen costs of nuclear energy? Isn't direct regulation via mandates and rules the better path? I can't claim any expertise in this complicated area. California has accomplished a great deal with enlightened regulation of its electricity providers, keeping its electricity consumption far lower than other states. Nevertheless, all stakeholders need stronger incentives towards sustainable energy, from the householder and driver, up to the power generator, whether well-regulated or not. Simplicity alone argues for a blanket fee on fossil carbon that automatically reaches all of its uses.

Should we wait for China to act first or agree to act in concert? Obiviously, this is the most transparent stalling tactic. Peak oil is coming anyhow. The US has contributed the most to global warming to date, and despite falling behind China in the polluting race, has the greatest moral responsibility to act. The best way to pressure other countries to act is to act ourselves, rather than holding everyone hostage in a game of mutually assured environmental destruction.

I know it seems pollyannish to repeat this theme of carbon taxes in the current political environment of politicians racing to the bottom of demagogic "principles" of greed and corporate subservience, but someday, we will get our heads out of the sand and take responsibility for the future.

• Gregor discusses overall energy usage in the US.
• The Saudis want the addiction to go on as long as possible.
• Putative centrist Michael Lind says ... no worries- let's keep smokin' the dope.
• A commenter on the right says we have plenty of energy, no environmental worries, and "... we are in the midst of a Cold Civil War in which each election cycle offers another critical battle." That, at any rate, is true enough.
• Economic benefits to California from green energy (pdf).
• Where have all the fish gone?
• Are we facing a domestic religious war?
• What happened to rule of law?
• There's someone in my head, but it's not me.
• Working for free... has it come to this? Is labor completely neutered?
• Krugman- apparently facts have a liberal bias. But facts never stopped anyone...
• Economics quote of the week, from Paul Krugman via Bill Mitchell:

"So someone needs to say the obvious: inventing reasons not to put the unemployed back to work is neither wise nor responsible. It is, instead, a grotesque abdication of responsibility."

• And from Bill Black:

"... the IMF was blind to the developing crises. It even praised nations like Ireland during the run up to the crisis, missing the largest bubble (relative to GDP) of any nation, an epidemic of banking control fraud, and the destruction of any pretense to effective Irish banking regulation."

Phones of doom?

Bonus post on cell phones ... a pet peeve.

I don't own a cell phone. Nevertheless, as a scientist, the discussion of cell phone dangers intrigues me to no end. The topic was brought up breathlessly by some neighbors a few years ago, with anecdotes about a rash of coworkers who had come down with brain tumors. I replied that the physics simply didn't merit any concern at all. Now the WHO has flagged cell phones as "possible" carcinogens, putting them in the same class as virtually every other substance on earth ... it is not a very meaningful designation, really.

The radiation we are talking about here is a thousand-fold less powerful, per photon, than visible light. And while UV light beyond the upper end of the visible range can damage our skin, break chemical bonds, and cause cancer, the much less powerful photons of radio waves can't do anything of the sort. At most, they might induce a little bit of jiggling of our molecules- some extra heat beyond that naturally flowing through our veins. It is the high-energy ionizing radiation that we need to worry about- the kind we get from CAT scans, mammograms, radon, living & flying at high altitudes, and from breathing in the exhaust of coal plants, among many other things.

For me, it comes down to data, and these graphs say it all:

First, the adoption of cell phones.

Second, the incidence of brain tumors (data from Minnesota).

You can see that so far into the cell phone epidemic, there has been no correlated cancer epidemic of the brain (or anything else). One might claim that it could take decades for such cancers to develop. In that case, the anecdotal evidence of cancer clusters is contradictory and worthless. Even if the average gestation time is long, a serious cancer risk will cause early cases as well, since some part of the population is already older and predisposed to be pushed over the edge by this new carcinogenic insult. The cases would already be showing up at some detectible rate.

What this is really about is magical thinking, as people wonder at "waves" going through them, feel instinctively violated, and fall prey to archetypal fears. This extends to researchers as well, who routinely, especially in social and medical sciences, get the results they expect from studies which, when replicated, show lower and lower effect sizes with each replication. Our unconscious exerts strong effects on everything we do, and it is the premiere accomplishment of the scientific method to, at times when we want accurate data, find ways to cordon off reality and the hypothesis at issue from all the other biasses we can subtly bring to bear on such a question. Yet this is easier said than done.

So don't worry. And while science keeps on going and may yet find that cell phones pose some measurable risk, the epidemiology already tells that the risk is certain to be vanishingly small- much less than the chance of dying from driving while using a cell phone.