White house not burning

Not even smoldering... Johnson & Kwak's miss-titled book on the federal debt.

Simon Johnson and James Kwak have written "White House Burning", about how to solve the putative crisis of US federal debt. It is a very mature discussion of the federal budget, deserving to be read by everyone even remotely interested. They pursue a generally liberal line, working diligently to explain and defend the great insurance systems of the New Deal and Great Society. Since they open with a lengthy history of US budgets, focussing on the war of 1812- which, as usual, was not paid for out of pocket but on credit- they allow themselves to refer to the burning of the White House in that era; not something that turns out to have anything to do with our current predicament or even with the federal debt in general.

Buring or not burning aside, their main point ends up as an enormous let-down from the title which promised a more hyperbolic FOX-newsy polemic. They close:

"Most Americans, we think, are made better off by programs that require insurance contributions today but provide protection against unforeseeable and unavoidable risks in the long term. The question we leave you with is this: Are you and your family willing to face these risks alone, not knowing what will happen in the future, or do you want to live in a society that will protect you from misfortunes that lie beyond your control? For this is what the debate over the national debt boils down to, and its outcome depends on you."

That is great, and they have done a great service in cutting through much of the smoke that characterizes this debate, most egregiously exemplified by the claim that the federal government is "broke".

US federal debt, past and future. Blue shows the projection under current law where the Bush tax cuts expire.

But I think some rather acrid smoke remains wafting about even after reading this book, and deserves some critique. They are remarkably imprecise about the risks and problems of the debt, even as they are remarkably precise in their prescription- debt held at 50% of GDP over the long term. They dutifully refer to the Reinhart & Rogoff work on all sorts of state debt histories, and which sets the dangerous red line at 90% of GDP. But then Johnson and Kwak mention that many of those historical cases were utterly unlike the currency-issuing, debt-in-our-own-currency, floating-exchange-rate system that we have in the US.

Johnson and Kwak put a great deal of weight on our position as the world's reserve currency, and that other parties in the international system may someday tire of lending us endless money so that we can go on domestic, or worse yet, blundering international escapades.

"In the long term, either the voting public will ensure that the national debt is brought down to a sustainable level, or bond investors will do it for us, as they are doing to Greece and Ireland."

They also reflexively mention Greece and Ireland as bogeymen examples of debt gone wrong, which is simply unforgivable, given the vastly different constraints they are under as euro countries- without floating exchange rates to their main trading partners, or their own fiscal policy or currency. Europe tried to hide the fact that the euro had transformed each of its countries from a sovereign state into a federal province, in monetary terms. But that fact has now come to light in unpleasant ways.

Most curious of all is Johnson & Kwak's limp handwave towards Japan, which comes up in only one parenthetical sentence:

"The fourth, [enumerating countries with debt levels over 100%], Japan, has been able to maintain high levels of government debt because it has a high household savings rate and there is little competition from private sector businesses to borrow money."

That is it! Here is a country that has gone through a very similar real estate boom and crash decades before we did, is going through just the demographic transition we are planning for in the coming decades, and carries a national debt of roughly 200% of GDP. One would think they could devote a few more words and brain cells to the question of whether the situation of Japan is truly sustainable, and if so, why it is or is not a model for our own situation. For one thing, it indicates that the whole reserve currency issue is something of a red herring.

As I have mentioned some time back, Japan is the confounding case, which conventional-wisdom economists keep telling us is going to blow up any minute. Yet it fails to blow up. I think the reason is that it is time to come to grips with the nature of post-capitalism and the new role that the Federal debt can play as another in the set of grand insurance schemes offered by the federal government.

Traditionally, capital was scarce, and people who saved found ready takers for their investments. The whole point of capitalism was diverting an investment system that was previously (in all the Victorian novels) almost solely devoted to real estate into an entirely new world of shipping, heavy industry, high technology, trains, and countless other capital-intensive pursuits that have brought us to today's elaborate lifestyle.

But as Johnson and Kwak note of Japan, and as we see around us on all sides, money is no longer scarce. Facebook laughs at its investors and declares it has no idea what it is going to do with its IPO capital. It is probably just going to make its executives and investors rich, not to fund any new employment or other capital- (and labor-) intensive operations. Investors are chasing ever lower returns, and judging from Japan, this is unlikely to end any time soon, even after employment improves and the recession recedes. While the average American may not be saving much, the rich are getting and saving at prodigious rates, saving up about four times GDP in overall wealth in the US.

In this environment, it makes sense for the government to not only provide a variety of social insurance schemes for old-age income and health care, but also a massive banking service, providing what are in essence low-interest extremely safe CDs. The federal government is sometimes called an insurance company with an army attached. Perhaps in the future it will be called a savings bank with subsidiaries in domestic insurance and international policing. The government already insures bank deposits and backstops all those too-big-to-fail banks; why not be the bank?

What is the limit to such banking? The limit is savings desires. When bond holders decide they would rather spend their money than consume it, then real interest rates would go up and inflation might go up as well. As Paul Krugman has pointed out recently, a part of this response, among foreign bond-holders (by far the minority, incidentally) would weaken our foreign exchange rate, which would be beneficial to our export trade and domestic job market. It is an issue we can meet when we come to it. Going by Johnson and Kwak's rule of thumb (debt at 50% of GDP) would obviously not allow this flexibility to serve domestic savings desires.

To me the bottom line is that policy should follow the actual evolution of the economy, and not hold itself to envelope-based and falsely comforting "rules" like the Maastericht 3% deficit rule and these authors' 50% rule.

The cost of the debt is, as Johnson and Kwak allude to, though not with sufficient clarity, the interest that is borne by future taxpayers- a form of redistribution. Might this interest cost become onerous and unfair? Indeed, it might. That is where the inequality and Occupy themes come back into the picture. The debt is generally held by the rich, who have money to save over and above their consumption needs (see Romney, M. W.). This includes pension funds and other large organizations like corporations. So the interest may become a regressive transfer of money in the future from taxpayers to the rich. If the tax and spending code is sufficiently progressive in its other respects,  (like staying away from flat consuption taxes), then the cost comes out in the wash... the rich pay for their own savings benefits in a broad sense.

The interest cost of federal debt is generally the lowest possible interest rate, very near the level of inflation, since due to its full political backing, it has zero solvency risk. But as noted above, if savings desires are truly sated, for instance by a massive demographic transition to old people who consume but do not save, then interest rates even on government debt would rise over the level of inflation, and future taxpayers would face significantly rising real costs on rolling over a large federal debt.

This would be the time to cut federal borrowing & spending, to bring deficits and debt down. But note that the economic situation then would be, unlike today, one of high consumption and low saving. It would be an economic boom, paying richly to those workers who are still young enough to shoulder the load of caring for their elders. Savings would be flowing out of the accounts of the elderly, making it the proper time for the government to reduce inflation by policies including perhaps even running budget surpluses.

So my view is that, as Japan has found, the bond rating agencies don't know anything, and conventional fiscal "rules" are meaningless when one is faced with real economic conditions. The Japanese have been properly feeling their way through a post-capitalist age and I think have arrived at the right policy to support employment, savings, and government services even as enormous demographic and economic shifts have taken place under their feet.

Do we have the policy and political apparatus that could handle such empirically-based economics? Not right now, that is clear. We need a sounder economic theory to have the institutional confidence that we are steering the right, if heretofore unconventional, course. And that, of course, is where MMT economics comes in.

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Humans find some scraps in the genome junkyard

The human genome has a great deal of junk in it, but some junk may be better than other junk.

Humans have been shocked to find out that we have only about 21,000 protein-coding genes, the workhorses of developing and running our tissues. These cover only 2% of the DNA of the genome, so what is going on in the rest of it? Is it just parasitic junk like old retrotransposons, repetitive stutterings, and duplications decayed into pseudogenes?

A large genome evaluation project (ENCODE) has been in the news lately, claiming that perhaps 80% of the genome is actually functional. But that is quite a stretch of interpretation. What they actually found is that this large proportion of the genome is transcribed, typically at very low levels, (detectable with high-technology), or has some other marker of activity like sites where regulatory proteins bind, or signs of activated chromatin, and other features.

It is sort of like saying that cable TV (or Roku, for that matter) has 300 channels, instead of the four or five channels we used to know about in an earlier age. Yet how many of those channels actually count for anything? Perhaps they amount to a lot of garbage, not influencing the larger media and social/political landscape. Perhaps, like FOX, they are putting out a lot of chatter and fluff, but in the end do not help build a greater future...

In biology, regulatory binding and transcription are only the opening steps on the way to gene expression. Only when all the pieces are put together, combining on a real gene whose transcribed RNA gets processed to an mRNA that encodes a protein on the ribosome, and gets transported to the right location, and ... do these regulatory events have effects in the cell and organism.

I think it is likely that, while the regulation of known genes is doubtless quite a bit more complex and distributed than previously realized, (generating the incredibly fine-grained and endless variation that we see among humans), there remains a great deal of junk in the genome, some of which gives rise to biological noise (i.e. transcription and protein binding) whose effect may be minimal.

This was all by way of introduction to a paper that uses this ENCODE data to analyze the genome for signs of recent human evolution, especially of sites which have been newly drafted into use in the human lineage, from what was junk in our ancestors (and remains junk in chimpanzees and other contemporary fellow-species). It is an intriguing story of how genes and regulatory functions may have been fashioned by evolution out of the miscellaneous scraps lying around in the DNA.

An important problem these researchers face is that humans are virtual clones. We have much less genetic variation than other species. We evidently went through narrow population bottlenecks in the recent past (think African "Eve"). The current population of Africa has roughly 1.3 times the genetic variation of all humans outside Africa, due to the extra bottleneck of small groups migrating out of Africa. But human variation is low in any case (a variant every 153 bases in humans, vs every 0.2 bases in other mammals- truly a remarkable difference).

So the researchers turned to mass sequencing of many genomes to assemble enough genetic variation (the 1000 genomes project). This allowed them to map where, across the population, humans have DNA variants. In important areas, there will tend to be fewer variants, and in junky areas, there will be more, since there is no selection for important function keeping mutations at bay (i.e. killing and reducing the reproduction of people carrying variants there).

The second piece of data they use is maps of genome conservation between many mammalian species (26 species, including humans, indicated in blue, below). This allows them to see what has been conserved for a long time. Known genes like hemoglobin will have been around a very long time, be easy to recognize, and be highly conserved, since they do critical work. Most changes in its code are going to be lethal. But elsewhere, most of the genome allows far more leeway and the question is just how much. Are these regions that the ENCODE project identified (indicated in red, below) as being transcribed and sort-of-active important to humans? Or are they still just junk?

Venn diagram of the human genome (the whole black box). The ENCODE project found that most of it (red) is somehow active, either being transcribed to RNA at some low level, or bound by proteins that regulate active genes, etc. "Mb" means thousand base pairs of DNA. The blue part is that which is conserved among mammals, marking it as functionally significant not just in humans, but over a far longer time. Half of this conserved amount was in the "inactive" portion of the ENCODE data, which is certainly odd, and leads to questions about just what the ENCODE folks were looking at.

The answer is a partial one. They found that, on average, the newly found "active" areas of the genome outside known genes and outside areas known to be conserved in other mammals still carried significantly fewer variants than "inactive" areas (non-red). So they seem to have separated quasi-junk from the honest-to-goodness junk.

(Wonk note: But it is important to note that what they regard as conserved among mammals must be a very small proportion of what is actually active and functional in all these species, since the same ENCODE proportion of activity and function would be found in all these other species as well. So I believe they are comparing incommensurate metrics in this paper, and can not really conclude that the selective constraints on ENCODE-specific areas of the human genome are really human-specific rather than long-standing among mammals, if more variable than what is readily captured by typical measures of conservation.)

Graph of human variation, categorized by type of genome element. The axes are two different measures of genome variation. The X-axis is a metric of the density of SNPs, which are single nucleotide (or base) variants in the DNA, which is the same as a single base mutation. The Y-axis is a metric of derived allele frequency (DAF), which cranks the SNP data through an additional analysis to focus on new ones versus ancestral ones. 

I have added red arrows, which point to the ENCODE included and excluded sets among the non-conserved areas of the human genome. The data of the paper essentially boils down to the difference of these two points on the graph, indicating that the "active" designation by the ENCODE project has some functional significance that is reflected in lower-than-average rates of variation (i.e. mutation) in human populations that reflect intra-species conservation, to some small degree. They term this as the "constraint" these areas of the genome are under, from natural selection. 

Other genomic features mentioned in this graph include: "Non-degenerate coding", codes for protein products, and specifically restricted to bases of the DNA that are not in the synonymous part of the triplet genetic code; "UTR", untranslated region, typically immediately leading or following a coding region; CDS, coding sequence, coding for protein or RNA; "Annotated", previously included in atlases of functional genomic elements; "Active chromatin", regions bound by few histones or special histones chemically marked as permissive for transcription; "intron", interrupting portion of genes that lie between the coding pieces and are specially spliced out of the transcribed RNA; "Exon", the coding pieces of a gene that lie between the introns and the UTRs; "Mappable", means pretty much everything- the whole enchilada, whole ball of genome wax.

Everything in this paper is done in bulk: averages drawn over huge areas and over crudely summarized features of the genome. What actually lies within the ENCODE areas that leads to these rather slight findings of selective constraint (and thus presumed biological function) is hard to say, without consulting the much more detailed work done elsewhere in the project. It could be a few important new genes, perhaps coding for non protein-coding RNAs that have become the focus of so much interest recently and which regulate other genes. Or it could be a large cloud of regulatory protein binding sites that tweek the activities of genes lying far, far away, weakening the idea of the gene as a local object on the DNA. Or some new aspect of biology waiting to be discovered. In any case, it reinforces the idea that it isn't how many genes you have, but how you use them that counts- that humans are beneficiaries of an extremely long process of gene-regulatory tinkering, both recently in our own lineage, and through the deep reaches of evolutionary time.

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Government furnishes our freedoms

Ironically, anarchy is the state of least freedom, since our freedoms come from politics & organization.

I was reading a book all about how terrible our federal deficits / debt are, by the eminent economist Simon Johnson, (which may come up in a future blog), when he made a trenchant, if tangential, point worth repeating: that much, or even most, of what we value government for is how it increases our freedoms.

We have been taken over in the last few decades by the paranoid psychosis of the right- that the government is always bad- is sending in the black helicopters to take away our guns, and is stealing our money for its nefarious socialist plots and trilateral commissions to make the whole world a Stalinist gulag.

And obviously some governments are indeed bad. Vigilence against overreach is a constant duty. Our bill of rights and whole constitutional process was a bit obsessed by this ideology, making a great show of granting various rights and constraining the capacity and institutions of the government lest they impinge on our "natural freedoms".

But how are our freedoms natural? With all due respect to the French revolution and its animating characters & philosophies, the state of nature is anarchic chaos where the strong may have some freedom, but only until they meet someone stronger. It is a non-state of no rights where predation is the law of the land. Rights only appear when the sufferers of predation band together to demand freedoms they desire, as the nobles under King John demanded in the Magna Carta. No state, no rights.

So the conflict at work in our contemporary right-left divide is perhaps more accurately seen as a contest not about freedom in some abstract sense, but about who is to be free- the predator or the prey? Are corporations to be free to despoil our common bequests? Are corporations to be free to abuse their workers? Are corporations to be free to gain monopolies and abuse their customers? The whole notion of a business plan typically revolves around some way to corner a market with some predatory intent, whether that is through patented innovation, through defacto monopolies like the cable industry, through the closed ecosystems our smart phone makers create, through legal intimidation or under-paying labor, or the like. The financial industry is a study in predation brought to high art, especially in the sub-prime debacle, which appears to have sucked wealth from the bottom of the economic ladder with startling effectiveness:

There are many kinds of freedom- freedom to have a voice, a vote, a job with income, the freedom to change jobs, to health care at reasonable cost, from unwarranted surveillance and intrusion, to practice religion or not, from theft and fraud, to breathe decent air, from fear of foreign invasion, to get an education, and many, many others. In our society, corporations are some of the primary destroyers of many of these forms of freedom, and government (i.e. our society by virtue of conscious moral decisions and communal organization) their originator and prime protector. Even while they are themselves creations of the state and dependent on its legal system, corporations bring enormous fire-power to bear in their predatory fights against each other and against the rest of us, battering down regulations and personal freedoms (think of, say, Facebook) for profit.

That is one reason the election went the way it did. The Republican convention was surreal in its relentless vaunting of freedom for the business and especially the business owner. All hail Mr. Potter! They did not seem to grasp that this might not paint the warm and cuddly image they imagined, but one of class war, where they were aligned, with their exemplary candidate, on the losing side.

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Fiction, more or less

How does historical fiction relate to scripture?

The New Yorker recently had an outstanding profile of Hilary Mantel, author of Wolf Hall and other works of historical fiction. While the genre doesn't generally get a lot of respect, Mantel and Robert Graves gave it gems of great accuracy as well as drama. One point was that good historical fiction never replaces facts from the past, and rarely makes up new ones out of whole cloth.

"She says, 'I cannot describe to you what revulsion it inspires in me when people play around with the facts. If I were to distort something just to make it more convenient or dramatic, I would feel I’d failed as a writer. If you understand what you’re talking about, you should be drawing the drama out of real life, not putting it there, like icing on a cake.'"

"Only rarely did she make something up out of nothing—almost always there was some hint in the sources to suggest it. Even many of her tiny, novelistic details came from the archives—often from the gossipy letters sent by ambassadors to their home courts. There was a scene in the sequel to “Wolf Hall,” “Bring Up the Bodies,” for instance, in which a messenger gave Jane Seymour a love letter and a bag of money that Henry had sent her, although he was still married to Anne Boleyn; Jane gave back the money, then took the letter and kissed it, but gave it back unopened. That came straight from an ambassador’s correspondence."

We typically do not gain more historical knowledge over long periods of time. As time passes, records are lost and we recede further from the events at issue. More needs to be filled in (judiciously!) by way of the novelist's imagination.

For theology and religion, on the other hand, we have gained enormous amounts of knowledge, not so much about the historical facts surrounding their writing and subjects, but about the general scientific claims they traffic in- angels descending from heaven, seas parting, people rising from the dead. Trinities, ghosts, and afterlives.

Thus what passed muster generations ago as plausible tales of the supernatural (signs and wonders) now are known to be fundamentally impossible. The ground has shifted under the genre, so what once was awesome now seems tawdry and cheap.

It is an unfortunate position, perilously saved for the most devout by way of even harder-to-swallow claims of exceptionalism- that those historical actors and times were really different from our present fallen age. Rather than, say, that our age has better standards of editing, fact-checking, and scientific understanding.

It is just a small point, in the vast case  for atheism, but still worth making- that one should read historical fictions and romances long before giving credence to the far more egregious genre of scripture.

Incidentally, the profile of Mantel also notes that she lived briefly in Saudi Arabia:

"She couldn’t even go for a walk around the block, since if she appeared on the street alone men shouted lewd propositions at her or tried to run her over." Some respect for women, that. Sounds more like the way it looks- patriarchy and misogyny.

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