Tag Archive | United States

Easy Data Mapping using R

Today I set myself a little mini-project: learning how to use some of the many mapping tools available for R.  I generally am cautious of those cool-colored maps (called “choropleths”), since they’re very easy to fool people with.  Apparently something in peoples’ heads just shuts down their critical reasoning faculties when they look at one of those maps.  Still, they’re super-cool and can be an easy and effective way to communicate visual data.  After spending the morning tooling around with some of the tools available and state income data I had on hand, I managed to whip up a nice little graph on personal income growth in 2013.  It’s pretty neat and does communicate the data well – you can really see the huge impact the early 2010s shale boom had across the Great Plains (and PA/WV).

incomegrowthSo, some basic insights and suggestions: if you’re working with well-known entities, the choroplethr package is great (thanks to the good people at Trulia!).  It has built-in functionality and maps for countries, US states, and counties as well as integration with the American Community Survey (ACS) data.  It requires a little work to get the data properly packaged, but it handles the hard stuff for you.  If you’re interested in doing custom maps at a lower level or of other countries, maptools and ggmap are very robust.  ggmap in particular has very handy Google maps integration, which produces less pretty maps that might be much more practical for some purposes (e.g., commercial).   In general, the graphics settings on maps are quite finicky, and it can be a lot of work to get something the way you want (e.g., the gradient scale on the map above). Most of these packages are based on ggplot, and so time invested in ggplot can be very helpful.

Maps are cool!  I hope to further incorporate these into both academic and non-academic work in the future.

What does “Pro-Growth” mean, anyway?

The correlation between “pro-growth” policies and economic growth in US states is roughly zero.  Pro-growth policies are, basically, the conservative economic package – low taxes, low services, aggressive anti-union policies.  Menzie Chinn has actually run the study, rough as it might be, and found complete statistical noise.  The image below is of growth vs. the ranking of pro-growth policies from ALEC, a business interest group, with a trend line and the top 5 oil-producing states removed (though it doesn’t make any real difference to include them).

The most obvious takeaway from this shouldn’t be that conservative policies don’t work, it’s that economic growth is hard and an aggressive anti-union low-tax agenda at the state level is pretty marginal in the short run.  As he mentions, even the state fixed effects aren’t that large – unemployment and growth tend to be roughly parallel trends across the United States, even if there are gaps in the levels.  As Andrew Gelman writes in Red State Blue State, this is to be expected.  If you took a stack-ranking of America’s states by wealth in 1914 and compared it to 2014, the overall order is quite similar.  You have high-human-capital states like Massachusetts and Connecticut at the top, and low-human-capital states like Mississippi and Alabama at the bottom.

We don’t understand what drives economic growth very well at all, but we know that it’s very difficult to change.  National policy – including monetary policy – is far more important than the relatively small discretion states have over their own policies.  This is probably not true over the long term, where clearly large returns have accrued to the states that have invested the most in education.  But even a cursory understanding of the long-term trends suggests that there just isn’t much a state government can do to unleash a burst of growth at in the period T+1.

Decisions about tax policy shouldn’t be couched in terms of “growth”, because it won’t matter; they should be framed in terms of a state’s revenue needs.  State fiscal crises seem to be a much more common phenomenon than states strangling growth with high taxes, which is hypothetically possible but seems vanishingly unlikely in practice.  Variance in state-level growth rates are driven by so much more than these policy decisions that it would take unrealistically huge tax increases or union impositions to even make a hypothetically measurable impact, and the data measurement process is so noisy that an actually detectable effect is likely impossible.

A Tragedy in 37 Million Parts

2014 is upon us, officially marking a century since the beginning of World War I.  The thinkpieces should be intolerably thick on the ground around August and September.  I worry that most of them will be ignored – which is a shame, because World War I was probably the single most important event in modern history.  World War II was also a rather big deal, but at least the European component of it was pretty clearly a natural outgrowth of World War I.

It’s also tragically understudied.  As a matter of history, World War II is too tidy – some mostly good people on one side, some very bad people on the other, and a narrative that even a child can understand.  On the other hand, the story of World War I is a gigantic mess.  Even a century later, people still have strong and basic disagreements on why the war happened and who was responsible.  There are no evil men to lay the blame on, just people who were scared and nervous and trying to do what was best for their country.

Every single thing about the war is a numbing endless lesson that history is messy and complicated and horrible.  The combat was monstrous and inhuman.  The politics were messy and venal.  There are no heroes, just old men who sent millions of young men to die for no clear reason.  There were no great values at stake, no immortal principles at risk, just industrialized slaughter.  The absurdities of the war are staggering – for example, the whole French army collapsed in 1917. Roughly half the divisions in the army decided to ignore all orders and squat down in their trenches for the rest of the war.  Probably a good decision.

There’s a common myth that the fighting stopped in 1918.  That would be tidy.  The war ended for the Russian Empire in 1917 when the Empire fell and the USSR made peace.  It started up again for the Russians (and Latvians and Ukrainians and Poles) in 1918 as the Germans started to retreat from the eastern territories they had conquered.  The Soviets in 1918 actually set out on a mission of world conquest, one reason why the US sent the Army to Russia to fight them off in vain.  Not a part of history you tend to learn in high school.  Even before finishing the Russian Civil War the Soviets had decided it was time to bring the Revolution to the West, and they only stopped because they ground to a stop in Poland.  Everything the war touched it destroyed.

Most importantly, World War I is a powerful reminder that policymakers should be humble and should fear war above all else.  The lesson politicians take from World War II is simple and powerful – that every adversary is Hitler, and that it’s always Munich 1938.  If more people truly understood World War I, they wouldn’t be so quick to get involved in things that might spin terribly, horribly out of control.  The world of 1914 was far from perfect, but it was a world of peace and trade and rapid growth and rising living standards.  It seemed as though nothing could shake Europe from the course it was on…until a few weeks in August when a few politicians decided to take some risks.

Then everything went to shit.

The NSA and the Electronic Umbrella

No one paying attention should be shocked that the NSA has placed “backdoors” in the firmware of hard drives and networking equipment. For those with less technical savvy, firmware is the low-level software that mechanically operates equipment: spin this fast, move the needle this way, and so on. It does point emphasize something the US government has long known: a government must maintain total control over its own supply chain for secure hardware. From the circuit boards all the way up to the high-level operating systems, everything must be totally secure from foreign intrusion. For the US and China, this is all well and good, and has been practiced for decades.

But what to do if you’re Canada or Taiwan? Both are active internationally, with modern militaries and hopes for regional influence. Neither has the infrastructure to affordably be maintaining an entire supply chain for secure hardware. That’s really difficult. Canada doesn’t have huge microchip fabs; Taiwan does, but they were founded by foreigners. Neither has the resources of an NSA to develop completely secure software for government use. The US and China have a hard time keeping secrets from each other; the Canadians and Taiwanese, and for that matter the Dutch and Vietnamese and Koreans should have approximately zero confidence in their secrecy. Only a few powers have the intellectual and infrastructural capacity for mostly-secure computing: the US, China, Japan, Russia and possibly the Europeans.

A hypothesis: the nature of electronic surveillance is a force tending towards tight power blocs. If you are Canada, you could try to start up and maintain a secure hardware environment no matter the cost and risks. But if you could guarantee your safety by using the NSA-approved gear…well, it might better to know the Americans are listening than merely suspecting the Chinese. If you’re a poor country relying on Chinese development aid, the choice is even clearer – take whatever the Chinese are giving you with open hands. You may have to toe the Party line, but at least the CIA won’t know about your plan to invade North Trashcanistan.

The electronic umbrella is similar to the Cold War’s nuclear umbrella, but more interesting. Nuclear weapons usage is drastic, infrequent, and incontrovertible. Electronic surveillance is commonplace, continuous, and deniable. In particular, targets tend not to know when they’ve been hacked. A known quantity of surveillance from friends might be much better than an unknown quantity from an enemy. As the implications sink in for the second-tier powers of the world, the borders of hardware and OS could end up just as clearly drawn as that of economic systems a generation ago.

Change and Crisis in China

Change is hard.  Especially when your entire livelihood is built around what you’re trying to change.  In China, the economy has long revolved around the official credit mechanisms provided by the banking system.  Ordinary citizens have very limited access to investment vehicles other than regular deposits, and the state keeps deposit interest rates artificially low, making credit cheap.  In turn, those banks lend at very cheap rates to businesses.  The overall effect is to pick the pockets of regular savers and plow the money into investment.  The cheap money has driven China’s economic growth.

There are a few problems, however.  First is that some or much of this money might be “malinvestment”, unproductive investment that seems to make economic sense due to artificially cheap credit.  The second is that these businesses then provide investment vehicles for normal citizens, starved for investment opportunities due to the state-mandated interest rates.  You then have regular citizens investing in shady unregulated debt products, and regularly losing heaps of money.  Thirdly, it’s not just regular citizens – large institutions looking for high-yielding products are invested in these same financial assets.  Some find it uncomfortably reminiscent of subprime mortgages in the United States.

There is a nice little complication there, however.  The banks aren’t really private, and they’re not really state-owned.  The relationship is altogether more complex than that.  The upshot to this is that access to credit is pretty unequal.  The favored, be they Party elite or associates, can get access to that cheap capital.  They can then turn around and pass that loan on to anybody they fancy while taking a hefty commission. So cutting the party short means taking that income stream away from a class well-placed to resist it.

And so these problems have only festered and gotten worse and worse.  As the Chinese government makes moves to liberalize the capital markets, the financial markets react with panic each time and the gestures are quickly walked back.   That being said, complaints about “kicking the can down the road” are usually overwrought and it’s often a perfectly fine strategy.  But it certainly seems like the Chinese government is sitting on top of a latent but very large financial crisis and is actively trying to decide when to deal with it.

This is the sort of thing one should keep in mind when reading long-term forecasts about Chinese growth.  Will this crisis topple the Chinese economy?  No, probably not.  But no one sane should want to trade the American political economy for China’s.

The Keystone Fight Was a Horrific Waste

I want to echo what Jon Chait says here – the fight over the Keystone pipeline was a horrible one for environmentalists to embrace as their central battle.  The Keystone pipeline is, to be clear, not a good idea.  But the stakes of the pipeline are just so, so, so unimaginably low.  As he says:

Estimates differ as to how much approval of the Keystone pipeline would increase carbon emissions, but a survey of studies by the Congressional Research Service found that the pipeline would add the equivalent of anywhere between 0.06 percent to 0.3 percent of U.S. greenhouse gas emissions per year.

For this, the environmentalist movement has dedicated itself for years.  Not focusing on legislation about automotive efficiency, or pollution regulation or green energy – just this one pipeline.  For reference, here is a map of currently existing pipelines in America.

But one more would really mess up the place.

I’m sure the Sand Hills of Nebraska are wonderful, but good god.  The scale of environmental catastrophes that America is dealing with are simply staggering.  There’s overfishing, ocean acidification, urban particulate pollution, environmental lead, and of course actual real global warming.  Some of these are too large to hope to tackle all at one – but others are imaginable targets that deeply affect many millions of Americans every day.  Choosing to ignore all of those problems in favor of the pipeline seems like just an unconscionable waste of time.

It reminds me of what I once wrote about Mitt Romney and his continuous refrain of “entrepreneurialism” as the solution to all of life’s ills.  Romney and Bill McKibben have the same problem – they don’t see that their platform is irrelevant to most people, and they don’t seem to care.  They talk past everyone and don’t understand why no one and listening.

Bitcoin Breaks Breaking Bad

Let me start by saying that Bitcoin is silly, and I think it’s more of a speculative asset than a currency due to built-in deflationary pressure.  Okay, with that out of the way…

Andrea Peterson has a post up at Washington Post’s “The Switch”, arguing that Bitcoin isn’t a big deal because it just replicates the anonymity of cash.   Andrea Peterson is completely wrong here – Bitcoin and other digital currencies are a big deal precisely because they just replicate the anonymity of cash.  She notes that it is marginally more convenient than cash because transfers are speedy and reliable.  Economists call these inconveniences of cash “transaction costs”.  The potential for digital currencies to be a very huge deal is because they are anonymous and hard-to-trace, like cash, but with none of the huge transaction costs.  To see why this matters, let’s step into the world of Breaking Bad.

Much of the entire dramatic tension of the show revolved around the transaction costs of cash.  Walter White made meth and sold it in very large quantities for simply staggering sums of money – that he couldn’t use.  Cash is worthless unless it can be effectively laundered – transacting in large amounts of cash is an excellent way to get the FBI to pay you a visit.  So while he can launder enough money through his car wash to pay his bills, it piles up quickly – one needs an enormous, mostly-cash business in order to launder the millions of money he is hauling in.  Like, for example, a fried-chicken chain.  In real life, casinos are a favored venue.  So Walter ends up with a gigantic pile of money, which he can’t spend, use or transfer.  The end of the series is driven by his increasingly desperate drive to figure out a way to get this money to his children after he’s gone.

It’s easy to imagine how his story would be different with a cashlike digital currency.  Simply convert the cash into Bitcoin (or what have you) and it’s laundered right there.  It can then be stashed away in his children’s name anonymously, and when they come into their inheritance then they can spend it anonymously or figure out some way to launder it further into clean American digital dollars.  Most of the drama of the last season wouldn’t have needed to happen!

The fact is that cashlike digital currencies would be a huge boon to criminals and tax cheats and a huge headache for governments across the world.  On the upside, it’d also be a gigantic pain in the butt to authoritarian states everywhere.  But it’s precisely that “cashlike” nature that would make them immensely important – not a reason why they should be shrugged aside.

Contracting, Competence, and Healthcare.gov

The Times has a great piece today on why (as of October 13, 2013) the healthcare.gov exchanges are still not really working.  Irrespective of the merits of the law itself, it’s fair to say that the exchanges have been an IT disaster so far for a wide variety of reasons.  To my mind, here’s the key issue:

To avoid giving ammunition to Republicans opposed to the project, the administration put off issuing several major rules until after last November’s elections. The Republican-controlled House blocked funds. More than 30 states refused to set up their own exchanges, requiring the federal government to vastly expand its project in unexpected ways.

But the government was so slow in issuing specifications that the firm did not start writing software code until this spring, according to people familiar with the process. As late as the last week of September, officials were still changing features of the Web site, HealthCare.gov, and debating whether consumers should be required to register and create password-protected accounts before they could shop for health plans.

This is the worst kind of horrific IT malpractice.  The one thing you cannot do if you want to have a successful IT launch is to issue specs too late, and God forbid going about changing specs when you’re two weeks before launch.  The codebase for something like this should have been frozen weeks before launch for bug-hunting and stress-testing.  That would be more than enough work for a broad project like this without having to worry about implementing new features or changing site architecture.  Not all of this is the administration’s fault – Republican governor’s en masse decision to reject implementing their own exchanges forced a massive exogenous scope change on the program managers, who weren’t properly resourced – the original legislation envisioned a small role for the federal exchanges, and good luck appropriating additional funds for the change of scope.   However, this didn’t just happen because of generic government incompetence, I think it’s best viewed as one of the “shadow costs” of a culture of contracting:

One highly unusual decision, reached early in the project, proved critical: the Medicare and Medicaid agency assumed the role of project quarterback, responsible for making sure each separately designed database and piece of software worked with the others, instead of assigning that task to a lead contractor.

Some people intimately involved in the project seriously doubted that the agency had the in-house capability to handle such a mammoth technical task of software engineering while simultaneously supervising 55 contractors. An internal government progress report in September 2011 identified a lack of employees “to manage the multiple activities and contractors happening concurrently” as a “major risk” to the whole project.

Excessive reliance on contractors has ruined government’s ability to manage projects like this.  There simply isn’t the technical competence or depth of staffing in the government in order to either develop it in-house or to properly manage a gaggle of contractors.  It’s almost certainly true that the government in this case should have appointed a systems integrator (lead contractor).  The political appointees running the place simply didn’t understand the complexity of what they were dealing with.  And of course, the endless government reliance on contractors has hollowed out most of the senior technical talent in the bureaucracy.  The thing is, this isn’t something that has to happen!

This might sound like a nerdy candidate for high-school student council, but the White House should seriously consider creating a Department of Technology.  The United States government is by far the country’s biggest consumer of IT contracting services, and by properly resourcing a central IT department they should be able to both improve project outcomes and save a large amount of money.  It’s just ridiculous that you have all these bureaucracies sourcing and managing their own IT project when they very clearly don’t have the personnel resources to do so (except for the Pentagon).  The Technology department doesn’t have to be large, but it does have to actually pay well enough to retain some talented employees – like the SEC, where the pay isn’t spectacular but it’s good enough to retain employees who might otherwise head to banks.    In turn, it would manage IT contracting across the entire federal government to try to rein in costs and find efficiencies (e.g., implementing the same system at multiple Departments) and also act as an in-house contractor.  Technology professional staffers (not political) would be deployed to manage complex IT projects instead of leaving that stuff to the political appointees.

Good luck getting that set up, though – all the contractors would be going balls-to-the-wall to stop it.  Unfortunately, the rise of contracting created a political economy monster.

Default on the Radio

While watching the Falcons-Jets game tonight, I noticed an (admittedly charming) ad for the Navy Federal Credit Union.  My first thought was confusion as to why they advertise – as the ad noted, they have four million members already.  Surely the pool of potential members is mostly saturated?  What really piqued my interest, though, was that they prominently advertised that they are “Insured by NCUA”. I thought the FDIC insured bank accounts. What the heck is NCUA?

It’s a neat little sidetrip into the byzantine world of American finance, that’s what.  NCUA is the National Credit Union Administration – it was formed by Richard Nixon as an overhaul of the previously outdated administration of credit unions.  It operates a parallel deposit insurance fund to the FDIC, taking fees from its member credit unions and providing insurance.  The money is held in Treasury bonds.  In turn, it is backed by the government corporation Central Liquidity Facility, funded again by its members.  The CLF is backed ultimately by the Treasury Department, which is legally authorized to lend the CLF up to $500 million in the event of a liquidity or solvency crisis.  This is in turn all a tiny tiny corner of the American financial world compared to the megabanks in New York and the community and regional banks across the nation.

The NCUA is still operating through the shutdown today, as is the Navy Federal Credit Union.  They are in fact stepping up operations – many of their members are civilian DoD employees who are currently going unpaid.  Navy Federal is offering them bridge loans.

What happens to this little corner of the financial world if the United States indeed defaults on its debt on October 17?  Well, first things first – Navy Federal members stop getting paid.  Congress made sure service members get paid during the shutdown, but in the event of a debt ceiling crisis all bets are off.  So its members run to the nearest branch to get their money out, in a classic bank run.  NCUA attempts to bail out its member credit unions…but discovers to its dismay that it can’t liquidate its huge stock of Treasuries.  Nobody wants them because the country is in the middle of a financial crisis around possibly-defaulted Treasury bonds.  So the Central Liquidity Facility is bust at its moment of greatest need…and even if it could be made whole by the $500M from Treasury, Treasury doesn’t have the cash on hand.   The credit unions end up collapsing, and its members are never made whole.  Millions of servicemembers and civilian DoD employees are left with frozen assets in a closed Federal credit union…being made whole takes months if it ever happens.  And this is all a tiny sideshow to the aforementioned massive financial crisis going on on Wall Street.

It’s a little stupefying that we’re even discussing defaulting on the debt.

The Political Economy of “Less Is More”

Nemo Incognito writes a great note today on a topic I have spent a fair amount of time wondering about, namely the possibility of a secular decline in “stuff”. He points out that the proliferation of gadgets and appliances that took place towards the end of the 20th century has been replaced by a paring-back and replacement with more general-purpose devices supplemented by services. For example, replacing a desktop + laptop combo with a tablet and a proliferation of paper notes with Evernote. Beyond simply electronics, a car can be supplemented by Uber/Lyft and Zipcar. I’ve written about this in terms of “asset efficiency”.

This trend is unmistakable in American society, with technophiles like Nemo representing the leading edge. The much-discussed trend of Millenials moving to cities is part of this; replacing capital-centric consumption (big hosue in the suburbs) with experiential consumption (New York in September). Even without a truly cornucopian economy, if you assume a certain amount of technologic consolidation along with a slowing rate of population growth, the US economy is likely to need fewer capital-intensive goods in 2033 than in 2013.

In America, who are likely to be the big losers in such a situation? Nemo points to the growing economies of Asia that supply all those capital-intensive goods, which is true as far as it goes. Domestically, it would be the capital-intensive producers. Consumer-goods producers will have to adjust, but the Fords of the world will survive – they have outsourced all of that stuff to smaller contractors who will be hammered until a new equilibrium emerges. The locus of the hurt will probably be large companies who either engage in capital-intensive extraction or production, like the loggers and miners Nemo mentions. If distributed solar truly takes off, the power companies will be the absolute hardest-hit and will be nationalized en masse.

What are the political-economic consequences likely to be? One would expect that the most-affected companies will attempt to fight back by non-market means. Regulatory weapons are powerful, and these producers should be funneling money to opponents of greater density – urbanization is a threatening force to them. Minimum home size and lot size requirements, along with required on- and off-street parking, are the best friends of the power companies, the manufacturers, and the resource-extractors alike. Obviously, rules meant to protect “neighborhood character” should be marshalled against residential solar panels.

Incidentally, these measures are sacred principles of American land-use policy today. So it should be fairly easy to paint rank and odious rent-seeking policies as “American values”. Perhaps that happens today; it should be fairly easy for the Chamber of Commerce to slip just enough dollars into local elections. If they don’t do that, they ought to consider it.

If anti-density measures are also a form of rent-seeking, that might be the best explanation for the higher prosperity of dense metros. Richard Florida and many others suggest that “agglomeration effects” drive this; but it might just be avoiding the deadweight loss caused by all sorts of market-distorting land-use measures. Could be a good topic for research.