Why School Testing Is Futile

Back from Siberia. I can't blog on my work computer and my iPad hasn't arrived yet, so I've been away for a while. Things didn't seem to improve while I was gone and being quiet was hard.

With all the discussion of education and the issues with funding here in Texas, this blog entry caught my eye. It's basically about the presumed cheating in the DC schools to achieve higher test scores. I've never been enamored with standardized testing when used to judge teachers. In the first place it sets bad incentives and as the blog entry notes, virtually all studies fail to control for variables that may be as important as teacher and administrator's skill: education of parents, income, etc.

Check Your Brain at the Beltway

Sooner or later the people who are being hurt in today's economy are going to wake up and realize that Congress and the Administration are not doing them any favors. President Obama is missing a golden opportunity to ensure his re-election and reestablish a Democratic majority in Congress. When the anger hits, who will the jobless and others hurt by current economic policies turn to?

Olivier Blanchard and the Future of Macroeconomic Policy

Olivier Blanchard is on leave from MIT as Economic Counsellor and Director of the Research Department of the International Monetary Fund. At a recent IMF conference he organized a discussion of macroeconomic policy. This article summarizes what he thought the participants concluded.

A few of the conclusions:

We’ve entered a brave new world in the wake of the crisis; a very different world in terms of policy making and we just have to accept it.

In the age-old discussion of the relative roles of markets and the state, the pendulum has swung—at least a bit—toward the state.

The crisis made it clear that there are many distortions relevant for macroeconomics, many more than we thought earlier.

Macroeconomic policy has many targets and many instruments.

Monetary policy has to go beyond inflation stability, adding output and financial stability to the list of targets, and adding macro-prudential measures to the list of instruments.

Fiscal policy is more than just “G minus T” and an associated “multiplier.” There are potentially dozens of instruments, each with their own dynamic effects that depend on the state of the economy and other policies.

We may have many policy instruments, but we are not sure how to use them.

We don’t quite know what liquidity is, so a liquidity ratio is one more step into the unknown.

If you adopt a set of financial regulations and keep them unchanged, the markets will find a way around, and ten years later, you’ll have a financial crisis.

Both self-regulation and regulationare needed, but how we combine them is extremely unclear.

Time Series--Economics Predictions

I post a lot of Paul Krugman's articles, mainly because he is one of the few economic commentators who is making any sense. His comments are based on a sound understanding of economic theory and a wide knowledge of economic history and the history of economic thought. I'd also mention that he is a winner of the Nobel Memorial Prize in Economics, except that given the statements of some of the past winners regarding our current situation, that's not much of a recommendation any more. Here's a blog post from today, which is interesting largely for its link to one post 16 months ago and a second post nearly two years ago.

Today's post is on the liquidity trap and the evidence that shows us we are in one. The post 16 months ago is a comment on a publication by Morgan Stanley back in November of 2009, when they predicted that the rising US Government deficit would cause interest rates to increase sharply by the end of 2010. Of course, this didn't happen--because we are in a liquidity trap, something many economists who ought to know better continue to either deny or act as if being in a liquidity trap doesn't have any implications for economic policy. With unemployment still near nine percent and output substantially below capacity, there are people who are still worried about government spending "crowding out" private spending.

In a second link in todays' blog, Krugman predicted this problem with understanding economic theory and its implications nearly two years ago. More than two wasted years of ignoring what economic theory told us about the recession and its effects. Our leaders are still having difficulty recognizing the problem and implementing a policy that will help us regain our economic footing. Two years from now, the finger pointing will be depressing.

Santayana was right: "Those who cannot learn from history are doomed to repeat it." But it's also true that those who don't understand the present can't be trusted to make policy.

These Guys Are not only not in Jail--We Can't even Get Them to Pay Fines

The positions of the Wall Street Journal and Senator Richard Shelby are abhorrent. It's beginning to look like Shelby and his ilk don't care any more if they take positions favoring the big banks that are diametrically opposed to the interests of their constituents.

A (Relatively) Concise Summary of the Financial Crisis and the Government's Response

Simon Johnson in testimony submitted to the Congressional Oversight Panel, “Hearing on the TARP’s Impact on Financial Stability,” Friday, March 4, 2011. Johnson, the author of 13 Bankers, has emerged as one of the very few insightful commentators on the recent crisis. I consider his book a "must read." As far as I'm concerned, the actions of the Bush and Obama administrations show two things: (1) the financial portion of our politics has been completely captured by the big financial institutions and (2) it is only a matter of time before we experience such a crisis again unless we do something quickly to reduce the influence of the largest financial institutions on both politics and the economy.

Finally, Straight Talk from a Central Banker

Mervyn King, Governor of the Bank of England:

Financial services don’t like the word ‘casino’, but instruments were created and traded only within the financial community. It was a zero sum game. No one knew which ones were winners when the crisis hit. Everyone became a suspect. Hence, no one would provide liquidity to any of those institutions.

We allowed a [banking] system to build up which contained the seeds of its own destruction.


It's time we recognize what went on with the financial system meltdown: the major players created instruments of little or no value to the economy, they were simply making bets among themselves about what would happen. They helped inflame the massive run up in property values and when the music stopped, values established during the bubble were reversed and what remained was a unhealthy amount of debt. As GDP fell and unemployment grew, ordinary people couldn't pay their mortgages, but bankers and the other culprits suffered little or no pain--their bonuses had already been banked. The government saved their jobs and they live to start betting again.

We Need an Oil Tax

And here's a good way to implement it. This essay by Ed Dolan shows how it would work and discusses the potential benefits.

How Good Is the US Healthcare System?

Ed Dolan provides a summary of the available evidence. We have a lot of work to do. The PPACA is just the beginning and there are a lot of hard choices that are going to have to be made. Do we have the will to overcome entrenched interests and deal honestly with these issues?

How Long Will This Intolerable Situation Continue?

Private Bradley Manning's situation has been getting increasing attention lately and it's about time. I'm agnostic about whether he's guilty or not. I haven't read much of the information he gave to Wikileaks, but I have seen the videotape of the helicopter attack that set the whole thing off. If you haven't seen it, it's horrific and the attitude of the US servicemen involved is reprehensible. They acted as if they were playing some video game, rather than killing people from afar.

If the Army thinks Manning is guilty, then court marshall him. He's waited long enough for a trial. Just because he's in the Army doesn't mean he's given up his constitutional rights. The treatment he is receiving is tantamount to torture. If he's guilty, he should be punished but not until he's been tried and convicted.

Big, Bad and Incompetent

More support for perp walks. A Washington Post columnist finds out what's been happening to millions of other consumers. Meanwhile the Congressional Republicans want to get their big bank buddies off the hook by eliminating the mortgage modification program. Until these banks face sanctions, their behavior will not change.

Sometimes I Wonder if I Live in a Giant Looney Bin

Texas immigration law proposal. What are these morons thinking? They'd like to set up a new class of "legal" illegal immigrants.

My lawyer once told me that there was a misprint in the Texas Constitution. Instead of meeting for 20 weeks every two years, the legislature is really supposed to meet for two days every 20 years. If we make this correction, we won't have to put up with morons like this.

The World's Oldest Central Bank May Be the Most Innovative

The Riksbank charges banks to keep reserves there. This is taking zero interest rates one step further. The intent was to send " a powerful signal to the market that the Riksbank intended to keep rates close to zero until economic recovery was well under way." The result from the Financial Times: Sweden registered its fastest quarterly economic growth on record in the last three months of last year, burnishing its status as Europe’s best-performing economy. The forecast-beating 7.3 per cent year-on-year expansion looked sure to increase pressure on the country’s central bank to raise interest rates further amid concern over possible overheating.

For reference, the last estimate of annual growth for the US was 2.8%.

This Is Why Ron Paul's Ideas Can Gain Traction

Simon Johnson on bank capital.

Clear and Present Danger

If you'd like a clear, concise description of the current economy--where we've been, how far we've come and why we stand at a crucial point in recovery, read this post by Paul Krugman. Oh, and you'll also see why the proposals by Congressional Republicans threaten to send us back two steps.

OK Mr. President--Time to Suck It Up and Get Tough

Americans overwhelmingly oppose the policies proposed by Congressional Republicans. Time to stop acting wimpy and stand up for what's right. No more rule by the loud minority.

Faux News from Wisconsin

Fox video on violence in Wisconsin. Notice the palm trees in the background. Some have suggested that this refutes Fox News views on climate change.

In Texas the Long Run Doesn't Look any Better.

We either pay for what we need with higher taxes, or watch the state go down the tubes. The chief revenue estimate for the State Comptroller (a Republican appointee) gave the bad news to the legislature.

Texas Is a Great Place to Retire--But It's a Lousy Place to Be a Kid

The Texas miracle is that we elect people like Rick Perry.

Surprise! Wisconsin Governor Walker Has a Union Busting Past

And it cost the taxpayers plenty. He's lied before (when he was Milwaukee County Executive) about contrived budget crises in an attempt to bust unions.

It's Because They're not on Drugs, Escaping from Rehab, Etc.

Lack of news on Wisconsin protests.