Mike the Mad Biologist

Peter Dorman, one of my favorite economics bloggers, responds to the incredible hostility towards economics (personally, I find it no more corrupt than certain areas of medical science). He offers an example:

Check out the Uneconomics initiative and its “exposé” of how banks create money. Who could have imagined: private banks actually create money out of thin air when they make loans, and this creates the potential for economic volatility due to over- and undersupply. These secrets, supposedly covered up by sneaky economists and other elitists, are revealed by radical social critics, and we should be shocked, shocked.

Banking is a system that runs on make-believe and survives on ignorance.

Does it matter that a significant swath of the left thinks that standard stuff in a money and banking course is a great discovery that will shake capitalism to its foundations?

I fully agree with Dorman. It’s nothing that Kenneth Arrow didn’t describe. In 1958. But most people don’t realize that banks can treat lines of credit as deposits and thus ‘create’ money (that is, count lines of credit as reserves held by the bank, not as loans outstanding). And the idea that banks routinely lend money to each other if they have exceeded the amount of loans allow by their reserves would be shocking (banks in the U.S. are required to have deposits equal to ten percent of their loans, which are the ‘reserves’). In fact, the practical reality that banks are never constrained by their reserves unless the central bank desires it be so, since they can borrow money in the overnight market, or, failing that, can go to the central bank (‘the lender of last resort’) would also be shocking.

Most people, including some engaged in the popular discussion of economic issues, really believe that banks can only lend based on their deposits. (If it makes Dorman feel any better, most people who aren’t biologists have no idea what the neutral theory is or how integral it is to biology).

Consider this part of the ongoing adult education failure known as the U.S. corporate media.

Posted in Economics, News Media | Leave a comment

Links 2/24/12

Posted on February 24, 2012 by mikethemadbiologist

Links for you. Science:

How to run a successful research lab without having a lab (I’m not sure why this is a radical model: you’re simply outsourcing your lab tech work on an as-need basis to people who are probably really good at it. Enough of the ‘homespun’ lab model, please)
It’s Not Academic: How Publishers Are Squelching Science Communication
My brain just exploded: CUP pushes “article rental scheme”
In which they don’t make ‘em like they used to
Re-thinking the Annual Physical (this is really interesting; could set up conflict with people who push preventative medicine?)
CDC: Raw Milk Much More Likely to Cause Illness (and in other news, not vaccinating your children is STILL FUCKING STUPID)

Other:

Reformy Platitudes & Fact-Challenged Placards won’t Get Connecticut Schools what they Really Need! (must-read)
The Book of Jobs (another must-read; why does Maureen Dowd have a steady job, and Moe doesn’t? Just asking.)
No Student Left Untested
Borrowing wise words from those truly market-based, Private Independent schools…
Forced Births in the Bad Old Days (must-read)
The “Can’t Find Workers” Meme
The need to protect the internet from ‘astroturfing’ grows ever more urgent: The tobacco industry does it, the US Air Force clearly wants to … astroturfing – the use of sophisticated software to drown out real people on web forums – is on the rise. How do we stop it?
Economists, release your inner nerd! (funny)
Dr. Paul’s Prescription — and the Answer Obama Should Give
Should Researchers Hide Results from the Public?
Stylist refuses to cut NM gov’s hair over same-sex marriage opposition
In the souk, they know how to do this.

Posted in Lotsa Links | Leave a comment

The Failure of the Charter School Hypothesis

Posted on February 24, 2012 by mikethemadbiologist

A key motivation for charter schools is that, if we can liberate schools from bureaucracy and teachers unions, students will do better. This is a very testable hypothesis, as I’ve discussed before. And here’s what we find in the Great State of Georgia:

Charter schools have become less successful than traditional schools in meeting federally mandated annual yearly progress targets, a report to the state Department of Education shows.

Go on:

The report, presented to the state Board of Education Wednesday, also said graduation rates at charter schools are about the same as the state average….

The report found that:

– In 2010-11, 70 percent of charters met annual yearly progress targets established by the federal No Child Left Behind law while 73 percent of traditional schools in Georgia met those AYP targets that year.

– Charters had an 82 percent graduation rate in 2010-2011; the state average that year was 80.9 percent. Some experts have questioned whether Georgia’s graduation rates are inflated by the calculation method used.

Charter school supporters also have been having less success getting applications for new schools approved. In 2004, all 15 charter school applications were approved. By 2010, only 40 of the 80 applications were approved.

I really don’t have a problem with ‘specialty schools.’ But this seems pretty good evidence that teachers unions and bureaucracy aren’t fundamental problems.

Posted in Education | 1 Comment

Misunderstanding Bain Capital: It Is Not “Efficient”

Posted on February 24, 2012 by mikethemadbiologist

Last weekend, Barry Schwartz had this to say about Bain Capital, the firm founded by Republican presidential nominee Mitt Romney (boldface mine):

What Bain Capital, and firms like it, do is try to increase the efficiency of the companies they buy. They try to get more with less — to eliminate waste. They are not interested either in creating jobs or in destroying them. Nor are they interested in improving the lives of consumers by making products and services better and cheaper. They are interested in profit — for themselves and their shareholders. Sometimes a Bain success will lead to more jobs and better products. Sometimes it will not.

It may seem heartless to worship efficiency at any cost, including lost jobs and decimated communities, but it is important to understand that increased efficiency is the only way a society’s standard of living will improve.

What this paen to efficiency misses is that Bain Capital’s strategy of loading companies up with debt while extracting wealth (the financial equivalent of a mob bust out) is not that profitable. When Bain sold a bankrupt Dade-Behring, the new owners reversed course: they invested in R&D, focused on growth, and lowered the company’s debt. The result?

The value of the company increased five-fold which is more than Bain ever made. That’s how you increase ‘efficiency.’ It is not the same as looting.

There’s a difference between installing extra insulation or energy-efficient appliances and ripping the copper pipes out of the walls and selling them for scrap.

Related post: Peter Dorman has some thoughts about efficiency.

Posted in Economics | 1 Comment