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Did Megan McArdle Really Graduate from a Business School? - Grasping Reality with Both Hands

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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.

Economics 210a Weblog Archives DeLong Hot on Google DeLong Hot on Google Blogsearch September 09, 2010

Did Megan McArdle Really Graduate from a Business School? She writes: On Comparing Tax Cuts to Social Security: the only reason the [CBPP's two] numbers [valuing the size of the upper-income tax cuts and the Social Security deficit] looked even remotely the same size was that they were using a present value... Did this person really graduate from a business school? Either she needs her tuition back because they did not teach her what present value is for, or the business school needs to revoke her degree to get its reputation back because its graduates do not know what present value is for, or both. When you want to compare two streams of cash flows to see which is more valuable-to sum up how much you should be willing to pay for it in one number--you compute present values. That is what they are there for. That is what they do. That is the only reason they were developed. That is the only reason that they exist. Why oh why can't we have a better press corps? Brad DeLong on September 09, 2010 at 05:55 PM in Information: Better Press Corps/Journamalism, Utter Stupidity | Permalink

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Did Megan McArdle Really Graduate from a Business School? - Grasping Reality with Both Hands

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Comments Lee A. Arnold said... The fact that these are nearly equal amounts is not a new fact, by the way. Four years ago I pointed it out -- at minute 4:25 of this sexy little animation, right here: http://www.youtube.com/watch?v=Tts2uTWt6e8 Reply September 09, 2010 at 06:06 PM Megan McArdle said... And if you have developed a way for the United States government to securitize the cash flows from repealing the Bush tax cuts over the next 75 years, that would be very useful. [We do. We have. It is called paying down the debt. Why are you doing this? That is another intellectual foul.] Otherwise, comparing a cash flow that is much larger in out years, to one that is steady state, is going to give you a distorted idea of their relative burden on the budget, particularly if you use--as the CBPP did--a discount rate much higher than the interest that the United States government pays on its debt. Reply September 09, 2010 at 06:36 PM Megan McArdle said... On a side note, it's not quite cricket to snip out the rest of the sentence, which for the benefit of your readers who won't click through* reads " . . . and a very long time frame". [That's another intellectual foul. All present value calculations necessarily extend over a long time frame--a time frame long enough for the cash flows in the future to become insignificant when discounted back to the present. There is nothing "not quite cricket" in my excerpt. There is, it seems to me, something very wrong with this comment.]

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The problem, as I mention in my post, is that the very near cash flows in Social Security are very different from the later cash flows, and since PV weights close years, this has the effect of making it look as if one cash flow could be used to pay for another, when in fact, repealing the Bush tax cuts and putting every dollar towards debt repayment would not generate enough money to cover the Social Security shortfall, even using very optimistic revenue forecasts. For this reason, using the PV of a very long forecast period gives a distorted implication. * I am assuming, of course, that you will not delete this comment. Reply September 09, 2010 at 06:48 PM fs said... I don't think I follow Ms. McArdle's argument. If given the choice, an individual or business would prefer to pay a debt in the future rather than today. The same holds for taxes. By retaining the funds that would otherwise be paid to the government via taxes, individuals or businesses can invest the funds to generate greater wealth. Imagine that the choice is between (1) the government taxing individuals and businesses today and stashing the money away for the payment of promised benefits in the distant future, and (2) letting people keep their funds to invest in productive activities and taxing them in the distant future to pay for the benefits to be paid at that time. Not only would option (2) be more popular, it would also be more effective in delivering those future benefits because the government would be able to tax an economy that grew at a greater rate because of the investments made in earlier years. Of course, this assumes that the private market is investing its money effectively. From my perspective, the proper question to ask is whether the government is promising greater benefits than the economy will be able to deliver at that time.

Reply September 09, 2010 at 07:02 PM DrDick said... Megan McArdle's job is to misinform and distort. That is all. Reply September 09, 2010 at 07:08 PM Brad DeLong said in reply to Megan McArdle... Re: And if you have developed a way for the United States government to securitize the cash flows from repealing the Bush tax cuts over the next 75 years, that would be very useful. This is unbelievable. Thats what the government does when it borrows. Thats what the marketable debt of the government is. The government takes its future expected cash flows and... securitizes them. Thats why government bonds are called securities, after all: they are the securitized future tax cash flows.

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Yours, Brad DeLong Reply September 09, 2010 at 07:12 PM Megan McArdle said... Oops, fair enough, I see I wrote almost the same thing twice, and neglected the caveat in the first instance. But if you read the whole post, you can't possibly have thought that my point was that it is never appropriate to use present value calculations. Reply September 09, 2010 at 07:20 PM Paul M Gottlieb said... Sadly, not only did McArdle go to business school, she went to my business school--the University of Chicago. So every time she opens her mouth, she devalues my degree a little more. Of course Eugene Fama,Casey Mulligan, and Gary Becker are doing the same thing. I should have sold my MBA at the market peak 15 years ago, but I didn't see the reputational crash coming. Yes another way my business education has failed me. Reply September 09, 2010 at 07:29 PM Argle said... > But if you read the whole post, you can't possibly have thought > that my point was that it is never appropriate to use present value calculations Nice. I hardly saw the goalposts move there. Also, Brad, if you read the whole post you can't possibly have thought her point was that cows excrete peaches. WHY do you PERSIST in such ridiculous misreadings? Why? Reply September 09, 2010 at 07:31 PM zosima said... Being a certain sort of optimist, I prefer to think that McArdle is a conservative shill; willing to grasp at any straws; or worried she'll lose her readers if she doesn't toss them some red meat...rather than dumber than a bag of hammers. But sometimes I'm driven to question my optimism. Reply September 09, 2010 at 07:38 PM Brad DeLong said in reply to Argle... Re: Brad, if you read the whole post you cant possibly have thought her point was that cows excrete peaches. WHY do you PERSIST in such ridiculous misreadings? Why? Because I was very bad in a previous life? Or because I was happy thinking I had actually helped some people become better informed via cspan? Yours, Brad DeLong Reply September 09, 2010 at 07:38 PM Bernard Yomtov said... McArdle, "But since the government doesn't really have any mechanism to save, it's not very helpful to compare present values, because current cash flows can't actually be stored up to use in the future. " No mechanism to save? What about reducing debt?

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Reply September 09, 2010 at 07:42 PM Gene O'Grady said... I don't want to be too hard on McCardle because in her Jane Galt incarnation she once made an intelligent response to a comment of mine on this very blog, but isn't what she really wants to say that the present value calculation was done with an inappropriate discount rate? Which, right or wrong, is at least a coherent argument, but she picked a very odd way to express it. Also, the point about events in the future seems to cut the other way to what she claims (higher weight to things well in the future?), given their greater uncertainty. Reply September 09, 2010 at 08:12 PM Zach said... On a side note, it's not quite cricket to snip out the rest of the sentence, which for the benefit of your readers who won't click through* reads " . . . and a very long time frame". What time frame is appropriate for comparing two policies in terms of present value? Reply September 09, 2010 at 08:35 PM grog said... McArdle is paid good money to comfort the comfortable, whether or not the comforting is correct. She is the definition of a hack. The real question is why the Atlantic is getting such low-quality hackery for its money. While I'd likely be less mannered at Georgetown cocktail parties, I can obfuscate better than that without an MBA. "Thats why government bonds are called securities, after all: they are the securitized future tax cash flows." Oh, come on! Next you'll be telling me that the Social Security bonds are just as real as those held by China, or that the OMB actually employs economists, or that F. Hayek didn't bunk with Paul Ryan in college. Reply September 09, 2010 at 08:35 PM Joe said... Hayek and Ryan DO share the same bunk. I don't even think the linens have been changed. Reply September 09, 2010 at 09:15 PM GA said in reply to Gene O'Grady... "isn't what she really wants to say that the present value calculation was done with an inappropriate discount rate? Which, right or wrong, is at least a coherent argument, but she picked a very odd way to express it." No, she really wants to say that the methodology does not give the answer she's looking for. Anyone who knows present value calcs would simply state the discount rate argument up front. Her convoluted points about cashflow are gibberish. Yes, if the government has to pay the SSA when SSA redeems a treasury, cash comes out. And government would do so by ... issuing another treasury. There would be no increase in the debt, because it's already accounted for. The other people's work she cites makes a somewhat better case, that projections are highly sensitive to assumptions - but that works both ways, and (given the long time frames) would actually work much more in SS's favour. http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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Easier and just as accurate, however, to invoke Megan's Lemma. Read Krugman instead. In short, you can't claim the trust fund doesn't exist or doesn't count without making the same claim she makes about taxes, that they can be changed at any time. And you can't double-count the debt by recognising the future SS outflows but not the provisions already made for them. Reply September 09, 2010 at 09:17 PM Brad DeLong said in reply to Zach... RE: On a side note, its not quite cricket to snip out the rest of the sentence, which for the benefit of your readers who wont click through* reads . . . and a very long time frame. What time frame is appropriate for comparing two policies in terms of present value? Indeed. the infinite horizon--until the cash flows zero out or at least become insignificant--is kinda implied in the notion of present value. Yours, Brad DeLong Reply September 09, 2010 at 09:29 PM Paul Reber said... I liked the part where she said "Oops."* I have read many a summary of hilariously combative threads where it takes dozens of commenters to get her to realize she has made a basic math error ("my calculator doesn't go to billions") and invective and insults are merrily hurled in the meantime (by her). But note here, it took only one follow-up comment by BDL. Perhaps people can become better informed after all, by cspan or blog. It is truly difficult to get a woman to understand something when her job depends on not understanding it (apologies to Sinclair), but maybe it's not entirely impossible? * Assuming, of course, that she said it and not an impostor. Reply September 09, 2010 at 09:58 PM Wcw said in reply to GA... 'Megan's Lemma' is a pretty nice locution. As I never tire of pointing out, my rules for The McMegan are the flip side of DeLong’s rules for Krugman: 1, remember that Megan McArdle is wrong; 2, if your analysis leads you to conclude that Megan McArdle is right, refer to rule #1. Her field is agitprop, not analysis. Reply September 09, 2010 at 10:44 PM Anonymous Coward said... When I was an undergrad the B-school undergrads were occasionally referred to as "The Curve." If you'd paid any attention in class, The Curve provided you an easy path to an A no matter how hung over you were when you took the test. Especially if the hangover phase hadn't started yet. The graduate students were not dismissed with such levity, but instead looked on with bewilderment. In part this was because the two populations never came into contact, but in part it was because we never figured out how they managed to get graduate credit for spending two years drunk while taking the exact same classes we got, except their versions appeared to not include any math. Reply September 09, 2010 at 10:46 PM SomeCallMeTim said in reply to Paul Reber... http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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I think BDL, and MM by her response, has shown us the value of clear direct rebuttal without ad hominem. It's one of the distinguishing features of this site, for me at least. But although she responded in the next comment, I didn't understand how what she said related to BDL's point about cash flow securitization / securities. MM, can you help me? Reply September 09, 2010 at 10:46 PM Portlander said... BDL: Thanks for posterizing McArdle. Twice. Reply September 09, 2010 at 10:53 PM GA said in reply to Wcw... Wcw: I don't know if someone else or I came up with the 'flip side of the Krugman law', but in my pathetic little world, I'm proud to have coined it Megan's Lemma, and to see that it's being used elsewhere on the interwebs. http://delong.typepad.com/sdj/2010/04/department-of-huh-goldman-sachs-vs-secedition.html?cid=6a00e551f0800388340133ecd8c8d7970b#comment6a00e551f0800388340133ecd8c8d7970b Reply September 10, 2010 at 12:02 AM GA said in reply to Bernard Yomtov... Re: the no mechanism to save and government cost of financing is the correct 'discount rate' to use. There's two pretty obvious answers to this red herring: The 4% is quite clearly stated as long-run cost of financing. Saying that treasuries are yielding less is not a good argument for a 75-year timeframe. Even if you do not accept the 4% as a good argument for government borrowing cost, the argument made is that a) these long-term projections are just guesses, and b) if we finance them at lower rates, the longer-run ones would be higher. This is just plain wrong, since the discount rate has to incorporate not just the cost of finance but also the uncertainty. Any b-school student would understand this on the revenue side in a business case, but hey! it applies on the liability side too. Since social security payments can be changed at any time and projections are uncertain to begin with, discounting them at a higher rate than the cost of finance is not optional - it's required by the methodology. I think we need a new term, Metho-dodgy, for criticism consisting of casting doubt on basic concepts you clearly didn't understand the first time around. Reply September 10, 2010 at 12:14 AM zorro said... Oh my, yet another in a long string of public humiliations for McArdle :( If I were paying the bill for McArdle's job (which is unarguably to carry water), I would want much better quality of output. As a columnist, she has very high verbal aptitude, but doesn't seem to stretch for very sophisticated obfuscations of bad economics, when she starts with her desired conclusion and then stretches a thin veneer (sausage casing?) of argumentation backwards to cover faulty assumptions and rickety economic (or arithmetic) arguments. Certainly there's some enterprising young starryeyed libertarian first-year graduate student blogger wanna-be who could perform equally well, if not better, for less pay? So, can't we get some better glib-ertarians? I know a few of them, and usually they http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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fancy themselves among the smartest guys in any room - surely there must be a better candidate with more of a head for numbers/basic accounting, and with a better talent for obfuscation / misleading economic arguments to boot? I know a couple of these guys and they're brilliant and capable of much more subtlety than McArdle seems to be! Finally, here's what I really don't get: given that Those Whose Water Needs Carrying usually can't stand affirmative action hiring practices, how did we arrive here? Why has yet another column in a long series of flops made it to the website of a once proud publication? Reply September 10, 2010 at 01:23 AM Smokey said... Good luck with this one Brad ... CALPERS is going to be running into the long run discount long before you've stopped collecting social security ... GA said: "Since social security payments can be changed at any time and projections are uncertain to begin with, discounting them at a higher rate than the cost of finance is not optional - it's required by the methodology." You want to think about that for another minute before I ask if you went to business school? Reply September 10, 2010 at 04:21 AM Megan McArdle said in reply to Brad DeLong... Are we now issuing a 75-year bond? That's one reason that this formulation doesn't work. The other is that we're talking about the size of cash flows out, not cash flows in. We're not borrowing against our future tax/social security *expenditures*. We'd have to save against them. But the US government doesn't really save. The best substitute we have is paying off debt--in which case the discount rate should have been the sub 4% that the US pays on its debt, not the 5.25% rate that the CBPP used. [That's another intellectual foul. Unless you believe that interest rates will remain in their current configuration indefinitely, today's Treasury rates are inappropriately low rates to use for long-term government present-value calculations. Seriously: why are you doing this?] And the numbers would have been not at all similar in size, because the relative weight of early years would be much less. Corporations use PV because they can use financial instruments to make the cash flows actually match over time. Since the US government doesn't do that, the comparison of two PVs is more confusing than enlightening. This is all, of course, rehashed from my post. You may think I am wrong, that taking the PV of two 75 year cash flows is in fact a useful exercise which will go a long way to helping us with grapple our structural budget issues. I'm happy to hear argument on this point. But you haven't made any such argument; you've simply written a sarcastic post which implies that I somehow don't understand that present value calculations are often useful, which is very clearly not the point of what I wrote; my point was that using this method incorrectly implies that over time, one cash flow could be used to pay for the other. http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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Since if you actually tried to do this, you would end up with a substantial deficit even under quite optimistic revenue projections, this is misleading. This is why corporations don't use the present value method for very long time frames; on the one hand, tiny errors in your initial assumptions get grossly magnified, and on the other, discounting tends to make revenue in later years almost irrelevant unless the cash flows are growing very fast. Reply September 10, 2010 at 05:27 AM save_the_rustbelt said... Accounting and economics - never the twain shall meet. The purpose of a modern MBA business school is to teach the students how to do deals for short term gain, not how to manage anything, just how to do deals and get rich quick and get a BMW and get a house in the Hamptons. Reply September 10, 2010 at 06:02 AM save_the_rustbelt said... When I teach baby accountants and the occasional MBA class, I point out that any NPV calculation longer than 20 years is mostly a fairy tale. I suppose an argument can be made the federal government is different, as Brad does, and a 75 year horizon makes some sense. Not to the accountant mind though. Reply September 10, 2010 at 06:08 AM save_the_rustbelt said in reply to Anonymous Coward... Legend has it that Visicalc, an early spreadsheet program, was developed so MBA students could do their case homework faster and have more time to drink beer. Reply September 10, 2010 at 06:10 AM Bernard Yomtov said in reply to GA... What point of mine are you responding to? Reply September 10, 2010 at 06:36 AM Craig said... Megan, if that is in fact you, why not go home, put one up in the "loss" column, and be grateful that you had to have Professor De Long explain the concept of government debt to you in the relatively obscure comments section of another blog than the one that makes you your living. The relentless goalpoast-shifiting and ever deeper delving for caveats and mintuiae is supposed to make you look cleverer than your baldly ridiculous initial statements, but it does not. My advice to you would be to spend your time on either (a) a good Economics textbook--Krugman's can be had used for ten bucks or so on Amazon a lot of the time, or (b) Derrida's "Structure, Sign and Play." No, Derrida won't teach you anything about economics or finance, but Deconstruction is really the best place to go when you want to throw mud all over an argument that you are losing just before you vanish in a cloud of smoke. My God, this is what comes from the "Business and Economics Editor" of _The Atlantic_. The magazine that published "Letter from Birmingham Jail." Reply September 10, 2010 at 06:43 AM Rob said in reply to Megan McArdle... "Corporations use PV because they can use financial instruments to make the cash flows actually match over time" Do you just say things you think someone might think makes sense and then write it

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down hoping to fool some people or are you fooling yourself? Reply September 10, 2010 at 06:53 AM ogmb said... The point of an MBA is to maximize the return on a limited skill set, not to expand that skill set. Methinks Ms. McArdle is doing very well on that count. Reply September 10, 2010 at 06:58 AM Lil'D said... Listen, the gratuitous insults agains McA aren't making us look very good. She's not stupid, just often (but not always) wrong Reply September 10, 2010 at 07:17 AM howard said in reply to Lil'D... lil'd, on the one hand, i agree that simply insulting mccardle is a poor way to use one's time: it's kind of a given by now that mccardle dosn't make good arguments and often has but a shallow grasp of the matter at hand. on the other hand, a prestigious magazine gives her a platform and she uses that platform to publish tripe on a constant basis: since the atlantic itself obviously doesn't care (i've written to them, and i can hardly be alone), the only place let to indicate just how pathetic her professional efforts are is in obscure comments sections.... Reply September 10, 2010 at 07:58 AM dsquared said... Plenty of private corporations do have pension obligations by the way (there are even some private corporations who do nothing other than manage pension liabilities!) and therefore they do make actuarial projections on roughly the same sorts of time horizons as Social Security. Reply September 10, 2010 at 07:59 AM bdbd said... now that's funny! Reply September 10, 2010 at 08:06 AM bdbd said... next up: Internal rate of return! Reply September 10, 2010 at 08:07 AM Tom Parmenter said... "Letter from the Birmingham Jail" was published in Liberation, The Christian Century, and The New Leader before it was published in the Atlantic. Reply September 10, 2010 at 08:14 AM Calvin Jones and the 13th Apostle said... Lil'D: If she wasn't stupid, why does she keep screwing up? Is she just playing stupid because that's what brings home the bacon? If so, that's one crappy life. Did you see the smack-down she got from the author of Sex at Dawn last week(it might have been two weeks ago)? Reply September 10, 2010 at 08:15 AM billb said... "Corporations use PV because they can use financial instruments to make the cash flows actually match over time." This is word salad, just like from Sarah Palin, except grammatically correct. McMegan

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is not stupid, just financially ignorant. She uses her verbal skills to cover the fact that she doesn't know what she is talking about. Reply September 10, 2010 at 08:33 AM NewAlgier said... Ms. McArdle, have you never computed the present value of a perpetuity in valuing a company? Does the dividend discount model (say) not imply perpetual cash flows? You can't justify any valuation for any business that DOESN'T incorporate a perpetual value for perpetual assets! Nor can a business "securitize" these cash flows, other than by issuing risky equity. You're all wet. Reply September 10, 2010 at 08:39 AM the idler said... I wish Megan would "Go Galt" like her hero. Reply September 10, 2010 at 09:24 AM Phil Koop said... It gets funnier. Later in her piece, McArdle writes: "I don't think it makes sense to include the trust fund in a comparison of the cost of the Bush tax cuts to the cost of the Social Security shortfall. The unified budget does not have a trust fund; it has assets (the bonds in the trust fund) and liabilities (the bonds in the trust fund) which exactly cancel each other out." But this is as broad as it is long; if the assets are matched by liabilities, then the liabilities are matched by assets. By this reasoning, assets held by the trust fund should not be counted as government debt and interest paid on these assets should not be included in deficit calculations. More generally, it seems that any government pension must be unfunded by definition using the McArdle-accepted accounting principles. From a macroeconomic perspective, I kind of agree with this - with trifling exceptions, you cannot save real goods and services, you can only save money. And money is merely a risky claim on future goods and services. But I suspect that this is not exactly McArdle's reasoning. And what would be the difference compared to the aggregate of privately held pension investments? Reply September 10, 2010 at 09:40 AM SB said... What billb said. Word salad indeed. Never mind the damage one does to the public discourse. Just make stuff up, post it and then defend it with word salad. Reply September 10, 2010 at 09:59 AM kharris said in reply to fs... I almost was kinda about to object, till you got to the end bit about the private market investing its money effectively. The whole argument about leaving money with the private sector so it can invest and make the economy bigger turns to dust at a time like this, when we have more capacity to meet demand than we have demand. But on to McMegan. One of her most favorite methods of disputation is that which I will call "false cleverness". Many, many childrens who grow up the smartest kid in the class learn that they can simply toss out a sophistic argument and buffalo the rest of the class. So they naturally get practiced at making up such arguments and their little

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knees jerk in the direction of doing so as a result of that practice. Ms McMegan (I feel free to make low jokey fun of her name because another of her favorite methods of disputation is to make fun of thoughts for which she has disdain. There appears to be less of that now that McMegan is all growed up and getting paid for confusing people, but I knew her writings back when she was an amature, when Brad was wont to praise her cleverness.)...sorry, Ms. McMegan in this case declares that because of the patterns of the two flows being compared, net present value calculations are misleading. Um,...all non-trivial net present value calculations are misleading in just that way. When flows are closely matched over time, NPV calculations aren't all that necessary. It's because flows are often not closely matched over time that NPV calculations are so useful. But McMegan tells us that the mismatch between flows makes NPV calculations misleading. And wrong. And oooh, they can't do that. Clever, falsely clever McMegan. Remember the time she drew on her cleverness and her MBA to discern that a Nobel Prize winner's poem was bad poetry, because she knew what poetry is meant to do and his poem didn't do it (and it was anyhow contrary to her political views) so it was bad? Clever McMegan. Reply September 10, 2010 at 10:37 AM Sharon‌ peeking through her fingers said... Has the bleeding stopped yet? Reply September 10, 2010 at 10:45 AM aimai said... What a pearl of a thread this is. I'm ashamed to admit that McArgle-Bargle is aiming her word salad at people like me. She can be sure that we are not economists and that our eyes glaze over when she begins throwing shit up against the wall. She exists as a propagandist, and thrives, because the party and the corporations for which she makes shit up don't want anything better defending their political policies. Something better, someone smarter, would occasionally have to doven in the direction of reality and honesty, would have to engage directly with her smarter and better educated colleagues, and would have to admit that the entire history of her libertarian philosophy is a failure and a fantasy. If it weren't, she and the much cited asymettrical spouse wouldn't need to be potemkin philosophers, wholly paid subsidiaries of a rich man's fantasy of cheap labor/high profit. They'd be paid for by the grateful pennies of the thousands of workers they put back to work, they educated, they enlightened. Megan and the spouse are paid shills for the Koch brothers, pandering to a pretty specific set of corporate interests. That takes the phrase "no better than she should be" to new depths. On the question, raised upthread, as to whether it is seemly to accuse Megan of being wrong all the time, or getting personal with her in the insult department. I can only say, with Giles of Buffy the Vampire Slayer in re Sarcasm "Its sort of the whole point, really." Or, with the guy at Rosh Hoshana services yesterday when reflecting on whether he had "held back the unnecessary gibe" during the past year "No, all of those gibes were necessary." Here's the thing about Megan--she doesn't respond to anything but insults from people she considers her peers or her social superiors. She is intellectually and morally vacuous and responds neither to polite questions or rebuttals, facts, or reality. But she can be piqued--piqued, repiqued and cappotted. She can't feel shame--not even the rudimentary shame that kids feel when they get a bad grade--but she can feel http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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humiliation, if its public enough. So, that's the reason for doing it. Because as long as she and the spouse are paid to disinform the public on matters economic she'll keep doing it. aimai Oh, and good on you, Brad. You always do us proud. Reply September 10, 2010 at 11:05 AM blabber said... I can't believe this moron McArdle is taken seriously. She wrote some other garbage recently about how wonderful the private health insurance market is, and gave some ridiculously low price for cover. Maybe she could sell this cheap insurance through her website and make money on the markups. Reply September 10, 2010 at 11:45 AM Richard said... Her concentrations were in Entrepreneurship and Strategic Management. Figures. Still, I'm dismayed that anyone who took Investments has trouble with DCF. Reply September 10, 2010 at 12:06 PM TooManyJens said... "McArgle-Bargle is aiming her word salad at people like me" Does that make her a Word Salad Shooter? Reply September 10, 2010 at 12:17 PM GA said in reply to Smokey... @Smokey: yep, thought about it, still factual. It's the logic behind most derivatives accounting, mark-to-market for liabilities, etc. Lots of accounting courses don't cover it, but the logic behind present value/discount rates related to risk applies to liabilities as well as assets. Reply September 10, 2010 at 12:18 PM Sator Arepo said... What aimai said. Wow. Great thread. Reply September 10, 2010 at 12:18 PM El Cid said... I may not be a particle physicist but allow me to write a few paragraphs on why all their conventional beliefs are incorrect. Those of you who know differently need to just shut up, because I am an important person. Reply September 10, 2010 at 12:19 PM mike said in reply to Megan McArdle... Megan, Don't you think it's true that government can borrow at lower rates than businesses or individuals? So, shouldn't the discount rate be higher than the rate pays on it's debt? Of course, none of this matters if you object to the whole idea of using present value calculations to compare alternative cash flows. Reply September 10, 2010 at 12:23 PM El Cid said... I would like to write about how all the inflation is harming our economy and how government spending is destroying all the jobs. Because shut up.

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Reply September 10, 2010 at 12:30 PM Phoenix Woman said... The fact that Megan McArdle is paid to write for The Atlantic and Brad DeLong just has his own blog for a soapbox should in itself confirm for folks the power of the rightwing sheltered workshop system. This system, from whence came entities as diverse as Ann "constitutional scholar and plagiarist" Coulter, Kellyanne "My cuteness hides the fact I'm saying hateful things" Fitzpatrick, and Ben "hold still PJ while I steal your stuff" Domenech, hatches and coddles young right-wing punditti until they can find nice safe homes for them to spew their pro-corporate agitprop without hindrance from anyone -- except, on occasion, people who actually know their own fields of study, and demonstrate that on their own or other people's blogs. Reply September 10, 2010 at 12:32 PM dakinikat said in reply to Lee A. Arnold... Basically, watch any government securities auction. That's what the market is doing. Reply September 10, 2010 at 12:35 PM El Cid said in reply to Phoenix Woman... This is unfair. There are true experts such as Jonah Goldberg or Erick Erickson who are also invited to the big news media for insightful discussions. Reply September 10, 2010 at 12:36 PM Phoenix Woman said in reply to TooManyJens... Why, yes, yes it does. Reply September 10, 2010 at 12:39 PM dakinikat said in reply to dakinikat... and that was for Megan. Reply September 10, 2010 at 12:40 PM Megan McArdle said in reply to mike... I don't object to the idea of using present value calculations to compare alternative cash flows; [Then you should use the strikethrough key on your original post, shouldn't you?] if that is what you got out of Brad's post, then you have been misled. I think that this particular calculation, because the time frame is so long, incorrectly implies that if we repealed the Bush tax cuts, we would then have the cash on hand to pay for the social security shortfalls--all else ceteris paribus, of course--which is not true. That's why most corporations don't attempt to project out their cash flows 75 years--and contra Mr. Davies, as far as I know they do not usually project their benefit liability for workers who will be hired thirty years hence. Beyond that, the aggressive discount rate that pension funds have chosen for their liabilities has gotten quite a number of them into a bit of a pickle over the last ten years, so "Private pension funds do it" is not a reassuring indicator that this is something they've managed to do "well". Of course, in theory we price stocks on the net present value of all the future dividends. In practice, however, if your discount rate hasn't driven the incremental cash flows beyond fifteen or twenty years to virtually zero, then your calculation is dependent on a growth rate that you could not possibly forecast with any reasonably degree of certainty. Present value is great stuff! I am present value's #1 fan! But like every other financial metric, it will occasionally give you absurd results if not watched closely. Particularly, http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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as in this case, when they require aggressive assumptions about revenue growth, and the puzzling inclusion of a trust fund that does not exist from the perspective of the unified budget deficit, to make the numbers come out to be the same size. Reply September 10, 2010 at 12:43 PM Phoenix Woman said in reply to El Cid... (slaps forehead) Oy gewalt! How could I forget Jonah the Legacy Pundit Hire? Or Erick, Son of Erick? Reply September 10, 2010 at 12:44 PM Megan McArdle said... [Is there a point here?] Oh, and as for government pensions? THe ones that are secured by pension funds invested in real assets, and protected by courts not run by the government who issues them are about as real as private funds, which is to say subject to the vagaries of the market. The ones that are just secured by the goodwill of the politicians? They're real as long as the politicians continue to want to pay them. Neither of these questions, however, has anything to do with the argument over whether a 75 year PV for Social Security is usefully compared to a 75 year PV for a highly volatile tax stream. Reply September 10, 2010 at 12:46 PM Steve said... McArdle seems to miss the entire point of the CBPP's analysis (even though, as per usual, it was pointed out to her by dozens of commentors). The point was not "there's no need to worry about Social Security because eliminating the Bush tax cuts will take care of the shortfall." That wouldn't even make any sense. The Bush tax cuts are already eliminated, they're expiring, the revenue we get by letting them expire is revenue that was already in our calculations. The point, and it's not that complicated, is that people who think the impact on the deficit of extending the Bush tax cuts is "no big deal," while at the same time thinking Social Security faces a major major crisis, are rather silly people. That's all. If you think the shortfall facing Social Security represents a mindblowing amount of money, then you ought to be on the phone with your Congressman screaming that the Bush tax cuts should not be extended, because extending them would cost us that same mindblowing amount of money. If McArdle understood this, she wouldn't be wasting her time trying fruitlessly to prove that you can't fund the Social Security shortfall by letting the Bush tax cuts expire. Reply September 10, 2010 at 12:58 PM Peter Principle said... McCardle:"Comparing a cash flow . . . blah blah . . . particularly if you use--as the CBPP did--a discount rate much higher than the interest that the United States government pays on its debt." But every good supply sider knows that current record low Treasury yields are the the result of a "bubble" in the bond market -- not because we are stuck in a liquidity trap that renders the supply-side catchetism completely irrelevant, if not totally insane. McCardle apparently is having trouble keeping her econ propaganda talking points straight. Reply September 10, 2010 at 01:05 PM PQuincy said...

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I'm really appreciating the education here (IANAE). McArdle says something that, to my slow-following ears, might possibly make some sense. Then first Brad, and since then various helpful commentors, have lucidly and simply explained why Ms. McArdle's statements were word salad. It turns out that the concepts involved, though I have only a layman's grasp on them, are not all that complicated, and if quietly and clearly explained, help me see certain things clearly. And then, to keep the amusement going, Ms. McArdle (who can't give up, even though she keeps on being laughed at) tries again. Her most recent stab (the one making nasty libertarian-sounding statements about all government pensions, which sounds pretty much like taking the obvious and dressing it up as right-wing propaganda: "Don't count on the pension: a meteor from outer space might knock your township out of business!") actually has no argument at all. Actually it's quite re-assuring to hear a 'libertarian' say that government pensions backed by assets are only as good as those guaranteed by the market (because the market, as we all know, is GOD!), but that pensions "secured by the goodwill of politicians" have a different value. (I thought libertarians also fetishized contracts, too, but apparently I've been misled). Reply September 10, 2010 at 01:09 PM aimai said... If McArdle understood this... Look, after Megan has thrice attempted to explain her reasoning, and been slapped back so hard her face is now backwards on her shoulders, you have to grasp that the very phrase "If McCardle understood..." is a null, a void, a veritable black hole of meaning. It doesn't exist in this universe. "If McArdle understood" cannot co-exist with the actual McArdle who is paid specifically to publicly obfuscate the issue. If the two were brought together the universe would explode in something like one of those Star Trekkian matter/anti matter episodes. At the very least Megan would die of shame. And that shows no sign of happening since she appears to lack the basic mechanism involved--morals. Megan can't afford to understand anything that would lead her to advocate the expiration of the Bush tax cuts for the wealthy. She is paid to advocate for policies that advantage the wealthy. That her preferred policies uniformly and invariably disadvantage the poor, the working class, and the middle class is probably just lagniappe. Think of her as a corporatist remora. She knows she'll never be a shark, but the scraps, even those from other remoras, are just too good to pass up. aimai Reply September 10, 2010 at 01:10 PM Phil Burk said... Mark Twain comes to mind... better to be thought a fool than open one's mouth and remove all doubt. Reply September 10, 2010 at 01:13 PM horatius said in reply to Megan McArdle... More word salad? Steve just simplified it for you. Reply September 10, 2010 at 01:22 PM binz said... I thought McGargle had an MBA degree -- but I see now her 'MBA' meant Must Be Apocryphal. http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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Reply September 10, 2010 at 01:22 PM horatius said... Dear Editors of the Atlantic, I promise to prepare better word salads for you than Ms. McMegan and will appear half as silly in comments for just half her salary. Also, I'll drag your magazine's good name through the mud half as many times as she does on a daily basis. Can I have her job? Thanks horatius p.s. send me an email at horatiusonthebridge@yahoo.com p.p.s. hugs and kisses Reply September 10, 2010 at 01:29 PM horatius said... Also, my calculator can handle trillions. kthxbai Reply September 10, 2010 at 01:30 PM Mpwdoyle said... Ruh roh, looks like Megan has unfortunately stumbled into the Department of Redundancy Department: "all else ceteris paribus..." To sound intelligent Megan broke out some Latin that only most undergraduate econ students use so they can appear to be smart. However, Megan actually said, "all else all else being equal." Once again Megan has displayed her uncanny knack for saying seemingly important things only to later find out that she has said nothing at all. Reply September 10, 2010 at 01:34 PM Cackalacka said... Give her credit for not using her 'academic lineage' to buttress her assertions this time. Reply September 10, 2010 at 01:50 PM Edmund said... I <3 this thread. In addition, why shouldn't we count the social security trust fund? Its contents are as real as any other financial asset. Reply September 10, 2010 at 01:54 PM El Cid said... I think we should hear more economic from Sarah Palin as this would help further flesh out these complicated issues. And maybe also Kate Gosselin and The Situation. Reply September 10, 2010 at 01:54 PM L2P said... Megan, Here (http://www.actuary.org/pdf/pension/fundamentals_0704.pdf) is a nice little summary of how pension actuaries actually calculate pension liabilities. Don't worry, it's short on math - you can make it through. Just FYI. (Since you probably won't, here's an interesting quote (note the parts about how far forward actuarial projections are made - much farther than 30 years): The actuary calculates the expected future pension payments for each participant in the plan using the companyâ&#x20AC;&#x2122;s participant data and plan provisions. These future benefit http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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payments consider the individualâ&#x20AC;&#x2122;s compensation and service history, and when that individual might be expected to die, quit, become disabled or retire. Each future payment is discounted from the date of payment to today using the actuarial assumptions. Actuaries call this discounted amount the present value of future benefits PVFB) and it represents the present value of all benefits expected to be paid from the plan to current plan participants. If assumptions are correct (and if it were allowed), the company could theoretically set aside that amount of money in a plan today and it would cover payments from the plan, including those for service not yet rendered. Note this amount considers future service the participant is expected to earn and future pay increases. Reply September 10, 2010 at 02:04 PM Megan McArdle said in reply to aimai... [I think this calls for a technical foul. That's not the argument] Your argument seems to consist of saying that since you have no idea about the relevant economics, the guy who agrees with you must be right. Reply September 10, 2010 at 02:05 PM binz said in reply to horatius... I can do better than that, horatius. Dear Editors of the Atlantic, I promise to provide an absolutely cretinous and duplicitous word salad, an ignorant impenetrable mass of buzzwords at least as nonsensical as Ms. McMegan herself provides, if not better. And I will do it for FREE. Yes you read that correctly. I will provide stupidity and ignorance -- an amount and of a quality equal or better to McMegans' -- for absolutely FREE. Furthermore, I promise I will not make your magazine's good name look any worse, and I am certain I will not appear noticeably more silly or more of a dumbass than your current Business and Economics editor. Remember, I will work for FREE, and that represents a superlative value for your magazine. Why pay for the stupid you have now when you can obtain the same or better for nothing? Thanks binz p.s. Sorry horatius. 'Free market, bitchez!' and all that, ya know. Reply September 10, 2010 at 02:07 PM aimai said... Megan, Well, its not my argument. Just a hobby. But, yeah, ceteris paribus, of course I take the arguments of an actual Professor of Economics, whose intellectual history I happen to know right back to undergrad days, over a well known intellectual fake like yourself. As I believe I said previously on a blog post devoted to Joe Klein I don't despise you because I don't read your stuff. I do read your stuff. That's precisely why I know that you are full of shit. Every. Single. Time. As for the econ stuff since you basically know nothing more than I learned in Ec. 10 lo these many years ago I'm perfectly capable of evaluating the majority of your arguments. I'm just bored trying of playing the game of "spot the incoherent and misleading argument" since that always starts at the first word and continues right through each thread. But really, all this is besides the point.

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Isn't it time for you to remind me that you come from a family of intellectually intimidating academics? As I recall that is next on the list of Megan strategies. aimai Reply September 10, 2010 at 02:21 PM Olly McPherson said in reply to Megan McArdle... Your argument seems to be that an onslaught of verbiage will detract from the fact that you're wrong about the relevant economics, as usual. What a sad thing in life, to be a paid stooge, and a bad one, to boot. Reply September 10, 2010 at 02:31 PM Phoenix Woman said... MC Krugman has taken note of the proceedings herein and has deigned to take a couple whacks at the McArdle pinata! From http://krugman.blogs.nytimes.com/2010/09/10/in-the-long-run-some-of-usare-very-very-confused/ -"The basic position here is that people on the right favor high-end tax cuts that will worsen the deficit, while at the same time demanding both immediate fiscal austerity and cuts to Social Security, in the name of deficit reduction. "They justify their tax cuts/austerity position by arguing that what’s important is holding down current deficit numbers, never mind the 10-year outlook. "Meanwhile, they declare that it’s urgent that we act now to lock in cuts in Social Security benefits that won’t take place for decades. "Why, it’s almost as if they’re grabbing any argument at hand to justify spending cuts for the middle class and tax cuts for the rich, regardless of the inconsistency." Reply September 10, 2010 at 03:01 PM Ryan W. said in reply to aimai... I'll admit that I don't have the economic background sufficient to score points in this battle. I read McArdle regularly, as much for the discussion in her comment thread as anything else, which has a better tendency to get at truth than any article a single person might write. But a few points regarding aimai's particular comment; "her libertarian philosophy is a failure and a fantasy." If you think McArdle is a libertarian you haven't read her very much. She may have asserted libertarian values at one point in time, but her policy recommendations don't seem to correspond. She may be libertarian compared to a press corps that votes 90% Democrat, but that's about as far as such a statement can be salvaged. "wholly paid subsidiaries of a rich man's fantasy of cheap labor/high profit. They'd be paid for by the grateful pennies of the thousands of workers they put back to work, they educated, they enlightened. Megan and the spouse are paid shills for the Koch brothers, pandering to a pretty specific set of corporate interests." You know that she claimed to have voted for Obama? And was pushing for Democrats in the previous election to punish Republicans? "Here's the thing about Megan--she doesn't respond to anything but insults from people she considers her peers or her social superiors. " Whether she's right or wrong, she replies frequently in her comments thread. She's admitted to being incorrect on a number of occasions. If her motives were really as nefarious as you imply, she'd have axed her comments section a long time ago, as the http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

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general propagandists seem to do. I'm not claiming she's inerrantly accurate. Certainly not. What speaks most poorly about Aimai's comment, however, is its accusations of bad faith. Do you really think that McArdle's views on economics have changed that radically since she was writing Asymmetrical Information? Reply September 10, 2010 at 03:03 PM Steve said... Is Brad known for deleting comments, by the way? When I see a statement like Megan's "I am assuming, of course, that you will not delete this comment" it always seems like a sadfaced exercise in martyrdom ("It's possible, of course, that you will not be able to handle the TRUTH represented by this comment") but maybe Brad actually is known for suppressing dissent, or something. Of course, I'm assuming he will not delete this comment. Reply September 10, 2010 at 03:06 PM Phoenix Woman said in reply to Steve... I'm hoping he doesn't -- why try to save her from herself? Much more fun to let her keep digging. After all, she is a Randian, and pitying the weak isn't their thing, you know. Reply September 10, 2010 at 03:28 PM camp said... But it's not trivial guys. She's done so much damage. Megan's blog was the place to go for the entire country to truly discuss reforming medicare, which is the only issue that really matters when it comes to America's long-term finances and the well-being of the middle class. She had everyone's attention, from physicists in minnesota to businessmen in texas. Instead of pulling the discussion toward something creative, and good for the country, - in other words leadership - Megan insisted week by week that the whole effort was 1)not going to pass. 2) stupid. 3) a threat to the nation's medical advancement. Meanwhile, speaking as someone who lends to the biotech industry, the return to biotech is the privatized return on the investment in research funded by NIH. It's us. Through the government. She was like my parents in Florida with their "keep your hands off my medicare" sign, even though dad has been on government provided health care since he was admitted to Anapolis at the age of 18. It's belief in magic, I think. Magic market. But it worked in discrediting the effort at medicare reform, and so here we are again. Full sneer, blowing smoke. I just don't understand why her circle wants to see the country with a political economy that looks like Mexico or Greece. Reply September 10, 2010 at 03:30 PM james c said... It certainly is a strange article. It reads as if she is making it up as she goes along.But she is far from the worst Literature graduate writing junk economics. That accolade must go to Amity Shlaes. Reply September 10, 2010 at 03:44 PM UncertaintyVicePrincipal said in reply to Phoenix Woman... Well, you better hope that Megan McCardle is a Libertarian, since almost all of her arguments are right wing Conservative viewpoints disguised as something else- which is the definition of Libertarian, for those of us who are neither Libertarian or right wing Conservatives. I figured that that was the only saving grace whatsoever, that she really believed this

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Libertarian pose, which explains why she's baffled that this right wing snake oil gets such a harsh and dismissive reception in non-right wing blogs and forums such as this. She really believes, I assumed, that she's not just repeating the same conservative talking points ("Democrats are hypocrites for thinking that the struggling poor need tax breaks but the insanely rich don't!") but espousing something slightly different. Put another way: If she's justifying the positions of the super-rich by accident and really didn't mean to, they she's even more inept and clueless than most of us thought. I'd go with the Libertarian thing, if I were you. Reply September 10, 2010 at 03:44 PM UncertaintyVicePrincipal said in reply to Ryan W.... Sorry, my post above was a post to this one by Ryan W., not Phoenix Woman. Clicked the wrong thing. Reply September 10, 2010 at 03:47 PM Susan said... You mean that a correspondent with a major magazine has no idea what she's talking about? Noooo... Sadly, this is to be expected since the field of economics & finance is so complex that few understand it and most are easily bamboozled with printed nonsense. Reply September 10, 2010 at 04:23 PM Downpuppy said in reply to Ryan W.... McArdle didn't claim to have voted for Obama. She said she would have, except she forgot to register. The incompetence is central to Meganism. Reply September 10, 2010 at 04:26 PM degret said... Jeez, I hate to admit to being so juvenile, but I'm getting this little crush on aimai. Stop! I'm spoken for! McArgle-Bargle: I chuckle to myself just thinking it. I still like aimai's priceless comment of yesterpost, the one where she mentioned her own Noble pedigree as a non-argument. For my money that one stands out like as if a moonbeam struck a dime in the dirt. A beaut! Oh aimai... vixen! When McArgle is disagreed with, she becomes emBargled, and her reflex is simply to dig deeper and never give an inch. I think Zosima, another world-class Commenter, said it well when she merely asked Megan why she reflexively exacerbates flame wars rather than de-escalating them. Maybe Megan is getting the picture - this time around she seems a bit more subdued... Reply September 10, 2010 at 04:27 PM degret said in reply to degret... ugh, Nobel, as in No-bell, you goof. Reply September 10, 2010 at 04:30 PM Syz said in reply to Ryan W.... >> She's admitted to being incorrect on a number of occasions. Rarely. Reluctantly. And only after insulting everyone who disagrees with her repeatedly. Even then her 'apology' entails shifting the blame to her accusers, her sources or her calculator. I don't know why it is "nefarious" to believe that McMegan is beholden to those who

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pay her bills. One of her favorite lines is "incentives matter." Would you believe that a politician who receives their funding largely from one industry is biased towards them? Why would your standard be different for a journalist? Reply September 10, 2010 at 04:32 PM vhh said... It is hard for me to believe that the Atlantic is actually paying Ms McArdle to make such a long winded fool of herself and them that Paul Krugman can both explain and demolish her argument in 115 words. (see the link noted above, for convenience here it is again) http://krugman.blogs.nytimes.com/2010/09/10/in-the-long-run-some-of-us-arevery-very-confused/ I therefore conclude that the Atlantic is either not paying her or is being reimbursed by the Manhattan Institute, Heritage Foundation, or Regnery. BTW, in the technology area, I find Jim Manzi (an MIT grad like me) to go in for similar long winded, labored and fundamentally wrong puffery. One of his gems was to assert that developing a device or system that does the same thing as an existing system but is smaller, cheaper, or less energy efficient is not in fact an innovation. Thus the laptop is not an innovation over the typewriter, the mobile phone is not an innovation compared to the hand cranked phone or early shortwave radio, a Toyota Prius is no different than a Stanley Steamer, and so on. There is a common cause for these behaviors, and it's the same disease that got us into two endless wars in Ithe Mideast, etc. Ideology that reaches conclusions without or in spite of evidence. It used to be a specialty of left wing politics (see the USSR and numerous crazy US left wing groupings) with the occasional outbreak among conservatives (see McCarthy era). But it has now seized most of the US right wing, it's like a plague.. Megan, Goldberg and even Ann Coulter are the mild eggheads of the lot. The new Ernst Roehm this week looks to be Newt Gingrich with his War on Islam. Reply September 10, 2010 at 04:41 PM Silver said... That can't actually be the Megan, it has to be people pretending to be her. No one can be that fucking stupid. I call shenanigans. Reply September 10, 2010 at 05:18 PM Show more comments... Comments on this post are closed.

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I Want the Facts: Ray Griggs' I Want Your Money reviewed

economics DeLong

Me:

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