On Other Blogs, Other Wonders

… or at least some interesting posts.

1. What Kind of Science Would Economics Be If It Really Were a Science?

Peter Dorman is one of those people who I agree with on the big questions but find myself strenuously disagreeing with on many particulars. So it’s nice to wholeheartedly approve this piece on economics and the physical sciences.

The post is based on this 2008 paper that argues that there is no reason that economics cannot be scientific in the same rigorous sense as geology, biology, etc., but only if economists learn to (1) emphasize mechanisms rather than equilibrium and (2) strictly avoid Type I error, even at the cost of Type II error. Type I error is accepting a false claim, Type II is failing to accept a true one. Which is not the same as rejecting it — one can simply be uncertain. Science’s progressive character comes from its rigorous refusal to accept any proposition until every possible effort to disprove it has failed. Of course this means that on many questions, science can take no position at all (an important distinction from policy and other forms of practical activity, where we often have to act one way or another without any very definite knowledge). It sounds funny to say that ignorance is the heart of the practice of science, but I think it’s right. Unfortunately, says Dorman, rather than seeing science as the systematic effort to limit our knowledge claims to things we can know with (near-)certainty, “economists have been seduced by a different vision … that the foundation of science rests on … deduction from top-level theory.”

The mechanisms vs. equilibria point is, if anything, even more important, since it has positive content for how we do economics. Rather than focusing our energy on elucidating theoretical equilibria, we should be thinking about concrete processes of change over time. For example:

Consider the standard supply-and-demand diagram. The professor draws this on the chalkboard, identifies the equilibrium point, and asks for questions. One student asks, are there really supply and demand curves? … Yes, in principle these curves exist, but they are not directly observed in nature. …

there is another way the answer might proceed. … we can use them to identify two other things that are real, excess supply and excess demand. We can measure them directly in the form of unsold goods or consumers who are frustrated in their attempts to make a purchase. And not only can we measure these things, we can observe the actions that buyers and sellers take under conditions of surplus or shortage.

One of the best brief discussions of economics methodology I’ve read.

2. Beware the Predatory Pro Se Borrower!

In general, I assume that anyone here interested in Yves Smith is already reading her, so there’s no point in a post pointing to a post there. But this one really must be read.

It’s a presentation from a law firm representing mortgage servicers, with the Dickensian name LockeLordBissell, meant for servicers conducting foreclosures that meet with legal challenges. That someone would even choose to go to court to avoid being thrown out of their house needs special explanation; it must be a result of “negative press surrounding mortgage lenders” and outside agitators on the Internet. People even think they can assert their rights without a lawyer; they “do not want to pay for representation,” it being inconceivable that someone facing foreclosure might, say, have lost their job and not be able to afford a lawyer. “Predatory borrowers” are “unrealistic and unreasonable borrowers who are trying to capitalize on the current industry turmoil and are willing to employ any tactic to obtain a free home,” including demands to see the note, claims of lack of standing by the servicer, and “other Internet-based machinations.” What’s the world coming to when any random loser has access to the courts? And imagine, someone willing to employ tactics like asking for proof that the company trying to take their home has a legal right to it! What’s more, these stupid peasants “are emotionally tied to their cases [not to mention their houses]; the more a case progresses, the less reasonable the plaintiff becomes.” Worst of all, “pro se cases are expensive to defend because the plaintiff’s lack of familiarity with the legal process often creates more work for the defendant.”

If you want an illustration of how our masters think of us, you couldn’t ask for a clearer example. Our stubborn idea that we have rights or interests of our own is just an annoying interference with their prerogatives.

Everyone knows about bucket lists. At the bar last weekend, someone suggested we should keep bat lists — the people whose heads you’d take a Louisville slugger to, if you knew you just had a few months to live. This being the Left Forum, my friend had “that class traitor Andy Stern” at the top of his list. But I’m putting the partners at LockeLordBissell high up on mine.

3. Palin and Playing by the Rules

Jonathan Bernstein, on why Sarah Palin isn’t going to be the Republican nominee:

For all one hears about efforts to market candidates to mass electorates (that’s what things like the “authenticity” debate are all about), the bulk of nomination politics is retail, not wholesale — and the customers candidates are trying to reach are a relatively small group of party elites…. That’s what Mitt Romney and Tim Pawlenty have been doing for the last two-plus years… It’s what, by every report I’ve seen since November 2008, Sarah Palin has just not done.

Are you telling me that [Republican Jewish Committee] board members are going to be so peeved that Sarah Palin booked her Israel trip with some other organization that they’re [going to] turn it into a presidential nomination preference, regardless of how Palin or any other candidate actually stands on issues of public policy?

Yup. And even more: I’ll tell you that it’s not petty. They’re correct to do so. … if you’re a party leader, what can you do? Sure, you can collect position papers, but you know how meaningless those are going to be…. Much better, even if still risky, is assessing the personal commitment the candidates have to your group. What’s the rapport like? Who has the candidate hired on her staff that has a history of working with you? Will her White House take your calls? …

It’s how presidential nominees are really chosen. … Candidates do have to demonstrate at least some ability to appeal to mass electorates, but first and foremost they need to win the support of the most active portions of the party.

It’s not a brilliant or especially original point, but it’s a very important one. My first-hand experience of electoral politics is limited to state and local races, but I’ve worked on quite a few of those, and Bernstein’s descriptions fits them exactly. I don’t see any reason to think national races are different.

It’s part of the narcissism of intellectuals to imagine politics as a kind of debating society, with the public granting authority to whoever makes the best arguments — what intellectuals specialize in. And it’s natural that people whose only engagement with politics comes through the mass media to suppose that what happens in the media is very important, or even all there is. But Bernstein is right: That stuff is secondary, and the public comes in as object, not subject.

Not always, of course — there are moments when the people does become an active political subject, and those are the most important political moments there are. But they’re very rare. That’s why someone like Luciano Canfora makes a sharp distinction between the institutions and electoral procedures conventionally referred to as democracy, on the one hand, and genuine democracy, on the other — those relatively brief moments of “ascendancy of the demos,” which “may assert itself within the most diverse political-constitutional forms.” For Canfora, democracy can’t be institutionalized through elections; it’s inherently “an unstable phenomenon: the temporary ascendancy of the poorer classes in the course of an endless struggle for equality—a concept which itself widens with time to include ever newer, and ever more strongly challenged, ‘rights’“. (Interestingly, a liberal like Brad DeLong would presumably agree that elections have nothing to do with democracy, but are a mechanism for the circulation of elites.)

I don’t know how far Bernstein would go with Canfora, but he’s taken the essential first step; it would be a good thing for discussions of electoral politics if more people followed him.

EDIT: Just to be clear, Bernstein’s point is a bit more specific than the broad only-elites-matter argument. What candidates are selling to elites isn’t so much a basket of policy positions or desirable personal qualities, but relationships based on trust. It’s interesting, I think it’s true; it doesn’t contradict my gloss, but it does go beyond it.

Just and Christian Arguments

In today’s Times, Bank of America explains why there can’t be any principal reductions for homeowners who aren’t already in default:

Bank of America executives said on Tuesday that the idea was unworkable and warned that it would be unfair to borrowers who had managed to stay current on their loans. “There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

Of course. Bank of America isn’t interested in maximizing the payments it receives from homeowners, it’s just trying to be fair.

Even the most outspoken attorney general on the issue, Tom Miller of Iowa, acknowledged on Monday that too generous a program might encourage homeowners to walk away from properties where the value of the loan exceeded how much the underlying property was worth.

God forbid that homeowners be encouraged to act in their own financial self-interest!

“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?” “This is an unsolvable question,” he said. … The comments by Mr. Moynihan and Mr. Laughlin came at a daylong meeting with investors and analysts in New York, the first of its kind for Bank of America since 2007. … Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”

One’s heart goes out to those Bank of America executives, tossing and turning all night as they wrestle with the unsolvable question of how to help borrowers without imperiling the recovery or creating “moral hazard”. The profound ethical dilemmas our betters must struggle with, as they try to do what’s best for everyone. Laughlin, Moynihan and their fellow Bank of America executives must hardly have time to think about the “$35 to $40 billion a year” of profits they’re expecting in coming years. Including — much to their dismay, no doubt — the payments from those homeowners whose principal they would love to write down, if only it weren’t for their strict regard for fairness and the good of the economy.

Where have I read about such scrupulously ethical creditors before? Oh, right, here:

Don Ramon … made no secret of the business he conducted. … The Mexican citizen, he explained, was free. Slavery was strictly forbidden and severely punished. No Mexican citizen, whether of Spanish, mestizo, or Indian descent, could be kept or sold as a slave.

But debt was not slavery. A man, any man, was as free to contract debt as not to contract it… Nobody compelled the Indian to get into debt, to drink, to set off fireworks in honor of the saints, or to buy his wife necklaces of glass beds and glittering earrings. There was no reason to call Mexico uncivilized because the dictatorship recognized debt and supported the creditor in exacting payments. He who has contracted a debt must pay it…

“And over and above all that, and however you look at it,” don Ramon went on, putting forward the just and Christian argument for his trade, “the monterias and coffee plantations must have labor if the prosperity of the country is to be maintained… It’s all aboveboard. There’s no compulsion. But all the same it is made clear that debts must be paid. Business depends on convincing the people that their debts must be paid.”

Abject Patience

Aldous Huxley says, “The abject patience of the oppressed is perhaps the most inexplicable, as it is also the most important, fact in all history.”

I thought of that today when I came across this story, which really must be read to be believed. And if you read the fantastic work that Mike Konczal and a few other left bloggers are doing on the foreclosure crisis, it’s clear that what happened here is shocking and horrifying but not especially unusual. All over the country, people’s homes are quite simply being stolen from them by banks and other creatures from the financial sector.

But the most disturbing part isn’t the mortgage servicers evicting people from their homes with no clear title or other legal basis. It is the homeowners themselves. The “good” ones most of all.

Tina Kimmel was told by Citi, her lender, that she qualified for a trial loan modification under HAMP. Then after seven months of paying the lower amount as instructed, she was told without explanation she did not qualify and would be considered in default if she didn’t make all the back payments with interest and penalties. She paid them. Then Citi said they wouldn’t accept her money, she was being foreclosed. She kept paying. Without informing her they sold her mortgage to Carrington Mortgage Services, which told her that all they knew was she was in foreclosure and it was up to her, not Citi, to give them documentation on anything else regarding her loan. She gave it. And that while they were deciding whether to evict her, she’d have to keep paying. She paid. Next thing she heard was a sheriff’s notice on her door, announcing the house would be auctioned in three weeks. At the last minute, she paid the $13,000 — borrowed from family and friends — that Carrington was demanding for her nonexistent missed payments, and was allowed to keep her house.

She did everything the banks told her to. She’s proud of that. Shouldn’t she be ashamed?

I don’t know that much about mortgages or mortgage fraud. But one thing I do know is that the Citis and the Carringtons will keep stealing houses as long as the victims think it’s their duty to do whatever it takes to satisfy them, and to peacefully move out if they fail.

One can’t help wondering how many houses would have to end up mysteriously burned a few days after an eviction, to make the banks find loan modifications suddenly quite attractive. But instead we get Tina Kimmel, stakhanovite bill-payer.