Multiplier Effect - some results

My previous post, "Multiplier Effect," outlined the economic impact of various possible stimulus packages. On the top of the list -- those stimuli that provide the greatest productivity improvement per dollar spent -- were capital infrastructure improvements.

President-elect Obama's new plans include:

Save one million jobs through immediate investments to rebuild America's roads and bridges and repair our schools: The Obama-Biden emergency plan would make $25 billion immediately available in a Jobs and Growth Fund to help ensure that in-progress and fast-tracked infrastructure projects are not sidelined, and to ensure that schools can meet their energy costs and undertake key repairs starting this fall.

and...

Create a National Infrastructure Reinvestment Bank: Barack Obama and Joe Biden will address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments.

It sounds promising, but of course the devil is in the details. As this Washington Post article points out, many of the actual projects will be more maintenance-type activities, rather than huge monorail systems. But if the goal is to improve the job situation at the same time as improving national infrastructure, these types of projects will certainly help. The big risk, when spending large amounts of money quickly, is of fraud, theft and corruption. In that case, the money will still have a stimulative effect -- even the thief spends his swag -- but the national will not get the full benefit.

"A goodbye kiss from the Iraqi People"

From the BBC, Shoes thrown at Bush on Iraq trip (click link for video):

A surprise visit by US President George Bush to Iraq has been overshadowed by an incident in which two shoes were thrown at him during a news conference.
...
In the middle of the news conference with Mr Maliki, a reporter stood up and shouted "this is a goodbye kiss from the Iraqi people, dog," before hurtling his shoes at Mr Bush, narrowly missing him.

Around the world, American leaders are now welcomed with open arms and bare feet! Who knew that in Iraq, it was a sign of endearment to play doggy-fetch with your slippers?

Multiplier Effect

Because of the developing economic crisis, I've been reading more economics blogs. My favorites are Econbrowser, hosted by Profs. Hamilton and Chinn; Macro-Man an anonymous but extremely incisive and hilarious day-trader^*; and Follow the Money by Brad Setser. Any other reader favorites?

One excellent post by Prof. Chinn has direct relevance to governmental policy initiatives to deal with the economic problems. Her post is based on work by Mark Zandi of Economy.com. The question is: given that the economy needs to be stimulated, what method of stimulation yields the largest economic benefit. The benefit here is expressed as the stimulus multiplier, which is the amount of increase in GDP per unit of stimulus. For example, if we simply gave every person in the country $1, each could go out and buy a McDonald's value menu item. But the benefit doesn't stop there because with the increased consumption, McDonald's has to hire more workers, who in turn consume more; purchase more supplies from its suppliers, who in turn hire more workers, etc. So in principle, a $1 stimulus package can have more than $1 benefit to overall production.

So which economic stimuli had the greatest benefit? The top three were:

• Temporarily Increase Food-stamps (multiplier 1.73)
• Extend Unemployment Insurance Benefits (multiplier 1.64)
• Increase Infrastructure Spending (multiplier 1.59)

The first two items have the obvious benefits of keeping people on their feet, but also provide an extra 64-73% advantage beyond the direct stimulus. Of course these benefits can only be temporary. On the other hand, the third item has the advantage of improving neglected infrastructure -- a long term "capital gain" -- while at the same time providing an extra 60% bang for our buck.

Now for the worst stimulus concepts:

• Make Bush Tax Cuts Permanent (multiplier 0.29)
• Cut Corporate Tax Rate (multiplier 0.30)
• Make Dividend Tax Cuts Permanent (multiplier 0.37)

Since these multipliers are less than unity, it means that for every dollar of tax break, the country's production actually goes down. Of course some small segment of the population may benefit from such tax cuts, but in hard economic times, it's not clear why they would deserve a benefit when the broad population and the overall economy do not. To be fair, a few of the tax cut concepts do a little bit better, most most are break-even at best.

Note that these tax cuts that are discussed most readily as the solution to the economic problems have some of the worst possible effects on the economy. In fact, a tax cut actually hinders production, compared to other stimuli. Dr. Chinn discusses some reasons this may be true.

What fascinates me is the question of whether the multipliers work in reverse. If reducing corporate taxes by $1.00 hobbles the economy by $0.70, then would raising taxes by $1.00 improve the economy by $0.30? As heretical as that sounds, it seems that while raising taxes will withdraw $1.00 from corporate coffers and hence from the economy, it enables the government to spend $1.00 on more needful and worthy areas (say, on stimuli that have a large multiplier!).

The situation is somewhat more complicated because each of the stimulus concepts have different time scales, so it would require a more delicate touch than brute force. But it would be nice if, in the political dialog about what to do next, actual economic data would be used rather than mindless rhetoric with zero substantiation.

Under the Gunn

Last week I went to a presentation by Tim Gunn, well known as one of the hosts of Project Runway. I went with my friend Maggie and her friend April. It was held at the University of Maryland at the student union. Ostensibly, the purpose of the presentation was to help students transition their style from school to the workplace.

(my best photo, because they requested no-flash)

In reality, he spoke for a few minutes on that topic (his primary wisdom was, "be responsible for your look.") I was hoping for a bit of a slide show -- at least some kind of "do's" and "don't's" -- but he disabused us of that possibility early on, because he thought a slide show would be interpreted too literally by his viewers. To me that sounds like a bit of a cop-out.

One interesting thing I did learn is that Mr. Gunn has no formal training in fashion design, which is impressive because he has quite a good eye when advising his students.

Mr. Gunn is also extremely gracious, in person just as much as on his television shows. He's just an endearing guy. I have no doubt that, if there had been time, he would have loved to meet everybody in person and learn about their life story. Unfortunately the size of the crowd was huge, and the ballroom was packed to the gills! This turned out to be a problem at the end of the presentation, when Gunn wrapped up and moved for the door. The crowd literally mobbed him! Here's the scene:

(yes, that's him on the left, I only got the back half of his head...)

Eventually he waded through the crowd, and escaped through a service door. Whew! Hopefully he'll carry on his interesting career!

Pardon Me, I'd Like to Cash in My Constitution

Recently the ACLU has been making a big deal about the US Government's declaration of a "constitution-free zone" around the perimeter of the country. The government has assumed that within 100 miles of the "external border" of the United States, border patrol personnel may detain and search any person or vehicle, including U.S. citizens, for the purposes of border enforcement activities. Get that? Even though you might never have crossed the border, you may be stopped and subject to being searched if you are within that zone, without a warrant. The ACLU site opines that this assumption places up to 2/3rds of the population within the so-called constitution free zone. My part of the country looks like this.


Yes, I live in the zone, and could be subject to searches. In fact, I am subject to such a zone every time enter or leave the security of my place of work. But these "border searches" are taking place far from any real border, on public roads, and are practiced on the general public.

I appreciate that the ACLU is resisting these types of actions, but I wanted to understand from where exactly this authority derives. After a little research, I found some answers. The authority comes in two parts, one from the law, and another from administrative regulation. The law is 8 USC 1357, whose crucial part reads,

1357 (a) Powers without warrant
Any [authorized] officer ... shall have power without warrant—...
(3) within a reasonable distance from any external boundary of the United States, to board and search for aliens any vessel within the territorial waters of the United States and any railway car, aircraft, conveyance, or vehicle

So there you have it, within a "reasonable distance," border agents may search any vehicle without a warrant. But what distance is reasonable? Well, that's where we need to turn to the administrative regulation, as encoded in the Code of Federal Regulations (8 CFR 287.1 specifically), which specifies,

287.1 Definitions.
(2) Reasonable distance. The term reasonable distance, as used in section 287(a) (3) of the Act, means within 100 air miles from any external boundary of the United States or any shorter distance ...

These regulations are written by the executive agencies, as a way of codifying and interpreting how the law will actually be implemented. In this case, 100 miles is seen as "reasonable" by definition, rather than by any other claimed rationale.

But is this anything new? No, in fact. The definition of a 100-mile wide border has existed for at least several decades, and does not begin with the current administration. I found that the 100-mile limit was specified in the CFR as early as 1953 (Fernandez v. United States; 321 F.2d 283). The appeals court in that case found that a search 70 miles from the Mexican border was reasonable -- given the specific geographical and immigration situation. As of the date of that case in 1963, the "border" checkpoint 70 miles from Mexico had been in operation for 31 years, so this practice has existed for at least 75 years!

However, it is clear that the practice of unwarranted border searches is expanding, and it's a troubling sign. The truly scary part is that the search for illegal immigrants is being used as a pretext for other searches, such as for contraband. For law enforcement, it's a no-brainer. Why send "regular" police to do inspections if they need complicated stuff like warrants, when it's easier to send "border protection agents," who don't really need anything to start tearing through your personal belongings. As various agencies, including the border patrol, immigration and customs have been consolidated into the Department of Homeland Security, it is even easier to designate an everyday enforcement activity to be a warrantless border patrol activity. As more "border crossing" inspection sites are instituted, the more more we become a police society.



As a postscript, there are some daring people challenging new inspection sites. Consider Mr. checkpointusa.org, who has been documenting the increase of the interior "border" checkpoints in the southwestern U.S. for the past few years. You can see some of his encounters here and href. He routinely approaches the checkpoints and takes control of the situation. Dude has balls of granite.

The Tomatoes Made It This Season

This year the tomatoes worked out! My mom and dad came in May and helped pick out and plant them. (OK, let's be honest, my dad did all the planting.) There are two indeterminates planted against the front of my house (both Early Girl), and one determinate of unknown type planted a bit further out.


So far I've gotten about 30 tomatoes, and there are still a few on the vine at various stages of maturity. Almost all of them have turned out well. The determinate plant produced the largest crop, although I have to admit that the Early Girls were tastier and more tender.


The Early Girls are now close to 11 feet tall, definitely taller than I can reach! The cages are pieces of concrete reinforcement mesh from the local home center.

This year is much better than two years ago, when some kind of blight destroyed my entire tomato patch. I think I got a hand-ful of cherry tomatoes out of that effort. This year I even gave a few away!

I'm Not a Physicist, but I Play One on TV

If you watch television, you might have seen two separate advertisements -- one for high-end LCD televisions and the other for solar panels -- but both are from the same company, Sharp Electronics Corp USA. This summer they began a major advertising campaign for both products, as unrelated as they might seem, as life changing products. Both feature a curious white-haired academician expounding the virtues of Sharp's wares.

The LCD television commercial starts like this, (video)

Seems like you need to be a physics professor to choose the right TV. Luckily, I am one. ...

while the solar panel pitch begins, (video)

I'm an astrophysicist, a star gazer, but here's something cosmic I discovered on earth, ...

Both commercials are narrated by a flaxen-haired, well-dressed man, identified by the caption "Professor Gerard Fasel, Astrophysicist." Who is this man? Is he really an astrophysicist? Read on, you may soon know him better as "Albino Security Guard."


Dr. Fasel is indeed listed on the faculty at Pepperdine University as a "Visiting Professor." His college biography lists courses taught in physics, mathematics and astronomy. He also appears to have teaching ratings at ratemyprofessors.com for the years 2003-2008, so we can assume he has been teaching at least part-time for most of that period of time.

However, according to Dr. Fasel's list of publications in the subjects of physics and astrophysics, his last publication of any sort was in 1995, or 13 years ago. The article, "Dayside poleward moving auroral forms: A statistical study," was published in the respected Journal of Geophysical Research. During his academic hayday of 1992-1995, he published a total of four refereed publications, either as primary author or co-author. All of these publications regard the study of terrestrial aurora, which is in essence a study of the interaction between the solar wind, earth's magnetosphere, and upper atmosphere. By the way, the phenomenon of terrestrial aurora, while very interesting, has virtually nothing to do with what I would call astrophysics, nor with solar-electric power.

But Fasel is much more than an academic! Dr. Fasel's acting career, as listed by IMDB has shown much more activity. In the past six years he has had four significant acting parts, both in television and movies. His next role will be in the movie The Truth About Angels, due out in 2009, where he plays the coveted albino security guard role. I'm sure Rutger Hauer is howling mad that some physicist beat him to the punch!


Sharp Electronics is proud of its spokesperson. In a press release on July 14th, 2008, announcing their campaign, they wrote,

... The commercial will feature Professor Gerard Fasel, a visiting professor of math and physics at Pepperdine University. With a PhD in Physics and a sophisticated and engaging persona, Professor Fasel lends a scholarly credibility to the new solar and LCD commercials.

The important words here are "lends a scholarly credibility." Based on his scientific publishing record, my opinion is that Dr. Fasel is no longer an active researcher in science, and indeed has spent more time acting in the past decade than publishing research papers. I think it's pretty clear that he is not an astrophysicist, since none of his articles discussed astrophysics. For that matter, he has not published work related to solar physics, televisions or solar panel technology either. I don't doubt that Sharp took the time to give Dr. Fasel a tour of the manufacturing plant and its technology development labs, and Fasel probably has a reasonable understanding and appreciation of the physics that goes into the technologies that he is advertising. But judging by his research and teaching history, I doubt that he has any better skill choosing a television or a solar panel than your average Joe Sixpack.

In my opinion, he is simply an actor -- a spokesmodel -- hired by an advertising firm and used to make the company's technology seem more credible. They hired him for his interesting looks, his personality, and yes, the three letters "Ph.D." at the end of his name. Couldn't they just have easily hired him to do a commercial for medicine? Hmm, I think I could write the script...

EXPERT: Seems like you need to have a Ph.D. to understand cold remedies these days. Luckily I have one. ...

Oh Dr. Fasel, will you star in my commercial?

(Photo credits: lifechangingbox.com; Sharp Corporation, 2008)