Tacit Powers and Missing the Point

The supreme court succession now seems to be signed and sealed, but I've got a couple of questions that are unresolved. First, why did Jusitice Souter resign? The standard answer seems to be that he hated D.C., he wanted to go back to New Hampshire (click your heels three times), and the desire to be replaced by someone with a liberal slant (mission accomplished), which was likely while Obama is in office. This leads me to the second question: is there any precedent for strategic resignations in the supreme court? As far as I can tell, Art. 3 of the American constitution does not include influencing the future composition or decisions of the court as one of its powers. On the contrary, it seems to expect justices to serve until they are no longer able or invalidate themselves with bad behaviour. That they would manage their tenure strategically seems to be a blindspot.

Strategic resignation is not a new phenomenon in general. There are plenty of examples of national leaders resigning with the ground laid for particular heirs, as in Uzbekistan, Egypt, or N. Korea. This happens all the time, and it was probably even more common when royal dynasties were still going concerns, but those decisions tend to be (at least de facto) extra-constitutional. Is this a regular occurrence for the US supreme court, and does it have any legal/constitutional backing?

The second burr in my saddle is the resolution of Ulla Schmidt's vacation plans. The German health minister got in trouble recently for flying to Spain, having her chauffeur drive her official, armoured Mercedes to meet her in Spain, and then looking foolish when the car got stolen. She has been cleared of wrongdoing, because it is legal for ministers to use their official cars for private purposes, as long as they pay tax on the private use. Her party's leader has now reinstated her place in the "competence team" (read, shadow cabinet) for the barely noticeable election campaign.

I'm still outraged and want blood! Don't get me wrong, I think it's reasonable for ministers to use their cars for private purposes. If I had one provided, I wouldn't be able to justify having a private car too, and I would just use the one. I also think that the rules are fine: the minister is responsible for compensating the taxpayer for private use. Fair enough. The source of my outrage is the environmental impact of flying and having a car and driver meet you there. According to this calculator, I reckon her flying to Spain (assuming she flew alone and on a normal commercial carrier) generated 400 kg of CO2 emissions. Fine. It's too far to bike, and I probably would have flown myself.

Her car, though, is an armoured S-class Mercedes. According to this site, a late model S-class will get 12.7 L/100km (18.5 mpg). This, however, doesn't account for the extra weight of the armour, which is about 20%, so let's call it an even 15 l/100km, which is probably generous. Let's say the drive was 5200 km, which is the distance from Berlin to Alicante (return); that gives us a return trip gas consumption of 862 litres (not including the weight of the chauffeur, his kid, and the luggage). Just driving there and back cost 1996 kg of CO2. So, even though Ms. Schmidt's choice to use her car was legal, it unnecessarily released 2 tons of carbon dioxide. And Germany is supposed to be able to brow beat emerging countries and the Yanks into cutting their emissions at Copenhagen later this year? With what credibility? What ever happened to leading by example?

She may not have acted illegally, but she immorally polluted the environment, which belongs to all of us. I'm f*ck!ng fuming, but not as much as Ms. Schmidt's car, which I helped pay for in the first place.

Stand by Your Macro

The financial crisis has certainly unleashed fits of apoplectic wrath and disappointment. The bankers seem to get most of the wrath for botching the system, and the economists seem to reap most of the disappointment for 1) promoting a system that made a crash inevitable, 2) failing to see the crash coming, 3) failing to prevent the crash, 4) failing to interrupt the crash, or 5) all of the above. A recent piece in the Economist does a fairly good job at sifting through the diversity of opinion among economists, but it makes the same mistake as everybody else has so far in analyzing the crash and economists' role in it. Specifically, it overestimates the state of social science.

An old international law prof. of mine once told me, "A good lawyer doesn't tell you what you can and can't do. A good lawyer tells you how to do what you want to do legally." This phrase picks out two of three good reasons why economics couldn't have foreseen nor prevented the crash: a lack of empirical knowledge and a lack of theoretical knowledge, to which I would also add the inability to determine social goals autonomously.

By empirical knowledge, I mean brute facts about the world, like how many cars were sold, how much money is in circulation, how many people are working where and for how much money, etc. Although statistics (as a branch of math) helps a lot to count accurately, there are many things the economists can hardly know in principle. If a German economist wants to know how much money German consumers have in readily accessible accounts, they can ask the banks to provide them aggregate figures. They won't, however, be able to see the nest egg I have squirrelled away in the Motherland, and which I can draw upon if my finances here get tight. A trifling example to be sure, but aggregate these blindspots in an economy the size of Germany's, and you could well have an economy the size of Ecuador's hiding under the mattress. More significantly, the fancy financial vehicles that have made the headlines recently all have the purpose of yielding better rates of interest than what boring mortgages or operating lines of credit can offer. If you have some solid debts, slice them up, mix them with some riskier stuff, sell the package at a higher rate than either alone would have brought or borrow against their putative value. Either way, this gives private financial institutions the means to create a multiplier effect on the amount of cash floating around. If you think money is printed by the central bank, you're right in the sense that the Bow River is filling the oceans. Economists in one country can hardly tell how much money their own compatriots have, let alone how much is being pumped out of a globalized financial system. An educated guess is better than nothing, but counting units of value that can be created out of thin air (well, out of bytes, Mbits, and contracts - close enough) is not an exact science.

The second problem is that, even if economists knew all about what is out there, they don't know how it all fits together, which is what I mean by theoretical knowledge. The subcordial debates among economists are evidence of this as are divergent prognoses. In general, economists would do well to remember Darwin's quip that "Ignorance more frequently begets confidence than does knowledge" or Bertrand Russell's that "The fundamental cause of trouble in the world today is that the stupid are cocksure while the intelligent are full of doubt." They should be honest about what they can and can't reasonably say, what they do and don't know. Instead, they are often concerned with producing as many forecasts as possible to make the news, get politicians' ears, and divert funding in their own direction. This is a perfectly human strategy, and they've brought much of the opprobrium on themselves through hubris, but they couldn't make these claims credibly if they wanted to. Also a part of theoretical knowledge, I would say a big part, is to know what makes people tick. The received wisdom is that, if you just assume people will act rationally, that assumption will approximate aggregate behaviour "well enough" and "most of the time". The alternative is Keynes' (pretty empty) concept of "animal spirits". Both of these sound to me like fudge factor assumptions about human nature and how people make decisions. My bet is that behavioural economics and neuro-cognitive science will be able to give us a better idea of how people actually make decisions, and then it will be for economists to rebuild their models with facts instead of hunches or fudges. I'm just putting that out there for now, but it might deserve a long post of its own one of these days.

Empirical knowledge is about what's out there, and theoretical knowledge is about how it all fits together, but shortages of both aren't the source of the disappointment with economics. I think the biggest problem is that economists can't determine our social goals on their own, but we tend to blame them for it anyway. Before the proverbial lawyer can tell you how to do what you want, you have to know what you want. Most people seem not to want stagflation, but they get confused about what they want when the choice is between high employment and high inflation (good for income, bad for wealth) or low employment and low inflation (bad for income, good for wealth). There's no good economic way out of that decision, though, and most people seem to expect economists to be able to tell us what would make us all happier, collectively and as individuals, and then to make it happen, dammit! You can't tell the economist that he should figure out a way for you to have your cake and eat it too, because he can't, and most of the time, they don't even have that (pitiful) degree of guidance.

I guess that this raises a bigger question of what the social sciences can do for society, and what society can reasonably expect from social scientists. We can't fix Darfur (certainly not on the cheap), we can't sprinke pixie dust on the economy, and we can't necessarily help you with your addiction to Cool Ranch Doritos. Does that imply malpractice or irrelevance? As for malpractice, it doesn't as long as we act in good faith, as long as we don't sell snake oil and profit off others' gullibility. Irrelevance? Well, if it were irrelevant, you wouldn't be wringing your hands over Darfur or job losses in the first place, now would you?