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February 10th, 2019 by

Re: The Macroeconomic Effects of Eliminating Automatic Reductions to Discretionary Spending Caps

September 23rd, 2015 by

This is a copy of a letter the CBO sent to the Senate explaining why lifting the Republican’s (insane) sequestration would boost the economy and help lower the deficit and debt of the country. In other words, they agree with the vast majority of economists, that the simple minded attempts to lower the deficit and debt have increased it, or at least, will increase it in the longer term. 


Keith Hall, Director U.S. Congress Washington, DC 20515 August 11, 2015 Honorable Bernard Sanders Ranking Member Committee on the Budget United States Senate Washington, DC 20510 Re:

The Macroeconomic Effects of Eliminating Automatic Reductions to Discretionary Spending Caps

Dear Senator: The Budget Control Act of 2011 created caps on discretionary budget authority for each year through 2021.1 That act also provided for automatic reductions in those caps that would be triggered under certain conditions. At your request, the Congressional Budget Office has analyzed the macroeconomic effects of eliminating those automatic reductions for fiscal years 2016 and 2017. Fully eliminating the reductions would allow for an increase in appropriations of $90 billion in 2016 and $91 billion in 2017. According to CBO’s estimates, such an increase would raise total outlays above what is projected under current law by $53 billion in fiscal year 2016, $76 billion in fiscal year 2017, $30 billion in fiscal year 2018, and a cumulative $19 billion in later years.2 Those changes in spending would have the following macroeconomic effects:

 Over the course of calendar year 2016, on average, CBO estimates that the spending changes would make real (inflation-adjusted) gross domestic product (GDP) 0.4 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.5 million. Those effects would result chiefly from two partly offsetting forces. First, the increase in federal spending would lead to more aggregate demand than under current law. Second, monetary policy would tighten slightly in response to the slightly stronger economic growth and to the slight increase in inflationary pressure that would result. That tighter monetary policy would begin to dampen the positive effects on output and employment.

1 Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of federal funds. Discretionary budget authority is provided and controlled by appropriation acts.

2 Defense discretionary outlays would be $34 billion higher in fiscal year 2016, $45 billion higher in fiscal year 2017, and $16 billion higher in fiscal year 2018; nondefense discretionary outlays would be $19 billion higher in fiscal year 2016, $31 billion higher in fiscal year 2017, and $15 billion higher in fiscal year 2018. As is the case with most discretionary appropriations, not all of the funds that would be made available to agencies would be spent.

3 For a general explanation of how CBO analyzes the macroeconomic effects of fiscal policy changes, see Congressional Budget Office, How CBO Analyzes the Effects of Changes in Federal Fiscal Policies on the Economy (November 2014),  2

 Over the course of calendar year 2017, on average, CBO estimates that the spending changes would make real GDP 0.2 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.3 million. Those effects would result from three partly offsetting forces.

First, the increase in federal spending would further boost aggregate demand, as in 2016, CBO estimates.

Second, the delayed effects of the slightly tighter monetary policy in 2016, along with additional tightening in 2017, would further dampen the positive effects on output and employment.

Third, the increased borrowing by the federal government that the spending increases would bring about would start to gradually reduce—or crowd out—private investment in productive capital because the portion of people’s savings used to buy government securities would not be available to finance private investment. On balance, the three forces would result in smaller increases in real GDP and employment in 2017 than in 2016. Those figures represent CBO’s central estimates, which correspond to the assumption that key parameters of economic behavior (in particular, the extent to which higher federal spending boosts aggregate demand in the short term) equal the midpoints of the ranges used by CBO for those parameters. The ranges suggest that if the automatic reductions to the discretionary caps were fully eliminated, real GDP could be 0.1 percent to 0.6 percent higher in calendar year 2016, and 0.1 percent to 0.4 percent higher in calendar year 2017, than projected under current law. The ranges also suggest that full-time-equivalent employment could be 0.2 million to 0.8 million higher in calendar year 2016, and 0.1 million to 0.6 million higher in calendar year 2017, than projected under current law. Although eliminating the reductions to the spending caps for fiscal years 2016 and 2017 would increase output and employment over the next few years, the resulting increases in federal deficits would, in the longer term, make the nation’s output and income lower than they would be otherwise.4 I hope that you find this information useful. If you have any questions, please feel free to contact me or CBO’s staff. The primary staff contact for this analysis is Devrim Demirel. Sincerely, Keith Hall Director cc: Honorable Mike Enzi Chairman 4 For a recent analysis of the short- and long-term effects of different amounts of deficits and debt, see Congressional Budget Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 6,

How hospitals could help cut prison recidivism | Brookings Institution

August 20th, 2015 by

This is a fascinating suggestion to decrease recidivism, cut the salaries of prison administrators and even workers. Stop feeding the monster, the prison industrial complex.


How hospitals could help cut prison recidivismBy: Stuart M. ButlerShare on emailShare on twitterShare on facebookShare on linkedin Share on google_plusone_shareShare on stumbleuponShare on redditShare on printBy the end of 2013 there were approximately 1.5 million people in state or federal prisons, and the U.S. incarceration rate is the highest in the world. And while there is debate about the relationship between this level of imprisonment and crime rates, there is considerable research to show that a spell of incarceration exacerbates economic and social conditions for families as well as former inmates, especially in low-income neighborhoods. That has led the Obama Administration and some interesting strange-bedfellow groups to call for alternatives to prison for some infractions.

Source: How hospitals could help cut prison recidivism | Brookings Institution

Amartya Sen: The economic consequences of austerity

June 13th, 2015 by

This is a speech by the Nobel Prize winning economist, Amartya Sen, about the bad results of austerity programs. He goes into the history and economics of the damage austerity programs do and the way that politicians have scared people needlessly (in terms of economics).  It is admirably readable and educational. The information is something that will stay with you. It will be well worth your time to read. 

The Economic Consequences of Austarity


Austerity for one, austerity for all: The Signing of Peace in the Hall of Mirrors, Versailles, 28th June 1919 by William Orpen (1919). On 5 June 1919, John Maynard Keynes wrote to the prime minister of Britain, David Lloyd George, “I ought to let you know that on Saturday I am slipping away from this scene of nightmare. I can do no more good here.” Thus ended Keynes’s role as the official representative of the British Treasury at the Paris Peace Conference. It liberated Keynes from complicity in the Treaty of Versailles (to be signed later that month), which he detested.Why did Keynes dislike a treaty that ended the state of war between Germany and the Allied Powers (surely a good thing)?

Source: Amartya Sen: The economic consequences of austerity

Networks and networking

April 5th, 2015 by

In this article I am going to talk to you about personal social capital
and networking from a perspective that you have probably not heard
before.   First I am going to describe what it is, then I am going to
describe why it is valuable and finally, I am going to tell you what
you need to do to get the value.

We all live in a web of relationships and the people we know tend to cluster
into groups.  We have our families, the people we work with, or people who
share our hobbies or other passions.  Many people go to a church and know
people in that context.  If you visualize the relationships you can imagine
a network, so we call it a network.

It is a network where you are the person that is linking together these
diverse groups.  Your mom may not know all the people you work with,
the people you work with may not share your hobbies, but you are a
member of all of the groups.

The world is filled with groups of people who interact mostly with each other.
If you imagine the network of the whole world it will be clumps of people
connected by some people that know people in both clumps.

Each person can be a door into another world.  A social network is a
network of relationships like:  “talks to each other.”  The clumping is
because people generally need a reason to talk to each other, they are
in the same field, the same grade in school or so on.  Each of the
clumps are networks too, subnetworks, so each person is part of many
social networks.

For example, when you were in school you probably knew many people in
your class, but few in other classes.  The few that you did know were
links into the other class.  If you wanted information about the other
class, about a member of the class, a teacher, a course or whatever,
you could ask your acquaintance in the other class and they would
likely know because of their relationship with the members of their

There are countless situations like this.  You know someone that works
somewhere you might want to work — they are a link into a potential
job.  When you ask a computer geek how to solve a problem with your
computer — they are part of a group that talks about and thinks about
computers a lot.  In fact, even talking to a doctor is more than just
accessing his or her knowledge.  He or she is a link into a community
that works with and thinks about medicine many hours a week.  Every
time you go to specialists you are not just getting their expertise,
but the expertise of everyone in the field they work with.

This is the key to “networking.”  Networking is actively seeking
something through social networks.  There are many books and courses
about it.  The books and classes use the same basic logic.  Since
people tend to clump into groups.  Within groups, the same information
is recycled.  So if you are looking for a job or trying to sell
something the best thing to do is to meet random people in various
situations and ask them if they know of anyone with a job offer or a
something they want to buy or sell.

There is more to networking than what the books tell you, as we will
see, but these books sell because it often works, people who network do
better at sales or finding jobs than people who don’t.

The reason for this was first explained in a paper called “The Strength
of Weak Ties” by Mark Granovetter.  Granovetter is a sociologist and at
the time he was investigating how people get jobs.  While interviewing
hundreds of professionals in the US he kept hearing a pattern.  When he
asked if they found the job through a friend, they would say “no, not
really a friend, just someone I knew.”  Granovetter realized that
people that get new information, an apartment, a job, or whatever, most
often get it from people they do not know that well.  This is because
the people we know well often know much the same things we do because
we talk to them often and have a similar set of relationships.

Since Granovetter published his paper in 1974, there has been
considerable expansion in the study of social networks.  The field
existed decades before Granovetter’s paper but his paper was written at
a time when interest was growing and it has been growing ever since.
In the last 10 years it has started growing even faster because now
there is software that is readily available to study them.

The rules for hiring people are different in different countries and
the way tradespeople find jobs is different than professionals, but the
underlying observation of people clumping together has held and
Granovetter’s observation has stood the test of time.  It makes sense
that it would.

Who do you choose to be around?  Who are you around because of external
circumstances?  You did not choose your family, but you most likely
have a lot in common with them in many ways.  This is because of their
influence on you when growing up.  You probably don’t choose all of the
people you work with.  On the other hand, many people in the developed
world choose their professions and try to be in a work environment
where they feel comfortable.  We usually try to be around people with
whom we feel comfortable and we feel most comfortable with people who
know and do the same things we do.

There is certainly nothing wrong with that.  However, students of
social networks have discovered an interesting fact.  Many of the
things we value as humans come from bridging the gaps between worlds.
For instance, entrepreneurs can be thought of as people who find a group
that needs something and another that has it and brokers between them.
The people in a company that can talk to both engineers and marketing
are translators and are valuable.  But perhaps the most valuable thing
of all is innovation.

It turns out that innovations are rarely, if ever, the consequence of a lone
genius, but are from people seeing ideas in one social world and applying
them to another.  For instance, Ford did not invent the assembly line, he
borrowed the idea from the meat packing industry.  As one of his team members
said: “if they can use assembly lines to take apart pigs and chickens, we
can use them to put together cars.”

When you consider that people who bridge social worlds, people who go
outside of their comfort zone and make relationships in multiple social
networks, are the entrepreneurs, the translators, the innovators and
more, then it is no surprise that they get paid more, they get promoted
faster and they get fewer colds.

Well, the last one may be a surprise, but the Journal of the American
Medical Association reported a study in Volume 277(24) 25 June 1997 on
pp 1940-1944.  The study carefully eliminated other possible
explainations and showed that people with the lowest network diversity
got colds at 4 times the rate of those with the highest.

So, what does “diverse” mean?  In the JAMA study it was people who have
social contacts with schoolmates, family, volunteer organizations, religious
organizations and others.  Diverse can also mean diverse in professions,
ethnic or cultural background, age, gender, education  and other things
that create social distance.  We tend to feel most comfortable with people
our own age, education and occupation.  So basically diverse can mean
“people who don’t know each other” or “different from each other” (which,
in most cases, will mean they do not know each other).

The cold thing is a little difficult to figure out, but the idea that it is
valuable to know people in different social worlds makes a lot of sense.
Knowing who to ask a question can be useful and the more different kinds of
people you know, the more questions you can get answered.  Interacting with
people in different social networks and learning what they do and think gives
us resources.  Like traveling or reading, it exposes us to new ideas and new
ways of thinking, so it is not hard to see how it can make us more innovative.

Consider the opposite, a people who are limited with who they interact
with.  What winds up happening is that ideas get recycled and people
become fixed not only in what they think, but who they are.

Part of how we know who we are is what other people tell us and by comparing
ourselves to others.  We are all complex with many facets and huge potential.
Our ideas of how to act and what we can be or do do not just spring up from
nowhere.  If one has a small set of people to model, it is difficult to
even imagine being or doing anything else.

Once I heard a young man talk.  He was from a US inner city where gangs
were common.  He went to a summer camp where he learned about
business.  For the first time in his life he was hearing about loans,
equity, financial reports, and marketing programs.  He said he did not
understand what he was hearing, but it made him aware that there were
different things he could be and different worlds he could live in.  No
one in his network talked or knew about these things.  The consequence
was that he started his own business and is doing well and many of his
friends from childhood are dead or in jail.

So, while having friends that we feel comfortable with is a great part of life,
meeting people that do things we do not understand who live in worlds we
did not know existed can be even more valuable.

Many people look at “networking” as a way to get something.  They say: “if
I can’t get something from it, what’s the point?”  When they say
that they are usually defining “something” in very narrow terms.  They are
talking about making a sale or getting a job.  It is possible to make
sales or get jobs through social networks, but going to a party and
collecting business cards is not building a social network.  If one does
not have a network when he or she needs a job or needs to make a sale,
it is already too late.

Networks are not something that one goes out and develops when he or
she needs something.  They are something that one builds up over a
lifetime.  They exist everywhere, but one needs to be part of them for
them to have value.

Often I hear business people say things like “my business is embedded software,
I don’t have time to learn about biotech.”  Which is fine on one level,
but it is sort of like Web designers whose main networking is going to
Web design conventions.  They get to meet all the people that are doing the
same thing as them.  If they went to a tool and die convention, they would
be able to think of ways to apply Web design to a different industry and
would have potential new customers.  The fact is that the way that biotech
and embedded software companies think about goals, financing and business
models are different and each can provide ideas to the other.

I have seen many hundreds of companies give pitches to angel investors and
over the years have been approached by many more.  Very few of them will ever
get funding.  Often I recommend to them to go to different business forums
and even spend some time volunteering for their community.  They almost
always act like my advice is borderline insane.  They contact angel groups
and venture capital firms and polish their PowerPoint presentation and give
it whenever possible until they run out of money and have to go back to their
day jobs.

Once Suhas Patil, one of the most successful entrepreneurs Silicon Valley has
ever produced, said to talk about your ideas with everyone, you do not know
where you will make the contact, “it could be in a laundromat.”

Who is going to use a product?  Not an abstract customer, but real flesh and
blood people just like people you see every day.  Who would support a business
financially?  Not some abstract VC fund, but a human being.  The same applies
to art or music as well as business.

If one accepts it that having diverse social networks can be an advantage in
life in many ways and it is worthwhile, then it is worthwhile to think a
little about how to go about it.

One part of building networks is simple.  For every person you meet, rich
or poor, young or old, male or female, every race and profession, make it
a habit to try and understand what they do, something that they do that
makes them feel like they have accomplished something special, and how
you might be able to help them.  The easiest and most common way you will
find you can help people is by introducing them to someone that can help

For many people, this advice seems absurd.  They think “I am networking
for my advantage, I don’t have time to run around trying to help
everyone I meet.”   But if you think about it, how do you feel about
people who only ask you for things and never give anything in return?
How do you feel about someone that takes an interest in what you do and
tries to help you?

You invest in your relationships, the same way you would invest in a bank
account.  Some people call the history of relationships one develops “social

What you need to do is to have the mind set of an explorer, like in
Star Trek where people explore and discover things because that is what they
do.  Many people shop and know where they can locate anything they need.
Building a social network is like that, browsing around the worlds of
others and seeing what’s there, so when you need it, you will know where
to find it.

But more than that, there is the unexpected.  We know what we know and we
tend to look for what we know.  Putting ourselves into places where we don’t
know what to expect not only exposes us to new possibilities, but it trains
our brains to notice and integrate the unexpected.  That is the core of why
innovation and so many positive things flow out of the experience.

Not knowing what is going to happen can be discomforting, but people
seek it out by reading novels, going to movies and so on.  Going into a
situation where you do not understand what people are talking about can
be interpreted as unpleasant.  It can also be interpreted as a puzzle,
a challenge.  Like anything, if you do it for a while, it gets easier.

Once you have decided to seek out new life and new civilizations, so to speak,
and you have your prime directive of trying to understand and help everyone
you meet. The last step is figure out where to go.

There is a huge world you are not participating in, and most
of it might be more fun that you think.  Newspapers carry calendars of
meetings and other events.  Volunteer to work for an organization that
educates people, saves trees, promotes world understanding or
whatever.  There are thousands of such organizations.  Visit
professional association meetings of different professions that yours.
Go to school, learn a new language, take music lessons and join a band.
There is never a down side to knowing more about what other people do.

In some parts of the world, people are born, live and die in small
social groups.  Change happens slowly.   But in the developed world
today change is happening rapidly.  Many have an instinct to go back to
the past, the small stable social group.  But, while our involvement in
many social networks presents a challenge, it is also an opportunity.
An opportunity to open countless doors and partake in the treasures
that lay behind them.

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