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September 26, 2009

Quantitative literacy and the economic crisis

Prins & Hayes (The Nation, September 23, 2009) : "People are pissed off but too bewildered to know what to do with that anger."

From "It Takes a Pillage" by Nomi Prins
Adapted from "It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals From Washington to Wall Street" by Nomi Prins

Here is a crazy idea for discussion: Not only does the public not know what to do with its anger, it actually fails even to grasp the scale of the enormous screwing we have received in the banking bailout. Most members of the population lack essential concepts and comparative measurement ability due to cognitive deficits directly related to lack of quantitative literacy.

The graphic above (click to see a legible version) illustrates a $17.5 trillion (with a "t") one-year commitment of the public to cover the bad bets of financial industry geniuses.

Meanwhile, conservative thinkers will pull large numbers out of their asses (or maybe the asses of Social Security trustees) and come up with incredibly goofy measures of "unfunded liability," said to be "$74 trillion" for Medicare (THIS is typical). Now that $74 trillion is based on a highly unlikely model that runs in time to infinity, with a ZERO current value. It's just a speculative worst-case scenario.

The various bailout mechanisms Prins and Hates discuss are trillions committed by the U.S. Treasury and Federal Reserve just this past year! But the teabaggers and town meeting bullies get riled over a health plan that won't even cost 1/10 of a trillion dollars in the next year. You'll hardly find a sign at their rally that attacks the financier-gamblers who have really sucked at the teet of the public treasury.

This is quantitative confusion rearing its ugly head in the worst way. I actually applaud them for bringing out as many people as they did two weeks ago in DC. I share some of the critique of Obama. But mostly their message is very badly focused, led by deceptive jackass mouthpieces like Glenn Beck, and hence too laden with bigotry to be considered within the realm of reality. The who, why, and how of the screw-job eludes almost the entire population, not just the teabaggers. But this opens the door for Beck, Limbaugh, and the teabaggers to blame "socialism" or direct anger at low-income home buyers while never mentioning the financier criminal class. Hell, Sean Hannity actually was a shill for one of the worst, Allen Stanford.

Perhaps some insight can be taken from Lynn Arthur Steen. He is a now-retired professor from whom I took a course in linear algebra lo so many years ago. In a 142-page volume entitled MATHEMATICS and DEMOCRACY: The Case for Quantitative Literacy, produced in 2001 for The National Council on Education and the Disciplines, he writes:
Lynn Steen: Counting people, counting dollars, and counting votes are part of the numeracy of life. Unlike the higher mathematics that is required to design bridges or create cell phones, counting appears to require only rudimentary arithmetic. To be sure, when large numbers, multiple components, and interacting factors are involved, the planning required to ensure accurate counts does become relatively sophisticated. So even though the underlying quantitative concepts are typically rather elementary?primarily topics such as multiplication, percentages, and ratios?the mental effort required to comprehend and solve realistic counting problems is far from simple.
I have a sinking feeling that nobody really is in the mood to listen right now.

Posted by The Owl at 15:46. Filed under: Economy

Comments

A comment came through email:

>17.5 trillion

Eric, This is larger than the US GDP. How is this possible?

My reply:

There is a full accounting in the story linked to:

http://www.thenation.com/do...

>How much did it all cost? The amount of money that's been floated, injected and dispersed in the ways we've listed above is $17.5 trillion. But what the final cost will be is not yet clear. A lot depends on how the Hazzards do. They might pay back a lot of the loans (perhaps even with interest) and not use up the guarantees. Their condo may rise in value, or they might have to sell it at a loss and rely on the Bailout Bank's price guarantee. The baseball card collection taken as collateral may end up in the bank's hands, and then the total loss will depend on what the card collection turns out to be worth. In short, while we can add up the total exposure of the bailouts, we can't yet tally their cost.

>Finally, our tale shows how fully the banking industry has relied on the government to keep it afloat. This is a crucial point because many banks want to argue that once they've paid back their TARP money, they have discharged their obligations and are private entities again, unbeholden in any way to taxpayers.

>Another question our parable doesn't answer is, Where does all the money come from? Most of it has been "printed" by the Fed, which expanded its balance sheet and, in so doing, created money out of thin air. ...

The original graphic summarizes everything neatly.

This is liability the public acquired in one year. That's why I compared it to the very-long-term liability of Medicare, which looks like a very tiny drop in the bucket measured per time. As far as paying the bills, the Fed has monetized the debt as needed. We don't know where this will end.

Posted by The Owl on September 26, 2009 at 16:39

Limbaugh on Jay Leno:

"Leno also tried to get Limbaugh to agree that Wall Street CEOs should not be making billions of dollars off schemes that hurt investors. Limbaugh strongly disagreed. 'The market will fix itself,' he said. 'It's none of my business what they make, Jay, it's certainly none of yours, and it's certainly not Barack Obama's what anybody makes ... If you believe in the capitalist system, you have to erase from your whole worldview what somebody needs.'"

Not exactly a populist view. Wingnittia is so, so very confused.

http://www.huffingtonpost.c...

Posted by The Owl on September 26, 2009 at 23:01
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