Last night at about 20:00 PDT, on my way to David's Coffee Place, I glanced into the Brass Rail, a San Diego night club. On a Friday night, there were no customers. That had changed by the time that I headed homeward, but it still wasn't particularly busy. Nor was it yester-day. David's Coffee Place has also been slow the last few days. Carlos, one of i baristi, suggested that this is largely an artefact of the increased price of gasoline. I think that he's correct. I also think, as I told him, that current petroleum prices are a bubble; but I don't know when the bubble will collapse, nor what will trigger the collapse.

Locally, there are various store-front locations in Hillcrest that have been vacant for months. It's an inescapable that there is some price at which someone would be willing to rent any given one of these sites; but landlords are evidently unwilling to drop rents to such levels. This refusal might seem simply unreasonable, and perhaps in some cases it truly is, but all landlords (reasonable or unreasonable, renting or refusing) are unavoidably gambling. Any who enter into an arrangement at the market-clearing price of to-day is gambling that those prices won't rise to-morrow enough to off-set revenue forgone by waiting. At the same time, those who are refusing to lower their prices are hanging tough on a theory that prices will rise in such manner, or that they'll connect with someone who'll pay their price in spite of generally prevailing prices.

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I don't know what the national economy is doing right now.

Apparently, growth figures for the first quarter were revised upward; I read mention of a 0.9% annualized rate (rather than 0.6%) yester-day. This is still low — one normally expects growth of about 3%. Some respected economists are predicting that the annualized rate of growth in the second quarter will be about 0.4%, followed by 2.2% in the third quarter. Since that would suggest that we would avoid a recession altogether, I can safely predict that present efforts by pundits to redefine recession will intensify.

There has been some yammering about consumer confidence, which has dropped to levels not seen since the economic down-turn during the Presidential administration of GHW Bush. The consumer confidence measure seems to be a garbage statistic to many economists, including me. Further, it hit that previous minimum at the end of a down-turn, rather than leading a worsening of conditions. (And the down-turn in question didn't even qualify as a recession proper, as it did not last for two quarters.) If the statistic means much of anything, it doesn't mean what journalists seem to think that it means, nor what they want their readers to think that it means.

Conventional wisdom seems to be that the worst of the credit-crunch has passed. That means, however, that the Federal Reserve System will counter-act the pressure on prices creäted by the measures that it took to loosen credit; those counteractives are, unsurprisingly, things that will re-tighten credit — the hope being that a credit crunch doesn't resume. I don't think that they'll get to have their cake and eat it too; prices will rise, or the economy will go into recession, or both.

Last Friday or Saturday, my mother asked me qua economist whether we were in a recession.

I carefully explained to her that the standard formal definition of recession is two or more consecutive quarters of over-all economic contraction. So, as I explained, if I said that we were in a recession then I would be saying that it had contracted in the first quarter of 2008 and would contract in the second quarter, or that it would contract both in the second quarter and in the third quarter.

After that careful prefacing, I told her that I thought that we were in a recession, but that this had to be seen as a guess.

Well, the data have since been reported for the first quarter of 2007, and apparently the economy did not contract, though its annualized growth rate was a sad .6%. My guess is in danger of being falsified, if the growth rate manages to stay at-or-above zero in the present quarter, or if things pull back above zero in the next quarter. Unsurprisingly, I'd be pleased if the data proved me wrong.

In that first quarter, there were those who were mocked for refusing to concede that the economy was in recession. The data demonstrate that it was wrong to mock them. Not that any apologies will be made by those who did the mocking, or even that they will be held to task by other commentators in their circles.

Mind you that a small decline wouldn't have legitimized the mocking. What is wrong, first and foremost, is too much certitude. And then that wrong is compounded by attacking those who are duly cautious.

Here, from the BBC, is a bit of rot:

Policy makers will begin their two-day meeting later amid signs that economic growth has stagnated, or even shrunk.

Okay, stagnate means to become unchanging; which is to say that stagnant growth would be a constant growth. Some might perhaps hope for ever-accelerating growth, but most people would be happy with constant growth at, say, 3% to 4% per annum.

There is indeed some concern that the rate of growth has shrunk, but what really concerns people is the possibility that the rate of production (rather than of growth) may have shrunk.

Journalists are just constantly confusing underlying values, first differences, second differences, and so forth. In this case, GDP (or something like it) is our x, growth is Δx/Δt, and the change of the rate of growth is Δ²x/Δt². A stagnant rate of growth would imply

whereäs the fear is that Last year, the Beeb similarly confused the inflation rate with the price level:

The latest inflation rate — or Consumer Prices Index for December as it is formally called — was known to the Bank of England before it made the decision last Thursday to raise interest rates to 5.25%.

(The initial version of the story was even worse, having the title Cost of living at 11-year high. Various parties tried to tried to get the Beeb to fix things, but they just couldn't wrap their heads around the matter.)

This confusion of underlying values and differences is illustrative of the more general problem that the mass of journalists and the mass of their editors just have no understanding of economics, and couldn't sensibly inform the typical reader even if they wanted to do so (and I seriously doubt that they want to do so).

Some days ago, the subject of machine guns came-up in conversation with the Woman of Interest, and I noted to her that fully-automatic firearms had first come under tight regulation as part of a war on a drug — the drug in question being alcohol. Synchronistically, within a day or so I received and watched the original Scarface (1932).

The film is prefaced by text that declares that it's essentially doing no more than presenting events that have really happened, that the government is not doing enough to protect the citizenry, and that the citizenry must act to get the government to act. Part-way through the film there's a moralizing scene in which community leaders confront a newspaper publisher, claiming that he's glorifying gangsters. He responds essentially with the same message that had prefaced the film — that he is reporting the facts, that the government is not doing enough, and that the citizenry must act to get the government to do more. Then we learn what he thinks ought to be done: outlaw machine guns, effect martial law, and accept the offer of the National Commander of the American Legion to act as a militia against the gangsters. As part of the case for martial law, the publisher notes that the governor of Oklahoma had effected martial law to regulate oil production and claims that surely then we should use martial law against guns. (At some point, the publisher stops qualifying the attack as against any particular sort of gun.)

Many people might not know about that business of martial law in Oklahoma. What specifically happened is that, on 4 August 1931, Governor Alfalfa Bill Murray had 3000 oil wells forceably shut-down to reduce production and thereby drive-up price.

And let's talk about the leadership of the American Legion in that era. Here are the words of American Legion National Commander Alvin Mansfield Owsley, in January 1923:

Do not forget, that the Fascisti are to Italy what the American Legion is to the United States.

In 1931, the Executive Committee passed a resolution praising Mussolini as a great leader, and the National Commander of that year, Ralph O’Neill, presented a copy of the resolution to Mussolini’s Ambassador to the United States. In 1935, during a trip to Italy, National Vice-Commander William Edward Easterwood pinned a Legion pin on the lapel of Benito Mussolini.

What the character of the publisher is preaching is the displacement of individual liberty and of procedural rights with command-and-control fascism.

The problem of that era wasn't alcohol per se, nor was it fully-automatic firearms per sese. The problem was Prohibition, that war on a drug. We didn't need even less freedom and even more government, we needed more of the former and less of the latter.

Most of the moralizing in Scarface is not well integrated into the film. One could discard the prefacing text and the publisher's speech without any apparent gap in the story-telling. What would remain would be what seems to be an objection to writs of habeas corpus being used to free gangsters before the truth can be beaten out of them, and perhaps just a hint of the notion that fully-automatic firearms are evil. That overt moralizing seems, then, an after-thought intended to mute or vitiate criticism of what was, by the standards of 1932, a very violent film, depicting fairly ruthless characters.

The 1983 remake was likewise violent for its era, and also controversial for what many took it to say about the Cuban immigrants of the Mariel Boatlift. The remake had its own bizarre moralizing, mostly effected around the film, as in proclamations by director Brian De Palma and in the advertising campaign for the film. The conceit was that this Scarface was an indictment of the profit motive. Of course, the profit motive shouldn't be indicted — objecting to the profit motive is no more or less than objecting to purposeful action. At best, one might object to how someone conceptualized profit. (As, for example, in For what is a man profited, if he shall gain the whole world, and lose his own soul?)

It is interesting to note what elements within the story were preserved in producing the remake, and how things were transformed. Antonio (Tony) Camonte is a distinctly less appealing character than is Tony Montana. Paul Muni looks like one of Joe Kirby's sloppy drawings for Timely. Camonte plainly likes violent extortion, and he dies like a panicked rat. Montana isn't vicious, his downfall is precipitated by a refusal to allow children to be killed, and he dies a berserker. But, because the dialogue in the original is vastly better, it is easier to understand Poppy being drawn to Camonte than Elvira Hancock becoming Montana's mistress. (Poppy's choice may not be more laudable, but it is more plausible.) On the other hand, while the visual device carrying the message The World Is Yours in the original has more potential than those in the remake, that potential is largely wasted in the original whereäs the the remake makes very effective use of its devices. There is the barest suggestion of incestuous desire in the original, and that's probably almost optimal; the crude references in the remake cause the characters to be both more disgusting and less interesting. On the other hand, the original treats Antonio as falling apart in the wake of killing Guino, but it isn't clear why Antonio falls apart; he expresses no regret for what he has done, and he has hurt 'Cesca in the past without apology or collapse. Further, Guino seems to chose to let Antonio kill him, without good reason for doing so. In the remake, Manny is simply an idiot, and didn't appreciate that, even if he and Gina were married, Tony might still reäct violently. Tony doesn't appear to regret killing Manny, and Tony's collapse is a result of other things (problems with his business associates, a lack of anticipated gratification from material success, and drug use).

While I was apparently distracted by shiny objects, Verizon Communications, Inc., spun-off its landline operations in Maine, New Hamsphire, and Vermont as Northern New England Spinco Inc., which was on the same day merged with FairPoint Communications, a firm previously noted for holding various small, rural local telephone operating companies.

I have received a tiny amount of stock, and a tiny check in lieu of a fractional share. They have suggested that I might sell them the shares. Previously, Verizon spun-off Idearc Media Corp., and likewise sent a small check and a tiny number of shares. They actively encouraged me to sell-back the shares, but I decided to be difficult. I don't plan to sell-back the FairPoint shares either.

It is interesting to see Verizon, which once aggressively absorbed other telephone companies, now spinning-off its landline operations in three states. When SBC Communications bought the remains of AT&T, and then took the name AT&T for itself, the media and others creäted the impression that the original AT&T, broken apart in the '80s, had been reässembled. (The Wikipedia article on the new AT&T uses a diagram designed as if to foster this misimpression.) In fact, some of the original RBOCs were not absorbed by SBC / AT&T, being instead held by Verizon and by Qwest Communications International, Inc. And now this consolidation into three parts has become a division into four parts.

Let's say that we might make veeblefetzers, and we have three available processes:

Now, we have two questions:

• How many veeblefetzers should we make?
• Which process should we use to make veeblefetzers?

From our table we can answer part of the second question: If adamantium and vibranium are actually goods (rather than something otherwise harmful), then we just don't want to use process C; compared with process C, process A would save us some adamantium for other uses, and process B would save us some vibranium. So (again on the assumption that adamantium and vibranium are goods), technical considerations tell us not to use process C.

But it gets messier when we attempt to decide between process A and process B; we have to know whether we want adamantium more for other things than we want vibranium. And there's basically the same question in deciding whether to make veeblefetzers. Could the adamantium or the vibranium be put to better use than in making veeblefetzers? (It gets even more complicated if the processes don't simply scale linearly, so that doubling inputs doesn't double outputs, or new veeblefetzers get put to decreasingly important uses as we make increasing quantities, or we start to take adamantium or vibranium away from increasingly important things as we make more veeblefetzers.)

What we want are numbers or number-like things that are assigned to veeblefetzers, adamantium, and vibranium, so that we can compare those numbers or number-like things, and know whether it's better to save adamantium or vibranium, and whether the priority should be to make veeblefetzers or to do something else with the adamantium and vibranium. Those numbers or number-like things are prices. Market prices are prices assigned by a market process, but any prioritization implies a corresponding system of prices, explicit or implicit. Where there aren't any prices (explicit or implicit), there isn't a system of priorities.

If prices weren't and couldn't be set for us by a market process, then how should they be set? One student, when given a hypothetical example like this of veeblefetzers, adamantium, and vibranium, demanded to know why I didn't use familiar, real-world products and inputs. The answer is that we have a sense of how the world does price things such as watches, aluminium, and gold. Further, aluminium was once more precious than gold, and a decent watch was once unattainable. Relative priorities change, and with them prices. I wanted him to consider pricing from scratch.

In attempting to price adamantium and vibranium, part of what would obviously need to be considered would be the other uses to which one might put each. Were one going to price adamantium or vibranium rationally, then one would have to answer the same sorts of questions for those alternate uses as one wanted to answer for the production of veeblefetzers. In other words, one would have to price the alternative products, and the other inputs (besides adamantium and vibranium) in those other processes. That means looking at other products and processes for those inputs, with no direct involvement of veeblefetzers, of adamantium, or of vibranium. To price anything rationally, one would have to price everything rationally.

One might in theory construct tables of processes for other goods and services. In many cases, one could quickly discard some processes for the same reason that we discarded process C. And, were adamantium or vibranium itself something that must be produced, and not something that a consumer would want in and of itself, then perhaps one could replace it in one's calculations as a function of other inputs.

But the presumption that one could assemble all that technical information — and it must be assembled (not merely collected, but organized) before boffins and wonks can feed it to their super-computers — is truly heroïc, even if one assumes purely automated production. (More on that assumption in a bit.)

Even then, what would be produced would not be prices, but a system of equations and inequalities expressed in terms of unknowns, corresponding to relative valuations of consumer goods and services. One would need to know, at various levels of consumption, whether each participant would rather have a bit more water or a bit more warmth, a bit more warmth or a bit more clothing, and so forth, before one could compute prices rationally or (equivalently) allocate production and distribution rationally.

And, actually, this matter of human preferences cannot be postponed quite like that, because the assumption of complete automation is counterfactual. Human beings may not be factors of production in the making of veeblefetzers, but they are factors of production in quite a bit else. So, to describe production, not only would one have to know how many whoozits can be produced by a purely automated procedure; one also would have to know exactly how specific, real-world human beings (who are very much a part of real-world production) will respond to specific, real-world incentives.

Markets establish prices by concurrent processing. Knowledge is left dispersed; private data, such as preferences, are expressed in the behaviour of individuals participating in the economy. When the price for a given good or service is below an equilibrium, would-be sellers withdraw or try to negotiate a higher price while would-be buyers pursue the good or service in frustration (showing would-be sellers that they might get a higher price) and perhaps offer a higher price; when the price is above an equilibrium, these rôles are largely reversed. So prices are being pushed towards the equilibrium of the moment. Meanwhile, the prices of each good and services is effecting how much people are attempting to buy or sell of other services.

A general equilibrium would never actually be obtained in a real world, because preferences are always in flux, and resources, including technology, change in ways that cannot be particularly well predicted. Still, a market would be in constant pursuit; the process of correction beginning immediately as new information were introduced. And a notable mathematical result is the Coase Theorem: If property rights were clearly defined and respected, then in the absence of transactions costs a market equilibrium would always be economically efficient.

Socialism — the doctrine or practice that the means of production should be owned by the community per se and administered for the over-all benefit of that community — is now-a-days primarily associated with claims about fairness, but in its heyday, and to some extent still to-day, it entailed a belief that technocratic planning could outperform the market by some combination of speed, accuracy, and the avoidance of transactions costs. In the context of production which is assumed to be dramatically more efficient, it becomes easier to talk about the relationship of workers to work changing, and about different patterns of distribution. But the problem here was and remains that socialists rarely recognize the problems of efficiency beyond technical efficiency. In effect, they presume that the differences between processes A and B must ultimately be no different from those between either and C. One often even finds socialists who deny the relevance of prices to socialist planning, betraying some failure to understand the general concept of price. The great problem for socialism is that it must price but, because pricing involves more than technological efficiency, has no sensible system for pricing in the absence of markets. In the absence of sensible pricing, rather than getting wildly more efficient production, one gets horrific chaos and waste.

In practice, socialisms that attempted to avoid having their own markets largely adopted the prices of the more market-oriented economies that they could observe. They had some sense of the present relative values of aluminium, of gold, and of watches because markets elsewhere had valued them. But those prices are prices appropriate to the context in which those markets prevailed; if markets had prevailed in the imitating community, then they would set different prices corresponding to that context. Further, the technocrats can't give the game away by fully imitating the prices of market economies — that would make their own economies more overtly caricatures of market economies. So pricing in communities without their own markets, while not typically being as awful as it might be, is still markedly worse than that in less socialistic nations.

There have long been some socialists who recognized the need for market prices, and such socialists started to become relatively common in the 1980s. The problem for these attempts to combine markets with socialism is that, to the extent that the resulting system behaves like a market, it behaves nothing like socialism; and, to the extent that it behaves like socialism, it behaves nothing like a real market — it doesn't coördinate private and dispersed knowledge to form prices.

(Neoclassical economics hasn't had a good handle on these issues, because it typically assumes-away the underlying problem of information being private and decentralized.)

That's not to say that markets should be used for all economic allocation. The real world involves transactions costs. Sometimes the transactions cost of markets are sufficiently high, and the transactions costs of alternative institutional relationship — contracts, firms, &c — are sufficiently low that the difference then more than off-sets the lost informational value of market prices. But one should remember that real-world alternative institutions do entail transactions costs, and indeed sometimes these are even higher than those associated with markets.

Alan Greenspan in an interview published on Sunday:

We would have to see signs of this intensification; there are some, but not many yet. Therefore … I would not describe the situation we are in as a recession, although the chances that we'll have one are more than 50 percent.

Alan Greenspan on Tuesday:

Consumers are beginning to shrink in, the automobile markets are beginning to contract, production is beginning to ease, and we are in the throes of recession.

Important new data came-in on Monday? El Pais sat on the interview for some significant period?

I see that Alan Greenspan has endorsed McCain. Back in January, Volcker endorsed Obama. This leaves no Fed Chairmen to endorse anyone else, as the present Chairman is supposed to stay out of it, and the other guys are dead.

Nobody much cares, but I am not endorsing anyone. I'm especially not endorsing Mike Gravel, who has joined the Libertarian Party and is seeking its nomination, nor the Libertarian Party, who have welcomed him. Mike Gravel has made plain where he stands on the issues, and it's plain that he's not a Libertarian.

I am in favor of gender-neutral wording.

I have no grudge against those who assert that the English masculine pronoun is actually a neuter. In fact, people have got my back up by pretending that it was somehow proved to be a false neuter simply because some collectives of PC academics declared it to be such.

But the fact is that almost no one is always on-the-ball, and most people are never on the ball, and it's good to keep them from thinking that something is necessarily male or masculine simply because masculine pronouns are used.

My favorite resolution is one that I first observed in academic papers by economists; specifically, they would alternate the genders assigned to hypothetical subjects. (The prevailing practice seemed to be to start with a feminine.) This practice adds a few virtues to simple gender neutrality. First, the personal pronouns are familiar to the reader. Second, in many cases, two subjects subsequently are naturally distinguished by their genders, instead of by more complex constructions. Third, those readers who need to be awakened from sexist presumptions are often actively confronted with one gender where they were expecting the other.

(Naturally, some PC folk will leap on the first masculine or feminine that they spot, before discerning the pattern, and denounce the writing for being gendered. In some cases they do this in a sort of drive-by attack, and it's pure cost. In some cases, one can show the pattern to them and presumably put them on the road to being more thoughtful in general. In some cases, one does not so much try to get them on-the-ball as just throw the ball at them, in a game of verbal dodge-ball played to drive them from the court.)

Some years ago, various would-be reformers tried to push the idea of introducing a new pronoun — or something like a new pronoun — which (unlike it) would distinctly refer to singular things with personality but would be a neuter. The more clever ideas involved a sort of singularization of they, but all of the candidates that I saw were awkward — some indeed as if their creätors had wanted them to be so — and none really caught-on (though I'm sure that there's still some small organization or organizations trying to advance such constructs).

Another potential solution is to recast expressions in terms of one. Normally, I use one instead of the generic you. Like most people, I sometimes slip into using you not to refer to my audience, but to a generic person. Often this habit is innocuous, but one doesn't want to insult one's audience by seeming to make assertions about them which may indeed be true of oneself yet still offend them. Anyway, one can often serve nicely as referring to a hypothetical person of unspecified gender.

The Woman of Interest asked a question that I find interesting: Is this one a pronoun? As an alternative to the generic you, it plays a rôle otherwise assigned to a pronoun; and, like a pronoun, it has a reflexive form, oneself. Well, if it's a pronoun, then it's the only English pronoun with an apostrophe in its genitive, one's. My mnemonic, used to help people avoid using it's for the genitive its then fails.