John Carney on JPMorgan's Madoff investments

He reports:

If we're following this correctly, it seems that starting in 2006 JP Morgan allowed investors to make bets on the performance of hedge funds that invested with Bernie Madoff. This basically means that JP Morgan was institutionally short Madoff, which is interesting in itself. What made JP Morgan think it could beat the guy who had over forty-years of steady results?

Even more interesting is the fact that JP Morgan initially hedged this bet against Madoff by investing $250 million of its own money with Madoff. And then, as late as last fall, it decided to take off this hedge. What happened in the fall of 2008 to make JP Morgan believe that the bets it had made against Madoff were now so safe that they didn't need to be hedged?

Perhaps the most tantalizing idea is that JP Morgan's withdrawal might have triggered the collapse of Madoff's fund. Recall that although Madoff claimed to be managing tens of billions of dollars, he actually had only a tiny fraction of those assets under his control. A seemingly small withdrawal the size of JP Morgan's $250 million could very well have left Madoff without liquidity to keep up his fraud.

More middle class Manhattan

Evan Newmark says:

Is a $112,000 average Wall Street bonus excessive? Not to me. In the greater New York area, the tax rate is effectively 50% which leaves you about $56,000. That won’t even cover the average annual rent of $60,000 for a two bedroom apartment in Manhattan.

But consider that the median price of a U.S. home is about $175,000 and you can understand why the rest of America feels differently than me.

Previous thoughts rounded up here. Here is a post where I determine that buying 1 house in California is equivalent to buying 14 houses in Iowa.

Al Gore's new science of "Venus Envy"

sounds more like Freudian witchcraft to me.

No change yet

at least, not from Obama's press secretary:

First, he gets caught fibbing that good government groups don’t oppose the administration’s spate of ethics waivers for ex-lobbyists:

“He can’t be talking about us,”said CREW’s executive director Melanie Sloan. “We don’t believe in a never-ending list of waivers. The waivers indicate the administration cannot live with its own policy. Ergo, they should revise the policy and stop pretending they are not hiring lobbyists.”

As Sloan sees it, the Obama administration is trying to have its cake and eat it too, claiming the ethics high road except on occasions when it doesn’t suit their interests.

Whoops.

Then he brought untold grief upon the President by explaining the sloppy dress code in the White House. You see they take off their jackets in the Oval Office because the President keeps it so darn hot in there. Uh oh. Doesn’t mesh with the global warming hectoring and his campaign rhetoric about keeping the thermostat at 72 degrees. All this the day after he lectured his fellow Washingtonians about lacking “flinty Chicago toughness.”

UPDATE: Oh the White House press office has changed. But not for the better.

Improving the NFL distortion

of the overtime coin toss, by the one-and-only Tim Harford:

If the Super Bowl goes into overtime for the first time ever, it's fairly certain who will be victorious: the team that wins the coin toss. In the first round of the playoffs, the Chargers beat the Colts 23-17 in OT, marching down the field for a touchdown after winning the toss. In the 14 overtime games that produced a winner this season, the coin-toss victor won 10 of the games, more than 70 percent. Since 2002, the team that's gotten the toss has won more than 60 percent of overtime games.

With a little ingenuity, there is a way for overtime to be both fair and fast. One solution is usually associated with cake-cutting: one person divides, the other chooses which half to take. In a football overtime, the divide-and-choose rule would dispense with the kickoff and just give the ball to one side. The coin-toss loser would decide how far forward the offense would start—say, the 30-yard line. The coin-toss winner would then decide whether to take possession or let the coin-toss loser have the ball at the 30. The nice thing about these rules is that they would naturally adapt to the game's changing dynamics. The current system, by contrast, seems to have been fair when introduced in 1974, but as field-goal kickers became more accurate, possession has become more valuable.

"Divide and choose" isn't perfect. The coach who divides is at a small disadvantage, because what he does gives a hint about his thinking and his concerns—all sorts of imponderables from his kicker's form in training to the morale of his defensive lineup. The other coach, however, can keep his cards to his chest until the last moment.

An even more elegant solution to the overtime problem was proposed in 2002 by Chris Quanbeck, an electrical engineer (and Green Bay Packers fan). Quanbeck's idea was to auction off possession of the ball in the natural currency of the game: field position. The team that was willing to begin closest to its own goal line would receive the privilege of possession.

Photo link here.

What happened to Larry Summers and President Obama

on the way to the White House:

Throughout 2008, Larry Summers, the Harvard economist, built the case for a big but surgical stimulus package. Summers warned that a “poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured.” So his proposal had three clear guidelines.

First, the stimulus should be timely. The money should go out “almost immediately.” Second, it should be targeted. It should help low- and middle-income people. Third, it should be temporary. Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”

Summers was proposing bold action, but his concept came with safeguards: focus on the task at hand, prevent the usual Washington splurge and limit long-term fiscal damage.

Now Barack Obama is president, and Summers has become a top economic adviser. Yet the stimulus approach that has emerged on Capitol Hill abandoned the Summers parameters.

This reminds me of George Stephanopoulos' "The President kept all the campaign promises he intended to keep."

It was the Yankees, Joe Torre and "Boomer" Wells

Say what, say what, say what?

The New York Yankees are considering whether to ask for confidentiality clauses in future contracts with managers and coaches following Joe Torre's book on his 12 years with the team.
...
In [his] book, Torre says, "The difference between Kevin Brown and David Wells is that both make your life miserable, but David Wells meant to."
...
"I've always said if you weren't Joe's boy, he could care less about you," Wells said. "He ran his tight ship the way he wanted to. Don't get me wrong, he is not a bad manager. I just thought he was a bad individual, because of the fact he didn't treat everybody the same. He had his boys. He let certain guys do their thing. He wouldn't let other guys do other things." Still, Wells said he would buy the book. "I'd like to go buy the book," Wells said. "He can have his 27 bucks. It doesn't matter to me. Just to read it to see how much BS is in that."

Photo links here and here.

Quotes of the day

The same man who shines at the second level is eclipsed at the top.--Carl Von Clausewitz

... “carbon caps” may actually destroy forests based upon my observation that when jobs become scarce, Third World populations often return to the land, frequently clearing forests with slash-and-burn techniques. By discouraging job creation, so-called environmental policies may inadvertently push people in subsistence economies back onto the land where they must resort to unsustainable, short-term activities to survive.--Richard Fernandez

As each legislator and Congressional committee and the Fed and the President try to help improve the economy (or bail out a favored constituency) the stress on the whole system grows. Every once in a while I think we can come out of this mess. On a day like today, I start to think we're going to have a profound economic collapse.--Russell Roberts

If the intent of the [stimulus] plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest?--Alan Reynolds

I'm shocked to see Paul Krugman complaining that people are assuming the jobs created by the stimulus will only last a single year in calculating the cost of creating them--back when the Bush tax cuts were proposed, he got very, very angry at . . . . people who assumed that the jobs created by the stimulus would last longer than a year. --Megan McArdle

A man who flies in a private jet paid for exclusively with taxpayer funds (Air Force One) scolds other persons for flying in private jets paid for only in part with taxpayer funds.--Don Boudreaux

... as Obama continues to insist his policies should be followed because “I won,” it will be applauded as an impressive sign of strength and a recognition of political reality. Of course, when Bush said anything close to this, it was said to be an example of his “my way or the highway” arrogance.--Peter Wehner

No question, the president is right. The next time it snows, we would like to invite him to help us make the decision. His involvement will make it much easier to explain to our students why they won't be able to spend the day sleeping and sledding. Or, I suppose Sidwell Friends could merge with Punahou, move our classrooms to Hawaii and never worry about the weather again.--Ellis Turner, Associate Head of Sidwell Friends School

Maybe Carter [and UN ambassador Andrew Young] shouldn’t have trusted Mugabe.--Richard Fernandez

The Harvard Business Review editor’s blog contemplates the unthinkable: perhaps college is not working. Nonsense. Our entire economy is based on the production of unreadable and unread papers on gender, race, and the evils of capitalism. We need more, and we need them faster.--pwyll at Carnal Reason

The best depression-fighting President

could be Warren Harding (via David Henderson):

With Harding’s tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million — a reported 6.7 percent of the labor force — in 1922. So, just a year and a half after Harding became president, the Roaring 20s were underway. The unemployment rate continued to decline, reaching an extraordinary low of 1.8 percent in 1926. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.

Who pays for the stimulus

Andrew Dubinsky provides the following analysis:

What this means that, if your household earns between $200 - 500,000 (in 2005 income), it will be on the hook for roughly $30,000 of the stimulus bill.

And those tax cuts are not going to you, they are going to the households who do not pay taxes. How does that work? Well, a "credit" to a non-taxpayer counts as a "cut" in tax accounting.

David Berstein calls public health "experts" on their awful batting average

Via Prawfsblawgs, I discover that the paper authored by several "progressive" law professors criticizing Cass Sunstein contains the following extraordinary statement, defending the precautionary principle: "It is difficult to think of a single public health or environmental threat that with the benefit of additional research has not proven even more dangerous over time."

Now that's a fun game! Let's see, off the top of my head, here are some things that turned out to be a lot less threatening than many, including at least some "experts," thought:

Mercury in vaccines; Bendectin; Silicone breast implants (and medical grade silicone in general); PCBs; Asbestos in buildings; Flouride in water; Birth control pills; Occasional marijuana use; High fat diets; Exposure to low level nuclear radiation; New carpet fumes; "Toxic waste dumps"/Superfund sites; Moderate overweightedness; Moderate alcohol consumption; Spermicides; Metal fillings (for teeth); Cancer from physical trauma; Masturbation; Predictions in the 1970s of worldwide food shortages; "Overpopulation"; Global Warming (the predictions of the level of man-made warming have decreased dramatically, even among strong advocates of the theory); Miscarriage from video display monitors; Cancer from electromagnetic field radiation; Radon; Dioxin; Pesticides commonly used on fruits and vegetables causing cancer to "eaters";

And much, much more in the comments. Goes to show you the ever widening gap between curing/lifesaving measures, and access to them. And to think beyond our borders, DDT may have saved the lives of 10 million African children who succumbed to malaria.

A better stimulus idea

from House Representative John Carter:

Under the proposed law, any taxpayer who wrote “Rangel Rule” on their return when paying back taxes would be immune from penalties and interest.

Quotes of the day

Not a single House Republican voted in favor of the stimulus bill. It may well be the third inning of nine -- this is a Robert Gibbs analogy -- but it's Democrats who are crowding the plate--Marc Ambinder

... simply removing "toxic" assets from bank balance sheets will not directly cause banks to increase lending. Lending standards have tightened dramatically, and there is an unavoidable restructuring of risk taking place. Such causes money to come out of the system and lending to contract, with or without this "bad bank" structure. Lower asset bases, higher credit losses, and bloated expense structures will continue to pressure banks' earnings power and capital creation.--Meredith Whitney

Actors who have tried to play Churchill and MacArthur have failed abysmally because each of those men was a great actor playing himself.--William Manchester

What is Nassim Taleb smoking?

[Nassim] Taleb had some fighting words for Wall Street that surprised many in the room. He said, “I was happy when Lehman went bust,” explaining how he had shorted the company and literally danced when he heard the news. (The dinner was off the record, but Mr. Taleb and some of the others said they were so passionate about the issues that they could — and in Mr. Taleb’s case “should” — be quoted.) He went on to say, “I hate traders” and explained that the business of creating and trading derivatives is solely about finding a way to take advantage of clients.

How did you put your short on, Nassim, if you loathe traders? And weren't you a big trader a few years ago, before shutting your hedge fund down:

Mr. Taleb's previous fund, Empirica Capital, which used similar tactics, shut down in 2004 after several years of lackluster returns amid a period of low volatility. The strategy may face another test after the current bout of market turmoil.

DISCLOSURE: I am a trader.

The secret tax on teenagers

is the stimulus program, according to Tim Kane.

Those New York banker weasels

were, um, paying our bills:

The favorite activity of New Yorkers who are not in the banking industry is complaining about New Yorkers who are in the banking industry. I certainly joined in when I was a New Yorker. They outbid us for housing, they tipped too much, and in public places the younger ones often had a movie star's sense of entitlement without the easyness on the eyes, much less the ability to be consistently entertaining. Or so we used to whine.

Then there would be a recession, and everyone in New York would realize that all those overpaid weasels were, um, paying our bills. Bloomberg estimates that the cumulative tax loss to the city and state from the 2008 fiasco will be at least $33 billion--mostly in corporate income taxes, but $1.3 billion of that is just taxes on bonus income that evaporated in 2008.

Did Maria Bartiromo just step on a mine?

Possibly:

Turns out she and [John] Thain both pay public relations guru Ken Sunshine to represent them, and he apparently helped set up the exclusive. "It's a huge conflict of interest. It's incredible she didn't disclose this over the air, but she thinks she's above it all," one broadcast insider told Page Six. "And she was really kissing Thain's ass during the interview." Sunshine admitted to us he represents both Bartiromo and Thain, the latter having hired him just recently. "The relationship between John and Maria long precedes our relationship with him," Sunshine insisted. But he had no comment on whether he had a hand in lining up the interview. CNBC didn't get back to us.

Link to photo, by Martin Scholler, here.

From the Dark Ages to Renaissance

Arnold reflects on the recent history of macroeconomics:

The problem is that macro time series are nonstationary and have low statistical power. Go back to the table on labor force composition I gave earlier in this post. There is no way to estimate a model in a way that is robust to such dramatic structural changes.

Because the data are not powerful enough to reject any hypothesis against an interesting alternative, the macroeconomic "scientists" divorced themselves from the "engineers," who continued to use macroeconometric models. In my view, neither the scientists nor the engineers accomplished anything. The scientists did mathematical masturbation, with some occasional, isolated empirical work that satisfied journal referees based on whatever fads were taking place at the moment but had no lasting persuasive impact. The engineers provided forecasts and policy simulations that were precise in form and totally unreliable in substance. In any case, the engineers were kept out of economics departments.

This generation of academic macro wankers managed to achieve consensus, primarily by avoiding discussing the fundamental issues of macro--how labor markets fail to clear and how financial markets affect real activity. So we get Olivier Blanchard's smug pronouncement

a largely shared vision both of fluctuations and of methodology has emerged. Not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and fashion. But none of this is deadly. The state of macro is good.

Now that we are in a financial crisis, this "shared vision" is turning out to be nothing of the sort. Christina Romer and Larry Summers have gone back to trusting macroeconometricians, treating model multipliers as if they were fact rather than fiction. On the other side, Fama and others seem to have gone back to some pre-Keynesian view that simply ignores the possibility that there can be such a thing as unemployment.

Unfortunately, just because mainstream macroeconomists wasted their efforts the past thirty years does not mean that the answer is to rediscover macroeconomics as it stood in 1970. The pre-Dark-Age macro is not some mystical treasure map. It has a lot of theoretical and empirical gaps that make it unsatisfying.

I find myself incorporating strands as disparate as Hayek's information theory and Minsky's risk preference cycles into my thinking. I wish I had more professional company. I agree that macroeconomics has been through a Dark Age. But I think it has a way to go in order to experience a Renaissance.

Better and cheaper drugs for all?

Forget about it:

Once admired as an engine of American innovation, drug companies are now treated like Big Tobacco on Capitol Hill. The phantom drug safety crisis conjured by the Vioxx and antidepressant controversies has made the industry a piñata for Democrats like Henry Waxman and Bart Stupak.

and

The stated political goal is to reduce the cost of health care so the government can afford to pay for benefits for more people, which inevitably means controlling access to new drugs. Blueprints are being drawn up for Medicare to "negotiate" drug prices by leveraging its quasi-monopolistic power or simply by fixing the prices through reimbursement. The influence of such policies will only be magnified if Democrats create a Medicare-like program open to the under-65 set.

This political ferment can't help but distort the investment decisions of companies like Pfizer, which need to balance projected profits against the cost of clinical development. Biotech medicines hold the promise of significant health benefits but come at a price, reflecting the difficulty of developing them. But if starved of R&D money -- whether through politics or industry gambles that don't pay off -- innovation will wither.

Quotes of the day

It's like watching Jeter morph into A-Rod.--Curly Haired Boyfriend, on Tom Brady

Just don't make God look bad.--Alexandra Pelosi

There are two groups of people who like to be photographed with children: dictators and aid officials.--David Rieff

The communion between reviewer and his public is based upon the presumption of certain possible joys in reading, and all our discriminations should curve toward that end.--John Updike

They had better pass the stimulus bill quickly, before more people read it.--Arnold Kling

I have said many times that while there may be a social purpose in promoting home ownership, it is far from clear that there is a social purpose in promoting mortgage indebtedness. If you're increasing the supply of mortgage credit, you're reducing the supply of credit elsewhere in the economy. It's not clear that we should be aiming for that.--Arnold Kling

One final irony is that the global depression Mr. Obama will spend his administration fighting likely will produce decreases in CO2 output and energy consumption beyond the wildest dreams of the interns who drew up his campaign promises. Mr. Obama will devoutly wish it wasn't so.--WSJ Editorial Board

The irony now is obvious: George W. Bush as a force for emancipation in Muslim lands, and Barack Hussein Obama as a messenger of the old, settled ways. Thus the "parochial" man takes abroad a message that Muslims and Arabs did not have tyranny in their DNA, and the man with Muslim and Kenyan and Indonesian fragments in his very life and identity is signaling an acceptance of the established order.--Fouad Ajami

WSJ look at the stimulus package

... only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus. And even many of these projects aren't likely to help the economy immediately. As Peter Orszag, the President's new budget director, told Congress a year ago, "even those [public works] that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy."

Read the whole thing. My similar take here.

John Updike passes away at 76

Make no mistake: if He rose at all
it was as His body;
if the cells’ dissolution did not reverse, the molecules
reknit, the amino acids rekindle,
the Church will fall.

from Seven Stanzas at Easter by John Updike.

Photo link here.

Independent scientific studies of global warming?

Anything but.

More evidence that tax cuts are better than stimulus

Greg Mankiw provides this stimulus lag analysis from the CBO for the 2008 stimulus:

2009: 29.0
2010: 115.8
2011: 105.5
2012: 53.6
2013: 26.5
2014: 13.0
2015: 6.9
2016: 3.0
2017: 1.6
2018: 0.9
2019:0.4

Total: $356.0 billion

So only 8 percent of this spending occurs in budget year 2009, and only 41 percent occurs in first two years.

And Thomas Sowell says:

Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.

Quotes of the day

We fiercely debate domestic spending bills that waste affluent taxpayers’ money with a few millions on a bridge to nowhere, so why should we be NICE when the head of the world’s premier aid agency outlines virtually zero accountability for helping the world’s poorest people?--William Easterly

But the Democrats are still insufficiently ashamed of the work they have done for so many years before that and, in the case of many, even after, on behalf of the unions and the ed schools and against the kids. I gather that the spectacularly gifted and dedicated young teachers that Whitman and Mathews describe are unaware of this or untroubled by it. But perhaps one should just be satisfied that so much brilliant and pioneering work has been done—even if those who have worked so hard to feather their own nests and, effectively, have prevented inner city kids from learning don't get their due.--Michael Barone

Like the Bible or the Constitution, a CBO report can apparently mean lots of things to lots of people.--Conor Clarke

The sad truth is that we economists don't know very much about what drives the animal spirits of economic participants. Until we figure it out, it is best to be suspicious of any policy whose benefits are supposed to work through the amorphous channel of "confidence."--Greg Mankiw

U.S. farm programs cost taxpayers billions each year, significantly raise the price of commodities such as sugar (which is protected from competition from other producers in other countries), undermine world trade agreements, and contribute to the suffering of poor farmers around the world. It’s bad public policy, especially in these troubled economic times.--Reason's Hit and Run

No one has pleaded as earnestly for Congress to pass a Colombia free-trade pact as Caterpillar. Now, with earnings down and 20,000 American jobs to be lost, it's obvious why. Trade would have cushioned this blow.--IBD Editorial Board

Had [Timothy Geithner] not been nominated for Treasury Secretary, it’s doubtful that he would have ever paid these taxes.--Senator Robert Byrd

Bush wanted transcripts online because he expected the press to filter what he said. Obama doesn’t want transcripts online . . . because he expects the press to filter what he says.--Glenn Reynolds

[Kurt] Warner's teams have reached the Super Bowl every time he started all 16 regular-season games. That tells you Warner can be a great quarterback when he's healthy enough to play a full season.--Mike Sando

Nancy Pelosi says that people are a liability

so we should have less of them:

She added: "The states are in terrible fiscal budget crises now, and part of what we do for children's health, education and some of those elements are to help states meet their financial needs. One of those -- one of the initiatives you mentioned, the contraception -- will reduce costs to the states and to the federal government."

The notion that a larger population will produce a lower standard of living can be traced to the 18th-century economist Thomas Malthus. But during Malthus's own lifetime, his prediction was proved false, as he later acknowledged. Population and living standards rose simultaneously, and have continued to do so.

Ms. Pelosi's remarks ignore the importance of human capital, which is the ultimate resource. Fewer babies would move the U.S. in the demographic direction of Europe and Asia. On the Continent, birth rates already are effectively zero, and economists are predicting labor shortages in the years ahead. In Japan, where the population is aging very fast, workers are now encouraged to go home early to procreate. Japan is projected to lose 21% of its population by 2050.

Who's going to pay for your programs, Ms. Speaker, if not people?

Never Say Yesterday Never Dies

at the Wall Street Journal, where Felix Salmon notes something rather disturbing.

Photo links here and here.

Cartoon of the day

by Michael Ramirez via Mark Perry.

Two good Americans talk on CNBC this morning

Paul Ryan and Greg Mankiw. Okay, Carl seems to me to be a good American, too.

It matters little if you are right about a topic

but you lose money. That's why John Paulson is king of the world (for now).

UPDATE: Via Eddy Elfenbein:

Well, Dr. Doom has predicting disaster for several years now, and what we're seeing now isn't quite what Schiff predicted. Jonas Elmerraji of the Rhino Stock Report writes:

While Schiff has proved himself as an economist, his ability to parlay those predictions into profits for his clients was questionable for 2008. For the last few years, he’s been betting big on overseas investments and precious metals – two areas that got hit as hard or harder than the S&P last year.

and

Mish breaks it down in list form:

12 Ways Schiff Was Wrong in 2008

* Wrong about hyperinflation
* Wrong about the dollar
* Wrong about commodities except for gold
* Wrong about foreign currencies except for the Yen
* Wrong about foreign equities
* Wrong in timing
* Wrong in risk management
* Wrong in buy and hold thesis
* Wrong on decoupling
* Wrong on China
* Wrong on US treasuries
* Wrong on interest rates, both foreign and domestic

Quotes of the day

... as a research-driven company grows larger, everything scales except research productivity.--Derek Lowe

Far from indicating a country on the ropes, the foreigners seeking both legal and illegal entry into the U.S. in the last decade are a market signal pointing to a nation doing far better than elite thinking around the world has suggested. Simply put, countries that attract the washed and unwashed the world over are pictures of success; the countries that lose their limited human capital are failures. Cuba, North Korea and Zimbabwe do not have immigration "problems."--John Tamny

[Organized public works] are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.--John Maynard Keynes

Larry Summers famously said that in order to be effective, fiscal stimulus must be "timely, targeted, and temporary." The Democrats' plan is none of those things. Instead, it is an enormous Galbraithian transfer from the private sector to the public sector. While I can understand their enthusiasm for this transfer, I cannot share in their glee.--Arnold Kling

However, this demand [for government debt] can be satisfied in far greater quantity, much more quickly, much more reversibly, and without the danger of a fiscal collapse and inflation down the road, if the Fed and Treasury were simply to expand their operations of issuing treasury debt and money in exchange for high-quality private debt and especially new securitized debt. --John Cochrane

Nobody cared that most of those CIA excesses were done under orders from American presidents, that it was really the sainted John F. Kennedy who spilled the blood that splashed on Dad. It didn't fit into the sixties script: The hard old men were the bad guys, and, by repudiating them, America would somehow become innocent again.--John H. Richardson

The Golden Globes were stained for years by awarding Pia Zadora one of its gleaming statuettes. Now, the Oscars risk a similar stain if they give their highest honors to two deeply undeserving actors (Brad Pitt and Angelina Jolie), at least for their 2008 work.--Christian Toto

Gary Becker and Richard Posner are not very worried by the Employee Free Choice Act

Posner says:

I doubt that the Act would have a great effect on unionization. Unions have been in steady decline in the private sector for decades and now account for only about 7 percent of nonfarm workers in that sector (farm workers are not covered by the National Labor Relations Act). Elaborate government regulation of workplace safety and health has reduced the value of unions to workers, as has greater job mobility and the increasingly technical and individualized character of many jobs, which makes it difficult for workers to agree on the terms and conditions of employment that they should be seeking. International competition has reduced the power of unions to extract supracompetitive wages, benefits, or work rules, as has the deregulation movement, which has made the formerly regulated industries, such as transportation, more competitive. Unions have little power in a competitive industry, because a supracompetitive wage, by increasing the employer's cost, will shift his output to competitors. We are seeing this happen in the automobile industry, where union intransigence has been a factor in the decline of the Detroit automakers, now on federal life support.

Becker writes:

From the 1930s to the 1960s, unions enjoyed considerable popularity in public opinion. I remember being surprised when a graduate student to hear the arguments by Milton Friedman and some of my other teachers that unions were often monopolies that benefited their members at the expense mainly of other workers. As various arguments hostile to unions became more common during the past half-century, public opinion shifted against unions. Unions are considered too selfish, sometimes corrupt, as with the well-publicized troubles of the teamsters union, and they are no longer believed considered necessary to protect employee interests.

Given this radical shift in public opinion, and the fundamental economic and social forces that contributed to the decline of unions, it is unlikely that the new Congress and new President would push for radical pro-union legislation, despite the impressive victory in the past election of the Democratic Party, and the strong financial and other support the larger unions gave to this party.

Obama's White House staff pay freeze nets $17,000

That's change I can believe in.

Why is the Obama administration less diplomatic towards China than the Bush Administration?

Election coverage this past year had led me to a different expectation from this.

Greg Mankiw calls Joe Biden to account

I guess accountability is not just a punchline to Greg:

As a logical matter, I can think of only four possibilities:

1. Biden knew what he was saying was false.
2. Biden was saying what he believed to be true and somehow got this incorrect idea in his head without talking about the issue with the very talented team of economists working for the new administration.
3. Biden talked to his economic advisers about the issue, and they purposefully misled him into thinking that there was a consensus among economists, even though there isn't.
4. Biden's advisers were themselves mistaken. They expected an overwhelming consensus of support for their fiscal plans and were surprised at the number of prominent economists on the opposite side the issue.

I have no idea which of these hypotheses is correct. I suspect it is either the first or last. But any one of them should make us uneasy about how well the new administration's economic decision making apparatus is working.

A case against stimulus

by Kevin Murphy, who presents a nice equation to determine value of stimulus output, after accounting for inputs and deadweight loss.

Some of his views:

• Government is inefficient, and the haste in implementing stimulus will make it less efficient
• Attempting to make stimulus investment will also make government less efficient
• Positive Keynesian multipliers assume that only "idle" resources are exploited, which is not the case in real life
• With government borrowing, taxpayers will save instead of spend in order to pay future taxes
  

In sum, Murphy is not optimistic about the stimulus plan from Congress.

Thanks to David Henderson for the pointer, who also summarizes a point by John Cochran, that given that the problem is a lack of investment, having the government spend money that it borrows must crowd out some investment.

UPDATE: As long as we are on the topic of less efficient government, Megan continues her series on deadweight information technology.

Is Baghdad safer than Tijuana?

It seems so. (Via Drudge)

Quotes of the day

My work always tried to unite the True with the Beautiful, but when I had to choose one over the other, I usually chose the Beautiful.--Hermann Weyl

Investors, workers and employers need to have a sense of where tax, spending and regulatory policy are headed, or they will postpone decisions and further weaken the economy.--Michael Boskin

Beware. The mere ability to write, from the sidelines, "it should be done like X" doesn't eliminate the lessons of public choice economics.--Tyler Cowen

The anti-stimulus economist is attacked by pro-stimulus economists. But the pro-stimulus proponents are focused on attack. They are not putting up comparable empirical evidence of their own for the efficacy of fiscal policy and there is a reason for that, namely that the evidence isn't really there.--Tyler Cowen

All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves.--Warren Buffet

I confess to a deep curiosity about how closely the watchdogs who bashed Bush on principle will actually hold Obama to account for his promises.--Megan McArdle

Most of the "green" stuff is verging on a gigantic scam. Carbon trading, with its huge government subsidies, is just what finance and industry wanted. It's not going to do a damn thing about climate change, but it'll make a lot of money for a lot of people and postpone the moment of reckoning. I am not against renewable energy, but to spoil all the decent countryside in the UK with wind farms is driving me mad. It's absolutely unnecessary, and it takes 2500 square kilometres to produce a gigawatt - that's an awful lot of countryside.--James Lovelace, who pioneered the ozone-layer work that led to the global chloroflourocarbons ban

Of course it's a violation of international law, that's why it's a covert action. The guy is a terrorist. Go grab his ass.--Al Gore, on extraordinary rendition, or having other countries torture terrorists for information

Good thing for Barney Frank

That others are giving him lots of cover for this:

Troubled OneUnited Bank in Boston didn't look much like a candidate for aid from the Treasury Department's bank bailout fund last fall.

The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives' use.

Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.

Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection.

Good question Felix

Why did Timothy Geithner recuse himself from regulating Citigroup?

Paying one's fair share is not just a problem for Tim Geithner

Apparently, it's a problem for self-reporting liberals, when compared with their conservative counterparts:

In May of last year, the Gallup polling organization asked 1,200 American adults about their giving patterns. People who called themselves "conservative" or "very conservative" made up 42% of the population surveyed, but gave 56% of the total charitable donations. In contrast, "liberal" or "very liberal" respondents were 29% of those polled but gave just 7% of donations.

These disparities were not due to differences in income. People who said they were "very conservative" gave 4.5% of their income to charity, on average; "conservatives" gave 3.6%; "moderates" gave 3%; "liberals" gave 1.5%; and "very liberal" folks gave 1.2%.

A common explanation for this pattern is that conservatives are more religious than liberals, and are simply giving to their churches. My own research in the past showed that religion was a major reason conservatives donated so much, and that secular conservatives gave even less than secular liberals.

It appears this is no longer the case, however: The 2008 data tell us that secular conservatives are now outperforming their secular liberal counterparts. Compare two people who attend religious services less than once per year (or never) and who are also identical in terms of income, education, sex, age and family status -- but one is on the political right while the other is on the left. The secular liberal will give, on average, $1,100 less to charity per year than the secular conservative. The conservative charity edge cannot be explained away by gifts to churches.

Perhaps you suspect that the vast political contributions given to the Obama campaign -- $742 million, according to the Center for Responsive Politics, versus $367 million for the McCain campaign -- were crowding out charitable giving by the left. But political donations, impressive as they were this year by historical standards, were still miniscule compared to the approximately $300 billion Americans gave charitably in 2008. Adding political and charitable gifts together would not change the overall giving patterns.

But here's where the charity gap really starts to make a difference for the recession of 2009: Conservatives don't just give more; they also decrease their giving less than liberals do in response to lousy economic conditions.

Quotes of the day

For four hundred years since Bacon and Descartes led the way, science has raced ahead by following both paths simultaneously. Neither Baconian empiricism nor Cartesian dogmatism has the power to elucidate Nature's secrets by itself, but both together have been amazingly successful.--Freeman Dyson

Desperate to preserve the value of asset prices inflated by this huge liquidity bubble, policy makers have avoided the painful solution. The liquidity injections, the bailout programs, and the fiscal-stimulus packages try to sustain asset prices, when these prices need to fall to market levels so they can be cleared. The policy makers have just prolonged the crisis.--David Roche

The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system.--Robert Barro

On wiretaps, interrogations and now Gitmo, the new Administration is discovering that the left-wing attack lines against Bush policies are mostly simplistic illusions. Now those critics are Mr. Obama's problem.--WSJ Editorial Board

We really shouldn't be surprised if Congress approves Geithner's appointment, given ethical standards of Congress.--Pillard, in comment to CNBC

[Timothy Geithner] acknowledged signing an IMF statement at the time that he understood he had been reimbursed to pay those self-employment taxes, adding that he should have read the statement more carefully. Millions of Americans have said the same thing about the tax code during an IRS audit, earning less forgiveness.--WSJ Editorial Board

Would you answer my question rather than dancing around it -- please?--Senator Jon Kyl, in questioning Timothy Geithner about still not paying back all of his back taxes

I actually saw Bill [Belichick] fly once, which was just incredible to see,” Light deadpanned yesterday. “He literally hovered, then flew almost Superman-like across to the other side of the practice facility. You can write that down. I saw it happen.--Matt Light

Bush policy outcomes

as spun by Karl Rove:

Iraq is now on the mend, the war is on the path to victory, al Qaeda has been dealt a humiliating defeat, and a democracy in the heart of the Arab world is emerging. The success of Mr. Bush's surge made it possible for President Obama to warn terrorists on Tuesday "you cannot outlast us."

Mr. Bush was right to establish a doctrine that holds those who harbor, train and support terrorists as responsible as the terrorists themselves. He was right to take the war on terror abroad instead of waiting until dangers fully materialize here at home. He was right to strengthen the military and intelligence and to create the new tools to monitor the communications of terrorists, freeze their assets, foil their plots, and kill and capture their operators.

These tough decisions -- which became unpopular in certain quarters only when memories of 9/11 began to fade -- kept America safe for seven years and made it possible for Mr. Obama to tell the terrorists on Tuesday "we will defeat you."

Mr. Bush was right to be a unilateralist when it came to combating AIDS in Africa. While world leaders dithered, his President's Emergency Plan for AIDS Relief initiative brought lifesaving antiretroviral drugs to millions of Africans.

At home, Mr. Bush cut income taxes for every American who pays taxes. He also cut taxes on capital, investment and savings. The result was 52 months of growth and the strongest economy of any developed country.

Mr. Bush was right to match tax cuts with spending restraint. This is a source of dispute, especially among conservatives, but the record is there to see. Bill Clinton's last budget increased domestic nonsecurity discretionary spending by 16%. Mr. Bush cut that to 6.2% growth in his first budget, 5.5% in his second, 4.3% in his third, 2.2% in his fourth, and then below inflation, on average, since. That isn't the sum total of the fiscal record, of course -- but it's a key part of it.

He was right to have modernized Medicare with prescription drug benefits provided through competition, not delivered by government. The program is costing 40% less than projected because market forces dominate and people -- not government -- are making the decisions.

Mr. Bush was right to pass No Child Left Behind (NCLB), requiring states to set up tough accountability systems that measure every child's progress at school. As a result, reading and math scores have risen more in the last five years since NCLB than in the prior 28 years.

He was right to stand for a culture of life. And he was right to appoint conservative judges who strictly interpret the Constitution.

And Mr. Bush, a man of core decency and integrity, was right not to reply in kind when Democratic leaders called him a liar and a loser. The price of trying to change the tone in Washington was to be often pummeled by lesser men.

Few presidents had as many challenges arise during their eight years, had as many tough calls to make in such a partisan-charged environment, or had to act in the face of such hostile media and elite opinion.

Perhaps after Bush Derangement Syndrome has faded in the wake of President Obama, Rove's words will be accepted more generally. I've got several beefs with Bush (off the top of my head: ethanol policy, steel industry protectionism, prescription drug benefit, deadweight of Homeland Security policies, Tom Ridge, Paul O'Neil, Harvey Pitt ...) but I'm still glad he was president ahead of Kerry and Gore.

A good step for Caroline

And good leap for democracy:

I informed Gov. Paterson today that for personal reasons I am withdrawing my name from consideration for the United States Senate.--Caroline Kennedy

When under extenuating circumstances, it makes sense to me for a person not elected as governor to appoint a person never elected as senator. And indeed, that is what might be happening in the state in which I am domiciled.

But in the spirit of self-government, it would be more seemly for Governor Paterson to appoint someone who has been elected to public office, as opposed to someone with cultural cache.

UPDATE: NY Times reporting Caroline had some housekeeper and tax skeletons in her closet.

Real Transparency

As suggested by Anthony Randazzo:

Mr. Obama should press for a complete, itemized—and publicly available—list of how much money taxpayers are already on the hook for to bailout failing entities. There are so many different bailout-related programs—TARP (Troubled Asset Relief Program), Federal Reserve programs, auto bailouts, and investment guarantees—that we don't have a firm dollar figure. No one knows exactly what to count. Different sources have given different estimates that vary by as much as $1 trillion or so. The New York Times, in December, calculated bailout spending to be $7.8 trillion. CNBC thinks it is about $7.3 trillion. If you count all the taxpayer money spent in 2008 on bailouts, including the $150 billion stimulus in the spring of 2008 and the early bank rescues, such as IndyMac, the figure rises to over $8.4 trillion.

During the campaign, Mr. Obama talked about "putting the government online" and he has already announced a website for stimulus spending—www.Recovery.gov.

UPDATE: Here is $192 billion worth of TARP injections. Of course, that's less than 10% of what the government has financed.

Speechless

Photo link here.

Previous speechless photo entry here.

You've heard of KISS. KILL means

"Keep it Likable and Learnable."

He writes good for an actor

Via Tyler Cowen, Dirk Benedict says:

... bringing Starbuck to life was over the dead imaginations of a lot of Network Executives. Every character trait I struggled to give him was met with vigorous resistance. A charming womanizer? The “Suits” (Network Executives) hated it. A cigar (fumerello) smoker? The Suits hated it. A reluctant hero who found humor in the bleakest of situations? The Suits hated it. All this negative feedback convinced me I was on the right track.

...

There was a time, I know I was there, when men were men, women were women and sometimes a cigar was just a good smoke. But 40 years of feminism have taken their toll. The war against masculinity has been won. Everything has turned into its opposite, so that what was once flirting and smoking is now sexual harassment and criminal. And everyone is more lonely and miserable as a result.

Witness the “re-imagined” “Battlestar Galactica,” bleak, miserable, despairing, angry and confused. Which is to say, it reflects in microcosm the complete change in the politics and morality of today’s world, as opposed to the world of yesterday.

I do agree with him, but our culture has taken a turn away from Capra back towards Tarantino.

Whatever sells the ads, Starbuck, er, Faceman.

Avoid touching any objects while shopping whenever possible

For a surprising reason (i.e. in addition to avoiding germs and damage risks)

Federal healthcare legislation set at 300% of poverty line

The [State Children's Health Insurance] bill became a liberal Pequot after President Bush repeatedly vetoed it in 2007 (while supporting a modest expansion). The GOP has no hope of stopping it now, so Schip will more than double in size with $73.3 billion in new spending over the next decade -- not counting a budget gimmick that hides the true cost. The program is supposed to help children from working-poor families who earn too much to qualify for Medicaid, but since it was created in 1997 Democrats have used it as a ratchet to grow the federal taxpayer share of health-care coverage.

With the new bill, Schip will be open to everyone up to 300% of the federal poverty level, or $63,081 for a family of four. In other words, a program supposedly targeted at low-income families has an eligibility ceiling higher than the U.S. median household income, which according to the Census Bureau is $50,233. Even the 300% figure isn't really a ceiling, given that states can get a government waiver to go even higher. Tom Daschle's folks at Health and Human Services will barely read the state paperwork before rubberstamping these expansions.

This subsidy (like most others) will create even more inflation and will also reduce choice. So much for helping the poor and the middle class. We'd be better off if Singapore and Walmart did more to provide healthcare, and the federal government less.

Quotes of the day

In diagnosing the cause of our economic distress, [President Obama] scored not only the easy mark of "greed" but also stressed "our collective failure to make hard choices and prepare the nation for a new age." He might have been referring to home buyers who took out "liar loans," Senators who got sweetheart mortgages, and executives who walked away with bonuses for profits that proved illusory.--WSJ Editorial Board

In this present crisis, government is not the solution to our problem; government is the problem.--Ronald Reagan, in 1981

To require such fealty to power in the name of patriotism was once repugnant to the left. Now, with the right guy in charge, apparently it can once again be embraced. ... Change, indeed.--David Hirsanyi

Everyone's hailing Obama's decision to suspend all Guantanamo trials for 120 days. But I thought the problem with Guantanamo was the people being held without trial.--Megan McArdle

Why have [the taxpayers been] been billed more than $45 billion to rescue Citigroup from failure when, as president of the Federal Reserve Bank of New York, you [Timothy Geithner] were its primary supervisor?--Anna Jacobson Schwartz

The income tax code favors those with employer-provided health insurance over those who buy their own health insurance or pay medical bills out of pocket. It also favors homeowners over renters, through the mortgage interest deduction. Is this tax treatment efficient or fair? Might you favor a more level playing field?--Greg Mankiw

Some people might manipulate their genes to become smarter. I think that's a mistake, especially after you become a winged monkey. The smarter you are, the more easily bored you will be. I want to be happy all the time so I'd trim 40% off my IQ and get some new hobbies such as collecting rocks that are roundish, or running for Congress.--Scott Adams

Chart of the day

Presidents' approval ratings:

Art and truth on global warming

Via Drudge, I present to you FrozenGore.com:

A global cooling roundup.

A nice anecdote illustrating the deadweight loss of government

Information technology.

The Intrade 2009 Depression Contract

has a silly error:

[Intrade defines] "depression" thus:

For expiry purposes a depression is defined as a cumulative decline in GDP of more than 10.0% over four consecutive quarters. This is calculated by adding together the published (annualized) GDP figures (as detailed below). If these annualised figures add up to more than -10.0% over four consecutive quarters then the contract will expire at 100.

Expiry will be based on official quarterly GDP figures reported by the U.S. Department of Commerce (Bureau of Economic Analysis, Table 1.1.1, "Percent Change From Preceding Period in Real Gross Domestic Product") as reported by the BEA.

The problem is that if you add four quarterly change-figures that are already each annualized, you will get a far larger cumulative result than the actual change over a four-quarter period. Suppose there are four successive quarters each showing an annualized 2.5% decline in GPD. Intrade will add those together and get 10%. But over the year, the annual decline in GDP will acually be 2.5%.

Intrade has listed a new contract to address the error: 2009.US.GDP.-10.0%

UPDATE: Here is Intrade's announcement.

Luigi Zingales offers Geithner/Obama some great advice

Via Greg Mankiw, Zingales says (and please read the whole thing):

To begin, you need an overall strategy. Even a mediocre strategy is better than an ad hoc approach that confuses markets and fuels the perception of playing favorites. Legendary portfolio manager David Swensen (who in 23 years transformed the $1 billion of Yale endowment into $23 billion) in reference to the government intervention in this crisis commented “the government has done it with an extreme degree of inconsistency. You almost have to be trying to do things in an incoherent and inconsistent way to end up with the huge range of ways they have come up with to address these problems.”¹
...

One solution [to restart lending] is the one I advanced last Fall⁵. It requires passing a new piece of legislation introducing a new form of bankruptcy for banks, where derivative contracts are kept in place and the long term debt is swapped into equity. As Pietro Veronesi and I have shown in a recent article, such conversion will fully recapitalize the banking sector and bring down the level of risk of debt (as measured by the credit default swaps level) to pre-crisis level.⁶

When I proposed it in September they told me that there was not enough time.⁷ When I re-proposed it in October they told me that there was no chance to reconvene Congress after the election. But time has passed and the Congress has been reconvened after the election, but there has been no discussion of this alternative that can save hundreds of billions of dollars to taxpayers.

...
Mr Geithner, incumbent bankers and their lobbyists will always make you believe there is no alternative to the plan that benefits them the most. You cannot fall for this old trick.
The alternatives I outlined above are not only possible, but also fair. They penalize who invested poorly and help provide loans to businesses in need. On top of this, they achieve these goals at zero cost to taxpayers (no small feat in a time of ballooning deficits). Yes, we can Mr Geithner, … if you lead us there.

Is today's stock selloff

due to not having the captain of Treasury on board yet?

2009 Inauguration Day transcripts

Barack Obama's speech:

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because We the People have remained faithful to the ideals of our forbearers, and true to our founding documents.
...
We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.

Rick Warren's prayer:

Help us, O God, to remember that we are Americans--united not by race or religion or blood, but to our commitment to freedom and justice for all.

A stimulus by any other name

James Suroweicki on psychology and framing policy:

It may seem odd that framing the same policy in different ways will change the way people respond to that policy. But it’s well established that the way choices are framed often has a huge impact on the decisions people make. In a recent experiment, Valrie Chambers and Marilyn Spencer found that, just as Obama’s proposal suggests, people were more likely to spend a tax refund when it was handed out in monthly installments than in one lump payment.

There’s even some history to draw on in this regard. In 1992, the first President Bush temporarily reduced people’s withholding payments. He didn’t cut taxes—people still owed the same amount at the end of the year—but the move made people’s take-home pay look better than it was. In textbook economics, this should have had no impact on spending. Yet one survey suggests that almost half of the people planned to spend most of their rebate. If the effect was that large with a tax cut that didn’t even exist, it should be significantly bigger when the government is handing out real money. On its own, Obama’s rebate plan isn’t going to resurrect the economy. But it’s a policy that works with people as they are, rather than as we imagine they should be. And that’s a stimulus in itself.

The Obama administration is reducing access to new healthcare solutions

in the name of Effectiveness:

In Britain, a government agency evaluates new medical products for their "cost effectiveness" before citizens can get access to them. The agency has concluded that $45,000 is the most worth paying for products that extend a person's life by one "quality-adjusted" year. (By their calculus, a year combating cancer is worth less than a year in perfect health.)

Here in the U.S., President-elect Barack Obama and House Democrats embrace the creation of a similar "comparative effectiveness" entity that will do research on drugs and medical devices. They claim that they don't want this to morph into a British-style agency that restricts access to medical products based on narrow cost criteria, but provisions tucked into the fiscal stimulus bill betray their real intentions.

The centerpiece of their plan is $1.1 billion of the $825 billion stimulus package for studies to compare different drugs and devices to "save money and lives." Report language accompanying the House stimulus bill says that "more expensive" medical products "will no longer be prescribed." The House bill also suggests that the new research should be used to create "guidelines" to direct doctors' treatment of difficult, high-cost medical problems.

BCWUW4: Be careful what you wish for.

Quotes of the day

We may be able to get a Negro President in less than 40 years.--Martin Luther King, Jr., in 1964

Mr. Obama will be the country's first African-American president, but he is actually far more than that. He will be the first president whose ethnic identity is not linked to the extreme northwest corner of Europe. All 42 men who have been president of the United States up to now were either British, Irish or Dutch in ancestry -- except Dwight Eisenhower ...--John Steele Gordon

"Let it be told to the future world...that in the depth of winter, when nothing but hope and virtue could survive...that the city and the country, alarmed at one common danger, came forth to meet [it]."--George Washington at Valley Forge

I'm seeing this inauguration through my mother's 85-year-old eyes. She is here with me in D.C. and will be at the inauguration. Her husband, my beloved departed father, was a Tuskegee Airman. He was part of a segregated military. My mom will be filled with emotion when she witnesses the swearing in of an African-American commander-in-chief. Yes we can.--Robin Roberts

... the amount of stimulus from the spending package would be far less than estimated in a study by the incoming Chairperson of the Council of Economic Advisers ("The Job Impact of the American Recovery and Reinvestment Plan", by Christina Romer and Jared Bernstein, January 9, 2009). The activities stimulated by the package to a large extent would draw labor and capital away from other productive activities. In addition, the government programs were unlikely to be as well planned as the displaced private uses of these resources.--Gary Becker

... there are those who will never forgive Mr. Bush for not losing a war they had all declared unwinnable.--William McGurn

[Eric] Holder now concedes that Presidents have inherent powers that even a statute can't abridge, notwithstanding his campaign speeches. That makes us feel better about a General Holder on national security. But his concession is further evidence that the liberal accusations about "breaking the law" and "illegal wiretaps" of the last several years were mostly about naked partisanship. Mr. Holder's objection turns out to be merely the tactical political one that the Bush Administration would have been better off negotiating with Congress for wiretap approval, not that it was breaking the law. Now he tells us.--WSJ Editorial Board

... from passages in Genesis, it is clear that the colour of domestic animals was at that early period attended to.--Charles Darwin

Sarah Palin saves Tina Fey

and her 30 Rock colleagues.

Talk about saving and creating jobs!

That's what happens when you only use half of your brain

Via Stephen Green, Kevin Holtsberry offers a defining difference between men and women:

No wonder my wife remembers where everything in the house is.

More evidence that incomes and lifestyles are wealthier than ever

A century ago, restaurants hardly existed. And look at what has transpired in the past 2 generations:

The current stimulus proposal

via Tim Kane:
It looks like 40% of it is good: tax cuts put give households a little of their hard-earned money back to spend in the best way for each family, upgrading the power grid will increase productivity and reduce potentially fatal blackouts, and increasing broadband internet will increase information access (assuming no offsetting erosions in First Amendment rights).

That means the remaining half a trillion is a double horror: not only are we wasting money we don't have today, we are reducing the ability to fund superior projects in the future.

The best way to increase equality

is to let the rich get things first. As free markets respond to free people expressing their preferences, more and more people gain access to the same goods and services. This has held true not just for computing, infotainment and household appliances, but for food, clothing, housing and medicine.

The only exceptions are where government subsidies distort things, like in education and healthcare services, which are currently hyperinflationary.

Quotes of the day

Character played by Salma Hayek: I have another patient on my off days. He's a sweet old man with advanced dementia, totally disconnected from reality.
Jack: That reminds me. I owe Lou Dobbs a call.--30 Rock

What we have done is kicked this [entitlements reform] can down the road. We are now at the end of the road and are not in a position to kick it any further," he said. "We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's.--Barack Obama

Mostly, Democrats took their wish lists, called them "stimulus", and look set to inflict them on the American people in badly done drag. ... ow, what does that remind me off? Rhymes with Whoosh Max Butts, I think . . . --Megan McArdle

I will not yield; I will not rest; I will not relent in waging this struggle for freedom and security for the American people.--George W. Bush

US Airways Airbus 320 is down in the Hudson River

I see it from my office building. Flight 1549 departed LaGuardia for Charlotte, with 146 passengers and 5 crew onboard.

UPDATE: CNBC reports that the pilot reported hitting a flock of geese.

If no one is killed or seriously hurt from this incident, it will be an amazing testament to the capabilities of the pilot, crew, air traffic control, Airbus technology, and US Air maintenance and operations.

UPDATE: FAA reporting that everyone is safely off the plane.

UPDATE: Photo from NY Post:

UPDATE: My colleague emailed this close-in photo of the rescue process (taken by Janis Krums):

TED chillin' under the TARP

Says Greg Mankiw, which means that the federal bailout is working.

Arnold's quick reference to players in the financial sector

here:

Actor	The Promise	The Reality
Financial Executives	Brilliant Risk Management	Catastrophic Losses
Eliot Spitzer	Mr. Clean, Financial Reformer	Celebrity Prosecutions, Real Abuses Untouched, and Not So Clean
CONGRESS: Sarbanes-Oxley	Financial Responsibility	Large Costs, No Apparent Benefits
Basel Capital Standards	International Coordination, Sound Banks	Worldwide Banking Collapse
Fannie, Freddie	Stable Mortgage Credit	Fed the Boom, Stuck Taxpayers with the Bust
TARP	Unclog the Financial System	Zombie Banks
Big Fiscal Stimulus	Put the Economy on a Better Path	Wait and See

Quote of the day

JP Morgan would have been better off financially just simply axing its M&A department altogether.--Felix Salmon

How refreshingly frank. [Bob] Herbert doesn't hide the fact that his ethics are those of a bank robber.--Don Boudreaux

The 2008 Global Warming Contract has expired; 2009 contract is listed

The 2008 GLOBAL Land-Ocean average was 0.438 Celsius degrees (above baseline mean of 14C), according to the Goddard Institute for Space Studies.

The 0.41-0.50 contract, trading on the Global Warming Exchange, expires in the money. Recent average temperatures peaked at 0.62 Celsius above in 2005, and was 0.57 above in 2007. Nice long-term temperature graph here.

I'll announce the 2009 contract shortly.

UPDATE: The 2009 contract is up. Click here, or in the Inkling Markets box on the upper right of the page.

That Presdient-elect sure is

a charmer:

KUDLOW OFFERS DETAILS OF OBAMA DINNER
Wed Jan 14 2009 12:15:47 ET

CNBC’s Melissa Francis: I HAVE TO ASK LARRY, I'M DYING TO HEAR ABOUT IT, YOU HAD DINNER LAST NIGHT WITH PRESIDENT-ELECT BARACK OBAMA. WHAT WAS THE TONE LIKE? WAS HE TRYING TO WIN OVER THE CONSERVATIVES? IS THAT WHAT IT WAS?

THERE WERE ABOUT TEN OF YOU THERE, RIGHT?

CNBC’s Larry Kudlow: THIS WAS AN OFF-THE-RECORD DINNER AND I'M GOING TO KEEP IT OFF THE RECORD IN TERMS OF DEEP CONTENT, BUT PEGGY NOONAN WAS THERE, PAUL GIGOT OF THE WALL STREET JOURNAL, BILL KRISTOL, MYSELF, CHARLES KRAUTHAMMER, SOME OTHERS. NINE OR TEN OF US. I DON'T THINK HE'S TRYING TO WIN US OVER, BUT HE'S TRYING TO CONNECT WITH US AND ENGAGE WITH US TO HIT GREAT CREDIT.THIS WAS A VERY CORDIAL DINNER.

Francis: HE IS CHARMING, RIGHT?

Kudlow: HE IS CHARMING, HE IS TERRIBLY SMART, BRIGHT, WELL-INFORMED, HE HAS A GREAT SENSE OF HUMOR. AT THE BEGINNING WHEN HE WALKED INTO THE LIVING ROOM, YOU KNOW, WE'RE ALL WAITING --

Francis: WHERE WERE YOU?

Kudlow: THIS IS AT GEORGE WILL'S HOUSE….HE COMES IN AND HE CAME UP TO ME, I HAD NEVER MET HIM BEFORE. I THINK HE MAY HAVE WATCHED ‘KUDLOW AND COMPANY’ PERIODICALLY. SOMEBODY GAVE HIM A COLUMN I HAD WRITTEN DEFENDING HIS BUSINESS INVESTMENT TAX CUTS. HE LIKED THAT A LOT. I SAID, ‘YOU KNOW, SIR, SINCE BARNEY FRANK AND NANCY PELOSI, JOHN KERRY, ATTACKED HIM I KNEW I MUST BE ON TO SOMETHING GOOD.’ HE LAUGHED A LOT. I SAID ‘YOU TOOK MY BEST PEOPLE FROM THE PROGRAM. YOU TOOK AUSTAN GOOLSBEE.’ HE LAUGHED AND SAID THEY'RE GOOD MEN. I SAID, BUT MR. PRESIDENT, LET ME CAN YOU, WHY DID YOU LEAVE US ROBERT REICH, WHO I ADORE, AND HE LAUGHED AND SAID I WANT SOMEBODY FIGHTING FOR ME, LARRY,

INTERESTING THING. THIS IS JUST GENERALLY SPEAKING, HE IS SO WELL-INFORMED, AND HE LOVES TO DEAL WITH BOTH SIDES OF AN ISSUE, AND I'M NOT GOING TO DIVULGE WHAT WAS SAID THERE AND I'M NOT GOING TO GO INTO ANY OF THE SPECIFICS, BUT HE ENJOYS THE BACK AND FORTH, AND HE IS NOT, YOU KNOW, TOUGH, MEAN, INSULTING, SNARLING, NONE OF THAT STUFF, AND WE WEREN'T EITHER.

THIS WAS A GOOD CONSERVATIVE GROUP AND WE JUST HAD A GREAT BACK AND FORTH, AND HE WANTS TO KEEP THE DIALOGUE GOING WITH CONSERVATIVES. I WOULD SAY I AM HONORED TO BE AT THAT DINNER. I WAS HONORED TO MEET HIM. HE IS A VERY IMPRESSIVE MAN, AND I WISH HIM ALL THE LUCK IN THE WORLD BECAUSE WE'VE GOT SOME ISSUES TO DEAL WITH.

Francis: WHAT DID YOU EAT?

Kudlow: I CAN'T REMEMBER. I WAS SO FOCUSED ON HIM. I WAS SITTING ACROSS FROM HIM --

Francis: YOU PROBABLY DIDN'T EAT. MAYBE YOU DIDN'T TOUCH ANYTHING.

Kudlow: THE FOOD WAS EXCELLENT. I PROBABLY DIDN'T EAT A WHOLE LOT. IT WAS ALL VERY INTERESTING, AND HE'S A GOOD MAN, AND WE WILL SEE

HOW HE DOES. THAT'S ALL I CAN SAY. WE WISH HIM THE BEST.

Quote of the day

If there's anything that demonstrates the straying of the Democratic Party leadership from basic liberal principles, it's this blasted Fairness Doctrine -- which should be fiercely opposed by all defenders of free speech. Except when national security is at risk, government should never be involved in the surveillance of speech or in measuring the ideological content of books, movies or radio and TV programs.--Camille Paglia

Contrary to popular belief, the Fed is actually not printing money

It is borrowing heavily to finance asset purchases.

A financial transactions tax

I mean, seriously. Who thinks up this stuff??

The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee — ranging up to, say, 0.25 percent — on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.

Another bad idea in an era of bad ideas. Sorry, I'm just a little crotchety lately.

So Obama-appointee Timothy Geithner is in trouble for paying an undocumented worker

but Charlie Rangel is not for multiple tax evasions?

I understand that illegal aliens free ride on some of our public services without paying taxes for them, but hey, so do legal residents who don't work. Rangel, on the other hand, looks really corrupt.

What am I missing?

Barack Obama promised not to appoint lobbyists to his administration

Did he forget? (Via Don Surber).

Labor unions apparently shrink the tax base

From Mark Perry, right-to-work states are taking populace from the union-friendly states:

Tony Dungy is a remarkable man

Loyalty is more than a punchline to him.

I would rather Bill Belichick coach my football team, but I would rather be Tony Dungy.

Testosterone, traders, and profits

Via Tyler Cowen, Rob Stein reports:

A new study has found that men who were programmed in the womb to be the most responsive to testosterone tend to be the most successful financial traders, providing powerful support for the influence of the hormone over their decision-making.

I don't know how much testosterone I had in the womb or have in my blood today, but my ring finger is longer than my index finger. My trading career is going on 10 years now. And I did about 20% better than my competition in 2008. Just ending positive for the year was pretty rare.

But I credit that more to being rational and disciplined, rather than crazy trading in crazy situations.

Arnold Kling cleverly debunks

government spending multiplier mythology:

Brad Setser writes,

Facts are facts. The US has already proved it can raise over $1.5 trillion in a single year [in Treasury borrowing]

That is a the sort of statement that could come back and haunt someone. It is along the lines of the guy jumping out of a building from the 10th floor, passing the third floor and saying, "It's all fine so far."

It is amazing what happens when you assume that you live in a linear world. You say that the multiplier for government spending is 1.57.

Really? Over what range? Think of it this way: at which level of additional government spending would the path of U.S. real GDP be the highest?

(a) $100 billion in spending above the baseline
(b) $1 trillion in spending above the baseline
(c) $100 trillion in spending above the baseline

If you use a constant multiplier of 1.57, the right answer is (c). Yet we know that this is not the right answer. At $100 trillion in additional government spending, the United States would be operating like Zimbabwe, with similar results.

So to talk about "the" multiplier, as if it were linear, has to be wrong at some level. Is the multiplier linear over the range between $100 billion of additional spending and $1 trillion of additional spending? I think that is unlikely. Between, say $400 billion and $800 billion, is the incremental multiplier still in a range between 1 and 2? I worry that it is much lower. I worry that it turns negative somewhere in that range.

Freedom drives out poverty

Terry Miller, co-editor of the 2009 Index of Freedom, writes:

The positive correlation between economic freedom and national income is confirmed yet again by this year's data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as "repressed." This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.

The freest 5 nations: Hong Kong, Singapore, Australia, Ireland, New Zealand.

The least free: North Korea, Zimbabwe, Cuba, Burma, Eritrea.

The US was ranked sixth. I prefer the US to HK and Singapore, as Hong Kong is the exception of China (ranked 132 out of 179), and Singapore also has some important distinctions, such as mandatory military service which includes 2 years of active duty and 2-3 decades in the reserves.

Masterpiece of the day

Van Gogh's "Wheat Field with Cypresses".

Quotes of the day

There’s a voice on the speakers that wakes everyone out of the moment: it’s Frank Sinatra singing “My Way.” His ode to defiance is four decades old this year and everyone sings along for a lifetime of reasons. I am struck by the one quality his voice lacks: Sentimentality.--Bono

It'd be nice to think Mr. Clinton would forswear this money-hustle while his wife is Secretary of State, but that self-sacrifice would belie his entire career. As for Mrs. Clinton, note the scrutiny that Eric Holder, Mr. Obama's Attorney General nominee, is coming under for his role in aiding pardons for 16 unrepentant Puerto Rican terrorists in 1999. But keep in mind the timing of those pardons was intended to help Mrs. Clinton win Puerto Rican support in her 2000 Senate campaign. Someone should ask her at today's hearing about the role she played in that pardon. ... In signing up the Clintons -- always two for the price of one -- Mr. Obama is no doubt hoping to unite his party and mute Democratic criticism when mistakes happen. He is also hiring someone whose prominence and allies make her impossible to fire, even as she and her husband have a history of cutting ethical corners. Good luck.--WSJ Editorial Board

How does Bush rank as a president? We won't know until he's judged from the perspective of two or three decades. Hindsight forced a sharp upgrading of the presidencies of Harry Truman and Dwight Eisenhower. Given his achievements, it may have the same effect for Bush.--Fred Barnes

Steve Conover wants stimulus for consumption and investment

Great post, great graphics, as usual:

Quotes of the day

They say the Romans allowed their civilization to collapse because they made decisions founded on a worldview that simply could not imagine a world without Rome. They had a failure of imagination. We too, cannot imagine a world without the U.S. at its center, and are acting equally irresponsibly.--Tim Kane

Americans genuinely, desperately, need to pay down debt, which means buying fewer goods and services that other Americans make their living off of. And I think that Arnold Kling is right when he identifies a massive structural unemployment problem. The financial and housing sectors were grossly bloated, and being a mortgage broker or a structured finance associate does not actually prepare you for much in the fields that are still growing, like health care and bankruptcy law.--Megan McArdle

Congratulations to Jimmy on his election to the Hall of Fame. It was long overdue. He was a great teammate and a friend. I'm looking forward to his induction in July. I can only hope the day will come when Dwight Evans and Luis Tiant will also join us in Cooperstown.--Carl Yazstremski

... Rice led all AL in homers and RBIs during his 16-year career, and that the only retired players with both a career average and a home run total as high as Rice's were Hank Aaron, Jimmie Foxx, Lou Gehrig, Mickey Mantle, Willie Mays, Stan Musial, Mel Ott, Babe Ruth, and Williams -- all baseball legends, all of whom are in Cooperstown.--Chad Finn on Dick Bresciani's report

I’m envious that [John Smoltz will] be playing in Boston and I never got to play in Boston.--Tom Glavine

San Francisco's plastic bag ban

increases its pollution. (Via David Henderson).

Bryan Caplan gives us the scoop

on Keynesian slight of hand.

Opportunistic stimulus

There is a chance to spend on projects that will yield real value. One example is upgrading the air traffic control system, which could increase safety while reducing delays and fuel consumption. Another is creating standard electronic health records, which would reduce medical costs while increasing research capabilities, diagonses, and accurate prescriptions. I believe that patients will be able to self-diagnose and self-prescribe like never before (which is why medical lobbyists will fight this empowering innovation).

Fortunately for the oil suppliers and doctors, I think that our elected politicians will spend most of the money on the equivalent of digging a ditch, and then filling it back in.

I mean, do I really believe in change I can believe in? Graph link here.

UPDATE: Greg Mankiw asks some great questions.

UPDATE: IBM CEO Samuel Palmisano agrees with electronic health records, and also identifies broadband and power grid upgrades as worthy initiatives.

The literature of Abraham Lincoln. Barack Obama, and other presidents

as digested by Jonathan Raban:

He's a good -- even exceptionally good -- writer, but his best sentences still pale beside those of the president he echoes and alludes to in almost every speech. It's not, I think, an exaggeration to say that Obama is the most able writer to win the presidency since Lincoln. But so far Lincoln's grasp of homely metaphor, the scathing clarity of his logic, his capacity to make the gravest subject yield material for comedy, leave Obama in the dust. It's not just the great prose-poems of the Gettysburg Address and the two inaugurals; it's the wonderfully lucid -- and funny -- prose of Lincoln on the stump that stops the reader in his tracks, as no president has done before or since. Here he is, in New Haven, Conn., on March 6, 1860, speaking on the bitterly contentious subject of the introduction of slavery to Western states yet to be admitted to the Union, like Kansas and Nebraska (transcript from the New Haven Daily Palladium):

If I saw a venomous snake crawling in the road, any man would say I might seize the nearest stick and kill it; but if I found that snake in bed with my children, that would be another question. [Laughter.] I might hurt the children more than the snake, and it might bite them. [Applause.] Much more, if I found it in bed with my neighbor's children, and I had bound myself by a solemn compact not to meddle with his children under any circumstances, it would become me to let that particular mode of getting rid of the gentleman alone. [Great laughter.] But if there was a bed newly made up, to which the children were to be taken, and it was proposed to take a batch of young snakes and put them there with them, I take it no man would say there was any question how I ought to decide! [Prolonged applause and cheers.]

Obama, who's shown flashes of humor but little real wit, could usefully learn from Lincoln's genius for rousing so much laughter on an issue as menacingly serious as slavery. In a fragment of a speech written in 1858, describing those who stubbornly opposed the abolition of the slave trade in Britain, he came up with this marvelous sentence: "Though they blazed, like tallow-candles for a century, at last they flickered in the socket, died out, stank in the dark for a brief season, and were remembered no more, even by the smell."

I thought the courts should enforce contracts

not rewrite them:

Federal bankruptcy judges say they are eager to have the power to restructure mortgages for struggling debtors because it could save hundreds of thousands of homeowners from foreclosure.

I know several judges personally, though none are federal bankruptcy justices. I hope the latter have an economic clue, because the former do not.

This will extend the housing recession, by deferring the market touching bottom for even longer, and killing more jobs in the duration while delaying the rebound of home prices and construction jobs.

Markets in everything

even virginity. Well, maybe it's more the deflowering process.

(Via Drudge).

America gets fatter

Numbers posted by the National Center for Health Statistics show that more than 34 percent of Americans are obese, compared to 32.7 percent who are overweight. It said just under 6 percent are "extremely" obese.

My BMI is trading around 22. I credit hitting the gym, more at breakfast, less at dinner, and eschewing snacks and red meat 6 days per week.

BMI is somewhat of a flawed metric as it does not consider muscle vs. body fat for an individual. It is useful for aggregate measures like the one cited above, in using average body fat for the sample.

Graph of the day: The Depression Debate

Courtesy of David Beckworth:

World freedom on the decline

South Korean blogger "Minerva" has been arrested for, well, being too bearish.

Congress needs to read

a couple of good books, like the Bible and Atlas Shrugged:

If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you.
...
David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Quotes of the day

When she told her mother she had sold her first novel, her mother asked whether Janice's husband had been the buyer. Really.--Janice Y. K. Lee

When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.--Stephen Moore

How not to spend money on healthcare

DEEPAK CHOPRA , DEAN ORNISH , RUSTUM ROY and ANDREW WEIL offer:

Our "health-care system" is primarily a disease-care system. Last year, $2.1 trillion was spent in the U.S. on medical care, or 16.5% of the gross national product. Of these trillions, 95 cents of every dollar was spent to treat disease after it had already occurred. At least 75% of these costs were spent on treating chronic diseases, such as heart disease and diabetes, that are preventable or even reversible.

The choices are especially clear in cardiology. In 2006, for example, according to data provided by the American Heart Association, 1.3 million coronary angioplasty procedures were performed at an average cost of $48,399 each, or more than $60 billion; and 448,000 coronary bypass operations were performed at a cost of $99,743 each, or more than $44 billion. In other words, Americans spent more than $100 billion in 2006 for these two procedures alone.

Despite these costs, a randomized controlled trial published in April 2007 in The New England Journal of Medicine found that angioplasties and stents do not prolong life or even prevent heart attacks in stable patients (i.e., 95% of those who receive them). Coronary bypass surgery prolongs life in less than 3% of patients who receive it. So, Medicare and other insurers and individuals pay billions for surgical procedures like angioplasty and bypass surgery that are usually dangerous, invasive, expensive and largely ineffective. Yet they pay very little -- if any money at all -- for integrative medicine approaches that have been proven to reverse and prevent most chronic diseases that account for at least 75% of health-care costs. The INTERHEART study, published in September 2004 in The Lancet, followed 30,000 men and women on six continents and found that changing lifestyle could prevent at least 90% of all heart disease.

Undermanned, non-athletic scholarship program Harvard upsets nationally ranked Boston College

Story here:

Coach Al Skinner offered that diagnosis after the 17th-ranked Eagles were humiliated, 82-70, by undermanned Harvard before 3,174 last night at Conte Forum. Harvard (8-6) beat a ranked opponent for the first time in school history three days after BC humbled No. 1 North Carolina, 85-78, in Chapel Hill.

How split is BC’s basketball personality?

“It’s not one person. I wish it was just one person because we could make that adjustment,” Skinner said. “It is the personality of this team. We play up and we play down and we did that this evening.

“You hope to be up more than down, but the fact of the matter is we as a team have to take responsibility for what happens on the floor.”

The architect of the most significant regular-season victory in Crimson history was junior guard Jeremy Lin, who connected on 11-of-16 from the floor for 27 points and added eight assists and six steals. Lin and his mates refused to be beaten. The Crimson played stubborn defense and executed a patient spread offense that produced points while draining the shot clock.

Avoiding a Buffet Mentality

or, um, Moral Hazard.

William McGurn clears up media spin on teenage sex study

He says:

"Virginity Pledges Don't Stop Teen Sex," screams CBS News. "Virginity pledges don't mean much," adds CNN. "Study questions virginity pledges," says the Chicago Tribune. "Premarital Abstinence Pledges Ineffective, Study Finds," heralds the Washington Post. "Virginity Pledges Fail to Trump Teen Lust in Look at Older Data," reports Bloomberg. And on it goes.

In other words, teens will be teens, and moms or dads who believe that concepts such as restraint or morality have any application today are living in a dream world. Typical was the lead for the CBS News story: "Teenagers who take virginity pledges are no less sexually active than other teens, according to a new study."

Here's the rub: It just isn't true.

In fact, the only way the study's author, Janet Elise Rosenbaum of Johns Hopkins University, could reach such results was by comparing teens who take a virginity pledge with a very small subset of other teens: those who are just as religious and conservative as the pledge-takers. The study is called "Patient Teenagers? A Comparison of the Sexual Behavior of Virginity Pledgers and Matched Nonpledgers," and it was published in the Jan. 1 edition of Pediatrics.

The first to notice something lost in the translation was Dr. Bernadine Healy, the former head of both the Red Cross and the National Institutes of Health. Today she serves as health editor for U.S. News & World Report. And in her dispatch on this study, Dr. Healy pointed out that "virginity pledging teens were considerably more conservative in their overall sexual behaviors than teens in general -- a fact that many media reports have missed cold."

What Dr. Healy was getting at is that the pledge itself is not what distinguishes these kids from most other teenagers. The real difference is their more conservative and religious home and social environment. As she notes, when you compare both groups in this study with teens at large, the behavioral differences are striking. Here are just a few:

- These teens generally have less risky sex, i.e., fewer sexual partners.

- These teens are less likely to have a teenage pregnancy, or to have friends who use drugs.

- These teens have less premarital vaginal sex.

- When these teens lose their virginity they tend to do so at age 21 -- compared to 17 for the typical American teen.

- And very much overlooked, one out of four of these teens do in fact keep the pledge to remain chaste -- amid much cheap ridicule and just about zero support outside their homes or churches.

Let's put this another way. The real headline from this study is this: "Religious Teens Differ Little in Sexual Behavior Whether or Not They Take a Pledge."

The recent history of Fannie Mae and Freddie Mac

... the Bush administration warned in the budget it issued in April 2001 that Fannie and Freddie were too large and overleveraged. Their failure "could cause strong repercussions in financial markets, affecting federally insured entities and economic activity" well beyond housing.

Mr. Bush wanted to limit systemic risk by raising the GSEs' capital requirements, compelling preapproval of new activities, and limiting the size of their portfolios. Why should government regulate banks, credit unions and savings and loans, but not GSEs? Mr. Bush wanted the GSEs to be treated just like their private-sector competitors.

But the GSEs fought back. They didn't want to see the Bush reforms enacted, because that would level the playing field for their competitors. Congress finally did pass the Bush reforms, but in 2008, after Fannie and Freddie collapsed.

The largely unreported story is that to fend off regulation, the GSEs engaged in a lobbying frenzy. They hired high-profile Democrats and Republicans and spent $170 million on lobbying over the past decade. They also constructed an elaborate network of state and local lobbyists to pressure members of Congress.

When Republican Richard Shelby of Alabama, then chairman of the Senate Banking Committee, pushed for comprehensive GSE reform in 2005, Democrat Sen. Chris Dodd of Connecticut successfully threatened a filibuster. Later, after Fannie and Freddie collapsed, Mr. Dodd asked, "Why weren't we doing more?" He then voted for the Bush reforms that he once called "ill-advised."

But Mr. Dodd wasn't the only Democrat to heap abuse on the Bush reforms. Rep. Barney Frank of Massachusetts defended Fannie and Freddie as "fundamentally sound" and labeled the president's proposals as "inane." He later voted for the reforms. Sen. Charles Schumer of New York dismissed Mr. Bush's "safety and soundness concerns" as "a straw man." "If it ain't broke, don't fix it," was the helpful advice of both Sen. Thomas Carper of Delaware and Rep. Maxine Waters of California. Rep. Gregory Meeks of New York berated a Bush official at a hearing, saying, "I am just pissed off" at the administration for raising the issue.

Democrats had ready allies among lenders accustomed to GSEs buying their risky mortgages. For example, Angelo Mozilo, CEO of Countrywide Financial, complained that "an overly cumbersome regulatory process" would "reduce, or even eliminate, the incentives for the GSEs and their primary market partners."

It took Fannie and Freddie over three decades to acquire $2 trillion in mortgages and mortgage-backed securities. Together, they held $2.1 trillion in 2000. By 2005, the two GSEs held $4 trillion, up 92% in just five years. By 2008, they'd grown another 24%, to nearly $5 trillion. They held almost half of all American mortgages.

Previous post on this here.

A huge problem with regulators

is that they don't have regulators:

A group of scientists at the U.S. Food and Drug Administration on Wednesday sent a letter to President-elect Barack Obama's transition team pleading with him to restructure the agency, saying managers have ordered, intimidated and coerced scientists to manipulate data in violation of the law.

The nine scientists, whose names have been provided to the transition team and to some members of Congress, say the FDA is a "fundamentally broken" agency and describe it as place where honest employees committed to integrity can't act without fear of reprisal.

The judicial branch

getting all unconstitutional:

One can spend a long time in jail in the U.S. without ever being charged with a crime.

It happened to H. Beatty Chadwick, a former Philadelphia-area lawyer, who has been behind bars for nearly 14 years without being charged.

Businessman Manuel Osete spent nearly three years in an Arizona jail without ever receiving a criminal charge. And investment manager Martin Armstrong faced a similar situation when he was held for more than six years in a Manhattan jail.

All three men were jailed for civil contempt, a murky legal concept. Some scholars say it is too often abused by judges, to the detriment of those charged and their due-process rights. "These results of too many civil-contempt confinements are flatly outrageous and often unconstitutional," says Jayne Ressler, a professor at Brooklyn Law School.

Quotes of the day

... if she believes her own research, Christina Romer should be a strong critic of her new boss's policies.--David Henderson

Accumulating medical data shows that Medicaid recipients' poor health outcomes aren't just a function of their underlying medical problems, but a more direct consequence of the program's shortcomings.--Scott Gottlieb

Remember when Dick Cheney was pilloried for reportedly saying, earlier this decade, that "deficits don't matter"? We recall reading any number of press releases denouncing the Vice President for supporting tax cuts that contributed to short-term deficits but also helped the economy grow until the deficits shrank nearly away. Yet somehow none of those same voices are objecting now that the government is spending its way into deficits that are so large they dwarf any during peacetime in U.S. history. ... We've long argued that deficits per se are not worth losing sleep over, though we do recall when Robert Rubin and Larry Summers claimed that reducing them was itself an economic virtue because it reduced interest rates. With their acquiescence in the magnitude of these deficits, we trust they will now admit to burying Rubinomics as a serious economic philosophy. Democrats are once again all Keynesians now -- at least until they want to use the deficits as an argument to raise taxes in a year or two.--WSJ Editorial Board

25% of the delegates at the Democratic National Convention were union members, when only 7% of the party are union.--Michelle Caruso-Cabrera

It's all in the ties

What's wrong with this picture:

Seems that Barack is signaling us he's Bush III, not Dem III.

Unfortunately, trial and error may turn out to be the best we've got

Megan writes:

A couple of days ago, Glenn Reynolds linked to an article he wrote in August on vaccines. As longtime readers know, this is a particular cause of mine; parents who don't vaccinate their children are able to do so only because most parents do vaccinate theirs. (No, really, I promise--if there were polio running around wild, as there would be if all parents acted like the anti-vaccinationists--then the people taking "personal belief" exemptions would almost all be lining up at the doctor's office begging to her to give little Tinkerbell the magic shot).

But there's a deeper point to be made about how the human brain, and society, treats risk:

Of course it is the very success of modern vaccines that makes this complacency possible. In previous generations, when epidemic disease swept through schools and neighborhoods, it was easy to persuade parents that the small risks associated with vaccination were worth it. When those epidemics stopped--because of widespread vaccinations--it became easy to forget that we still live in a dangerous world. It happens all the time: University of Tennessee law professor Gregory Stein examined the relation between building codes and accidents since the infamous 1911 Triangle Shirtwaist factory fire in New York and discovered a pattern: accident followed by a period of tightened regulations, followed by a gradual slackening of oversight until the next accident. It often takes a dramatic event to focus our minds.

...
The problem is that it simply won't do to say that we ought to be institutionally risk averse. All of these arguments could be applied just as well to gay marriage or abortion law or universal health care, if you lean that way--it's no good just saying that it hasn't hurt Sweden, because the deluge might still await.

Libertarians, conservatives, and progressives all need a better metric for distinguishing between the areas where we're improving on problems, and areas where we're simply eating our institutional and cultural seed corn. Unfortunately, trial and error may turn out to be the best we've got.

Increasing out-of-pocket payments for treatment

makes healthcare much cheaper.

Not only true in the U.S., but also elsewhere.

If price signals are clear, then services will be provided more cheaply to more people who want access to them. As long as prices are distorted (via government subsidy or insurance intermediation), healthcare will be less affordable.

If we can't blame a regulator for failing to regulate

why bother with regulation?*

Oh yeah, and it's not like the auditors are auditing.

As long as Wall Street firms are hiring regulators and paying auditors, this will continue.

*UPDATE: Surprise, surprise, surprise, even Felix sounds skeptical of regulation. Well, maybe just the one bad regulator exception proving that regulation WORKS ...

CareerCast's best and worst jobs

according to five criteria inherent to every job: environment, income, employment outlook, physical demands and stress.

The Best	The Worst
1. Mathematician	200. Lumberjack
2. Actuary	199. Dairy Farmer
3. Statistician	198. Taxi Driver
4. Biologist	197. Seaman
5. Software Engineer	196. EMT

Quotes of the day

Hoping the [Obama stimulus] plan won't have any pork in it is like hoping a ham sandwich won't have any pork in it. It's just a tad unrealistic.--Russell Roberts

Isn't it excessive spending that got us into this mess in the first place? Spending more now seems like drinking Scotch to cure a hangover. Despite this apparent paradox, there is some logic to providing a dose of economic stimulus. But it should be more like Alka-Seltzer than Scotch.--Hal Varian

... Washington might spend its time profitably examining its own role in the recent housing blowout, which has destroyed more wealth than a hundred Madoffs, and about which Mr. [Barney] Frank himself is an expert.--Holman Jenkins

Suicide tends to fall during crises--they take peoples' minds off themselves.--Megan McArdle

On Credentials

Paul Graham's latest essay:

Credentials are a step beyond bribery and influence. But they're not the final step. There's an even better way to block the transmission of power between generations: to encourage the trend toward an economy made of more, smaller units. Then you can measure what credentials merely predict.

No one likes the transmission of power between generations—not the left or the right. But the market forces favored by the right turn out to be a better way of preventing it than the credentials the left are forced to fall back on.

The era of credentials began to end when the power of large organizations peaked in the late twentieth century. Now we seem to be entering a new era based on measurement. The reason the new model has advanced so rapidly is that it works so much better. It shows no sign of slowing.

Read the whole thing.

Creative writers are often silly political commentators.

We should be careful, both readers and writers, of the bewitchment of language: it can often mean less than you might think.

My theory is that the latest economic bubble is the government sector

However, there may be a bubble in labor law.

Quotes of the day

You know, everybody, they can look and say how easy it is. But it's definitely not that easy. The difference is 'cause not many people want to wake up at 5, go through workouts, go speak to young kids, go back, eat lunch, go to class, go to tutoring, go speak at a prison at night, come back. I mean, more people would do those things; they just don't want to sacrifice.--Tim Tebow

Everything is changing. People are taking their comedians seriously and the politicians as a joke.--Will Rogers

In short, it can be years before the money that is supposed to stimulate the economy actually gets into the economy. And nobody knows what the economy will be like when that money finally gets into circulation. A common problem with government economic policies in general is that it is very hard to predict how long it will be before the policy actually affects the economy. An economic stimulus policy created during a contraction in demand can take effect during an inflationary expansion of demand-- and fuel still more inflation--Thomas Sowell

Removing Christian evangelism from the African equation may leave the continent at the mercy of a malign fusion of Nike, the witch doctor, the mobile phone and the machete.--atheist Matthew Parris

Newark is learning that when barbed wire is outlawed, only criminals will have barbed wire.--Don Surber

Sarah Palin ... is pure animal protein to Caroline’s endive salad.--Tina Brown

Regulation is part of the con game

Larry Ribstein writes:

Today’s WSJ reports on the numerous investigations of Madoff by the SEC and other agencies that failed to catch him. Of course regulators and other readers will draw the wrong lesson. So in a probably futile effort to prevent this, let me remind readers what I said here and here: that the lesson is not that we need more regulation. As I said in the last post:

I doubt that any government agency will ever do as good a job as a vibrant market whose participants are alert to the potential for fraud rather than lulled into a false sense of complacency.

A regulator, psychologically, can be more of a placebo than anything else. But unlike the positive placebo effect on an individual's health, the warm and fuzzy thought of an omniscient traffic cop preventing all types of fraud does not lend itself well to the marketplace, the way it might with a soul.

Reducing inequality

Reduces quality:

When we seriously consider an attempt to use government power to reduce the gender inequality in life expectancy, the problems that we have always faced when government uses its power to reduce income inequality suddenly become crystal clear. Government transfers to reduce the gender gap in life expectancy would do little more than reduce improvements in both women's and men's life expectancies. For similar reasons, government transfers have done little more than reduce the income growth of both the rich and the poor. So government attempts to reduce life-expectancy inequality by transferring medical expenditures would be silly, but no sillier than its attempts to reduce income inequality by transferring money.

Sheer silliness.

UPDATE: Mark Perry provides a great graphic:

Charlie Rangel pimps tax breaks to AIG

in exchange for a swell donation to his favorite charity. Can't make this stuff up.

Previous Charlie Rangel post here.

Diminishing returns

in the field of competition.

Steve Conover explains the goodness of monetary modulation to stabilize prices and improve growth

He also shatters the gold standard myth while doing so.

Auld acquaintance ... Spitzer & Dupre ...

Via Paul Kedrosky, Dave Barry's rocking 2008 in review seems to peak in November:

. . . Obama, in a historic triumph, becomes the nation's first black president since the second season of 24, setting off an ecstatically joyful and boisterous all-night celebration that at times threatens to spill out of The New York Times newsroom. Obama, following through on his promise to bring change to Washington, quickly begins assembling an administration consisting of a diverse group of renegade outsiders, ranging all the way from lawyers who attended Ivy League schools and then worked in the Clinton administration to lawyers who attended entirely different Ivy League schools and then worked in the Clinton administration. But the hopeful mood is dampened by grim economic news. The stock market plummets farther as investors realize that the only thing that had been keeping the economy afloat was the millions of dollars spent daily on TV commercials for presidential candidates explaining how they would fix the economy.

More and more companies seek federal help, among them the troubled "big three"automakers, whose chief executives fly to Washington in three separate corporate jets to ask Congress for $25 billion, explaining that if they don't get the money, they will be unable to continue making cars that Americans are not buying.

New England Patriots slap Matt Cassel

with the franchise tag, according to rumors.

I think the Pats need to do this to retain trade value in their 2 superior quarterbacks. Now they are in a position to trade either Cassel or Tom Brady in exchange for draft picks or other value from the other 31 teams. Good QBs are among the scarcer commodities, probably the most scarce.

Of course, the recipient of the tag can often be angered from being taken off the free agent market. The good news for those tagged in better paid positions: all of the money is guaranteed. So Cassel stands to increase his salary from $539,000 mostly unguaranteed (which means he could have been injured and/or cut and receive mostly nothing) to receiving $14 million guaranteed.

And there's always the debate about who the Patriots should keep. Cassel clearly has demonstrated that he can run for yards far better than Brady can. He's also half a generation younger, and without an infected knee. But Brady has won Superbowls with gnomish wide receivers (David Patten, Deion Branch, anyone?) and a weak running game (e.g. Antowain Smith and J.R. Redmond). We've yet to find out how Cassel performs without Welker, Moss, and a deep RB corps of Morris, Jordan, Faulk, Evans, and Maroney.

There is no free lunch. Under the strictest salary cap rules in pro sports, the Patriots are committing 14% of their total payroll to a player who will not see the field on any given Sunday. The average NFL player makes about $2 million, so that's equivalent to 7 roster spots.

Of course

polls affect markets, Chris.

If I cited a paper saying that high transaction costs and cost of carry on prediction exchanges impede liquidity, and Midas Oracle didn't link to it, I would not want to utilize the Google storage arrays to raise cries of censorship.

Unless I was a pageviewsmonger.

For the not-so-regular reader, here is the prediction markets vs. polls work I did last year.

Economist inflation

reported by Alex Tabarrok.

The U.S. income tax structure is extremely

progressive.

The top 20% of incomes account for 54% of tax revenues. And mobility between incomes is huge.

Felix Salmon on Taleb v. Merton

here.

Where is Fischer Black when you need him? He'd be able to help Bob Rubin out of his mess, too.

Former SEC Arthur Levitt claims more regulatory staff and budget would prevent future Madoff schemes

This, from the man who appointed Bernie Madoff back in 2000 to advise the SEC.

Failed regulators need to come up with a different response than "more regulation". When the prescription makes things worse, we stop taking the drug, right?

More CO2 global warming mythology

debunked:

[T]he theory that carbon dioxide "drives" climate in any meaningful way is simply wrong. . . . Carbon dioxide cannot absorb an unlimited amount of infrared radiation. Why not? Because it only absorbs heat along limited bandwidths, and is already absorbing just about everything it can. That is why plotted on a graph, C02's ability to capture heat follows a logarithmic curve. We are already very near the maximum absorption level. Further, the IPCC Fourth Assessment, like all the ones before it, is based on computer models that presume a positive feedback of atmospheric warming via increased water vapor. . . . This mechanism has never been shown to exist. Indeed, increased temperature leads to increased evaporation of the oceans, which leads to increased cloud cover (one cooling effect) and increased precipitation (a bigger cooling effect). Within certain bounds, in other words, the ocean-atmosphere system has a very effective self-regulating tendency. By the way, water vapor is far more prevalent, and relevant, in the atmosphere than carbon dioxide -- a trace gas. Water vapor's absorption spectrum also overlays that of carbon dioxide. They cannot both absorb the same energy! The relative might of water vapor and relative weakness of carbon dioxide is exemplified by the extraordinary cooling experienced each night in desert regions, where water in the atmosphere is nearly non-existent.

I remain short 2008.GLOBALTEMP.TOP5:

A $300 billion tax cut package is great, if

1) it is not tax-accounting gimmickry, i.e. it reduces the taxes paid by productive income earners, rather than increase tax credits to less productive and unemployed filers

2) it is offset by spending cuts

I hope that is what this Obama proposal is about, as I asked for it last November:

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years.

UPDATE: The estimable Senator Judd Gregg shares sentiments:

• First, do not build up the long-term debt unnecessarily. This is a concept that totally seemed to escape Republicans when we were at the helm.
• Second, government should choose investment with these tax dollars. The TARP, for all its warts, has involved using tax dollars to invest in assets that will have a return to the taxpayer.
• Third, if we're going to have an infrastructure feeding frenzy, make sure government builds public works that will make us more productive as a nation. We all love swing sets and water parks, but recovery is not about soccer games or Main Street beautification.
• Fourth, we must cut taxes for job creators.

Jimmy Carter's greatest success

now tainted with failure.

Quotes of the day

The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a good measure of both.--Milton Friedman

When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.--P. J. O'Rourke

If government were the answer to preventing recessions, why are we in a recession in the first place?--Joe Weisenthal

If you keep a [regulatory] system in place long enough, banks will naturally learn to game it and it will become dysfunctional.--Arnold Kling

If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.--Michael Lewis & David Einhorn

What’s remarkable about [Ed] Reed is his ability to return inceptions for big yardage. He has 43 career regular season inceptions, which ties him for 58th place all-time. For yardage, however, Reed has 1,144 yards which ranks him sixth all-time.--Eddy Elfenbein

Overhiring government employees

is the economic Achilles' Heel of New York City, under Mayor Bloomberg's watch.

Will the whole nation suffer the same fate under President Obama?