Monday, November 30, 2009

Here is the outrage

Clive Crook on Climategate/Climatequiddick:
I detest anti-scientific thinking as much as The Economist does. I admire expertise, and scientific expertise especially; like any intelligent citizen I am willing to defer to it. But that puts a great obligation on science. The people whose instinct is to respect and admire science should be the ones most disturbed by these revelations. The scientists have let them down, and made the anti-science crowd look wise. That is outrageous.

Tyler is unimpressed with Sarah Palin's Scrabble strategies

and what that might suggest for her foreign policy aptitude.

I would say that our current White House leadership suggests problems with portfolio and game theory, too.

The "infinite monkey theory"

is flawed:
if a monkey hits keys at random on a typewriter keyboard for an infinite amount of time, it will almost surely type a given text, such as the complete works of William Shakespeare. ... After one month - admittedly not an "infinite" amount of time - the monkeys had partially destroyed the machine, used it as a lavatory, and mostly typed the letter "s".
I guess it's back to the typewrit, er, drawing board for Richard Dawkins et al.

Via Tyler Cowen.

It's rich to be poor

in America:

% Households with: Poor 1984 Poor 1994 Poor 2003 Poor 2005 All 1971 All 2005
Washing machine 58.2 71.7 67.0 68.7 71.3 84.0
Clothes dryer 35.6 50.2 58.5 61.2 44.5 81.2
Dishwasher 13.6 19.6 33.9 36.7 18.8 64.0
Refrigerator 95.8 97.9 98.2 98.5 83.3 99.3
Freezer 29.2 28.6 25.4 25.1 32.2 36.6
Stove 95.2 97.7 97.1 97.0 87.0 98.8
Microwave 12.5 60.0 88.7 91.2 1.0 96.4
Color TV 70.3 92.5 96.8 97.4 43.3 98.9
VCR 3.4 59.7 75.4 83.6 0.0 92.2
Personal computer 2.9 7.4 36.0 42.4 0.0 67.1
Telephone 71.0 76.7 87.3 79.8 93.0 90.6
Air conditioner 42.5 49.6 77.7 78.8 31.8 85.7
Cellular Telephone

34.7 48.3 0.0 71.3
One or more cars 64.1 71.8 72.8 (2001)

79.5


Via Russ Roberts.

Climate scientists throw away the baby, and keep the dirty bath water

SCIENTISTS at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based.

It means that other academics are not able to check basic calculations said to show a long-term rise in temperature over the past 150 years.

The UEA’s Climatic Research Unit (CRU) was forced to reveal the loss following requests for the data under Freedom of Information legislation.

The data were gathered from weather stations around the world and then adjusted to take account of variables in the way they were collected. The revised figures were kept, but the originals — stored on paper and magnetic tape — were dumped to save space when the CRU moved to a new building.


Karl, to Thomas: Checkmate.

Via Russ Roberts.

My capricious prediction for the day

A carbon tax (or cap-and-trade) will destabilize relationships between nations.

Felix Salmon writes a classy post

Mark Pittman was right.

Props, Felix. I'd bet Mark would say that your batting average ain't so bad.

UPDATE: This one is not so classy, but oh so good, too:
Back in April, Willem Buiter called Citigroup “a conglomeration of worst-practice from across the financial spectrum”; he followed up in June with a blog post entitled “Too big to fail is too big“, in which he likened Citi’s former chairman and CEO, Win Bischoff, to Ayatollah Ali Khamenei. Which maybe explains why there’s no quote from Buiter himself in the press release announcing his arrival at Citigroup. Maybe they just thought it would be better to have him inside the tent pissing out.

Quotes of the day

A handful of patience is worth more than a bushel of brains.--Dutch proverb

It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard’s endowment, and Lawrence Summers, then the school’s president, would face off in a heated debate. The topic: cash and how the university was managing - or mismanaging - its basic operating funds.--Beth Healy

If you're calculating a cumulative return, Time Warner's purchase of AOL for $182B and subsequent spinout at $2.4B works out to a loss of 98.68% over almost 10 years. Nice trade Time Warner!--Kid Dynamite

Markets look a lot less efficient from the banks of the Hudson, than from the banks of the Charles.--Fischer Black

... the EMH is itself under dispute, so it hardly helps to cite the EMH and its implications. (This is akin to a Christian quoting the Bible to an atheist to prove the authority of Scripture.)--Robert Murphy

The usual suggested remedies [to reducing unemployment] are either to stimulate demand for labor, or to reduce the real cost of workers to employers. The stimulus package has tried to stimulate demand. While I believe this package has failed to stimulate demand to any significant degree (see the discussion my earlier posts on January 11, 18, and November 1, 2009), and that the claimed employment effects of the stimulus are vastly overstated, I concentrate my discussion, as Posner does, on reducing the real cost of labor to employers.--Gary Becker

Today [Arthur Cecil] Pigou's intellectual legacy is being rediscovered, and, unlike those of Messrs. [John Maynard] Keynes and [Milton] Friedman, it enjoys bipartisan appeal. Leading Republican-leaning economists such as Greg Mankiw and Gary Becker have joined Democrats such as Paul Krugman and Amartya Sen in recommending a Pigovian approach to policy. Much of President Barack Obama's agenda—financial regulation, cap and trade, health care reform—is an application of Mr. Pigou's principles. Whether the president knows it or not, he is a Pigovian.--John Cassidy

Every time government gets bigger, somebody’s getting rich.--Tim Carney

Dear Mr Bernanke: ... What guided Fed “policy” over the past couple of years if not short-term political influence?--Don Boudreaux

It's curious that the architect of the judicial filibuster is complaining about its use. --Senator Jeff Sessions

My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.--Paul Krugman

The trouble with cap-and-trade is that countries must agree how to divide the allocation of permits. This has proved troublesome when emissions targets were assigned relative to a 1990 baseline. Rapid growth in the US economy suddenly made its allocation look stingy, while the Russian allocation looked absurdly lax following the economy’s collapse in the early 1990s. It should not have been a surprise that some economies would grow faster or slower than predicted.--Tim Harford

We shall endeavor to elucidate, not any generalized system of possible worlds but the actual world of men and women as they are found in experience to be.--Arthur Pigou

GPA fanatics usually have few interesting thoughts of their own.--Robin Hanson

In August, physicist Jia Liu at New York University outlined his design for a spacecraft powered by dark matter (arxiv.org/abs/0908.1429v1). Soon afterwards, mathematicians Louis Crane and Shawn Westmoreland at Kansas State University in Manhattan proposed plans for a craft powered by an artificial black hole (arxiv.org/abs/0908.1803). No one disputes that building a ship powered by black holes or dark matter would be a formidable task. Yet remarkably there seems to be nothing in our present understanding of physics to prevent us from making either of them. What's more, Crane believes that feasibility studies like his touch on questions in cosmology that other research hasn't considered.--Marcus Chown

The potential miracle of the cookbook was immediately apparent: you start with a feeling of greed, find a list of rules, assemble a bunch of ingredients, and then you have something to be greedy about. You begin with the ache and end with the object, where in most of the life of appetites—courtship, marriage—you start with the object and end with the ache.--Adam Gopnik

... there is near-perfect overlap between the group of people who most fervently desires a national health care system, and the group of people who are "strong" supporters of abortion rights (don't want them to be illegal at any time for any reason). This group thus has zero bargaining power, because at the end of the day, they are not going to walk away from this bill. The pro-lifers can and will. --Megan McArdle

[Robert] Wright correctly points out that much research demonstrates that stockbrokers do NO better than you and me at beating the stock market. Yet we pay stockbrokers. Wright then discusses shamans in hunter-gatherer societies, which meet a similar demand – somebody who claims to be able to influence the vast uncertainties of hunting failures, weather, and disease, which makes hunter-gatherers feel better. To Wright, stockbrokers meet the same religious need as shamans. With both shamans and stockbrokers, it helps a lot that we humans are really bad at distinguishing pure randomness from real accomplishment (as this blog is fond of pointing out). ... Some of you have guessed where I am going with this. Development experts are a lot like stockbrokers. To get specific, development experts offer the hope that their expertise will raise a country’s growth rate, despite the lack of ANY clear empirical evidence that they know how to raise a country’s growth rate.--William Easterly

Surowiecki reports that China has hurdles of its own to clear

here:
... there’s another obstacle to Chinese consumers becoming engines of economic growth: many workers just don’t make enough money. While the country’s boom has been extraordinary, ordinary workers have not reaped the gains one might expect. In the past decade, in fact, the share of G.D.P. that goes to wages has actually fallen, while the share that goes to profits has risen. Although the prevailing image of China is one of labor-intensive factories, with lots of workers toiling away on antiquated machinery, much investment has gone instead into factories and projects that are capital-intensive, which create fewer jobs. So while the pie has been growing rapidly, the share that goes to individual households has shrunk.

Saturday, November 28, 2009

Joke of the day

Why didn’t the Nobel Committee give Obama the prize for literature, as well as peace?

Because he has already written two books.

Friday, November 27, 2009

Guess who turned up in the Climategate (or Climatequiddick) hacked emails

John P. Holdren, President Obama's Director of the White House Office of Science and Technology Policy.

Quotes of the day

Geithner should never have been appointed to anything. He's been wrong about just about everything for 15 years. Of course he's going to lose his job, because as Mr. Obama realizes that Geithner doesn't know what he's doing, he's going to look for somebody else because he doesn't want to take the heat himself. So he's going to look to blame somebody, and the obvious person is Geithner.--Jim Rogers

[The head of the UN's climate experts] responds to concerns about the peer review process being stacked by saying . . . all the work was peer reviewed. I am open to being convinced that I should not care about hacked information, and I am a confirmed believer in AGW. So why can't, or won't, the climate change community mount a more compelling defense?--Megan McArdle

Every time I hear of a scientist refusing to turn over his data set on the grounds that the critics are just going to search for flaws, my spidey sense goes off--all of the recent famous cases of academic fraud and misdemeanors involve exactly this behavior. By comparison, look at Levitt and Dubner, or even John effing Lott, who handed over their data to amateur critics like Steve Sailer, and got schooled over coding problems. That's how serious scientists act.--Megan McArdle

In 1939, the Retail Dry Goods Association warned Franklin Roosevelt that if the holiday season wouldn't begin until after Americans celebrated Thanksgiving on the traditional final Thursday in November, retail sales would go in the tank. Ever the iconoclast, Roosevelt saw an easy solution to this problem: he moved Thanksgiving up by a week.--Ethan Trex

The Dilbert Principle observes that in the modern economy, the least capable people are promoted to management because companies need their smartest people to do the useful work. It's hard to design software, but relatively easy to run staff meetings. This creates a situation where you have more geniuses reporting to morons than at any time in history.--Scott Adams

It was strictly Belichick's feeling Tom Brady would make 2 yards in that situation. I felt the same way. I felt they had an 80 percent chance to make it and run out the clock. That's why I was hoping they'd punt.--Archie Manning

Even the trivial salutation which the telephone has lately created and claimed for its peculiar use—'Hello, hello!'—seems to me to have a kind of fitness and fascination. It is like a thoroughbred bulldog, ugly enough to be attractive. There is a lively, concentrated, electric air about it. It makes courtesy wait upon dispatch, and reminds us that we live in an age when it is necessary to be wide awake.--Henry Van Dyke

Wednesday, November 25, 2009

This isn't just a smoking gun

it's a siege cannon with the barrel still hot:
From the CRU code file osborn-tree6/briffa_sep98_d.pro , used to prepare a graph purported to be of Northern Hemisphere temperatures and reconstructions.
;
; Apply a VERY ARTIFICAL correction for decline!!
;
yrloc=[1400,findgen(19)*5.+1904]
valadj=[0.,0.,0.,0.,0.,-0.1,-0.25,-0.3,0.,- 0.1,0.3,0.8,1.2,1.7,2.5,2.6,2.6,$
2.6,2.6,2.6]*0.75 ; fudge factor
if n_elements(yrloc) ne n_elements(valadj) then message,’Oooops!’
;
yearlyadj=interpol(valadj,yrloc,timey)

This, people, is blatant data-cooking, with no pretense otherwise. It flattens a period of warm temperatures in the 1940s -- see those negative coefficients? Then, later on, it applies a positive multiplier so you get a nice dramatic hockey stick at the end of the century.

Via Donald Sensing

Hide the decline (hide the decline, hide the decline)



Via Don Surber

Robin Hanson on the folly of manipulating prediction markets

Maybe we might, you know, actually try something before we conclude it doesn’t work.

If Al Gore likes it, I must worry

People think about geothermal energy - when they think about it at all - in terms of the hot water bubbling up in some places, but two kilometers or so down in most places there are these incredibly hot rocks, 'cause the interior of the earth is extremely hot, several million degrees, and the crust of the earth is hot ...--Al Gore
Now the actual temperature of the earth's center ranges in the thousands of degrees (Celsius and Farenheit).

I'm not sure that geothermal energy is going to cool the surface temperatures of the earth. Let's say you've gone ice fishing, and set up your tent and sleeping bag for the night. The air in the tent is like the earth's atmosphere. The heat in the sleeping bag is like the hot interior of the earth. Now let's say you take some straws and stick them through various points of the sleeping bag, so you can harness the heat differential to generate power.

How does this make the air in the tent cooler? Not that global cooling isn't a real concern, as I pointed out a couple of years ago.

This reminds me of those 2007 fantasies of ethanol. And also Gore's footprint.

Quotes of the day

Every generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.--George Orwell

Apparently counting daisies while soldiers are pushing them up is deemed politically awkward.--Jules Crittenden

To have gone out in the early days and talked to people in such candid and stark terms about the advantages of free markets must have been difficult. I can just hear Rose [Friedman] encouraging Milton. Others might have said: "Do you have to stick your neck out so much, Milton? Can't you be more mainstream? What about our family?" And perhaps it was difficult with a young family. To us this is the inspiration from Rose that we will never forget. She was gregarious, strong, and loving.--John Taylor

Math skills are more the result of drill, whereas you have to learn how to love to read and much of that happens within the family, not at school. Math is therefore easier to "teach by central planning," so to speak.--Tyler Cowen

Macroeconomists do not have enough data to verify hypotheses. Climate science has even less data. Therefore, climate science is even less reliable.--Arnold Kling

I just read [Andrew Revkin's] blog and article about the CRU attack. I do entirely understand that in your role as a reporter you can’t editorialize and pass judgment about what happens in the world, but you do edge into value judgments in some of your blog pieces and so I found the general lack of indignation in your piece rather disconcerting. After all, this is a criminal act of vandalism and of harassment of a group of scientists that are only going about their business doing science.--Raymond Pierrehumbert

It is more in disappointment than anger that I am writing to you now. I am addressing this to you rather than your journalist-coauthor because one has become all too accustomed to tendentious screeds from media personalities (think Glenn Beck) with a reckless disregard for the truth.--Raymond Pierrehumbert, to Steve Levitt

... in the context of the political battle over climate change, Pierrehumbert is making the wrong point. Who cares? The only meaningful response to this crisis is to get out in front, explain the context of each and every e-mail, and address forthrightly whatever improprieties may or may not exist. ... My own faith in climate science hasn't been shaken by this episode, but I'm pretty dumfounded at behavior that hands what Pierrehumbert calls the "inactivists" -- many of whom are working as fronts for the energy industry -- a big stick to clobber me with. Please don't hide behind invasion of privacy. It's only going to get hotter from here on out.--Andrew Leonard

Some have noted, and I agree that it’s a misnomer to call this “ClimateGate.” In addition to the fact that simply adding “Gate” to a scandal is so late twentieth century, calling it a “Gate” would imply that it’s something that the media will go into a frenzy over, because it’s a scandal about something politically incorrect (e.g., Nixon). No, a better name for it (again, not original with me — I think it showed up in comments at one of the PJM pieces) is “Climaquiddick.” In other words, expect the media to try to whitewash and minimize it.--Rand Simberg

The urge to save humanity is almost always a false front for the urge to rule.--H. L. Mencken

I'm the George W. Bush of love: I may not have anything to show for myself now, but history will prove me a hero.--John Mayer

I just realized that rampant speculation in gold fuels war

in Africa, to be exact.

Tuesday, November 24, 2009

NASA being sued for failure to provide global warming data

under the Freedom of Information Act (via Glenn Reynolds).

This is the same data source used for Intrade (real money) and for the Global Warming Exchange (play money) global warming futures.

Also, via Glenn, it looks like the software for processing the temperature data sets is pretty ugly:
One programmer highlighted the error of relying on computer code that, if it generates an error message, continues as if nothing untoward ever occurred. Another debugged the code by pointing out why the output of a calculation that should always generate a positive number was incorrectly generating a negative one. A third concluded: "I feel for this guy. He's obviously spent years trying to get data from undocumented and completely messy sources."

Programmer-written comments inserted into CRU's Fortran code have drawn fire as well. The file briffa_sep98_d.pro says: "Apply a VERY ARTIFICAL correction for decline!!" and "APPLY ARTIFICIAL CORRECTION." Another, quantify_tsdcal.pro, says: "Low pass filtering at century and longer time scales never gets rid of the trend - so eventually I start to scale down the 120-yr low pass time series to mimic the effect of removing/adding longer time scales!"

UPDATE: Megan McArdle's take:
The IPCC report, which is the most widely relied upon in policy circles, uses this model to estimate the costs of global warming. If those costs are unreliable, then any cost-benefit analysis is totally worthless. Obviously, this also casts their reluctance to conform with FOI requests in a slightly different light.

Quotes of the day

Today, there is a name for the political doctrine that rejoices in scarcity of everything except government. The name is environmentalism. --George Will

I believe that the not-always-swift American voter in fact understands high deficits -- correctly -- in this light. They don't hold theories about "crowding out," rather they sense something in the house must be rotten. And so they rail against deficits, as do some of their elected representatives. It's a more justified reaction than the pure economics alone can illuminate. When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.--Tyler Cowen

If Timothy Geithner were a Broadway show, the producers would shut it down.--Kevin Hassett

It's a good thing that Congress doesn't vote on whether to accept the logic of gravity.--Arnold Kling

I have to say, I'm woefully underimpressed with the argument that I am now hearing to the effect that "Medicare will bankrupt America anyway if we can't cut health care costs, so we might as well do health care reform." Anyone who has dated a manic-depressive has heard some version of this argument. "I can barely make ends meet now, so I might as well use my tax refund check to buy a boat! After all, if I can't figure out a way to fix my budget, I'm going to go bankrupt anyway." And anyone who has dated a manic-depressive knows where this ends.--Megan McArdle

But as Gregory Zuckerman details in The Greatest Trade Ever, Paulson remade his personality. He became a grump. ... Then we all know what happened. Paulson made a killing in the collapse of the housing market. While the rest of us were worried for our jobs, homes, and the future of the republic, he racked up a $20 billion profit over the last two years. And if new research is correct, his irritability had everything to do with it. According to a just-published study, a bad mood can be a competitive advantage.--Hugo Lindgren

Because of guilt over colonialism and the ugly nationalisms that led to World War II, it argues, Europe let in millions of Muslim immigrants but skipped the hard task of integrating them — because that would be pressing Western values on them. The result of these good intentions was an increasingly "angry and alienated religious minority." And the irony here is that France's politically incorrect ban on veils in schools turned out to be "an enormous success," decreasing radicalism by pressuring Muslims to assimilate.--John Richardson

Some of those mentioned in the [hacked climate scientists'] emails have responded to our requests for comment by saying they must first chat with their lawyers. Others have offered legal threats and personal invective. Still others have said nothing at all. Those who have responded have insisted that the emails reveal nothing more than trivial data discrepancies and procedural debates. Yet all of these nonresponses manage to underscore what may be the most revealing truth: That these scientists feel the public doesn't have a right to know the basis for their climate-change predictions, even as their governments prepare staggeringly expensive legislation in response to them. --WSJ Editorial Board

Year after year, the evidence keeps mounting that most climate research now being funded is for the purpose of supporting the IPCC’s politics, not to find out how nature works. The ‘data spin’ is increasingly difficult to ignore or to explain away as just sloppy science.--Roy Spencer

Monday, November 23, 2009

Academia vs. Business



Source here, of course.

White on white

unfriendly fire:
MSNBC host Chris Matthews, MSNBC reporter Norah O’Donnell, and MSNBC guest Joan Walsh shamelessly played the race card against Sarah Palin and her book-buying audience last week.
...
Ahem. Check out the masthead of MSNBC TV, “The Place for Politics.”


And there's some unwhite on unwhite, too:
Leave it to Jesse to do his part to make sure no blacks wander off the white liberal plantation. Imagine that, the black skin the good Lord gave you isn’t good enough unless you buy into socialized medicine. What a complete joke.


Via William Jacobson.

Will Obama be more like Bush or Carter

since being like Obama is not working so well.

Here's my Carter-Obama musings from Feb 2008. And my Dubya-Obama musings from Nov 2008.

Scarcity of gold bears

I am slightly bearish on gold, and am constantly looking for less lukewarm sellers.

Eddy Elfenbein notes that Roubini is a gold bear, and Schiff is a super bull.

I think that the "smart money" is:
  1. seeing dollar devaluation and projecting significant future inflation in dollar denominated assets
  2. finding gold to be the best pitstop to exchange dollars
  3. hoping that gold does not crash as fast as inflation explodes
It feels too risky for me to jump on the bandwagon. Plus, I just found out today that some gold ETFs are taxed as collectibles (28% long term cap gains) vs. 15% on financial assets.

Chart of the day: US share of world GDP surprisingly resilient



Source here.

Vince Veneziani with a nice roundup on some of the biggest winning trades in the last century

here.

Quotes of the day

To repeat what others have said requires education; to challenge it requires brains--Mary Pettibone Poole

If it is the thought that counts, a first step towards a happier Christmas is to spend less, and think more.--Tim Harford

I would point out that in an affluent society, there is a lot of consumption that is deferrable. If everyone scans the headlines and sees "Great Depression," that could very well cause a drop in consumption. And if everyone scans the headlines and sees "recovery," they might spend more.--Arnold Kling

We find that Protestantism increases contributions to the public good, and there is suggestive evidence that it increases reciprocity in the gift-exchange game—that is, the rate at which worker effort increases in response to higher wage offers by the manager. Catholicism decreases contributions to public goods, increases gift-exchange reciprocity, and decreases risk aversion. Judaism increases gift exchange reciprocity.--Daniel Benjamin, James Choi, and Geoffrey Fisher

More than two-thirds of illegal immigrants pay Social Security and income taxes.--Jeff Jacoby

The way Apple runs the App Store has harmed their reputation with programmers more than anything else they've ever done. Their reputation with programmers used to be great. It used to be the most common complaint you heard about Apple was that their fans admired them too uncritically. The App Store has changed that. Now a lot of programmers have started to see Apple as evil.--Paul Graham

If there is one thing that the case of the hacked climate change e-mails proves, it is that scientists are human. And humans do stupid things. Because no matter what the context or motivation, some e-mails should never be written.--Andrew Leonard

The documents appear to have been acquired illegally and contain all manner of private information and statements that were never intended for the public eye, so they won’t be posted here.--Andrew Revkin of the New York Times

You know, unless doing so would hurt national security, or something.--Glenn Reynolds

If those climatologists at CRU were in a position to actually cause the earth to get warmer, don't you think they would have done so? --Tom Smith

It takes about 200 years to get to a world where this is considered smart rather than shameful.--Russ Roberts

I’m just about ready to hit the road. [Kenneth] Feinberg stabbed me in the back.--Robert Benmosche, CEO of AIG

By all accounts, President Obama's visit to China last week was pretty much a failure on all the major issues, which include China's contributions to climate change, nuclear weapons, and various aspects of the world economy.--Gary Becker

“Freshwater” and “saltwater” macroeconomists came to a “brackish” compromise known as the New Neoclassical Synthesis. The New Keynesians adopted the dynamic stochastic general equilibrium (DSGE) framework pioneered by the New Classicals while the latter accepted the market “frictions” and capital market “imperfections” long insisted upon by the former. This New Synthesis, like the Old Synthesis of fifty years ago, postulates that the economy behaves like a stable general equilibrium system whose equilibrating properties are somewhat hampered by frictions. Economists of this persuasion are now struggling to explain that what has just happened is actually logically possible. But the recent crisis will not fit.--Axel Leijonhufvud

Sarah Palin's book launch drew more media attention than mine. She was irrepressible, notwithstanding David Brooks calling her a "joke." Of course, Brooks praised Timothy Geithner. It is pretty easy to predict which side of the Insider/Outsider debate Brooks will take. The Insiders were on the defensive this week. Is it a blip, or the start of a trend?--Arnold Kling

... it would seem that girls are equally prepared, if not more prepared (more AP math classes), than boys for the SAT math test, and yet boys outperform girls measured both by the difference in mean scores (35 point difference in favor of boys) and the over-representation of boys for scores on the high end (2.22 to 1 ratio for perfect scores), and these differences persist over time.--Mark Perry

Bill Easterly is too funny

An expert commission of African leaders today announced their plan for comprehensive reform of music band U2. Saying that U2’s rock had lost touch with its African roots, the commission called for urgent measures to halt U2’s slide towards impending crisis.

“Our youth today are imperiled by low quality music,” said Commission chairman Nelson Mandela. “We will be lending African musicians to U2 to try to refurbish their sound to satisfy the urgent and growing needs for diversionary entertainment at a time of crisis in the global music and financial sectors.”

Funny, honest (if somewhat economically naive) send up of US-China relations



China is not lending us money out of the goodness of its heart, or even because its making a bet on our debt--buying treasuries is the best way for China to maintain its artificially low yuan peg to our dollar, which requires making the dollars we send them disappear. If they didn't control the supply of dollars relative to the supply of yuan in this way, the yuan would appreciate relative to the dollar, and China's labor cost advantage relative to the US would erode, which would create even more stress in China's economy, which is struggling with more unemployment and wealth disparity than the U.S.

China does not want the proverbial Tea Party to rear its head. Think about that next time you hear about "all the tea in China".

UPDATE: Gary Becker has much more, and he is much smarter. The fact that his partner-in-blog disagrees gives me even more confidence in Becker's thesis.

Friday, November 20, 2009

Scientists covering up data that discredits global warming

Via Chris Masse, Ed Morrisey reports:
Controversy has exploded onto the Internet after a major global-warming advocacy center in the UK had its e-mail system hacked and the data published on line.
...

One of the most damning e-mails published comes from Dr. Jones himself. In an e-mail from almost exactly ten years ago, Jones appears to discuss a method of overlaying data of temperature declines with repetitive, false data of higher temperatures:

From: Phil Jones
To: ray bradley ,mann@[snipped], mhughes@
[snipped]
Subject: Diagram for WMO Statement
Date: Tue, 16 Nov 1999 13:31:15 +0000
Cc: k.briffa@[snipped],t.osborn@[snipped]
Dear Ray, Mike and Malcolm,

Once Tim’s got a diagram here we’ll send that either later today or first thing tomorrow. I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) amd [sic] from1961 for Keith’s to hide the decline.
James Delingpole has a nice roundup.

Steve McIntyre has more details on Mike's Nature Trick.

I am picturing Karl saying to Thomas, "Check".

Chart of the day: Presidential approval



Source here.

Hollywood: Too many artists and not enough Wall Street hustlers

Until now:
... Hollywood has long bought much more than it sells. Every year, the six major studios shell out for hundreds, if not thousands, of pitches, scripts, and books, sometimes for millions of dollars a throw; on average, each studio will turn only eleven of those ideas into movies. The rest of all that hope and capital ends up lining shelves and clogging hard drives. "There's no other industry where that kind of waste would be acceptable," [Ryan] Kavanaugh says. "I'm not in this for the art, you know? I don't care about awards. I want to make money. I want to own a business."
...
You can't think of it as money," Kavanaugh says, kicking those blue Converse All-Stars up onto the table in front of him. "You have to think of it as math.
...
Before Relativity commits to financing a particular movie — either through its slate deals with Sony and Universal or on its own — it's fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments based on the past performance of similar products. Enough variables are included in the Monte Carlo for Wilson and his team to have reached the limits of their Excel's sixty-five thousand rows of data: principal actor, director, genre, budget, release date, rating, and so on. After running the movie through ten thousand combinations of variables (in marathon overnight sessions), the computers will churn out a few hundred pages that culminate in two critical numbers: the percentage of time the movie will be profitable, and the average profit for each profitable run. The computers will also calculate the best weekend for the movie to be released, whether Russell Crowe will earn his salary or Sam Worthington will be good enough, and the box-office effect of an R rating versus PG-13. But for Kavanaugh, those are secondary considerations: Unless the movie shows the distinct probability of a return — no one at Relativity will reveal the precise green-light figure, but it's something like 70 percent — the script gets shredded. "Everything has to run on the principle of profit," Kavanaugh says. "We'll never let creative decisions rule our business decisions. If it doesn't fit the model, it doesn't get done."
...
"Giving actors $20 million for a movie that loses money is like giving bonuses to the CEOs of bankrupt companies," Kavanaugh says.
...
Some in Hollywood — even more than some — see Kavanaugh as this town's latest false prophet and his talk of regression analysis as so much mathematical flimflam. ("All he's built is a house of cards," says one rival producer.) They read through his catalog of misses and mostly modest hits — in the normal studio equation, a multitude of sin is covered up by a single gigantic success — and wonder how he keeps the money flowing. Kavanaugh says his critics are missing the point. His system is designed to eliminate the dice rolls that made legends and goats of the old moguls — it's designed especially to eliminate the calamitous, crippling flop. "Volatility is a bad thing in any business," he says. "We're just not going to take big risks. That means we'll probably never hit a home run, because the model makes it hard for us to swing for the fences. We wouldn't have made The Matrix. But we wouldn't have made Waterworld, either."
...
The computers have told him again and again that love is an outlier. This time, Kavanaugh has chosen not to believe them.

Quotes of the day

Men, it has been well said, think in herds; it will seem that they go mad in herds, while they only recover their senses slowly, and one by one.--Charles Mackay

I find it deliciously ironic that one of the top five results returned by Google for the search terms "corn stover removal soil fertility" turns out to be research paid for the company planning to do the removal.--Andrew Leonard

People seldom do what they believe in. They do what is convenient, then repent.--Bob Dylan

The beauty of errors of omission is that they they are largely undetectable by clients as long as they go unreported by managers. Because I believe that owning up to one's mistakes in a public fashion decreases the probability of those errors reoccurring, I do so here.--William Ackman

I love that as a six year old [my daughter] still believes in the concept of “too much” money. Those words are so foreign to me as an adult. There’s no such thing as “too much” money. That’s crazy talk. Have you ever heard someone at work say, “Yeah, my wife and I realized we have too much money so we’re trying to figure out how to do something with it before it does something with us.--Jon Acuff

Should Osama bin Laden be captured alive—and I imagine most Americans hope he won’t be captured alive. But if he is, it is ludicrous to suggest he should be tried in a Federal court on Center Street in Lower Manhattan.--Charles Schumer

On February 4, 2009, President Obama signed Public Law #111-3, the Children’s Health Insurance Program Reauthorization Act of 2009. §701 of this law increased tobacco taxes, effective April 1, 2009. Since most smokers have annual family income less than $250,000, this was a clear violation of the President’s pledge.--Keith Hennesey

As the dean of Harvard Medical School I am frequently asked to comment on the health-reform debate. I'd give it a failing grade. Instead of forthrightly dealing with the fundamental problems, discussion is dominated by rival factions struggling to enact or defeat President Barack Obama's agenda. The rhetoric on both sides is exaggerated and often deceptive. Those of us for whom the central issue is health—not politics—have been left in the lurch. And as controversy heads toward a conclusion in Washington, it appears that the people who favor the legislation are engaged in collective denial.--Jeffrey Flier

How much do you have to hate somebody to believe everlasting life is possible and not tell them that? I mean, if I believed, beyond the shadow of a doubt, that a truck was coming at you, and you didn’t believe that truck was bearing down on you, there is a certain point where I tackle you. And this is more important than that.--Penn Jillette

Aggregators, investment or otherwise, are not the cause of the downfall of traditional news gatherers like newspapers. They are simply a sign that people are hungry for information and analysis presented in an efficient manner. For better or worse, that instinct to seek out order in an increasingly complex world is here to stay.--Tadas Viskanta

... let's face it, the genre of the female political autobiography is itself in its infancy. It's like some 53rd state, housing at this moment in time only a handful of crude, wooden, lean-to outposts.--Sandra Tsing-Loh

In truth, we are forever innovating to stretch our resources. Transportation was one of the scarcest goods during the first half of America’s nineteenth century, but by the end of the century the railroads had made it so abundant that the face of America changed irreversibly. That could be said today about information. Innovation makes scarce goods abundant. This quest to do better, to go farther, to extend our reach is part of what makes us human. There is more to economics than the desire to consume and to avoid risk. ... Most observers now acknowledge that capitalism, even in the midst of the 1930s depression, has long been creating unprecedented, unimagined levels of productivity and wage rates—for the rest of the world as well as for the handful of capitalist economies themselves. Now, however, some philosophers and social critics are suggesting that even capitalism has outlived its usefulness—that pursuit of new goals requires another system. It must be clear by now that this analysis overlooks what has been the key dimension of capitalism from its first functioning early in the nineteenth century. This dimension is what capitalism’s dynamism offers to human experience and human benefit—the true moral dimension of economics, in other words. Well-functioning capitalism, where it is attainable, is of undimmed value because it allows human beings to realize their true nature as creators and innovators.--Edmund Phelps

Upon Singapore’s independence in 1965—three years after Jamaica’s own establishment as a nation—the two nations were about equal in wealth: the gross domestic product (in 2006 U.S. dollars) was $2,850 per person in Jamaica, slightly higher than Singapore’s $2,650. Both nations had a centrally located port, a tradition of British colonial rule, and governments with a strong capitalist orientation. (Jamaica, in addition, had plentiful natural resources and a robust tourist industry.) But four decades later, their standing was dramatically different: Singapore had climbed to a per capita GDP of $31,400 (2006 data, in current dollars), while Jamaica’s figure was only $4,800.--Josh Lerner

If the New England Patriots were allowed to spend $50 million more on players than any other team, they would go 15-1 or 16-0 every single year. And people would not stand for it. But in baseball, a great and dominant team might only win 95 out of 160, and it doesn’t seem so bad.--Joe Posnanski

One of my strongest beliefs about the financial crisis is that the narrative that we come to accept about it will matter much more than the crisis itself. I see a strong parallel between the narrative "TARP prevented a Great Depression" with the narrative "The New Deal ended the Great Depression." The latter narrative has very little economic support, even among economists who avidly support the New Deal. However, it is the dominant narrative because it supports progressive ideology. --Arnold Kling

So, phrasing it as "the top 5% of earners pay 60% of the taxes," while comparing apples to oranges, sounds a lot more "unfair" to the wealthy than "the group that earns 37% of the income pays roughly 60% of the taxes."--Kid Dynamite

In his classic book “Famine Crimes” Alex De Waal observes that NGOs make “habitual inflation of estimates of expected deaths.” De Waal notes that during the pre-Christmas prime fundraising season, ‘One million dead by Christmas’… has been heard every year since 1968 and has never been remotely close to the truth.” Put into the current mix a credulous Western media that is happy to check the box “Ethiopia = famine,” and is unable to handle subtleties like chronic food insecurity and chronic malnutrition vs. emergency famine. Between unreliable media, NGOs, and government, it is tragically difficult to know when tragedy is happening.--William Easterly

There's no doubt that erasing global inequality, which has been with us for millennia and has expanded to unprecedented levels over the past century and a half, won't be easy. But by accepting the role of failed governments and institutions in causing poverty, we have a fighting chance of reversing it.--Daron Acemoglu

Some people are calling what I did an act of civil disobedience. I don’t know much about that, but if civil is what the government is, then call my part savage disobedience.--Wayne Johnson

Most pundits, professional and amateur, consider a genius as someone who can effectively articulate one's platform more efficiently than themself. An idiot is someone who effectively articulates the other side.--Eric Falkenstein

Similar skill sets required for poker and trading on Wall Street

Brandon Adams, a professor of behavioral finance at Harvard, says:
[Professional online poker players] essentially been the survivors in the system, a very difficult system where 95 percent of people lose money. Anyone smart enough and disciplined enough to survive that system is probably going to do very well in the trading world.

I used to reflect about gambling frequently at the onset of this blog, but have not done so as much. Here is the last substantive post from almost 2 years ago.

Thursday, November 19, 2009

Quotes of the day

[America has] the kind of culture that can tolerate rap music and extreme sports that can also create space for guys like Page and Brin and Google. That's one of our hidden strengths.--Paul Romer

... if an attractive woman tells you "You don't want to go out with me" do you believe her and act on that?--Megan McArdle

Palinoia: when you think people are out to get you, and then they do their best to justify your erroneous belief. --Megan McArdle

Americans aren’t going to fix our national financial problems until a lot more people decide to drop out of the “normal” competition to see who can borrow the most money in order to bid on a fixed number of homes in affluent school districts and places at selective colleges. You don’t need to be a Christian to look for a better way. Even an unbeliever knew enough to listen up when he saw the bright light on the road to Damascus.--Megan McArdle

I'd never done a detailed budget before, much less written it down, and forced myself to stick to it by doling out all the payments in cash. It sounds unbearably tedious. But it's actually incredibly freeing. I have never before felt like I had total control over my money. And given all the economic gyrations, it would be awfully nice to know that I was on the road to a paid off house, and could cut my expenses to the bare bones if needed.--Megan McArdle

Saddam was well aware of the “who monitors the monitor problem” – what is the head of the Special Guard mounted a coup himself? Saddam’s solution was not original: appoint a relative. Make sure the appointee is a coward so he would not dream of mounting a coup. Just in case he is tougher than you might think, choose someone stupid so he cannot mount a successful coup and is too stupid to recognize someone else’s good ideas for a coup. ... It is very hard for one player to communicate his strategic intent to the other indirectly: presumably Big Bush thought it was obvious which side had defeated the other and could not imagine that Saddam would even consider Gulf War I a win for the Iraqi regime! This leads the players to have two quite different interpretations of the same event and creates room for future errors.--Sandeep Baliga

He is about winning the game without passion or prejudice. He doesn’t give a damn if there were some hurt feelings on his defense. As we used to say in the old days: Tough noogies. He had no faith in his defense stopping Manning. And he coaches to win. And come to think of it: Wasn’t he showing MORE faith in his defense by thinking they could stop Peyton Manning’s Colts from the 30-yard line?--Joe Posnanski

Securities and Exchange Commission cannot practice what it regulates

GAO says it noted in last year’s report that the SEC relies too heavily on processes and systems that are not designed to give accurate, complete, reliable information. This year, GAO adds it appears the SEC was not able to commit the amount of effort and resources necessary to compensate for its deficient systems and processes.
You think anyone is going on trial, or before a congressional oversight panel for this? Me neither.

(Via Bess Levin)

Wednesday, November 18, 2009

Quotes of the day

When a hedge fund puts a value on a position, first we have to get some highly regarded independent verification that we really do hold that position somewhere, then we have to get independent verification of the value of that position. Why do I feel like Rodney Dangerfield? ... I like to make money, of course, but I really don't like to lose it. ... Watch out for style drift. Like a lot of people, we'd been guilty of it--not much, but a little bit. Now, we pretty much try to invest 100% the way we really know what we're doing. Every successful manager has some kind of an edge. That's how you get to be a successful manager. It's important to remain completely focused on taking advantage of that edge, and maintaining discipline. ... As Michael Jordan proved, just because you're a great basketball player doesn't mean you can be a great baseball player.--Israel Englander

We participated in things that were clearly wrong and have reason to regret. We apologize.--Lloyd Blankfein

Yale had accidentally reported the full amount of the holdings and then attached the one thousand multiplier to them, overstating its holdings by a factor of 1000.--Courtney Comstock and John Carney

Thanks Microsoft [Outlook, Office, Mobile, and Explorer] but I'm going to Google [Gmail, Google Docs, Android, and Chrome].--Don Dodge

I think where markets were allowed to work freely, they worked, and hedge funds were prevented from taking on excessive leverage. Where there was failure was in the institutions that were deeply involved in a regulatory environment. How the politicians take those facts and weave them into a demand for more hedge fund regulation, I don't understand, but that is what we see happening.--Israel Englander

There are, de facto, death panels. Alarmist terminology aside, in a single-payer, public system, the state will decide how to mete out finite resources. Of course, with private healthcare there are also “death panels.” But at least you can shop around for an insurer who will be generously inclined towards your various ailments.--Rondi Adamson

A pair of Harvard researchers recently examined 40 years of data from dozens of countries, trying to sort out the economic impact of religious beliefs or practices. They found that religion has a measurable effect on developing economies - and the most powerful influence relates to how strongly people believe in hell.--Michael Fitzgerald

First, the New York Fed, led by our current Secretary of the Treasury, botched the rescue of AIG so completely and so pathetically that it does border, as Yves says, on criminal incompetence. Second, the Fed had enough negotiating leverage in the entire affair to have substantially lessened the amount of taxpayer funds it ending up paying to AIG's counterparties, to the tune of billions and billions of dollars. A competent and motivated negotiator could have extracted billions of dollars in concessions with little else. But the Fed squandered that leverage, and it explicitly renounced several situational and structural advantages it possessed that contributed to that leverage, in the service of ... what, exactly? Certainly not in the service of its fiduciary duty to the American people, which cannot and should not be limited simply to the ad hoc preservation of a bunch of systemically important financial institutions.--Epicurean Dealmaker

It’s a shame that we've empowered municipal unions to the point that they can threaten their employers -- that's you, the taxpayer -- if citizens volunteer. Union officials should spend less time stopping others' work and more time, well, working.--John Stossel

Urban families live more compactly, do less damage to fragile ecosystems, burn less fuel, enjoy stronger social ties to larger numbers of people, and, most significantly, produce fewer children, since large families have less economic utility in densely settled areas than they do in marginal agricultural areas.--David Owen

The best defenses against terrorism are largely invisible: investigation, intelligence, and emergency response. But even these are less effective at keeping us safe than our social and political policies, both at home and abroad. However, our elected leaders don't think this way: they are far more likely to implement security theater against movie-plot threats.--Bruce Schneier

Tuesday, November 17, 2009

Wealth disparity and Family_vs_Community

are the two-factors in Robin Hanson's world dispute model.



I note that the most atheistic countries (e.g. Russia and Sweden) are either too obsessed with survival or with self-expression. From there, I conclude that atheists are just idolators, but their respective gods are meta-idols; nothing as gauche as a sculpture or money.

Chart of the day


Mark Perry also reports: There were 704,226 males who took the SAT test in 2008, and 812,764 females. That means that 3.78% of male test-takers scored above 750 on the math test compared to 1.70% of females above 750.

How coaching football and making policy is similar

Gerald Prante makes a great observation:
Virtually, the entire sports talk universe has called Belichick out for his decision to go for it on 4th down as opposed to punting the football. However, it's pretty evident that the degree of opposition to Belichick's decision amongst the sports public and even so-called football experts is disproportionately high compared to the true probability that Belichick's decision would fail. In fact, a few statistical geeks have even suggested that Belichick made the correct decision under the criterion that head coaches are supposed to use: maximize the probability of your team winning. But in reality, most coaches would have punted the football.

Interesting you may say, but what does this have to do with economic policy?

The type of response we see to Coach Belichick's decision is too often what we also see in public policy debates: there is a bias for what is seen versus what is not seen. One can easily blame Belichick's decision for the Patriots losing the game. But there was still a significant probability that the Patriots would have lost the game had he made the opposite decision and punted. And even though the probabilities of winning under either decision may have been the same (or Belichick may have even made the right decision from a probability perspective), Belichick would not have been blamed had he punted and the Patriots still lost. In summary, even though a given decision may be 50/50 from the perspective of maximizing the team's chances to win, there is an asymmetry in terms of the payoffs from the coach's perspective. In other words, as Steven Levitt pointed out, we have a principle-agent problem where the self-interests of the head coach are not aligned with the interest of the team (i.e. winning the game).

This is the same reason the FDA is more likely to disapprove a healthy drug than approve an unhealthy drug. If the FDA approves a drug that kills people, the media and the general public will go crazy. But they don't see the fact that every year, the FDA is disapproving relatively healthy drugs and costing lives. And it's why politicians would rather have a tax code that uses tax credits that favor one industry over another at the expense of higher taxes on others. Everyone sees the benefits of the tax credits helping Industry A (and politicians will be there at the ribbon-cutting ceremonies to take credit for "creating jobs"), but the public doesn't see the higher taxes on Industries B, C, and D. It's also why the public supports significant restrictions on international trade. A factory closing in Ohio can be easily blamed on cheap foreign labor because the link of causation is rather short (the factory moves to Mexico or Asia). But the benefits of that cheap foreign labor (like lower prices for consumers and higher productivity) aren't seen by customers as being derived from that free trade policy.


A roundup of the numbers here.

Quotes of the day

Some strategies that fail ex post might be optimal ex ante.--Greg Mankiw

Someone is lying about the Iran [uranium enrichment program] negotiations. Time will tell who that someone is. --William Jacobson

Here is why I respect Belichick so much. The data suggest that he actually probably did the right thing if his objective was to win the game.--Steven Levitt

An eclectic essayist is necessarily a dilettante, which is not in itself a bad thing. But Gladwell frequently holds forth about statistics and psychology, and his lack of technical grounding in these subjects can be jarring. He provides misleading definitions of “homology,” “sagittal plane” and “power law” and quotes an expert speaking about an “igon value” (that’s eigenvalue, a basic concept in linear algebra). In the spirit of Gladwell, who likes to give portentous names to his aper├žus, I will call this the Igon Value Problem: when a writer’s education on a topic consists in interviewing an expert, he is apt to offer generalizations that are banal, obtuse or flat wrong.--Steven Pinker

But the government owned AIG, which created the situation that Germans call Anstaltslast: the fact that state-owned companies simply don’t default on their obligations. The government was also battling a major crisis using the only weapon at its disposal: enormous amounts of liquidity. When you’re putting out a fire, you don’t stop to worry that large amounts of liquidity are going to end up where you don’t particularly want them — the important thing is putting out the fire. So yes, given a bit more aggression and foresight, the Fed could have tried to cram down a haircut onto AIG’s counterparties. But at the time, no one was particularly interested in being harsh to the global financial sector; instead, they were trying to rescue it. With hindsight, it now seems that companies like Goldman Sachs have turned out to be the biggest winners, paying out billions of dollars in bonuses even as the rest of the country struggles with an extremely nasty recession. But that wasn’t particularly foreseeable.--Felix Salmon

While there have been hedge fund losses during the crunch, the hedgies have not endangered financial stability to anything like the extent that regulated financial institutions have. This could well be because they are diversified in their risk taking, relatively small, and typically not highly leveraged. It is clear that 10,000 small, diverse, low leverage firms form a much more stable financial system than 10 huge, similar, highly leveraged ones.--David

Professional traders – and I’m not including the risk-junkie cowboys who drove the derivatives mess to heck in a handbasket – understand [that big losses are expensive and can set you back years]. And because they do, they focus the majority of their efforts on avoiding losses, instead of on capturing gains. It’s counter-intuitive, but it really makes a difference.--Keith Fitz-Gerald

The fact is 4.1 million jobs — and counting — have been lost under this president — the most since Herbert Hoover.--Don Surber

I'm a registered Democrat living in New York City, and I buy my own health insurance. But now, having seen the health-care reform bill that passed the House, I'm preparing for life without health insurance. And unless I'm the only person covered under the Empire Blue Cross/Blue Shield "Tradition Plus" plan, a lot of other people will end up just like me, uninsured. I will gain one thing, though—an annual fine for losing my insurance. The exact amount of that fine isn't clear yet, but so far it looks like I'll be paying about the same amount—$2,000 a year—for having no insurance as I do now for having it.--Andrew Heinze

I’m a forty-four year old, healthy, athletic woman raising five kids and governing a large state, I thought as [~300 lb Steve Schmidt's] words faded into a background buzz. Sir, I really don’t know you yet. But you’ve told me how to dress, what to say, who to talk to, a lot of people not to talk to, who my heroes are supposed to be and we’re still losing. Now you’re going to tell me what to eat?--Sarah Palin

CNN was so sick of Lou Dobbs, it gave him an $8 million severance package to leave.--Michael Shain

Obviously, if I had rescued the hostages or they had not been taken, I would have been re-elected.--Jimmy Carter

Paul Krugman is out to top them all, by excelling in two activities that are not just disparate but diametrically opposed: economics (for which he was awarded a well-deserved Nobel Prize) and obliviousness to the lessons of economics (for which he’s been awarded a column at the New York Times).--Steve Landsburg

Monday, November 16, 2009

Gregory Zuckerman's takeaways from the 'Greatest Trade Ever'

here. Summarized:
  1. When Wall Street is wheeling out its latest can't-miss product, be skeptical.
  2. Have an exit strategy -- and cash to cushion any tumble.
  3. Debt markets can do a better job predicting problems than stock markets.
  4. Educate yourself about the range of exchange-traded funds being introduced, some of which can play a valuable role in a portfolio.
  5. Don't underestimate the value of a safety net, such as put options.
  6. A historical perspective can be a valuable tool.
  7. Even the greatest trade doesn't last forever.
  8. Don't risk too much in any one trade, even one that seems like a sure thing.

Quotes of the day

Debt didn’t get dangerously out of scale because the [government's] system was broken. It got out of scale, in part, because the system worked. The government doesn’t make people go into debt, of course. It just nudges them in that direction. ... Subsidizing debt seems harmless simply because we’ve always done it. But the fact that you’ve had a bad habit for a long time doesn’t make it less dangerous.--James Surowiecki

Given the discretion to do so, financial regulators will always do the wrong thing. ... Valuations can remain irrational much longer than a regulator can remain employed.--Steve Randy Waldman

Those who would sacrifice property rights to development end up with neither.--Alex Tabarrok

Our first stimulus bill, it seemed to me, was sort of like taking a half a tablet of Viagra and then having also a bunch of candy mixed in, you know, everybody was putting in things for their own constituencies. It doesn’t have really quite the wallop that might have been anticipated there.--Warren Buffett

I am going to argue that interest rate targeting is not what central banks really do; it's a social construction of what they really do. Interest rate targeting is not reality, it's a way of framing reality.--Nick Rowe

They all say that fighting confirmation bias is a never-ending battle. But if you can't conquer this gremlin of your own mind, you don't stand a chance of outwitting the market.--Jason Zweig

Why aren't academic economists Bayesians? If even iconoclastic behavioral economists agree that rational agents should be Bayesians, what excuse have academic economists got to be anything else?--Bryan Caplan

Most people focus narrowly on their bequests, not on the total receipts of their offspring. I doubt your children are Becker-Barro altruists. After all, you aren’t.--Tim Harford

Once people are trapped into playing, they have a hard time stopping. (Consider Vietnam.) The higher the bidding goes, and the more each bidder has invested, the harder it is to say “uncle.” The best advice you can give anyone invited to play this particular game is to decline. Some games and battles are like that: even when you win, you lose. When you see at the start that such a dynamic is likely, you’re better off just walking away.--Richard Thaler

The health-care bills under consideration would hand over to the federal government nearly all power for organizing American health care. And yet there is not a shred of evidence that Congress or the administration can handle these tasks well. Indeed, there is abundant evidence that, in a crunch to control costs, politicians will do what they always do, which is impose across-the-board payment-rate cuts. That’s certainly how the House-passed bill reduces Medicare spending. There’s no delivery system reform. It’s not “pay for performance.” There’s no calibrating of reimbursement levels based on the quality of care provided. It’s cuts for all providers, no matter how well or badly they treat patients.--James Capretta

The best solution to reducing the real burden of the public debt is neither inflation nor higher taxes, but more rapid growth of the American economy. This involves lower, not higher, taxes on investments and incomes of small and large businesses. It also requires greater concern about the fact that the US is falling behind many other countries in the proportion of its young population, especially males, who receive a higher education.--Gary Becker

GM executives work miracle!

They increased cash reserves by $3 billion, and only had to borrow $50 billion from us to do it.

I don't second guess Belichick's fourth down call last night

Well, I did at first when they didn't convert.

Knowing how I trade, I would have definitely punted. But I wasn't able to look into the eyes of the defense, nor measure how far they were drifting from the defensive gameplan towards the end of the game, due to their exhaustion. Not having Ty Warren at all, and then losing Tully Banta-Cain in-game were material factors, as the Patriots ability to pressure Manning was increasingly questionable.

As a relative value trade, I would definitely value the {Pats offense vs. the Colts defense} at a higher spread or advantage than the {Pats defense vs. the Colts offense}. No disrespect to Peyton et al, but the Colts defense was already undermanned, and had given up 34 points in the game. Their average points allowed this season prior to this game was 13.5. Tom Brady was having his way with the Colts defense, and Sebastian Vollmer had bottled up Dwight Freeney all night.

I think that a lot of fans and 'experts' find the uncertainty of the last 2 minutes with a conventional call for a punt, a better alternative to Belichick's cold and calculated 'All In' with so much time left on the clock. Yet just like no one can question me on my Sharpe/Information ratios (which measure risk adjusted returns), I can't question Bill's risk-adjusted returns, either.

I just hope he retires before Tom Landry did, because Landry stayed on for too long and near the end would call for players whom he no longer had on his roster. Hopefully, Belichick won't be retiring for a long while.

UPDATE: Brian Burke runs some numbers:
The total win probability for the 4th-down conversion attempt would therefore be:

(0.60 * 1) + (0.40 * (1-0.53)) = 0.79 WP (WP stands for win probability)

A punt from the 28 typically nets 38 yards, starting the Colts at their 34. Teams historically get the TD 30 percent of the time in that situation. So the punt gives the Pats about a 0.70 WP.


UPDATE: More from Mike Reiss:
The result: .805 is greater than 0.79, so Expected Win Probability When Going For It is greater than Expected Win Probability When Punting.


UPDATE: More number crunching:
Here are three ways ZEUS breaks down the problem. In each scenario, an extended simulation is performed beginning with the exact circumstance on 4th-and-2 and finishing at the conclusion of the game.

Scenario 1: The custom case for the specific offensive and defensive features of the Colts and the Patriots.

Going for it: 77.3% (Probability of Winning for the Patriots)
Punting: 75.7%

Scenario 2: The case for two N.F.L. average and equal teams in every offensive and defensive category:

Going for it: 78.6% (Probability of Winning for the Patriots)
Punting: 76.4%

Scenario 3: The break-even point on the decision occurs when the team with the ball is about 5 percent weaker than N.F.L. average on offense and 5 percent better than N.F.L. average on defense, while the opposing team is 5 percent better than N.F.L. average on defense and 5 percent worse than average on offense.


OUCH:

If Belichick didn't trust his defense, didn't believe they could stop Indianapolis, then Harrison, of all people, ought to understand why. In Rodney [Harrison's] case, two words should serve as a reminder: David Tyree.--Jim Donaldson



UPDATE: And here is Merrill Hoge:

Friday, November 13, 2009

Close to 0% probability that healthcare legislation passes in 2009


according to Intrade traders. (Due to the way transaction costs are assessed, any bid below 5 is effectively 0).

And here is an interesting article on the navigation required in the Senate (via TheBrowser).

Quotes of the day

In the beginning of [Peyton Manning's] career, I felt it was easy to get into his head. We thought all we had to do was hit the Colts in the mouth and they would fold. This Patriots-Colts matchup didn't turn into a rivalry until they beat us in the AFC championship game. That's when they proved they were legit in our eyes. Peyton has come a long way and so have the Colts. The Patriots truly respect them now.--Tedy Bruschi

Now I realize Joe Montana was traded. Jerry Rice was released. Randy Moss was traded. Bill Belichick got fired. This is borrowed time for us. Enjoy the time you have because one day it’ll be you.--Tom Brady

When [Abdul Jabbar] announced his battle with leukemia this week, you know what happened? I felt terrible for him and hoped he would recover soon. I may have disliked him as a player, but still, my life as a sports fan was always more interesting with Kareem in it. Again, there's a difference between real hate and sports hate. ... Welcome to my sports world in 2009: a place where Manning is feared, Kobe is a champ, A-Rod is clutch, the Yankees have good chemistry, and I have no idea whether the Patriots are tough enough to beat the Colts. Forget about lighting myself on fire. Too easy. I'm leaning toward giving myself a colonic with a leaf blower.--Bill Simmons

There is only so much alpha -- that excess return above a baseline average -- to be had in an efficient market. The incentive to create some artificial alpha one way or another is very high. Those who bend the rules successfully post good numbers, which adds to pressure on other Wall Streeters to push the gray boundaries of legal information flow. --Alice Schroeder

Economics as currently practised may have only a slight grip on market behaviour, but it seems to be powerfully predictive of the behaviour of economists.--John Gray

The next Alexander Solzhenitsyn might be neutralized before he even had the time to compose his first tweet.--Evgeny Morozov