Friday, October 29, 2010

Quotes of the day

Checked the news, found one of those stories that means little, but still makes you think back and cogitate: all those pieces of magnetic meaning, arrayed for your enjoyment. Yes: Sony has discontinued the original Walkman, the big thick units that played cassette tapes. This is where someone attempts to sound hip by saying “What’s a cassette tape?” as if ignorance of things that preceded your brief tenure on this verdant rock is somehow a mark of distinction. We loved cassettes when they first came out, because they were a portable, compact storage medium. I got my first cassette recorder in 1969 – a Magnavox I wore on a shoulder strap like Spock’s tricorder, and it had a microphone. I took it over to Northport Shopping Center to ask people what they thought of the Apollo program. Probably the last bit of real journalism I ever did.--James Lileks

Quotes of the day: Minnesota Vikings head coach version

What did [Brad Childress] say about Belichick this week? Literally within a 24-hour span, he questioned the officials, he revealed the NFL told him he was right, he threw his quarterback under the bus, and he called out one of the greatest coaches in NFL history this past week, the week before he was playing him. So the man who made all those decisions, is making the decision who he’s going to play at quarterback.  ... You wonder if sometimes now if Randy Moss has to be thinking in his most honest moments if maybe that was a better situation. Not that he wanted to be traded, although he was certainly open to the idea of it. I think he wanted to play with Favre, but again, there’s nothing worse than going through a season where your team is losing and you’re struggling and you’re on the brink. That makes work an unpleasant experience. They’re winning right now in Foxboro, and they’re playing very well. And it’s looking like it’s going to be a very good season.--Adam Schefter

I don't put any stock in [Childress'] reports. They don't know [who will be playing quarterback]. We'll prepare for all the players, the ones that play we'll try to defend. The ones that don't, we won't. It's fairly straight forward. Those are the same media reports that said Terrell Owens wasn't going to play in the Super Bowl. Those are the [reports] that you're talking about?--Bill Belichick

Photo link here.

I can't imagine Bush, Bush, Reagan or Carter doing this

Bill Clinton inserts himself into the middle of the Florida Senate race.

Predicted GOP seats in the House still rising

Nate Silver now predicting 232 seats (as of Oct 27), up one more in just one day.

Intrade holding firm at 235 seats, given the mid-prices of the 55+ and 60+ contracts. Liquidity has also increased and spreads tightening this week.

Thursday, October 28, 2010

Poster of the day

Source here.

Cartoon of the day

Source here.

Quotes of the day

The illusions that spur entrepreneurial ventures and consumer daydreams point to the nonmaterial side of markets. Markets not only expand health and comfort, providing a sustaining material existence. They also spur ambition and imagination, the quest for achievement and the pursuit of meaning. They give us an opportunity to exercise our creativity, to enjoy the satisfactions of absorbing, productive work, and to fashion and express our identities.--Virginia Postrel

But while there is a lot of interest in the psychology and neuroscience of markets, there is much less in the psychology and neuroscience of government. Slavisa Tasic, of the University of Kiev, wrote a paper recently for the Istituto Bruno Leoni in Italy about this omission. He argues that market participants are not the only ones who make mistakes, yet he notes drily that "in the mainstream economic literature there is a near complete absence of concern that regulatory design might suffer from lack of competence." Public servants are human, too. Mr. Tasic identifies five mistakes that government regulators often make: action bias, motivated reasoning, the focusing illusion, the affect heuristic and illusions of competence. In the last case, psychologists have shown that we systematically overestimate how much we understand about the causes and mechanisms of things we half understand. The Swedish health economist Hans Rosling once gave students a list of five pairs of countries and asked which nation in each pair had the higher infant-mortality rate. The students got 1.8 right out of 5. Mr. Rosling noted that if he gave the test to chimpanzees they would get 2.5 right. So his students' problem was not ignorance, but that they knew with confidence things that were false. ... If lawmakers are to understand how laws get applied in the real world, they need to know and understand the habits of mind of their officials.--Matt Ridley

The essential Progressive belief that [Ezra] Klein expresses in undiluted form is that crafting public policy through legislation is a topic for which, in simplified terms, the benefits of expertise outweigh the benefits of popular contention. Stated more cautiously, this would be the belief that the institutional rules of the game should be more heavily tilted toward expert opinion on many important topics than they are in the U.S. today. This would be a lot more compelling if the elites didn’t have such a terrible track record of producing social interventions that work. An aeronautical engineer can predict reliably that “If you design a wing like this, then this plane will be airworthy, but if you design it like that, then it will never get in the air.” If you were to build a bunch of airplanes according to each set of specifications, you would discover that he or she is almost always right. This is actual expertise. I’ve tried to point out many times that the vast majority of program interventions fail when subjected to replicated, randomized testing. Our so-called experts in public policy talk a good game, but in the end are no experts at all. They build castles of words, and call it knowledge.--Jim Manzi

Elites are often missing crucial knowledge, and unaware of it. In some ways, that effect is more pronounced than it used to be, with more and more of the elites drawn from a narrow class of extremely well-educated people from a handful of metropolitan areas, few of whom have ever, say, been responsible for a profit and loss statement, or tried to bring a gas station into compliance with local and federal EPA regulations. In a world where your primary output is words, it is easy to imagine a smoothly operating process based on really smart rule-making. And there's a certain impatience with the grimy, self interested folks who complain about the regulations imposed for the good of society--a certain forgetting that in aggregate, those whiners are society. In essence, elites are always missing one vital piece of information: what it is like to be someone who is not in the elite. ... The problem is not that the elites are venal self-interested autocrats out to screw the little guy and give their group more power; the problem is that, like every other group, they tend to understand the costs of programs that restrict their autonomy very well, and to be somewhat less sensitive to the freedom of others. As Anatole France drily put it: "The law in its majestic equality refuses the rich as well as the poor the right to sleep under bridges and to beg for bread."--Megan McArdle

If there were terrorist attacks in this country or elsewhere in the world, all the analysts would be on TV and say, “See? Bin Laden wasn’t that important to the organization.” So it would depend on what would happen, but you’ve posed an interesting idea that if that happened, you could use it as a pivot point to say “Okay, we’ve essentially dismantled and defeated al-Qaeda. They’re not in Afghanistan.” And you could have some sort of significant troop withdrawal. At the same time, the war on the ground is ugly and violent, and we’re losing a lot of troops. You can’t divorce yourself, when you look at this, from the sacrifice and payment some individuals and families are making in this war. The responsibility and price is unevenly distributed. I asked this question of people in Obama’s circle working on this, “What do we owe the people who are over there?” And one of them said, “Everything. They’re our surrogates.” I then asked “What are we giving them? Are we giving them everything?” Of course, the answer is, “No.” Part of what we’re not giving them is the clarity of mission and leadership and focus and commitment. The Obama campaign of 2008, the clarion call, “Yes we can!” We haven’t heard it about these wars.--Bob Woodward

It turns out that early voting mitigates the impact of get-out-the-vote mechanisms, and it also diminishes the impact of "Election Day". Voting used to be a public act of civic engagement, with all sorts of activity focused around election day, from exhortatory news stories to social pressure from the sight of neighbors trudging to the poll. One way to think about it is that voting signals something about you to others in the community, but with the advent of early voting, that signal is no longer so powerful: someone who doesn't turn up on election day might not have voted, or they might simply have gotten it out of the way weeks before.--Megan McArdle

... we should not waste money on the presumption that SEC enforcement actually sniffs out frauds before they blow up. In 2005, Harry Markopolous wrote a 21-page memo to SEC regulators about Bernie Madoff entitled: "The World's Largest Hedge Fund is a Fraud." Nothing happened. The regional SEC office was aware since 1997 that Allen Stanford was likely conducting a Ponzi scheme, but no SEC action took place until 12 years later when his Ponzi scheme was revealed via a lack of funds, costing $8 billion. Too little too late. They might as well admit they are there to attach fines and jail time on the obviously guilty. It is so easy to fool the SEC, they only highlight their obliviousness by suggesting their activity is anything other than post hoc.--Eric Falkenstein

Bernanke is playing something closer to electronic golf. After each practice swing in Wii, the likely distance the ball will travel is shown on the computer screen. The practice swings are the recent policy statements by Fed officials. The reactions of markets (everything from stocks to TIPS spreads) show us the likely effects. Yes, there is a circularity problem here–but at least it gives us a ballpark estimate. And the Fed’s still not swinging hard enough.  Target the forecast! Set monetary policy at a level expected to produce desired growth in AD. We’re still far from that level. I hope Bernanke doesn’t choke under the pressure. I hope he remembers what he told the Japanese a few years back.--Scott Sumner

Here’s what really bothers me about [Joseph] Stiglitz’s article. It’s not that he favors a different monetary policy than I do; it’s that he seems to oppose the Fed having any monetary policy at all. (Hence the connection with those “abolish the Fed” elements within the Tea Party.) I defy anyone to read the article and find any monetary policy being advocated. Indeed I don’t see any evidence that Stiglitz even knows what monetary policy is.--Scott Sumner

Since when is every trade surplus or deficit an "external imbalance" in need of correction? It makes sense for a country that has good investment prospects to import a lot of goods, run trade deficits, and borrow money. Years later, the country puts the resulting products on boats to pay the lenders back. The U.S. borrowed abroad to finance our railroads in the 19th century and ran surpluses when Europe was rebuilding after World War II. Were these "imbalances"? Or consider a country (say, China) with a lot of middle-aged workers who need to save for retirement. It makes perfect sense for them to put stuff on boats and send it to a second country (say, the United States) whose people want to consume the goods. The people in the first country invest their earnings, say, by buying the bonds issued by the second country. And as they retire, they cash in the bonds and buy goods flowing the other way.--John Cochrane

IN FRANCE workers angry about pension reforms have blockaded fuel refineries, causing 4,000 petrol stations to run dry. The Netherlands’ recently elected minority government depends for survival on support from a Muslim-baiting populist. Economies across Europe are struggling to cope with sluggish growth, lacerating budget cuts and the after-effects of borrowing binges. But there is an exception to the gloomy European rule. No big developed country has come out of the global recession looking stronger than Germany has. The economy minister, Rainer BrĂ¼derle, boasts of an “XL upswing”. Exports are booming and unemployment is expected to fall to levels last seen in the early 1990s. The government is a stable, though sometimes fractious, coalition of three mainstream parties. The shrillest protest is aimed at a huge new railway project in Stuttgart. Amid the truculence and turmoil around it, Germany appears an oasis of tranquillity.--The Economist

Commercial of the day

Of course, if a lender owned the debt of a deteriorating counterparty, then the lender would lose, too.

UPDATE: Michael Pettis always has profound things to say about China. I'd recommend this and this, to start.

Wednesday, October 27, 2010

Quotes of the day

They say a country gets the politicians it deserves or perhaps it deserves the politicians it gets. Whatever the order, America is next in line, and as we go to the polls in a few short days it’s incumbent upon a sleepy and befuddled electorate to at least ask ourselves, “What’s going on here?” Democrat or Republican, Elephant or Donkey, nothing much ever seems to change. Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.--Bill Gross

Bullying is a problem that shouldn't exist.  No one should ever feel harassed or unsafe in a school simply because they act or think or dress differently than others.  To every student who feels threatened or harassed -- for whatever reason -- please know that you are not alone. Please know that there are people who love you. And please know that we will protect you.--Education Secretary Arne Duncan

I feel harassed and unsafe about my job because some politicians don't like proprietary traders working for banks, even though we provide value to consumers, like paying for FDIC insurance and free checking.  I don't know that you will protect me, nor my shareholders' alternatives in earning returns, nor all those lower- and midde-class households who really enjoy free checking and avoiding ATM fees and FDIC insurance premium payments.--Cav

If you decide you want to keep the man around, don't use the word 'irresponsible'. You can call him a jerk or even an ass and it won't devastate him, because what is a jerk? That's not concretely definable. But what a man feels when you call him irresponsible is what a woman feels when you call her a bitch. It's the ultimate insult. So if you're angry at a man, just call him a bitch.--Jay Carter

Having outperformed the rest of Asia for more than a century, the Japanese have decided to slow down. Japan has lost its drive to remain one of the world's greatest powers, and it may never regain it. But, given Japan's history, one would be foolish to underestimate the country. While the world frets about North Korean and Iranian nuclear weapons, it is useful to remind ourselves that Japan, should it choose, could become a nuclear power in a matter of weeks. It has all the ingredients, though painful memories of World War II and the bombings of Hiroshima and Nagasaki have so far kept its leaders well away from developing a nuclear stockpile. Moreover, if Japan needs allies to balance the rise of China, it could easily turn not only to the U.S., but also to Russia and India. In short, the geopolitical cards could turn out in Japan's favor if China overplays its hand.--Kishore Mahbubani

Chart of the day: Long term stock market returns

Source here.

Number of predicted GOP House seats continues to rise

Nate Silver now has it at 231 (as of Oct 26), while Intrade is up to 235, using mid-prices of the 55+ and 60+ contracts.

A gain of an additional GOP seat in just the last 4 days.

UPDATE:  A new prognosticator weighs in:
I still feel confident that it is a very close race in terms of the House. You've got close races all across the country.  So we're going to have to wait and see what happens.  And a lot of it is going to depend on turnout.

Tuesday, October 26, 2010

Quotes of the day

A spokesman says Bloomberg only supported three terms for himself, because the situation was extraordinary. At the time, Bloomberg said the city needed him to get through the financial crisis. He promised he'd convene a charter commission to put the question before voters again.--Associated Press

THE saga of Steven P. Jobs is so well known that it has entered the nation’s mythology: he’s the prodigal who returned to Apple in 1997, righted a listing ship and built it into one of the most valuable companies in the world. But the Jobs of the mid-1980s probably never could have made Apple what it is today if he hadn’t embarked on a torment-filled business odyssey.--Randall Stross

Play where the downside is limited relative to the upside, because the key to investing is margin of safety. Play to win, yes, but even more, play to survive, so that you can play longer.--David Merkel

Whatever you do don’t ever, ever, ever, not never, not ever, under any circumstance, any time ever. Am I clear? Add to a losing trade. Never, ever, ever. Why would you ever add to a losing trade? The market, which is the sum total of the wisdom, and perhaps the stupidly, but predominately the wisdom the sum total of the wisdom of the market is telling you are wrong. How dare you argue with the market? How dare you stand up? What sense of hubris must that take on your part to tell the rest of the world that you’re wrong and I’m right. Because that’s what you’re doing when you’re adding to a losing position. Don’t do that. I will tell you. I did that one time. I lost my wife [first wife]to a margin call. I did, in fact, that did happen…November 11, 1983.” Wives get very upset “when you come home and say, ‘Sweetheart, I lost the house today’”. ... The worst degree a trader can have is in economics and the best one is a liberal arts degree preferably “in psychology” or even religion because “at any one time, down on the floor the background that seemed to have the most viability was religion. ... Here is what the markets are all about: “The study of human begins dealing with the rational and the irrational. Dealing with rational numbers in an irrational environment. Dealing with irrational numbers in a rational environment. Dealing with irrational numbers in an irrational environment. And trying to make sense out of the chaos. Trying to bring order to the chaos.--Dennis Gartman

When the measured expected real return is below zero, how well can any recovery program work?--Tyler Cowen

For different reasons, the American popular memory of World War II is also due for some revision. In the past, we have sometimes described this as the “good war,” at least when contrasted to the morally ambiguous wars that followed. At some level this is understandable: we did fight for human rights in Germany and Japan, we did leave democratic German and Japanese regimes in our wake, and we should be proud of having done so. But it is also true that while we were fighting for democracy and human rights in the lands of Western Europe, we ignored and then forgot what happened further east. As a result, we liberated one half of Europe at the cost of enslaving the other half for fifty years. We really did win the war against one genocidal dictator with the help of another. There was a happy end for us, but not for everybody. This does not make us bad—there were limitations, reasons, legitimate explanations for what happened. But it does make us less exceptional. And it does make World War II less exceptional, more morally ambiguous, and thus more similar to the wars that followed.--Anne Applebaum

If it were possible to sum up in one sentence Ethiopia's struggles with famine over the past quarter-century, I'd suggest this: It's not the rains, it's the rulers. As Peter Gill makes clear in "Famines and Foreigners," his well-turned account of the country's miseries since the 1984-85 famine and the Live Aid concert meant to relieve it, drought has not been as devastating to Ethiopians as their own autocratic governments. Ethiopia is a classic example of Amartya Sen's dictum that famines don't occur in democracies, only under tyrannies. The "foreigners" in Mr. Gill's story either didn't know about this sad fact of life or chose to ignore it. In any case, the celebrities and humanitarians who rushed to the aid of starving Ethiopians in the mid-1980s unwittingly supported the very people most responsible for those grim days. The Derg, the brutal Marxist junta running Ethiopia at the time, contributed to the 1984 famine by forcing farmers to sell crops to the state at low prices. Many farmers instead consumed much of what they grew. The tradition of Ethiopians in areas with surplus food selling it to those in famine-stricken areas was thus disrupted.--William Easterly

Look, Mr. Osbourne, after studying your history, taking your blood, extracting your genes from the white cells, making them readable, sequencing them, analysing and interpreting the data using some of the most advanced technology available in the world today--and of course comparing your DNA against all the current research in the US National Library of Medicine, not to mention the 18th revision of the public human reference genome--I think I can say with a good deal of confidence why you're still alive. ... Sharon.--Dr. Nathan Pearson

Monday, October 25, 2010

The other side of the White House whiteboard

Back on October 1, I posted on my disappointment with Austan Goolsbee's whiteboard presentation.

Now, Keith Hennessey does a thorough job of fisking Goolsbee. It's 14 minutes, but it's 14 minutes of showing the foolishness and vanity of government.  Reminded me of this show, without the girls, of course.

No greater love

than laying one's life down for his friends. Rest in peace, Sgt. Miller.

Via Curt Schilling.

Quotes of the day

The chance for mating with a speed-dating partner was 6%, and was increased by men's short-term mating interest; the chance for relating was 4%, and was increased by women's long-term mating interest.--European Journal of Personality

One interpretation of Godel’s [Incompleteness] theorem is that, regardless of your axiom system, there are true statements in arithmetic that you won’t be able to deduce from your axioms. That’s unsettling.--Steve Landsburg

In nominal terms, the yuan has strengthened about 2.5% since China's June 19 decision to ease its currency policy. That works out to an annualized rate of nominal appreciation of almost 8%. The simplest way to calculate real appreciation is to add on the difference between China's inflation rate (3.5%, according to August data) and US inflation (about 1%, or even less if the dip in the September figures holds up). Doing so gives us an annual rate of real appreciation of more than 10%. Two or three years of that would pretty well eliminate the 20 to 40% undervaluation that critics are talking about. True, three years is longer than the time horizon of your average politician, but it's not exactly a glacial pace of change, either.--Ed Dolan

Fox News averages about 1.8 million nightly viewers for its prime-time lineup, easily the largest audience of any cable news network. Many of those viewers are Republicans, of course, but it’s a safe bet that Fox reaches lots and lots of people who consider themselves centrists and independents as well. (49 percent of Americans say they trust Fox, a number that’s rather larger that the diehard conservative base.) By insisting that liberals boycott the channel and decline any opportunity to address its audience, [Michael] Tomasky is effectively suggesting that his ideological co-believers write these viewers off, temporarily at least, in the hopes that — well, what? That the absence of intellectual diversity on the O’Reilly Factor and Special Report will finally, at long last, expose Fox’s biases and send its ratings plunging? How likely does that seem?--Ross Douthat

Rather than be happy about it, [focus groups] insisted that the banks were repaying the TARP funds and interest with higher fees that customers were being charged rather than by reducing other costs or lowering dividends. It was almost a perfect example of a total no-win situation. They would have been angry if the government lost money and they were definitely angry that it was getting paid back. They would also have been angry if the government had made no attempt to deal with the situation, that is, if there had been no TARP, and they were clearly irate at everyone who had anything to do with it being enacted.--Stan Collender

[President Obama is] “coming into Rhode Island treating us like an ATM machine. I will wear it as a badge of honor and a badge of courage that he doesn’t want to endorse me as a Democrat.--Frank Caprio, Democratic candidate for governor

In the past few months, the White House has made a gaudy show of sucking up to the mayor [Micheal Bloomberg]: inviting him to play golf in Martha’s Vineyard with Obama, floating his name as a potential Treasury secretary, dispatching Joe Biden and Tim Geithner to have breakfast with him and seek his economic counsel. The motivations behind the blandishments are many, but not the least is to blunt the Bloomberg threat—to keep him on the sidelines in 2012, where he and his billions would pose no danger of redrawing the electoral map in unpredictable and perilous ways. ... Bloomberg is well aware, because his advisers have flatly told him, that the White House is fretting about his entering the race and that this fear is what has motivated their sycophancy toward him lately. But the flattery must seem puzzling to the mayor, since the administration, in his view, has ignored his advice to be more supportive of business and stop trashing Wall Street, which, naturally, he believes would help save Obama’s bacon—a result that, in turn, would be the greatest deterrent to Bloomberg’s running. ... By the accounts of strategists in both parties, Bloomberg—especially with the help of his billions—would stand a reasonable chance of carrying New York, New Jersey, Connecticut, Florida, and California. Combine that with a strong-enough showing in a few other places in the industrial Northeast to deny Obama those states, and with Palin holding the fire-engine-red states of the South, and the president might find himself short of the 270 electoral votes necessary to win. Assuming you still remember the basics from American Government 101, you know what would happen next: The election would be thrown to the House of Representatives—which, after November 2, is likely to be controlled by the Republicans. The result: Hello, President [Sarah] Palin! ... “She’s a supernova,” says [George Bush and John McCain's former media adviser Mark] McKinnon. “The only parallel is Barack Obama. And look what happened to him.”--John Heilemann

Nate Silver catching up to Intrade?

As of Oct 22, Five Thirty Eight is predicting 230 GOP seats in the House of Representatives, up 3 from Oct 18.

Intrade is holding steady at 234 seats, since Oct 18, based on midprices of the 55+ and 60+ contracts.

Saturday, October 23, 2010

3 simple ways to avoid poverty

Graduate from college, hold down a full time job, and stay married.

You are likely to enjoy a household income about $100,000 per year MORE than an underemployed, single person who did not go to college.

Via Mark Perry.

Thursday, October 21, 2010

Blogging may be limited for awhile

As my access to the Google software suite has been reduced, I will be
needing to adapt my routine. Leave suggestions in the comments if you have any.

Even really, really smart people make mistakes

Keith Landsburg has a neat post on the Allais Paradox:
Question 1: Which would you rather have:

1. A million dollars for certain
2. A lottery ticket that gives you an 89% chance to win a million dollars, a 10% chance to win five million dollars, and a 1% chance to win nothing.

Question 2: Which would you rather have:

1. A lottery ticket that gives you an 11% chance at a million dollars (and an 89% chance of nothing)
2. A lottery ticket that gives you a 10% chance at five million dollars (and a 90% chance of nothing)
Allais proceeded to demonstrate that while the Savage axioms allow rational people to choose 1A and allow other rational people to choose 2B, they don’t allow any one rational person to choose both 1A and 2B. Therefore, he triumphantly announced, Savage must either abandon his axioms or confess to his own irrationality.

Quotes of the day

Hefty dividend payments of 10% a year on Berkshire's "perpetual" preferred shares have cost Goldman about $1 billion so far. The payout is equivalent to more than $1.3 million a day—or $15 a second.--Liz Rappaport and Serena Ng

The robo-signer kerfluffle is a pretext to pander to the mob, just like razing kulaks back in the good old days. People like Paul Krugman, who's id leads his superego rather directly, suggest that those signatures affirming that some person owns the mortgage on some property and hasn't paid, may not have had first-hand information to that effect. They may have been using hearsay information. This is the kind of legal breach is hardly a grand problem that must be addressed prior to further foreclosures. How many of you have clicked 'I have read the EULA agreement' when downloading software without actually doing so? Is that a problem? ... For many people, an indefensible unstated principle is their end game, but because it is self-serving and petty, one can't say it directly. Thus, various pretexts are paraded as principle, and quickly forgotten once their damage has been done.--Eric Falkenstein

The enlightened trust science. That's why the president appointed a science czar, people. A science czar who co-authored a textbook arguing for mass sterilizing of Americans to prevent an imagined population bomb. You know, "science." God has no place in this faith. That's not to say that Yahweh has anything on our president, who once claimed future generations would see his election — Goliath government — as the point in history where we finally started "healing the sick" and "the rise of the oceans began to slow and our planet began to heal . . . ." Now, that's the kind of faith-inflected lingo we slack-jawed yokels can comprehend. Otherwise, the left's plans are just too darn complex for us to appreciate. "Part of the reason that our politics seems so tough right now," Obama recently explained, "and facts and science and argument [do] not seem to be winning the day all the time is because we're hard-wired not to always think clearly when we're scared. And the country is scared." (Wait. If we're hard-wired to be confused, and we're confused, isn't science winning the day? It's all so perplexing.) Science can explain all, including how bitter, frightened, clingy voters aren't grateful enough. Or — and I realize this is probably crazy talk — voters aren't scared, they've just been paying attention and are turning to candidates who, though far less than perfect and not always sophisticated, better reflect their sensibilities.--David Harsanyi

Women don't want more kids than men, but they do want kids more.--Bryan Caplan

The lunches, the money each month, the bail, the concert tickets, those were all NCAA violations, of course, but in my mind I wasn't doing anything wrong. Doc would say to me, "We ain't members of the NCAA. We didn't agree to follow these rules." I also justified it by remembering that the schools and the NCAA were making money while the players, many of whom came from poor families, weren't getting anything but an education, which many of them didn't take seriously. Plus, Doc and I knew that if they didn't take our money, they would take it from one of the dozens of other agents opening their wallets. Agents have been giving kids money for decades. It was more open in the 1960s, '70s and '80s, before states passed sports-agent laws making it illegal. Now, agents still do it, but they are more secretive and use middlemen. Anyone who thinks it doesn't go on needs to look at all the schools currently being investigated by the NCAA for contact between players and agents, places like Alabama, Florida, Georgia and North Carolina. It goes on everywhere. ... Then the day after the Rose Bowl, Jan. 2, I watched on television as Ryan [Leaf] announced that he was going pro. Leigh Steinberg was standing next to him. Losing Ryan, who would end up being the No. 2 overall pick in 1998, hurt, and that will never completely go away. But Ryan also did something I found somewhat redeeming. During training camp of his rookie year with the Chargers, I went down to San Diego. I met him in the lobby of the team's facility, and after coming back with me to my car he ultimately gave me $10,000 in cash -- close to the total amount I had paid him. He never explained why he didn't sign with me nor did he apologize for breaking the promise he made to my dying father, but at least he paid me back. ... Why am I doing this? Why am I telling everything? There are a few small reasons and one big one.--Josh Luchs

This year, the [Harvard Club], in Midtown, turned down Mr. Spitzer’s application for membership — a rare snub by the club — because officials there did not want to be associated with him and the prostitution scandal that forced him from the governorship of New York in 2008, according to a person told of the decision by Harvard officials.--Sewell Chan and Nicholas Confessore

High frequency traders do not front run


The same cannot be said of specialists, market makers, $2 brokers, block desks, salestraders, or even Congress.

If it moves, tax it. If stops moving, bail it out. No, if its moving, bail it out, too!

The government made money on its banking sector bailout. 8% it turns out, which is pretty good for this year.

I predict that the government will lose money on its bailouts of General Motors, Fannie Mae, and Freddie Mac. But it will have bought a lot of votes for the next election, so hey that's value!

And let me remind you, hedge funds in this country did not require bailouts. Sorta like the banks in Canada.

Wednesday, October 20, 2010

Hate economics? No longer a problem

if you dig Seinfeld. And who doesn't?

Via Mark Perry. Image link here.

Quotes of the day

The World Bank has apologized for displaying damning images of Ghana at its recent annual meeting in Washington DC. Some of the pictures have half-naked women breastfeeding their kids and portray a country high on poverty levels.--Joy News

One night in 1902, an ambitious young American engineer named Willis Carrier was waiting for a train, watching fog roll in across the platform, when he had a sudden flash of insight: he could exploit the principle of fog to cool buildings. He patented the idea, protected it fiercely, put his new invention into production, and made a fortune. In 2007, the still-surviving Carrier Corporation generated sales worth $15bn. As eureka moments go, even Archimedes might have had to concede that Carrier's was impressive. For [Steven] Johnson, though, what's really interesting about that story is how unusual it is: although the eureka moment is such a cliche, big new ideas almost never get born like that.--Oliver Burkeman

There is not a single example of a nonrenewable resource that has run out. Nobody ran out of stone in the stone age, iron in the iron age, or bronze in the bronze age. That's not why these ages peter out, it's rather because we move on to something else ..whereas renewable resources tend to run out, like whales, passenger pigeons, and white pines.--Matt Ridley

When movies are made, especially today, they eliminate the risk factors to such a great extent by predigesting the movie and applying what they think are rules learned from successful films. The investor dominates the process. And so the films don't have complexity and depth. Clearly [Apocalypse Now] went off on its own to explore the themes of what was a very unusual, maybe unprecedented, war on many levels. So when the film came out, it shocked people at first and almost defied them, because it was so different then what had been considered a war film. When that happens—when risk is taken and the filmmakers dive into the subject matter without a parachute—very often what you get it something with those qualities that make it age well with the public. Risk is a factor in making art, making films. But because films are, of course, an industry, and so many people are making a living from it, they have really learned over the last twenty years to make risk-free projects. Although I don't know that they've succeeded. Films still lose a lot of money.  ...  You never stop learning about film. I plan to just keep doing my own little films. If I have to finance them, that's fine. I was trained by Roger Corman so I know how to make a low-budget film if I have to. It's more important for me to make the films that only I can make, which is that of my own feelings or what I think is the meaning of life or chip away at it rather than to go get a job and have a bunch of thirty-two-year-old executives give me their theory of what they think the box office requires. --Francis Ford Coppola

Sure, school pays at the individual level. But from a social point of view, Thiel's right: The world would be a better place if smart, motivated kids tried to please billions of consumers instead of a few dozen professors. As expected, Thiel's audacity provoked a lot of venom - a.k.a. "the kind of publicity that money can't buy." I bet that Thiel will have thousands of awesome applicants... largely thanks to criticism like this.--Bryan Caplan

It’s true that Obama has suffered politically because of economic trends beyond his control. But those same economic trends are what delivered him huge congressional majorities in the first place! It’s true that his supporters on the left and center-left alike had unreasonable expectations for this presidency. But (as Baker’s piece points out) it was Obama’s grandiose rhetoric and sweeping promises that helped create those unreasonable expectations to begin with! And it’s true that the partisan, superficial, Politico-ish culture of Washington makes effective governance extremely difficult. But the Obama administration has spent two years empowering Washington to an unprecedented degree! Again, it’s not that Obama’s inner circle doesn’t have anything to complain about. But they have less to complain about than they seem to think — and their self-pity, at this stage, is more than a little bit unseemly.--Ross Douthat

If you're looking for a great example of a negative externality, an act, remember, that comes about because the decision maker doesn't bear a large percent of the cost of his decision, look no further than Bush's Iraq invasion or Obama's "stimulus" package.--Arnold Kling

Since the financial crisis began, I have been inclined to think that we need to go back to traditional mortgage lending and stop trying to use government policy to sustain the securitization model. Each month, the principal-agent costs seem to mount, adding to the disadvantage of securitization. To me, it is obvious that the overall costs of the securitization model are high relative to the costs of traditional lending. But what is obvious to me is unthinkable in the two places that matter--Wall Street and Washington.--Arnold Kling

Who is more knowledgeable on American history: Gwen Ifill, Markos Moulitsas, or Sarah Palin?

The answer may surprise.

Via Glenn Reynolds.

BONUS: Who has better math skills, Michael Kinsley or Greg Mankiw?

I never thought I’d find myself typing those words

You should probably be a buyer of Bank of America right now.--John Carney

Tuesday, October 19, 2010

Quotes of the day

My job as an artist is to channel the feelings I have about society right now, these are the things I’m feeling about our isolation, about our ambiguous relationship with materialism, about failure, about our declining self-esteem. About our attitude towards change and technology. These are things I’m feeling every day, that I put into [Mad Men]. ... it’s not a great moment for someone who just got out of working 24 hours a day and wants to be entertained. And I don’t blame the artistic community. I really don’t. Something happened that nobody can make a movie between $500,000 and $80 million. That can’t be possible.--Matthew Weiner

Pay-TV changes the economics by encouraging the production of high consumer-surplus television because with Pay-TV there is at least some potential for trading off eyeballs for greater revenue. In addition, as more channels become available, lowest common denominator television is eaten away by targetted skimming. Thus, in one way or another, Pay-TV has come to dominate television. The movies, however, have become more reliant on large audiences--at least relative to television. Note that even though the movies are not free, a large chunk of the revenue is generated by concessions--thus the movie model is actually closer to a maximizing mouths model than it might first appear (see also my brother's comments on how flat movie pricing makes it difficult for indie films to compete). Finally, the rise of international audiences for movies has fed a lowest common denominator strategy (everyone appreciates when stuffs blows up real good). As a result, the movies have moved down the quality chain and television has moved up.--Alex Tabarrok

Laws that criminalize insider trading cover corporate insiders and those they tip, but not specifically Congress. And while scholars differ on whether existing law could be applied on Capitol Hill, it hasn’t been. It’s a gap in the law that two members of Congress have been trying for years to plug, to no avail. Congress is famous for telling others what they can and can’t do. When it comes to proscribing its own conduct, it’s a different story.--Ann Woolner

This is a game [Paul Krugman] been playing from the beginning. When it suits his purpose to claim monetary policy can do nothing (i.e. calling for fiscal stimulus or bashing the Chinese) he does so. When it suits his purpose to claim that monetary policy still has unused ammunition (as when he’s bashing the Fed, or bashing the ECB) suddenly monetary policy can do much more. His only way out is to confuse the issue—maybe it’s a 50/50 proposition. Maybe monetary stimulus will work, maybe it won’t. But notice how when he attacks China it’s all about the 50% chance it won’t work, and when he attacks the ECB it’s all about the 50% chance it will work.--Scott Sumner

Fool me once

shame on you.  The UK is buying US Treasuries and selling them to China, giving us a false view of our treasury auctions.

I've thought for many years that Britain was a significant holder of our debt, but no, they are just fronting the Chinese.
Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein
Photo links here and here.

Think the government can provide for retirement better than the private sector?

Think again.  Eleven state pension programs have about a $40 billion shortfall coming due in a decade.  And that doesn't include California.

As 'scary' as private accounts sound (especially to a progressive), at least there is a greater possibility of the beneficiary actually having a positive net value.

Superbowl Futures, part 2

Matchbook latest odds, (based on midprices):

New York (A) 14%
Pittsburgh 14%
Baltimore 12%
New England 9%
New Orleans 9%
Indianapolis 9%
Atlanta 7%
New York (N) 6%
Green Bay 6%
Philadelphia 5%
Minnesota 5%
Tennessee 4%
San Diego 4%
Dallas 3%
Chicago 3%
Houston 3%
Kansas City 2%

I am buying another KC and TEN, adding IND, and flipping my short NE to long (for a realized loss). I am selling another BAL and NO, and also selling an NYG.

Here are my positions and average prices:

P/L Team Position Paid Market Risk
 $   (5.24) BAL -2 9.2% 12%  $(23.67)
 $   (1.21) NO -2 8.7% 9%  $(18.60)
 $   (0.09) NYG -1 5.9% 6%  $  (5.97)
 $   (0.51) KC 2 2.4% 2%  $   4.21
 $    1.00 ATL 1 5.6% 7%  $   6.56
 $    1.27 TEN 2 3.1% 4%  $   7.55
 $   (0.20) IND 1 9.1% 9%  $   8.89
 $   (6.59) NE 1 16.0% 9%  $   9.43
 $    4.08 PIT 1 9.5% 14%  $ 13.61
 $   (7.49) Total

 $   2.00

Part 1 here.

Monday, October 18, 2010

Hurray for NBC, Bill Gates's charity, and the Internet!

Education Nation Scorecard for schools. All you need is a zipcode and a dream.

And school vouchers (which may require a surgical reduction on the teachers' union).

Via Tony Woodlief.

UPDATE: Something similar, from Tony, for healthcare costs.

Uh oh

Scott Sumner has filled a large can with eerie similarities between the economic foibles of today with those from 1929-1932.

Photo link here.

Bikini statistics: medical science edition

... wasn’t it possible, [John Ioannidis] asked, that drug companies were carefully selecting the topics of their studies—for example, comparing their new drugs against those already known to be inferior to others on the market—so that they were ahead of the game even before the data juggling began? “Maybe sometimes it’s the questions that are biased, not the answers,” he said, flashing a friendly smile. Everyone nodded. Though the results of drug studies often make newspaper headlines, you have to wonder whether they prove anything at all. Indeed, given the breadth of the potential problems raised at the meeting, can any medical-research studies be trusted? ... We could solve much of the wrongness problem, Ioannidis says, if the world simply stopped expecting scientists to be right. That’s because being wrong in science is fine, and even necessary—as long as scientists recognize that they blew it, report their mistake openly instead of disguising it as a success, and then move on to the next thing, until they come up with the very occasional genuine breakthrough. But as long as careers remain contingent on producing a stream of research that’s dressed up to seem more right than it is, scientists will keep delivering exactly that.
Photo link here.

Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein

z = z² + c

Benoit Mandelbrot, rest in peace.

Intrade vs. 538

Nate Silver is predicting that the GOP will hold 227 seats (as of Oct 15) in the House after the upcoming midterm elections.

On the other hand, Intrade is predicting 234 seats*. I've put on a bet last week (with my favorite Harvard physicist) that Intrade will be more predictive than Silver. I pay if the GOP wins less than 229 seats.

*Midprice on the 55+ contract is 57.9 and 39 for the 60+ contract.

Corporate boards have found a way to reduce shareholder value

Paying their CEOs with options:
Many CEOs stand to come out losers if they sell their companies, even when shareholders would reap a substantial premium. Only 14.5% of chief executives would do better selling their companies at a 25% premium than they would under their current pay packages, according to an analysis of compensation packages for CEOs of companies in the Standard & Poor's 1500 index by compensation consultancy Shareholder Value Advisors.  In many cases, the loss of expected future pay and the time value of options would more than wipe out gains on equity and on the spread between the option exercise price and the take-out price.

Quotes of the day

We Baby Boomers stole from our children and our grandchildren.  We were selfish.  We levered, we lived a great life.  That's over.--Dallas Fed President Richard Fisher, on CNBC

I don’t know which is more depressing: the fact that we conduct multi-year studies of behaviors that were once governed by common sense, or the fact that we keep commissioning new research on the same question because we don’t like the findings from the last batch.--Tony Woodlief

There are more coaches in the NFL from Wesleyan College than from Notre Dame, Ohio State, Michigan, Texas, Alabama, Georgia, USC, Oklahoma and Nebraska combined. And there are more coaches from Eastern Illinois than Wesleyan College.--Joe Posnanski

Public-choice scholars, such as my (now-retired) George Mason University colleagues James Buchanan and Gordon Tullock, have long argued that politicians’ vision never extends beyond the next election. The consequence of this political myopia is that, contrary to popular myth, government is not uniquely concerned with the future; instead, politicians too frequently sacrifice the public’s long-run welfare in exchange for the cheap and irresponsible thrill of immediate victory at the polls.--Don Boudreaux

In 1977, President Carter proposed that Social Security benefits be indexed, not to the price level as had been the case, but to wages. Because real wages tend to rise, this wage indexing would be expected to cause Social Security spending to rise faster than otherwise. Someone who understood this at the time was recently designated Nobel Prize winner Peter Diamond. ... Unfortunately, Carter got his way and we are now living that nightmare.--David Henderson

Government-created groups as a way to manage risk aren't novel. Consider the market for residential mortgages. Any mortgage poses a risk of default. But a large bundle of mortgages poses a more predictable risk, with little threat of default. The Federal National Mortgage Association (Fannie Mae) groups individual mortgages together into securities that are sold to private investors. In the same way, my proposal would have the Government bundle families, any one of whom could face catastrophic medical bills, into relatively safe large groups. Colleagues have suggested calling the plan "Fanny Medic" or "Healthy Mae." Once the groups were formed, a public (or private) agency would be created to solicit competitive bids from private insurance companies to cover everyone in the group. The agency would replace the personnel department of large employers. The result would be a system that insured every American at rates that would not discriminate against the chronically ill. The beauty of the idea is that it fits every type of health insurance -- from managed-care health-maintenance organizations to traditional fee-for-service plans. The system could accommodate many different payment plans: premiums could be paid by individuals, employers or general taxes.Best of all, it eliminates the irresistible incentive of private insurers to discriminate against the ill and potentially ill for the sake of their own economic survival. Once government steps in and assigns everyone to groups, private insurers can bid on contracts to insure members of the group. At one stroke, we could reach the goal of universal coverage at competitive nondiscriminatory rates.--Peter Diamond

... roughly 90% of the value of the [high income earner's incremental business] transaction is taken by the government. When you get tax rates to 90%, that is a significant disincentive for working. ... The Left is obviously not very happy about this. They don't like talking about the incentive effects of taxes. But I have had a lot of economists come up to me and offer me condolences for all the heat I've been getting over [my column], because the economics of column is pretty straightforward. I really did simple tax calculation. And the point of it is that when you compound tax on top of tax on top of tax, the total tax burden becomes pretty large. ... At some point, the President is going to say 'you know, I can't really solve this [looming deficit] problem simply by taxing the top 2% [of income earners]'. I think he knows that now, but he's not saying that now.--Greg Mankiw

In his textbook “Principles of Economics,” N. Gregory Mankiw, a Harvard professor, proposed this thought experiment: A town must maintain a well. Peter, who earns $100,000, is taxed $10,000, or 10 percent of his income, while Paula, who earns $20,000, hands over $4,000, or 20 percent of her income. “Is this policy fair?” Mr. Mankiw asks in “Principles.” “Does it matter whether Paula’s low income is due to a medical disability or to her decision to pursue an acting career? Does it matter whether Peter’s high income is due to a large inheritance or to his willingness to work long hours at a dreary job?” Economics, Mr. Mankiw concludes, won’t tell us, definitively, whether Peter or Paula is paying too much, because an answer inevitably leads to matters of values, which inevitably leads to different answers.--David Segal

... there’s a good reason that human irrationality isn’t part of the standard economic models, and this gets to the dilemma of economics. If you have a simple problem, you can offer a simple solution. But the economy is a hugely complex problem. So we either simplify the problem and offer a solution, or embrace the complexity and do nothing.--Dan Ariely

... the foreclosure freeze has begun to create a chilling effect on the entire housing market. New buyers have stepped back from the market for distressed property, which now accounts for more than 30% of new transactions, according to RealtyTrac. New owners are worried they don't have a legal right to their homes. Title insurers are worried about their exposure to faulty documents and unwilling to stand behind new purchases. Since title insurance is required for most mortgages, the market is essentially at a standstill.--Lauren Tara LaCapra

... the implications seem much more disturbing for people who aren't in foreclosure. Take the investors in these mortgage bonds. Most of these securities have clauses that allow investors to force the banks to take back loans in the case of fraud. When did the fraud start? You can expect to see that extensively legislated--and I doubt that many of the originators have the capital to withstand a mass wave of such loan repatriations, especially since you can expect that they'll only be forced to take the bad ones. This is going to be an expensive mess for the courts to sort out, could lead to another wave of bank failures, and doesn't have any obvious legislative fix. Or how about people who are in trouble, but not in foreclosure? I heard someone on the radio saying that this all could have been avoided if banks had modified loans with generous principal reductions, like they ought to have. I find this remark puzzling. If a loan servicer doesn't have sufficiently clear authority to foreclose, then presumably they also don't have any authority to modify the loan. In fact, shouldn't banks be stopping their modifications, too, until clear lines of ownership are established?--Megan McArdle

If Fed Chairman Ben S. Bernanke wants to know who is benefiting most from his policies, Bangkok is as good a place as any to look. Thai stocks are up a spectacular 52 percent this year, while the Standard & Poor’s 500 Index is up 5 percent. Thailand, which is growing 9.1 percent, isn’t alone. Singapore’s 10.3 percent growth is another case in point. So are growth rates in Malaysia (8.9 percent), the Philippines (7.9 percent), South Korea (7.2 percent) and Hong Kong (6.5 percent). Stock markets are booming even as America’s funk is deepening. The reason: investors know that any move by the Fed to further ease monetary policy means more liquidity is about to zoom Asia’s way. It’s ironic, really. The U.S. is desperate to aid its beleaguered export industry and all it’s doing is exporting the stimulus needed at home. It’s not as fun as it sounds for Asian policy makers. They are caught by the biggest economies flooding markets with money and warring over currencies.--William Pesek

It has recently been asserted – and not just by Google’s engineers – that the company’s search queries can predict flu epidemics as accurately as the federal Centers for Disease Control and Prevention, and can get an earlier, more accurate reading of unemployment trends than the Bureau of Labor Statistics. Eventually Google will iron out the wrinkles in its inflation measure. What resources will the government then be able to tap that would ever allow it to compete with Google? Should Google’s principals be allowed to trade on this information? If Google is better at predicting inflation, unemployment and influenza, it will probably be better at predicting crime, terrorism and political unrest. What government that claims to be vigilant against terrorism would fail to use Google’s data? The line between Google and government is destined to blur. You can say that such lines have been blurring, through privatization, for a long time. But there is a difference between the privatization of tasks that started in the 1980s and the privatization of analysis that Google portends. Google is going to have a special role in shaping the ends of government. Google strengthens a key argument in favor of privatization: why should a sclerotic and bureaucratic government deny itself the tools so plentifully available in the private sector? But Google weakens a key argument in favor of freedom: that a modern economy is too complex for a single entity to make sense of. Privatization used to mean decentralization. It no longer necessarily does. History would lead us to expect one of two resolutions over the long term. Either Washington will turn Google into a utility (railroads are the model) or Google will take up a privileged position as a private company with public prerogatives (for example, the old Bank of England or the Dutch and English overseas trading companies). One way or another, the result will be a closer union between power and specialized knowledge. If the Tea Party movement is enraged at being bossed around by experts, wait till they see what technology has prepared for them next.--Christopher Caldwell

If “Jackass 3D” is anything like prior triumphs in the franchise, its band of raunchy, anarchic daredevils will make high art of low humor and leave no mishap private – especially if it involves someone's privates. But just try to get Johnny Knoxville and his gang to talk about how much each is paid. In America, money is the last conversational taboo. That's probably a good thing for workplace morale. ... Among workers whose [published] pay was below the median for their department, job satisfaction plunged and likelihood of searching for a new job increased. Interestingly, among those who were paid above the median, there was no meaningful change. The findings fit neatly with something called the inequality aversion theory, proposed in 1999 by researchers in Zurich and Munich. In experiments, human subjects proved willing to sacrifice potential rewards if they could block others from receiving superior rewards. In other words, subjects in many cases cared more about fairness than gain. (A 2003 study involving monkeys showed similar behavior – and a bit of monkey rage displayed toward scientists who created the conditions.) The University of California finding suggests employers have more to lose than to gain from publicizing salaries. Inexpensive workers might leave and costly ones aren't made more loyal.--Jack Hough

The only way to fight poverty is with employment,” he said. “Trillions of dollars have been given to charity in the last 50 years, and they don’t solve anything.--Carlos Slim

1. Cops Really Don’t Like It When You Refuse To Answer Their Questions. The passport control officer was aghast when I told her that my visit to China was none of her business. This must not happen often, because several of the officers involved seemed thrown by my refusal to meekly bend to their whim.

2. They’re Keeping Records. A federal, computer-searchable file exists on my refusal to answer questions.

3. This Is About Power, Not Security. The CBP goons want U.S. citizens to answer their questions as a ritualistic bow to their power. Well, CBP has no power over me. I am a law-abiding citizen, and, as such, I am the master, and the federal cops are my servants. They would do well to remember that.

4. U.S. Citizens Have No Obligation To Answer Questions. Ultimately, the cops let me go, because there was nothing they could do. A returning U.S. citizen has an obligation to provide proof of citizenship, and the officer has legitimate reasons to investigate if she suspects the veracity of the citizenship claim. A U.S. citizen returning with goods also has an obligation to complete a written customs declaration. But that’s it. You don’t have to answer questions about where you went, why you went, who you saw, etc.

Of course, if you don’t, you get hassled. But that’s a small price to pay to remind these thugs that their powers are limited and restricted.--Paul Karl Lukacs

... Philip Gourevitch reviews Linda Polman’s book, “The Crisis Caravan: What’s Wrong with Humanitarian Aid?” The central thesis of this book (as presented in the review) is that the people who deliver aid are addicted to horror stories and starving kids, and this addiction is fed by those who benefit from aid, whether they be local leaders, militias committing atrocities or even victims who don’t wear their prosthetic legs because they can get more attention with their stumps. This thesis has always made sense to me (see this this and this at my day-job blog, aguanomics). Polman is merely putting data (multiple anecdotes) to the theory. Here’s the simple version: If people give you money because of A, then you don’t do anything to stop A. Even better, make A bigger so you get more money.--David Zetland

There was a romance in the American military with the idea of the frontier marksman, and it manifested itself in the institutional idea of the far-shooting, eagle-eyed American grunt. So along comes the idea of a lower-powered rifle, with a shorter barrel, that fires automatically -- three traits that make it less accurate, especially at medium and long range. This was the AK-47. It was early in the Cold War. The two sides were making choices about how to arm themselves. The Pentagon took stock of the AK-47 and all but sneered. It did not even classify the AK-47 as a rifle. Traditionalists advocated a heavier rifle that fired a more powerful round. The M-14 was designed, developed, and fielded. When the two rifles met in Vietnam, the Pentagon realized its mistake. ... Casualties are not the only yardstick. A weapon can have an enormous effect without wounding anyone at all because it limits the other side's movements or the choices made each day about where and how to go. It can reduce an enemy's mobility and increase the costs of his operations by encouraging him to wear or ride in armor. It can redirect the direction and ambitions of operations -- from campaigns to patrols, in many, many ways. And even this is not enough. The fullest measure of the Kalashnikov is its effects on the vulnerable -- on civilians, on weak governments, on lower-performing government forces, like, for example, the Afghan police or, as you allude to, the Uganda People's Defense Force. Entire areas of many countries are beyond their governments' influence because local anger is coupled with automatic Kalashnikovs, which engender lawlessness and provide a means for crime, rebellion, insurgency, and human rights abuses on a grand scale. The Lord's Resistance Army provided a telling example. It descended from an insurgent organization that had few Kalashnikovs and was short-lived -- its precursor was, in a word, routed. Then came the LRA. It acquired Kalashnikovs. Almost 25 years later, it's still in the field, and the territory it operated in is a social and economic ruin. That was a different war before Joseph Kony got his AKs. And there are many other examples. ... Will they become obsolete? Not on any depreciation schedule that I have seen. I routinely find Kalashnikovs from the 1950s still circulating in Afghanistan. The rifles are more than a half-century old, and they are still in active use. What do these rifles tell us? They tell us that the Kalashnikov age is nowhere near over.--C.J. Chivers

Friday, October 15, 2010

Education quotes of the day

The fact that we view teaching as a profession that anyone can enter without regard for how they performed as a student [is a major impediment to improving American schools]. It’s easier to get into ed. school in the U.S. than it is to qualify to play college football [note that most college sports programs require a minimum grade point average and SAT score, while some teacher-preparation programs do not].--Kate Walsh

In a new report, “Closing the Talent Gap: Attracting and Retaining Top-Third Graduates to Careers in Teaching ,” we review the experiences of the top-performing systems in the world—Singapore, Finland, and South Korea. These countries recruit, develop, and retain the leading academic talent as one of their central education strategies, and they have achieved extraordinary results. In the United States, by contrast, only 23 percent of new teachers come from the top third, and just 14 percent in high poverty schools, where the difficulty of attracting and retaining talented teachers is particularly acute.--McKinsey

Academia, like markets and government, is an incentive system in which most of the time agents act in accordance with their incentives. Thus academia suffers from "academic failure" in much the same way that markets suffer from "market failure" and government suffers from "government failure." [Douglass] North's commitment to pedagogical quality, despite the lack of incentives to have such a commitment, may well have changed history by means of giving Paul [Heyne] the years of experience in a sympathetic environment that led to "The Economic Way of Thinking." Consider what history might have been like if the dominant introductory textbook in the 50s, 60s, 70s, and 80s had been "The Economic Way of Thinking" instead of Samuelson's text.--Michael Strong

The Chinese Non-Missile Crisis

A dialogue fable mash up:
Leader of Absurditoptia (A): I say, leader of Stupidia – we demand that you stop occupying that contested strip of land. If you refuse, we’ll have no choice but to shoot our own citizens.

Leader of Stupidia (S): You don’t scare us! That land is ours. And if you do kill some of your own people, make no mistake that we will immediately – and just as cruelly – commence to killing our own people. Courage is our national motto!

(A): Ha! You’re bluffing. But I’m not. I’ve just courageously ordered my troops to mow down in cold blood ten percent of my fellow countrymen. Take that!

(S): How dare you attack you like that! You leave us no choice but to attack us. I am ordering the Stupidian army to slaughter 15 percent of innocent Stupidians here in Stupidia. How do you like them apples?!

(A): You are cruel and inhuman to damage us by killing your people. I hereby instruct all of my fellow Absurditopians to commit suicide! Only then will you nasty Stupidians get your proper comeuppance and we Absurditopians the justice that we are due!

(S): You can’t beat us, you Absurditopian you! Listen up. I’m ordering all of my fellow citizens – Stupidians all! – to commit suicide. We’ll see who emerges victorious!
Basically, the rumblings of the trade war between the U.S. and China are about threatening each other to make it harder to sell each other things that each other wants. I'm gonna get you sucka; just watch me increase my unemployment!!! Silliness.

Quotes of the day

Whenever you have an efficient government you have a dictatorship.--Harry Truman

When I worked at the World Bank, management was always checking up on us to make sure our research was relevant for real-world economic development. The standard test question was, "What would your research suggest the finance minister of country X should do?" This question reflected the standard view that has endured since the beginning of development economics six decades ago -- that all countries begin with a blank slate and that development happens when today's government leaders execute wise policies. My job was simply to tell the leaders what those wise policies were. Imagine the dismay of my managers if my advice to the finance minister had been, "Make sure your country was well caught up on technology -- 500 years ago." But seemingly irrelevant as that advice might be, it's actually true. If a country had the printing press and the magnetic compass in 1500, it's a pretty safe bet it has a strong national economy today. Ancient history still matters for today's development, providing unique insight into why the lights are still off in the dark corners of the world and what we might do to change that. Strangely, history has never figured into the equation when it comes to exploring why some countries prosper and others don't. ... our research shows that development is not about what you dictate, but what you discover. Little penicillin did far more to improve the world's lot than big plans conceived around a conference table. --William Easterly

One commonly hears complaints that living standards in America haven't "really" increased since the seventies--that it's all useless consumer gimcrackery. If you've ever spent a hot July without air conditioning, you know this is nonsense.--Megan McArdle

Economists understand that, absent externalities, the undistorted situation reflects an optimal allocation of resources. It is crucial to know how far we are from that optimum. To be somewhat nerdy about it, the deadweight loss of a tax rises with the square of the tax rate. Thus, increasing or decreasing a tax rate by 1 percentage point has a small effect on economic well-being if the initial tax rate is low, but it has large effect if the initial tax rate is high. For the margin of adjustment I was discussing (work more now, let your kids consume the proceeds in 30 years) the distortion is very high once all taxes are taken into account. As a result, every change in this tax wedge has a large impact on the size of the economic pie. ... Work has a pecuniary benefit, whereas leisure has a non-pecuniary benefit. Reality is more complicated. I face a choice among a wide range of activities, each of which offers some combination of pecuniary and non-pecuniary benefits. Absent taxes, I would choose an optimal mix of these activities. When the government taxes pecuniary benefits, I spend more time on those activities that yield non-pecuniary benefits. Some of those activities may look like leisure, but others may be better described as "fun work" rather than "income-producing work." Blogging, for instance, or writing op-eds that particularly inflame the left-wing blogosphere.--Greg Mankiw

Interestingly, no one thought it was odd that they should have opinions on Greg Mankiw's taxes; apparently, it is only opinions on your own taxes that are in bad taste.--Megan McArdle

I opposed TARP from day one. I wanted to see the insolvent banks put into bankruptcy. Now, some of the same folks who say that bailing out the banks was necessary to save us from another Great Depression are telling us that we need to stick it to the banks. If you say that "the law is the law" and "rules must be enforced as written," that can be a consistent position and I can respect you for it. But then don't turn around and say that we should empower mortgage counselors to rewrite people's loans. I wish that some of the pontificators had some business experience. ... It is safe to say that what is going on now is not helping "little people" against "the banks." It is an assault on a process that has done little or no actual harm to borrowers, and which supports the complex allocation of mortgage cash flows under today's securities. In the end, the biggest losers will be the unemployed, because the assault on the foreclosure process is going to keep the housing market in limbo for years. That in turn is going to make economic recovery something that does not begin until well after President Palin takes office. Have a nice day.--Arnold Kling

Throughout the financial crisis, the federal government didn't have to put up one single dollar to help out a hedge fund. They suffered, but never went to Washington with their hands out. Does that answer your question?--Byron Wien

A hedge fund is a computer that can go anywhere.--Daniel Donovan, Jr.

I can read my Kindle books on my iPad. I like the Kindle screen better (though it isn’t self-lit like the iPad.) But when it comes to eye strain the Kindle’s more like reading a book. The iPad is more like reading a computer screen. But the book looks better, generally on the iPad. The charts are crisp–on the Kindle you can’t always read them and photos are the same. On the regular-sized Kindle they’re a joke. On the iPad they’re glorious. Email on the iPad is fantastic. The on-screen keyboard is pretty good. Not great for long (more than a paragraph or so) writing but fine for short emails. The pdf reader I’m using (GoodReader) is spectacular. ... But while I’ve read pdfs on the regular-size Kindle it’s pretty horrible. The iPad makes me want to read them. Reading blogs on the iPad is better than on the web. I’m using Pulse as a blog reader. The posts are cleaner and crisper with less distractions. ... I do think it’s a spectacular way to carry a bunch of intellectual stimulation and aesthetic diversion when I travel. I’m planning on leaving my laptop at home on my next short trip. I’d like it to replace my laptop. It can’t yet. But the fact that I want it to, tells me something.--Russ Roberts

What Steve [Jobs]’s brilliance is, is his ability to see something and then understand it and then figure out how to put into the context of his design methodology — everything is design. An anecdotal story, a friend of mine was at meetings at Apple and Microsoft on the same day and this was in the last year, so this was recently. He went into the Apple meeting (he’s a vendor for Apple) and when he went into the meeting at Apple as soon as the designers walked in the room, everyone stopped talking because the designers are the most respected people in the organization. Everyone knows the designers speak for Steve because they have direct reporting to him. It is only at Apple where design reports directly to the CEO. Later in the day he was at Microsoft. When he went into the Microsoft meeting, everybody was talking and then the meeting starts and no designers ever walk into the room. All the technical people are sitting there trying to add their ideas of what ought to be in the design. That’s a recipe for disaster. Microsoft hires some of the smartest people in the world. ... It’s not an issue of people being smart and talented. It’s that design at Apple is at the highest level of the organization, led by Steve personally. Design at other companies is not there. It is buried down in the bureaucracy somewhere… In bureaucracies many people have the authority to say no, not the authority to say yes. So you end up with products with compromises. This goes back to Steve’s philosophy that the most important decisions are the things you decide NOT to do, not what you decide to do. It’s the minimalist thinking again. ... Steve was solving problems back in the 80s that turned out 15, 20 years later to be exactly the right problems to be working on. The challenge was we were decades away from when the technology would be homogenized enough and powerful enough to be able to make all those things mass market. He was just, in many cases, he was way ahead of his time. Looking back, it was a big mistake that I was ever hired as CEO. I was not the first choice that Steve wanted to be the CEO. He was the first choice, but the board wasn’t prepared to make him CEO when he was 25, 26 years old.--John Sculley