Friday, January 29, 2010
Retired Air Force Lt. Colonel Lee A. Archer, a Tuskegee Airman considered to be the only black ace pilot who also broke racial barriers as an executive at a major U.S. company and founder of a venture capital firm, died Wednesday in New York City. He was 90.
Photo link here.
Thursday, January 28, 2010
Not true.--Supreme Court Justice Samuel Alito, in hearing President Obama's remark on a recent decision
The president's statement is false. The Court held that 2 U.S.C. Section 441a, which prohibits all corporate political spending, is unconstitutional. Foreign nationals, specifically defined to include foreign corporations, are prohibiting from making "a contribution or donation of money or ather thing of value, or to make an express or implied promise to make a contribution or donation, in connection with a Federal, State or local election" under 2 U.S.C. Section 441e, which was not at issue in the case. Foreign corporations are also prohibited, under 2 U.S.C. 441e, from making any contribution or donation to any committee of any political party, and they prohibited from making any "expenditure, independent expenditure, or disbursement for an electioneering communication." This is either blithering ignorance of the law, or demogoguery of the worst kind.--Bradley A. Smith
I claim that it is immoral for government to make promises that it does not expect to keep.--Arnold Kling
Please, if you have a connection, ask the State Department why [Haiti relief] volunteers are being forced to foot the bill for empty flights to the States.--Jake Wood
In last night's State of the Union address President Obama proposed a three-year "spending freeze" on what amounts to one-sixth of the federal budget. Our biggest entitlement programs, Social Security and Medicare, would be excluded. These changes are optical rather than substantive. Given the spending agenda that is already in place, we can expect to see large increases in the proportion of GDP that is spent by our government for years to come.--Edward Lazear
Jon Stewart has been asking for the last year whether Obama was getting his ass handed to him, or whether he was a Jedi master, 5 steps ahead of his opponents. I guess now we know which it is...--aka Jesse Livermore
... both spouses behaved more positively in relationships in which wives were more attractive than their husbands, but they behaved more negatively in relationships in which husbands were more attractive than their wives.--McNulty, James K.; Neff, Lisa A.; Karney, Benjamin R.
Offered a single man, 59 per cent [of heterosexual single women] were interested in pursuing a relationship. But when he was attached, 90 per cent said they were up for the chase.--Andy Coghlan
If you hang around you'll notice that there are no shortage of women in these discussions. Having read a particularly smart take on Brett Favre, or having received a good recommendations on a particular IPA, it would not be a compliment for me to say, "Wow, I forgot you were a woman." Indeed, it would be pretty offensive.
The problems is three-fold. First, it takes my necessarily limited, and necessarily blinkered, experience with the fairer sex and builds it into a shibboleth of invented truth. Then it takes that invented truth as a fair standard by which I can measure one's "woman-ness." So if football and beer don't fit into my standard, I stop seeing the person as a woman. Finally instead of admitting that my invented truth is the problem, I put the onus on the woman. Hence the claim "I forgot you were a woman," as opposed to "I just realized my invented truth was wrong."--Ta-Nehesi Coates
A German couple who fled to Tennessee so they could homeschool their children was granted political asylum Tuesday by a U.S. immigration judge ...--Travis Loller
Consistent with the culture of honor theory, pitchers from the southern United States were more likely to hit batters in these situations, but primarily if the batter was White.--Timmerman, Thomas A.
I was born in Michigan, grew up in Madison, and went to grad school in Chicago. These three areas encapsulate how I think about the recession. Chicago is a cross-section of America, with a highly diversified economy. Its unemployment rate is 10.3%, close to the national average. Madison is blessed with unusually acyclical industries, and I don’t recall it ever experiencing high unemployment. Because its economy is dominated by state government, college education, insurance, biotech, and dairy, it has only 5.5% unemployment. At the other extreme is Detroit, with 15.4% unemployment. Detroit has two problems. First, heavy industry is unusually cyclical, and thus steel, autos, machinery, etc, will suffer more job losses when AD falls, even if there is no recalculation. Of course the auto industry is the main problem in Detroit. It is not true that the US auto industry is in a long term state of decline, but the Big 3/UAW auto industry is in a long term state of decline. So Detroit’s unusually high unemployment rate is due to both cyclical factors and structural (recalculation) factors.--Scott Sumner
Within seconds of the unveiling of the iPad by Steve Jobs, Twitter lit up with women complaining and/or joking that the name immediately made them think of a certain feminine hygiene product. #iTampon was the #1 trending topic on Twitter yesterday and remains so this morning.
Could this be one of those unintentionally revealing moments that women’s rights in the US has not come as far as we thought? That women did not have enough voice or power within a major US corporation for it to anticipate this marketing blunder? That this wouldn’t have happened if the head of Apple were named Stephanie Jobs?
Wednesday, January 27, 2010
Why do we pretend
That “mandatory” spending
This is hot on the heels of his hip-hop producer gig.
It’s a very brutal business being in politics. You have to persevere, and idealism doesn’t take you anywhere. [His mantra:] Patience, thoughtfulness, and perseverence. The world is a very difficult place. If you are tending sheep, it is better to know where the wolves are.--James Jonah
Apparently, unlike GM, Chrysler, and the GSEs [Fannie Mae and Freddie Mac], the banks didn't get the memo that said when you get a bailout the polite thing to do is to continue to fail. ... the government is seeking to write ex post facto rules. ... The deal was the deal. There is no crying in baseball. ... The "banks" guilty of causing the bubble need not be the same "banks" that were rescued and neither group coincides exactly with the "banks" to be taxed. This flexibility is one of the great strengths of unfair scapegoating. ... So the government, upset about banker bonuses, is penalizing bank shareholders who will bear the brunt of this tax (not bankers) for these same shareholders are not getting paid enough of the 2009 profits, which the shareholders were fine with. If that sentence is confusing, do not worry, you are following as well as the government. ... Bankers deserve their share of castigation, but no more than their share, and that inconvenient truth makes things a lot more complicated. ... The belief is that moneylenders and speculators are powerful enough to cause all our economic problems, but not useful enough to deserve a share of our economic successes. ... You can't get a good mob attack off the ground with ... even-handed reasoning.--Cliff Asness
The rescue of the financial system has succeeded. But borrowing by every sector, except government, is negative. How far this is because the financial sector does not wish to lend or the non-financial sector does not wish to borrow is unclear. I assume both forces are at work. As the McKinsey Global Institute reminds us in a recent report, deleveraging can take many years. The contrast between strong finance and a weak economy is inevitable in the early stages of the post-crisis recovery. It is also desperately unpopular.--Martin Wolf
The problem here is that healthy banks end up competing with each other to have the largest capital surplus and therefore the greatest chance of being anointed in this manner by the FDIC. If everybody was lending, the FDIC would still have to place failed banks’ assets and deposits with someone. But instead we get the opposite corner solution, where nobody is lending — except, presumably, for banks which are close to failure and need all the interest income they can get. I wonder whether the FDIC has anybody thinking about how to counteract this syndrome.--Felix Salmon
Crazy, the global economy is supposedly repeating the Great Depression mistakes based on an election in a small state where the Democratic candidate couldn't identify Red Sox players.--Joe Weisenthal
Mr. [Peter] Galbraith has written several opinion articles for the [New York Times] Op-Ed page in support of Kurdish independence and security. These articles should have disclosed to readers that Mr. Galbraith could benefit financially from an independent Kurdistan that would not have to share oil revenues with Iraq.--NYT Editors
Tuesday, January 26, 2010
Whenever there’s a corporate scandal, it’s typically blamed on an increase in greed, but when there’s a sex scandal, it’s never blamed on an increase in lust.--Paul Rubin
While taxpayers (and unemployed former taxpayers) no doubt were hoping that Washington would focus on economic growth, much of the Obama administration's "stimulus" spending was directed toward ensuring that state and local government workers don't lose their jobs, while the normal appropriations process has been increasing spending for practically every department and agency of government. This situation bears an eerie resemblance to the employment situation during the Great Depression, when private nonfarm hours worked fell steeply from 1929 to 1932 and did not return to 1929 levels until 1941, while millions were added to government payrolls during the New Deal. In both cases, the possibility that government employment crowds out private employment, rather than stimulating it, should not be dismissed. Keynesians like to suppose that whenever the government undertakes new spending to augment the ranks of its employees a multiplier effect will result, causing private economic activity and employment to follow the same upward course. The jobs data tell a different story.--Robert Higgs
To wit, you said this of Joseph Isidore Lieberman, Democrat, Connecticut: ‘A senatorial prostitute’; of Roger Ailes, ‘fat ass’; Chris Wallace, ‘a monkey posing as a newscaster’; Rush Limbaugh, ‘a big bag of mashed-up jackass.’ (All right - I’ll give you that one.) And of Michelle Malkin, you said ‘A mindless, morally bankrupt, knee-jerk, fascistic mashed-up bag of meat with lipstick on it,’ end quote. That, my fine-feathered friend, sounds a lot more like violence against women than anything Scott Brown ever said. You can’t resort to childish attacks that are as hominem as they are nauseum. You’ve ceded the high ground and now you wallow in the fetid swamp of baseless name-calling, and as you know, sir, that’s my thing ...--Jon Stewart, to Keith Olbermann
These [intelligent, well-educated] people don’t understand or accept that the sales director has certain highly developed skills and can probably operate under pressure far more effectively than they can. This is when performance differences usually emerge. And what is really frustrating, is that the skill that the sales director has, he developed because he was the social director of his fraternity, learned to win at drinking games and was actually able to pass his courses with a perpetual hangover. This is highly critical to his job performance and success. The last point is that they don’t value experience and the judgment that comes with it. So, who would you follow into battle, the 30 year veteran or the smartest guy who just graduated from West Point? Where’s the test in that? I would say survival, but they prefer SAT scores.--Tom
When my wife started her position at a humanitarian organization, she and the other new execs were told that maternity leave could be taken… out of their accumulated sick days. Her fellow new colleague, from Ireland, leaned across the desk to the HR person: “Pregnancy,” she said “is not a sickness.”--Chris Blattman
The two-year-old story of the Société Générale scandal is worth recalling now, as the Obama administration—responding to the chorus of public outrage over Wall Street failures—rolls out yet the latest plan to set the U.S. financial system back on a firm footing. The centerpiece of the new plan is a proposal to get commercial banks—those stolid bulwarks of the financial business—out of the perilous, bonus-happy business of proprietary trading—that is, trading with the bank’s own money. The new agenda is the administration's answer to what has become a potent and popular narrative of the financial crisis, a delicious story of gamblers in suits carelessly rolling the dice with billions of dollars that the taxpayers will have to repay.
In the current telling of the history of the crash—a version promoted tirelessly by Paul Volcker, the president's ascendant economic guru—what cast our financial system into disarray was stodgy commercial bankers yielding to the temptations of investment banking and, especially, trading. Hatched against the background of public outrage, this tale drives the new banking outlook—and now obscures the memory of what caused the crash in the first place.
An equal affront to memory is the Obama team’s attack on the sheer bigness of banks. For the last two years, as the credit crisis engulfed the banking system, making banks bigger was actually part of the government’s effort to fix the crisis. The directive from policymakers at the Treasury Department and the Federal Reserve was merge, merge, merge.
Monday, January 25, 2010
The decisions made by the head coaches of the Saints and Colts to rest their starters over the final couple of weeks of the regular-season drew plenty of criticism, who charged that the two top seeds were running the risk of destroying any momentum their teams had heading into the postseason.
The [New York] city teachers union did its best to scuttle the state's application for $700 million in federal school aid by refusing to embrace reform measures required to compete for the funds, education authorities told The Post.
State officials confirmed that the United Federation of Teachers refused to sign a memo supporting the state's Race to the Top application because it would have allowed student test-score data to be used in the evaluation of the union's members.
The UFT also refused to agree to paying the best teachers extra to work in high-poverty schools, arguing that such a move smacked of merit pay. And it sought to add obstacles for bouncing the lowest-performing teachers from the system, city officials said.
after adjusting for inflation*.
Photo link here. Previous BS post here.
Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein
*Derek reports: It turns out that there are a couple problems with counting all tickets sales and multiplying them all by the inflation index. First, by treating all ticket sales as equal, we overestimate the grosses of movies where a big proportion of the sales were to children, whose tickets cost less. That's one reason why movies like 101 Dalmatians, Fantasia and The Lion King rank so high. Another problem with the list is that the cost of a movie ticket has actually grown faster than the consumer price index, according to Pinkus-Roth. That means that a ticket to Gone in 60 Seconds (2000) cost more in relation to other items than a ticket to Gone with the Wind (1939). And those are just two of the most serious issues.
1. Republicans get rid of the hated income tax.
2. Democrats get political cover to expand the federal government as a share of GDP through higher taxes.
3. Neither side wins or losses through changes in progressivity.
4. Most importantly, you get massive net efficiency gains over the more likely alternative.
Please permit me to suggest that intellectual stamina is the most important quality we need in the Federal Reserve Chair right now.
I wonder which of previous Fed Chairs critics think would be better for the job than Bernanke. Surely you don't think we'd have been better off bringing Alan Greenspan back? G. William Miller fumbled badly with much simpler problems. Arthur Burns is a case study in how not to conduct monetary policy. And while I believe that Paul Volcker was the right person for the job at the time, I'd worry about whether he could adapt his hard money views to the subtlety of balancing the current short-run deflationary pressures with the inflationary potential of longer-run budget deficits. If you roll the dice, statistically you're likely to get someone more like the previous four than Bernanke. I shake my head when I look at the list of senators who say they'll vote "no." How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?
Perhaps some senators reason that a "no" vote could score them political points. If so, it's all the more reason to be alarmed. One of my big criticisms of Bernanke has been that he has put in peril the independence of the central bank from political pressure to help solve the nation's fiscal challenges. Even if the present skirmish over reconfirmation proves to be just a shot across the bow, it is not an encouraging development in terms of the long-run health of U.S. monetary policy.
I'm with Abraham Lincoln: don't swap horses in the middle of the stream.
UPDATE: John Carney thinks he knows who the insider is.
So clear the fogs
Listen to the blogs
Don’t just throw dollars out the door
Make sure them reaches the poor
The island [Samoa] may lose its tuna industry. One cannery, Chicken of the Sea, has left. And because the U.S. Congress wanted to help Samoa by imposing American minimum wage, Governor Tulafono is worried that the last cannery, Starkist, could look to other shores.--Scott Pelley
It's hard to tell whether Pelley gets the irony of the U.S. Congress "helping" Samoa by destroying its tuna industry. He seems to but he doesn't linger on it.--David Henderson
The basic problem is that the current trajectory of spending and taxes is not sustainable. For most of my life federal spending has been around 21% of GDP and federal taxes have been around 19%. The 2% of GDP budget deficit has been sustainable, indeed the debt/GDP ratio in 2008 wasn’t much different than the year I was born (1955.) But we no longer are on a sustainable path.--Scott Sumner
If the [healthcare] legislation fails, liberals will have a long list of scapegoats. They can blame Max Baucus’s delays, Joe Lieberman’s demands and Olympia Snowe’s dithering. They can blame the filibuster, Fox News and Sarah Palin. They can blame Barack Obama’s lack of passion, Harry Reid’s lack of finesse and House Democrats’ lack of guts. But they might want to save some blame for the welfare state their predecessors built. Under Franklin Roosevelt and Lyndon Johnson, liberals created a federal leviathan that taxes, regulates and redistributes across every walk of American life. In the process, though, they bound the hands of future generations of reformers. Programs became entrenched. Bureaucracies proliferated. Subsidies became “entitlements,” tax breaks became part of the informal social contract. And our government was transformed, slowly but irreversibly, into a “large, incoherent, often incomprehensible mass that is solicitous of its clients but impervious to any broad, coherent program of reform.” (J. Rauch)--Ross Douthat
So, listen to your broker's advice on sectors and stocks, just remember to short the stock picks.--Eric Falkenstein
Bankers routinely defended their excessive pay saying it simply amounted to exceptional rewards for exceptional performance. The implication was that if you cut bonuses, you'd cut performance. My research suggests otherwise. Very large bonuses actually can cause job performance to deteriorate. Super-sized pay can take executive's minds off their jobs and onto their bonuses.--Dan Ariely
We wouldn’t argue if corporations have a right to speak, but rather if we have a right to hear what corporations have to say. But in fact we have “free speech,” a right only enjoyed by adult citizens in good standing, a right we jealously guard, wondering if corporations etc. “deserve” it. This right seems more a status marker, like the right to vote, than a way to promote idea competition — that whole competition story seems more an ex post rationalization than the real cause for our concern. Which is why support for “free speech” is often paper thin, fluctuating with the status of proposed speakers.--Robin Hanson
Every year brings more Internet censorship and control, not just in countries like China and Iran but in the U.S., the U.K., Canada and other free countries, egged on by both law enforcement trying to catch terrorists, child pornographers and other criminals and by media companies trying to stop file sharers. The problem is that such control makes us all less safe. Whether the eavesdroppers are the good guys or the bad guys, these systems put us all at greater risk. Communications systems that have no inherent eavesdropping capabilities are more secure than systems with those capabilities built in. And it's bad civic hygiene to build technologies that could someday be used to facilitate a police state.--Bruce Schneier
By most accounts, the Paul Revere figure of this Second American Revolution is an excitable cable-news reporter named Rick Santelli, a former futures trader and Drexel Burnham Lambert vice-president who stood on the floor of the Chicago Mercantile Exchange last February and sounded the alarm on CNBC about the new Administration’s planned assistance for homeowners facing foreclosure. He proposed a nationwide referendum, via the Internet, on the matter of subsidizing “the losers’ mortgages,” winning both the attention and the vocal support of the working traders in his midst. “President Obama, are you listening?” he shouted, and then said that he’d been thinking of organizing a Chicago Tea Party in July, urging “all you capitalists” to come join him on Lake Michigan, where “we’re going to be dumping in some derivative securities.” It was a delicate pose—financial professionals more or less laughing at debtors while disavowing the lending techniques that had occasioned the crisis—but within a matter of hours a Web site, OfficialChicagoTeaParty.com, had gone live, and by the end of the following week dozens of small protests were occurring simultaneously around the country, invoking the legacy of early New England colonists in their revolt against King George.--Ben McGrath
The New York Fed was orchestrating what can only be characterized as an extreme effort to ensure that details of the [AIG] counterparty deal stayed secret. More and more it looks as if they would've kept the details of the deal secret indefinitely, it they could have.--Rep. Daniel Issa (R-CA)
[Pietro Veronesi and Luigi Zingales] conclude that shareholders and bondholders in the banks were about $130bn better off as a result of [Hank] Paulson’s gift. Taxpayers stumped up less than that, taking a loss of perhaps $20bn-$45bn. As much as $5 may have been gained for every tax dollar spent. Infuriating as it may be to those taxpayers who had no desire to write a cheque to bank bondholders, it may be some consolation that the policy was terrific value for money.--Tim Harford
Now, the hard thing about arguing against the Just in Case mentality is that once you picture an eight-year-old... being dragged down the street by her Hannah Montana backpack while the bus driver digs Zeppelin on his cranked-up, off-brand iPod, it certainly seems worth warning the kids to undo their backpack belts. It's so simple. And then - whew! That's one worry off the checklist. The problem is, the checklist just keeps growing. It's like those brooms in the story of the sorcerer's apprentice. Cut one in half, and it comes back as two. Two becomes four.--Lenore Skenazy
I have boundless regard for Paul Volcker, but the proposed restrictions on bank proprietary trading are, well, fixing the barn’s roof after the horse has bolted. The Obama administration really, really doesn’t get the joke. The banks went bankrupt by loading up on supposedly ultra-safe, AAA-rated assets, spawned out of the derivatives hatcheries with the collusion of corrupt rating agencies (who made most of their money rubber-stamping these time bombs). They did NOT, NOT, NOT blow up taking risky proprietary bets. Yet the rating agencies (who claim no liability for misjudgments on the grounds that they are exercising the same Constitutionally-protected free speech as a newspaper editorialist!) are in charge of rating credit quality. Proprietary trading is what SAVED the banking system earlier this year.--David Goldman
Not “enough capital” for lots of low-cost 30 year mortgages? Please God let’s hope these “analysts” are correct.--Scott Sumner
As happens every four years, hubris defeated caution, and the administration began its big-bang approach. As always, it backfired. Instead of building trust in government, the Democrats have magnified distrust. ... The Democrats now have four bad options.--David Brooks
When two units of production – Hillary and Bill, say – are worth more together than they are separately, we call them “complementary assets”, and there is a strong reason to keep them together. If one of the units of production is sleeping with a pancake waitress, then that is a reason to separate them. It’s all a question of how annoying the affairs are versus how strong the complementarities are. Hillary and Bill are highly complementary assets; this is less obvious for Nordgren and Woods. As for a general theory, there is plenty of data out there – a research project for a diligent student of economics such as yourself?--Tim Harford
... at the top of our list [of worst TV bombs ever]: NBC’s decision to put Jay Leno at 10 p.m. It destroyed not only five hours of primetime programming, but also the local newscasts that followed.--Entertainment Weekly
And like Oliver Sacks’ Anthropologist on Mars, I do know how normal humans think about truth. In fact I used to be a normal human. Really.--Scott Sumner
Friday, January 22, 2010
UPDATE: Greg Mankiw says:
Bad News for Ben (and for the rest of us). ... This uncertainty cannot be good for financial markets.
UPDATE: Megan McArdle points out:
I see the political logic, but the economic logic is pretty poor. Bernanke didn't become Fed chair until 2006, long after it was realistically possible to do much about the bubble except wait for it to pop. He shepherded us through the financial crisis without another Great Depression--maybe not perfectly, but no Fed chair would have been perfect. The markets have confidence in him. Spiking his nomination may have grim effects on 401(k)s throughout the land.
Moreover, whatever he did that wasn't popular, he clearly did with the connivance of Congress. Congress wanted him to pump money into banks; they just didn't want to take political responsibility for it. If they'd really objected, they could have amended the Federal Reserve Act at any time and stopped him cold. But they knew what he knew: if the banking system seized up, there would be absolutely enormous suffering. They wanted, as he did, to err on the side of creating moral hazard and bailing out undeserving bankers, rather than bread lines and 25% unemployment.
I thought about something today -– over the years I’ve made a lot of fun of Ryan Seacrest, Larry King, Spencer Pratt, Geraldo, David Hasselhoff, Kirstie Alley and Donald Trump. And here’s the messed-up thing, they all still have shows.--Conan O'Brien
Air America to Cease Broadcasting Immediately.--Brian Stelter
The dreams of creating an artificial intelligence that would engage in an ancient game symbolic of human thought have been abandoned. Instead, every year we have new chess programs, and new versions of old ones, that are all based on the same basic programming concepts for picking a move by searching through millions of possibilities that were developed in the 1960s and 1970s. Like so much else in our technology-rich and innovation-poor modern world, chess computing has fallen prey to incrementalism and the demands of the market. Brute-force programs play the best chess, so why bother with anything else? Why waste time and money experimenting with new and innovative ideas when we already know what works? Such thinking should horrify anyone worthy of the name of scientist, but it seems, tragically, to be the norm. Our best minds have gone into financial engineering instead of real engineering, with catastrophic results for both sectors.--Garry Kasparov
If nothing else, Vanguard's fund flows imply that investors appreciate low costs, broad diversification, and sober stewardship.--David Falkof
Public-choice economics – pioneered by my colleagues Jim Buchanan (who boasts his own Nobel Prize) and Gordon Tullock – uncovers overwhelming evidence that politics, in fact, almost exclusively is about achieving election and re-election. So to insist that politics should be about something other than what it is really about makes as much sense as insisting, say, that snow should be hot or that donkeys should be bipedal.--Don Boudreaux
Campaign finance restrictions didn't do a thing to free Washington from its captive status--mostly because the politicians don't want to be liberated.--John Carney
It takes chutzpah [for Warren Buffett] to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage. Those who follow him closely are well aware that he talks his own book, but the wider public still believes him to be a trustworthy broker of unbiased financial advice and commentary. They shouldn’t.--Rolfe Winkler
A failure to spread to other nations could make the Volcker Rule dead on arrival. Suddenly the plan poses a serious disadvantage to U.S. banks, as customers would likely prefer dealing with more robust European ones.--Gus Lubin
[A] plain vanilla bank has interest rate risk. If rates rise their funding costs will rise relative to their asset yield. If rates fall their assets will refinance. Their funding cost might also fall – but at the moment the funding cost seems pinned by the zero-bound. Some hedging of interest rate risk here seems entirely sensible. Banks (and more often S&Ls) have failed in the past because they failed to hedge this sort of interest rate risk. However as both the assets and liabilities are of uncertain duration there is no way of knowing just how much hedging is required. There is a choice here – it is a proprietary choice (in that the bank will trade off hedging costs against profits). And there is no easy way to legislate that choice away. I have even seen a bank swap its fixed rate subordinate funding (fixed rate preferred shares) into floating rate and call it a hedge. That looked like proprietary trading to me as it earned a profit (the yield curve was steep) and the bank was playing the yield curve very heavily in advance of that hedge. The so called hedge increased the risks the banks faced if short rates rose. The auditor signed it off as a hedge. If the auditor, the bank and I disagree as to what is a hedge in the simplest of examples then I have no idea how we are going to find a legislative solution in complex examples.--John Hempton
Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.--Maxim Pinkovskiy and Xavier Sala-i-Martin
... questions about "deference to precedent" are, again at least as I understand it, code for "are you going to overturn Roe v. Wade", not a request for an actual pledge to endorse any and all things the Supreme Court has ever said in its history. The description in the first paragraph could just as easily describe sodomy law before Lawrence v. Texas, civil rights law pre-Brown, or indeed, the state of abortion law pre-Roe. Had Roberts voted for the majority in one of these cases, would we be hearing the same anguish about his lack of deference to precedent? And respectfully, one does not need to be an idiot savant from Introductory Ec class to think that "Congress shall make no law . . . abridging the freedom of speech" means that, well, Congress shouldn't make any law abridging the freedom of speech, even if that speech is done by corporations. Nor is it crazy to think that as long as people have the right of exit, their decision not to exit legitimates the ability of organizations to speak for them. In fact, I think speech through associations is a lot more complicated than I think this post captures. Many of the organizations we like making political speech don't get any more supervision from the majority of their members than publicly held corporations do. I mean, quick, name the charities you were supporting during the last United Way drive! Pick three of the groups you gave to directly last year, and tell me what issues their lobbyists are working on right now! (Yes, I virtually guarantee that if they're a large state or national group, they have at least one "our man in the capitol".) Maybe you know the answers to those questions, because you're the sort of motivated and very well informed person who, well, reads my blog. But the majority of people don't know. They give to causes because they want to be associated with the vague sentiment.--Megan McArdle
In fact, under the new regime, lending money to home buyers who are unable to pay it back, and putting 'AAA' ratings on garbage would still be possible whether you have 10 banks or 100,000 banks, or whether those banks would trade for its own account.
And let's remember, AIG was not a bank. Its counterparty risk on its credit derivatives was a lot bigger than the risk between any two banks.
What part of the Volcker Rule would constrain the White House and Congress from make awful loans (via its sponsored agencies such as Fannie and Freddie) or to improve debt rating integrity (via its chartered agencies such as S&P, Moodys, and Fitch)? What part of this new regulation will prevent a non-bank from taking really dumb risk like AIG did?
On the other hand, reducing the amount of tax revenues out of Wall Street employees and corporations is not going to be good for anyone affected by a government program. Mayor Bloomberg had a nice suggestion:
Maybe we should hold back [congressional] salaries for a decade or so and see whether the laws they pass work out.
I'd be really upset if I were the mayor of NYC, too.
Thursday, January 21, 2010
Of course, I am constantly thinking that targeting NGDP (Sumner's Rule, if you will) wouldn't have it's own brush with reality and suffer/incent its own set of distortions.
A quotation is a handy thing to have about, saving one the trouble of thinking for oneself.--A.A. Milne
The third-rate mind is only happy when it is thinking with the majority. The second-rate mind is only happy when it is thinking with the minority. The first-rate mind is only happy when it is thinking.--A.A. Milne
Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.--John Maynard Keynes
It was wrong for me to ever deny [Rielle Hunter's baby] was my daughter. I am Quinn's father.--John Edwards
Judaism emphasized that what you take into the next world aren’t your material possessions, but rather your deeds and their legacy. Whether you are a believer or not, it is hard to overstate the importance of this cultural belief in shaping our world.--Russ Roberts
When Hitler offered to let German Jews emigrate in the 1930s, FDR bolted the door shut and refused to permit them to enter the United States. The reason for Roosevelt’s attitude? Let’s be blunt. They were Jews. If English Protestants were trying to escape a Nazi occupation of their country, who can doubt that Roosevelt would have opened the doors in welcome to them? The plans to interdict and repatriate Haitians trying to save their lives also brings to mind the infamous Voyage of the Damned, when Roosevelt and his people refused to permit German Jews from disembarking from a German vessel at Miami Harbor with full knowledge that that meant that they would have to return to Germany and Hitler’s clutches. (As an aside, isn’t it ironic that those American Jews today who so eagerly pounce on critics of the Israeli government as being anti-Semitic hardly even issue a peep of condemnation of FDR’s important contribution to the Holocaust, no doubt because they don’t consider it politic to do so.)--Jacob Hornberger
Don't choose a charity for Haiti based on administration costs--Saundra Schimmelpfennig
Actual creators of value, in the form of entrepreneurs and business owners, can get liquidity any day of the week, in the form of a check for all or part of the business they own. They do not need public markets for that. All they need is a buyer with enough cash and a good lawyer. Instead, the true purpose and value of liquidity in financial markets is to reduce investors' uncertainty. It does this first through the regular publication of price data, which serves as a relatively reliable (but: see above) proxy for the true current value of their investments. Second, it reduces investors' uncertainty as to their ability to exit from their investment when they so choose. Together, these two effects turn what might be a long-term bond or permanent equity capital into what looks like a series of rolling, short-term investments with reasonably good pricing certainty. Ceteris paribus, a rational investor should require a lower expected return on such an asset. (Tell me, by contrast, that I cannot sell Apple Inc. stock before 2015, and I will be willing to pay a lot less than current market price for it and will expect a commensurately higher return. I do not think I am unusual in this regard.) Therefore, at least in theory, market liquidity should reduce the cost of capital for businesses which require it. There is good evidence supporting this from the opposite example of private equity, which ties up substantial chunks of equity capital in entire businesses which it closely oversees for many years.--Epicurean Dealmaker
... the prescription for regulation of both investment banks and financial markets is clear: you cannot rely on the participants to regulate themselves. We are too busy counting the paper and inflating the bubble to care. The answer must come from outside the bubble, where the real economy and society lives.--Epicurean Dealmaker
In principle, I am against attempts by government to structure industries. But I take the view that the political economy of small banks is better than that of large banks. Large banks find it easy to persuade regulators that they are doing wonderful things and find it easy to persuade politicians that they need to be bailed out. Maybe small banks would find this task somewhat harder. ... "Agnostic" claims that humans developed an aversion to large economic institutions during the era of "natural states," when the ability to assemble a large coalition mattered more than producing quality goods at low prices. My view of banking is that we are still in the "natural state" mode, where political connections and cronyism matter more than price and quality.--Arnold Kling
[Megan] McArdle Advocates 376,537.65% Marginal Tax Rate.--David Henderson
If you're really looking for the people who benefited from government losses, you'd have to look [at autoworkers benefiting from bailouts]. Or if you look at Fannie or Freddie. Are you going to go and tax the members of Congress who ran Freddie and Fannie?--Warren Buffett
... campaign giving is a normal good, dependent upon income, and campaign contributions as a percent of GDP have not risen appreciably in over 100 years - if anything, they have probably fallen. We then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators' votes. Finally, we illustrate that when one controls for unobserved constituent and legislator effects, there is little relationship between money and legislator votes. Thus, the question is not why there is so little money politics, but rather why organized interests give at all.--Stephen Ansolabehere, John de Figueireido, and James Snyder
The fact that Switzerland works at all is a powerful argument that we do not need such a strong central government. With the exception of national defense and a national currency, I think we could devolve every power currently exercised by the Federal government to the states. Each state could then be like Switzerland. Note that in Switzerland, health insurance works differently in each canton, which would be equivalent to having different health insurance systems in different counties in Maryland. The national government would have no power to bail out banks. State governments could bail out banks, but I suspect that they would not want to.--Arnold Kling
To make a long story short, the World Bank decided to boot richer India out of the group of poorest countries used to determine the poverty line, which made the poverty line higher, which made Indian (and global) poverty higher – all because India was richer. This misguided revision of the poverty line, which accounted for virtually all of the upward revision, was not clear to virtually anyone until this new paper by Deaton.--William Easterly
Shares of big banks dropped Thursday, led by Morgan Stanley, as President Barack Obama proposed a plan to limit their size and the risks they can take on.I suppose that banks could resort to paying negative interest rates on their customer accounts, seeing as they will need to find other ways to finance branch office locations, ATMs, websites, and FDIC insurance. Good times.
The proposal marks the administration's latest assault on Wall Street in what could mark a return—at least in spirit—to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.
The White House plan, backed by former Federal Reserve Chairman Paul Volcker, would prevent commercial banks and institutions that own banks from owning and investing in hedge funds and private-equity firms, and limit the trading they do for their own accounts.
UPDATE: Evan Newmark says:
Today, Goldman Sachs CEO Lloyd Blankfein announced record annual profits of $13.4 billion for his bank.
He has repaid the U.S. taxpayer $11.42 billion for taking TARP money he didn’t want.
He will contribute another $6.4 billion in taxes to the general public.
And within weeks, if President Obama gets his way, Blankfein has a good shot at becoming the most hated man in our nation.
Apparently, this is now how we treat success in America. We damn it, and then we punish it by enacting loopy, politically expedient measures such as caps on Wall Street trading and principal investments.
Why is our country so self-destructive?
... does anyone actually believe the new White House war on Wall Street will remedy any of that? I know I don’t.
This war is about politics. It’s about a big election loss in Massachusetts. It’s about pushing the blame for the nation’s misery from Washington onto Wall Street. Is President Obama talking to Tora Bora terrorists or Park Avenue bankers when he says: “So if these folks want a fight, it’s a fight I’m ready to have.”
... Job creation in our economy comes from profits and growing incomes. But here is America’s best-run company almost ashamed of its profits and bragging about how much less it’s paying its people.
Sure, Wall Street was way too vulnerable because it was way too leveraged.
But AIG wasn’t a bank. Neither Lehman Brothers nor Bear Stearns took consumer deposits. And the hundreds of billions in losses at Fannie Mae and Freddie Mac — as well as the destruction of Wachovia, Washington Mutual and Countrywide had nothing to do with prop trading.
That was caused by banks lending money to millions of Americans to buy houses they couldn’t afford. You won’t hear much of that coming from Washington. After all, “It’s Actually Your Fault, America” is not a good slogan for a re-election campaign.
Wednesday, January 20, 2010
Instead of listening to the left of the party, which wants him to toughen up his anti-capitalist line, I’d like Obama to listen to the independents who seem to have shifted in droves to the Republican side in Massachusetts. Hear the message this way: “You promised to change the way Washington works. You promised to force the parties to work together, and to make policy in the open. You promised to stop the back-room deals. You broke your word. You gave us Washington as usual, only more so. It’s trench warfare on Capitol Hill, and you surrendered your leadership to partisan Democrats. You went along with their stimulus plans, and you are ready to go along with their healthcare reform. You gave us a crippled, polarised Congress, and political horse-trading at its most squalid. Do something about it.--Clive Crook
I don't really think it's reasonable to say "Obama should have known that Americans were going to be disenchanted with much of his agenda, and rushed it through faster." First of all, I'm not sure how much faster it could have gone. And second of all, if Obama had thought that health care reform was going to be this unpopular, maybe he would have thought twice about doing it in the first place.--Megan McArdle
The problem is this we are spending almost a trillion dollars and folks are telling me I should vote yes and we will fix it later. You wouldn't buy a car for a trillion dollars and say yeah, it doesn't run but we will fix it later.--Rep. Stephen Lynch (D-MA)
I've maintained for months now that incremental reform in the health care package would make much more sense from my perspective.--Rep. Jim Costa (D-CA)
If there isn't any recognition that we got the message and we are trying to recalibrate and do things differently, we are not only going to risk looking ignorant but arrogant.--Rep. Anthony Weiner (D-NY)
To that end [for more transparency in the healthcare legislation process], I believe it would only be fair and prudent that we suspend further votes on health care legislation until Senator-elect Brown is seated.--Sen. Jim Webb (D-VA)
There’s going to be a tendency on the part of our people to be in denial about all this if you lose Massachusetts and that’s not a wake-up call, there’s no hope of waking up. It’s why moderates and independents even in a state as Democratic as Massachusetts just aren’t buying our message. They just don’t believe the answers we are currently proposing are solving their problems. That’s something that has to be corrected. The only we are able to govern successfully in this country is by liberals and progressives making common cause with independents and moderates. Whenever you have just the furthest left elements of the Dem party attempting to impose their will on the rest of the country -- that’s not going to work too well.--Sen. Evan Bayh (D-IN)
... since Scott Brown has won and the Republicans now have 41 votes in the Senate, that approach is no longer appropriate. I am hopeful that some Republican Senators will be willing to discuss a revised version of health care reform because I do not think that the country would be well-served by the health care status quo. But our respect for democratic procedures must rule out any effort to pass a health care bill as if the Massachusetts election had not happened. Going forward, I hope there will be a serious effort to change the Senate rule which means that 59 votes are not enough to pass major legislation, but those are the rules by which the health care bill was considered, and it would be wrong to change them in the middle of the process.--Rep. Barney Frank (D-MA)
The Republican Party was not so badly split as the Democrats by the civil rights issue. As it turned out, only one Republican senator would participate in the filibuster against the bill. In fact, [from 1933-1964], Republicans had a more positive record on civil rights in Congress than the Democrats. In the twenty-six major civil rights votes since 1933, a majority of Democrats opposed civil rights legislation in over 80 percent of the votes. By contrast, the Republican majority favored civil rights in over 96 percent of the votes.--Dirksen Center
As Obama continues to make decisions that mirror the Bush doctrine, it is becoming apparent that the former president was not ignorant or irrational in his foreign policy decisions despite the harsh criticism and disloyalty he endured. He was in fact, ahead of his time, a visionary who understood politics and warfare in the modern age of terrorism. That is why Obama is now following his lead.--Jeffrey Shapiro, attorney who served on John Kerry's 2004 legal team
I still believe that foreign aid does not raise economic growth rates, on average. But aid can alleviate human misery, such as when a visiting doctor gives vaccines or hands out medicine. (In fact per capita income may fall, as a result, if some "weaklings" are kept alive.) I also believe that the U.S. military can make a huge difference in the immediate aftermath of catastrophes. Imagine U.S. troops liberating Buchenwald. Would any commentators say the following? "Don't give him that blanket, sell it to him!" "Hey buddy, get a job!" "Moral hazard: they'll just go get captured again." etc. I don't think so.--Tyler Cowen
We therefore suggest taxing banks based on the difference between their assets at the end of August 2008 and their current level of capital. After all, the support these firms received was based on the size of assets before the financial panic began, not the size of those assets today. ... Our approach would remove the incentive for such behavior because it ties the tax to the size of the firms when the government guarantees were so valuable. Likewise, by focusing on the historical size of a bank, our plan would allow little room to engage in sham accounting transactions to sidestep the tax. As we saw in the time leading up to the crisis, banks created many legally separate companies — the infamous “special purpose vehicles” — to buy certain assets without having to put up the bank’s capital to support them. If the banks had bought the assets directly they would have been required to hold more capital. By August 2008, these tricks had been exposed; financial institutions can’t retroactively cover such vehicles back up, or make themselves seem smaller than we know they were. Nor should they be able to avoid the tax by inventing any new tricks to change the appearance of their current size. It is generally a bad idea to enact after-the-fact penalties. But giving away free insurance, as the government did during the bailout, is also bad. Our tax would merely ask financial institutions to finally pay for the insurance policy that kept them afloat. --DOUGLAS W. DIAMOND and ANIL K KASHYAP
It is common these days to dismiss as simpletons or ideologues those who speak in favor of the free market or capitalism. An honest assessment shows otherwise. Economic freedom, as represented in the Index of Economic Freedom, is a philosophy that rejects economic dogma, championing instead the diversity that follows when entrepreneurs are free to choose their own paths to prosperity. The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system—free enterprise capitalism—that has proven best able to achieve those goals. Now America's once high-flying economy is barely crawling forward. Americans deserve better, and they can do better—as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.--Terry Miller
Small countries like Singapore, Denmark and Switzerland seem to be more effectively governed that bigger countries like Germany, Britain and Italy. Why is that? I am not really sure, but I’d guess it is partly related to the principal/agent problem. The US appears to be an exception, but I think we are coasting on our past (decentralized) success. I wonder how much longer we can maintain our position near the top of the global PPP income rankings. Today the Heritage Index of Economic Freedom came out, and we continued to slip, down to number 8. All of the countries ahead of US are small, not just relative to the US, but relative to the UK and Italy. It’s also interesting to note that all but one were colonies of Britain when Britain was one of the most democratic countries in the world. The only exception is Switzerland, which is currently the most democratic country in the world.--Scott Sumner
A WARNING that climate change will melt most of the Himalayan glaciers by 2035 is likely to be retracted after a series of scientific blunders by the United Nations body that issued it.
Two years ago the Intergovernmental Panel on Climate Change (IPCC) issued a benchmark report that was claimed to incorporate the latest and most detailed research into the impact of global warming. A central claim was the world's glaciers were melting so fast that those in the Himalayas could vanish by 2035.
In the past few days the scientists behind the warning have admitted that it was based on a news story in the New Scientist, a popular science journal, published eight years before the IPCC's 2007 report.
It has also emerged that the New Scientist report was itself based on a short telephone interview with Syed Hasnain, a little-known Indian scientist then based at Jawaharlal Nehru University in Delhi.Hasnain has since admitted that the claim was "speculation" and was not supported by any formal research. If confirmed it would be one of the most serious failures yet seen in climate research. The IPCC was set up precisely to ensure that world leaders had the best possible scientific advice on climate change.
Via Tom Maguire.
Tuesday, January 19, 2010
Like Arnold always says: institutions matter. UPDATE: Tyler has a bunch of policy ideas here. David Henderson quips:is the poorest country in the western hemisphere. And everyone knows that it’s an hour and thirty minutes from Miami, Florida. Or most people know that. So, how in the world can we let this happen?…This is Anne Hasting, director of Fonkoze, alternative bank of the poor, in fall of 2008, speaking to reporter Ruxandra Guidi about the damage from the latest hurricanes to hit Haiti.
I do not think that foreign aid is the solution to the world’s problems. I think it can only do a limited amount, and it doesn’t do that very well. A lot of foreign aid goes into relief. They wait for the disaster, and then they put the money in…
A standard thing we teach our students is that it's more efficient to give money to people than to give stuff. ... Of course, the same principle applies to thinks like health care, education, and housing. Hmmm.
She had an unequalled gift, ... of squeezing big mistakes into small opportunities. --Henry James
At the start of this campaign, the issues were health care and the economy. After "Ted Kennedy's seat" and "Curt Schilling the Yankees fan" and "only the little people campaign at Fenway", the genius Dems succeeded in making their own assumptions about one-party rule a very potent secondary issue. Very foolishly, Obama both underlined the regal hauteur of the Massachusetts machine - and simultaneously nationalized the election by portraying it as a referendum on the Hopeychange. If Martha now loses, he can't plead it's nothing to do with him.--Mark Steyn
Why would you hand the keys to the car back to the same guys whose policies drove the economy into the ditch and then walked away from the scene of the accident?--Chris Van Hollen
That's Chris Van Hollen, the chairman of the Democratic Congressional Campaign Committee, meaning to help Coakley win Teddy Kennedy's seat, and running right off the road into a ditch called Chappaquiddick.--Ann Althouse
You can have religious freedom but you probably shouldn’t work in the emergency room.--Martha Coakley
In a race where the Republican nominee didn’t know how to use the Internet, Barack Obama was the Internet: sleek, protean and ubiquitous. The Obama campaign dominated online fund-raising, online organizing and social media. This virtual edge translated into an enormous real-world advantage — in dollars raised, enthusiasm harnessed and Election Day boots on the ground. A year later, some of the Democrats’ advantage is still there. But it’s been crumbling ever since Obama took office. Republican politicians have taken over Twitter. Sarah Palin has 1.2 million followers on Facebook. And in liberal Massachusetts, Scott Brown, the Republican Senate candidate, has used Internet fund-raising to put the fear of God into the Bay State’s establishment.--Ross Douthat
As of Monday morning, Republican Scott Brown has 76,538 fans on his Facebook page. With polls opening in less than 24 hours, Democrat Martha Coakley has 14,441 fans. On Twitter, Brown has 10,187 followers compared to Coakley's 3,514 followers. The total uploaded views for Brown's YouTube videos are 578,271 versus 51,173 for Coakley.--Eric Kuhn
Attorney General Martha Coakley—who had proven so dedicated a representative of the system that had brought the Amirault family to ruin, and who had fought so relentlessly to preserve their case—has recently expressed her view of this episode. Questioned about the Amiraults in the course of her current race for the U.S. Senate, she told reporters of her firm belief that the evidence against the Amiraults was "formidable" and that she was entirely convinced "those children were abused at day care center by the three defendants." What does this say about her candidacy? (Ms. Coakley declined to be interviewed.) If the current attorney general of Massachusetts actually believes, as no serious citizen does, the preposterous charges that caused the Amiraults to be thrown into prison—the butcher knife rape with no blood, the public tree-tying episode, the mutilated squirrel and the rest—that is powerful testimony to the mind and capacities of this aspirant to a Senate seat. It is little short of wonderful to hear now of Ms. Coakley's concern for the rights of terror suspects at Guantanamo—her urgent call for the protection of the right to the presumption of innocence. If the sound of ghostly laughter is heard in Massachusetts these days as this campaign rolls on, with Martha Coakley self-portrayed as the guardian of justice and civil liberties, there is good reason.--Dorothy RabinowitzFor those readers who have never had the privilege of living in a battleground state, let me explain what the experience is like. Every other television commercial is about the campaign. Day after day, the race dominates the front page of the newspaper. Your mailbox is stuffed with fliers for or against one of the candidates. Your friends and neighbors talk about the campaign -- and who you support can affect your friendships. You can't escape either the race. All of this would be tolerable if it were not for two things. First, the phone calls. Over this weekend, by my count, we have received ten phone calls asking us to vote for or against someone, and then a few phone calls on top of that polling us about our voting intentions (weirdest call, hands down, was a recorded message from Pat Boone. The Official Blog Wife got that call, and the end of it had no idea who Boone wanted her to vote for). Since these inquiries can't be put on the Do Not Call list, the phone will not stop ringing. Second, the candidates are God awful. Seriously, they stink. Just to review our choices: Democrat Martha Coakley has a prosecutor's complex that would make Javert seeem like a bleeding-heart liberal. She is a God-awful politician so out of touch with reality that she accused Red Sox hero extraordinaire Curt Schilling of being a Yankee fan (Schilling's blog response is here). Based on the ads I've seen, her campaign has also been, by far, the nastier of the two. This leaves Republican Scott Brown, who based on his vacuous Boston Globe op-ed, is an empty shirt with no actual policy content whatsoever. He was in favor of health care reform before he was against it. He can't stand the run-up in government debt, and wants to cut taxes across the board to take care of the problem -- cause that makes perfect economic sense. The one thing he is unequivocally for is waterboarding suspected terrorists.--Daniel Drezner
Jonathan Cohn headlines his latest plea to ignore a Brown win and pass health care anyway "Pelosi Isn't Panicking. Her Party Should Listen." Umm, call me cynical, but maybe the reason Pelosi isn't panicking is that Pelosi's got one of the safest seats in the country? I mean, take this for what it's worth but if Brown wins today, my advice to Blanche Lincoln, and Ben Nelson, and their counterparts in the house? You should panic. They're coming for you next.--Megan McArdle
When I realized that health care was probably going to pass, I was, as you can imagine, sort of unhappy. I thought that this was, over the long run, very likely to result in the untimely deaths of lots of people, maybe including me. I may have been in error about this belief--but it was sincerely held. ... it's not that hard to understand why the people on the other side want what they want. They look at people without insurance, and they want to help them. I'd like to help them too. They believe, as I do not, that the government will be able to muster the political will to control costs. They believe, as I do not, centralized government planning will improve the health care system rather than being hijacked by special interests within it. They believe, as I do not, that there is so much fat and waste in the pharma and medical technology industries that they can considerably reduce reimbursements without reducing useful innovation and thereby condemning those who might have been saved to an early death. These are not unreasonable beliefs. Neither are mine.--Megan McArdle
In a recent column, Krugman urged readers to trust their eyes more than dry statistics (something you could rarely accuse him of doing, which I honestly mean as a compliment). Don't people seem well off in London, Paris, and Frankfurt, he asks? They do. Milan is also really nice: all those Ferraris. But these places are not exactly at the European mean. He should try comparing Bolton, Lancashire (my hometown) with Princeton, N.J. That would remind him that statistics can be useful. But if superficial impressions are allowed, here is mine gleaned from traveling around the U.S.: Americans live in bigger houses than their European counterparts, eat better food, drive bigger cars, wear better clothes, and are surrounded by more and better stuff. Put it this way: If America's living standards suddenly descended to Europe's, rather than the other way round, it would be a calamity that would make the country's present economic difficulties look trivial. And yet, as I say, higher U.S. productivity is not the main reason for this prosperity gap. Comparing America with the richest European countries, output per hour worked is not that different. In levels of productivity, Europe's most successful economies have caught up. Then why are they still so much poorer? Because Europeans work less. A higher proportion of the U.S. population is employed, and Americans work longer hours. Effort, not efficiency, is why Americans are richer. ... Despite the worsening polarization of its politics and the astounding variety of its cultures, ethnicities, and religious traditions, the United States binds its people together more harmoniously than most European countries do. Everywhere, the Stars and Stripes: That, too, is social cohesion. The idea of America, with its emphasis on individualism and the market, is a remarkably powerful unifier. This is a paradox that social democrats need to ponder.--Clive Crook
If [Paul] Samuelson and other Soviet growth optimists were just appealing to catch-up, they certainly wouldn't have predicted that the Soviets would surpass the U.S. My claim wasn't that it was crazy to think that the Soviet Union could temporarily have higher growth than the U.S. My claim, rather, was that "There was never a point in Soviet history when a sensible economist would have seen communism as good for growth in any meaningful sense." If Samuelson and company had said, "The Soviet Union has decent growth for the time being because its ability to copy more advanced economies outweighs the harm of its terrible economic policies," my criticism would be less harsh (though I'd still fault them for trusting Soviet statistics, ignoring collectivization famines, etc.). The same goes for Europe. Its relatively statist economic policies didn't prevent it from exceeding U.S. growth for decades. But with better policies, Europe would still be gaining on us - or would have already caught up.--Bryan CaplanI would suggest that explaining the depth of the recession is a challenge for just about any macroeconomist. There is no well-established theory that can explain how we got to 10 percent unemployment. If you are a Yale Keynesian, you would have been able to tell a good story when the S&P 500 stock index was down near 800. But it has gone back up over 1000, which means that Tobin's q is doing ok, which means that investment should be doing ok. It is not. If you are what Greg Mankiw calls a macroeconomic "engineer," meaning that you believe in macroeconometric models, then you have to explain why unemployment today is higher with the stimulus that what the models predicted without the stimulus. The standard macroeconometric models do not explain the depth of the recession.--Arnold Kling
Kling is being very polite in trying to give me another chance to recant my absurd argument, but I remain as stubborn as when Jimmy Carter gave Ford another chance, and Ford kept insisting that Poland wasn’t under Soviet domination.--Scott Sumner
A dozen years ago, Mr. McGwire was celebrated as a modern-day Babe Ruth, whose Popeye physique seemed to attest to his hard work. Yet last week, in a tearful apology, he confessed that he was using steroids in the course of his heroics. Only a couple of years ago, Wall Street was lauded as a marvel of financial innovation, the wellspring of prosperity, and the heads of major banks were lionized for bold risk-taking. Yet in tense exchanges before the Financial Crisis Inquiry Commission last week, bank chieftains found themselves pressed to explain how so many of their investments proved so disastrous.--Peter Goodman
Predators may have "roamed the financial landscape," but it was government that set them loose. It was government-sponsored enterprises that packaged these loans into securities for sale. It was government-sanctioned ratings companies that certified them as triple-A so that responsible investors would buy them. Prof. Blinder seems to have no recollection of these horrible policy decisions. Interestingly, none of the "reforms" in the House financial regulation bill he touts would address any of these problems. This bill follows the time-honored congressional practice of shifting blame to others, for Congress is never at fault when its foolish policies go haywire. It's always the fault of those who respond rationally to the stupid incentives Congress sets in motion.--Richard Belzer
Don't look to investment bankers for answers on how we got here. We don't know and we don't care. We take the world as we find it and try to make money.--Epicurean Dealmaker
As a new year begins, stock-fund managers are all smiles about 2009's outsize gains, their best results in 50 years. But factor in the horrendous 2008 and some 97% of all stock funds still show a loss.--Sam Mamudi
In the past decade, media businesses, from music to newspapers, have suffered from the impact of unbundling. Civil wars in the cable business make it likely that it’ll be next.--James Surowiecki
UPDATE: Via Glenn Reynolds, Coakley supporters desperately reverting to thuggery.
UPDATE: Paddy Power is already paying down on Scott Brown.
Sunday, January 17, 2010
Thursday, January 14, 2010
When rats are fed GMO food, do they show signs of organ damage? You get your treatment group, your control group, your outcome measures, and you do an unpaired t-test between the two. These guys use "nonparametric methods," "Principle Component Analysis," and a bunch of other unnecessarily advanced statistics. Basically, they tried doing it the right way, failed to find what they were looking for, and pulled out the fancy (wrong) techniques to get the result they wanted.
Photo link here. Previous BS post here.
Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein
Socialism only works in two places: Heaven where they don't need it and hell where they already have it.--Ronald Reagan
Innovation is terribly important; it is why we are rich. We know innovation is caused by economic activity, but if we knew which activities more promoted innovation, we’d want to subsidize them. Three recent papers suggests we should prefer many small industries each dominated by a few firms, and prefer private research in processes of capital intensive industries, especially chem/drug and comp/electronics. ... R&D spending is more effective for process over product, private over public, and basic over applied.--Robin Hanson
I'm not arguing for any change in the laws. I'm just arguing that [people who walk away from their mortgage obligations are] jerks. And I'm arguing that they're jerks precisely because I don't want any change in the laws that makes it harder to default on your mortgage.--Megan McArdle
Right-wing economists aren’t arguing that those specific policies [such as universal healthcare] explain the difference, but rather that America is richer because it has been more capitalist for a long time. Has it been more capitalist since 1820? It is a long time since I read Tocqueville, but my impression is that the answer is yes. The statism of Europe took many forms. There were trade barriers between German states. The French government has always been more interventionist. UK was pretty capitalist in 1820, but then it was also pretty rich. For a while Europe could use the destruction of WWII as an excuse, and indeed when I was young they were growing faster than us in a “catch-up.” But it is obvious they have plateaued about 25% below us. ... Here’s why growth rates are misleading. Once you move to the technological frontier, it is hard to grow faster than about 2% per capita. But poorer countries can grow much faster as they borrow advanced technology. --Scott Sumner
My attitude is this: if you are getting attacked by Krugman, you must be doing something right--Eugene Fama
The pattern during the last 100 years has been for countries with functioning economies to grow faster the lower they start. If [Matthew] Yglesias was an trained economist he would know all this. Conditional Convergence is one of the most robust relations in growth theory. [Paul] Krugman knows this, but Krugman is a liar, he just wants to maximize his ideological argument at any given point, deceiving his readers if he has to. That's why Krugman has not explicitly made the claim that growth rate and levels are unrelated, he just ignored the levels altogether. He knows that writing what you wrote would make him look foolish to other economists. While Krugman knows what he is doing (he just doesn't care), my guess is that Yglesias is honest in his argument, following Krugman where Krugman himself carefully does not step. Matthew Yglesias is left standing with his naive post on growth theory, his just reward for trusting Paul Krugman.--Tino
Nobody in the Bush administration ever displayed more economic ignorance [than President Obama's press secretary Robert Gibbs], but [Paul] Krugman was all over those guys every time they came close. Now he lets it slide. So let me do his job for him: When the domestic demand for a product increases, the law of comparative advantage tells you to import more of it, not less. If it is in fact true that “the type of demand for these components is only going to increase” then American manufacturers might want to start producing them, but American consumers will certainly want to import more of them, and any attempt to circumvent that is a good way to make Americans poorer. ... For goodness’s sake—if Barack Obama or Robert Gibbs discovers that he really likes bananas on his Cheerios, is his first thought that he’d better start growing bananas, or is his first thought that he’d better figure out where to buy them? That’s the kind of question Paul Krugman used to ask. I miss him.--Steven Landsburg
President Barack Obama is trumpeting a new White House estimate that his top economist calls ’stunning’: His stimulus plan has already created or saved up to 2 million jobs,” the Associated Press reported. The net job loss last year was 4 million, the worst since 1940. Barack Obama is now the first president since Herbert Hoover to show a net loss of jobs as president. Obama is saying it would have been a job loss of 6 million, which would mean 11% unemployment without the stimulus. A year ago, he said without the stimulus, unemployment would peak at 9%. Other “stunning” results thanks to the awesome administration include:
- The New England Patriots lost by only 19 points to the Baltimore Ravens on Sunday. Without the stimulus, it would have been a 33-0 shutout.
- The low temperature in Poca this morning was 20. Without the stimulus, it would have been 10.
- The national debt today is $12.3 trillion. Without the stimulus, it would have been $11.9 trillion.
Now, let me get this straight.....We are going to pass a health care plan written by a committee whose chairman says he doesn't understand it, passed by a Congress that hasn't read it but exempts themselves from it, to be signed by a president that also hasn't read it and who smokes, with funding administered by a treasury chief who didn't pay his taxes…all to be overseen by a surgeon general who is obese, and financed by a country that's nearly broke. What could possibly go wrong?--anonymous
Ordinarily, if one out of every 22 California drivers had a license to drive any way he chose, there would be demands for more police power to protect Californians from the potential carnage. But until the newspaper series, law enforcement officials and legislators had remained mum. The reason, of course, is that the scofflaws are law enforcement officials and legislators. ... Bigger government means more government employees. Those employees then become a permanent lobby for continual government growth. The nation may have reached critical mass; the number of government employees at every level may have gotten so high that it is politically impossible to roll back the bureaucracy, rein in the costs, and restore lost freedoms. People who are supposed to serve the public have become a privileged elite that exploits political power for financial gain and special perks. Because of its political power, this interest group has rigged the game so there are few meaningful checks on its demands. Government employees now receive far higher pay, benefits, and pensions than the vast majority of Americans working in the private sector. Even when they are incompetent or abusive, they can be fired only after a long process and only for the most grievous offenses. It’s a two-tier system in which the rulers are making steady gains at the expense of the ruled. The predictable results: Higher taxes, eroded public services, unsustainable levels of debt, and massive roadblocks to reforming even the poorest performing agencies and school systems. If this system is left to grow unchecked, we will end up with a pale imitation of the free society envisioned by the Founders. --Steven Greenhut
Presidential economic advisor Christina Romer was the lede-off guest on ABC’s This Week with George Stephanopoulos Starring George Stephanopoulos. And, charmingly, Romer is a lousy liar — maybe the only one inside the Beltway. ... Here’s about 11 minutes of her being “grilled” by Stephanopoulos on Sunday’s show. (Sorry for not embedding the video, but ABC doesn’t allow that for reasons unknown.) Anyway — watch her body language. When someone is speaking, their head usually either nods up and down or moves back and forth, depending on what they’re saying, and where they’re trying to place emphasis. Romer’s head is all over the place. I swear, most of the time it’s moving in figure eights. To me, that means she has no clue what she expects you to get out of what she’s saying, because she knows it’s total crap. Having to go out there and spread huge fields of manure for your boss — doing terrible damage to the country in the process — is a nasty job.--Stephen Green
[Jonathan Gruber] is being treated as a supreme authority. In theory, that is because his skills are exceptional. Instead, I suspect that, on the contrary, his success has less to do with how he uses his critical thinking functions than how well he has repressed them. In short, he is paid to tell progressives and politicians what they want to hear. ... I think that there is still a high probability that we are on a path to a system in which a political elite ruthlessly rewards its friends and punishes its enemies, leading to a society with much less innovation and much more corruption. I do not foresee gulags and mass murders, but there is plenty of potential for moral rot in cronyism, and that I do fear lies ahead.--Arnold Kling
Here’s a forecast: Mr. Blankfein will not end his career with a high government position [unlike his predecessors who led Goldman Sachs].--Floyd Norris
My daughter called me from school one day and said, ‘Dad, what’s a financial crisis?’ And, without trying to be funny, I said, ‘This type of thing happens every five to seven years.’ And she said, ‘Why is everyone so surprised?’--Jamie Dimon
Results released today from the Impact Study show that children’s gains from participating in Head Start, documented in a 2005 installment of the study, do not last through the end of 1st grade.--Lisa Guernsey
Barack Obama has exploited his youthful stint as a Chicago community organizer at every stage of his political career. As someone who had worked for grassroots “change,” he said, he was a different kind of politician, one who could translate people’s hopes into reality. The media lapped up this conceit, presenting Obama’s organizing experience as a meaningful qualification for the Oval Office. This past September, a cell-phone video of Chicago students beating a fellow teen to death coursed over the airwaves and across the Internet. None of the news outlets that had admiringly reported on Obama’s community-organizing efforts mentioned that the beating involved students from the very South Side neighborhoods where the president had once worked. Obama’s connection to the area was suddenly lost in the mists of time. Yet a critical blindness links Obama’s activities on the South Side during the 1980s and the murder of Derrion Albert in 2009. Throughout his four years working for “change” in Chicago’s Roseland and Altgeld Gardens neighborhoods, Obama ignored the primary cause of their escalating dysfunction: the disappearance of the black two-parent family. Obama wasn’t the only activist to turn away from the problem of absent fathers, of course; decades of failed social policy, both before and after his time in Chicago, were just as blind.--Heather MacDonald
At the dark heart of [Robin West's] thinking is the notion that home-schooled children are imprisoned. No sports teams, no church activities, no Boy and Girl Scouts, no summer jobs, no sleepovers with friends. Thus will abuse go undetected, self-esteem unnurtured. Worse, these children become part of an unthinking Republican army. Which pre-empts, of course, the ability of professors like West to turn them into soldiers for the unthinking Democratic army. Which is why we need regulation. Forced testing and immunizations. Home inspections by state regulators. I propose a deal, Professor West. I’m happy to have my sons enrolled in school, should they fail a standardized test, so long as the public schools commit to testing teachers, and firing the ones who fail. I’m happy to let inspectors assess our home curriculum, if we can do the same to the hodgepodge of theories and dry-as-dust, dumbed-down, modernized materials that get bandied about under the guise of pedagogy in public schools. If you’re nice, we might even let you borrow some of our classroom materials. Finally, when my kids are older, I’ll match them up against any precious little free-thinking high-school radicals you perceive as unshackled from the lockstep conservative brainwashing you imagine goes on under my roof, and we’ll have ourselves a debate on philosophy, theology, and politics. If your kids win, I’ll pay your Georgetown salary for a year. If my kids win, you resign.--Tony Woodlief
In short, whenever [Pat] Robertson breathes out a sentence with the word “God” in it, I’m pretty certain he doesn’t know what the hell he’s talking about.--Tony Woodlief
Is mathematics invented or discovered?--Steven Landsburg
...I cannot imagine any way to explain the existence of the Universe without the prior existence of the natural numbers. (This is more or less the same reason some people give for believing in God.) It seems to me that the most compelling question in philosophy is why anything exists at all. Any satisfactory answer has to start with something that must exist.--Steven Landsburg