Monday, April 14, 2008

James Hamilton wonders about Fed checks and balances

... Congress has a quite proper role in determining the magnitude of the fiscal risk that the Fed opts to assume. Congress's statutory limit on the quantity of debt that the Treasury can issue is something I have previously derided as political circus. But a statutory limit on the non-Treasury assets that the Fed is allowed to hold might make sense. Perhaps the outcome of a public debate on this issue would be a decision that the Fed needs the power to lend to private borrowers even more than the $800 billion or so limit that it would run into from completely swapping out its entire portfolio. Indeed, Greg Ip speculates on the possibility that the Fed could "ask Treasury to issue more debt than it needs to fund government operations." Surely that would be something that should require congressional approval. Or perhaps after deliberations, Congress would decide that the business of swapping Treasury debt for private sector loans is one that is better run by the Treasury rather than the Federal Reserve.

In any case, I agree with both Reich and Volcker on this much-- these are not decisions that the Federal Reserve should be making on its own, nor on the basis of behind-the-scene consultations with the President or congressional leaders. Bernanke needs to ask for explicit statutory authorization for his plans.


Also from James, a nice map of gasoline prices:

Latest episode of Bikini Statistics


via Russell Roberts:

Harold Meyerson in the Washington Post wants America's trade policy to help Americans. An interesting idea. And how should it do that? Harold wants to save manufacturing jobs, the key to prosperity in his view. He argues that because of foolish free trade policies such as NAFTA and other increases in trade:

...America has gone from being a nation that manufactured things to a nation that manufactures debt. Manufacturing (as Kevin Phillips points out in the forthcoming issue of the American Prospect, which I edit) accounted for 25 percent of America's gross domestic product in the 1970s but just 12 percent in 2006. Finance, which amounted to 12 percent of GDP in the '70s, amounted to 20 percent in 2006.

If you read that quickly, it does sound pretty scary. It looks like our manufacturing output has been cut in half! Actually, manufacturing output since 1970 has roughly tripled. TRIPLED. I feel like writing the word again but I'll refrain. But "TRIPLED" is a good word to remember when you keep hearing that America's manufacturing sector is being hollowed out and we don't make anything anymore and soon we're going to be sitting around doing each other's laundry.

The reason manufacturing has become a smaller proportion of GDP is because other sectors have grown even more. The reason other sectors have grown even more is because we have such high productivity in manufacturing over the last 40 years. That's freed up people and resources to make other stuff.

Previous BS installment here.
Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--unnamed economist

The Health Insurance Mafia

Jonathan Kellerman writes:

Most discussions about the rising cost of health care emphasize the need to get more people insured. The assumption seems to be that insurance – rather than the service delivered by doctor to patient – is the important commodity.

But perhaps the solution to much of what currently plagues us in health care – rising costs and bureaucracy, diminishing levels of service – rests on a radically different approach: fewer people insured.

You don't need to be an economist to understand that any middleman interposed between seller and buyer raises the price of a given service or product. Some intermediaries justify this by providing benefits, such as salesmanship, advertising or transport. Others offer physical facilities, such as warehouses. A third group, organized crime, utilizes fear and intimidation to muscle its way into the provider-consumer chain, raking in hefty profits and bloating cost, without providing any benefit at all.

The health insurance model is closest to the parasitic relationship imposed by the Mafia and the like. Insurance companies provide nothing other than an ambiguous, shifty notion of "protection." But even the Mafia doesn't stick its nose into the process; once the monthly skim is set, Don Whoever stays out of the picture, but for occasional "cost of doing business" increases. When insurance companies insinuate themselves into the system, their first step is figuring out how to increase the skim by harming the people they are allegedly protecting through reduced service.

Health insurers have taken steps to avoid that level of surprise: Once they affix themselves to the host – in this case dual hosts, both doctor and patient – they systematically suck the lifeblood out of the supply chain with obstructive strategies. For that reason, the consequences of any insurance-based health-care model, be it privately run, or a government entitlement, are painfully easy to predict. There will be progressively draconian rationing using denial of authorization and steadily rising co-payments on the patient end; massive paperwork and other bureaucratic hurdles, and steadily diminishing fee-recovery on the doctor end.

Several years ago, I suffered a sports injury that necessitated an MRI. The "fee" for a 20-minute procedure was over $3,000. My insurance company refused to pay, so I informed the radiologist that I'd be footing the bill myself. Immediately, the "fee" was cut by two thirds. And the doctor was tickled to get it.

If substantial numbers of health-care providers shook off the insurance monkey on their back, en masse, and the supply of providers was substantially increased by opening more medical schools, the result would be a more honest, cost-effective system benefiting everyone. Except the insurance companies.

The Other Obama

This has been a long Presidential campaign, but often usefully so. The Democratic Party fight is helping us learn that there's more to Barack Obama than the eloquent, post-partisan, disciplined purveyor of "hope" that he typically projects.

There's also the Barack Obama who attended Rev. Jeremiah Wright's ("God d--- America") church for 20 years, the one who emerged from the Chicago Democratic machine with friends like Tony Rezko, the one with the most liberal voting record in the U.S. Senate, and now we learn the one with a Harvard-eye view of American angst.

Mr. Obama's unreflective condescension is reminiscent of the famous 1993 Washington Post article that described evangelical Christians as "poor, undereducated and easy to command." And the fact that he said it so naturally in front of a San Francisco crowd suggests that this is what he may truly believe. This is Mr. Obama's inner Mike Dukakis.

Senator Obama has had a mostly charmed Presidential run, but the truth is there's much that Americans still don't know about him or what he believes.

UPDATE: Belmont Club draws a connection from the Stage Irishman parody/reality from the Nineteenth Century to Obama today.

UPDATE: Chris Muir similarly inspired:

Thursday, April 10, 2008

Bruce Wasserstein, like Karl Marx, gets that capitalism is problematic

We have learned that the "risk management" emperor had no clothes. Hundreds of Ph.D.s in risk-management positions are now discredited. The protective pyrotechnic mechanisms such as Value At Risk, which were supposed to predict the risk in a portfolio of assets, are duds. The financial controls have proven to be inadequate.

So it's not shocking that there are cracks in the system. What is surprising is the sheer size and the high proportion of risky bets that were made. But the real magnification of that risk comes from the nature of the leveraged balance sheets of most financial institutions. The traditional regulatory quantifications of risk were not realistically tested. That's why firms can assert they have enough capital and yet have no liquidity.

The rating agencies are at the vortex of the storm. What were they thinking? In a housing crash situation, which had a reasonable chance of happening, how could the securities rated AAA be worthy of that rarified appellation? They couldn't and shouldn't have been. But it was that label that got institutions around the world to buy into the bubble. That demand generated the hunger for more product and therefore drove "innovations" such as the document-free loan. The losses and write-offs will continue.
but alas his solution, like Marx's, is wrong:

There may be situations where federal funding is the financing of last resort or is necessary as a backstop or catalyst to constructive transactions. Rather than have the Federal Reserve do these investments on an ad hoc basis, a preferable structure would be for the Fed to fund the equity for a new institution with professional management, which I call the Liquidity Funding Bank. The analogy is partly to the World Bank and partly to the historic Bank of the United States, but hopefully without the politics.

Wasserstein does not address the moral hazard; he merely transfers it to yet-another-institution. Neither the Fed, nor Congress, nor the White House, nor Fannie Mae nor Freddie Mac helped mitigate the credit crisis early on, and each helped make it worse. So we add a new institution to the mix, that's the answer? Please, no. Especially one corrupt like the World Bank.

My prescriptions have been posted before:
1) Fed: don't keep rates artificially low. Follow the Taylor rule until you demonstrate that you outperform it

2) Congress: stop with the stimulus package and other ridiculous legislation that is a psychological closing of the door after the capital has already left the building. Also, don't give Fannie Mae or Freddie Mac more discount advantage and less regulation. In fact, reverse that. The private sector has shown more success in self-regulation than the history of governments, so how about for every regulation for the private sector, do 3 times for the government. (And don't tax non-government workers to pay for government regulation, just the government employees).

3) White House: what happened to the promise of limited government upon which you campaigned? Stick with that. Don't sign ridiculous legislation (see above)! And keep your Treasury Secretary on a tighter leash regarding limited government and ridiculous laws.
The U.S. economy went binge drinking (and Greenspan was primary supplier), and now has a severe case of alcohol poisoning. More alcohol is not the solution, but neither is removing all the alcohol immediately, which means removing all the blood, too--more cells die, and we get closer to Great Depression Redux. Unfortunately, 1) the auction facility, 2) the repo facility, and 3) bailing out Bear Stearns could keep the alcoholic from recovering from his addiction, yet keeping the heart pumping and liver detoxifying is the right thing for the Fed to do. Death-avoidance is part of the price stability and job creation mandates of the Fed, after all.

None of this means we should plug the body into a respirator forever, and call that machine the Liquidity Funding Bank.

Nancy Pelosi kills U.S. jobs and U.S. trade credibility

The Colombia trade pact was signed in 2006 and renegotiated last year to accommodate Democratic demands for tougher labor and environmental standards. Even after more than 250 consultations with Democrats, and further concessions, including promises to spend more on domestic unemployment insurance, the deal remained stalled in Congress. Apparently the problem was that Democrats kept getting their way.

So on Monday, President Bush submitted the bill to Congress over liberal protests, which, under a bargain between Congress and the White House for trade promotion authority, mandated an up-or-down vote within 90 days. Today Ms. Pelosi will make an ex post facto change to House rules to avoid the required vote, withdrawing from the timetable and thus relegating the Colombia deal to a perhaps permanent limbo.

For good measure, the double-cross dismantles the only process that allows any Administration to conduct good-faith negotiations with foreign nations. No one is going to take the U.S. at its word if Congress is going to change the rules when it has second thoughts and renege.

Even if the free trade agreement is somehow removed from cold storage, Ms. Pelosi's cheating is a first-order strategic blunder. Colombia is one of America's closest friends in a hostile region menaced by Hugo Chávez's Venezuela. For all the talk of repairing the U.S. "image" in the world, the Democrats don't really mind harming that image if it pleases the AFL-CIO.

My previous post here. It's a shame that Ms. Pelosi's constituents don't understand or don't care about more and freer trade, which leads to more jobs (which leads to a more robust tax base to tax, btw).

Hillary Clinton and I

both loved Wal-Mart:

Sen. Clinton served on Wal-Mart's board of directors from 1986 to 1992, when she was first lady of Arkansas. During her presidential campaign, she has faced some criticism over Wal-Mart's labor record and the lack of women in upper management.

There is footage in the archive of Mrs. Clinton joining Mr. Walton, Wal-Mart's founder, on a stage at the 1991 opening of a store in Rogers, Ark. "I'm so proud of this company and everything it represents," Mrs. Clinton said. "It makes me feel real good about what we've been able to do."

Mr. Walton responded: "You're a great associate, Hillary." Turning to the crowd, he added: "She's one of us."

When Sen. Clinton was asked whether Wal-Mart is "a good thing or a bad thing" for the nation, she described the retailer as "a mixed blessing."

I still do.

Olympic torch relay results in over 5,000 tons of carbon emissions

as reported by Dave Demerjian.

Colin Powell sighting

Here is what Powell said on boycotting the Olympic opening ceremonies:

We always are aware and have been aware of Chinese human rights problems. And I think if you start to take this kind of action, it doesn't really serve the purpose of human rights. What is accomplished by boycotting the opening ceremony? I don't think that makes the situation any better. It probably makes the situation a little more difficult for the Chinese because they will pull back even more.

And this on sustaining Middle East military commitments:
The United States Armed Forces are very, very stretched. It appears that after the surge is over, we're going to go down to 140,000 troops in Iraq. That's 10,000 more than we had before the surge," Powell observed, reacting to the testimony Petraeus delivered over two days. "There is something of a continued surge there with that extra 10,000. And based on what Gen. Petraeus has said, he wants to let the surge troops go by July and then take 45 days to see what it looks like, and then begin a process of assessment. Well, that tells me that we know what the administration strategy is going to be through the end of the term of the administration. And that is, we're going to maintain a very significant presence. It's going to be far more than the 100,000 that Secretary [of Defense Robert] Gates was hoping for. It's going to be like 130,000 or 140,000. That is an extremely difficult burden for the United States Army, the United States Marine Corps, to keep up.
And this on the Obama/Wright kerfuffle:
Rev. Wright is also somebody who has made enormous contributions in his community and has turned a lot of lives around. And so, I have to put that in context with these very offensive comments that he made, which I reject out of hand. I think that Sen. Obama handled the issue well . . . he didn't look the other way. He didn't wait for the, for the, you know, for the storm to go over. He went on television, and I thought, gave a very, very thoughtful, direct speech. And he didn't abandon the minister who brought him closer to his faith.
(via Drudge)

Wednesday, April 09, 2008

Michelle Obama channels Karl Marx

observes Jon Henke, who catches her saying:
"... someone is going to have to give up a piece of their pie so that someone else can have more."
Her father-in-law must have approved of her marriage.

And why didn't she practice what she preaches?

The opposite of Pareto-optimal is Mugabe-efficient

and Barney Frank seems to lean towards the latter (via Bess Levin):
Just to be clear, what Mr. Frank is proposing is to bail out anyone who took risk on a house they couldn’t afford. Many of these people will have, smartly, put little to no money down to take that risk and benefit from the potential upside were the house to appreciate. How is he planning to finance this proposal? Taxes, of course. So those who dumbly did not take risks with large potential upside will now pay those who did. This is an extremely Mugabe efficient proposal and will be a resounding success with no downside.

Recommendation: Long excessive risk-taking, just make sure to do it in a group large enough to form a voting bloc. Also, I have found that Zimbabwenomics is much funnier when it is not happening in my country.

Tax strangulation

Stephen Entin says:

We know, from decades of economic modeling, and observing the revenue feedback when taxes are changed, that each added dollar Washington collects, then spends or gives away (for goods and services, entitlements or tax-transfers), costs the public about $2.50. That's a dollar in tax plus about $1.50 in lost output from the economic distortion caused on average by the tax system (even more in the case of the most damaging taxes on capital income).

So everything that the government buys or gives had better be worth a good deal more to the user or beneficiary than its apparent budget cost, or it will be a bad deal for the country. In particular, letting tax rates bounce back up on saving and investment, and on the labor income of middle and upper wage earners, would worsen the job and income prospects of people of all ages and family situations.

Unintended Consequences: How unions destroy jobs in trying to save them

Exhibit A are 8,600 jobs at two Caterpillar Inc. factories in Illinois. Caterpillar exports more to Peru and Colombia than it does to Germany, Japan or the United Kingdom. So keeping and growing market share in both countries is important to union members in both plants. Not all are union jobs but both facilities are United Auto Worker shops.

Consider exports of the off-highway truck, made in Decatur. Customers in Colombia now pay a 15% tariff – equal to $200,000 – on the import of these vehicles. If the FTA goes through, that import tariff goes to zero immediately. Conversely, if the deal dies and Colombia, which is trying to expand its world trade, strikes an agreement with another country where similar vehicles are made, U.S. exports will immediately be at a 15% price disadvantage.

Colombia also has a large mining industry, and there are more Cat D-11 bulldozers in Colombian coal mines today than in any other country in the world. Those bulldozers are made in East Peoria. Colombian customers pay a 5% duty to import Cat bulldozers, which compete against Komatsu bulldozers made in Japan. Union members might ask Mr. Sweeney why he wants to spurn an offer that would give U.S. products a 5% price edge against Japanese competition.

Caterpillar – which has a total U.S. work force of 50,545 – faces an even more imminent threat in the case of its motor graders, a piece of heavy equipment used to level the playing field, literally. A company called Champion also makes motor graders in Canada, and Colombia is also negotiating an FTA with Canada. If Canada seals a deal with Colombia while the U.S. walks away from its Colombia pact, graders made in the U.S. will cost more than those made in Canada. Once again, Mr. Sweeney's agenda makes the U.S. work force less competitive.

The AFL-CIO's rejectionism makes even less sense when you consider that 92% of Colombian goods coming to the U.S. now enter the American market duty-free under the Andean Trade Preferences Act, or ATPA. In June 2007, 365 members of Congress voted to renew the ATPA and thereby maintain open U.S. markets for Colombian products. The FTA is a chance to open Colombian markets to U.S. goods and services. Killing it is like saying that we want U.S. products going to Colombia to be heavily taxed. Even for a trade protectionist like Mr. Sweeney, that makes no sense. For American workers, it's crazy.

Why Volcker is wiser is than Greenspan

The present climate, Mr. Volcker told his audience, reminded him of nothing so much as the early 1970s. Then as now, certain commodity prices were rising fast – he cited oil and soybeans as two examples. Then as now too, these were explained away as speculative price run-ups and not as a harbinger of a broader inflationary trend.

We all know how that ended, and Mr. Volcker knows better than anyone. He was the one who, at the end of that decade, had to step in and raise interest rates to punitive levels to break the back of that bout of inflation. With commodity prices spiking again – soybeans are $12 a bushel today compared to $7 a year ago – Mr. Volcker is warning the Fed not to let inflationary expectations become embedded once again.

In recent days, another former Fed Chairman, Alan Greenspan, has been making the rounds defending his legacy. Mr. Volcker, with the benefit of some additional distance from his time at the Fed, offered something more useful: A diagnosis of our current predicament and some sound warnings about the dangers of a Fed that responds too easily to political pressure and fails to protect the value of the dollar.

Quote of the day

How anyone could confuse Hillary's sourly cynical, male-bashing megalomania with authentic feminism is beyond me.--Camille Pagila

Tuesday, April 08, 2008

The Colbert Show and Campaign Finance

correlations, here.

Charlton Heston, Martin Luther King, Jr. and Freedom

Belmont Club remembers:

Not very many people will remember that Charlton Heston picketed a segregated theater premiering his own movie; or that he accompanied Martin Luther King Jr on the 1963 Civil Rights March on Washington. All at a time when no one in Hollywood was willing to speak out against racism. It's more likely that he'll be remembered as the six foot three inch tall actor, who played Moses and Ben Hur, and later became the president and spokesman for the National Rifle Association advocating the right to keep and bear arms; or recall that he opposed affirmative action. But Heston the marcher and Heston the NRA president come closer together if one recalls that in the actor's mind at least, racial segregation helped the cause of Communism. The fight for freedom took many forms, but underneath its varied guises it was always the same thing.

Part of the problem with Charlton Heston wasn't that he was inconsistent, but that he was too consistent. And the common mistake, even of the Old Bolsheviks, was to suppose that following a set of principles was better following fashion. Those who wonder whether Heston had wandered off should ask themselves whether Martin Luther King, had he lived, might also have remarked to the nation's First Black President that ''America doesn't trust you with our 21-year-old daughters, and we sure, Lord, don't trust you with our guns.'' After all, King was a Republican and nobody remembers that either.

And the idea that the only real rebel is an individual or that a man might march with Dr. King and yet advocate the right to defend himself is so outrageously quaint that one wonders how many today find it completely inconceivable. But that almost proves the point.

Ben-Hur, what a great film. Heston and I probably disagree with the constitutionality of handguns, but he seems like a courageous leader when it comes to civil rights.

Don't bid on the Brooklyn Bridge right now

It's structurally deficient.

Those who have issues with their father, who run for the White House

It's not just Dubya (or Clinton, even) (via Alex Tabarrok):
If there is a mystery at the heart of Barack Obama's Dreams For My Father, one thing is not left a mystery, the fact that Barack Obama organized his life on the ideals given to him by his Kenyan father. Obama tells us, "All of my life, I carried a single image of my father, one that I .. tried to take as my own." (p. 220) And what was that image? It was "the father of my dreams, the man in my mother's stories, full of high-blown ideals .." (p. 278) What is more, Obama tells us that, "It was into my father's image .. that I'd packed all the attributes I sought in myself." And also that, "I did feel that there was something to prove .. to my father" in his efforts at political organizing. (p. 230)

A bit of research at the library reveals the answers about Barack Obama's father and his father's convictions which Obama withholds from his readers. A first hint comes from authors E. S. Atieno Odhiambo and David William Cohen in their book The Risks of Knowledge (Ohio U. Press, 2004). On page 182 of their book they describe how Barack Obama's father, a Harvard trained economist, attacked the economic proposals of pro-Western 'third way" leader Tom Mboya from the socialist left, siding with communist-allied leader Oginga Odinga, in a paper Barack Obama's father worte for the East Africa Journal. As Odhiambo and Cohen write, "The debates [over economic policy] pitted .. Mboya against .. Oginga Odinga and radical economists Dharam Ghai and Barrack Obama, who critiqued the document for being neither African nor socialist enough."

I have a copy of Barack Obama's paper here in my hand, obtained from the stacks at UCLA (see the picture above). The paper is as describe by Odhiambo and Cohen, a cutting attack from the left on Tom Mboya's historically important policy paper "African Socialism and Its Applicability to Planning in Kenya." The author is given as "Barak H. Obama" and his paper is titled "Problems Facing Our Socialism", published July, 1965 in the East African Journal, pp. 26-33.

Obama stakes out the following positions in his attacks on the white paper produced by Mboya's Ministry of Economic Planning and Development:

1. Obama advocated the communal ownership of land and the forced confiscation of privately controlled land, as part of a forced "development plan", an important element of his attack on the government's advocacy of private ownership, land titles, and property registration. (p. 29)

2. Obama advocated the nationalization of "European" and "Asian" owned enterprises, including hotels, with the control of these operations handed over to the "indigenous" black population. (pp. 32 -33)

3. Obama advocated dramatically increasing taxation on "the rich" even up to the 100% level, arguing that, "there is no limit to taxation if the benefits derived from public services by society measure up to the cost in taxation which they have to pay" (p. 30) and that, "Theoretically, there is nothing that can stop the government from taxing 100% of income so long as the people get benefits from the government commensurate with their income which is taxed." (p. 31)

4. Obama contrasts the ill-defined and weak-tea notion of "African Socialism" negatively with the well-defined ideology of "scientific socialism", i.e. communism. Obama views "African Socialism" pioneers like Nkrumah, Nyerere, and Toure as having diverted only "a little" from the capitalist system. (p. 26)

5. Obama advocates an "active" rather than a "passive" program to achieve a classless society through the removal of economic disparities between black Africans and Asian and Europeans. (p. 28) "While we welcome the idea of a prevention [of class problems], we should try to cure what has slipped in .. we .. need to eliminate power structures that have been built through excessive accumulation so that not only a few individuals shall control a vast magnitude of resources as is the case now .. so long as we maintain free enterprise one cannot deny that some will accumulate more than others .. " (pp. 29-30)

6. Obama advocates price controls on hotels and the tourist industry, so that the middle class and not only the rich can afford to come to Kenya as tourists. (p. 33)

7. Obama advocates government owned and operated "model farms" as a means of teaching modern farming techniques to farmers. (p. 33)

8. Obama strongly supports the governments assertion of a "non-aligned" status in the contest between Western nations and communist nations aligned with the Soviet Union and China. (p. 26)

Dr. Keith Chen throws out half-a-century of social science expirements

by pointing out the Monty Hall problem embedded in them:
The Monty Hall Problem has struck again, and this time it’s not merely embarrassing mathematicians. If the calculations of a Yale economist are correct, there’s a sneaky logical fallacy in some of the most famous experiments in psychology.

The economist, M. Keith Chen, has challenged research into cognitive dissonance, including the 1956 experiment that first identified a remarkable ability of people to rationalize their choices. Dr. Chen says that choice rationalization could still turn out to be a real phenomenon, but he maintains that there’s a fatal flaw in the classic 1956 experiment and hundreds of similar ones. He says researchers have fallen for a version of what mathematicians call the Monty Hall Problem, in honor of the host of the old television show, “Let’s Make a Deal.”

Here’s how Monty’s deal works, in the math problem, anyway. (On the real show it was a bit messier.) He shows you three closed doors, with a car behind one and a goat behind each of the others. If you open the one with the car, you win it. You start by picking a door, but before it’s opened Monty will always open another door to reveal a goat. Then he’ll let you open either remaining door.

Suppose you start by picking Door 1, and Monty opens Door 3 to reveal a goat. Now what should you do? Stick with Door 1 or switch to Door 2?

... try a few rounds of the game, which you can do by playing an online version of the game. Play enough rounds and the best strategy will become clear: You should switch doors.

This answer goes against our intuition that, with two unopened doors left, the odds are 50-50 that the car is behind one of them. But when you stick with Door 1, you’ll win only if your original choice was correct, which happens only 1 in 3 times on average. If you switch, you’ll win whenever your original choice was wrong, which happens 2 out of 3 times.

Now, for anyone still reading instead of playing the Monty Hall game, let me try to explain what this has to do with cognitive dissonance.

For half a century, experimenters have been using what’s called the free-choice paradigm to test our tendency to rationalize decisions. This tendency has been reported hundreds of times and detected even in animals. Last year I wrote a column about an experiment at Yale involving monkeys and M&Ms.

The Yale psychologists first measured monkeys’ preferences by observing how quickly each monkey sought out different colors of M&Ms. After identifying three colors preferred about equally by a monkey — say, red, blue and green — the researchers gave the monkey a choice between two of them.

If the monkey chose, say, red over blue, it was next given a choice between blue and green. Nearly two-thirds of the time it rejected blue in favor of green, which seemed to jibe with the theory of choice rationalization: Once we reject something, we tell ourselves we never liked it anyway (and thereby spare ourselves the painfully dissonant thought that we made the wrong choice).

But Dr. Chen says that the monkey’s distaste for blue can be completely explained with statistics alone. He says the psychologists wrongly assumed that the monkey began by valuing all three colors equally.

Dr. Chen remains convinced it’s a broad problem. He acknowledges that other forms of cognitive-dissonance effects have been demonstrated in different kinds of experiments, but he says the hundreds of choice-rationalization experiments since 1956 are flawed.

Even when the experimenters use more elaborate methods of measuring preferences — like asking a subject to rate items on a scale before choosing between two similarly-ranked items — Dr. Chen says the results are still suspect because researchers haven’t recognized that the choice during the experiment changes the odds. (For more of Dr. Chen’s explanation, see TierneyLab.)

“I don’t know that there’s clean evidence that merely being asked to choose between two objects will make you devalue what you didn’t choose,” Dr. Chen says. “I wouldn’t be completely surprised if this effect exists, but I’ve never seen it measured correctly. The whole literature suffers from this basic problem of acting as if Monty’s choice means nothing.”

Monogamy and Economic Growth

Tyler Cowen posts:
Economic growth means that some women have higher human capital than others and thus they are better suited at producing and rearing high quality children. Wealthy men with lots of human capital will start to bid for these women and they will have to offer them exclusive status; these men also wish to invest in a smaller number of higher quality children.

In other words, male inequality encourages polygamy while female inequality discourages it. Apparently female inequality has been winning that race.

The hypothesis also helps explain why polygamy unravels so decisively at some point. Since monogamy itself encourages children (including daughters) with higher human capital, initial tendencies toward monogamy are self-reinforcing.

A healthcare system only Michael Moore could love

Venezuela, where morbidity is fair and balanced.

"What Was I Thinking?" Award goes to University of Massachusetts at Amherst

who awarded Robert Mugabe an honorary degree [in 1986]. This was several years after Zimbabwe's anticolonialist "liberator" had deployed his notorious Fifth Brigade – trained by his North Korean allies – to murder an estimated 20,000 members of the Ndebele people. Mr. Mugabe is tribally Shona.

Co-recipients of this award are Michigan State and the University of Edinburgh, who also conferred honorary degrees to Mugabe in 1990 and 1994, respectively.

Of course, my alma mater is not above reproach, for similar foibles such as inviting this nut onto the faculty.

The Coming Tax Bomb


by John Cogan and Glenn Hubbard:
By historical standards, federal revenues relative to GDP, at 18.8% last year, are high. In the past 25 years, this level was only exceeded during the five years from 1996 to 2000. Still, we stand on the verge of a very large tax increase, one that will occur unless the next Congress and president agree to rescind it. Letting the Bush tax cuts expire will drive the personal income tax burden up by 25% – to its highest point relative to GDP in history.

... a near-term tax increase is the wrong way to prepare. Higher revenues will encourage Congress to raise spending, compounding the long-term budget problem. And, the long-term tax increase required to fund unchecked long-term spending would likely reduce annual GDP growth by a full percentage point.

The proper way to prepare to meet the entitlement challenge consists of three essential elements: Change entitlements to slow their cost growth; eliminate all nonessential spending in the remainder of the budget; and, most important but often overlooked, adopt policies that promote economic growth. The greater the economic growth, the larger the economic pie, and the greater the public and private resources available to finance entitlement obligations and other national priorities.

Quotes of the day

Wars are not won by the bigger force, but by intangibles. Leadership, courage, adaptability, integrity, intellectual agility and allegiance ultimately determine who wins wars.--Maj. General Robert Scales
Thanks to his addiction to cigarettes, Obama offers us the hope of a kinder, freer, more peaceful America.--Tom Bell

Closing in on the God Particle

(via Drudge)

The 40-year hunt for the holy grail of physics – the elusive “God particle” that is supposed to give matter its mass – is almost over, according to the leading scientist who first came up with the theory.

Peter Higgs, whose work gave his name to the elusive Higgs boson particle, said that he was more than 90 per cent certain it would be found within the next few years.

The Higgs boson was the professor’s elegant 1964 solution to one of the great problems with the standard model of physics – how matter has mass and thus exists in a form that allows it to make stars, planets and people. He proposed that the universe is pervaded by an invisible field of bosons that consist of mass but little else.

As particles move through this field, bosons effectively stick to some of them, making them more massive, while leaving others to pass unhindered. Photons, light particles that have no mass, are not affected by the Higgs field at all.

The mysterious boson postulated by Professor Higgs, of the University of Edinburgh, has become so fundamental to physics that it is often nicknamed the “God particle”. After more than 40 years of research, and billions of pounds, scientists have yet to prove that it is real. But Professor Higgs, 78, now believes the search is nearly over.

A new atom-smasher that will be switched on near Geneva later this year is virtually guaranteed to find it, he said. It is even possible that the critical evidence already exists, in data from an American experiment in Illinois that has yet to be analysed fully.

Yesterday, the Times reported on the computing grid project to support the Large Hadron Collider referenced in the link above, which could eventually replace the current Internet with a much higher capacity network.

Monday, April 07, 2008

Are ecomomists just as corrupt as everyone else

but a little more honest about it?

A lot more honest, me thinks.

When regulators fail, why do we want give them

more power? My Jeopardy Daily Double: Addiction.

Unless a reader has a better answer.

A roundup of this dysfunction, to which I linked last year.

Quotes of the day

In the United States today political power is much more dangerously concentrated than economic power. As provocative as the thesis might be, I think I understated the case.--Arnold Kling
Even the conservative and libertarian professors I know mostly seem to defend tenure. On the other hand, I know no [one who] thinks that this is a good arrangement when they are the customer of a person or corporation with perfect job security. Who longs for the days of the old AT&T monopoly? Or gets a glad feeling in his heart when he contemplates the fact that Comcast--and only Comcast--has the right to sell him cable service? ... Do we want academics who lack the courage of their convictions? I suppose we must. We've certainly built a near-perfect system for finding them.--Megan McArdle

Irony of the day

From the Washington Post (via Felix Salmon):
A year ago, the Mortgage Bankers Association was thrilled to sign a contract to buy a fancy new headquarters building in downtown Washington. Interest rates were low, the group's revenues were steady and the prospects for quickly renting out part of the structure were strong.

But since then, the association has fallen on tough times as many of the subprime mortgages dispensed by some of its members proved dicey. Borrowers discovered the loans were more costly than they had anticipated. Foreclosures soared, and cheap, inexpensive credit dried up, slowing the economy.

The result: The trade group is about to find it harder than it imagined to pay its own mortgage.

UPDATE: Here's a worthy runner-up (via Larry Ribstein):

Laissez-faire. It's a policy that made Starbucks vastly successful. But don't try to put that phrase on a customized Starbucks Card.

The cards are supposed be personalized to reflect customers' tastes and uniqueness. They are available in a range of colors, often given as gifts and used by regular customers who prefer to prepay for their java.

But when my friend Roger Ream, president of the Fund for American Studies, received a Starbucks gift card for Christmas, he found there was a limit to how personalized a card could be. His card required him to customize it on the company's Web site. So he went to the site and requested that the phrase "Laissez Faire" be printed on his card. A few days later he was informed that the company couldn't issue such a card because the wording violated company policy.

Starbucks's company policy is this: "We review each Card before printing it to make sure it meets our personalization policy. We accept most personalization requests, but we can't honor every one. Some requests may contain trademarks that we don't have the right to use. Others may contain material that we consider inappropriate (such as threatening remarks, derogatory terms, or overtly political commentary) or wouldn't want to see on Starbucks-branded products."

Is the phrase "laissez-faire" threatening? Only to officious bureaucracy, I would think. So, it must be that the phrase is considered to be "inappropriate" by corporate Starbucks.

Maybe Starbucks considers the phrase inappropriate because it's "overtly political commentary"? Certainly my friend regards it as a firm statement of political philosophy.

And so, at my suggestion, my friend went back to the Web site and asked that his card be issued with the phrase "People Not Profits." Bingo! Starbucks had no problem with that phrase, and the card arrived in a few days.

I wondered just what the company's standards were. If "laissez-faire" is unacceptably political, how could the socialist slogan "people not profits" be acceptable?

I've seen many an anti-corporate activist in Manhattan with a latte in one hand, NY Times in the other, and a cell phone on the hip. Talk about Epimenides Paradox!

I am unconvinced by Alan Greenspan's latest non-apolgetic apology

He wrote it for the Financial Times.

But here is my 1 + 1 = 2 viewpoint, simplified as much as possible: Greenspan was a huge proponent of homeownership as a wealth and economic growth contributor:
The choice to buy a home is a decision to plant a family's roots in a community with all the implicit incentives to make that community thrive. Where home ownership flourishes, it is no surprise to find increased neighborhood stability, more civic-minded residents, better school systems, and reduced crime rates.

Just as important is the effect of home ownership on a household's ability to accumulate assets. For most households, home ownership represents a significant financial milestone and is an important vehicle for ongoing savings. The Federal Reserve's 1998 triennial Survey of Consumer Finances indicates that home ownership represented 44 percent of gross assets for families earning $50,000 or less annually. Further, investment in residential property has been generally more stable than other types of investment, and it is perceived to be largely permanent.

With these important benefits, an increased rate of home ownership has been chosen by our society as a national priority, with many public- and private-sector resources devoted to achieving this goal. Indeed, measurable progress has been made toward this end, with the overall rate of home ownership reaching 68 percent, a new high, in the third quarter of last year. In assessing the opportunity for home ownership in underserved markets, the Census Bureau reports significant gains. The homeownership rate for blacks and Hispanics, between 1997 and 2001, grew at more than double the pace for the general population. Additionally, the homeownership rate among households earning less than the median income increased more than three times the pace for households with incomes above the median.
And as I posted last week (and several other times in the last couple of years), he left the Fed Funds rate too low during his tenure:
Using the metric of his rule, Taylor gives the Fed mixed grades in its more recent performance. At the annual economic conference in Jackson Hole, Wyoming, last year, Taylor showed that between 2002 and 2005, the Fed increased the federal funds target rate more slowly than his rule would have suggested. Had the Fed followed the rule, much of the boom in housing starts as well as the subsequent bust might have been mitigated, according to Taylor.
UPDATE: Greg Ip reports similarly, and notes that Greenspan and Taylor are good friends:
Speaking at the same Jackson Hole event, Mr. Taylor used his own model to argue that rates were kept too low for too long, overheating housing prices and setting the stage for a bust. He repeated the charge before Congress in February.

The critique is painful for Mr. Greenspan. The men have been friends since the mid-1970s, when Mr. Greenspan was chairman of President Ford's Council of Economic Advisers and Mr. Taylor was on staff. Mr. Greenspan later hired Mr. Taylor to work with his consulting firm, Townsend-Greenspan & Co.

Earlier this year, Mr. Greenspan invited Mr. Taylor to lunch at his office and challenged his former protégé's assessment. In Mr. Greenspan's view, if the Fed's policies were to blame, the housing bubble would have been mostly limited to the U.S. Yet, he argued, many other countries had housing bubbles, too. A better culprit, he suggested, was the glut of savings globally. Savers were competing to make loans, keeping long-term interest rates low in many countries and fueling housing demand.

Mr. Taylor countered that there was no savings glut, citing data that showed world savings equaled world investment. Mr. Greenspan called Mr. Taylor's data "irrelevant." Interest rates are affected by intended investment rather than actual investment, Mr. Greenspan argued, adding that intentions are hard to measure.

Condoleezza Rice Sightings

One, an appearance suggesting a run for Vice President (via Drudge).

Two, a piece on the free trade agreement with Columbia:

It is not every day that our government, with one bold stroke, could strengthen the competitiveness of U.S. workers; support a democratic ally on the cusp of achieving lasting national success; weaken those who would sow instability and autocracy in our hemisphere; and send an unequivocal signal to the entire world that the United States is a confident, capable global leader that acts not only in its own interest, but in the interest of its friends.

All of this is what we can gain if Congress approves the free trade agreement that our administration has negotiated with Colombia. We have had ample time for deliberation. Soon it will be time for a decision.

With courage and sacrifice, Colombians have taken their nation from the verge of failure to the brink of peace and prosperity in little more than a decade. The U.S. has been with them every step of the way. With our sustained bipartisan support, begun by President Clinton and Congress in the 1990s and expanded by President Bush and Congress since 2001, Colombia's democratic government and its people have reclaimed their country from the FARC – a narco-terrorist group that, disturbing new information suggests, has been receiving assistance from beyond Colombia's borders.

Beyond our economic interests, this agreement will also further our national interest in a free and peaceful hemisphere. Some in the Americas today want to shove the region toward authoritarianism. This system has failed before, and it will fail again. The only question is how much harm it will cause in the meantime, and in large part that depends on us – on whether we support the vast majority of people in the Americas today who believe, as we do, that security and social justice are best achieved through liberty and the rule of law, free and fair trade, and responsible democratic governance. Colombia shares these values, and we have invested billions of dollars in our ally's success. How could we possibly retreat now?

The fate of this agreement raises even larger questions: How does the U.S. treat its friends, especially when they are under pressure and attack? Will we remain engaged as a global leader or will we pull back unilaterally? Will we define our role in the world by confidence in our own principles or by capitulation to unfounded fears? The eyes of many nations, particularly those in our own hemisphere, are upon us, and let no one think that the choices we make will not echo around the globe.

For more than a decade, U.S. policy toward Colombia has clearly demonstrated that Republicans and Democrats can work together, elevate the national interest above partisan politics and sustain an effective strategy to achieve critical long-term goals. It is now time to write the next chapter in this venerable bipartisan story. We must approve this free trade agreement with Colombia – for the sake of both of our peoples' success.

Clinton Tax Lessons

The former, and perhaps future, first couple earned $109 million over the past eight years, putting them among the top .01% of taxpayers. Apparently the Bush years haven't been a Depression era for everyone. The bulk of the Clintons' income came from speech-making ($51.9 million) and book-writing ($29.6 million), and it's hard to begrudge their desire to cash in on the Presidency after toiling for so many years in public service. The Clintons are hardly unique in showing that in today's Washington you can do very, very well after you've done good.

We can also now understand why the couple took so long to release their returns, and are still reluctant to release other information. Their political status has given them access to wealthy folks who've helped make them rich. For example, Mr. Clinton raked in as much as $15 million working as an adviser and rainmaker for billionaire financier Ron Burkle's Yucaipa firm.

Meanwhile, the Clintons also made liberal use of the charitable deduction, claiming $10.2 million in charitable giving over the eight years. Intriguingly, nearly all the donations went to the Clinton Family Foundation, which has disbursed only half the money. The Clintons can thus use the foundation for, er, strategic giving, such as the $100,000 it donated last year to a local South Carolina library – the day after Mrs. Clinton debated in that key primary state. There are other examples of such politically targeted philanthropy, and it's worth noting that most of the foundation's disbursements came only after Mrs. Clinton announced her Presidential run.

Similar conflict-of-interest questions apply to the separate William Jefferson Clinton Foundation, for which the couple has so far refused to release a list of donors. Such a list could contain more of the likes of Canadian mining tycoon Frank Giustra, who took Mr. Clinton along on a trip to Kazakhstan as a character reference, won a Kazakh mining concession, and gave more than $30 million to the foundation. The Clintons have an obligation to let voters see who their foundation donors are.

Like other Americans during this tax season, the Clintons have also had to endure the complexity of the tax code. Their 2006 return alone totaled 67 pages. While they can afford a smart accountant to sift through all those forms, would it be too optimistic to think Mrs. Clinton might be inspired by her tax experience to promote tax reform?

Alas, yes. Senator Clinton's main tax proposal is to repeal the tax cuts of 2001 and 2003, raising rates to the levels of the Clinton Presidency. "We didn't ask for George Bush's tax cuts. We didn't want them, and we didn't need them," Mrs. Clinton explained.

With friends like Mr. Burkle, clearly they didn't. But her higher tax rates wouldn't merely hit those who make $109 million; they'd soak middle-class families that make $100,000 or $200,000 a year and hardly feel "rich."

Sunday, April 06, 2008

Graph of the day

at Mark Perry's:

Quote of the day

"Need" now means wanting someone else's money. "Greed" means wanting to keep your own. "Compassion" is when a politician arranges the transfer.--Joseph Sobran, via Greg Mankiw

Friday, April 04, 2008

Be careful in Fenway if you are 13 and are named A.Rodriguez


Something bad could happen to you. It could come from the sky, or from behind homeplate ...

Nice global cooling roundup

by Gateway Pundit (via Glenn Reynolds), replete with armed clashes in peacenik Canada, media recantation, United Nations reversal, and fraudulent scientist.

I remain short these:

Obama advisor suggests maintaining 70,000 troops in Iraq through 2010

reports Jon Henke.

Obama is campaigning on an immediate withdrawal. It sounds like something Bartok might have composed.

Profile of John Taylor (the economist, not the wide receiver)

By Prakash Loungani (via Greg Mankiw):
Stanford’s John Taylor is among the most honored macroeconomists of his generation. Indeed, concepts bearing his name have become so pervasive that U.S. Federal Reserve Board Chairman Ben Bernanke joked that “with our appetites whetted by the Taylor rule, the [Taylor] principle, and the [Taylor] curve, we now look forward to the Taylor dictum, the Taylor hyperbola, and maybe even the Taylor conundrum.”

In 1991, at the end of his second stint at the CEA, Taylor began to think seriously about devising “a simple and practical rule”—an equation that would both help outsiders understand how the Fed behaved and give the Fed a benchmark against which to measure its performance.

The equation that Taylor proposed was simplicity itself— so simple that Taylor was able to put it on the back of his business card (see Box 1). It said that from 1987 to 1992, the Fed’s setting of its policy instrument, the federal funds rate, had been motivated in large part by two considerations:

•How close the U.S. inflation rate was to 2 percent. If inflation inched above 2 percent, the Fed tended to raise the federal funds rate target to cool inflation.
• How far the economy’s real income was from its potential. If income was below potential, the Fed tended to lower the target interest rate to stimulate the economy.

Using the metric of his rule, Taylor gives the Fed mixed grades in its more recent performance. At the annual economic conference in Jackson Hole, Wyoming, last year, Taylor showed that between 2002 and 2005, the Fed increased the federal funds target rate more slowly than his rule would have suggested. Had the Fed followed the rule, much of the boom in housing starts as well as the subsequent bust might have been mitigated, according to Taylor.

Taylor often exchanges experiences with other professors through presentations at conferences. In one of those presentations, he urged professors to practice “surprise-side economics,” whose tenets he said are to make economics lectures “less abstract, more intuitive, more relevant, and more memorable.” To practice what he preaches, Taylor—in addition to donning the California raisin costume—has tried to make his lectures memorable by having the voice of “Adam Smith” piped into a lecture hall through its public address system.

Such devotion to teaching has endeared him to a generation of students at Stanford—and won him teaching awards—but he says that his most famous student was “one that got away.” In the fall of 1995, one of the students who took Taylor’s introductory economics course was golfer Tiger Woods, who left Stanford soon thereafter. “Perhaps I explained the concept of opportunity costs a bit too clearly,” Taylor jokes. He adds that he now uses the example of Woods—and the estimate of the $40 million in earnings the golfer would have forgone had he stayed at Stanford—to explain the concept of opportunity costs to incoming students. “They get the idea right away.”

Quotes of the day

Buying a house is not the same as buying a house on fire.--Jamie Dimon
And free speech? Well, that’s exclusively reserved for those on the left with whom they agree. Calling Reagan an anti-semite and racist? OK. Calling Hillary Clinton a whore? Off with Rhodes’ head.--Jon Henke

Don't count out Hillary quite yet

Obama is at the crossroads, says Juan Williams:

But as his campaign made headway with black voters, Mr. Obama no longer spoke about the responsibility and the power of black America to appeal to the conscience and highest ideals of the nation. He no longer asks black people to let go of the grievance culture to transcend racial arguments and transform the world.

He has stopped all mention of government's inability to create strong black families, while the black community accepts a 70% out-of-wedlock birth rate. Half of black and Hispanic children drop out of high school, but he no longer touches on the need for parents to convey a love of learning to their children. There is no mention in his speeches of the history of expensive but ineffective government programs that encourage dependency. He fails to point out the failures of too many poverty programs, given the 25% poverty rate in black America.

But when Barack Obama, arguably the best of this generation of black or white leaders, finds it easy to sit in Rev. Wright's pews and nod along with wacky and bitterly divisive racial rhetoric, it does call his judgment into question. And it reveals a continuing crisis in racial leadership.

What would Jesus do? There is no question he would have left that church.

The WSJ on Bernanke's Bear Stearns bailout testimony before the Senate yesterday

here:

"It [the credit boom] involved a substantial increase in risk-taking," Mr. Bernanke said, as well as marginally useful financial innovations, a deterioration of lending standards, failed efforts by supervisors to address the problems, difficulty getting even the safest assets financed, increased distrust by counterparties and "a strong aversion to . . . even liquidity risk as opposed to credit risk." The kicker is worth noting too: "Under more robust conditions, we might have come to a different decision about Bear Stearns."

We don't doubt that on hearing the details of Bear's liquidity problem that Thursday evening, Mr. Bernanke and New York Fed President Timothy Geithner might have felt they were staring into a financial abyss. One may hope that in corners of the Fed brain-trust, some are asking if the decision to push its interest rate to 1% in 2003 contributed to the mess Mr. Bernanke described yesterday.

Greenspan was the ringleader in 2003, but Bernanke a significant accessory at his side. Here's one of many of my regretful posts on Greenspan from last year.

Thursday, April 03, 2008

Quote of the day

Neither Hillary Clinton nor Barack Obama seems interested in discussing recent developments. Neither has explained why their plan for immediate withdrawal would further our objectives. Instead, we get from Obama the vague suggestion for a “strike force” (which sounds like something from a B-movie plot: “General, send in the strike force!”) without mentioning the ground support such a force would require, or outlining its location and objectives. And I thought Democrats were opposed to unspecified military actions with ill-conceived missions.--Jennifer Rubin

City Council Speaker Christine Quinn

and a 15-year history of slush funds.

Donald Sensing nicely captures a bit of history

here (via Glenn Reynolds).

I beg

your pardon.

Medicaid “savings” kill an Illinois hospital

Don Surber reports:
Democratic Sen. Barack Obama of Illinois likes to brag how Medicaid keeps its costs down.

it keeps its costs down by shifting them on to people who are not on Medicaid or Medicare.

And that is about to cost Blue Island, Ill., a 103-year-old hospital, St. Francis, the Chicago Sun-Times reported.

The government does not keep the promises it makes.

Every single government-run health care plan does the same thing: Cuts reimbursements and watches doctors leave and hospitals close in the wake.

How liberal is Obama?

More than I thought:

National Journal rated him as the most liberal person in the Senate in 2007, and for good reason. On economic policy, Mr. Obama favors higher income, Social Security and corporate taxes. He supports massive increases in domestic spending and greater government regulation of the economy. He favors a significantly larger role for the federal government in health care. He opposes the North American Free Trade Agreement.

Mr. Obama has criticized the Supreme Court's decision to uphold a partial birth abortion ban, and he wants to repeal the Defense of Marriage Act. He voted against John Roberts and Samuel Alito for the Supreme Court. In Illinois, Mr. Obama supported banning the manufacture, sale and possession of handguns. And he supports granting driver's licenses to illegal immigrants.

On national security matters, Mr. Obama voted to deny legal immunity to telecom companies that have cooperated with the government in warrantless wiretapping of suspected terrorists. He wants to grant habeas corpus rights to detainees held at Guantanamo Bay. He supports a full-scale withdrawal from Iraq. And he says, in his first year in office, he would meet with the leaders of Iran, Syria, Venezuela, Cuba and North Korea without preconditions.

It's no wonder that Mr. Obama has been endorsed by Moveon.org – one of the most radical groups within the liberal universe.

Not that McCain is all that conservative. He'd probably want to regulate blogging more than Obama or Hillary ... There's also this:

Now, since we're talking Hoover, which Presidential candidate has a similar agenda of protectionism and tax increases? Hmmm.

Oh, that's right. Just the other day, one of the candidates for President was saying she'd withdraw from Nafta if the Mexicans didn't do what she demanded, and she wants "a pause" in free trade. She also wants to repeal the Bush tax cuts, more than doubling the rate on dividends back to 39.6% from 15%.

Her Democratic opponent agrees with her, except that he'd raise taxes even more, including by eliminating the $102,000 cap on income subject to the 6.2% payroll tax (12.4% when you include employers), and raising the capital gains tax to at least 25%, and maybe even 28%, from 15%. Add up all of Barack Obama's tax increases and his proposals would get entirely too close to Hoover's top marginal rate of 63%.

Maybe we should be afraid of Hoover's ghost.

Wednesday, April 02, 2008

Huge pop in the Intrade global warming contracts today



I was able to get shorter. Here's a recent post on why I am leaning short.

Hillary's lies, circa 1974

Dan Calabrese (via Jon Henke):
She was an unethical, dishonest lawyer. She conspired to violate the Constitution, the rules of the House, the rules of the committee and the rules of confidentiality

Why dating is so challenging


from Richard Florida (via Jon Henke)

Uh oh

Al Gore, Climate Czar.

UPDATE: He stepped into this one, too.

Quotes of the day


It is almost always impossible to infer specific causes from general effects.

--Bill James, who has done more to turn baseball statistics into science
The context of this quote:

Q: Using various statistics over a player’s lifetime, and comparing them to “league norms,” is it possible to determine which players may have used steroids?

A: Absolutely not, no. The problem is that many different causes can have the same effects. If a player used steroids, this could cause his home run total to explode at an advanced age — but so could weight training, Lasix surgery, better bats, playing in a different park, a great hitting coach, or a good divorce.
He also says:
We haven’t figured out anything yet. A hundred years from now, we won’t have begun to have the game figured out.
On the origins of his work:
What I do was heavily influenced by the University of Chicago economists of the 1960’s.
On the quality of television journalism:
Oh, we do horrible analysis sometimes. There will never be a shortage of B.S. What we do, essentially, is to pick up things that people say and ask “Is that true?” This can be done with regard to almost anything — any sport, including politics. The people who analyze politics on television say absolutely ridiculous things with a frequency that would make the laziest baseball announcer look like Socrates by comparison.
On the limits of science:
Scientists don’t know anything more about whether there is a God than morons do, because it’s not a scientific issue. This isn’t something I can measure. It’s a matter of faith.
And some practical advice for everyone:

Q: How important are good-hitting pitchers to the success of an offense in the N.L.?

A: Exactly as important as good-fitting underwear on a long drive.

An aphorism:
Does looking at pretty women prevent one from experiencing love? Life is complicated. Your efforts to compartmentalize it are lame and useless.
Movie scoop:
Q: Who is playing you in the movie version of Moneyball that’s in the works?

A: Meryl Streep. She’s having a little trouble with the accent.

Caplan's Two Laws of Fundamentalism

here:

1. In any textual dispute between fundamentalists and moderates of the same creed, the fundamentalists are almost always correct.

2. In any substantive dispute between fundamentalists and moderates of the same creed, the moderates are almost always correct.

These claims work for all of the creeds I understand well enough to test them against: Christianity, Marxism, Judaism, Austrian economics, and Objectivism for starters.

I actually would disagree Bryan on the christian domain, given my own anecdotal interactions. Of course, in that case, the texts are either intermediated by clergy (Roman Catholicism) or discounted (mainline Protestantism). So disputes are a lot like agnotheistic debates, i.e. lose the texts. Disputes between the President and Congress usually dispose of the Constitution, with the same lack of honor.

The difference between markets and a market economy

as specified by Arnold Kling:
Now, think about ancient Egypt, the Incas, Greece, Rome, the Muslim empire, the Silk Road, the Spanish empire in the New World, the early European empires in India and the Far East, or the antebellum South in the United States. Were there markets and was there trade? Absolutely. Did they meet the strict definition of a market economy? My sense is no.
Kling's factors of determination are: production sources, transportation mandates, and labor mobility.

Maybe we should leave the protectionism and take the Fed

From Dan Griswold (via Mark Perry):

Are banks, down from $100 to $65, heading ...

down to $32, or back up to $100?

I think they head down to $50-55, before getting back up to $70-80. We're only in the 6th inning of the credit crisis.

On the other hand, the stock market correction might be over, i.e. we've hit the bottom in March, and will not make new lows. I'd give 3-to-2 odds on that. Not that I think stocks will appreciate much in the next quarter, given the continued writedowns I'm predicting in the financial sector.

The Asian Stock Market Bubbles

are popping.

Tuesday, April 01, 2008

Quote of the day

The major candidates for President of the United States all support ethanol. If Time has correctly reported the consensus of expert opinions on ethanol, it seems to me that any candidate who supports it would be proved incompetent for leadership.--Scott Adams
If only the major candidates would read this blog semi-regularly ...

Is Obama avoiding specific positions, and consequent commitments?

It seems that way.

Jennifer Rubin also says:

I’ve observed that the mainstream media is getting a bit tougher on their favorite candidate. There are two further signs of that.

First, ABC’s Jake Tapper actually looked into Barack Obama’s claims of moral superiority and found them to be bunk. Well, one of them at least. Obama claims that he doesn’t take money from corporate bad guys like “oil companies.” No candidate is allowed to take corporate money directly. And Obama has actually taken more money than Hillary Clinton has from oil company employees. Second, the press has been downright fair in setting the record straight and taking Obama and the DNC to task for misconstruing John McCain’s “100 year” Iraq comment.

Perhaps this is a long overdue course correction. Or maybe all that time on the bus with the press is paying off for McCain. But for now, Obama is facing a more skeptical audience. We’ll see if it lasts.

I'm long Tar Heels and Bruins; short Tigers and Jayhawks

Any advice or commentary from readers?

Swords :: Plowshares, ...

as Petroleum :: Art


(via Andrew Roth).

How do you define "rich" and "poor"?

On one hand, we have Barack Obama drawing the line between rich and middle class at families who make $75,000 or more — a surprise to those who find themselves above that line, most of whom consider themselves solidly middle class. At the same time, we have New Jersey’s Democrat-run state government setting the poverty line for children’s health-insurance subsidies at … $295,000.--Ed Morrissey, via Glenn Reynolds

Pelosi once again caves

under pressure. Hey, is it democratic or not?

Cue Queen & David Bowie, one of my 5-star tunes on the iPod.

Due process

"... degrading every year"

Great US Fed budget quiz

Match the figures:

1. $38.6 Trillion
2. $11.9 Trillion
3. $13.7 Trillion
4. $ 7.1 Trillion
5. $ 2.7 Trillion
6. $ 0.5 Trillion

A. The surplus equity value of all residential housing in the United States
B. The defense budget of the United States
C. The United States Gross Domestic Product (2007)
D. The present value of unfunded social security obligations
E. The 75 year Medicare "Solvency Gap" (75 year present value of unfunded Medicare obligations)
F. Total outlays in the federal budget (2007)

Answers in the first comment of this post.

Housing is more affordable than ever

in the past 4 years, based on median income and median home prices.

The Gold Bubble

is popping.


I warned about the value of gold last year, as well as responding to the bears (who consume gold like salmon) in 2006.

UPDATE: Yay, Felix agrees, although he thinks it's a volatility thing. Me, I think it's a lack of real demand, save for folks in India.

The invisible hand of Adam Smith

His name is Adam Smith, and his relentless market discipline is already building a safer, more conservative financial system without any new regulation at all. For weeks now, structured-investment vehicles (SIVs), dodgy asset-backed commercial paper and the like have been moving onto bank balance sheets. Hedge funds are unwinding, or at least the riskier versions are. Derivative contracts are still being written, but more cautiously, and with more connection to the value of the underlying asset.

In short, the decade's great experiment in direct, unmediated lending is undergoing an Adam Smith cleansing. Amid the credit mania, Wall Street's whiz kids pioneered new ways to lend and make money without the intermediation of traditional bank capital. It was very efficient, raising money from all corners of the world, and its benefits were real. But it was also more vulnerable to panic because, if the value of the underlying assets fell, there was little cushion to absorb the losses. When the housing and mortgage mania stopped, so did the confidence in those SIVs and the panic set in.

In his wisdom, the Professor from Glasgow is now moving more of those direct-lending assets back on bank balance sheets where there is a capital safety net to write off the losses without busting the entire financial system. The ratio of direct to intermediated lending is falling, while the banks themselves are getting access to new liquidity, both private and public through the Federal Reserve's discount window. This by itself is an enormous reform, and all of it is taking place without a single vote in Congress.

What will our new financial system look like once Professor Smith is done? It will be smaller for one thing, but perhaps safer. Securitization -- packaging assets and then selling them as securities -- will continue, though with more discipline. The system will be less efficient, and that's regrettable. But it may also be sturdier -- with a greater capital cushion, less leverage and better risk management -- and thus better able to ride out the next financial rough patch.

Or at least it will be if the Beltway doesn't pile on another dose of moral hazard. That's what the Fed did this month by guaranteeing that $30 billion in Bear Stearns mortgage paper for J.P. Morgan. As Yale's Jonathan Macey wrote on these pages yesterday, that action was a commitment of taxpayer dollars that almost certainly violated the Federal Deposit Insurance Improvement Act. If the government is going to commit taxpayer money to rescue banks, the proper vehicle is the FDIC. The Federal Reserve needs to maintain the quality of its balance sheet as a lender of last resort and to conduct monetary policy. Rather than rearrange the bureaucratic furniture, Congress could better spend its time digging into the Fed's Bear Stearns deal.

Today's credit panic isn't some "crisis of capitalism" that needs a vast new layer of regulation. We are living through the aftermath of a societal credit mania fueled by excessive money creation. The regulators are as much to blame as the regulated, and Adam Smith is providing more punishment and reform than Washington ever will.