Wednesday, September 30, 2009

Greg Mankiw channels the truthful Obama

When I said during the campaign that I would raise taxes only on the rich, I meant it. Or at least I wanted to mean it. But these damn economic advisers I have keep bugging me about the laws of arithmetic. And, you know, they are right. I am more interested in expanding entitlements than reigning them in, and so I don't have much choice but to raise taxes on the vast majority of Americans. If you think this Cadillac tax is the end of it, you just wait.

I also know that this tax offends some of my supporters in the union movement, who now enjoy the benefits of Cadillac health plans. But how much do you guys expect from me? I have already thrown you the bone of a completely unjustifiable tariff on Chinese tires, risking a trade war in the midst of a global economic downturn. You guys should be happy with that. Will you please get off my case?

Finally, I need to make an apology. No, not to Europe for Bush-era foreign policy this time. But to Senator McCain. During the campaign, I lambasted you for proposing to tax health insurance benefits. I knew at the time that your goals were laudable--to finance tax credits for lower income families and to reign in tax incentives for excessive insurance. And indeed your proposal was not very different from the tax on Cadillac plans being considered in Congress right now and that I will gladly sign into law. But the issue offered just too good of a sound bite to give up. Now that I am safely in the White House, however, I am man enough to admit that Senator McCain was right all along, and I was wrong. Gosh, it feels good to get that off my chest.

Quotes of the day

One reason the Berlin Wall fell was because it once seemed so likely to endure. And one reason China's Communist Party has endured is that it once seemed so certain to fail.--Jeffrey Wasserstrom

You need to be a little bit delusional to be an individual day-trader, paying substantial sums for information, technology, and trading spreads every day and yet somehow reckoning that by zooming in and out of highly-levered ETFs you can not so much beat as utterly obliterate broader market returns. All day-traders think they’re above-average; they have to, otherwise they wouldn’t have the hubris necessary to do it in the first place.--Felix Salmon

Notwithstanding what legions of indignant and self-righteous commentators contend, the incentive system currently in place operates exactly as most of them propose: a large portion of banker pay is deferred for years and is tightly tied to the overall health and success of the firm. Bankers are not incentivized to print huge risky trades and run away after they collect their bonus at the end of the year. In fact, they are more closely tied to the long-term health of the firm and its stock price than any other stakeholder. They just can't do anything about it. Unfortunately for them and for us, such a system does not seem to have prevented anything. Perhaps a solution could be structured which balances all of the competing pressures and strains that the modern investment bank encounters. It would be complicated, involve multiple variables, and require constant monitoring, adjustment, and correction to adapt to ever changing market conditions. It sounds like a fun project for Larry Summers and crew. Sadly, they never taught multivariate optimization techniques on the savannah when I was coming up in the business. I guess I'll just sit here, gnawing a wildebeest bone, until somebody tells me what to do.--Epicurean Dealmaker

Tuesday, September 29, 2009

Nothing new under the sun: African aid

The 2009 UN Millenium goals for Africa are the same ones from a survey completed before World War II.

Chevy 2009 vs. Chevy 1959

Via Alex Tabarrok.

The good old days are never as good as they seem from a distance.

Quotes of the day

To promote an efficient allocation of scarce resources, relative prices should reflect true social costs. Shielding consumers via the regulatory process, rather than through tax cuts, fails to achieve that goal and, as a result, makes environmental protection more costly than it needs to be.--Greg Mankiw

The big remaining issue is the [insurance] subsidies. Make them too big, and your constituents will murder you because their taxes will go up. Make them too small, and your constituents will murder you because they have an expensive new mandate to buy insurance. I'm not sure there is any "just right" in this scenario.--Megan McArdle

Earlier I alluded to cases where liberals (including me) do not slavishly adhere to utilitarianism. One case I could cite for myself would be seat-belt laws. I think these laws probably do “work,” but they offend my sense of dignity. The government treats adults like children. Of course I could argue that “dignity” should go into my utility function; but that would be unfair, it would turn utilitarianism into a virtual tautology. So I’d rather just grant Bryan [Caplan]’s point in that case. BTW, most real world liberals do support seat-belt laws, precisely for utilitarian reasons. So I’d rather just grant Bryan’s point in that case. BTW, most real world liberals do support seat-belt laws, precisely for utilitarian reasons. I recently had lunch with Brink Lindsey, and he gave me a good example of where liberalism and utilitarianism diverge. He noted that liberals would oppose a system of requiring prisoners to donate kidneys, even though it could save many lives. I agree.--Scott Sumner

Polymaths were the product of a particular time, when great learning was a mark of distinction and few people had money and leisure. Their moment has passed, like great houses or the horse-drawn carriage. The world may well be a better place for the specialisation that has come along instead. The pity is that progress has to come at a price. Civilisation has put up fences that people can no longer leap across; a certain type of mind is worth less. The choices modern life imposes are duller, more cramped. The question is whether their loss has affected the course of human thought. Polymaths possess something that monomaths do not. Time and again, innovations come from a fresh eye or from another discipline. Most scientists devote their careers to solving the everyday problems in their specialism. Everyone knows what they are and it takes ingenuity and perseverance to crack them. But breakthroughs—the sort of idea that opens up whole sets of new problems—often come from other fields. The work in the early 20th century that showed how nerves work and, later, how DNA is structured originally came from a marriage of physics and biology. ... Isaiah Berlin once divided thinkers into two types. Foxes, he wrote, know many things; whereas hedgehogs know one big thing. The foxes used to roam free across the hills. Today the hedgehogs rule. --Edward Carr

Double take of the day

I thought Obama was smarter than Gore. Well, some of his supporters are not, I guess.

Photo link here.

More regulation that does not work: The FDIC engages in accounting denial

Joe Weisenthal reports:
How will the FDIC replenish its coffers without Sheila Bair suffering the indignity of groveling in front of Tim Geithner? Clever accounting.

The plan is for the FDIC to require banks to pre-pay three years of assessments. As with everything else in the economy (cash for clunkers, the $8,000 homebuyer tax credit), the idea is to pull it forward.

The FDIC gets the cash now, the banks take a hit -- but one that they can expense over three years, as Karl Dnninger points out -- and voila, free money.

If a corporation engaged in such accounting shenanigans, someone would go to jail. Fortunately, this is the government!

After a certain point regulation makes us less safe, not more.

I was afraid of this

President Sarkozy in particular pushed hard. He had been "frustrated" for months about Mr. Obama's reluctance to confront Iran, a senior French government official told us, and saw an opportunity to change momentum. But the Administration told the French that it didn't want to "spoil the image of success" for Mr. Obama's debut at the U.N. and his homily calling for a world without nuclear weapons, according to the Paris daily Le Monde. So the Iran bombshell was pushed back a day to Pittsburgh, where the G-20 were meeting to discuss economic policy.

So my speculation last week on Obama's tendency for avoidance over engagement and style over substance may, in fact, be true.

My libertarian credentials are obvious

I got a 42 out of 160 on Bryan Caplan's test (via Mark Perry).

Healthcare quotes of the day

Eliminating defensive medicine could save upwards of $200 billion in health-care costs annually, according to estimates by the American Medical Association and others. The cure is a reliable medical malpractice system that patients, doctors and the general public can trust. But this is the one reform Washington will not seriously consider. That's because the trial lawyers, among the largest contributors to the Democratic Party, thrive on the unreliable justice system we have now. ... The upshot is simple: A few thousand trial lawyers are blocking reform that would benefit 300 million Americans. This is not just your normal special-interest politics. It's a scandal—it is as if international-trade policy was being crafted in order to get fees for customs agents.--Philip Howard

... studies ... don’t consider what we might call the pharmaceutical umbrella that America spreads over the developed world. “Drugs supply almost all the real health care these days,” Peter Huber has written in City Journal. And as a 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42. The United States also led the world in the introduction of “global NCEs,” drugs “introduced in a majority of the world’s leading drug markets.”--Benjamin Plotinsky


From my favorite broker:

Monday, September 28, 2009

Paul Krugman confuses Paul Krugman

Maybe the bipolar issue hinges on who is in office.

Quotes of the day

... options trading remained hot. Jeff Yass and his Binghamton friends — Dantchik, Eric Brooks, Andrew Frost, Steven H. Bloom, and Joel Greenberg (who’d gone to law school and spent time at a firm in Washington) — formed Susquehanna in 1987. That fall, the market crashed. On October 19th — Black Monday — the Dow dipped almost 23 percent. That day, Susquehanna made several million dollars.--Robert Huber

The man who would overturn this decades-old system is an unlikely revolutionary. [Netflix CEO Reed] Hastings carries himself with a laconic modesty that contradicts an ambitious and restless mind. He has the deep tan of a dedicated snowboarder and a salt-and-pepper goatee that gives him a casual, approachable air. A quiet, hands-off leader, he sets the tone and objectives and lets his employees figure out how to execute them. His main directive is that everyone act like an adult: Netflix has no vacation policy (take as much as you need, when you need it), pay is flexible (stock or cash, your choice), and though firings are unusually common, severance checks are unusually generous. Hastings is comfortable creating his own rules for how to run a business; you don't see any management tomes in his office. In fact, he doesn't even have an office. The CEO prefers to stroll around, a ThinkPad in hand, pitching camp in an empty conference room or huddling in an engineer's cubicle to whiteboard some formula.--Daniel Roth

Politics in democracies allows powerful political interest groups to influence legislation in their favor. In that respect, the steelworkers and other unions are not doing anything differently than, for example, medical insurance companies or auto companies, try to do. But recognizing that this is the way the political process works does not mean that the effects tend to raise the general welfare of the population, as opposed to the welfare of small powerful interest groups. In this regard, note that non-governmental unions contain only about 8% of the civilian labor force. This means that the benefits they receive from flexing their political muscle under the present White House mainly hurts other workers and consumers.--Gary Becker

While Iran is larger than Israel, its population centers are so vulnerable to Israeli thermonuclear weapons that Israel already is a major "existential" threat to Iran. Moreover, provoking its Arab neighbors and Turkey into developing their nuclear capabilities, or the U.S. into offering them a nuclear umbrella targeted on Iran, could create additional threats, as well as make Iran's neighbors even more dependent on the U.S. for their security. Iran's search for nuclear-armed missiles may well unite its neighbors against it as well as create a major new nuclear threat to its survival.--Anthony Cordesman

Liquidity increasing in Intrade Iran Airstrike contracts

Here is the December 2010 contract graph for the last 3 months:

I am long various contracts, differentiated by expiry. But I'm managing my expectations and risk accordingly.

Jobs that pay $25 or more per hour

reported in by Woodrow Ames, which only require a two-year degree or less:
Electrical and Electronic Engineering Technician
Human Resources Recruiter
Paralegal or Legal Assistant
Respiratory Therapist
Police Officer
Advertising Sales Agent
Interior Designer

A couple of years ago, I posted on jobs paying over $50,000 per year which did not require a bachelor's degree, and that still gets hits every week.

Friday, September 25, 2009

Bill Simmons waxes realistic on the 2009 Patriots

The truth will set me free. Lots of questions.

Does a home owner still own his/her home

if the community association can fine for not watering the lawn, while the municipality can fine for watering?

There is nothing new under the sun: The Lewis/Haldane controversy

David Foster posts (via Alex Tabarrok):

In 1946, J.B.S.* Haldane published an article critiquing a series of novels by C.S.** Lewis known as the Ransom Trilogy, and particularly the last book of the series, That Hideous Strength. Lewis responded in a letter which remained unpublished for many of years. All this may sound ancient and estoteric, but I believe the Lewis/Haldane controversy is very relevant to our current political and philosophical landscape.

To briefly summarize That Hideous Strength, which is the only book of the trilogy that I’ve read: Mark, a young sociologist, is hired by a government agency called NICE–the National Institute for Coordinated Experimentation–having as its stated mission the application of science to social problems. (Unbelievably, today the real-life British agency which establishes rationing policies for healthcare is also called NICE.) In the novel, NICE turns out to be a conspiracy devoted to very diabolical purposes, as Mark gradually discovers. It also turns out that the main reason NICE wanted to hire Mark is to get control of his wife, Jane (maiden name: Tudor) who has clairvoyant powers. The NICE officials want to use Jane’s abilities to get in touch with the magician Merlin and to effect a junction between modern scientific power and the ancient powers of magic, thereby bringing about the enslavement of mankind and worse. Jane, though, becomes involved with a group which represents the polar opposite of NICE, led by a philology professor named Ransom, who is clearly intended as a Christ-figure. The conflict between NICE and the Ransom group will determine the future of humanity.

A brilliantly written and thought-provoking book, which I highly recommend, even if, like me, you’re not generally a fan of fantasy novels.

With context established, here are some of the highlights of the Lewis/Haldane controversy:

1)Money and Power. In his article, Haldane attacks Lewis for the latter’s refusal to absolutely condemn usury, and celebrates the fact that “Mammon has been cleared off a sixth of our planet’s surface”…clearly referring to the Soviet Union. Here’s part of Lewis’s response:

The difference between us is that the Professor sees the ‘World’ purely in terms of those threats and those allurements which depend on money. I do not. The most ‘worldly’ society I have ever lived in is that of schoolboys: most worldly in the cruelty and arrogance of the strong, the toadyism and mutual treachery of the weak, and the unqualified snobbery of both. Nothing was so base that most members of the school proletariat would not do it, or suffer it, to win the favour of the school aristocracy: hardly any injustice too bad for the aristocracy to practise. But the class system did not in the least depend on the amount of pocket money. Who needs to care about money if most of the things he wants will be offered by cringing servility and the remainder can be taken by force?

3)Democracy and conservatism. Haldane accuses Lewis of being anti-democracy, which accusation Lewis denies. He expands on his views:

I am a democrat because I believe that no man or group of men is good enough to be trusted with uncontrolled power over others. And the higher the pretensions of such power, the more dangerous I think it both to the rulers and to the subjects. Hence Theocracy is the worst of all governments. If we must have a tyrant a robber baron is far better than an inquisitor. The baron’s cruelty may sometimes sleep, his cupidity at some point be sated; and since he dimly knows he is doing wrong he may possibly repent. But the inquisitor who mistakes his own cruelty and lust of power and fear for the voice of Heaven will torment us infinitely because he torments us with the approval of his own conscience and his better impulses appear to him as temptations.

*John Burdon Sanderson
** Clive Staples

Quotes of the day

But stimulating conversation, however silky, only gets you so far. In any seduction, there is the moment on the sofa or doorstep when subtext becomes text, when intentions have to become clear and a decision made, one way or the other—the Schtupping Point.--Sean McCauley

Accountants and clergy are both well educated and intelligent, yet we pay accountants a lot more than the clergy. Is this because we care more about money than about God? Ironically, the compensating wage differential argument turns this answer on its head — the clergy are compensating by social prestige, the sense of doing something important, knowledge that they’re working for a good cause, etc. — thus they get paid less BECAUSE we collectively care more about God than money. --Robert Whaples

We do know that Christians can't be socialists (nor should Jews be). Thou shalt not covet. Thou shalt not steal. That's socialism conclusively ruled out by the big boy himself.--dearieme

In this paper, we explore minimax play in two high stakes, real world settings that are data rich: choice of pitch type in Major League Baseball and whether to run or pass in the National Football League. We observe more than three million pitches in baseball and 125,000 play choices for football. We find systematic deviations from minimax play in both data sets. Pitchers appear to throw too many fastballs; football teams pass less than they should. In both sports, there is negative serial correlation in play calling. Back of the envelope calculations suggest that correcting these decision making errors could be worth as many as two additional victories a year to a Major League Baseball franchise, and more than a half win per season for a professional football team.--Kenneth Kovash, Steven D. Levitt

When the Jets play the Titans on Sunday, the Jets will be wearing Titans uniforms (the throwback unis of the New York Titans), while Tennessee wears the franchise's old Houston Oilers uniforms. It's a particularly confusing twist on the NFL's "Legacy Games" concept.--Mike McDermott

Congressional Budget Office resorts to GUESSING

Stan Collender has a brief roundup.

The SEC and the credit rating agencies go from bad to worse

Floyd Norris reports:

The rule adopted last week says that whatever information is given to the agency hired by the issuer to rate the structured finance security must be given to other rating agencies, including those that provide analyses only to investors who pay for them.

The result will be that analysts for the other rating agencies, like Egan-Jones Ratings, will have access to information not available to the general public, and their analyses will go only to clients. Those clients will have the benefit of nonpublic information, or at least of their agent’s analysis of what it means.

The answer is obvious: Cut off the inside information. The rating agencies now have an exemption from the S.E.C.’s Regulation FD, for fair disclosure. If that exemption were removed, the level playing field would be restored. And the respect that ratings now get from people who assume the raters know more than they do would fade away.

There could be temporary exceptions, to allow companies to tell the raters of plans not yet announced — like a takeover — so that the rating agencies could issue their opinions as soon as the announcement is made. But when they did issue the ratings, whatever information the agencies were given would also have to be made public.

Instead of ending the exemption for rating agencies, the S.E.C. broadened it to include agencies that are newly able to demand the information.

There would be another advantage to a rule that said rating agencies got the same information as other analysts. Money managers who lost a lot of their clients’ money in collateralized debt obligations and other funny pieces of paper have been able to blame the rating agencies for misleading them, and thus try to escape responsibility.

In fact, those managers had the obligation to understand what they were buying. The management fees they were collecting should have covered more work than checking out what Moody’s had to say.

In a world where it was clear that Standard & Poor’s had the same information as everyone else, it would be a lot easier for the rest of us to weigh the wisdom of a given rating. The prestige of a Fitch rating would depend on its reputation for superior insight and analysis, not on its access to confidential information.

To me, this is just the latest example of the government eschewing competition for itself and any of its chartered institutions. The government exempts itself from antitrust regulation, even the soft accountability of individual choice and free market--that is the big underlying problem.

Why didn't President Obama raise the issue of the Iranian uranium facility at the UN?

My theory is that he didn't want to demonstrate the farce that the UN is, anymore than he had to.

By bringing it up at the G-20, he avoided a tea party outcome in the UN session, and having to make any decisive moves. Instead, he can lob the ball back while the delegates are traveling back east.

I suspect a pattern of avoidance coming, with a veneer of strong words. I hope I am wrong, and this is not the latest paper tiger.

Thursday, September 24, 2009

Chart of the day

Via John Taylor.

Are Star Wars' 'fear' and 'anger' equivalent to Keynes 'animal spirits'?

If so, I am afraid that Richard Posner has given himself over to the dark side (via Greg Mankiw).

I appreciate Keynes' criticism of psychology in the economy, but his proposed solutions seem discredited since the 70s. I guess he reminds me of Karl Marx--great problem statement, not great solution to fix the problem.

UPDATE: Don Boudreaux lists some corrections for Posner.

Quotes of the day

Moctezuma was a brutal and bloodthirsty dictator. It’s no wonder neighboring tribes helped the Spanish to overthrow him.--Hugh Thomson

The Keynesian free lunch is a dangerous meal to serve to politicians who always want an excuse to spend money on their friends financed by other people’s money.--Russ Roberts

Everybody wishes to live at the expense of the state, but they forget that the state lives at the expense of everybody.--Frederic Bastiat

... the number of speculative longs at COMEX is almost 10 times higher than the number of outstanding short positions and this is a big concern and a big danger for the market because those are weak hands and should unwinding come - I think the trigger for the unwinding would be the strength of the US dollar- we will see a strong slump in the gold price, probably moving to somewhere between 900 and 960 dollars going forward.--Eugen Weinberg

For me, Search Engine Optimization is like prayer. I know it does something, but it doesn’t seem consistent and I can’t give concrete examples.--Abraham Piper

Irony of the day: Michael Moore wants, needs and enjoys capitalists and their capitalism

Chet Gullard points out that Michael Moore despises capitalism ... unless, of course, he is the rich one:
Following the Premiere, Esquire shuttles many of the attendees straight down to SoHo to the opening of The Esquire Apartment – a fully decadent penthouse where every square inch is paid for by a luxury sponsor. Hot tub, $120k pool table, $60k home theater, fine food. The only thing lacking was a doormat saying “Welcome To Capitalism.” I had fun….But ooooh the irony. Everyone I talked to was like, “man, this is the most bizarre combination. I bet Michael Moore would freak out if he saw that this was happening.”….And then he showed up. And was eating it up.
Via Bess Levin.

Sara Behunek rounds it all up.

Photo links here and here.

Ira Stoll may top all of the hoopla:
The funniest moments of all in the movie, though, may just be in the opening and closing credits. We see that the movie is presented by "Paramount Vantage" in association with the Weinstein Company. Bob and Harvey Weinstein are listed as executive producers. If Mr. Moore appreciates any of the irony here he sure doesn't share it with viewers, but for those members of the audience who are in on the secret it's all kind of amusing. Paramount Vantage, after all, is controlled by Viacom, on whose board sit none other than Sumner Redstone and former Bear Stearns executive Ace Greenberg, who aren't exactly socialists. The Weinstein Company announced it was funded with a $490 million private placement in which Goldman Sachs advised. The press release announcing the deal quoted a Goldman spokesman saying, "We are very pleased to be a part of this exciting new venture and look forward to an ongoing relationship with The Weinstein Company."

Puzzlement of the day

Why does Vladimir Putin prefer George Bush to Barack Obama?

Global Warming Exchange update

On the upper right hand corner of this blog, you can find a snapshot and link to the Global Warming Exchange*, which allows you to invest play money in global temperature futures, based on NASA's Goddard Institute for Space Sciences Land-Ocean Temperature Index.

For the first 8 months of the year, the index has averaged 0.52 Celsius over baseline, slightly warmer than 2008's 0.44 Celsius, but still trending lower since the peak of 0.62 in 2005.

Temperatures are rising over the last century. Alarmists claim its our increased carbon emissions; skeptics like me think its more correlated to solar activity. Carbon dioxide is a trace gas compared to water vapor, which is an efficient heat absorber.

*Powered by Inkling Markets.

Intrade has a real money '
Top 5 Warmest' contract (which I am short). Note: It uses a different GISS data series than the Land Ocean Index.

Wednesday, September 23, 2009

Beware of the Wall Street dinosaurs

From my favorite broker, this:
Go ahead and take us down, cause you are only going to hurt yourselves. What is going to happen when we can’t find jobs on the street anymore? Guess what, we are going to take yours. We get up at 5am and go out after work till 10pm. We are used to not getting up to piss when we have a position. We don’t take an hour lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates we are going to devour them.

For years teachers and unionize labor has had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We are going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are sooooo underpaid for building the youth of America. Say good bye to your overtime and double time and a half. I’ll be hitting grounders to the high school baseball team for 5k extra a summer, thank you very much. So now that we are going to be making 85k a year without upside, Joe main street is going to have his revenge right? Wrong.

Guess what, we are going to stop buying the new 65k car, we aren’t going to leave the 35% tip at our business dinners anymore, no more free rides on our backs. We are going to landscape our own back yards, wash our cars in with a garden hose on our drive ways. Our money was your money, cause we spent it. Difference is you lived off of it, we rejoiced in it. The Obama administration and Democratic National Committee might get there way and knock us off the top of the pyramid, but its really going to hurt like hell for them when our fat asses land directly on the middle class of America and knock them to the bottom. We aren’t dinosaurs. We are smarter and more vicious than them, and we are going to survive. The question is, now that Obama is making Joe Main street our food supply will they?
Of course some of this is rhetorical testosterone, but it's true that Wall Streeters work harder than most other folks. Within my own extended family of 30 siblings, cousins, and in-laws, the five of us that work in the industry do work longer hours than the others who are: attorneys, doctors, nurses, accountants, professors, teachers, technologists, musicians, corporate researchers, human resources staffers, advertisers, healthcare services sales, film editors, retail proprietors, administrators, and secretaries.

I've worked the 100+ hour weeks, and taken monthly oceanic red eyes for years of my career. Nobody in those other jobs ever did that. Come to think of it, I worked harder than most college students as an engineering intern and as a roadie for bands and trade shows, and even in high school washing dishes for an all-you-can-eat buffet place. Not to mention all the extra calculus, physics, and computer programming classes while in school.

Yep, watch out; I might be coming after your job some day.

Tuesday, September 22, 2009

I estimated that the stimulus package passed this year will cost our kids about $3,000 per year

I was just thinking about college educated taxpayers (who pay most of the income tax).

Now, there's a winning study that puts the figure at $3,400 (via Bryan Caplan).

That's a heavy deadweight loss, to garnish almost 10% in current GDP per capita for a program that we are not sure helped at all.

Quotes of the day

As in Stringfellows, you should look but not touch [female acolytes]. Be warned by the fates of too many of the protagonists in Middlemarch, The History Man and I Am Charlotte Simmons. And in any case, you should have learnt by now that all cats are grey in the dark.--Matthew Reisz

[Feminists:] A group of ladies who talk about how unfair life is.--unattributed child

I first read Murray Rothbard when I was seventeen years old, and suddenly my whole high school made sense. Lazy teachers, guys with college degrees teaching gym, required drama classes, and lies, lies, lies everywhere. --Bryan Caplan

Senate Banking Committee Chairman Christopher Dodd’s plan for a single bank regulator may set up a fight with House colleague Barney Frank and the Obama administration and might slow the overhaul of financial rules.--Alison Vekshin

One of the ways that governments try to "win" debates is to make debate by the other side illegal. This is what [Health and Human Services] is doing, at the behest of Senator Baucus.--David Henderson

If you are going to repeatedly refer to "my plan" or "this plan" or "the plan I'm proposing," then unless you have a plan you are lying. The only question is whether it is a little lie or a big one. Obviously, most people think it is only a small lie, or the President would have been called out on it. However, I think that health care policy is an area where there is too much temptation to promise results that are economically impossible to achieve. In that context, my opinion is that giving a speech in favor of a nonexistent plan is a really big lie.--Arnold Kling

You young men seem to think that if you sit on the world long enough you will hatch something out. But you're wrong.--Oliver Wendell Holmes, Jr.

The third, and most cogent reason for restricting the interference of government, is the great evil of adding unnecessarily to its power. Every function superadded to those already exercised by the government, causes its influence over hopes and fears to be more widely diffused, and converts, more and more, the active and ambitious part of the public into hangers-on of the government, or of some party which aims at becoming the government.--John Stuart Mill

Paul Nitze and George Kennan

Nicholas Thompson's beautifully written Cold War feature Hawk and Dove.

Via TheBrowser.

Monday, September 21, 2009

It makes me feel physically ill that a distinguished economist could be so ignorant of his own profession

David Levine reddens Paul Krugman's backside.

Quotes of the day

After 30 years of television, [David Letterman's] subversions are the conventions. But instead of continually seeking to subvert and undermine, now he’s aiming lower — at his audience. Instead of taking us for a joyride through the often-idiotic world of TV, he’s telling us we’re the idiots, because we’re not all New York hipsters with properly conventional politics. Letterman, it seems, has finally forgotten his Indiana roots.--Stephen Green

It is defensible to be truly agnostic. It is also defensible to believe that general principles of economic theory and empirics and ethics allow us to have "all things considered" policy views on matters we have not studied closely. It is not defensible to hold such views but, under the cloak of a not-really-meant agnosticism, refuse to put them on the social science table, so to speak.--Tyler Cowen

It's kind of embarrassing to have to explain [the failure of price controls], because it's a pretty elementary and widely understood component of the classical liberal analytical framework. I frequently disagree with liberals (obviously). But I hope I don't often airily proclaim that I don't take them seriously, because after all, they don't really mean anything they say about market failures--it's all just a fig leaf for their ideological mission to destroy the private sector.--Megan McArdle

All of these papers suggest that the search for a villain behind the crisis will ultimately be fruitless.--Megan McArdle

Can it really be that the G20 is about to adopt elaborate banker-compensation rules without a single study showing that compensation incentives contributed to the crisis?--Jeffrey Friedman

Inequality in economic resources is a natural but not altogether attractive feature of a free society. As health care becomes an ever larger share of the economy, we will have no choice but to struggle with the questions of how far we should allow such inequality to extend and what restrictions on our liberty we should endure in the name of fairness. In the end of our day of philosophizing, however, we face a practical decision: Who gets the magic pills, and who pays for them?--Greg Mankiw

If the cable and telecom companies had no legally-backed monopoly powers, I would not favor legally enforced net neutrality. "Let the market decide" would be a good answer.--Tyler Cowen

Nor is it some act of extraordinary courage that led ACORN to appoint an independent panel. At this point, ACORN's shelf life is probably about 90 days. This was not a bold, gutsy move; it's a desperate hail mary pass. Appointing an independent panel is what all organizations do when something truly indefensible has happened. I'm sure Arthur Anderson appointed an independent panel to find out why they'd been peddling their integrity to the nice folks at Enron.--Megan McArdle

To admirers, Keynes was nothing short of the savior of the capitalist system. His "General Theory of Employment, Interest and Money" (1936) proposed a diagnosis and remedy for the calamity known as the Great Depression. According to Keynes, economic downturns are not a fundamental indictment of the market economy. Rather, recessions and depressions arise from insufficient aggregate demand. A smart government can remedy the problem with its monetary and fiscal policy—say, by printing up some money and spending it. Once the right policies are put in place, the thinking goes, the world is safe again for free markets. To detractors, Keynes was an economist whose reach exceeded his grasp: He tried to replace classic economic principles with new ones of his own, but what he offered was vague and incomplete. Keynes's many followers have tried to give his theory analytic rigor, but with only limited success. Despite these intellectual deficiencies, the detractors say, Keynesians recklessly push their ideas in the political arena, where they often lead to high inflation and excessive budget deficits. The fiscal policy of the Obama administration is a case in point. When the White House pushed for a massive increase in infrastructure spending to create jobs, it was taking a page from the Keynes playbook. ... Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.--Greg Mankiw

Today's Tom Sawyer; Mean, mean ride

Alan Sepinwall is da bomb. (For the 8% of my readers who enjoy Mad Men as much as I do).

Ways professional athletes lose their fortunes

Via Lawrence Delevingne:
1. Ponzi schemes

2. Bad investments

3. Divorce

4. Running a business

5. Drugs

6. Having multiple children with multiple women

7. Bad advisors

8. Too much real estate risk

9. Bad behavior

There were 10, but I threw out Fight Dogs.

James Surowiecki points out that the ratings agencies's role needs to be overhauled too

but wonders if it will happen.

I sat Matt Schaub, who was hobbled last week

and started Matt Hasselback, who only had one fifth of Schaub's production yesterday.

Not off to a good start this season.

Friday, September 18, 2009

Forget about CEO pay

Professional athletes are even more outrageously compensated.

I think movie actors, television actors, and models should be investigated next.

Thursday, September 17, 2009

Quotes of the day

Buffett's comments portray Lewis as a sort of Mr. Magoo of global finance, bumbling into trouble in stubborn pursuit of banking greatness -- and unintentionally saving the world in the process.--Colin Barr

Wednesday, September 16, 2009

The stupidity of insurance mandates

by David Henderson.

Chart of the day

Chances of healthcare reform this year are diminishing.

Quotes of the day

Is the SEC really necessary?--Larry Ribstein

[The American Medical Association], the association representing the nation's physicians may have taken home the biggest prizes [from President Obama's healthcare plan], including an agreement to stop planned cuts in Medicare payments that are worth $228 billion to doctors over 10 years.--Kim Geiger and Tom Hamburger

Wal-Mart deserves the 2009 Nobel Peace Prize for all its ongoing anti-poverty measures, including Everyday Low Prices and $10 prescription drugs.--Mark Perry

Warren Buffett's heroes

I think the heroes are (Federal Reserve Chairman) Bernanke. I think (former Treasury Secretary) Paulson's a hero. I think (current Treasury Secretary) Geithner’s a hero are ... you know, you can look back and say you could have done this a little differently or that a little differently, but at the time I called it an economic Pearl Harbor and in the end we got through Pearl Harbor. And-- and it could have turned out a lot differently.

UPDATE: Not everyone is as infatuated:
As Russ [Roberts] points out, the media are now honoring Paulson, Bernanke, and Geithner for transferring hundreds of billions of dollars from ordinary Americans to some of the richest people on earth. And, if [John] Cochrane and [Luigi] Zingales are correct, we are honoring them for putting out a fire that they started.

Some Cash for Clunker math


We all contributed to spending $3 billion to save $350 million. How good a deal was that ??? They’ll probably do a better job with health care though.--Ed Lambert

You forgot to value the cars destroyed! Let’s say the average clunker is valued a $3,000 (probably low) times the 700,000 estimate of clunkers destroyed – equals to $2.1 billion in value destroyed! So we spend $3 billion to destroy assets valued at $2.1 billion – great investment strategy.--hstad

All I know is, if I’d sold a clunker for $4,500 I could have gone right out and bought three $1,500 clunkers and sold them for $4,500 each, or $13,500. That’s a solid win-win business plan — for everybody except the taxpayer.--McGehee

and a nice anti-math point:

It’s the reduction in air pollution! And the enhanced national security! (Phew! Those should be safely unquantifiable…)--RNB

Tuesday, September 15, 2009

Norman Borlaug was an amazing man

An amazing man who changed the world.--Penn Jillette
Mark Perry's round up here.

Riddle of the day

If the U.S. healthcare system is driving households to bankruptcy, why does Canada have a similar rate?

We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis

President Obama said as much to Wall Street. I hope it applies equally to:

Stimulus packages
Healthcare reform
Foreign policy compromises with dictator states
Education subsidies without regard to outcomes
Christopher Dodd & Kent Conrad's special mortgage treatment
Charlie Rangel's tax issues
ACORN involvement in campaigns and elections

off the top of my little head.

Quotes of the day

Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.--Baoping Shang, Dana P. Goldman

... bank capital regulations, which were supposed to promote safety and soundness, did the opposite. There was excessive leverage, because the banks were able to hold the same risk with less and less capital needed to comply with regulations. The methods used to create this regulatory capital arbitrage involved tight interconnections among firms, creating domino effects. And the funding mechanisms for these new financial structures involved short-term lending, making the system vulnerable to 21-century bank runs. Thus, all of the main elements of the financial crisis were policy-driven, because of self-defeating housing policy and bank capital policy.--Arnold Kling

... if every deviation from the ideal is a reason to be panicked and stampeded into putting dangerous arbitrary powers into the hands of government, then go directly to totalitarianism, do not pass "Go", do not collect $200. --Thomas Sowell

The Wall Street meritocracy was a game to Dick Fuld, Lloyd Blankfein, Jimmy Cayne and the rest of Wall Street, and amid that game Hank Paulson and Ben Bernanke pulled a chair out from it -- and Fuld was left standing while Merrill Lynch & Co.'s John Thain and Citigroup Inc.'s (NYSE:C) Vikram Pandit caught the last seats. Sadly, amid that game ... the music could stop at any moment for those still living in Wall Street's meritocracy.--Matthew Wurtzel

California remains an important story for its lesson in political failure, cousin of the term market failure. Its ambitions overstretched its capacities, and now the government is struggling to find balance with a handful of dysfunctional political institutions in the way. We can only hope they get a constitutional convention in place that establishes a workable government -- and not one that just jacks up tax revenue potential. That way spells brain drain.--Tim Kane

... protests are a bad idea. You will always be judged by your looniest adherents, in part because badly hand-lettered signs with ho-hum slogans at a PTA level of anger are just not very photogenic. Unless you can police your movement as effectively as, say, the Civil Rights marchers did, you will likely end up giving your political enemies ammunition. And of course, the Civil Rights movement was more easily able to present a united front because people who acted anything but saintly in their Sunday best were very likely to be beaten by the actual police.--Megan McArdle

Monday, September 14, 2009

Scott Sumner argues that monetary policy has been the problem

not the solution, in the past year.

Quotes of the day

In the year since Lehman's collapse, it's become even clearer that Jamie Dimon was the only chief of a major bank to have properly prepared for the hundred-year storm that hit Wall Street. Starting the year before, his firm had been aggressively dialing back its exposure to mortgages—particularly of the subprime sort—while others were sitting tight.--Duff McDonald

The esteem in which Obama holds Dimon was revealed by The Wall Street Journal's Monica Langley in a story about a March 2009 meeting at the White House. Business executives, she wrote, "implored Mr. Obama to get credit flowing again. 'All right,' the president said. He'd have his people 'talk to Jamie.' " Even today, it's a fair bet that those conversations are continuing.--Duff McDonald

For years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating. ... President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. Even more worrying, with so many explicit and implicit financial guarantees, we are courting a bigger financial crisis the next time something major goes wrong. ... In short, we should return both the financial and medical sectors and, indeed, our entire economy to greater market discipline. We should move away from the general attitude of “too big to take a pay cut,” especially when the taxpayer is on the hook for the bill. If such changes sound daunting, it is a sign of how deep we have dug ourselves in. We haven’t yet learned from the banking crisis, and we’re still moving in the wrong direction pretty much across the board.--Tyler Cowen

Do not do that again, I've warned you. I will take you out.--Secret Service agent to CNBC reporter Bob Pisani

The Rays' opening-day 2008 payroll, $43.8 million, ranked 29th among the 30 major league clubs and came to about 21% of the top spending club, the Yankees, who didn't make it into the playoffs.--Michael Hiltzik

Another Obama policy that smells just like a Bush policy

Tires in 2009 = Steel in 2001.

I predicted this back last November:
6. Increase protectionism for manufacturers, to retain Ohio electoral votes
The whole list of predictions, of which more than half have been now realized, can be found here.

I don't think this move, which results in shutting foreign buyers out of our market for tires, is going to increase jobs or wages in the long term. It didn't work for cars; it's not going to work for tires. But hey, maybe there'll be some nice campaign donations, grassroots organizing, and key electoral votes from special union interests! Another instance where the interests of the White House diverge from the interests of the entire nation, regardless of party.

Friday, September 11, 2009

It's just Rappin' Rodney

No respect, no respect.

Remembering 9/11

I'm having a hard time remembering, I guess, being a bit sleep deprived with a newborn in the apartment, plus the late start of school this year.

My wife was furiously pushing my firstborn in the stroller up Broadway from our apartment in Tribeca, and then had turned east less than a minute before the first tower collapse enveloped Broadway in dust and smoke and debris. She had seen the second plane crash, having called me about the first tower being on fire, as our living room windows looked straight out to the Twin Towers.

And now I have another baby in the house, and probably have some kind of block in thinking back to that day, given what ensued--my wife and child did not move back into our home for several months. It's hard to imagine any baby being engulfed in the collapse, especially mine. And to think about all those kids who've gone more than half their lives now, without their parent who was caught in the towers.

I liked Jules' take on looking eight years back, especially his highlighting of Rick Rescrla, who was the security chief for Morgan Stanley.

Let's rename municipal departments

Departments of Yuck (via Tyler Cowen).

John Cochrane spanks Paul Krugman

silly (Via Greg Mankiw). Here's one of my favorite swats:
If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. Seriously. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he really borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.

If you believe the Keynesian argument for stimulus, you don’t care how the money is spent. All this puffery about “infrastructure,” monitoring, wise investment, jobs “created” and so on is pointless. Keynes thought the government should pay people to dig ditches and fill them up.

If believe in Keynesian stimulus, you don’t even care if the government spending money is stolen. Actually, that would be better. Thieves have notoriously high propensities to consume.
Cochrane also provides substantive and reasoned counterfactuals. For instance:
Of course the idea that any of us do what we do because we’re paid off by fancy Wall Street salaries or cushy sabbaticals at Hoover is just ridiculous. (If Krugman knew anything about hedge funds he’d know that believing in efficient markets disqualifies you for employment. Nobody wants a guy who thinks you can’t make any money trading!) And given Krugman’s speaking fees and how much the looney right likes him, it’s a surprising first stone for him to cast.
And some interesting theories about a transition from economics to politics:
To my mind, Krugman left the world of economics when, in the California electricity crisis, he argued that supply curves slope down; that a price cap, desired by his political constituency, would increase electricity supplies. That position served the political goal no matter how tortured the economics. This is more of the same.
Here is the close:
I like it when people disagree with me, and take time to read my work and criticize it. At worst I learn how to position it better. At best, I discover I was wrong and learn something. I send a polite thank you note.

Krugman wants people to swallow his arguments whole from his authority, without demanding logic, or evidence. Those who disagree with him, alas, are pretty smart and have pretty good arguments if you bother to read them. So, he tries to discredit them with personal attacks.

This is the political sphere, not the intellectual one. Don’t argue with them, swift-boat them. Find some embarrassing quote from an old interview. Well, good luck, Paul. Let’s just not pretend this has anything to do with economics, or actual truth about how the world works or could be made a better place.

Krugman merited a Nobel prize for his work on international trade.

When he wanders outside his field without checking with those who know more, bad things happen, as it would with any of us.

I'm hearing reports about the Coast Guard firing on a vessel on the Potomac River

Nothing confirmed at this point.

UPDATE: I am hearing CNN is reporting the incident (I've got CNBC on at work). Here is a link, which states that 10 rounds were fired on a "suspicious vessel".

UPDATE: CNBC now reporting that Coast Guard is calling this a "training exercise". Reminds me of a recent photo op over the Hudson River.

Quotes of the day

If a man digs a pit, he will fall into it;
if a man rolls a stone, it will roll back on him.--Proverbs

[John Mack, former CEO of Morgan Stanley] zigzagged so many times and he increased the instability in a company that was already reeling from instability.--Dick Bove

Crying “bubble” is no good unless you have an operational procedure for identifying bubbles, distinguishing them from rationally low risk premiums, and not crying wolf too many years in a row. ... More deeply, the economist’s job is not to “explain” market fluctuations after the fact, to give a pleasant story on the evening news about why markets went up or down. Markets up? “A wave of positive sentiment.” Markets went down? “Irrational pessimism.” (And “the risk premium must have increased” is just as empty.) Our ancestors could do that. Really, is that an improvement on “Zeus had a fight with Apollo?” Good serious behavioral economists know this, and they are circumspect in their explanatory claims so far. --John Cochrane

[For conservatives,] responsibility is a more important value than either liberty or equality.--Tyler Cowen

The president didn't hesitate to tell American kids to take responsibility for their behavior. It's time he delivered that same message to states, school districts and unions.--Paul Peterson

A science that moves forward almost never ends up back where it started. Einstein revises Newton, but does not send you back to Aristotle.--John Cochrane

My overall conclusion is that productivity advances will lead the world out of the recession, and after a while toward a decent rate of growth in world GDP. These advances will occur even if the financial sector is not fully recovered from its crisis. As productivity advances continue at robust levels, that will stimulate the demand for labor, and begin to reduce unemployment and produce sizable rates of growth in employment.--Gary Becker

But for the advocate of government growth, hope springs eternal, and this time, by golly, we’ll tweak things just right. No runaway expenses. No unintended consequences. We’ll get more health care for more people at lower cost without denying care to anyone, and we’ll do this by pulling exactly the right levers from Washington, D.C. And if you disagree with us, you are in favor of denying millions of people care, and bankrupting others. It’s that last bit that sticks in the craw, the notion that their opponents actually prefer human suffering to a robust solution. This is despicable when conservatives do it (remember how those who questioned the “Patriot Act” were borderline traitors?), and it’s equally deplorable when liberals do it. In this I am an equal opportunity hater. A pox on both your houses, I say.--Tony Woodlief

[Office of Management and Budget Director Peter] Orszag has argued that if Medicare spending could be as low in Newark as it is at Mayo, the nation could save billions. But this theory doesn't hold up in practice. Consider: One-fourth of the folks in Newark live in poverty, compared with less than 10 percent of those in Rochester. And national surveys show that poor people consume more health-care resources -- 50 to 75 percent more than average. They are sicker and they stay sicker, despite the best efforts of physicians and hospitals. Mayo is a fine institution, but it isn't more cost-effective than other hospitals in its home region, nor are its operations in Jacksonville, Fla., and Phoenix more cost-efficient than other hospitals in those cities. So why would it be more cost-effective in Newark? To really achieve health-care reform, and find a way to pay for it, the president will have to ... with some painful truths. First, medical care is inherently variable in different regions of the country -- socio-demographic differences matter. Second, more is more and less yields less -- the best care is the most comprehensive care, and it costs more. Finally, poverty is expensive -- the greatest "waste" is the necessary use of added resources when coping with patients who are poor. If we want a technologically advanced, socially equitable health-care system, we will have to organize our finances accordingly. There is no quick fix. That's what we should be talking about.--Richard Cooper

The problem is that what [Senator Olympia Snowe] wants--a cheap [healthcare reform] bill that doesn't either force a bunch of people to buy coverage they can't afford, or leave a bunch of people uninsured--is not possible. I assume that she actually knows this. So her public dithering means one of two things: she has decided to break with her party, and she wants to signal how difficult this decision is; or she has decided to torpedo the hope of busting a filibuster, and wants to signal to her Democratic constituents that she was forced to it by a bad plan.--Megan McArdle

Allow me to propose a new rule of political discourse: whenever Megan McArdle and Matt Yglesias agree about something, then that thing should become law. Immediately.--Pockets

David Henderson on how the Fed is able to influence economists in its own interests


I had read an article (before last week's birth in my household, don't have the time to find it and link) that talked about how the Fed was never blamed during an economic crisis because it was in conversation with the elite economists of the day, and contributed to their status, so only several decades of hindsight could properly attribute the Fed's role in muting or exacerbating crises.

Let's add 'public choice theory' to 'death' and 'taxes', why don't we.

Thursday, September 10, 2009

Quote of the day

Yu said she didn’t read the fine print, trusting Chow when he told her she couldn’t lose her principal. Had she looked at the prospectus and understood it she would have discovered that she had essentially bought three call options -- contracts that would capture gains if the shares of the three companies rose by a certain amount -- coupled with the equivalent of a Lehman corporate bond. If Lehman defaulted, her money would be gone.--Mark Pittman and Bob Ivry

Chart of the day

Don't plug in your hybrid vehicle (unless you are trying to burn even more coal).

Source here (via TheBrowser).

Wednesday, September 09, 2009

The public needs to be aware

of Iran's growing presence in Latin America. Moreover, the U.S. and the international community must strongly consider ways to monitor and sanction Venezuela's banking system. Failure to act will leave open a window susceptible to money laundering by the Iranian government, the narcotics organizations with ties to corrupt elements in the Venezuelan government, and the terrorist organizations that Iran supports openly.--Robert Morgenthau

An old puzzle

finally solved, the grocery checkout puzzle:

via TheBrowser

Quotes of the day

[John Bogle and Warren Buffett] need to be respected and listened to. But let's remember that they talk their book too.--Joe Weisenthal

I remember congratulating Alan Greenspan on his timing when he retired as chairman of the Federal Reserve Board in 2006. He left with a reputation for limitless, inscrutable wisdom -- and the stresses he let build up in the economy were going to be somebody else's problem. As it turned out, the crash that Greenspan's policies helped to cause was the worst since the Great Depression. So the books on Greenspan's tenure at the Fed were reopened; the man himself recanted his previous views on the economy; and his reputation was trashed, most avidly by people who had previously led the cheers.--Clive Crook

On the Wednesday and Thursday after Lehman filed for Chapter 11, I asked my wife to please go to the ATM and take as much cash as she could. When she asked why, I said it was because I didn't know whether there was a chance that banks might not open.--Mohamed El-Erian

... if you can't throw work to qualified girlfriends with City Council-approved taxpayer money, just who can you throw work to?--Matt Labash

Management hired some dinosaur over from [Goldman Sachs] and made him [redacted]'s boss. It was a strictly marketing decision as they didn't want to tell stodgy pension fund guys that the head trader is only 29. It makes you look better to stick some balding 55 year old guy in front of gullible fund of funds guys. That has caused some friction for a while and [redacted] finally had enough and decided to quit.--AQR commenter

What is finance


At one level and in most economics textbooks, this is an easy question with a rather encouraging answer. The financial sector connects savers and borrowers – providing “intermediation services”. You want to save for retirement and would obviously like your savings to earn a respectable rate of return. I have a business idea but not enough money to make it happen by myself. So you put your money in the bank and the bank makes me a loan. Or I issue securities – stocks and bonds – which you or your pension fund can buy.

In this view, finance is win-win for everyone involved. And financial flows of some kind are essential to any modern economy ...

Unfortunately, two hundred years of experience with real world finance reveal that it also has at least three serious pathologies – features that can go seriously wrong and derail an economy.

First, the financial sector often acquires or aspires to political power. ...

Second, the financial sector can obtain disproportionate power over industry. ...

Third, finance can also go crazy, running up speculative frenzies. ...

Monday, September 07, 2009

Quotes of the day

No man’s life, liberty or property is safe while the legislature is in session.--Mark Twain

Being a libertarian means living with an almost unendurable level of frustration. It means being subject to unending scorn and derision despite being inevitably proven correct by events. How does it feel to be a libertarian? Imagine what the internal life of Cassandra must have been and you will have a pretty good idea. Imagine spending two decades warning that government policy is leading to a major economic collapse, and then, when the collapse comes, watching the world conclude that markets do not work.--John Hasnas

Is it me, or is Congress more corrupt than Wall Street

...the embattled Harlem Democrat [Charles Rangel] has been playing Santa Claus with his House colleagues, doling out more campaign cash from his own re-election kitty than almost any other member of Congress.

Among the 119 lucky recipients: three of the five Democrats on the House Ethics Committee.

The same people who are meant to be probing the growing list of his financial “oversights” and deciding what, if any, punishment to mete out.


So much for Speaker Nancy Pelosi’s promise that this would be “the most ethical Congress ever.”

Rangel, of course, faces probes on a whole host of issues, many of them first uncovered by The Post: illegally maintaining four rent-stabilized apartments; use of House stationery to solicit funds for a policy center; failure to pay property taxes; failure to report rental income, and acceptance of free Caribbean trips paid for by corporate lobbyists.

Then there’s his most recent discloure filings — which listed hundreds of thousands of dollars in previously unreported assets.

All of which makes Rangel’s continued role as chairman of the House Ways and Means Committee — Congress’ primary tax-writing body — a mockery.

Sunday, September 06, 2009

Happy Labor Day

My wife labored for most of Thursday, and our third child arrived, healthy and over 8 lbs. Our first two were under 8, and I bet her this one would be over.

I will not have to plan the next five wedding anniversary celebrations. How do you like them apples?

Will get back into the swing of things on Tuesday.

Wednesday, September 02, 2009

Quotes of the day

On average, males have higher sociosexuality scores than females but sociosexuality scores for females vary widely across countries.Why might female sociosexuality scores vary? One hypothesis is that in cultures with low operational sex ratios (the number of marriageable men/number of marriageable women) female sociosexuality will be higher. The argument is that when the relative supply of males is low, competition for mates encourages females to shift towards the male ideal, i.e. when supply is scarce the demanders must pay more.--Tyler Cowen

We see Beyoncé specializing in music videos, which she trades to Bill Gates for his specialized production of software. We will get more of both music videos and software from Beyoncé and Gates than if each (without the possibility of trade) had been forced to supply their own needs for software and music videos. Beyoncé would be forced to take time away from videos to try to figure out her own software, and Gates would have to divert time from software to learning how to sing and dance in a swimsuit. Economists are often congratulated for their impressive grasp of the obvious. Yet if this principle is so obvious, why is it routinely violated in the aid world? It’s gotten worse with the Millennium Development Goals. Each aid organization tries to meet all MDGs and each fails to specialize. Therefore some aid agencies are forced to supply things they are bad at – the equivalent of Gates’ music videos – for which there is no demand. ... One could think of many political economy reasons why aid agencies resist specialization. From my casual experience in a large bureaucracy (the World Bank), the primeval bureaucratic instinct is to give a tiny piece of the pie to every possible lobby group (internal or external). But what’s most clear is that it shows aid agencies lack of accountability, because it is such a wasteful practice that also drives the aid recipients crazy with duplication of efforts by every aid agency in every sector in every country.--William Easterly

History is like the law. It offers raw material for anyone who wants to plead a cause or make some money. ... History is not bunk. It is a glorious seam of human experience from which leaders can seek guidance on their present conduct. But its parallels are never exact and are easy to distort, while its lessons are quarrelsome. Today we are not, anywhere, retreading the same foothills as we did on the outbreak of the second world war. If that is the best parallel we can draw to illustrate our discontents, we should ban history from public debate.--Simon Jenkins

Isaiah has learned, whenever he detects a strong odor, to say, “Phew! That stinky!” This seems to have universal application. In a greasy spoon with the strong smell of grilled onions: “Phew! That stinky!” After intruding on one of his brothers during a bathroom visit: “Phew! That stinky!” Near the dog: “Phew! Sadie stinky!” Perhaps it’s more accurate to say that this exclamation has near-universal application, because the last time I changed one of his stinkier diapers, he said, “Phew! That smell good!” Which is probably an extremely unsophisticated version of what lots of politicians and bankers were thinking last year. And here I was under the impression that this delusion begins in graduate school…--Tony Woodlief

Whereas psychoanalysis uncovers deeply buried impulses, Beck is interested in those thoughts that lie barely concealed beneath conscious awareness. Whereas psychoanalysis uncovers the historical motives behind troubling emotions, Beck scrutinizes the present-tense logic of his patient’s emotions. And whereas psychoanalysis is ultimately pessimistic, seeing disappointment as the price for existence, Beck’s approach is upbeat, conveying a sense that, with hard work and determined rationality, one could learn not only to tolerate but to stamp out neurotic tendencies. The patient is none other than Beck himself.--Daniel Smith

Tuesday, September 01, 2009

Sad, this posthumous tale of treason

Kennedy's message was simple. He proposed an unabashed quid pro quo. Kennedy would lend Andropov a hand in dealing with President Reagan. In return, the Soviet leader would lend the Democratic Party a hand in challenging Reagan in the 1984 presidential election. "The only real potential threats to Reagan are problems of war and peace and Soviet-American relations," the memorandum stated. "These issues, according to the senator, will without a doubt become the most important of the election campaign."

Kennedy made Andropov a couple of specific offers.

(Via Stephen Green)

Quote of the day

The marriage market in Cinderella’s country was a tournament, where marrying the prince carried high rewards and everyone else was a mouse, pumpkin, etc. In a first-past-the-post race, it often makes sense to lavish investment on only one or two competitors, which makes the stepmother’s behavior entirely rational. Of course, the stepmother did choose to back the wrong horse, but that just makes her unwise, not wicked. As I explain this logic to my children, they respond with the glazed and distinctly annoyed looks that conveys to me their inner joy. I am sure that you will get the same reaction.--Ed Glaeser

Leaders who know how to win

reflect on their history of victory:
Our family has owned the team for 15 seasons and there’s only one player now on the team who has been here for all five Super Bowls, and of course that is Tedy Bruschi. He holds the franchise record for most appearances in post-season games with 22. Tedy embodies everything we want the Patriot brand to stand for: hard work, perseverance, overachievement, and selfless commitment to team first. He’s handled every stage of his career with great class.--Robert Kraft

He always captured it perfectly, so I guess, if you ask me to sum up how I feel about Tedy Bruschi in five seconds: he’s the perfect player, perfect player. He’s helped create a tradition here that we’re all proud of. The torch has been passed, and we’ll try to carry it on. It’s a high standard. It’s a high standard. I’m proud of everything he did and the payout that he’s paid for all of us going forward.--Bill Belichick

Yes, I knew how to play linebacker and I knew how to play. [Bill] Parcells came in, [Pete] Carroll came in, but I didn’t know how to win until Bill came in here. He taught me how to win. He taught everyone in that locker room how to win, not just go out there and play well. You can go out there and roll your helmet out there and even though it has a Patriot logo on it, do you think they’re going to lay down? They’re not. You still gotta play. You still gotta play and he taught us that.

Coach, thank you for…You talk about the 800 plays that you could have put up there for what my career encapsulated. There are 800 things that I could talk about to thank you for what you’ve taught me. Thank you so much for being who you are. I hope that people in New England realize who they have here – who they have in the head coach. I consider myself a football historian. I like to read. I like to see where this game came from. You are looking at something special. When I walk into this facility and that office is on the left, I know I better come ready to work and this guy is going to have this team ready to win because he’s up there. I hope you realize what you have, that’s all I have to say. He’s that great and I felt it a privilege to learn under him for all of these years.

I think people want to move, to change teams because they want to fix their problems an easy way. It’s either, ‘Man, I didn’t like this coach,’ ‘I didn’t like this situation,’ ‘I didn’t like the way they used me,’ or ‘I think it’s going to be better somewhere else, so I’m going to try this place.’ I learned that I’d rather stay in one place and fix the problems that were there myself; It would feel more gratifying. I’d rather right the ship that jump ship, and that’s something that I always tell myself: to stay the course and yes, there are problems and there are relationships that you might have to deal with with certain people that maybe you don’t get along with. Fix it. Fix it. Do something to make your situation in the place that you want to be in better, rather than running and going somewhere else.--Tedy Bruschi