Quotes of the day

Indeed, arguments to the effect that something can't be good if it hasn't "survived," when its failure to "survive" reflects, not any competitive outcome, but the effect of laws aimed at snuffing it out, are perfectly circular: they amount to saying that, because something has everywhere been outlawed, it deserves to be outlawed.--George Selgin

[Within a few years] children just aren't going to know what snow is. [Snowfall will be] a very rare and exciting event.--Dr. David Viner, senior research scientist at the climatic research unit (CRU) of the University of East Anglia, in 2000

"[By] 1995, the greenhouse effect would be desolating the heartlands of North America and Eurasia with horrific drought, causing crop failures and food riots…[By 1996] The Platte River of Nebraska would be dry, while a continent-wide black blizzard of prairie topsoil will stop traffic on interstates, strip paint from houses and shut down computers."--Michael Oppenheimer, in 1990.

If present trends continue, the world will be ... eleven degrees colder by the year 2000. This is about twice what it would take to put us in an ice age." Kenneth E.F. Watt, in 1970.

Over the past three years, American politics has been dominated by a liberal fantasy and a conservative freakout. The fantasy was the idea that Barack Obama, a one-term senator with an appealing biography and a silver tongue, would turn out to be Franklin Delano Roosevelt, Robert F. Kennedy and Mahatma Gandhi all rolled into one. This fantasy inspired a wave of 1960s-style enthusiasm, an unsettling personality cult (that “Yes We Can” video full of harmonizing celebrities only gets creepier in hindsight) and a lot of over-the-top promises from Obama himself. It persuaded Democrats that the laws of politics had been suspended, and that every legislative goal they’d ever dreamed about was now within reach. It was even powerful enough to win President Obama a Nobel Peace Prize, just for being his amazing self.--Ross Douthat

The big-picture problem for the left is that in the context of government-run health care Berwick's rule [of rationing] is not only sensible, but it's the only possible outcome. This leaves proponents of a "right" in the uncomfortable position of having to say that it's only a right up to a certain age, a certain degree of sickness, or a certain cost. Yet, if a "right" ends at an arbitrary point set by bureaucrats and legislators -- a point not based on conflict with other rights but rather with changeable financial or political considerations -- then it can't be a right. Furthermore, if a positive right such as that claimed by supporters of Obamacare can be curtailed because of cost, then every government program that relies on the redistribution of wealth can be curtailed. Either they're all "rights" or none of them is. Of course, the idea that government, with an incentive to "control costs," would be involved with end-of-life counseling is disturbing enough. But perhaps the biggest problem for Progressivism in the news of Berwick's giant step toward health care rationing is that the country is learning in an unmistakable way that the emperor has no clothes. In our constitutional republic, positive rights are anathema to liberty and to life itself.--Ross Kaminsky

Marginal cost is the cost of supplying one additional unit of output—say, one more pound of apples or one more automobile. In most cases, marginal costs rise as firms increase the amounts they supply to consumers. But textbooks identify certain goods and services as ones whose supplies can be increased at zero cost. These textbooks also insist that economic efficiency requires that, in these circumstances, firms increase their supplies and charge consumers nothing for the additional output. Obviously, no private firm will do such a thing if its customers are willing to pay something for the extra output. So, many economists concluded, economic efficiency requires government intervention—say, to force the price down to zero or for government itself to supply such goods and services. The classic example of such a good is a bridge spanning a river. Once the bridge is built—and assuming that traffic on the bridge isn’t congested—the cost of letting an additional car cross the bridge is practically zero. But the private owner of the bridge will nevertheless charge positive prices to each vehicle seeking to use the bridge. Economists blinded by textbook simplicity took this fact as evidence that private ownership of bridges is inefficient unless these owners are prevented by government from charging for use of their bridges during nonpeak times. Coase effectively shouted, “That’s absurd!” He rejected the convention of evaluating the appropriateness of prices based on the assumption that bridges already exist.--Don Boudreaux

Professor Alfred Kahn served as living proof that there need be nothing dismal about the science he loved.--Thomas Hazlet

Ngram of the day: sex vs. Jesus

Source here.

Top posts of 2010

3. High frequency profits capped at 4 basis points of trading volume

2. Intrade now predicting that the Democrats will seat less than 51 senators

1. Tom Brady's fantasy draft value just plummeted

Where do Canadians go for experimental cancer surgery?

Um, not Canada.

Via Mark Perry.

Quotes of the day

If we progress at our current growth rates and China progresses at its current growth rate, what that means is that in about 27 years the average Chinese will be richer than the average American.--Ed Lazear

The stock market is now where it was before Lehman Brothers collapsed. And if you exclude financial stocks, the market value of U.S. equities is now within about 15% of the October, 2007, peak. To believe that (non-financial) stocks are reasonably valued today implies that they were pretty reasonable then, at the peak of the bubble - and that therefore most of the last three years was little more than a bad dream. Do you believe that? Do I?--Brett Arends

My guess is that Congressfolk would rather hear horror stories of crime than horror stories of granny being turned down by a government bureaucrat. And since it is their voters but not their money, here we are.--Tom Maguire

How many of us would prefer that the Founders had written the First Amendment so as to focus on fairness rather than freedom and instead wrote: "Congress shall make no unfair laws respecting an establishment of religion, or prohibiting the fair exercise thereof; or abridging the fairness of speech, or of the press; or the right of the people to peaceably assemble in a fair fashion, and to fairly petition the government for a redress of grievances"? How supportive would you be to a person who argued that he was for free religion but fair religion, or he was for free speech but fair speech? ... As a matter of fact, it's never American consumers who complain about cheaper prices. It's always American producers and their unions who do the complaining. That ought to tell us something.--Walter Williams

As many of you are aware, at the end of every year I move completely to cash and lock myself in a bank vault for a couple days with all of my money and all of my annual trading records. I carefully review all of my trades and try to learn what mistakes were made and what worked. I physically handle my cash; it helps me appreciate that trading is not simply an intellectual exercise involving numbers, but one which involves real money with real wealth creation and destruction. This year, I have relocated this exercise 2,300 feet underground inside an abandoned mine at a slag dump site in Monaca, Pa. I have appropriated thirty-seven Chinese nationals from a Scandium Mine in Longba Town, Zhuxi Country, China, that have secured and transported my gadolinite, promethium, cerium and yttrium and other rare earth minerals holdings. As many of you are aware, I recently acquired these minerals, as well as the laborers, on a recent site visit to a rare earth mining facility in the P.B.O.C. My rare earth mineral holdings represent precisely half of my net worth.--anonymous, satirical trader

Collecting winnings on a price of oil bet

John Tierney reports:

Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.

Quotes of the day

It’s one thing to make a donation to Habitat for Humanity in lieu of a Christmas present, and decorate your door with a wreath hand-woven by little orphan Mexican children, and sign all your emails with “Peace.” It’s another to get up in my business because I want a lower tax rate and haven’t volunteered half my time this past year, especially when one of the reasons I don’t volunteer and want lower taxes is because I’m supporting the four kids who will need to be gainfully employed to cover the retirement you haven’t bothered to save for.--Tony Woodlief

Housing regulations, more than those that bind standard businesses, explain the Sun Belt’s population growth. If New York and Massachusetts want to stop losing Congressional seats, then they must revisit the rules that make it so difficult to build. High prices show that the demand would be there if the supply is unleashed.--Edward Glaeser

The most promiscuous men are those who have paid for sex, been threatened with a gun, support abortion rights and know people with AIDS. The least promiscuous are those who spend time at church and report high satisfaction from family life. The most promiscuous women are those who have been punched, believe homosexuality is not wrong, and spend time in bars. The least promiscuous women are those who are patriotic and spend time in church.--Steve Landsburg

The cost of insuring Illinois’s bonds against default rose to the highest level in five months as the state headed for the new year without a plan to finance a $3.7 billion pension-fund contribution. The cost of credit-default swap insurance on the lowest-rated state after California has risen 16 percent to $330,000 to protect $10 million of debt, from $285,000 on Dec. 3, according to data compiled by Bloomberg.--Darrell Preston

... the main function of finance and Wall Street generally is to provide capital. Now, the people who provide capital will do it more willingly if they have the liquidity to get out of their obligations by selling to other people. So you add the markets for trading to provide that liquidity. Go one step further. When people buy and sell securities they are taking on risk. So to address that, Wall Street offers instruments to help with hedging and risk management. You end up with derivatives and the like. All of that is reasonable. But the next step is where things start to get into trouble. Those in finance start to realize that it's hard to make money in a competitive market. They look for ways to get an edge. And to do that, they try to create informational asymmetries and institutional barriers. And this is the point where derivatives started to be designed for gaming the market rather than to meet the demands of risk management, to allow institutions to lever when they weren't supposed to lever, avoid taxes, trade in markets that they weren't supposed to trade in.--Rick Brookstaber

I get annoyed by progressives always talking about how the Clinton-era top rate (39.6%) was fine. Maybe so, but then why don’t they support this “tax cut,” which will return the top rate to 38.8%, once the health care tax kicks in?--Scott Sumner

... unlike many of the countries sharing the euro, there was never any worry that Switzerland would not be able to pay back its debts. What did the Swiss do right? For one, the country’s regulators and central bank were faster and tougher than most. During the lull in the summer before the collapse of Lehman Brothers in September 2008, the Swiss were hard at work on a plan to deal with troubled assets at UBS, the worst of Switzerland’s problem banks—with a balance sheet more than four times the size of the entire Swiss economy. When disaster struck, the central bank swiftly nationalized part of UBS’s assets and recapitalized the rest. That’s unlike authorities elsewhere in Europe or Washington, who waited until the last minute to stitch together messy bailouts that left many problems to linger. Second, the Swiss decided early on that tighter reins on their banks wouldn’t just protect taxpayers from future crises and bailouts, but would ultimately be good for the banks’ own business as well.--Stefan Theil

Japan has simply reached the limits of Keynesian policy in an economy which has never managed to jolt itself back up to a healthy rate of growth. Demographics is obviously a big contributor to that slow growth, and there are a whole host of secondary factors one could nominate, but whatever the reason, they have now had two decades of anemic growth, which they have fitfully attempted to address with stimulus. Maybe not enough stimulus, maybe badly designed, but they've certainly tried to follow the basic Keynesian playbook: borrow money and spend it when times are bad, in the hopes that you can bring back growth. But for Japan, at least, the growth has not materialized. Few economists would advise undertaking a fiscal adjustment, on the scale that Japan requires, in the face of the current crisis. The problem is, there hasn't been a good time for retrenchment in 20 years.--Megan McArdle

... the vendors that lost this game failed because they listened to their customers. Like with PDAs or with the original mobile phones or first generation of PCs, early adopters are not the audience that should be consulted on how to improve the product. ... If you can’t ask early adopters and you can’t ask non-consumers for hints then where can clues be found? What history shows is that consumers have been happy to trade up to technology that offers more option value. ... Asking or observing current users of smartphones does not provide any incentive to sell low end versions. Asking or observing non-consumers seems to indicate no interest in newfangled complex or costly products. But the calculus that must be made is one of option value. Does the new product offer significant option value? Will this option value be easily realized? This is not easy to determine, but it’s a method that is far more promising than asking users their opinion. The PDA was not a product that was introduced by the incumbent computer vendors because their customers did not ask for it. Once established, the PDA was not replaced by a product that PDA users asked for either.--Horace Dediu

Astonishing, isn't it. Here are [RIM] executives being surprised by the state of the art in their own area of competence, and not just surprised, but caught completely flat-footed. They then found out during disassembly that "... that the phone was [a] battery with a tiny logic board strapped to it." It was, in other words, a completely different way of thinking about mobile phones, orthogonal in important ways to how RIM thought about its devices. All of this helps explain why RIM (and Microsoft and Nokia and ...) played crummy defense for so long after the iPhone launch. They had been blind-sided, taken aback by a wormhole product that they just knew couldn't do what Apple said it could. I'vewritten elsewhere about how I remain bearish on RIM, but it is worth reminding yourself that RIM wasn't the only company that in early January of 2007 had no idea how that Apple product had just dropped into our little corner of capitalism.--Paul Kedrosky

Early development economists working at the hopeful dawn of colonial independence believed that they really were starting from scratch. The last fifty years have shown us that they weren’t, and this has been—and remains—one of development’s biggest blind spots.--Laura Freschi

I’ve given the Monty Hall problem to some of the best mathematicians in the world, and they’ve gotten it wrong. Some of them insisted on the wrong answer for days before they got it. The difference between them and Lubos is in their ultimate reactions: “Wow, I get it now!” versus “But I gave the correct answer to this *other* problem, and you cheated by not asking me the question I knew how to answer”.--Steve Landsburg

People will believe a moron they like over a genius they don't.--Rob Lyman

Chart of the day: S&P 500 price/earnings ratio

Source here.  The two lines are scaled at a ratio of 16 to 1 which means that when the lines cross, the P/E Ratio is exactly 16.

Superbowl Futures, part 5

Matchbook latest odds (based on midprices):

New England	39.2%
Atlanta	14.9%
Philadelphia	14.9%
Pittsburgh	12.7%
New Orleans	6.9%
Baltimore	6.3%
San Diego	5.0%
Chicago	4.4%
NY Jets	3.5%
NY Giants	3.3%
Indianapolis	3.1%
Green Bay	1.9%
Kansas City	1.7%
Oakland	0.7%
Jacksonville	0.6%

I am flipping my Philadelphia long to short, getting longer New Orleans, buying Chicago and nibbling a bit more at Baltimore, and Kansas City.

P/L	Team	Position	Paid	Market	Exposure
$6.11	ATL	-1	21%	15%	$  (15.00)
$11.52	BAL	2	0%	6%	$   12.00
($2.67)	CHI	1	7%	4%	$     4.00
($22.18)	GB	3	9%	2%	$     6.00
($4.69)	IND	1	8%	3%	$     3.00
($1.72)	KC	4	2%	2%	$     8.00
($52.82)	NE	-2	13%	39%	$  (78.00)
($4.03)	NO	3	8%	7%	$   21.00
($1.12)	NYG	1	7%	6%	$     5.90
($5.09)	NYJ	1	9%	4%	$     4.00
$3.25	PHI	-1	18%	15%	$  (15.00)
$8.73	PIT	-1	22%	13%	$  (13.00)
$1.15	SD	1	4%	5%	$     5.00
($10.44)	TEN	3	3%	0%	$        -
($63.56)	Total				$  (52.10)

Part 4 here.

Quotes of the day

Most people think facts are easy and theory is difficult. It is often the other way around.--Eric Falkenstein

Just because two variables have an expected difference of zero, you can’t conclude they have an expected ratio of one. That needs to be computed separately.--Steve Landsburg

... the fact that markets fail does not mean that government solutions work.--Arnold Kling

Consumers have benefited to the effect of $20 billion a year [from airline deregulation]. Where competition is feasible, the government should get the hell out of the way.--Alfred Kahn

I really don’t know one plane from the other. To me, they’re all marginal costs with wings.--Alfred Kahn

[Kahn] taught us a lesson that competition, even imperfect competition, is better than imperfect regulation; that facts make a difference, if only we have the humane procedures to uncover them and the brains to understand them; and that intellectual rigor, decked out in wit and flair, even in Washington, can be a winning combination.--former U.S. Assistant Attorney General John Shenefield

A 2008 study by the U.S. Securities and Exchange Commission found the average cost of Sarbox compliance is $2.3 million per year. A whopping 70 percent of all smaller public companies said compliance costs have prompted them to consider going private, and 77 percent of smaller foreign firms reported considering abandoning their American listings.--Eric Jackson

Warren Buffett wants the rich to pay a higher tax rate. Even Larry David (co-creator of Seinfeld) had a funny piece in the New York Times mocking the notion that the tax increase would be noticed by people in the hundred-million-dollar club, such as himself. The tax-the-rich argument feels fair if you allow yourself to see the world as only two categories: the rich and the non-rich. And it helps if you let the media install Bernie Madoff as the poster boy for the rich, while perhaps you imagine Tiny Tim as your symbol for the non-rich. But what about, let's say, a hard-working doctor? His taxes would increase when you tax the so-called rich. And unlike Warren Buffett and Larry David, a tax increase likely has real implications for the doctor's family. Before you break out the tiny violins for my hypothetical doctor, allow yourself to imagine that he's got a mountain of college loans, his mortgage is underwater, and he's supporting three grandparents (one on his wife's side) who all need some form of senior care, and the doctor's parents, and his wife's parents, have no spare cash. The doctor's parents might also need help in a few years. Oh, and the doctor has two kids of his own, one of whom needs some sort of special care. That's what the real world looks like for the so-called Sandwich Generation. For this imaginary doctor, any extra tax burden takes money from four generations of his family who needs it and distributes the cash to strangers. ... it is fair to say that the Majority left the bank door unlocked so the Rich could loot it. Nice work, Majority. Now the Majority's proposed solution is to take money from the Suckers income group to compensate for their own gross mismanagement of the country. You might argue that the rich are the ones who are really in charge, even in a democratic system. That makes the story even worse. In that case, the rich plundered both the Majority and the Suckers, and now Warren Buffett and Larry David are pointing fingers at the Suckers in the hope that the Majority doesn't decide to boil the rich for food. That's what I would do if I were a billionaire. Just sayin'. My own view, as a member of the Suckers group, is that if economists determine that the best way to make the country solvent is to increase my taxes, I'm willing to look at those numbers. I'm a practical guy. But I do resent being gang raped by the Rich and the Majority while they high-five each other and call it fairness. And I'd feel a little better about it if the Majority would do a better job managing things going forward.--Scott Adams

The answer to the inherent difficulty of judging performance is not to simply throw up one's hands and pay anyone who manages to show up for work more often than not. Yet this is that the teacher's unions seem to want. The unions, who seem to be the primary source for the New York Times piece, are (like many employees) very adept at picking out the problems in an evaluation system. Unfortunately, their solution is ... : Make no attempt to evaluate performance at all. ... Myself, I'd be happy with a more subjective, manager-intensive effort to evaluate teacher performance, weeding out the very bad teachers, and using pay to lure the very best ones into the places where they are most needed: schools that teach disadvantaged kids. But it's worth noting that such a system is pretty much totally incompatible with a unionized workplace--certainly one with a unionized workforce as adversarial as the teacher's union is in many cities. The whole union system is set up to deal with standardized processes.--Megan McArdle

Yes, Tom Brady is having an MVP-caliber season. Yes, rookies Devin McCourty, Aaron Hernandez, Rob Gronkowski, Brandon Spikes and Jermaine Cunningham have all played significant roles in the team’s success leading to a 13-2 record and the No. 1 seed in the upcoming AFC playoffs. But without the 21 undrafted free agents on the club’s roster, the Patriots would not have had the depth to deal with injury after injury to the rest of the roster. ... What is different is that few teams have managed a rash of injuries any better in recent memory than these 2010 Patriots. The 21 undrafted players are the most of any team in the NFL. Of the 21 players not drafted on the current Patriots roster, no fewer than 12 have found themselves not only playing but starting and playing significant roles, with significant defined by playing more than half of their potential snaps in a game.--Mike Petraglia

In theory, the 12,000 households with the highest incomes are producing more wealth each year than the 24 million households with the lowest incomes. I hate to have to say it, but I find that plausible. In theory, the average federal worker produces more than twice the wealth of the average private-sector worker. I hate to have to say it, but I find that doubtful.--Arnold Kling

... the American school system is actually better, if one makes ... a crude adjustment for demographics (with no adjustment for demographics, European scores are better). However, what might happen if you had a sophisticated way to adjust for the ability of children entering school? Would all of the differences between school systems become insignificant?--Arnold Kling

MBA training can give you insight into the workings of a firm and its components (marketing, operations, strategy, human resources, finance, etc.), but there is much of the investment world that is untouched in the standard MBA curriculum. However, should you want to change careers later on, an MBA is preferable to a CFA. Of course, as with math or any subject, what you get out of an MBA in terms of learning and the value of it as a currency depends greatly on the school you attend. If you think you want to stay in the investment world, a CFA is the better choice. I love the diversity of the subject matter. When I taught CFA classes, I could tell who in the class worked in equities and who in fixed income by their reactions — but everyone has to pass the same test, which includes those subjects, plus economics, quantitative methods, financial reporting and analysis, portfolio management, etc. And ethics, thankfully. You may think that you only need expertise in a couple of those areas, but the more of them you understand, the greater your value as an investment professional. The business will try to paint you into narrow lanes; those that know when to veer across them to seize an opportunity have a distinct advantage. ... If you choose to pursue an MBA or a CFA, remember that they are built upon orthodoxy, by and large, which you need to learn and attack at the same time. There are principles and standards and techniques for you to master, but the business is one that never stands still, no matter the credentials that you earn.--Tom Brakke

Consistent with the firm’s Compensation Principles and existing compensation programs, it is intended that any awards granted under the Plan will be designed to align compensation with long-term performance in a manner that does not encourage imprudent risk-taking.--Goldman Sachs

Since the dawn of the industrial revolution in the mid-18th century, available supplies of coal, petroleum, iron ore, and most other resources have increased significantly – and, as a result, their real prices have fallen. These rising resource supplies and falling prices occurred during a time when human population increased by a factor of ten – from 700 million to nearly 7 billion today, at least 4 billion of whom are now part of industrial economies. So the increase in the number of persons integrated into industrial economies over the past two-plus centuries – from near-zero persons 260 years ago to at least 4 billion persons today – is far larger than is the number of Chinese, Indians, and other peoples now being integrated into industrial economies.--Don Boudreaux

Most snow crystals—as [Wilson Bentley] knew, and kept quiet about—are nothing like our stellar flower: they’re irregular, bluntly geometric. They are as plain and as misshapen as, well, people. The Fifth Avenue snowflakes are the rare ones, long and lovely, the movie stars and supermodels, the Alessandra Ambrosios of snow crystals. The discarded snowflakes look more like Serras and Duchamps; they’re as asymmetrical as Adolph Gottliebs, and as jagged as Clyfford Stills. But are they all, as Starbucks insists, at least different? ... The sign in Starbucks should read, “Friends are like snowflakes: more different and more beautiful each time you cross their paths in our common descent.” For the final truth about snowflakes is that they become more individual as they fall—that, buffeted by wind and time, they are translated, as if by magic, into ever more strange and complex patterns, until, at last, like us, they touch earth. Then, like us, they melt.--Adam Gopnik

Is [the Christmas] story of any interest to non-Christians? Is it historically accurate? I don’t know, but I think it’s a great story. It’s a story of transformative power that comes not from the Palace up above, but from the Manger down below.--William Easterly

Chart of the decade: Internet languages

Source here, via James Altucher.

Chart of the day: Corporate capital expenditures on software and equipment

Source here.

A historical perspective on the unconstitutionality of the Supreme Court

from David Henderson:

In one of its most shameful decisions, Schenck v. United States, the U.S. Supreme Court voted 9-0 to uphold the Espionage Act's restrictions on free speech. Indeed it was in the Schenck decision that Supreme Court Justice Oliver Wendell Holmes made his famous statement that, "The most stringent protection of free speech would not protect a man in falsely shouting fire in a theatre." Great line, but Holmes never connected it with the case at hand. Schenck was arguing against the military draft on the grounds that it violated the Thirteenth Amendment by imposing involuntary servitude. Holmes never said how that it was like falsely crying fire. It seems to me that there was a fire.

That fantasy can't happen, obviously

because no one would agree to go on a show where the questions are tough and the outcome is humiliation. But I can dream.

Media: How would you balance the budget?

Politician: I would cut spending.

Media: What part of the budget would you cut to balance the budget?

Politician: I would cut the pork.

Media: If you think that's enough, you're either a liar or an idiot. Can you clarify which one you are?

Politician: I am insulted by that question!

Media: If you understood the question that rules out "idiot."

Quotes of the day

What we found are the constants that describe every city. I can take these laws and make precise predictions about the number of violent crimes and the surface area of roads in a city in Japan with 200,000 people. I don’t know anything about this city or even where it is or its history, but I can tell you all about it. And the reason I can do that is because every city is really the same. ... you can take the same person, and if you just move them to a city that’s twice as big, then all of a sudden they’ll do 15 percent more of everything that we can measure. ... Think about how powerless a mayor is. They can’t tell people where to live or what to do or who to talk to. Cities can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive.--Geoffrey West

According to the data, people who live in densely populated places require less heat in the winter and need fewer miles of asphalt per capita. (A recent analysis by economists at Harvard and U.C.L.A. demonstrated that the average Manhattanite emits 14,127 fewer pounds of carbon dioxide annually than someone living in the New York suburbs.) Small communities might look green, but they consume a disproportionate amount of everything. As a result, West argues, creating a more sustainable society will require our big cities to get even bigger. We need more megalopolises.--Jonah Lehrer

Impractical is the antidote to doomed.--Scott Adams

Fear is not in the habit of speaking truth; when perfect sincerity is expected, perfect freedom must be allowed; nor has anyone who is apt to be angry when he hears the truth any cause to wonder that he does not hear it.--Tacitus

Leverage regulation is "stupid" regulation. You require, say, a ratio of capital to assets of 15 percent. The way that banks respond is to raise the riskiness of assets. So even though the bank holds a lot of capital, it takes a huge amount of risk, and wins the game. Risk-based capital regulation is "clever" regulation. In my view, the best form of clever regulation is stress testing. You apply tests, such as "what happens if interest rates jump 200 basis points?" or "what happens if house prices fall 20 percent?" The problem with stress testing is that the results are model-dependent. As the financial crisis hit, the Basel rules were in the process of pivoting toward stress testing, with banks doing their own modeling (as Tyler would say, Yikes!). The problem with clever regulation is that whatever stress test you use, the bank can structure its balance sheet to just pass the stress test even though it holds practically no capital. In a sense, that is what the whole mortgage securitization structure was all about, except that the regulatory regime relied on AAA ratings to serve the function of stress tests. I think that a combination of both forms of regulation would be much better than either one alone. Clever regulation can spot the worst abuses of stupid regulation. Stupid regulation can serve as a backstop as banks learn to how to game clever regulation. So the question of which type of regulation should be employed should not be answered "either-or," it should be answered "both."--Arnold Kling

[Joe] Nocera and [Bethany] McClean suggest that [Brooksley] Born was insufficiently deferential to [Bob] Rubin whose ego demanded more stroking. They say [Larry] Summers had the same problem. Nocera and McClean also mention Ed Gramlich, a Fed governor who saw the warning signs that subprime was heading in a bad direction but was too polite and diffident to push back when his warnings were dismissed. So [Alan] Greenspan’s ideology, Rubin and Summers’s ego, and Gramlich’s lack of one explain their mutual failure to do something about subprime. I have a simpler explanation. All of those folks had an incentive to ignore subprime. Ideology was just window-dressing. They liked their jobs. They wanted to stay in them. Helping Wall Street or at least not rocking Wall Street’s boat was the politically savvy thing to do. Ignore what people say is their motivation. Look at what they do. ... The journalist comes along after the fact and sees the flaw. But I think it’s the wrong flaw. The flaw isn’t in the man who is the ideologue or the egotist or the gentle one. The flaw is the system that gives a louder voice to some rather than others. One of the deepest things I have learned from Bruce Yandle is his observation that we ourselves have a bootlegger and baptist inside of us–a good motive and a bad motive. And when we do bad, we find ways to convince ourselves, to deceive ourselves, that we are doing good. ... The challenge of economics and of journalism is to remind us that motives are less important than actions.--Russ Roberts

Ralph Raico's new book also powerfully argues that compared to Woodrow Wilson, Joseph McCarthy was a tolerant and fair-minded man.--Bryan Caplan

The “let me explain” component of journalism fell out of favor as there was always a faction of the audience that had a problem with the empirical facts – a faction that the company’s finances could not afford to lose. The personal – including phatic – was carefully eliminated as it was perceived as unobjective and inviting the criticism of bias. The way for a reporter to inject one’s opinion into the article was to find a person who thinks the same in order to get the target quote. A defensive (perhaps cowardly) move that became the norm. And, once the audience caught on, led to the loss of trust in traditional media. Reduction of local media to a single newspaper, a couple of local radio stations and a handful of broadcast TV channels (that said esentially the same thing), left little choice for the audience. With only one source in town, there was no opportunity to filter among a variety of news sources. Thus, many people started unquestioningly accepting what 20th-century style broadcast media served them. Just because articles were under the banners of big companies did not make them any more trustworthy by definition, but with no alternative it is still better to be poorly informed than not informed at all. Thus, in the 20th century we gradually lost the ability to read everything critically, awed by the big names like NYT and BBC and CBS and CNN. Those became the new parents, teachers, tribal elders and priests, the authority figures whose words are taken unquestioningly. In science, explosion in funding not matched by explosion of job positions, led to overproduction of PhDs and a rise of hyper-competitive culture in academia. Writing books became unproductive. The only way to succeed is to keep getting grants and the only way to do that is to publish very frequently. Everything else had to fall by the wayside. False measures of journal quality – like the infamous Impact Factor – were used to determine who gets a job and tenure and who falls out of the pipeline. The progress of science led inevitably to specialization and to the development of specialized jargon. Proliferation of expensive journals ensured that nobody but people in highest-level research institutions had access to the literature, so scientists started writing only for each other. Scientific papers became dense, but also narrowed themselves to only “this is how the world works”. The “this is new” became left out as the audience already knew this, and it became obvious that a paper would not be published if it did not produce something new, almost by definition. And the personal was so carefully excised for the purpose of seeming unbiased by human beings that it sometimes seems like the laboratory equipment did all the experiments of its own volition. So, at the close of the 20th century, we had a situation in which journalism and science, for the first time in history, completely separated from each other. Journalism covered what’s new without providing the explanation and context for new readers just joining the topic. Science covered only explanation and only to one’s peers.--Bora Zivkovic

There are many reasons sciencebloggers are more trusted than journalists covering science. First, they have the scientific expertise that journalists lack – they really know what they are talking about on the topic of their expertise and the audience understands this. Second, they link out to more, more diverse and more reliable sources. Third, being digital natives, they are not familiar with the concept of word-limits. They start writing, they explain it as it needs to be explained and when they are done explaining they end the post. Whatever length it takes to give the subject what it’s due.Finally, not being trained by j-schools, they never learned not to let their personality shine through their writing. So they gain trust by connecting to their readers – the phatic component of communication.--Bora Zivkovic

Chart of the day: Overgrowth

Source here.

How to improve grades?

Less dating:

Over the past two decades, a spate of studies has examined the cultural beliefs that shape Asian-American parenting, and their effect on kids’ learning. They describe a style of parental involvement that results in Asian-American kids spending more time studying than other kids.

One study, for example, found that Asian-American 11th-graders studied six hours more per week than their white peers. Another found that in 2007, more than two-thirds of Asian-American high school students did homework five or more days a week, while only about 40 percent of white and Hispanic kids, and less than a third of African-American students, did so. According to other research, Asian-American kids devote less time to chores, part-time jobs and dating than other kids.

Michigan the only state of the union to see a decrease in population

according to CNBC, reporting a few minutes ago on the Census Bureau's population report.

Tony Trupiano says:

Michigan will discover that as a result of a depressed economy and a manufacturing industry that has been dealt a death blow over the last ten years a large percentage of Michigan’s population has relocated to other parts of the country. Michigan is most certainly to lose one Congressional seat, if not two. It also means that Michigan is also apt to lose Federal funding.

About a year ago, Scott Sumner talked about his birth state's struggles, writing:

At the other extreme is Detroit, with 15.4% unemployment. Detroit has two problems. First, heavy industry is unusually cyclical, and thus steel, autos, machinery, etc, will suffer more job losses when AD falls, even if there is no recalculation. Of course the auto industry is the main problem in Detroit. It is not true that the US auto industry is in a long term state of decline, but the Big 3/UAW auto industry is in a long term state of decline. So Detroit’s unusually high unemployment rate is due to both cyclical factors and structural (recalculation) factors.

More than two years ago, the WSJ Editorial Board observed that Michigan's tax policy was an issue:

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be "invested" in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales.

Michigan is now in the 18th month of a state-wide recession, and the unemployment rate of 6.9% remains far above the national rate of 5%. Ms. Granholm blames the nationwide mortgage meltdown and higher energy prices for the job losses and disappearing revenues, but this Great Lakes state is in its own unique hole. Nearby Illinois (5.4% jobless rate) and even Ohio (5.6%) are doing better.

Leon Drolet, the head of the Michigan Taxpayers Alliance, complains that "we are witnessing the Detroit-ification of Michigan." By that he means that the same high tax and spend policies that have hollowed out the Motor City are now infecting many other areas of the state.

The tax hikes have done nothing but accelerate the departures of families and businesses. Michigan ranks fourth of the 50 states in declining home values, and these days about two families leave for every family that moves in. Making matters worse is that property taxes are continuing to rise by the rate of overall inflation, while home values fall. Michigan natives grumble that the only reason more people aren't blazing a path out of the state is they can't sell their homes.

UPDATE: Looking at the states map of percentage changes, it looks like people are fleeing higher tax domiciles for lower ones, with the exceptions of California and Oregon. As far as the reapportionment tilting towards traditionally red states, as Michael Barone noted in 2008:

Bush would have lost in 2004 if Ohio had not gone his way; under the projected post-2010 apportionment, Bush would have won 276-to-262 if Ohio had not gone his way. The demographic trends reflected in these projections would not prevent Barack Obama from being elected this year and re-elected in 2012, but they would make it marginally more difficult. Demography, modestly, favors the Republicans, and more than modestly over the long haul.

Chart of the day: Why stimulus has not stimulated

It has merely reduced municipal borrowing.

Quotes of the day

I can tell you that there is little upside to slamming a book on your blog, but you might receive a nice note from the publisher, or some nice links from the popular author if you have nice things to say. Book reviews are like stock analyst recommendations pre Sarbanes-Oxley.--Eric Falkenstein

If Simon Johnson and James Kwak would only read this chapter and grasp its significance, then they would stop swooning over Elizabeth Warren. She provides what Edelman would call symbolic reassurance, while the bankers continue to get the real resources that government has to offer.--Arnold Kling

My view is that when it comes to health care economics, just about everyone should have egg on their faces.--Tyler Cowen

I can't pay people for those jobs if I don't have the money to pay them. Where am I getting the money? I don't have it. I literally don't have it. ... It's not like you can avoid it forever, 'cause it's here now. And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'.--Chris Christie

The crisis was rooted in an error about the riskiness of mortgages. Everyone from regulators to bankers to home buyers misread the risks embodied by the housing bubble, resulting in a calamity. Which is to say, the Primer rejects the compensation and incentives theory of the crisis, according to which bankers knowingly became wildly reckless in search of higher bonuses and profits, while regulators were asleep at the switch. It goes even further than this: it points out that regulators were worse than asleep at the switch. They were some of the primary causes of the crisis. Whether it was loading the dice in favor of their risk views when it came to bank capital requirements, or foolishly believing they could expand home-ownership without expanding the risk of mortgage lending, regulators were not just passive participants in the crisis—they were actively bringing it about.--John Carney

The lack of transparency with the state disclosure is the worst I have ever seen. Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008.--Meredith Whitney

Keep in mind that few informed people take the President literally. Hardly anyone takes Congress literally. Some people take the Fed literally but not always. Literal speech, interpreted literally, is hardly the political default.--Tyler Cowen

Nevertheless, despite the obstacles, state and local governments do have several options that could help get their unfunded liabilities under better control. They could delay retirement ages of most new state and local employees, and even of many present employees, until they reach their sixties (employees doing strenuous physical work could retire earlier). That would simply be requiring their employees to retire at about the same ages as do most non-governmental workers. In addition, they can begin to convert, as have many private employers, from defined benefit retirement systems to defined contribution systems. In the latter system, retirement benefits depend on the present value of pension taxes paid by each worker, accounting also for changes in returns on assets. Finally, states and local governments could force present and future retirees to pay for a larger fraction of the medical care that they receive. Of course, the teachers union and other powerful state and local government unions will strongly resist efforts to substantially cut their generous retirement benefits. Governments can, however, fight back if they have strong support from the taxpayers who will be burdened with financing these unfunded obligations. If the governments were losing these political battles, cities but not states, as Posner indicates, could even threaten the “nuclear” option of declaring bankruptcy in the expectation that bankruptcy courts will reduce the size of their unfunded retirement obligations. One way or another, cities and all states with the most serious unfunded liability problems would eventually be forced to either lower their spending or raise their taxes. Either way that would reduce their competitiveness against other states. It is hard to come away with much optimism for the economic futures of the states and cities with the greatest fiscal problems.--Gary Becker

The decision by the European Union last week to create a permanent bailout fund may not end the sovereign-debt crisis but it will—eventually—end the European Union as we know it. ... The permanent bailout fund will create moral hazard, inviting euro zone members to engage in budgetary brinksmanship and free-riding that will make bailouts more likely.--John Carney

... I think your stated quest to better yourself intellectually and culturally is somewhat quixotic and self-defeating, given the fact you have already indentured yourself to the blinkered worldview of the socialists, communists, Marxists, and professional malcontents who no doubt hold the curriculum and teaching methods of a small liberal arts college such as yours hostage. ... Sadly, my worldview is completely bereft of understanding or subtle appreciation for the finer points of Crypto-Columbian Transvestite Literature from the sub-Amazonian basin from 1953 onward. In other words—as your professors will gleefully tell you—I am a complete idiot. Nevertheless, I am unapologetic in my advocacy of Dead [insert race or ethnic persuasion here] [insert gender or sexual preference here] authors from what is now disparagingly known as The Canon. --Epicurean Dealmaker

The dramatic decline in highway fatalities in the U.S. since 2005 is a piece of good news that's also a bit of a mystery. Is it the result of better vehicle safety technology? Less stupid, reckless behavior? Smarter strategies for easing teens into the responsibilities of driving? Or just an unexpected positive side effect of a slumping economy? A new study by two University of Michigan researchers of detailed federal crash statistics from 2005 to 2008 suggests all these reasons could be behind the reduced death toll.--Joseph White

... researchers found that when a group had a high level of collective intelligence, the members tended to score well on a test that measured how good they were at reading other people’s emotions. They also found that groups with overbearing leaders who were reluctant to cede the floor and let the others talk did worse than those in which participation was better distributed and people took turns speaking. And they also found that the proportion of women in the group was a predictor of collective intelligence — a factor they believe was likely influenced by women’s generally superior social sensitivity.--Carolyn Johnson

A teacher one standard deviation above the mean effectiveness annually generates marginal gains of over $400,000 in present value of student future earnings with a class size of 20 and proportionately higher with larger class sizes. Alternatively, replacing the bottom 5-8 percent of teachers with average teachers could move the U.S. near the top of international math and science rankings with a present value of $100 trillion.--Eric Hanushek

The Bible in 50 Words:
God made
Adam bit
Noah arked
Abraham split
Jacob fooled
Joseph ruled
Bush talked
Moses balked
Pharaoh plagued
People walked
Sea divided
Tablets guided
Promise landed
Saul freaked
David peaked
Prophets warned
Jesus born
God walked
Love talked
Anger crucified
Hope died
Love rose
Spirit flamed
Word spread
God remained.

Quotes of the day: from the Anonymous Fund Manager

There’s still a tremendous interest in the rest of the world to build up [US] dollar reserves. That desire to buy dollars buys us time. There’s still a tremendous demand for Treasuries; that buys us time. And in some way the fact that households in the US are kinda risk averse in plowing their money into bond funds, that actually buys some time for the US, where we’re actually able to roll over our debts at very cheap levels. So it gives the country time to adjust. Other countries don’t have that time.-AFM 

I do think there’s something to be said for rising inequality in the US being somewhat tied to the crisis because the demand for credit was a way for people who were falling behind to keep up their consumption. And politicians probably friendly to the idea of credit growth—and politicians were very involved in credit growth, saying, “We need to make more credit easier to get”—as partly a way to cushion the impact of rising inequality by allowing consumption inequality not be as stark as income inequality. Although, we talked about rising inequality in the US, if you look at global inequality, global inequality is shrinking because people in China and Brazil are getting involved.

... when you look at our manufacturing base, manufacturing as a percentage of our GDP hasn’t decreased that much over time. Employment in manufacturing as a percentage of all employment changed. That’s just because we’ve become more efficient. Labor has become much more efficient in manufacturing, and low value-added manufacturing has gone offshore. It’s not like we don’t manufacture anymore; we manufacture a lot. One of the sectors that’s been the most vibrant in bouncing back in the recovery is manufacturing.

... the legal infrastructure in the US for starting a hedge fund, and for clients of hedge funds to be able to make sure their money isn’t stolen, is better in the US. It’s harder to start a hedge fund in China, and as for the legal infrastructure for starting a manufacturing concern, the US doesn’t really have an advantage—or has a decreasing advantage over these other countries who’ve reformed their labor markets, who’ve reformed their customs regimes, reformed a lot of the legal and infrastructural issues that in the past have given the US an advantage in those sectors. They lag in the area of finance.

... Goldman, of all the banks, always seemed like they were the most careful about following the letter of the law, especially when they were violating the spirit of the law. And in this situation it’s not clear to me that they had any duty to disclose who the other side of the synthetic CDO was to a buyer of risk.  The idea that it’s now shocking that somebody was short? I mean, that’s the definition of a synthetic CDO—that somebody is short on the other side. In a sense they’re finding somebody who’s going to supply that risk by going short. So I don’t understand what it is they would disclose. It’s inherently the definition of the trade.

... Goldman’s decision to settle [with the SEC], I think it’s very strategic. I think they know that they probably observed the letter of the law. Most scrupulously. And they know many of the big banks were involved in this kind of trade. So Goldman is like, “Why am I going to be the guy to go die on the hill to defend everybody else? I’m going to settle, because I can get an OK deal.” It’s probably, you know, “Maybe we would win, and it would cost us a little bit less. But in fact with all the legal fees, if we lose it would be a lot more. We have the best fact pattern of all the big banks, but even so, we could still lose. But if we win, everyone else is probably spared; the SEC would probably be embarrassed and give up. But if we settle, it sort of validates the idea that the SEC should be looking into these. And they’ll go and dig up every other bank, and their fact pattern is going to be worse.” So in a way, if you’re concerned about your relative performance with other banks, why not settle if you can get a good deal and all those other guys go die on the hill?

Effective 1st January Intrade is radically changing how it encourages trading

Trading and expiry fees have been removed entirely.

They are being replaced instead with a modest monthly "trading seat" fee of only US$4.99.

This fee will be charged on the first day of every month, beginning 1st January.

We have improved our software to handle higher volumes as we continuously emphasize the fair pricing of contracts between members on our platform.

Visual data display lets members detect contracts that interest them. With this new incentive to trade we expect to see more trading on these contracts with closer spreads.

Furthermore, we will make our application programmable interface (API)* freely available to all members.

We hope members will applaud these improvements by sharply increasing their use of the services we offer.

As always, your feedback is the best guide we have on the improvements we can implement.

Good fortunes trading from all at Intrade.

Entire announcement here.

3 minutes of Christmas cheer

Intrade Oscar prediction roundup

Best Picture: Social Network (31%) vs. King's Speech (27%) vs. True Grit (10%)

Best Actor: Colin Firth (57%) vs. James Franco (10%) vs. Jeff Bridges (9%)

Best Actress: Natalie Portman (47%) vs. Annette Benning (26%)

Best Director: David Fincher (49%) vs. 5 other directors at 7% or 8%

Prices found here.  Markets are illiquid, spreads wide.  Probabilities calculated by using 0% for contracts without bid, 100% for contracts without offer, and mid-prices adjusted so that total probability is equal to 100%.

Photo link here.

If anyone has a good source of Oscar predictions to compare predictiveness, I would much appreciate your referral in the comments here.

Cartoon of the day

Source here.

Chart of the day: Facebook friends map

Source here, via Bill Easterly.

Quotes of the day

The Grinch was crestfallen, he knew he had lost
For he was the source of the “external” cost
He’d come to the nuisance, and yes, he was wrong
He’d now have to live with their noise and their songs

He realized that day, though, that they could be friends
His heart grew three sizes (you know how this ends)
The Whos asked the Grinch to join them in their feast
And he—he, the Grinch—carved the Roast Beast.

The holiday season brings specials galore
They teach us that Christmas can’t come from a store
Reflect, as you watch them, as day turns to night
On good economics, and property rights.--Art Carden

Over the past 20-or-so years, GDP has increased 87% and the amount of money the top 1% pays in Federal income taxes has increased 377%, while the average tax rate for that group over that period has decreased 32%! So, to summarize: The tax rate on “the rich” has gone down, but the amount of money they pay in Federal taxes has gone up, as has GDP.--Stone Street Advisors

It is no accident that much of the drug trafficking is found in poorer black and Hispanic neighborhoods since high school dropouts and other low earners are attracted to becoming involved in the drug trade. The result typically is a sizable deterioration in the quality of living in drug-dominated neighborhoods, with residents often terrorized by the drug dealers. No one to my knowledge has estimated the social cost of neighborhood deterioration due to drugs, but it is likely very high.--Gary Becker

In retrospect, the aristocracy arrogated power via myth, tradition, and brute force, rationalized via their exception valor. The problem with their self-serving story is that many would accept a probability of death for such success, so this 'courage premium' was not a real equilibrium result, as WW1 showed. Courage was a necessary, not sufficient, condition for acquiring power. Similarly, risk taking is a necessary condition to achieving riches, not sufficient. In standard theory, you take risk, and on average you will get rich quicker than others. That's all you need, a willingness to experience the randomness.--Eric Falkenstein

If people don’t anticipate future taxes or don’t respond to them today, then yes, says the standard argument, you will get $10 of stimulus today, but it will be offset by $10 of losses tomorrow. The Keynesian then responds with the second idea behind using government spending to stimulate the economy. That’s the idea that when we’re in a recession, the economy is broken. The engine of the economy needs a jump-start. The pump needs priming. By giving people money who start spending now, the whole system gets going so it can be once again be healthy and self-sustaining. It’s like the battery of your car. If you drain your battery because you left the lights on overnight, the car needs a jump. Once it gets going, it will recharge simply by driving. So in the economic analogy, once people get spending, the circular flow of spending gets going once again, the people who were unemployed soon get employed, they start spending and the economic engine will once again be healthy and keep going. This is what Keynes meant when he talked about “magneto trouble.” This metaphor of the car that needs a jump start or the ship that needs a push because it’s hit a patch of water that’s windless, has a certain compelling feel to it. But it really has no intellectual content. It’s an ex-post story to make you feel good about spending money. There’s no there there. So when a Keynesian is confronted with the fact that about $800 billion dollars of spending was promised in February of 2009 (and more than half of it has been spent) but unemployment has barely budged, well that just proves how bad the economy was in February of 2009. It’s like saying that using these jumper cables will get your car started but sometimes, a regular jump isn’t sufficient. You have to power up the healthy car when you do the jump because the car with the dead battery is so far gone that a regular jump won’t do it. That’s true with cars. But is it true with economies? ... the current Keynesian stories of why the stimulus didn’t work are just stories. Ex-post stories. They can’t be distinguished from the hypothesis that we don’t know what we’re talking about or the hypothesis that stimulus spending is a sham. ... The bottom line for me is that Keynes was very right about one thing–people’s perception of the future plays a big role in their willingness to take risks. What he was wrong about is the ability to use government spending as a way to encourage a positive perception of the future or to produce real economic results that lead to prosperity and increased employment.--Russ Roberts

As the policy was described yesterday, this payroll tax cut goes entirely to the worker. This increases work incentives, but the main motivation is probably to increase take-home pay, consumer spending, and aggregate demand.--Greg Mankiw

The White House reads this blog.--Greg Mankiw

Individual insurance mandate might be ruled unconstitutional

according to Intrade futures contract pricing.

DISCLOSURE: I am long this contract.

Quotes of the day

A 10% drop in the amount of young people working as a result of this recession. That’s 10% more people detached from the labor market and with decades of lost wages. That’s 10% more people with fewer opportunities to develop their capabilities and build the American economy over the 21st century. And that is a generational crisis unless we get a serious attempt to fix this economy and put people to work.--Mike Konczal

If President Obama is truly serious about ending earmarks, he should oppose Senate Democrats’ pork-laden omnibus spending bill and announce he will veto it if necessary. This bill represents exactly what the American people have rejected: more spending, more earmarks, and more big government.--John Boehner

Where change does work is if it’s done in small, manageable steps leading to measurable improvements. By focusing on details rather than visions and incremental changes rather than epoch defining business re-engineering the very best corporations can effectively continually re-invent and rejuvenate themselves. The future is most effectively built on the achievements of the past, not on its ruins.--timarr

Today’s fad is tomorrow’s flop.  I’m as confused as the next guy about what’s going to happen with currencies and whether [Federal Reserve chairman] Ben Bernanke is right or wrong. But I’m not sure a whole bunch of yellow stuff in a warehouse is going to do much.--Tim McElvaine

Harvesting your losses is most beneficial when you can write long-term losses off against either short-term capital gains or ordinary income. That is because those are taxed at rates of up to 35%—making today's losses more valuable as write-offs against them. Loss-harvesting also makes great sense when you have a plan to defer capital gains indefinitely—for example, by donating your investments to a charity or by including them in your estate. That way, you use the losses to shelter your taxable ordinary income. But you don't take the gains—ever. Before you harvest a loss, make sure you or your adviser have thought through whether it will be treated as long-term or short-term and what kind of income you can offset with it. Ask for proof that by lowering your basis today you haven't raised your tax bill tomorrow.--Jason Zweig

Chart of the day: Historic P/E ratio

Source here.

Quotes of the day

Proverbs 19:13
... a quarrelsome wife is like the constant dripping of a leaky roof.

Proverbs 21:9
Better to live on a corner of the roof than share a house with a quarrelsome wife.

Proverbs 21:19
Better to live in a desert than with a quarrelsome and nagging wife.

Proverbs 25:24
Better to live on a corner of the roof than share a house with a quarrelsome wife.

Proverbs 27:15
A quarrelsome wife is like the dripping of a leaky roof in a rainstorm.

As it is, Mrs. Edwards' private loss and public humiliation at the hands of her husband will be in vain if the obvious lesson isn't before us: There is no profit in being the woman behind the man. We can admire Elizabeth Edwards' graceful acceptance of disease and disharmony, or we can see her as another wronged political wife. And, really, is there any other kind?--Elizabeth Wurtzel

... Christine Stanik, Robert Kurzban and Phoebe Ellsworth found that men will give a woman a lower rating when they learn that she dumped her last boyfriend, perhaps fearing they will be next. But women rated men more highly when they learned that they had done the dumping, perhaps seeing it as a sign of desirability.--David Brooks

Proverbs 31:10
A wife of noble character who can find?
She is worth far more than rubies.

I mean he really loves us and when he beats us, he doesn’t mean it; he just gets a little angry.--Dan Loeb

Verdict: Food 5, drink 4, venue 5, debauchery 1, exclusivity 5 (but really 2)--Kevin Roose

It is easy to assert that there ought to be prosecutions of corporate chieftains — “show trials” like the Soviet Union used to stage — because of the enormous losses sustained from the meltdown. Actually proving criminal charges is much more difficult, however, if the government has only sketchy evidence of an executive’s involvement in questionable decisions and the applicable legal standards are vague, at best.--Peter Henning

Show trials arise from certainties and the fury of people who are certain of their own goodness against those who don’t necessarily share that belief. That doesn’t just apply to Communists, Marxists, Trotskyists, but in the past century it has tended to be idealists of one kind or another who have ended up holding show trials. ... What we now increasingly know is that, although Joe McCarthy was an idiot, a lot of what he said was actually true. ... I think the old stout-hearted English yeoman view of not giving in to foreign domination has by and large vanished. Nobody much believes in anything any more and you find an awful lot of people in authority who, it seems to me, would cooperate with anybody who could demonstrate that they were in power. ... When the Berlin wall came down a huge number of damaging ideas escaped across it and started to propagate themselves in the West because they were no longer discredited by their practical expression in the evil empire. The right, which never bothered to argue very hard about its principles, before the wall came down could simply point eastwards and say: Look that’s what you’ll get if you follow left-wing ideas. So the left was handicapped at election time, but now it is much freer than it ever was. The left was liberated by the collapse of the Soviet Union, which in any case was an aberration as far as the cleverer thinkers of the left are concerned.--Peter Hitchens

Superbowl Futures, part 4

Matchbook latest odds (based on midprices):

New England 24.1%
Pittsburgh 15.7%
Atlanta 13.4%
Green Bay 9.5%
Philadelphia 8.9%
New Orleans 8.0%
NY Giants 6.3%
NY Jets 5.9%
Baltimore 5.7%
Chicago 4.1%
San Diego 3.8%
Indianapolis 2.8%
Kansas City 2.4%
Jacksonville 1.4%

I am shorting ATL, getting long BAL, getting longer GB, getting shorter NE, getting long NO, getting long NYG, getting long PHI, getting short PIT, getting long SD.

P/L	Team	Position	Paid	Market	Risk
$       7.71	ATL	-1	21%	13%	$(13.40)
$     12.37	BAL	1	-7%	6%	$   5.70
$       0.32	GB	3	9%	10%	$ 28.50
$      (4.89)	IND	1	8%	3%	$   2.80
$      (0.02)	KC	3	2%	2%	$   7.20
$    (23.02)	NE	-2	13%	24%	$(48.20)
$      (0.37)	NO	1	8%	8%	$   8.00
$      (0.72)	NYG	1	7%	6%	$   6.30
$      (3.19)	NYJ	1	9%	6%	$   5.90
$      (0.62)	PHI	1	10%	9%	$   8.90
$       6.03	PIT	-1	22%	16%	$(15.70)
$      (0.05)	SD	1	4%	4%	$   3.80
$      (9.84)	TEN	3	3%	0%	$   0.60
$    (16.31)	Total				$   0.40

Part 3 here.