Wednesday, March 31, 2010

Cartoon of the day

Source here.

Theodore Dalyrymple on self-esteem vs. self-respect

For many years I believed that how a man dressed was unimportant; it was the man within that counted, not the man without. My belief excused me for being myself rather scruffily dressed, which was very easy and convenient for me in terms of effort required. But I now think that I was mistaken, for it does not follow from the fact that outward appearance is not all-important that it is of no importance at all.

The small matter of cleaning one's shoes, for example, is not one of vanity alone, though of course it can be carried on to the point of vanity and even obsession and fetish. It is, rather, a discipline and a small sign that one is prepared to go to some trouble for the good opinion and satisfaction of others. It is a recognition that one lives in a social world. That is why total informality of dress is a sign of advancing egotism.

Self-respect requires fortitude, one of the cardinal virtues; self-esteem encourages emotional incontinence that, while not actually itself a cardinal sin, is certainly a vice, and a very unattractive one. Self-respect and self-esteem are as different as depth and shallowness.

Via David Foster.

I may need to suspend the Global Warming Exchange

It turns out that NASA's data may be worse than the University of East Anglia's Climatic Research Unit (CRU) -- the scandalized source of the leaked Climate-gate e-mails.

Via Don Surber.

Chart of the day (it's a tie)

Source here, via TheBrowser.

It’s a short list of players

who were CLEARLY the best player on four championships teams. That list would include:

1. Bill Russell, 10
2. Michael Jordan, 6
3. George Mikan, 5
4. Tim Duncan, 4
5. Magic Johnson, 4

Shorter list than you would expect, isn’t it?

President Obama concedes that Hillary Clinton and Sarah Palin

were more honest than he was during the 2008 campaign:

5 millenia of Middle Eastern imperial history

in 90 seconds, via William Jacobson.

Quotes of the day

Team trust is not determined by an average of the members, it's at the level of the least trusted member.--Eric Barker

But I say let’s remain fulling involved and fully vested in the Middle East. Yeah, it’s a big, deadly business that facilitates them hating us. That’s part of what you have to put up with when you’re a superpower, the global grownup, maintaining a dad-like my-house-my-rules regime in the world. Energy-based neo-isolationism and disengagement just means that next thing you know, China and Russia will be calling the shots regarding the world’s greatest energy reserves, it’ll be a their-house-their-rules world. And I don’t think we want that.--Jules Crittenden

I think of myself as being West Berlin during the Cold War, a shining beacon of capitalism and democracy surrounded by a sea of Marxism.--John Yoo, about being in Berkeley, CA

A study released on Monday by researchers at George Mason University and the University of Texas at Austin found that only about half of the 571 television weathercasters surveyed believed that global warming was occurring and fewer than a third believed that climate change was “caused mostly by human activities.” More than a quarter of the weathercasters in the survey agreed with the statement “Global warming is a scam,” the researchers found. The split between climate scientists and meteorologists is gaining attention in political and academic circles because polls show that public skepticism about global warming is increasing, and weather forecasters — especially those on television — dominate communications channels to the public.--Leslie Kaufman

If the abuse in the ’50s (and earlier) followed roughly the same pattern as the abuse in the ’70s, and just remains more underreported today, you would expect the ratios of different types of abuse — long-term versus short-term, male versus female, pedophilic versus ephebophilic — to remain relatively constant across the decades. But they don’t: Instead, the post-1960 period shows a dramatic increase in reports of long-term sexual misconduct with teenage boys, and a substantially smaller increase in other types of abuse. This data informs the conservative Catholic argument that the post-Vatican II exodus of straight men from religious life and the spread of a sexually-active gay subculture within the priesthood is the abuse scandal’s “elephant in the sacristy.” Liberal Catholics might counter that the priesthood has always been disproportionately homosexual, and that the sexual revolution probably just encouraged psychologically healthy gay priests to give up on the church entirely, leaving behind a clerical population tilted toward repression, self-loathing and the dysfunctions of the closet. Whichever narrative you prefer, though, it’s hard to deny that something changed in the 1960s, and not for the better.--Ross Douthat

The earthquake scared me. Voodoo has been in my family but the government isn't helping us. The only people giving aid are the Christian churches.--Veronique Malot, a 24-year-old Port-au-Prince resident

Now, it has occurred to me that we can retell the Passover story in modern times, with new casting. Some of the roles seem fairly obvious: Obama is God, Ben Bernanke is Moses, and the banks are the Israelites. Pharaoh is Nassim Taleb. The plagues are the Government's interventions: TARP, TLGP, TALF, ZIRP, Quantitative Easing, Ban on Short Selling, Cash for Clunkers, Homebuyer Tax Credit, Extended Unemployment Benefits, and the final coup de grace: subsidizing mortgage principal writedowns. ... The banks desperately tried to recapitalize their balance sheets, but Taleb returned and declared that they were still insolvent and had many more writedowns yet to be realized. As the banks frantically tried to escape from the wrath of the Black Swan of home mortgage defaults, Obama provided a crucial escape route, parting the seas of mark-to-market accounting and allowing the banks to liberally value the assets on their books with discretion. Taleb and the other bank bears were crushed by the lack of real asset value markings, and puked out of their short positions, disappearing back into the shadows where they were never heard from again.--Kid Dynamite

... when a company experiences what accountants call "a material adverse impact" on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact--"to take the charge against earnings"--as soon as it knows that the change is reasonably likely to occur. This makes good accounting sense. The asset on the balance sheet is now less valuable, so you should record a charge. Otherwise, you'd be misleading investors. The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America. ... What they did is required by GAAP. And I've watched congressional hearings. There's no chance that four CEO's are going to explain the accounting code to the fine folks in Congress; explaining how to boil water would challenge the format. ... Obviously, Waxman is incensed because this seems to put the lie to the promise that if you like your current plan, nothing will change. But this was never true. Medicare Advantage beneficiaries are basically going to see their generous benefits slashed, retiree drug benefits suddenly cost more and may now be discontinued, and ultimately, more than a few employers will almost certainly find it cheaper to shut down their plans. If Congress didn't want those things to happen, it should have passed a different law.--Megan McArdle

The fact that education has mattered so much during this recession only reminds us that America’s future depends on its human capital.--Ed Glaeser

We need institutions that enable people to carry out their management roles. For example, if there’s conflict, you need an open, fair court system at a higher level than the people’s resource management unit. You also need institutions that provide accurate knowledge. The United States Geological Survey is one that I point to repeatedly. They don’t come in and try to make proposals as to what you should do. They just do a really good job of providing accurate scientific knowledge, particularly for groundwater basins such as where I did my Ph.D. research years ago. I’m not against government. I’m just against the idea that it’s got to be some bureaucracy that figures everything out for people.--Elinor Ostrom

It wasn’t Shia LeBeouf who made ‘Transformers’ a hit, but the FX. It obviously wasn’t Matt Damon who made the “Bourne” movies popular (or the magic would have carried over to “Green Zone”), but the story and action. Did anyone buy a ticket for “Up” because they yearned to hear Ed Asner’s voice characterization … or was it the touching story and superb animation? The ways deals are being structured for actors lately seems to indicate that the studios and producers are starting to wake up to this new reality.--Brian John Murphy

In terms of the cost of processing speed (real dollars per MHz), the 2009 Apple iMac is 1,947 times cheaper [than the 1984 Macintosh], and in terms of memory cost (real dollars per KB), the 2009 Apple iMac is 162,000 cheaper.--Mark Perry

The only downside of the film is that the producers couldn’t afford to hire good-looking people to play me and Levitt, so we had to play ourselves.--Stephen Dubner

Chart of the day

Year Population Births per 1,000 Births Between Benchmarks
50,000 B.C. 2 - -
8000 B.C. 5,000,000 80 1,137,789,769
1 A.D. 300,000,000 80 46,025,332,354
1200 450,000,000 60 26,591,343,000
1650 500,000,000 60 12,782,002,453
1750 795,000,000 50 3,171,931,513
1850 1,265,000,000 40 4,046,240,009
1900 1,656,000,000 40 2,900,237,856
1950 2,516,000,000 31-38 3,390,198,215
1995 5,760,000,000 31 5,427,305,000
2002 6,215,000,000 23 983,987,500

Number who have ever been born 106,456,367,669
World population in mid-2002 6,215,000,000
Percent of those ever born who are living in 2002 5.8

Source here, via Eric Barker.

Steve McIntyre on the continued tricks of the "hide the decline trick"

In my submission to the Parliamentary Committee, I observed that the “trick” wasn’t “clever” – it was the deletion of inconvenient data.
The trick was not a “neat” way of handling data, nor a recognized form of statistical analysis. The trick was a clever way of tricking the readers of the IPCC 2001 graphic into receiving a false rhetorical impression of the coherency of proxies – a point understood at the beginning by Jon Stewart of the Daily Show, but now misunderstood due to continued disinformation.

Tuesday, March 30, 2010

Blogging heavyweights duke it out

John Carney, Felix Salmon, Henry Blodget, Nick Denton, Elizabeth Spiers (in order of how much I read them).

How to survive: adapt

If you can't beat 'em, join 'em:

Hoping to harness the tech savvy of the high-frequency traders who have eaten away at its business, the New York Stock Exchange is bringing one of the biggest computer-driven firms onto its iconic floor.

Beginning Monday, Chicago-based Getco LLC will become a "designated market maker," the role once occupied by the specialists who used to fill the floor of the exchange, stepping in to buy or sell shares to keep trading orderly.

The arrival of Getco, a pioneer in computer-driven high-speed trading, marks the first time the exchange has embraced such a technologically sophisticated player in the role. The move gives something of a high-tech stamp of approval on the NYSE's modernization effort.

A roundup of high frequency trading posts over the past year.

How not to denouement in life

A former partner's obituary for Bruce Wasserstein:
He was a horrible manager, because he was completely self-involved by the time he had gotten control of the firm.… You see that in the succession of marriages and children, and blowing Claude up, and marrying Chao, and having an affair with a business-school student and having a child out of wedlock. He was just given over to complete narcissism. He had lost his relevance. Nobody in corporate America particularly cared about what he had to say, and he wasn’t particularly good about saying it. Nine out of 10 things that came out of his mouth were crazy, or unfounded, or reflected a lack of attention to his audience and what their issues were. One out of 10 was smart, scary smart. But you’d take him to client meetings and most of the time you’d be exchanging looks with the C.E.O. of the company that you were taking him to see.

I'm finding that I am cringing even more when President Obama comes on the air

than I did when President Bush was in front of a live microphone.

Who would've guessed?

Quotes of the day

At least I’ll never have to apologize to the Singapore government, unlike certain newspapers.--Scott Sumner

No crop should get subsidies. But the politicians’ solution is to keep supporting meat production -- and then turn around and pay schools to serve vegetables.--John Stossel

Add it up and the government is counting on squeezing an extra $1.2 trillion over 10 years from a tiny sliver of taxpayers who already pay more than half of all individual taxes. It won't work. It never works. --Alan Reynolds

The GAO attached a feather duster to a space heater, sent the photo to the EPA, and got approval in just 11 days.--John Stossel

How on earth could this have happened? This is the sort of thing the government is supposed to be good at: providing transparency and certification for private efforts. Yet it seems they weren't even bothering. ... But I think this goes back to my belief that the government is simply doing too much. We want a program for virtually every single problem in human existence, and the incentive of politicians and bureaucrats is to create one. It doesn't matter so much whether it actually solves the problem, as long as it seems to. If the GAO just discovered this now, I suspect that manufacturers discovered this long ago. In effect, the government has enabled them--hell, encouraged them--to get millions of people to pay extra for a worthless label. The manufacturers, the politicians, and the regulators were all better off--but the rest of us were worse off.--Megan McArdle

Mr. President, this isn’t double-down.…This is all-in.--General David Petraeus

... Petraeus would testify that things had begun to improve—that the counter-insurgency strategy he had initiated eight months before was working, against all odds and expectations. Violent incidents had fallen off dramatically. Former Sunni insurgents had come around and begun to oppose al-Qaeda. Dangerous Shiite militias were putting down their arms. Instead of conceding futility and abandoning Iraq to chaos and civil war, there was a good chance the United States could stabilize the country enough to begin a relatively bloodless and honorable phased withdrawal. The general brought, in short, unwelcome news, at least to many Democratic lawmakers. ... Obama, Biden, and Clinton are now even more directly Petraeus’s bosses than they were on that day in September 2007. As they proceed to escalate the war in Afghanistan and dial down the operation in Iraq—and as they confront new dangers in Pakistan and Iran—they are now on the same team with the general, no matter how far apart they were back then. For them, and particularly for President Obama, the responsibility and consequences of wielding American power have become very real—as they long have been for the general. On the hard questions of war, the Obama White House is not just listening to Petraeus but heeding his advice. ... In the sorry three-year saga of events in Iraq after the invasion, there had been only one unequivocal success—the 101st Airborne’s occupation of Mosul, under the command of David Petraeus. If there is one basic reason he succeeded where others had failed, it was his enthusiastic embrace of nation building, which was anathema to the Bush administration. ... Petraeus believed the pre-9/11 soldier had been taught what to think. He wanted the post-9/11 soldier taught how to think. ... At the end of November, when Obama committed to a surge in troops, he pushed Petraeus to accelerate its pace. He wanted results to come sooner rather than later, so that he could offer the American people some prospect of an end. But the course he embraced was, in essence, the Iraq strategy he had opposed three years earlier—Obama had come full circle. And whatever the results in the short term, the strategy pre-supposes that America will be present in force for years to come. Successful counter-insurgency comes in only one size: long.--Mark Bowden

Ford completely destroyed the massive brand value that Volvo had built up over the years. Geely is getting Volvo for next to nothing. Ford might as well be giving the brand away.--Matthew DeBord

[Rupert Murdoch] is quite happy to have his newspapers express views contrary to his own when it sells papers. The media market determines media bias – and – as the above string of numbers show – the media market has a conservative bias and that bias is getting stronger. Media bias follows the money-making bias of media owners. People who proclaim liberal media bias are just not following the dollars.--John Hempton

Sheep is just as bad; pork and chicken are half as bad; cod or wheat are at least eight times less carbon-intensive; potatoes and herring are far better still. Organic methods reduce carbon dioxide emissions, but not by much. Yet this all looks modest relative to the costs of transport. Vaze reckons that steak’s emissions will get you about eight miles by plane, or 15 miles if you travel alone in a car. As for the tax, it should be on all greenhouse gases, not just cow burps. I suspect it would create a few vegetarians, perhaps better diets for cows, and headaches for the taxman. --Tim Harford

I suppose this dissonance is captured, for college basketball, in a single image: the spectacle of muscular, tattooed, seeming warriors strutting about in baggy silk culottes that might as well come with a matching man-purse. But even if you dress like a sissy, need you act like one? I understand it’s an important game, and that you desperately want to win, and that you yearn for victory with all your precious, over-inflated heart. But man up. The other team was better. Or maybe just luckier. Or maybe you should have practiced your free throws harder last summer. Whatever the reason, the gods of basketball have found you wanting. So pull up your big-girl panties and get over it. And if you’re going to cry like a big overgrown sissy, at least have the self-respect to do it in the locker room.--Tony Woodlief

Women's liberation is the liberation of the feminine in the man and the masculine in the woman.--Corita Kent

After crunching the data—including the women's facial preferences, their country of origin and that country's national health index—the Face Lab researchers proved something remarkable. They could predict how masculine a woman likes her men based on her nation's World Health Organization statistics for mortality rates, life expectancy and the impact of communicable disease. In countries where poor health is particularly a threat to survival, women leaned toward "manlier" men. That is, they preferred their males to have shorter, broader faces and stronger eyebrows, cheekbones and jaw lines. ... A woman might be attracted subconsciously to a high-testosterone man because he'll give her kids an edge health-wise. But if health comes at the expense of fidelity and good parenting, how much does masculinity really matter? The apparent answer is not so much—if you're a woman living in a country with a decent health-care system and few harmful pathogens. While a masculine father's "good genes" may confer health advantages to children, so do good medical attention and a clean environment. ... generally speaking, the researchers found that a nation's health index explained more of the variation in women's masculinity preferences than did many culture-specific female norms identified in previous studies.--Jena Pincott

Monday, March 29, 2010

The End of Modern Portfolio Theory

In a word, 'envy'.

I think Falkenstein has written a masterpiece--that can be read in a few minutes--that challenges core assumptions in finance, economics, and policy.

Interestingly, even envy can be arbitraged. That's part of my trading model.

Arnold Kling on how the ruling class is gaming the rest of us

It seems to explain a lot:
My theory of the ruling class is that it comes from the lower right quadrant (teachers). That is, people who are highly educated but lacking in useful skills. If you will, the suits are in the lower-right quadrant and the geeks are in the upper-right quadrant.

My theory is that the ruling class gets its strongest support from people in the lower-right quadrant. They identify strongly with the ruling class. Placing an artificially high value on educational credentials is in the interest of the ruling class and everyone else in the lower-right quadrant. If it were not for the protection provided by credentialism and government employment, my guess is that many of those in the lower-right quadrant would have incomes no higher than those of people who are not college educated.

The challenge for the ruling class is to keep the other three quadrants (of electricians, engineers, and manual laborers) from uniting in opposition to the ruling class. To try to retain support among the highly-educated who are skilled, the ruling class tries to blur the distinction between the upper-right quadrant (engineers) and the lower-right quadrant (teachers). The ruling class would prefer to lump them all together into "the educated elite," or "technocrats." I fell for that one for a long time, but just recently the light bulb came on--hence the matrix.

Relative to the non-college educated, one tactic is to keep them sharply divided along ethnic lines. If people on the left side of the matrix think that their main threat comes from people of different skin color, then they will not unite against the ruling class.

Careful shorting that US Dollar

Goldman stops out of its short gold trade, and takes some significant losses. As awful as things are here, they are worsening faster elsewhere.

Here are a couple posts from November, one on value relative to gold, and another from China's perspective, both fretting over the possibility of short the USD.

Of course, Goldman struck first. We'll see who laughs last.

Quotes of the day

The challenge for my generation was to provide an intellectual defense of liberty. The challenge for your generation is to keep it.--Milton Friedman

People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we're always up against a kind of in-built suspicion of markets. There's always a temptation to believe that markets succeed by looting the unfortunate. ... So even if a recession as bad as this one were the price of free markets—and I don't believe that's the correct way of looking at it, because government actions contributed so greatly to the current problem—but even if a bad recession were the price, you'd still decide it was worth paying. Or look at developing countries. China, India, Brazil. A billion people have been lifted out of poverty since 1990 because their countries moved toward more market-based economies—a billion people. Nobody's arguing for taking that back. ... When I think of my children and grandchildren, yes, they'll have to fight. Liberty can't be had on the cheap. But it's not a hopeless fight. It's not a hopeless fight by any means. I remain basically an optimist.--Gary Becker

Perhaps the best place to start is to acknowledge what we cannot do. If recent events have taught economists and policy makers anything, it is the need for humility. One thing we cannot do very well is forecast the economy. The recent crisis and recession caught most economists flat-footed. This is nothing new. We have never been good at foretelling the future, but when the news is favorable, others forgive our lack of prescience.--Greg Mankiw

How about investigating whether the SEC had any reasonable basis for believing [John] Mack’s short-seller story in September 2008 when it acted on his pleas, and whether Mack had any plausible grounds to believe the story himself? Now there’s a probe that might turn up something.--Jonathan Weil

Short-selling became particularly controversial during the recent bear market, when many of its practitioners turned a profit while almost all other investors were suffering. This fueled long-held concerns that short-sellers might be inducing the very price declines from which they profit. A series of regulations have been imposed in the last few years to restrict short-sellers’ behavior. These concerns are largely unfounded, however, according to the new study, titled “How Are Shorts Informed? Short Sellers, News and Information Processing.” Its authors are Joseph E. Engelberg and Adam V. Reed, both finance professors at the University of North Carolina at Chapel Hill, and Matthew C. Ringgenberg, a Ph.D. student there. The study has been circulating since January as an academic working paper. Their work suggests that the average short-seller has done well through astute research and analysis, not market manipulation.--Mark Hulbert

Of course, a big chunk of those day traders won't know they're doing worse than index funds. Because they'll look only at their gross trading returns. In so doing, they will ignore:
* Brokerage commissions
* Taxes
(~50% on short-term gains)
* Research costs
* The opportunity cost of the hours and hours they spend trading (which could be spent doing something else).--Henry Blodget

... the standard conception of self interest is not cynical enough: envy can explain most of what greed can, plus more. ... [Robin Hanson] notes that perhaps one reason for the marked decline in fertility among developed nations is that for women, being successful at work signals higher status than being a full-time mom. Thus, many women choose to have fewer children to signal their status. This is envy because seeking status is motivated by a desire to outperform peers, as opposed to anything related solely to mere wealth. Indeed, from an evolutionary standpoint children are the ultimate form of wealth, but if we are hardwired to outdo our peers that objective is no longer primary, but rather incidental.--Eric Falkenstein

It's not how much money you spend that makes you rich. You don't know; that guy might have spent all his money just to buy that car and he has nothing else. So he might not be rich at all.--Jeff Opdyke's kid

Even though the American healthcare system can use many reforms, regrettably the bill that passed the House and Senate is a messy compromise to attract reluctant Democrats that is short on needed reforms. Instead, the bill is filled with many complicated, and generally bad, new regulations, higher subsidies, and greater taxes. The most important needed reform is an increase the fraction of total medical costs that come from out-of pocket expenses in the form of large deductibles and significant co-payments. Out-of-pocket spending accounts for only about 12% of total American spending on healthcare, whereas the share of out-of –pocket spending is over 30% in Switzerland, a country considered to have one of the better health delivery systems. Partly because of this major difference, health care takes 11% of Swiss GDP compared to the much higher American percentage. As far as I can discover, nothing in the new bill really tries to raise the out-of-pocket share, and some changes would reduce it even further.--Gary Becker

Drafting a good bill would have been easy, [Becker] continues. Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets.--Peter Robinson

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.) In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do?--John Cassidy

It’s always been understood that Medicare was unsustainable, and had to be cut to keep the deficit from exploding. Now they are planning to cut it in the out years, but use the money for insurance subsidies, not deficit reduction. I say we should blow up the whole system, and start over with DeLong’s huge HSA plan, financed by forced saving and government subsidies. Then add a mandatory catastrophic plan, I don’t much care if it is single-payer public catastrophic insurance or private insurance, as long as people have the option of topping it off with extra private insurance. DeLong recommended HSA plans so large that most people would pay for almost everything out of pocket. Then get rid of everything else, Medicare, Medicaid, tax breaks on health insurance, state insurance regulations, etc. Indeed I’d go back to the pre-FDA days, and let everyone do what Rush Limbaugh did. Treat grown-ups like grown-ups. Yes, I know it’s an impossible dream. In the 21st century we’ll all be children. The pioneer days are gone forever. Just so I don’t get accused of “nihilism” I will take a wait and see attitude on Medicare. If there really are reforms that save a lot of money, then I’ll give Obama credit. I’m not a doctrinaire Republican, indeed I’m not a Republican at all. Obama has done some good things in the war on drugs, the space program, and a few other areas. But right now I see definite spending increases, and possible savings in a program that was unsustainable anyway. I don’t regard that as “deficit reduction.” I hope I’m wrong.--Scott Sumner

Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead. ... A less likely scenario is that China would be forced to appreciate the currency sharply by, say, 40 %. This is likely to cause significant difficulties for Chinese companies. Again, there could be two possible outcomes. The first is that Chinese companies would no longer be able to export because of sudden loss of competitiveness. The market vacuum newly made available by the exit of Chinese products would be taken up by products from other low-cost countries like Vietnam and India. American companies would not be able to compete with these countries. So this would not add new jobs in the US, but the inflation rate would move higher. ... In either case, global economic growth would be about 1.5 percentage points lower, not higher, if China revalued its currency as Krugman demands. The magnitude is probably exaggerated, but the direction is certain.--Yiping Huang

President Obama blames the Bush Administration for the high cost of government - a bad situation that existed "when I walked in the door." One need not dwell on the fact that Senator Obama went to Washington in 2004 and proceeded to vote for the spending he now tags as profligate. The point is extremely well-taken: Bush43 did a fiscal belly flop, drenching the national ledger in red ink. For that, he is rightly held in low esteem, and his party swept from office. Now the Democrats are making Mr. Bush's failures their own. Mushrooming deficits have not saved the economy. Even assuming that job losses have bottomed out, today's optimistic scenario, no post WWII recession has taken longer to turn around. And no recession has suffered employment losses so steep in percentage terms. This might be blamed on a Republican predecessor too, but for the fact that such a debacle was precisely what the Obama Administration forecast would be avoided by the February 2009 "stimulus."--George Bittlingmayer, Arthur Havenner & Thomas Hazlett

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.--Robert Samuelson

I’m so excited I can hardly contain myself.--Patricia Cohen, on filing a lawsuit against her ex-husband Stevie

Almost 18 years ago, I tore up a picture of Pope John Paul II on an episode of "Saturday Night Live." Many people did not understand the protest -- the next week, the show's guest host, actor Joe Pesci, commented that, had he been there, "I would have gave her such a smack." I knew my action would cause trouble, but I wanted to force a conversation where there was a need for one; that is part of being an artist. All I regretted was that people assumed I didn't believe in God. That's not the case at all. I'm Catholic by birth and culture and would be the first at the church door if the Vatican offered sincere reconciliation. As Ireland withstands Rome's offensive apology while an Irish bishop resigns, I ask Americans to understand why an Irish Catholic woman who survived child abuse would want to rip up the pope's picture. And whether Irish Catholics, because we daren't say "we deserve better," should be treated as though we deserve less.--Sinead O'Connor

Some physicists are convinced that the properties of information do not come from the behavior of information carriers such as photons and electrons but the other way round. They think that information itself is the ghostly bedrock on which our universe is built. Gravity has always been a fly in this ointment. But the growing realization that information plays a fundamental role here too, could open the way to the kind of unification between the quantum mechanics and relativity that physicists have dreamed of.--Technology Review

Friday, March 26, 2010

President Obama's master class for diplomacy

[President Obama] immediately presented Mr Netanyahu with a list of 13 demands designed both to the end the feud with his administration and to build Palestinian confidence ahead of the resumption of peace talks. Key among those demands was a previously-made call to halt all new settlement construction in east Jerusalem.

When the Israeli prime minister stalled, Mr Obama rose from his seat declaring: "I'm going to the residential wing to have dinner with Michelle and the girls."

Quotes of the day

[Steve] Eisman recognizes that the subprime market is a disaster waiting to happen, a monstrous fire hazard that, once lit, will engulf the housing market and financial firms. Yet he continues to throw Molotov cocktails at it. Eisman is no noble outsider. He is a willing, knowing co-conspirator. Even worse, he and the other shorts Lewis lionizes didn’t simply set off the global debt conflagration, they made the severity of the crisis vastly worse. So it wasn’t just that these speculators were harmful, and Lewis gave them a free pass. He failed to clue in his readers that the actions of his chosen heroes drove the demand for the worst sort of mortgages and turned what would otherwise have been a “contained” problem into a systemic crisis. The subprime market would have died a much earlier, much less costly death absent the actions of the men [Michael] Lewis celebrates.--Yves Smith

Hiring consultants allows one to affiliate with prestigious folks, while focus groups allow one to brag about “listening to the people” (which is in fact how prediction markets are usually sold). Apparently actually improving decision quality is way way down in the manager priority list.--Robin Hanson

[David] Frum is one of the few conservatives who sees rather clearly that the Right’s current agenda is outmoded and self-destructive, and he wasn’t shy about saying so.--John McQuaid

Senate Majority Leader Harry Reid mistakenly called out "no" Thursday when asked for his vote on the health care reconciliation bill, setting the chamber howling with laughter. Reid voted the wrong way when the clerk called for his vote, realized his error and quickly changed his vote to "yes." "He did it again," someone said amid laughter. Reid, who spent months persuading fellow senators to vote "yes" on President Obama's top domestic priority, made the same mistake December 24 when voting on the original health care bill.-CNN

We’re going to have to start borrowing from Mars or Venus soon.-Russ Roberts

I see today's ruling class as the equivalent of the British generals who kept launching offensives in World War I or the executives at Citigroup and Freddie Mac who loaded up on sub-prime mortgages. If my views seem extremist compared to theirs, so be it. I also got the memo that health care reform will reduce the deficit. That is a baloney sandwich.--Arnold Kling

Although it arose from noble impulses and was to the overall benefit of the nation, racial desegegration was often implemented in a way that was devastating to black communities. It frequently destroyed black schools, reduced the numbers of black principals who could serve as role models, and made school a strange and uncomfortable environment for black children, a place many viewed as quintessentially “white.”--Description for Stuart Buck's Acting White: The Ironic Legacy of Desegregation

Wildcat Nation swung into action. E-mails popped onto my BlackBerry just about every minute for a couple of hours. The themes were repetitive and highly unoriginal. Most of them used the words “racist’’ and “elitist’’ — usually framed as “Your a racist’’ or “Your an elitist.’’ People. It’s “you’re’’ a racist. Not “your.’’ Whoops. There I go, being elitist again.--Curlyhaired Boyfriend

David Mamet's master class for writers

here (colorful language alert), via The Browser. Here's an excerpt:











Thank you seniors!

I had a smile on my face all week.

Photo source here.

UPDATE: WSJ's Stephen Grocer relates:
Louis Dale and Mark Coury have either interned or will intern at the investment bank, Bloomberg reports. They are hardly the first Cornell players to spend the summer in New York at Goldman. Former players Khaliq Gant and Jason Battle also held internships and Battle is currently a securities analyst at Goldman Sachs. It’s good to know they have a back-up plan if this whole basketball thing doesn’t work out.

Thursday, March 25, 2010


Arnold Kling meditates:

Pharoah created jobs for us. Moses led us away from those jobs. Even though those jobs helped to complete public infrastructure. Even though they were green jobs, where we used our muscles and our backs instead of fossil fuels.

Moses could have been part of the ruling class in Egypt. He chose freedom instead. Those of us who followed Moses also chose freedom. Freedom brings risks. But we preferred the risks of freedom to the security of bondage.

Do not confuse government with G-d. Government cannot miraculously provide us with manna--or health care. When we look at government, we should not see G-d. We should see Pharoah. Government-worship is Pharoah-worship.

Quotes of the day

But nevertheless, in some aspects of [China's] policy, particularly with respect to censorship, with respect to surveillance of dissidents, I see the same earmarks of totalitarianism, and I find that personally quite troubling.--Sergey Brin

Google’s decision should also tell the U.S. government something about how to advocate its interests with China. The Google controversy coincided with cyber attacks against over 200 American companies, believed by U.S. authorities to have been launched by the People’s Liberation Army. China’s unchallenged behavior shows why we should not be optimistic that romancing Beijing will produce crippling sanctions against Iran’s nuclear weapons program any time soon. Instead, the Obama administration should emulate Google’s approach in official dealings, and support U.S. businesses in situations similar to Google so they do not have to act alone.--John Bolton

Yet, many advocates of socialized medicine seem to prefer that everyone be forced into a rationing system rather than have the government provide some basic minimum and let patients and providers who want to opt out of the system do so. So, what started out as a belief in a right to health care ended up as a belief in preventing people from getting health care. Thus my conclusion that it's not about rights at all, but about power.--Arnold Kling

This is the canary in the coal mine; if Social Security's finances are in trouble, Medicare's will also be looking worse. While I was at the Kauffman Foundation's economics blogger forum last Friday, a show of hands indicated that about 80% of the people there thought America would have a serious fiscal crisis in the next two decades. This is how it starts--not with a bang, but with a moderate decline in revenues.--Megan McArdle

Steny Hoyer was notably silent when it was President Obama making pitchfork threats, and when his political ally ACORN was busing mobs to executives’ homes. Man up, Steny. Or just, you know, shut up. You’re a hypocrite when it comes to thuggery, and you and your colleagues aren’t credible playing the victim.--Glenn Reynolds

I am a registered Democrat, but since I have voted (mostly) Republican in recent years, let me assure you that I unequivocally condemn those threats and any possible acts of violence taken in response to the bill. That is not even remotely the way to settle such political disputes. Such things must be handled at the ballot box. That said, and for similar reasons, I also unequivocally condemn the actions of the Democratic Party in running roughshod over the clear will of the American people. Every poll taken in proximity of the vote showed our citizenry in substantial opposition to the global health care reform being pushed through Congress by you, Speaker Pelosi and the administration. And yet, in the grand tradition of totalitarian regimes everywhere, you employed “any means necessary” to make sure your ends were achieved, bribing and threatening your fellow Congressmen and women, etc. It is small wonder that our people are angry. It would be amazing if it were otherwise. You have reaped a whirlwind by subverting a democracy. Now you must deal with it. The Democratic Party is no longer “progressive” or “liberal.” It is reactionary. And you and your cohorts have forever defined yourselves as reactionary politicians. Violence is to be condemned, but so is the desecration of a great democracy.--Roger Simon

Here’s what a cynical charlatan James Cameron is. The first “Avatar” DVD release occurs on Earth Day to take full advantage of all his Stupakky fans who want to feel good about themselves without actually doing anything to further their cause. But it’s a barebones release. This way Cameron can make a whole lot more money in the future releasing the same film again and again in Special Editions, Deluxe Editions, Platinum Editions and so on. Does this sound like someone who gives a hi-ho hearty damn about Mother Earth? No, this sounds like just another greedy capitalist wringing every possible nickel from his wares by finessing the market in a way that promotes as much consuming as possible of a product that, by the way, comes in a thick plastic case that must have a landfill half-life of a couple thousand years.--John Nolte

In several interviews, [Tom] Hanks presented a version of World War II in which racism played the dominant role. The Japanese "were out to kill us because our way of living was different," he told Time magazine. "We, in turn, wanted to annihilate them because they were different." Forget Pearl Harbor, the Bataan Death March and Tokyo's territorial expansionism. The United States was really fighting a war against human diversity, according to the former star of "Bosom Buddies." "It would be naive to assume that racism was not part of that quotient of World War II," Mr. Hanks said. That is true. Racial sentiments no doubt played a role. President Franklin D. Roosevelt's internment order for Americans of Japanese ancestry - overseen in California by state Attorney General Earl Warren and later upheld by the liberal majority on the U.S. Supreme Court - remains a controversial episode in American history. Some government propaganda showed the Japanese in an unflattering light, but propaganda against Axis partners Germany and Italy did as well. The idea that the United States was making war on "the yellow people" is nonsense, however. America was allied with China and fought to liberate all parts of Asia that had been overrun by the Japanese Empire, including the Philippines, which was a U.S. commonwealth. The fact that the Japanese were Asians did not make a conflict against the nation of Japan a de facto race war.--Washington Times editorial board

John Carney, managing editor of financial news and gossip vertical Clusterstock at Business Insider, was let go this afternoon by B.I. owner Henry Blodget, we've confirmed with sources familiar with the matter.--Foster Kamer

Carney certainly has his idiosyncrasies, and he wouldn’t last a week at Bloomberg, but he’s perfectly open about them, and one of the great things about media companies in general and blog companies in particular is that they’re pretty good about letting the talent do what it needs to do, just so long as the stories keep coming. And Carney always kept the stories coming. What’s more, the beating heart of Clusterstock is the dynamic duo of Carney and Joe Weisenthal; now that he’s fired Carney, Blodget must know that he risks losing Weisenthal as well. If he loses them both, he’ll rapidly become something like 24/7 Wall Street or Minyanville: a site with lots of low-quality traffic and generally uninspiring editorial content. --Felix Salmon

We believe it is unlikely that many brands will gain market share by using heavy models in their ads.--Naomi Mandel

[Cornell is] a perfect team. It's hard to get them out of what they want to do. All of them can shoot. They run their offense. They don't break it. Their whole team can shoot. Anybody can step out and shoot. They've got our full attention.--John Wall, Kentucky guard who is projecting to be the first pick of the upcoming NBA draft

Wednesday, March 24, 2010

Oddest comparison of the day

And in the oddest contrast imaginable between them: Kentucky started Mark Coury 29 times under Billy Gillispie in 2007-08. Cornell has started the UK transfer once.
OK, no more Big Red posts.

At least until tomorrow.

I have a big smile on my face after reading this

..., 38.4 percent of the Wildcats' scoring margin comes from free throws, which is an incredibly dangerous stat according to our model -- so much so that we've been calling it the Magic Bullet for a couple of years. Why is it such a big deal? Start with the Wildcats' offense. If they run into a disciplined defense or a ref calling a loose game inside, they might not get the same calls they're used to seeing. But that's not the biggest concern, because Kentucky is right around the national average in terms of percentage of points that come from the line; the Wildcats have other ways to score. The big problem is on defense. Normally, the Wildcats' ability to protect the paint without fouling is a major advantage -- only 18.8 percent of opponents' points come from the line, which is 272nd in the country. But that means nothing to Cornell, because the Big Red's game plan is based around bombs, not dunks. Just 15.9 percent of Cornell's scoring comes from the FT line, and that's 341st in the country. In other words, Cornell has proven it can win without venturing into the lane, which takes Kentucky's shot-blocking prowess out of the equation. Instead, it's all about the long ball -- the kind of high-risk/high-reward strategy successful GKs tend to employ. It also, interestingly, makes Cornell's offense more efficient than Kentucky's.

Even without getting into a discussion about whether John Calipari-led teams typically exhibit championship-level discipline, the Wildcats have a few other weaknesses. They're not good at generating turnovers (19.7 percent of opponent possessions, 219th in the country) and they let opponents hit the offensive glass (offensive rebounds on 31.6 percent of missed shots, 122nd). They're also just average at protecting the ball (turnovers on 20.2 percent of possessions, 159th). So the key to this game will be whether Cornell can exploit those flaws and maximize its own possessions.

By now, you know Ryan Wittman, Louis Dale, Jon Jaques & Co. will hit their 3s; Cornell has shot 17-for-39 (43.6 percent) from beyond the arc in the tournament so far, which is just about what it's done all season (43.9 percent, best in the NCAA). But the Big Red need offensive rebounds and turnovers to give themselves enough opportunities for those shots to translate into points. And just as we pointed out with St. Mary's, it's worth noting that the model gives Cornell a much better chance of pulling an upset in this game than it did against Wisconsin.

And for those of you who would like to know how Jeff Foote ended up transferring to Cornell, here is a nice article about it. Talk about silver linings!

Glen Whitman calls out Brad DeLong on his selective comments censorship

here. It's happened to me, too.

I wouldn't deign to click a link to his site, never mind posting one here. The thing that bugs me is that:

  1. it can easily seem like comments are welcome, and not redacted
  2. there's no clear disclosure that there is a practice of censorship--only the commenters who bother checking back at the site realize what is going on; not the agora at large

Good job, Glen.

Peter King with a great NFL update

I don't always agree with him, but King has some great stuff on the overtime change, the institutional tension (between owners, coaches and commissioner Goodell), Bob Kraft, Tim Tebow, and Ben Roethlisberger.

From giving aid to needing it

Bono, the Irish rock star, has put significant money into Elevation Partners, arguably the worst run institutional fund of any size in the United States. Bono is listed as one of the five members of the firm’s investment team.

Quotes of the day

[Dick] Fuld apparently loved the report and has been telling people it vindicated him. He can sleep easy now, which must be nice.--Bess Levin
I’d say that reaction is not inconsistent with the way he ran his firm.--Jim Chanos

He was so young, he did not realise how much less is the sense of obligation in those who receive favours than in those who grant them.--W. Somerset Maugham

... the betting norm is so important. Moving from identity to opinions about how the world works is a lot less tempting once you commit to putting your money where your mouth is.--Bryan Caplan

Good-bye social constructs. Welcome biochemical determinism. The argument goes like this: men have too much testosterone. Because of it they take excessive risks, and are impervious to the consequences of their actions. They are aggressive, violent, competitive, and do not play by the rules. What men really need is to be run by women... because then they will be able to get in touch with their feminine sides. With more women in charge, men will be softened up.--Stuart Schneiderman

We have been put on earth to make Kafka come true.--old Soviet proverb

Reason has limited possibilities, whereas the absurd knows no limits.--Andrei Loshak

The free market, by enabling people to compete openly, is the most effective device that has ever been invented for making people pay for their prejudices, and thus for making it costly for them to exercise it. What you do when you impose equal pay for equal work law, is that you make the expression of prejudice costless, and as a result you harm the people you intend to help.--Milton Friedman

The real Scott Brown lesson, it turned out, was embraced by the Democrats maybe even more than it was by the Republicans this winter. Don’t give up. Don’t take anything for granted. Don’t let the other side tell you whether you have a shot or not. Work it and believe in it.--Jules Crittenden

They love you at the beginning and they love you at the end. It’s the middle that’s tough.--Steve Grogan

The 1964 Civil Rights Act had more support from Republicans than Democrats. In the Senate 21 Democrats voted against the bill, vs. only 6 Republicans. It is true that in the late 1960s many white racists moved over to the Republicans, but the 1964 Civil Rights Bill wasn’t the key factor. LBJ won white votes by a landslide in 1964. The big problems for Democrats were busing, soaring crime rates, and affirmative action.--Scott Sumner

Thanks to a spiraling deficit, the economy is chugging merrily towards a broken bridge over a rocky canyon—a fact that almost no one from either party is willing to do anything about. America, according to the CBO, is on an "unsustainable" fiscal path, and the nation's solid-gold credit rating may be at risk. So it doesn't matter how many times blinkered legislators repeat to themselves, "I think I can, I think I can": Nothing short of significant cutbacks to entitlement spending is going to magically transform the U.S. budget into the little engine that could. Instead, politicians are paying for new entitlements by shifting money from unsustainable programs—money that ought to have gone toward getting America's fiscal house in order. Democrats made history all right—but only by sacrificing the future.--Peter Suderman

As America's teetering tower of unkeepable promises grows, so does the weight of government, in taxes and mandates that limit investments and discourage job creation. America's dynamism, and hence upward social mobility, will slow, as the economy becomes what the party of government wants it to be -- increasingly dependent on government-created demand. ... Politics in a democracy is transactional: Politicians seek votes by promising to do things for voters, who seek promises in exchange for their votes. Because logrolling is how legislative coalitions are cobbled together in a continental nation, the auction by which reluctant House Democrats were purchased has been disillusioning only to sentimentalists with illusions about society's stock of disinterestedness. Besides, some of the transactions were almost gorgeous: Government policy having helped make water scarce in California's Central Valley, the party of expanding government secured two votes by increasing rations of the scarcity. Thus did one dependency lubricate legislation that establishes others. ... Seeking a silver lining? Now, perhaps, comes Thermidor. That was the name of the month in the French Revolutionary calendar in which Robespierre fell. To historians, Thermidor denotes any era of waning political ardor. Congressional Democrats will not soon be herded into other self-wounding votes -- e.g., for a cap-and-trade carbon-rationing scheme as baroque as the health legislation. During the Democrats' health-care monomania, the nation benefited from the benign neglect of the rest of their agenda. Now the nation may benefit from the exhaustion of their appetite for more political risk.

Correlation of the day: More power, more lying

Explanation here, via Dan Primack.

A. No one

Q. Who regulates the regulators?

UPDATE: Schools redux, sponsored by the current Secretary of Education.

UPDATE: Up to our eyeballs in it.

Tuesday, March 23, 2010

A clearer picture of healthcare legislation costs

The bottom line is that Congress would spend a lot more; steal funds from education, Social Security and long-term care to cover the gap; and promise that future Congresses will make up for it by taxing more and spending less.

from former CBO director Douglas Holtz-Eakin:
In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.

Gimmick No. 1 is the way the bill front-loads revenues and backloads spending. That is, the taxes and fees it calls for are set to begin immediately, but its new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only 6 years of spending.

Even worse, some costs are left out entirely. To operate the new programs over the first 10 years, future Congresses would need to vote for $114 billion in additional annual spending. But this so-called discretionary spending is excluded from the Congressional Budget Office’s tabulation.

Consider, too, the fate of the $70 billion in premiums expected to be raised in the first 10 years for the legislation’s new long-term health care insurance program. This money is counted as deficit reduction, but the benefits it is intended to finance are assumed not to materialize in the first 10 years, so they appear nowhere in the cost of the legislation.

Another vivid example of how the legislation manipulates revenues is the provision to have corporations deposit $8 billion in higher estimated tax payments in 2014, thereby meeting fiscal targets for the first five years. But since the corporations’ actual taxes would be unchanged, the money would need to be refunded the next year. The net effect is simply to shift dollars from 2015 to 2014.

In addition to this accounting sleight of hand, the legislation would blithely rob Peter to pay Paul. For example, it would use $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are expected to rise as employers shift from paying for health insurance to paying higher wages. But if workers have higher wages, they will also qualify for increased Social Security benefits when they retire. So the extra money raised from payroll taxes is already spoken for. (Indeed, it is unlikely to be enough to keep Social Security solvent.) It cannot be used for lowering the deficit.

A government takeover of all federally financed student loans — which obviously has nothing to do with health care — is rolled into the bill because it is expected to generate $19 billion in deficit reduction.

Finally, in perhaps the most amazing bit of unrealistic accounting, the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies. But Medicare is already bleeding red ink, and the health care bill has no reforms that would enable the program to operate more cheaply in the future. Instead, Congress is likely to continue to regularly override scheduled cuts in payments to Medicare doctors and other providers.

Quotes of the day

In the long run, we are all better off because our dead ancestors stuck with capitalism.--William Easterly

Your driver informs you that the taxicab business isn’t just for riders; its for drivers, too. Drivers need incomes, and his income of late has been too low to enable him to pay his bills. “So,” your driver announces, “by first going out to Montauk before heading to Times Square, I’ll make a lot more money off of you than I would if I drove you directly to Times Square. You’ll get there, but just not as quickly or as inexpensively as you would if I drove you there directly. Relax and enjoy the view.” ... You’d report any such cab driver as described here to the authorities and call it a crime. But when Congress does the same thing, the producer-favoritism is typically discussed respectfully as “trade policy.--Don Boudreaux

Why am I defensive about Walmart? Let me tell you about the long-gone downtowns, my friends. Before I do, I know you have some wonderful, cheerful, perhaps tearful, stories about the downtowns of your youth. Me too. I don’t want to hear them. Let me tell you, the late downtowns in East Texas burgs were usually small stores run by locals. They generally priced things three times more than they were worth. Maybe they had to, but I don’t care. I don’t want to pay $30 for a hammer and a fistful of nails. If I wanted a banana, I had to go to another store. If I wanted to pick up a pair of shoes, another store. The parking was minimal, and the choices were few. If you worked, by the time you got off work, many of the stores were closed. Saturday, they might be open, but Sunday they were closed again. So for the working individual, the mother or father who had a kid wake up in the night with aching gums from teething, and you wanted something to make it all better, you had to wait until the next day. If you noted it was 7 p.m. and you were expecting dinner guests at 8 p.m., but forgot to buy hamburger for the meat loaf, you were, once again, screwed. If you’re poor and barely making it, or even if your income is middle-of-the-road, it’s good to get what you need at slashed prices, anytime of the day, seven days a week, in a big, ugly, over-lit store that closes only on Christmas and half a day on Christmas Eve. If you forgot to get a gift card and a six pack of tall boys, you have to think, “To hell with downtown.” What we got now in our downtown are specialty stores that provide things we can’t get at Walmart, like maybe a stuffed deer head for that special place over the mantle. The stuff we really need, hell, it’s at Walmart. Here’s something else. With Walmart in town, lots of people can be put to work, far more than downtown ever employed. Someone has to run a 24-hour store, check people out, sack groceries, push carts, place stock, work at the McDonald’s sequestered in the back. The workers have all skin colors, not something I saw a lot of downtown, except for immigrants unloading trucks.--Joe Lansdale

I have been waiting for Paul Krugman to tell me how we are going to handle the debt, once we get this recession out of the way. No, really. There’s no economist whose judgment I trust more. (About economics, that is.) I’ve been all for the stimulus and the jobs bill and even, I guess, the sundry bailouts. But don’t we at some point have to start paying the money back? And how are we going to do that? Krugman’s failure (unless I’ve missed it) to give us an answer to that question is one of the things that makes me worry. A final word to Matt Yglesias, who thinks my problem is “thinking too moralistically about the economy,” because I express doubt that we can escape without pain from the dilemma we find ourselves in. Obviously (or perhaps not) this is a prediction and not a hope. I am not in favor of pain. I just don’t see any way to avoid it. Yglesias apparently believes that we can escape our fiscal dilemma without pain. I would like to know how. And if there is such a way, why have we denied ourselves for so long? Why do we ever bother to show fiscal restraint? Why have taxes at all? Why deny ourselves anything money can buy? If $15 trillion in debt can be a freebie, why not $30 trillion or $60 trillion?--Michael Kinsley

After nearly a month-long scapegoating campaign in which Greek PM G-Pap said he would spit in the faces and skullf#@* all those who dared to buy Greek CDS (because as we have all been lied to by everyone who doesn't know the first thing about CDS, it is CDS buying not bond selling that drives spreads), with the stupidity reaching as far and wide as the Spanish and German secret services, which said they would spy on CDS traders in London and New York, Greek daily Kathimerini has just uncovered that the biggest speculator, holding 15%, or $1.2 billion of the total $8 billion in Greek notional CDS, has been a firm that operates about 2 blocks away from the parliament building in Athens - the state-owned Hellenic Post Bank (TT)!--aka Tyler Durden

This paper examines the effect of alcohol consumption on student achievement by exploiting the discontinuity in drinking at age 21 at a college in which the minimum legal drinking age is strictly enforced. We find that drinking causes significant reductions in academic performance, particularly for the highest-performing students.--Scott E. Carrell (UC-Davis and NBER), Mark Hoekstra (University of Pittsburgh) and James E. West (US Air Force Academy)

So higher frequency electronic trading DOES improve liquidity and price discovery

according to Terrence Hendershott, Charles M. Jones and Albert J. Menkveld.

Surprise, surprise.

Similarities between the Mafia and corporate fraud

highlighted in an interesting article by Mark Gimein.

It reminds me of The Sopranos episode from 2000 entitled "Bust Out".

Gimein seems to give the government less than their due, only citing tepid regulators, and the FBI's blinders at the end of the piece. Hey Mark, what about Fannie and Freddie?!? Talk about fraud!

UPDATE: See, even Tim Geithner gets it.

Monday, March 22, 2010

The Feldstein Trade

Drop your healthcare insurance, pay the fines, and when you need insurance, then go buy it (without being rejected for preexisting conditions).

Via Mark Perry.

Good economics reading today

Arnold Kling differs with Greg Mankiw, who differs with Alan Greenspan.

For even more fun, Bryan Caplan and Mike Shedlock have a bet on unemployment through 2015.

UPDATE: Scott Sumner calls out several economists, including himself. The whole thing is fascinating; I'll just excerpt what he said about his views on history:
I once read all the New York Times from 1928-38. History seems really different when it is actually happening. The people back then seemed just as smart as we are. Of course we have a bit more history to learn from, so we did a bit better with monetary policy this time around. But we still made many of the same mistakes, just to a lesser degree. The class distinctions back then seemed bigger–which surprised me. I knew that was the case for African-Americans, but I didn’t realize that class divisions among whites were also much greater, and that the upper class was so uninterested in the suffering of average farmers and workers. Or how much wealth was concentrated in New York City at that time. I also developed a much greater respect for the stock, bond, and commodity markets’ ability to forecast the economy. They reacted to lots of things that seemed very important at the time, and that I think actually were very important, which are totally ignored by historians. A good example is the gold panic of early 1937 and the dollar panic of late 1937.

There are three ways to think about whether a law is constitutional

Randy Barnett observes:
Does it conflict with what the Constitution says? Does it conflict with what the Supreme Court has said? Will five justices accept a particular argument? Although the first three of the potential constitutional challenges to health-care reform have a sound basis in the text of the Constitution, and no Supreme Court precedents clearly bar their success, the smart money says there won't be five votes to thwart the popular will to enact comprehensive health insurance reform.

But what if five justices think the legislation was carried bleeding across the finish line on a party-line vote over widespread bipartisan opposition? What if control of one or both houses of Congress flips parties while lawsuits are pending? Then there might just be five votes against regulating inactivity by compelling citizens to enter into a contract with a private company. This legislation won't go into effect tomorrow. In the interim, it is far more vulnerable than if some citizens had already started to rely upon its benefits.

If this sounds far-fetched, consider another recent case in which the smart money doubted there were five votes to intervene in a politicized controversy involving technical procedures. A case in which five justices may have perceived that long-established rules were being gamed for purely partisan advantage.

You might have heard of it: Bush v. Gore.

Quotes of the day

Parents are unlikely to meet much success if they insist that their children adopt any particular set of political values. We want our son to think for himself and to come to his political views, whatever they turn out to be, ultimately because he believes in them. Nevertheless, we’re optimistic that if Thomas is reared and educated properly, he will share our classical-liberal values. We have good reason to be optimistic. Classical-liberal (or, if you prefer, libertarian) political values are no more than the application to society at large, and to government, of some of the most fundamental and indispensable rules that every decent person learns early in life and adheres to until death. What are these rules? “Keep your promises.” “Tell the truth.” “Don’t take other people’s stuff.” “Don’t hit other people.”--Don Boudreaux

Pawel joined the army and married a fellow skinhead at age 18. But his sense of self changed irrevocably at the age of 22, when his wife, Paulina, suspecting that she had Jewish roots, went to a genealogical institute and discovered Pawel’s maternal grandparents on a register of Warsaw Jews, along with her own grandparents. When Pawel confronted his parents, he said, they broke down and told him the truth: his maternal grandmother was Jewish and had survived the war by being hidden in a monastery by a group of nuns. His paternal grandfather, also a Jew, had seven brother and sisters, most of whom had perished in the Holocaust.--Dan Bilefsky

Maybe it was just my education, but much of education is backwards. You study all the hard stuff, and then you find out in the real world that you don’t use it. As long as you can use an HP 12 calculator or a spreadsheet, you have the finance knowledge that you need for most management positions. I should have taken organizational behavior and social psychology — and maybe abnormal psychology, come to think of it. --Guy Kawasaki

... certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage, all of which have become increasingly complex as the Firm has undergone rapid growth in the international marketplace.--Matthew Lee's internal whistleblower letter to Lehman senior management

To understand the CIA, you need to know that from its beginning in 1947, it was divided by a class system, as rigid and acrimonious as any. Everyone in the agency, wherever he or she stood, knew about it and either benefited or suffered from it. On top were the field operatives, the officers who served overseas, ran informants, conducted covert action. In the early years, most operatives came out of Ivy League schools. Many lived off trust funds, not their modest government pay. They played tennis, lived in Georgetown, and could tell the difference between a spinnaker and a jib. But by the mid-'60s, the establishment's romance with the CIA and espionage had cooled (the Bay of Pigs had a lot to do with this), and the CIA had to turn to Main Street to fill its ranks. Ohio State took over from Yale, and the bowlers from the tennis players. ... The first thing [Deputy Director Dave] Cohen did was order a "scrub" of every informant with dirty hands. Drug dealers, dictators' minions, arms dealers, terrorists—Cohen ordered the operatives to sever ties with all of them. The only problem was, these were the people who mix well with our enemies—rogue regimes like Iran and North Korea and terrorist groups like Hezbollah and Al Qaeda. [Clinton-appointed Director John] Deutch and Cohen didn't care; they had a mandate to clean up the CIA, and that's what they were going to do. ... What John Deutch set in motion was the deprofessionalization of the directorate of operations, handing it over to bureaucrats who only went overseas to get a quick taste of life in the field before returning to the safety of the Beltway. The idea that an officer would spend his entire career abroad learning the fundamentals of espionage is incomprehensible to the new CIA. ... On January 10, 2010, CIA director Leon Panetta wrote a Washington Post op-ed in which he disputed that poor tradecraft was a factor in the Khost tragedy. Panetta is wrong. An old operative I used to work with in Beirut said he would have picked up Balawi himself and debriefed him in his car, arguing that any agent worth his salt would never expose the identity of a valued asset to a foreigner like the Afghan driver. I pointed out that if he'd been there and done it that way, he'd probably be dead now. "It's better than what happened," he said. ... If we take Khost as a metaphor for what has happened to the CIA, the deprofessionalization of spying, it's tempting to consider that the agency's time has passed. "Khost was an indictment of an utterly failed system," a former senior CIA officer told me. "It's time to close Langley."--Robert Baer

... crooked Afghan cops supply much of the ammunition used by the Taliban, according to Saleh Mohammed, an insurgent commander in Helmand province. The bullets and rocket-propelled grenades sold by the cops are cheaper and of better quality than the ammo at local markets, he says. It's easy for local cops to concoct credible excuses for using so much ammunition, especially because their supervisors try to avoid areas where the Taliban are active. Mohammed says local police sometimes even stage fake firefights so that if higher-ups question their outsize orders for ammo, villagers will say they've heard fighting. America has spent more than $6 billion since 2002 in an effort to create an effective Afghan police force, buying weapons, building police academies, and hiring defense contractors to train the recruits—but the program has been a disaster.--T. Christian Miller, Mark Hosenball, and Ron Moreau

In 1973, Yassir Arafat, Chairman of the Palestine Liberation Organisation, had an unusual problem. His elite unit, Black September, had seized international headlines by kidnapping and then murdering Israeli athletes at the 1972 Munich Olympics, along with other high-profile attacks. That had forced the world to take the PLO seriously, but now that Arafat was seeking international recognition, he needed to muzzle his own attack dogs, a hundred ruthless warriors with nothing to live for but the cause. The solution was simple. The PLO married off most of Black September, offering them Beirut apartments, shapely young brides and a “child bonus” of $5,000 if they had a baby within a year. No longer did these men have nothing to lose.--Tim Harford

For Apple, which has enjoyed enormous success in recent years, “build it and they will pay” is business as usual. But it’s not a universal business truth. On the contrary, companies like Ikea, H. & M., and the makers of the Flip video camera are flourishing not by selling products or services that are “far better” than anyone else’s but by selling things that aren’t bad and cost a lot less. These products are much better than the cheap stuff you used to buy at Woolworth, and they tend to be appealingly styled, but, unlike Apple, the companies aren’t trying to build the best mousetrap out there. Instead, they’re engaged in what Wired recently christened the “good-enough revolution.” For them, the key to success isn’t excellence. It’s well-priced adequacy. These two strategies may look completely different, but they have one crucial thing in common: they don’t target the amorphous blob of consumers who make up the middle of the market. Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market. In fashion, both H. & M. and Hermès have prospered during the recession.--James Surowieki

[Michael] Lewis is considered an expert because he worked on Wall street for 2 years and wrote Liar's Poker, an insider's view of the bluster of rich young men. As anyone who has worked in an industry for a couple decades knows, the impressions of a kid right out of college has after 2 years in a business, no matter how smart and eloquent the sojourner, are invariably quite mistaken. Indeed, Lewis's main thesis in Liar's Poker remains a theme in his latest book, the Big Short: finance is mainly an irrelevant Rube's Goldberg device for paying greedy, selfish people too much money. He notes that banks actually were shorting some products they were promoting, as if there was a big conspiracy, ignoring the fact that a market requires sellers, and increasing liquidity is a good thing because if every asset must be held to maturity, costs of financing would be much higher, etc.. Further, large financial institutions have many departments, and the fact they have different opinions is about as strange as the fact that America is full of people who disagree on whether tax rates are too high or too low. Ultimately Lewis blames everyone, but especially greedy bankers, and so in a banal sense he is correct. But Lewis will most assuredly sell more books than [Gary] Gorton, part of the reason these crises are endogenous.--Eric Falkenstein