Friday, May 28, 2010

Why I will not watch Lost

A. I was too polite to ask

Q. Was your first sexual experience with a man or with a woman?

Quotes of the day

It's hard enough for me to explain my libertarianism (government is good--including the Fed vs. the old gold standard--but we need a lot less of it) to others in New York City. My infant is a little too codependent on mommy to show any libertarian leanings; but I have a lot of hope for my elementary school student and preschooler: both of them favor my Red Sox over the Yankees!--Cav

A couple years ago, I participated in a panel discussion on libertarianism in Mike Sandel's Justice class, along with my friend and colleague Jeff Miron. Jeff is a true libertarian, and he defended that position with gusto. By comparison to Jeff, I seemed lacking in conviction. I described myself as a "libertarian at the margin." By that, I meant that given our starting point today, I believe more reliance on individual liberty and less on governmental solutions is usually a step in the right direction, but I often recoil at more radical libertarian positions. David Brooks's column yesterday offers a good explanation of skepticism about big radical ideas, such as pure libertarianism. It made me feel better about my watered-down variety.--Greg Mankiw

You have to listen. A lot of guys can talk.--Art Linkletter

Was Jesus a wandering sage? Maybe so. A failed revolutionary? Sure, why not. A lunatic who fancied himself divine? Perhaps. An apocalyptic prophet? There’s an app for that … But this isn’t history: It’s “choose your own Jesus,” and it’s become an enormous waste of time. Again, there’s nothing wrong with saying that the supernaturalism of the Christian canon makes it an unreliable guide to who Jesus really was. But if we’re honest with ourselves, then we need to acknowledge what this means: Not the beginning of a fruitful quest for the Jesus of history, but the end of it.--Ross Douthat

Greed-based utility is an assumption lying at the heart of the Capital Asset Pricing Model (CAPM) that has been taught to every finance MBA since the 1960s (including this one), and is the basis for how trillions of dollars of investments are managed in the real world. If utility isn’t greed-based, then CAPM simply can’t explain reality. ... if our actions are based not on absolute wealth but relative wealth—an envy-based economy—the market would need no risk premium. ... Risky investments seem less dangerous when everybody buys them. And in a benchmarking environment, underperforming your peers is itself the riskiest bet. ... Maybe greed isn’t good in an unmitigated sense. But compared to envy, on occasion, greed might actually be a little better. --Timothy Taylor

The sad truth is that under the Ethicist's code of conduct, we have more deaths and more foreclosures than necessary, all in the name of fairness.--Greg Mankiw

The story of Sweden over the last 50 years has been one of a steady loss of exceptionalism. In some ways the outside world has grown more "Swedish" -- we all wear seatbelts, drink less, and believe in gender equality. At the same time, Sweden has grown much more worldly -- it drinks more, works and earns less, and struggles with the assimilation of immigrants. The Swedes themselves no longer believe in a Swedish model, or, when they do, it's very different from the heavily regulated "people's home" of myth.--Andrew Brown

The renminbi, China’s currency, is in global opinion — save in China — held unduly low to keep China’s export machine revved up. When Treasury Secretary Timothy F. Geithner arrived here on Sunday, an opening argument to his counterparts was that Chinese rules were forcing American companies to surrender their technological jewels just for a ticket to compete in the Chinese market. Some of these tactics come straight from the playbook of Japan and other developing nations that have sought to raise their export-driven economies to a higher level. China is different in two respects that may seem contradictory. On one hand, major industries like oil, telecommunications, banking and aviation are deemed strategic and are under tight state control. Of the 22 Chinese corporations listed on the Fortune Global 500, 21 are controlled by China’s central government or state-run banks. Just one, Shanghai Automobile, is run by a local government. None are privately owned.--Michael Wines

At first glance you might think; “Aha Sumner, there’s your smoking gun. [Paul Krugman] does oppose the neoliberal agenda of privatization, deregulation and free trade, or at the very least thinks it failed. Just as you said. You’ve finally nailed him.” Not so fast. He didn’t say these policies were tried and failed, he said they were recommended by American officials, and he also said Latin America had not done well. But he never actually said the policies were tried and failed. Again, you might think I am being absurdly pedantic here. But I am quite serious. Indeed I think it is quite possible that Krugman actually favors neoliberalism–as many of his fans insist who write in the comment section of my blog. As with the President Fox example, my interpretation also has the virtue of being true. In most of Latin American neoliberal policies are been tried only fitfully. Only one country in Latin America has enthusiastically embraced neoliberalism; Chile. And Chile also happens to be the only economic success story in South America. So the facts of the matter actually fit my interpretation, strange as it may seem. ... So is [Krugman] brilliant? Yes. But social intelligence? Let’s just say it’s “on the charts.”--Scott Sumner

Progressives and conservatives alike call the United States a "free-market economy": both sides have an interest in perpetuating this delusion. The idea is ridiculous - as ridiculous as calling Europe's economies "socialist". True, the blend of government and private enterprise is a bit different between the US and the European average, but the models (insofar as it makes sense to talk of a European model) are neighbors not polar opposites. All this was true, obviously, long before 2009. Obama, I agree, does want to narrow the gap a bit more - but it just was not that wide to begin with.--Clive Crook

The average state experiences a 40 to 50 percent increase in earmark spending if its senator becomes chair of one of the top-three committees. In the House, the average is around 20 percent. For broader measures of spending, such as discretionary state-level federal transfers, the increase from being represented by a powerful senator is around 10 percent.--Joshua Coval

I can tell a story about crowding out, where the federal money either does something that the private sector might have done anyway, or hires away resources (particularly skilled labor) from private firms. If the government is monopolizing the local supply of cranes and crane operators in order to build a new sewage treatment plant, your construction project may not get built. And because government funds are for discrete projects, and future funds are uncertain--your chairman may get unelected, or their party may lose power--it's probably hard to get firms or workers to relocate to your area in order to pick up the slack. I can even tell a slightly more exotic story where there's what economists call a "resource curse" to federal funds. Countries that have large deposits of natural resources are not, as you would expect, richer and happier as a result; rather the reverse. It turns out that when you have a fat supply of practically free money, the elites spend all their time thinking about how to divert that money into their pockets, and none of their time thinking about how to build good political and economic institutions. And because the government can support itself without tax revenues, it is not made accountable to the citizenry it is betraying. Norway is the great exception to this rule--but Norway had very strong institutions before it had fossil fuels.--Megan McArdle

After controlling for challenger strength, the presence of major scandals or controversies, and the national political climate, the conservatism of the incumbent's voting record continues to have a strong negative influence on incumbent electoral performance. For every additional one point increase in conservatism, Republican incumbents lost an additional three percentage points in support relative to their party's presidential candidate.--Alan Abramowitz

... as the length of education and training for a scientists gets longer, the value of a scientific career drops sharply. [Also], teamwork has been getting more important. For example, on the issue of teamwork, Jones looks at all science, engineering, and social science journal articles published from 1995 to 2005, and shows that team-written papers have far more impact than solo papers.--Mike Mandel

San Francisco and New York are far and away the leaders in human capital density with 7,031 and 6,357 college degree holders per square mile, respectively.--Richard Florida

Similarly seeking to illustrate how important an issue is to the next generation, yesterday President Obama introduced one of his daughters into the oil mess debate. He told a news conference that when he was shaving yesterday morning, his 11 year old daughter, Malia, knocked on the bathroom door and peeked her head in and asked: "did you plug the hole yet, daddy?' It didn't work for Jimmy Carter.--Tom Shine

A Wall Street Journal investigation provides the most complete account so far of the fateful decisions that preceded the blast. BP made choices over the course of the project that rendered this well more vulnerable to the blowout, which unleashed a spew of crude oil that engineers are struggling to stanch. BP, for instance, cut short a procedure involving drilling fluid that is designed to detect gas in the well and remove it before it becomes a problem, according to documents belonging to BP and to the drilling rig's owner and operator, Transocean Ltd. BP also skipped a quality test of the cement around the pipe—another buffer against gas—despite what BP now says were signs of problems with the cement job and despite a warning from cement contractor Halliburton Co. Once gas was rising, the design and procedures BP had chosen for the well likely gave this perilous gas an easier path up and out, say well-control experts. There was little keeping the gas from rushing up to the surface after workers, pushing to finish the job, removed a critical safeguard, the heavy drilling fluid known as "mud." BP has admitted a possible "fundamental mistake" in concluding that it was safe to proceed with mud removal, according to a memo from two Congressmen released Tuesday night. Finally, a BP manager overseeing final well tests apparently had scant experience in deep-water drilling. He told investigators he was on the rig to "learn about deep water," according to notes of an interview with him seen by the Journal.--Ben Casselman and Russell Gold

What accidents like the [BP oil spill or the space shuttle] Challenger should teach us is that we have constructed a world in which the potential for high-tech catastrophe is embedded in the fabric of day-to-day life. At some point in the future-for the most mundane of reasons, and with the very best of intentions-a NASA spacecraft will again go down in flames. We should at least admit this to ourselves now. And if we cannot-if the possibility is too much to bear-then our only option is to start thinking about getting rid of things like space shuttles altogether.--Malcolm Gladwell

It was only about 10,000 years ago that humans in many parts of the world began raising livestock and growing food through deliberate planting. These advances provided more reliable sources of food and allowed for larger, more permanent settlements. Native Americans alone domesticated nine of the most important food crops in the world, including corn, more properly called maize (Zea mays), which now provides about 21 percent of human nutrition across the globe. But despite its abundance and importance, the biological origin of maize has been a long-running mystery. The bright yellow, mouth-watering treat we know so well does not grow in the wild anywhere on the planet, so its ancestry was not at all obvious. Recently, however, the combined detective work of botanists, geneticists and archeologists has been able to identify the wild ancestor of maize, to pinpoint where the plant originated, and to determine when early people were cultivating it and using it in their diets. ... Looking at the skinny ears of teosinte, with just a dozen kernels wrapped inside a stone-hard casing, it is hard to see how they could be the forerunners of corn cobs with their many rows of juicy, naked kernels. Indeed, teosinte was at first classified as a closer relative of rice than of maize. But George W. Beadle, while a graduate student at Cornell University in the early 1930s, found that maize and teosinte had very similar chromosomes. Moreover, he made fertile hybrids between maize and teosinte that looked like intermediates between the two plants. He even reported that he could get teosinte kernels to pop. Dr. Beadle concluded that the two plants were members of the same species, with maize being the domesticated form of teosinte. Dr. Beadle went on to make other, more fundamental discoveries in genetics for which he shared the Nobel Prize in 1958. He later became chancellor and president of the University of Chicago.--Sean Carroll

For large stocks in particular, algorithmic trading narrows spreads, reduces adverse selection, and reduces trade-related price discovery. The findings indicate that algorithmic trading improves liquidity and enhances the informativeness of quotes.--Terrence Hendershott

Machine Trading Good? At a minimum, not bad. The problem is that many people think stuff they don't understand must be bad. Of course, they still watch their plasma tv. Somehow, not understanding THAT must be okay.--Mungowitz

Any mother who wears her vintage Valentino while making muffin topping with her kids should be hauled up before the Department of Children and Family Services.--Roger Ebert

The finale of Lost pretended to be about the ultimacy and redemptive power of love, or something like that, but it exemplified instead the incoherent ruinous mess of our needy scattershot attachments, our whorish readiness to be doped by the dull, warm, indeterminate golden light. Speak not to me of love, Lost, if you know not love.--Will Wilkinson

This may not sound especially exciting, but watching Pierce is not exactly exciting. Watching Pierce play basketball is like watching a great plumber or great carpenter or great auto mechanic at work. No wasted motion. No pointless energy. No false moves. I love this sort of basketball. It’s why I love Tim Duncan too. “Adventure?” the Jedi teacher Yoda asks in The Empire Strikes Back. “Excitement? A Jedi craves not these things.” Paul Pierce craves not these things. No, he cannot dominate a game anytime he likes, a la Kobe or LeBron. He will not pull out some sort of ridiculous and superfluous move to make the SportsCenter highlights. He will have games when he scored 8 points and games when he scores 30. He plays to play. He does what needs to be done. He has learned Roy Williams’ lesson well. Just do something? Yes. Paul Pierce does.--Joe Posnanski

Senior White House advisers asked former President Bill Clinton to talk to Joe Sestak

about whether he was serious about running for Senate, and to feel out whether he'd be open to other alternatives, according to sources familiar with the situation.

Takes me back to the good ole days.

UPDATE: Intrade has listed a special prosecutor contract.

Fascinating photos of the Afghanistan of the 1950s and 60s

Looks like pictures from Mad Men. Via The Browser.

Thursday, May 27, 2010

Quotes of the day

I'm married to a beautiful woman, 54 years. That's how I do business.--Ken Langone

Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences. ... If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money? ... Modern Keynesianism works great until it doesn’t. No one really knows where the line is. One obvious lesson from the economic crisis is that we should get rid of the official credit ratings that inspire false confidence and, worse, are pro-cyclical, aggravating slowdowns and inflating booms. ... When Treasury Secretary Timothy Geithner promises that the United States will never lose its AAA rating, he chooses to become dependent on the whims of the Standard & Poor’s ratings committee rather than the diverse views of the many participants in the capital markets. It is not hard to imagine a crisis where just as the Treasury secretary seeks buyers of government debt in the face of deteriorating market confidence, a rating agency issues an untimely downgrade, setting off a rush of sales by existing bondholders. This has been the experience of many troubled corporations, where downgrades served as the coup de grĂ¢ce. ... I don’t believe a United States debt default is inevitable. On the other hand, I don’t see the political will to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors. ... Though we don’t know what’s going to happen next, the good news for our grandchildren is that we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course. If we don’t, Mr. Geithner and others might regret having never said never about America’s rating. --David Einhorn

Wednesday, May 26, 2010

Apple overtakes Microsoft in market capitalization

AAPL @ $222 billion; MSFT @ $191 billion.

Apparently, hedge funds love Apple.

Photo link here.

This is the best kung fu I've seen all week

including the season finale of Chuck.

Why are market participants de-risking?

Here is a good part of the answer, in under 3 minutes:

Chart of the day: women work better hours than men

Source here.

Richard Ferndandez sees the ghost of Donald Rumsfeld

hovering over the 38th Parallel.

Quotes of the day

So large a part of human life passes in a state contrary to our natural desires, that one of the principal topics of moral instruction is the art of bearing natural calamities. And such is the certainty of evil, that it is the duty of every man to furnish his mind with those principles that may enable him to act under it with decency and propriety.--Samuel Johnson

In the United States, the two groups that most ardently support Israel are Jews and evangelical and fundamentalist Christians. Jewish support is easy to explain, but why should certain Christians, most of them politically quite conservative, be so devoted to Israel? There is a second puzzle: despite their support for a Jewish state, evangelical and fundamentalist Christians are disliked by many Jews. And a third: a large fraction of African-Americans are hostile to Israel and critical of Jews, yet Jewish voters regard blacks as their natural allies.--James Wilson

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds. At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.--Dennis Cauchon

Unionized pubic employees swarmed Trenton on Saturday to protest Gov. Chris Christie’s cuts in the state budget — and his “Cap 2.5” proposal to limit local property taxes. The unions warn that a tax cap will lower the quality of the Garden State’s public services, such as schools. Is that right? For the answer, we can look at Massachusetts, which enacted a similar property tax reform back in 1980. As I discuss in a report out this week from the Manhattan Institute and the Common Sense Institute of New Jersey, that reform has led to slow growth in taxation and spending compared to other states. But Massachusetts is the clear national leader in educational outcomes, showing that a well-designed property tax cap can constrain taxes and spending while maintaining high-quality government services.--Josh Barro

The future of US medicine under ObamaCare is already on display in Massachusetts. The top four health insurers there just posted first-quarter losses of more than $150 million. Most of them blamed the state's decision to keep premiums at last year's levels for individual and small-business policies, when they'd proposed double-digit hikes to match the soaring costs they've seen under the state's universal-coverage law.--Sally Pipes

In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy? ... How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?--Michael Snyder

Using the rule of 16 and the 1/3 trading days time frame, the following translations should be committed to memory:
* VIX of 16 – 1/3 of the time the SPX will have a daily change of at least 1%
* VIX of 32 – 1/3 of the time the SPX will have a daily change of at least 2%
--Bill Luby

I've recently decided that statistics lies at the intersection of measurement, variation, and comparison. ... my claim is that, to be "statistics," you need all three of these elements, no two will suffice. My point here, though, is that as statisticians, we teach all of these three things and talk about how important they are (and often criticize/mock others for selection bias and other problems that arise from not recognizing the difficulties of good measurement, attention to variation, and focused comparisons), but in our own lives (in deciding how to teach and do research, administration, and service--not to mention our personal lives), we think about these issues almost not at all. In our classes, we almost never use standardized tests, let alone the sort of before-after measurements we recommend to others. We do not evaluate our plans systematically nor do we typically even record what we're doing. We draw all sorts of conclusions based on sample sizes of 1 or 2. ... We say it, and we believe it, but we don't live it. So maybe we don't believe it. So maybe we shouldn't say it? Now I'm working from a sample size of 0. Go figure.--Andrew Gelman

People often demand to know why it is that we as a society consent to pay movie stars and professional athletes such obscene sums of money, while teachers and other people clearly providing greater benefit to society are paid so very little. There are a great many economic and social explanations one can go into, but one basic point that probably bears pointing out is that society does not in fact spend more on Hollywood or on professional sports than it does on teachers. ... Entertainers make so much money because modern means of communication allow large numbers of people to enjoy the performances of a comparatively small number of people.--Darwin

Tuesday, May 25, 2010

Jake Tapper, bona fide journalist

TAPPER: And Sestak -- several months ago, I asked you, on February 23rd, if you could find out more about what Sestak said about the White House making him an offer to not run. And I know that in March you said whatever conversations have been had or not are problematic. But I'm wondering, since this has become an issue in Congressman Sestak's campaign and will likely be -- continue to be an issue, if you could -- if you want to put it to rest right now, what exactly was the conversation?

GIBBS: I don't have anything to add to what I said in March.

REPORTER: But you never -- you never really explained what the conversation was.

GIBBS: And I don't have anything to add today.

TAPPER: But if the White House offers a congressman a position in the administration in order to convince that congressman to not run for office...

GIBBS: I don't have anything to add to that.

REPORTER: But you said a number of times that you would get something for us on that.


GIBBS: Well, and -- and I did. And I gave that answer in March. And I don't have anything to add to that.

TAPPER: But do you really think the American people don't have a right to know about what exactly the conversation was?

GIBBS: I don't have anything to add to what I said in March.

Congress digs deeper into debt

Keith Hennesey has renamed The American Jobs and Closing Tax Loopholes Act of 2010 to The Hypocrisy Act of 2010:

CBO gives us the net budgetary effects of the bill over the 11-year period 2010-2020:

* $40 B net tax increase;
* $174 B spending increase;
* $134 B deficit increase.

On the move up: both the probability of a Euro country dropping the unified currency

as well as the liquidity on the Intrade contract:

Monday, May 24, 2010

BCWUW4: Benny Hill Style

Be careful what you wish for:

Previous BCWUW4 posts here. Via Don Surber.

Quotes of the day

In the modern world, innovation is a collective enterprise that relies on exchange. As Brian Arthur argues in his book "The Nature of Technology," nearly all technologies are combinations of other technologies and new ideas come from swapping things and thoughts. (My favorite example is the camera pill—invented after a conversation between a gastroenterologist and a guided missile designer.) We tend to forget that trade and urbanization are the grand stimuli to invention, far more important than governments, money or individual genius. It is no coincidence that trade-obsessed cities—Tyre, Athens, Alexandria, Baghdad, Pisa, Amsterdam, London, Hong Kong, New York, Tokyo, San Francisco—are the places where invention and discovery happened. Think of them as well-endowed collective brains. ... Trade is to culture as sex is to biology. Exchange makes cultural change collective and cumulative. It becomes possible to draw upon inventions made throughout society, not just in your neighborhood. The rate of cultural and economic progress depends on the rate at which ideas are having sex. ... Prosperity consists of getting more and more narrow in what you make and more and more diverse in what you buy. Self-sufficiency—subsistence—is poverty. ... The process of cumulative innovation that has doubled life span, cut child mortality by three-quarters and multiplied per capita income ninefold—world-wide—in little more than a century is driven by ideas having sex. And things like the search engine, the mobile phone and container shipping just made ideas a whole lot more promiscuous still.--Matt Ridley

This is not a typical retracement. We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes. In economic terms, European developments are unambiguously bad for global growth.--Mohamed El-Erian

Greece has a malfunctioning fiscal system in which the shadow economy is estimated to be roughly 20 to 30 percent of the reported economy and tax evasion may run at $30 billion a year. Simply collecting taxes that are legally due would help bring Greece’s books into balance, yet even this simple remedy does not appear imminent. ... Greece is not the only country that suddenly feels poorer. Britain faces budget deficits at about 12 percent of G.D.P., and Italy has a debt-to-G.D.P. ratio of 110 percent. In the United States, the housing and job markets are recovering only in fits and starts and we face significant future Medicare liabilities. This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot of countries, most of all Greece, aren’t as rich as we used to think. --Tyler Cowen

These [Wall Street executives] want to be paid like rock stars when all they're doing is lip-synching capitalism.--President Obama

In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year. It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring.--Mary Williams Walsh

From the earliest days of capitalism, those skilled at making money have proven creative at evading the regulators. In the Middle Ages, when usury laws banned lenders from charging interest, savvy merchants lent in one currency and took repayment in another, thereby profiting without incurring the wrath of the Catholic Church. So much has happened over the ensuing centuries — a blur of financial ingenuity spanning the creation of stocks to the mortgage-backed investments of the present day — yet history remains unbroken: Time and again, financial innovation finds a lucrative path around regulation.--Peter Goodman

... the biases of newspapers closely reflected those of their potential readership, neither pushing to the extremes nor pulling to the centre. The identity of a newspaper’s owner, in contrast, explained very little of the paper’s content. This is exactly what one would expect from a newspaper which cared more about profitability than election results. This is not to say that newspapers have no influence on readers. It’s just that the influence runs both ways.--Tim Harford

Every year we talk about someone being “the last pitcher to get to 300 victories,” it seems we may have to wait even longer for another 3,000 strikeout pitcher. And I think that makes the 16 pitchers with 3,000 Ks that much more special. Nine of the 16 are in the Hall of Fame. I think the other seven will get there soon. They have done it all different ways … it should be fun to break them down. ... Here are the 16 pitchers with 3,000 Ks.--Joe Posnanski

Suppose you had gotten a room full of economists together in 1980, and made the following predictions:

1. Over the next 28 years the US would grow as fast as Japan, and faster than Europe (in GDP per capita, PPP.)
2. Over the next 28 years Britain would overtake Germany and France in GDP per capita.

And you said you were making these predictions because you thought Thatcher and Reagan’s policies would be a success. Your predictions (and the rationale) would have been met with laughter. ... the performance of every single country on the list is consistent with my view that the neoliberal reforms after 1980 helped growth, and inconsistent with [Paul] Krugman’s view that they did not. Krugman makes the basic mistake of just looking at time series evidence, and only two data points: US growth before and after 1980. Growth has been slower, but that’s true almost everywhere. What is important is that the neoliberal reforms in America have helped arrest our relative decline. The few countries that continued to gain on us were either more aggressive reformers (Chile and Britain), or were developing countries that adopted the world’s most capitalist model. (According to every survey I have seen HK and Singapore are the top two in economic freedom.)--Scott Sumner

I absolutely agree with Krugman that growth in living standards is now slower than in the 1920-73 golden age, which saw technological change affect almost all aspects of our life, not just the images we watch on illuminated boxes. I was simply trying to compare neoliberal reformers, to those countries who reformed less aggressively, to get the marginal impact of those reforms. I still think that the marginal impact of free market reforms and lower MTRs was positive. So don’t tell me about 90% tax rates (which actually collected little revenue, BTW), even the inept Soviets churned out lots of goods in those decades. You can run a steel mill or washing machine factory like you run the army, if you don’t care about quality. ... In the 1960s we built lots of nukes. What’s the newest thing in electric power generation? Windmills!--Scott Sumner

... the rank-and-file NYPD street cop experiences enormous pressure in a strange catch-22: He or she is expected to maintain high "activity"—including stop-and-frisks—but, paradoxically, to record fewer actual crimes.--Graham Rayman

A federal appeals court ruled Friday that three men who had been detained by the United States military for years without trial in Afghanistan had no recourse to American courts. The decision was a broad victory for the Obama administration in its efforts to hold terrorism suspects overseas for indefinite periods without judicial oversight.--Charlie Savage

I somehow think that the take-away [above] would be different if a Republican were President.--Eric Falkenstein

Slavery was killed by capitalism because that institution puts a premium on creativity, initiative, and good judgment (which even the mightiest slave-master’s whip cannot extract from its victims), and because the ethos that gives life to capitalism – free-market liberalism – is hostile to the ownership of man by man. That the first-to-industrialize English were the first abolitionists is no coincidence. In North America, pressure brought by capitalism to end slavery was countered by the very agency that you praise as slaves’ liberator: government. From 17th and 18th century slave codes to the Fugitive Slave Acts of 1793 and of 1850, government in America actively deployed force on behalf of slaveholders. Without this force, slavery would never have taken root as deeply as it did in the U.S. and would have died away sooner and with less bloodshed.--Don Boudreaux

By bypassing the dealers, the NY Fed saved on the commissions that Wall Street charges. More important, it reduced the risk that it would be front run – Wall Street trading desks were known to use information from orders to position themselves favorably. ... The terminals the Fed used are primitive compared with the technology used in trading today. Indeed, testimony from the wizards of the electronic exchanges on Capitol Hill in the past few days testifies to how dramatically trading has changed. Despite photos in newspapers of people on exchange floors, with their head in their hands as global equities sank this past week, the vision the testimony evokes is of a world where machines have bypassed humans as computers at hedge funds respond to minute changes in prices to spew instructions to computers at electronic exchanges. It isn’t only hedge funds that are using the electronic exchanges but increasingly traditional investment firms as well. They too are discovering the joys of anonymous trading. They save on commissions to Wall Street and – more important – avoid having their order flow treated as valuable fodder for proprietary trading desks.--Henny Sender

... the total amount of real (i.e., inflation-adjusted) dollars spent by Uncle Sam’s administrative agencies on regulating the economy rose by 36 percent between 1980 and 1990. This spending then rose by another 40 percent between 1990 and 2000. Between 2000 and 2009 it rose by 43 percent. So, by 2009, Uncle Sam’s real expenditures on regulating the economy were 174 percent higher than they were in 1980.--Don Boudreaux

Following the series of shotgun marriages that took place in 2007 and 2008, the American banking system is now dominated by four firms: Citigroup, J. P. Morgan Chase, Wells Fargo, and Bank of America. Together, these institutions have about forty per cent of the nation’s deposits, and they also have huge-mortgage finance and investment-banking arms. If one of these firms gets into serious trouble this fall, will the Obama Administration be prepared to take it over, liquidate its giant balance sheet, wipe out its stockholders, and force its creditors and counter-parties to take heavy losses? I can’t see it. Imagine what effect such an announcement would have on the markets and on other financial firms. Quite possibly, it would spark a stock-market crash and another creditors’ panic of the sort we witnessed in September and October of 2008. Granting the Treasury Department or the F.D.I.C. the legal power to threaten a big financial institution with liquidation doesn’t mean such threat is credible. In the case of Citi and B of A, the government already has the power to seize control, and we recently conducted a natural experiment that explored what would happen when catastrophe beckoned. Rather than taking the giant banks over and winding them down, two Administrations, one from each party, agreed to give them equity injections and sweetheart debt guarantees. Arguably, this strategy worked, at least in the short term. Both Citi and B of A have repaid their TARP money and returned to profitability. If a threat isn’t credible, it doesn’t matter. ... Rather than making big structural changes into the way Wall Street operates, the coming reforms rely heavily on the regulatory agencies—notably the Fed, the S.E.C., and the new systemic-risk council—to prevent future blowups. Surely, what we have learned in recent years is that at least the first two of these agencies cannot be relied on to do their jobs properly. Absent major changes in how the Fed and S.E.C. work, I have relatively little faith in their ability to carry out all of their existing responsibilities, let alone the new ones they are about to be given.--John Cassidy

Saturday, May 22, 2010

Quotes of the day

But this book is not scripture. Well, it’s probably closer to scripture than The Message, but you know what I mean. It’s not what the fundamentalist would call God-Breathed. If anything it’s God-Sneezed.--Jon Acuff

Friday, May 21, 2010

John Kerry must have learned his flip-flopping from a champion

One like Walter Mondale.

Via Ed Driscoll.

John Stossel and James Surowiecki on Intrade and prediction markets (8 min)

Via Chris Masse.

This is not good news for municipal bond holders

Central Falls says it's broke. City Solicitor John T. Gannon and Joseph S. Larisa Jr., the special counsel the city has hired, filed a receivership petition Wednesday morning in Superior Court.

Who is the biggest naked short seller in the world?

Maybe the issuer of US Treasuries?

I don't think the breakup of the Euro would be as destablizing as the break up of the Weimar Republic

but Scott Sumner's eerie parallel is worrisome:

It’s worth thinking about where we are in the Great Recession, relative to the same time period in the Great Depression:

1.a October 1929, stocks crash on sharply falling expectations of NGDP growth.

1.b October 2008, stocks crash on sharply falling expectations of NGDP growth.

2.a Early 1931, stocks rise on signs of recovery

2.b Early 2010, stocks rise on signs of recovery

3.a May 1931, stocks fall as European banking/sovereign debt crisis begins

3.b May 2010, stocks fall, as European banking/sovereign debt crisis begins

Let’s hope the European debt crisis doesn’t get as bad as in 1931, or if it does, let’s hope the Fed offsets the effects of the crisis as they should have done in 1931, but didn’t. Today’s 4% drop in stocks suggests that the market is not particularly optimistic on either score.

In other good news, a nice 2 minute drill on how the US is on the same fiscal path as Greece:

Via Gregory White.

Revenge ON the Nerds

On quants, specifically.

Chart of the last 3 decades: Inflation adjusted Gold, S&P 500, and US Dollar

Source here.

A couple of takeaways: don't keep dollars in your mattress, and don't be a long term holder of gold.

Quotes of the day

... if “top-down, disciplined and aggressive national economic development planning” is key to economic success, why did China’s economy begin growing only after great swathes of it were liberalized? If Mr. McGregor’s premise were correct, China under Mao would have been an economic megastar, while the liberalization launched by Deng Xiaoping – which significantly reduced top-down planning as it decentralized economic decision-making throughout China – would have caused that economy to falter and shrink.--Don Boudreaux

... several economists at the International Monetary Fund report estimates of government spending multipliers which are much smaller than those previously reported by the U.S. Administration.--John Taylor

The constitution leaves the scope of judicial power somewhat ambiguous, but also more or less open-ended, presumably on the assumption the Supreme Court’s dependence on executive power and legislative consent would render it (in Alexander Hamilton’s famous phrase) the “least dangerous” of the branches of government. Things haven’t worked out quite as Hamilton anticipated: For the last half century and more, the only real restraint on the Court’s activism has been the prudence of its members.--Ross Douthat

Look, in any area where we let humans do things, every once in a while there will be a big screwup; that is the sort of creatures humans are. And if you won’t decrease regulation without a screwup but will increase it with a screwup, then you have a regulation ratchet: it only moves one way. So if you don’t think a long period without a big disaster calls for weaker regulations, but you do think a particular big disaster calls for stronger regulation, well then you might as well just strengthen regulations lots more right now, even without a disaster. Because that is where your regulation ratchet is heading. What if you can’t imagine ever wanting to weaken a regulation, just because it was strong and you’d gone a long time without a big disaster? Well then you apparently want the maximum possible regulation, which is probably to just basically outlaw that activity. And if that doesn’t seem like the right level of regulation to you, well then maybe you should reconsider your ratchety regulation intuitions.--Robin Hanson

There should be a drop-down option for "Uncertain" in each category.--Ben Casnocha

The free-market response, of course, is that the disaster in Haiti was the result of their relative poverty. Simply put, it's more expensive to construct a building that can withstand an intense earthquake, and so richer countries have the luxury of insisting that their buildings are relatively safe. Imposing US building codes in Haiti wouldn't have saved hundreds of thousands of people; it would simply have made them homeless all these years.-Robert Murphy

Accordingly, each of the texts that I examine betrays an awareness of writing as a spatial activity and space as a scripted category. The critical topographies that these writers created are maps of ideology, figural territories within which social conflict and political antagonism are put into play.--Adam Wheeler

I've read worse. How you react to that description is a Rorschach test of sorts, especially if you are not thinking it is fraudulent. ... Why are none of the sources reporting how well he actually did at Harvard and elsewhere? Isn't that an interesting question? How much would the world differ if Harvard reserved a fifth of its entering class for those individuals who showed the most talent for fraud? I don't mean that question in a cynical light, it is one genuine way of trying to think about how education adds value to labor market outcomes.--Tyler Cowen

I don't envy people who were born into privilege. It's that struggle that makes you who you are.--Jon Favreau

This is the Best of the web.--anoirmarie

A building on 118th Street is one reason that the parents who are Perkins’s constituents know that charter [schools] can work. On one side there’s the Harlem Success Academy, a kindergarten-through-fourth-grade charter with 508 students. On the other side, there’s a regular public school, P.S. 149, with 438 pre-K to 8th-grade students. They are separated only by a fire door in the middle; they share a gym and cafeteria. School reformers would argue that the difference between the two demonstrates what happens when you remove three ingredients from public education — the union, big-system bureaucracy and low expectations for disadvantaged children. ... the best estimate is that it costs at least $19,358 per year to educate each student on the public side of the building, or $980 more than on the charter side. But while the public side spends more, it produces less. P.S. 149 is rated by the city as doing comparatively well in terms of student achievement and has improved since Mayor Michael Bloomberg took over the city’s schools in 2002 and appointed Joel Klein as chancellor. Nonetheless, its students are performing significantly behind the charter kids on the other side of the wall. To take one representative example, 51 percent of the third-grade students in the public school last year were reading at grade level, 49 percent were reading below grade level and none were reading above. In the charter, 72 percent were at grade level, 5 percent were reading below level and 23 percent were reading above level. In math, the charter third graders tied for top performing school in the state, surpassing such high-end public school districts as Scarsdale. Same building. Same community. Sometimes even the same parents. And the classrooms have almost exactly the same number of students. In fact, the charter school averages a student or two more per class. This calculus challenges the teachers unions’ and Perkins’s “resources” argument — that hiring more teachers so that classrooms will be smaller makes the most difference. (That’s also the bedrock of the union refrain that what’s good for teachers — hiring more of them — is always what’s good for the children.) Indeed, the core of the reformers’ argument, and the essence of the Obama approach to the Race to the Top, is that a slew of research over the last decade has discovered that what makes the most difference is the quality of the teachers and the principals who supervise them. Dan Goldhaber, an education researcher at the University of Washington, reported, “The effect of increases in teacher quality swamps the impact of any other educational investment, such as reductions in class size.” This building on 118th Street could be Exhibit A for that conclusion. “I’ve got one child in a charter and have had two in public schools,” says Bernice Wynn, who runs an optician’s shop on Lenox Avenue with her husband, and whose daughter, Tiana, is in the Harlem Success Academy. “There is no comparison. Tiana is in first grade and already reading chapter books and writing stories.”--Steven Brill

Of course the U.F.T.’s collective-bargaining agreements in New York City, as well as union contracts in much of the rest of the state, explicitly prohibit exactly the reforms promised in the application. Changing that is the point of [Arne] Duncan’s contest [Race to the Top]. When I asked [NY Regents chancellor Merryl] Tisch about this, she pointed to another added sentence, in which each school system and the union agree to negotiate any necessary contract changes in “good faith.” That’s the “way we solved that,” she says. “Right,” [Joel] Klein says. “That’s like telling a woman you’ll marry her in the morning.”--Steven Brill

Whoopsie daisies

... the Spanish newspaper La Gaceta runs with a full-page article fessing up to the truth about Spain’s “green jobs” boondoggle, which happens to be the one naively cited by President Obama no less than eight times as his model for the United States. It is now out there as a bust, a costly disaster that has come undone in Spain to the point that even the Socialists admit it, with the media now in full pursuit.

Thursday, May 20, 2010

Quotes of the day

Banks of every flavor are in business to make money for themselves. They are not in business to make money for you. If they worried mostly about making money for you, they'd likely go broke, and you'd lose every penny. This is hardly unique. Here's one way to prove it. You've probably got a friend somewhere who works for a large law firm. Ask that friend which partner bills the most. Your friend will instinctively rattle off the top few. Next ask that friend which partner has the best win-loss record in suits. Watch your friend puzzle over that one. It's not known because it doesn't matter. Law firms are in business to make money. When they win suits, that's nice, but victories aren't what get rewarded, unless they're on contingency. They'll take contingency cases only when success looks like a slam-dunk. That's OK. The client gets less reward in a trade for less risk. The strangest thing is that this supposed "unfairness" works far better than regulation. Chinese and Indians are starting to live better because they're letting go of the governmental controls, slightly, that were put in place to make sure things were "fair." "Fair" starved them for generations. Ditto for Eastern Europe. Where controls loosen, populations live better. This is consistently true. The Soviet Union collapsed. Cuba pretends to offer a peoples' paradise, but never go to Miami to count small boats fleeing the U.S. for that brutal island. Traffic there is as one-way as it was over the Berlin Wall, despite those two "fair" governments' attempts to murder escapees. ... So am I mad at Goldman? No. I just understand them better. They're out to make a buck. So am I. And they're better at it than I am.--Gary Sutton

[Goldman] lost their way, fallen for the trap of short term profits, and abandoning clients.--Anonymous hedge fund manager

It's not the same firm it was a decade ago.--Anonymous professional investor

They've now got a 'rip your eyes' out culture.--A different anonymous professional investor

Maybe [Goldman's Abacus CDO deal] was legal. But it was wholly unethical.--A different hedge fund manager

I’ve never used an ATM, so I don’t know what the fees are. It’s true, I don’t know how to use one.--Senator Ben Nelson

... can you explain any rational reason that both the C.F.T.C. and the S.E.C. exist?--Senator Bob Corker

In particular, [Seth Klarman of Baupost Group] is looking at the deluge of government interventions to prop up the financial system in the past couple of years and what those may mean down the road. And he is talking about the danger–not a certainty, merely a danger–that governments around the world will trash their currencies in a continuous free-for-all of "handouts and no taxes." The near-$1 trillion bailout in Europe is just the latest worry.--Brett Arends

If Goldman Sachs ends up paying a billion dollars as punishment for misleading investors in the Abacus deal, what should Washington pay for misleading the American people? Given the utter failure of the Obama administration’s $75 billion mortgage modification program (a.k.a. the HAMP), it’s worth a thought.--Evan Newmark

These scientists jump to an unscientific conclusion. Nothing in economics (or any other science) suggests that energy purchases and sales are efficient and appropriate only, or even chiefly, when buyers reside in the same jurisdiction as sellers. I’ll bet, for example, that each member of the Union of Concerned Scientists imports nearly 100 percent of his or her household’s energy from suppliers located outside of that household’s county. Should this fact cause us concern? Would energy be supplied and used more efficiently or appropriately if each American used only energy produced within the county where he or she resides? Or – even more in keeping with the spirit of the Union’s notion – if each American household used only energy produced by that household? Of course not.--Don Boudreaux

If you build oil separation machines

BP will come.

I have new found respect for Costner, which really eroded with a couple of his films.

Wednesday, May 19, 2010

The chances that a country will drop the Euro as their national currency is diminishing

Source here.

Quotes of the day

It takes a peculiarly bureaucratic sort of mendacity to dream up the idea of using taxpayer money to promote a contest in which taxpayers are asked to make videos celebrating the way their tax dollars are being used to make their lives more expensive.--Radley Balko

James Madison owned 5,000 acres. George W. Bush ran an oil business. But no president amassed more wealth than our first one. George Washington's net worth was equal to $525 million in 2010 dollars, according to a study from 24/7 Wall Street. By comparison, eight presidents -- including Lincoln, Grant and Wilson -- had net worths below one million dollars.--Derek Thompson

No doubt you will share, as I do, the [New York] Times disapproval of such dissembling, if it was, in fact, intentional. That would be an easy call. The Times, however, fails to dwell on why service in Vietnam is, today, so important that a politician would want to have served there. Here there is a lesson to remember. There was a time when the Times itself has scoffed at the idea that Vietnam had any higher purpose. The war, "then, as now, seemed to lack any rationale except the wrecking of as many lives as possible on both sides," is how the Times put it in one editorial. Yet 35 years after we lost the war, it seems that for voters today, Vietnam did have some meaning, or such a brilliant figure as Mr. Blumenthal wouldn’t be trying to give people the impression that he served in Vietnam. It is something to think about should you ever be called for the draft in the midst of an unpopular war.--NY Sun Editorial

Away from the field, it was a good 24 hours for the Patriots. First, on Tuesday night, senator Arlen Specter was defeated in a Democratic primary in Pennsylvania. Specter became a thorn in the side of the Patriots when he publicly questioned NFL commissioner Roger Goodell’s inquiry into the 2007 videotaping scandal in the days leading up to Super Bowl XLII. In a press conference, he said he had a problem with a number of things surrounding the investigation, including the destruction of the videotapes. ... Two, a lawsuit filed against the Patriots in 2007 following the incident at the Meadowlands (saying New England had deceived the public as a result of their association with the affair) was tossed out on Wednesday when the U.S. Court of Appeals in Philadelphia upheld a ruling by a lower court that dismissed the lawsuit. A group of fans, led by Carl Mayer (a Jets season ticket holder from Princeton, N.J.), was seeking $185 million, claiming fans had purchased tickets to see rigged games. The three-judge panel says it doesn’t condone the conduct of the Patriots and head coach Bill Belichick. The judges suggest that fans can protest by refusing to buy tickets or NFL merchandise. But they say fans have no legal right to seek damages in court.--Christopher Price

Is the US on the way to becoming the next Greece, by way of Spain?

On eight separate occasions, President Barack Obama has referred to the “green economy” policies enacted by Spain as being the model for what he envisioned for America.

Later came the revelation that Obama administration senior Energy Department official Cathy Zoi — someone with serious publicized conflict of interest issues — demanded an urgent U.S. response to the damaging report from the non-governmental Spanish experts so as to protect the Obama administration’s plans.

Most recently, U.S. senators have introduced the vehicle for replicating Spain’s unfolding economic meltdown here, in the form of the “American Power Act.” For reasons that are obvious upon scrutiny, it should instead be called the American Power Grab Act.

But today’s leaked document reveals that even the socialist Spanish government now acknowledges the ruinous effects of green economic policy.

Unsurprisingly for a governmental take on a flagship program, the report takes pains to minimize the extent of the economic harm. Yet despite the soft-pedaling, the document reveals exactly why electricity rates “necessarily skyrocketed” in Spain, as did the public debt needed to underwrite the disaster. This internal assessment preceded the Zapatero administration’s recent acknowledgement that the “green economy” stunt must be abandoned, lest the experiment risk Spain becoming Greece.

We've already gotten Massachusetts healthcare for the whole country. Let's quit while we're not as far behind as we could be.

Tuesday, May 18, 2010

Quotes of the day

You cannot call what happened in the Cavs-Celtics series an upset. Boston played better in five of the six games. The C's had four of the five best players. They were better defensively. Their best player (Rajon Rondo) played better than Cleveland's best player (LeBron James). They had playoff-proven guys who kept coming through. They had better crowds. They showed more heart. This was not an upset … but still, it felt like one. And only because we were duped by Cleveland's faux urgency (for most of the season, it felt genuine) and Boston's retro-urgency (for most of the season, it was dormant). The playoffs hinge on toughness, chemistry, defense, leadership and urgency. Cleveland lost all those battles. Every one of them. ... If he owned that cutthroat [Michael] Jordan chromosome, or Magic [Johnson]'s leadership chromosome, it would have surfaced by now. In Wednesday's column before Game 6, I mentioned how there comes a point in every great player's career when you have to pour the cement, let it harden and see what you have. We poured the cement for LeBron in this series. It hardened last night. We know what we have. And last night, LeBron's DNA finally made sense to me. Throw Jordan out. Throw Magic out, too, except for the "controls sections of a game with passing/rebounding" part. Keep Bo [Jackson]. Now, add this guy … Julius Erving. ... When the ABA and NBA merged in the summer of 1976, Doc switched teams (to Philly) and the big question became, "When will Dr. J win an NBA title?" Now here's where the parallels get interesting. Doc spent the next six seasons falling short as everyone picked him apart. ... Doc allowed everyone else to determine his destiny. When he tried to take over … it never felt right. He was always one of those flow-of-the-game stars. Always. The same quality that made him a wonderful teammate also made him a liability if things were falling apart.--Bill Simmons

My suggestion is that people should never reason from a price change, but always start one step earlier—what caused the price to change. If oil prices fall because Saudi Arabia increases production, then that is bullish news. If oil prices fall because of falling AD in Europe, that might be expansionary for the US. But if oil prices are falling because the euro crisis is increasing the demand for dollars and lowering AD worldwide; confirmed by falls in commodity prices, US equity prices, and TIPS spreads, then that is bearish news. The markets are telling us that the euro crisis is hurting recovery in the US, not helping. It’s easy to laugh off the highly erratic markets. But before doing so perhaps we should recall that the markets were also tell us that money was far too tight in September 2008. The Fed ignored those warnings. I have a hunch that right now they’d like to redo the September 16, 2008 meeting.--Scott Sumner

But let’s not fool ourselves into thinking that the chief argument for proportional representation is that it gives each party influence in proportion to its share of the vote. That is simply not how the numbers add up.--Tim Harford

One of President Clinton's main arguments is that a VAT would improve our trade balance, because it is rebated on exports and imposed on imports. The problem is that this argument is well-known, at least among economists who specialize in this topic, to be a fallacy. Here is Alan Viard on the topic.--Greg Mankiw

In early 2009, health insurance companies struck a Faustian bargain with the Obama administration. In exchange for a law requiring Americans to purchase health insurance, they agreed to regulations requiring them to offer coverage to all comers regardless of preexisting illnesses. Now that ObamaCare is law, insurers are learning that they may have sold their souls to the Devil -- along with the lives of the American people. At first glance, ObamaCare might seem a good deal for insurance companies by guaranteeing them a market for their services. But this guaranteed market comes at a steep price, with the government dictating whom insurers must cover, what benefits they must offer, and what prices they may charge. ... Instead of making their Faustian bargain with the government, insurance companies should have advocated for free-market reforms such as allowing customers to purchase policies across state lines, repealing existing mandatory benefits, and allowing patients to use Health Savings Accounts for routine expenses and low-cost "catastrophic-only" insurance to cover rare expensive events. Such free-market reforms could reduce insurance costs up to 50%, while preserving quality of medical care.--Paul Hsieh

My fatalism doesn’t mean that I give policymakers a pass. If we ever stop failing to hold the government accountable then all is lost.--Scott Sumner

A system that does not reward outstanding performance ... inevitably fails to punish bad performance.--Tony Woodlief

The Japs bombed Pearl Harbor and were all like, 'We all that,' and we were all like 'Oh noes you didn't!'--Advanced Placement for History test respondent

Academia has bifurcated into two classes: tenured professors who are decently paid, have lifetime job security, and get to work on whatever strikes their fancy; and adjuncts who are paid at the poverty level and may labor for years in the desperate and often futile hope of landing a tenure track position. And, of course, graduate students, the number of whom may paradoxically increase as the number of tenure track jobs decreases--because someone has to teach all those intro classes. I have long theorized that at least some of the leftward drift in academia can be explained by the fact that it has one of the most abusive labor markets in the world. I theorize this because in interacting with many professors, I am bewildered by their beliefs about labor markets more generally; many seem to think of private labor markets as an endless well of exploitation where employees are virtual prisoners with no recourse in the face of horrific abuses. Yet this does not describe the low wage jobs in which I've worked--there were of course individuals who had to hold onto that particular job for idiosyncratic reasons, but as a class, low wage workers do not face the kind of monolithic employer power that a surprising number of academics seem to believe is common. It is common, of course--in academia. Until they have tenure, faculty are virtual prisoners of their institution. Those on the tenure track work alongside a vast class of have-nots who are some of the worst-paid high school graduates in the country. So it's not surprising to me that this is how academics come to view labor markets--nor that they naturally assume that it must be even worse on the outside.--Megan McArdle

And this is the thing about theology — the knowing of God: there are a great many people who can direct you to the Gospel verse where Christ says this. But it doesn’t occur to many of us, upon learning that we have only months to live, to think about anything but that dread tomorrow. One can know the truth, but to cling to it, when despair intrudes, requires faith.--Tony Woodlief

Monday, May 17, 2010

Scariest quote of the day


Eric Falkenstein peeks behind the Wizard of RGE's curtain

and finds a little man.

David Friedman on effective debating


Strategy from history

Joseph Fouche on the Battle of Cowpens and genius of Daniel Morgan.

Quotes of the day

The government is not the parent in this family. The government is one of the teenage children we hire to do some work around the place (and if you keep screwing up, we'll give the job to your younger sister, even if she doesn't (yet) know how to start the lawnmower). The citizens are the parents, not you. This is the center of what you don't get - and neither does more than 50% of the electorate. You are not the parents. ... Teenagers have great ideas about all the good stuff the family should buy. They are in fact often authorities on that subject. Sometimes they are even right. But that's not enough to get to be the parent, and decide that somebody else (mom or dad) needs to work more hours. We citizens need the reminder also. We have to be the parents, or the children will take over and rule the household. It's just reality, a law of nature. Power vacuum and all that. Citizens also have to be willing to step up and be parents, even under criticism and challenge. Elected officials are teenaged children we hire to do work around the house. Hold that thought.--AVI

Political risk is hard to manage because so much comes down to the personal choices of policymakers, whether prime ministers or heads of central banks. And those choices aren’t always going to be economically rational.--James Surowiecki

Dear Prof. Krugman: In your May 14 blog-post “Why Libertarianism Doesn’t Work, Part N” you attempt to tar libertarianism as being an ideology that “requires incorruptible politicians.” You’re deeply confused. One foundation of libertarianism is the observation that no profession is as infested with corruption as is politics.--Donald Boudreaux

My nightmare scenario is that people keep talking about their nightmare scenarios. ... When someone is proposing a change, the onus should be on them to justify it over the status quo. But worst-case thinking is a way of looking at the world that exaggerates the rare and unusual and gives the rare much more credence than it deserves. It isn't really a principle; it's a cheap trick to justify what you already believe. It lets lazy or biased people make what seem to be cogent arguments without understanding the whole issue. And when people don't need to refute counterarguments, there's no point in listening to them.--Bruce Schneier

From Washington to Athens, the economic crisis is producing consolidation rather than revolution, the entrenchment of authority rather than its diffusion, and the concentration of power in the hands of the same elite that presided over the disasters in the first place. ... This is the perverse logic of meritocracy. Once a system grows sufficiently complex, it doesn’t matter how badly our best and brightest foul things up. Every crisis increases their authority, because they seem to be the only ones who understand the system well enough to fix it. But their fixes tend to make the system even more complex and centralized, and more vulnerable to the next national-security surprise, the next natural disaster, the next economic crisis. Which is why, despite all the populist backlash and all the promises from Washington, this isn’t the end of the “too big to fail” era. It’s the beginning. --Ross Douthat

If only small initiating and terminating forces are needed for bubbles to start and end, then it is easy to understand why bubbles occur, and why the start and end of bubbles are so difficult to predict, either by market participants or government officials. Some economists have suggested recently- discussed in the May 8 issue of The Economist- that governments try to take actions, such as countercyclical taxes on real estate, that prevent bubbles, in particular housing bubbles, from getting out of hand. The papers The Economist cited appear to misuse the “externality” argument for government actions in the housing market, but in addition I am highly skeptical that government officials can succeed where profit-seeking market participants fail. At least in the US, the vast majority of government officials involved encouraged rather than tried to moderate the housing bubble. I believe the best contribution public policy can make to the control of bubbles is to follow steady well-defined rules of behavior, such as Taylor-type rules, or capital requirement rules, that at least prevent political pressures from exacerbating any bubbles that do develop in housing and other markets.--Gary Becker

Most people have so-called flashbulb memories of where they were and what they were doing when something momentous happened: the assassination of President John F. Kennedy, say, or the explosion of the space shuttle Challenger. (Unfortunately, staggeringly terrible news seems to come out of the blue more often than staggeringly good news.) But as clear and detailed as these memories feel, psychologists find they are surprisingly inaccurate. ... why are memories so unreliable? After all, if they were less subject to change we wouldn’t suffer the embarrassment of misremembering the details of an important conversation or a first date. Then again, editing might be another way to learn from experience. If fond memories of an early love weren’t tempered by the knowledge of a disastrous breakup, or if recollections of difficult times weren’t offset by knowledge that things worked out in the end, we might not reap the benefits of these hard-earned life lessons. Perhaps it’s better if we can rewrite our memories every time we recall them. Nader suggests that reconsolidation may be the brain’s mechanism for recasting old memories in the light of everything that has happened since. In other words, it just might be what keeps us from living in the past.--Greg Miller

I find the President's Cancer Panel report -at least, the general tone of it - hard to believe. Most of the headlines yesterday focused on the "grievous harm", "bombarding", and "grossly underestimated" statements, and suggested that there was an epidemic of environmentally-caused cancer. Since most age-adjusted cancer incidence rates have, in fact, been dropping, I find this a bit hard to believe.--Derek Lowe

The people that are opposing Professor Kagan, and here I'm not necessarily including Professor Campos, but many of them are on the far left of the legal academy. And the reasons that they are opposing her are reasons why I think she probably is a fairly moderate person. They're complaining, for example, that she didn't hire enough minorities and women when she was dean at Harvard. They're complaining in other words that, you know, she didn't use affirmative action aggressively enough. They're complaining about some of the conservatives that she hired at Harvard. They're complaining about the fact that, you know, she went out of her way to make Harvard a place that was more ideologically diverse and more welcoming to people who were conservative. And all of that, I think, bodes well for those of us who hope that this will end up being a fairly moderate appointment. And I would just like to comment that I don't think it's fair to say that Elena Kagan is a stealth nominee. I mean, she's worked in two Democratic administrations. She's been the dean of a major law school. I think that if you can't figure out what her general sensibilities are, you really haven't been trying very hard.--Steven Bainbridge

If you want to watch someone squirm, take a look at the two-minute videotape of Attorney General Eric Holder dodging Republican Rep. Lamar Smith's question whether "radical Islam" motivated the Times Square bomber. Holder, who last year called America "a nation of cowards" for refusing to talk frankly about race, plainly didn't want to say what is plain to everyone else, that Faisal Shahzad, back from five months in Waziristan, launched his terror attack because of his Islamist beliefs.--Michael Barone

It is very tempting to draw political parallels between President Dmitry Medvedev and former Soviet leader Mikhail Gorbachev. Despite apparent differences in the political and economic circumstances in which they have had to act, the similarities in the objectives and the strategic direction of their key policy initiatives are inescapable. Both tried to modernize the country after a period of decline and stagnation, realizing the “do-or-die” need to break outside the deadlocked economic framework that they inherited. Both understand the inseparable link between greater political openness and media freedom and economic development on a qualitatively new level. Hence, glasnost and multicandidate elections in the second half of the 1980s and the video-blog democracy and small party protectionism now. Both tried to end human rights abuses and police corruption in law enforcement agencies to combat the crippling atmosphere of fear that stifles innovation and entrepreneurship. Both have realized the value of a pragmatic foreign policy and cooperation, not confrontation, with the West to reduce the defense burden, facilitate Western technology transfer and attract foreign investment in order to create favorable external conditions for the country’s modernization. And both have tried to use the criticism of Stalinist legacy as a proxy tactic to criticize the system that they themselves were leading.--Vladimir Frolov

Friday, May 14, 2010

FrugalDad's 44 ways to financial ruin

here, via Abraham. My Top 5:
5. Just get a degree…in anything. Don’t “just get a degree” for the sake of getting a degree. Learn something, and prepare to apply it in the real world.

15. Buy a car because you can “afford the payments.” Ever wonder why car dealers advertisers the cost of a car in monthly payments? It’s because writing $32,000 in window paint isn’t quite as catchy as $379 a month (for 60 months with a balloon payment at the end). See, it just doesn’t have the same ring to it, does it?

22. Refuse to find disability insurance. After all, you are only 26, right? Who becomes disabled at 26? A lot of people. Illness, accidents and other bad things happen to young people, who are more likely to survive them disabled than die. Protect your new salary by finding disability insurance.

24. Marry the wrong person for the wrong reasons. Choice of spouse weighs heavily on future success or failure. They say opposites attract, but I’m not sure they stay together forever. Find someone who shares your dreams on subjects that matter most to you.

41. Shop for clothes with labels that impress your “friends.” It’s time to be a grown up. Impressing your friends with clothes is something we did in high school.

I'm a dad, and my nine-year-old would call me frugal. I'm so blessed, I'd call my wife frugal (although we did have a brush with #27).

Who let the dog out?

A big mystery seller of futures contracts during the market meltdown last week was not a hedge fund or a high frequency trader as many have suspected, but money manager Waddell & Reed Financial Inc, according to a document obtained by Reuters.

Waddell sold on May 6 a large order of e-mini contracts during a 20-minute span in which U.S. equity markets plunged, briefly wiping out nearly $1 trillion in market capital, the internal document from CME Group Inc said.

75,000 ESM0's worth of error comes out to $4 billion. I'd guess that anywhere from 20,000-100,000 contracts trade per hour from 915am - 415pm on most days. To try push 75k minis through a 20 minute window was never going to turn out very well.

There you have it folks. It was caused by an old school, low frequency, no technology, "Toto, we're still in Kansas" shop. Sure, Greece, California, British Petroleum et al. could have helped. And maybe even a couple of stupid trading algorithms. But not the high frequency guys.

I know, you're really, really sorry for ever suspecting otherwise.

UPDATE: CME concurs:
Some have questioned whether high-frequency traders (HFTs)
deploying so-called algorithmic trading methods
played a role in the May 6th incident. Certain HFTs
were active in both spot and futures markets during
this period as an ordinary course of business.
However, there is no visible support of the notion
that algorithmic trading models deployed in the
context of stock index futures traded on CME Group
exchanges caused the market fluctuations in

Rather, we believe that automated trading
contributes to market efficiencies, generally bolsters
liquidity and thereby contributes to the price
discovery function served by futures markets. This
view is supported in the academic literature where
one study found that “the move to screen trading
strengthens the simultaneity of price discovery in
the cash and futures markets and lessens the
existence of a lead-lag relationship.” Another study
concluded that their “results are consistent with the
hypothesis that screen trading accelerates the price
discovery process.”

Further, we find no evidence in CME stock index
futures of any undue concentration of activity
amongst algorithmic or any other types of traders.

UPDATE: It turns out NYSE's measures to slow the crash actually exacerbated it:
As several stocks declined sharply under heavy selling pressure, the New York Stock Exchange, one of the largest pools, stopped or slowed trading in particular stocks.

As part of that process, the NYSE held on to "buy" orders, in the hopes that it could gather enough of them to meet the selling demand. "Sell" orders that came to the NYSE were rerouted to other exchanges, which were not required to slow trading. Those other exchanges were soon overflowing with sell orders and didn't have enough buy orders to meet them, leading to the rapid decline in prices.

Quotes of the day

The tendency is to fit all facts into the format of a story, usually with a memorable protagonist, even when the reality is more complex.--Tyler Cowen

Let’s review how the real world works. In the real world, jobs are not magically “created” when some central planner in the Politburo decides everyone needs new shoes, windmills, solar panels, tiny electric cars, fluorescent light bulbs, recycled paper underwear, Rahm Emanuel action figures, or whatever. Jobs are created when consumers decide they want to spend money to buy stuff. That means that a) consumers have to have money to spend, and b) they have to be confident enough in the future of the economy to be willing to spend their money, and c) they have to be able to afford the stuff for sale.--Kenneth Green

What you need to understand about investing in gold is that you’re not really investing in gold. You’re investing against the U.S. dollar. It’s not that gold goes up, it’s that the value of a dollar goes down. Actually, it’s even more subtle than that. What you’re doing is you’re betting against the interest rate on the dollar. I know this sounds odd, but any currency you carry around in your wallet has an interest tied to it. That’s essentially what the currency is—that rate—and it’s the reason why anyone would want to use it. Gold can be seen as the way to keep all those currencies honest. ... Once Ben [Bernanke] and his pals at the Fed raise rates, gold is in for a world of hurt. The history of the price of gold is long boring periods with sharp dramatic spikes. The up part of the spike is fun. The downside, less fun. What’s tricky about gold is that it’s also impacted by geo-politics. Gold peaked in 1980 shortly after the Soviets invaded Afghanistan. It reached a low point not long before we did the same. ... This is a major difference between investing in equities and investing in commodities. Stocks are companies, filled with people aiming to make a profit. Gold is just a rock. It just sits there. In 10,000 years, it will still be a rock. My view is that the Federal Reserve will raise interest rates earlier than expected. I don't know exactly when that will be but it will put gold on a dangerous path. For now, my advice is to stay away from gold, either long or short.--Eddy Elfenbein

For the first time in recorded history, the moving 12-month sum of $227.6 billion of U.S. merchandise exports to Asia’s emerging market countries surpassed the… $223.7 billion of such exports to the European Union.--John Lonski

Until today, the rating agencies were holding their breath, hoping they might escape Congress' financial reform effort virtually unscathed -- until Sen. Al Franken (D-MN) made them gasp. His aggressive reform measure, which targets the ratings industry, passed today in the Senate by a vote of 64 to 35. One of the most substantial amendments to the reform effort to date, it will change the financial industry's process for obtaining ratings on asset-backed securities (ABS). The new legislation calls for every new ABS bond issue to have a rating by one agency assigned by a new board, instead of being chosen by the investment bank creating the security. The board will consist of mostly investors along with a few other industry participants. Although the underwriter can solicit additional ratings, it cannot escape the verdict of the assigned agency, so it cannot shop around for whichever agency has the most favorable view.--Daniel Indiviglio

The statistics are bleak: Twenty percent of Americans are frequent [lottery] players, spending about $60 billion a year. The spending is also starkly regressive, with lower income households being much more likely to play. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, or about 9 percent of all income.--Jonah Lehrer

Public sector unions ... are not going to let you hire a bunch of cheap workers and run crews without civil service protections. There's something ironic in the fact that the legacy of the New Deal is the inability to reproduce it. On the other hand, it's not so necessary, either. People are richer now, and though it isn't perfect, our financial regulation is better. We're not at much risk of people starving to death. So there's no urgent need to create low-skilled jobs for them to fill.--Megan McArdle

A course at Artillery School at Fort Sill in Oklahoma was shut down because the students, back from Iraq, knew more than the instructors.--David Brooks

You don't even have to be a lawyer to be on the Supreme Court, which I think is hilarious.--Shannon Bream

Technically, it is not illegal to be illegal in Massachusetts.--Martha Coakley

It used to be that whoever was elected as your president, even if he wasn’t the one you voted for, he was still your president. That doesn’t seem to be the case any longer.--Tim Keller

... in his sixteen months in office, Obama has overseen three times as many [umanned drone] killings as President Bush oversaw in his entire second term.--Tim Heffernan

Left-wing academics and student groups, who claim only to care about human rights, do not want to admit that they are in political bed with rabidly anti-Semitic Islamists, so they look the other way and pretend. What the leftists do not understand is that they are next. Don't believe me? Ask all the Iranian leftists who helped overthrow the Shah, if you can find their graves.--William Jacobson

In a series of studies using surveys that measure psychological entitlement and narcissism, University of New Hampshire management professor Paul Harvey found that Gen Y respondents scored 25 percent higher than respondents ages 40 to 60 and a whopping 50 percent higher than those over 61. In addition, Gen Y’s were twice as likely to rank in the top 20 percent in their level of entitlement — the “highly entitled range” — as someone between 40 and 60, and four times more likely than a golden-ager.--Brian Moore

A forthcoming study from Duke University has found that to match the dating success of a man one inch taller, a 5'9" man would have to make $30,000 a year more.--Jon Sobel

... the best choice for a woman is to marry a man of exactly the same age; an older husband shortens her life, and a younger one even more so.--Eric Barker

... an erection is like capitalism. We all know this in our hearts. The profit motive is pure. It schwings at profit and nothing else. It is the uncomplicated alternative to the murky motives of artists who paint for pennies, musicians who perform for love, teachers who work from dawn to dinner for a glimpse of the spark of learning, government bureaucrats with modest tortoise dreams of incremental social improvement, writers who — ... But let's not get into that. Here's the real mystery: If deficit spending and stimulus packages are such a threat to the economy's holy erection, why do the markets — which never lie, mind you — keep celebrating stimulus packages?--John Richardson

The big picture here is that risk, in Europe, is being replaced by uncertainty. The difference is that risk can be priced, while uncertainty can’t, and a market dominated by uncertainty is always going to be jittery and dangerous.--Felix Salmon