Thursday, July 01, 2010

Quotes of the day

I'm an unabashed elitist. I chose my wife because I think she's better than other women, evaluate wines, books, investments, new hires, all on an ordinal scale from bad to great. This is often confused with racism or other repugnant thoughts because such discrimination tends to disproportionately affect socially disadvantaged groups, but that's incidental. Economists are generally very Liberal, but they also obsess over how smart various economists are, closet IQ idolaters. The key is moderation in all things.--Eric Falkenstein

I agree [mathematical] tools are essential, but I would add that they are not sufficient. So, readers should only trust PhD economists who understand these tools, and also the context in which they are applied. Having a couple business cycles worth of experience actually presenting micro and macro forecasts to CEOs and other key decision-makers, or running a portfolio that is marked to market, as also essential. As economists are primarily experts in models, applied to cherry-picked datasets that present cute results that showcase some novel cleverness, they are ignorant of the their ignorance. Their models are like the electric car, always just around the corner to viability. With hindsight, predicting business cycles--anything really--is very simple. You need someone who has been doing it in real time, with real feedback, giving you advice.--Eric Falkenstein

There's a lot of factors that go into housing prices. Felix [Salmon] says the math of interest rates and housing prices gets disrupted during a housing bubble. But my question would be doesn't the same math then disrupted during a housing collapse. No matter how affordable housing gets, people won't buy in. The real answer is there is no math that links interest rates and housing. So think what you want about where housing prices are headed. There are a number of reasons--foreclosures, the job market, low expectations about housing market returns--to believe housing prices won't pick up anytime soon. Low interest rates, and the threat of them going higher, though, are not one of them.--Stephen Gandel

The FCIC appears to imply that Goldman's pressure on AIG was a cause of the credit crunch. This is a bizarre view. Again, Goldman was merely the first to pick up on the mounting problems, so it left the mortgage party before other banks. The idea that Goldman should be blamed for causing a panic could only be true if there was no reason to panic. Obviously, there was ample reason. The housing bubble was on the verge of an epic explosion. The fact that Goldman was the first firm to worry doesn't mean it led others to worry irrationally. It means Goldman was smarter than the rest of the pack.--Daniel Indiviglio

The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money. If you differ, then ask yourself if Barack Obama could seek the presidency in 2012 without the support of Bob Rubin and the folks at Goldman Sachs. Case closed. For America's creditors and allies, the key question is whether the Democrats around Rubin are willing to embrace fiscal discipline at a time when deflation in the US is accelerating. That roaring sound you hear is the approaching waterfall of the double dip. With the US at the moment eschewing anything remotely like fiscal restraint and the rest of the world going in the opposite direction, to us the next crisis probably involves U.S. interest rates and the dollar. Judging by Rubin's performance in the past, when he talked first of a strong dollar, then a weak dollar policy, and fudged the issue regarding fiscal deficits, we could be in for quite a ride.--Institutional Risk Analyst

Alberto Alesina is a new favorite of fiscal hawks like former President George W. Bush's chief economic adviser, N. Gregory Mankiw. A professor of economics at Harvard University, the 53-year-old Italian disputes the need for more government spending to prop up growth and advocates spending cuts instead. This is Alesina's hour. In April in Madrid, he told the European Union's economic and finance ministers that "large, credible, and decisive" spending cuts to reduce budget deficits have frequently been followed by economic growth. He backed his proposal with historical research on rich countries' experiences since 1980. Later, at the Group of 20 summit in Toronto on June 26-27, the presidents and prime ministers of the advanced economies agreed to shrink their budget gaps by half or more by 2013. That put pressure on President Barack Obama to follow the lead of cost-cutters such as Britain's Chancellor of the Exchequer, George Osborne, and German Chancellor Angela Merkel. Says Alesina: "I think the Germans are right." Alesina argues that austerity can stimulate economic growth by calming bond markets, which lowers interest rates and promotes investment. In addition, he says, deficit-cutting reassures taxpayers that more wrenching fiscal adjustments won't be needed later. That revives their animal spirits and their spending. Alesina says that as a way to shrink deficits, spending cuts are better for growth than raising taxes. --Peter Coy

... [the ethanol lobby is] begging lawmakers for even more government money and mandates because there's still no natural market for their product. Which would be fine if ethanol really did any good for the environment. But ethanol made from corn, in particular, does more harm than good. And worse, the production of corn ethanol had been befouling the Gulf for years before the oil leak, as fertilizer runoff from Midwestern farms has created oxygen-free "dead zones," where seafood can't live. Sure, the oil leak has made things a lot worse. But calling corn ethanol a superior alternative is like saying it's better to chew tobacco than it is to smoke cigarettes—marginally true, but beside the point, and disingenuous in the extreme.--Daniel Mitchell

It was the ‘duty’ of white citizen ‘patrols to search negro houses and other suspected places for firearms.’ If they found any firearms, the patrols were to take the offending slave or free black ‘to the nearest justice of the peace’ whereupon he would be ’severely punished.’ Militias such as the Ku Klux Klan, the Knights of the White Camellia, the White Brotherhood, the Pale Faces and the ‘76 Association spread terror among blacks… The use of firearms for self-defense was often the only way black citizens could protect themselves from mob violence.--Justice Clarence Thomas

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance. The result is that insured residents of Massachusetts wind up paying more for health care, according to the report. “The active members subsidize some of the costs tied to those individuals who terminate within one year,’’ the report says. The report was released as state lawmakers consider proposals to make it harder for consumers to jump in and then dump their health insurance coverage.--Kay Lazar

What's really funny is that Alex [Rodriguez] has paid advisers piles of money to craft his image and it never seems to work. Meanwhile Dustin [Pedroia] looks like a homeless guy half the time and people love him.--Peter Abraham

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