Tuesday, December 28, 2010

Quotes of the day

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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