Monday, January 31, 2011

A model, however beautiful, is an artifice

To confuse the model with the world is to embrace a future disaster in the belief that humans obey mathematical principles.--Emanuel Derman and Paul Wilmott

There are no fundamental laws of finance, there are no axioms of finance, only conjectures and beliefs of finance. And in that difference lies the problem. A system which is only based on probabilities (of any kind) is unable to produce true statements about itself, only valid statements, which validity needs always to be tested and questioned by observing empirical phenomena that underlay it's most basic assumptions. We can not blindly rely on mathematical models to measure risk in financial world. There is no proof theory devoted to finance, there is no logic devoted to finance, only computations. In conclusion, the state of financial markets is in no better shape today, than it was before the emergence of this crisis. Most of the basic assumptions are still considered true, most of basic modeling techniques are still used same as before.--Cheeky B

Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein
Previous BS installment here. Photo link here.

Quotes of the day

We are all creators, but too many reject the God-given right to create and instead become consumers, hiding in the safety of some government, some corporation, some self-help philosophy to take care of us. And so why should we be surprised when we turn around and somebody is sitting in our chair, dictating how our marriage will go, how our career will go, whether or not we can have peace with our neighbors? We shouldn’t be surprised. We handed them our authority. Until we believe we are creators, nothing will change save what some other creator changes for us. We are their servants, the consumers of whatever fate is dictated to us by the bold, be they good or bad.--Don Miller

I liked [Jerry Brown] when he was running for president [in 1992] on the flat tax. . . . A ton of economists, both liberal and conservative, have argued for a flat tax, but nobody's ever had the nerve to do it. . . . It would simplify things, but simplification doesn't seem to be in the human psyche.--Clint Eastwood

Fred Wilpon, the owner of the New York Mets, will be forced to sell the baseball franchise as soon as 2010 after incurring heavy Bernie Madoff-related investment losses.--Erin Arvedlund, in 2009

Your banking system needs a shock.--Gamal Mubarak, son of Hosni, to Senator Joe Lieberman

History entirely removed from the canon provides numerous circumstances where the tiniest adjustment would have changed the course of events. Suppose Britain had not broken the “Enigma” code machines. Would the Battle of Britain, and even World War II, have gone another way? Suppose Hitler had not held back his panzers at Dunkirk, sending in his planes instead. Would 150,000 British soldiers have been captured or killed, once again changing the face of the war? Is it not remarkable that Hitler’s persecution of Jews drove some of the best scientific minds out of Germany and into the United States? Had he not done so, is it not entirely possible that Hitler would have invented an A-bomb before America did? What then would the history of the past fifty years have looked like? Suppose Khrushchev had not blinked at the Cuba missile crisis, and a nuclear exchange had followed. What would be the state of the world today? Suppose the bullet aimed at Kennedy had missed. Suppose the bullet aimed at Martin Luther King had missed. Suppose the bullet that took out the Archduke in Sarajevo had missed.--Don Carson

Every big powerful technology company has met a new technology that has undone their dominance. For Microsoft it was open source and the Internet. For Google, it appears that it may be social. For Facebook, it appears that it may be mobile.--Fred Wilson

... a little thought makes clear that some types of economic inequality have great social value. For example, it would be hard to motivate the vast majority of individuals to exert much effort, including creative effort, if everyone had the same earnings, status, prestige, and other types of rewards. For example, many fewer individuals would engage in the hard work involved in finishing high school and going on to college if they did not expect their additional education to bring higher incomes, better health, more prestige, and better opportunities to marry. On my first trip to China in 1981 I visited several factories in the Beijing area. All the employees in each factory received more or less the same pay, and they could hardly ever be fired for bad work or absenteeism. This was an extreme eqalitarian approach to compensation, and the result was that no one worked hard, even though Chinese workers have traditionally been known for their diligence and energy. The picture was more or less the same in all of the factories I visited, and there was also little difference in pay between factories. Urban China was then highly eqalitarian, but it was also extremely poor because of very low productivity. China’s economic miracle has been in good measure based on allowing much greater inequality in pay and incomes to motivate greater productivity in both urban and rural areas.--Gary Becker

... income inequality that you refer to is apparent in many different places. You see it in athletics; you see it in entertainment; you see it in your industry as well. You take a look at the compensation of C.E.O.’s of major corporations, recognizing that those corporations have become much larger —they do business in many different parts around the world — and it’s very difficult to know how to properly benchmark the compensation. ... I think that there is not a good understanding as to the role of financial intermediaries. For example, without banks it’s hard to see how businesses would get the money they need to grow and to hire new workers. Let’s not lose track of the fact that most people need to borrow in order to buy a home, and if you don’t have banks, that’s not going to happen.--Abby Joseph Cohen

At my school, we pay five teachers to tutor kids after school and on Saturdays. They sit in classrooms waiting for kids who never show up. We don’t want for books—or for any of the cutting-edge gizmos that non–Title I schools can’t afford: computerized whiteboards, Elmo projectors, the works. Our facility is state-of-the-art, thanks to a recent $40 million face-lift, with gleaming new hallways and bathrooms and a fully computerized library. Here’s my prediction: the money, the reforms, the gleaming porcelain, the hopeful rhetoric about saving our children—all of it will have a limited impact, at best, on most city schoolchildren. Urban teachers face an intractable problem, one that we cannot spend or even teach our way out of: teen pregnancy. This year, all of my favorite girls are pregnant, four in all, future unwed mothers every one. There will be no innovation in this quarter, no race to the top. Personal moral accountability is the electrified rail that no politician wants to touch.--Gerry Garibaldi

The moment we are content in this fallen world, the dangers return—not least the danger of over-contentment. Without being contentious, prepare for conflict; without being combative, equip yourself for the “good fight”. It will last at least as long as you live.--Don Carson

Congrats to St. John's for their upset over #3 Duke

I'm not much of a college basketball fan, outside of the PC Friars in high school and the Cornell Big Red last year.

But as little love is lost between me and Yankees fans, I pity thosse who are St. John's (and Knicks) fans.  It's good for basketball if New York City fans are engaged and have something to cheer about.

Photo link here.

Friday, January 28, 2011

Quotes of the day

Fannie and Freddie were lowering their credit standards and participating in the non-traditional mortgage market—eventually buying up the credit risk of 12 million of the 27 million not-traditional mortgages—for one reason and one reason only: government regulation compelled them to do this. ... So why did Fannie and Freddie lower their standards and chase the shoddy mortgages that lead to their destruction? Because they were attempting to meet the government’s increasingly stringent affordable housing requirements. The responsibility for the collapse of Fannie and Freddie rests with the policies of HUD.--John Carney

Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper. They say senior traders under Tom Marano, who was a Senior Managing Director and Global Head of Mortgages for Bear and is now CEO of Ally's mortgage operations, were pocketing cash that should have gone to securities holders after Bear had already sold them bonds and moved the loans off its books.--Teri Buhl

... in contrast with the landed, and often leisured, aristocracies of previous eras, the elite now consists mostly of ‘‘the working rich,’’ in the words of Emmanuel Saez, an award-winning economist at the University of California, Berkeley, who is one of the leading students of income inequality. In 1916, Mr. Saez’s research shows, the richest 1 percent of Americans received only one-fifth of their income from paid work. In 2004, in contrast, paid work accounted for 60 percent of the income of that same sector.--Chrystia Freeland

[If I could go back in time and do things differently] I'd spend more time at home with my family, and I'd study more and preach less. I wouldn't have taken so many speaking engagements, including some of the things I did over the years that I probably didn't really need to do—weddings and funerals and building dedications, things like that. Whenever I counsel someone who feels called to be an evangelist, I always urge them to guard their time and not feel like they have to do everything. I also would have steered clear of politics. I'm grateful for the opportunities God gave me to minister to people in high places; people in power have spiritual and personal needs like everyone else, and often they have no one to talk to. But looking back I know I sometimes crossed the line, and I wouldn't do that now.--Billy Graham

Thursday, January 27, 2011

Quotes of the day

... it’s not fair to lump all banks together. I don’t lump all media together….There’s good and there’s bad. There’s irresponsible and ignorant and there’s really smart media. Well, not all bankers are the same. I just think this constant refrain [of] ‘bankers, bankers, bankers,’ — it’s just a really unproductive and unfair way of treating people….People should just stop doing that.--Jamie Dimon

About 5 years ago I noticed something wrong with white people, ... If those with stricter parenting styles than us are bad people, and those with less strict parenting styles are also bad people, then doesn’t this imply that we also used to be bad people? After all, weren’t our ancestors much stricter with kids a few hundred years ago? And aren’t our descendants also likely to be bad people too, after all (extrapolating current trends) they are likely to be much less strict than we are. ... Just as white folks don’t like parenting styles that are more or less strict than their own; Hollywood doesn’t like films that are more or less “artistic” than their own. BTW, when I say “artistic” in scare quotes I don’t mean having aesthetic merit. Lord knows that’s not what determines which films get nominated for best picture. If you don’t believe me, just look at a list of films directed by Hitchcock in the late 1950s, and then look at the films nominated for best picture in the late 1950s. No, Hollywood equates “artistic” with films about the way we live. And by “we” I mean English-speaking people. More specifically, white English-speaking people. Movies with which ”we” can identify.--Scott Sumner

We are looking for students who wonder, students who are reading widely, students of passion who are driven to make a difference in the lives of those around them and in the broader world through enlightened and effective leadership. The undergraduate education they are receiving seems less and less suited to that purpose. An outstanding biochemistry major wants to be a doctor and supports the president's health-care bill but doesn't really know why. A student who started a chapter of Global Zero at his university hasn't really thought about whether a world in which great powers have divested themselves of nuclear weapons would be more stable or less so, or whether nuclear deterrence can ever be moral. A young service academy cadet who is likely to be serving in a war zone within the year believes there are things worth dying for but doesn't seem to have thought much about what is worth killing for. A student who wants to study comparative government doesn't seem to know much about the important features and limitations of America's Constitution. When asked what are the important things for a leader to be able to do, one young applicant described some techniques and personal characteristics to manage a group and get a job done. Nowhere in her answer did she give any hint of understanding that leaders decide what job should be done. Leaders set agendas. ... We are blessed to live in a country that values education. Many of our young people spend four years getting very expensive college degrees. But our universities fail them and the nation if they continue to graduate students with expertise in biochemistry, mathematics or history without teaching them to think about what problems are important and why. --Heather Wilson

[Paul] Samuelson’s involvement with Commodities Corp. was known around the department, but it became no part of his legend in the outside world. When Weymer took the stage at Samuelson’s memorial service last year, along with MIT president Susan Hochfield and eight well-known economists, his presence surprised more than a few in the audience. The answer seems to be that Samuelson’s low profile as an activist investor made it easier to gather information.--David Warsh

The CASH countries that avoided the financial crisis

Canada, Australia, Singapore, and Hong Kong.

Via Rick Santelli on CNBC this morning, while discussing the Financial Crisis Inquiry Commission's report.

What are the commonalities? All British Commonwealth, perhaps the nations that best embody Scottish Enlightment principles. All have more fiscally disciplined governments in the recent decade or two--any countries restraining government spending as well as these four? All more culturally homogenous than the U.S. And all huge trading partners with China.

Anything else?

Regulatory regimes, resources, and military policies seem to vary greatly across these 4 countries.

Wednesday, January 26, 2011

Quotes of the day

When you think of the economy, think of a rain forest that you live in and study, not a machine that you fix.--Arnold Kling

In Boston, cops make about $110,000. I’m sure some of them are married to nurses making around $80,000, putting them well up into the top 5 percent. I don’t regard this sort of family as rich, but many people I talk to insist the top 5% are rich. If so, there are far more rich families that are a cop/nurse, or accountant/teacher, or engineer/secretary, then there are Donald Trumps. Why do people find it surprising that so few families make more than $150,000? I think I know, because I used to be surprised myself. Then I realized my mistake. I was assuming “families” were people like me, a middle age guy with a working wife and kids. But then I realized a “family” is any adult household. ... People are surprised that only 5% of families make more than $150,000, because they forget that even most upper-middle class people spend the vast majority of their time (between 18 and 80) making much less than $150,000.--Scott Sumner

The nation is facing some really difficult problems, particularly on the fiscal front. There's no longer any way to put it off; pretty soon, the government is going to have to start making some very hard choices about taxes and spending. No matter what it chooses, that probably means lower economic growth, angry voters, and some real loss on the part of whoever's ox is gored. Listening to earnings calls means listening to quite a few CEOs in analogous situations. Often, the situations they are in are largely not of their making, or indeed anyone's fault at all. But they are expected to fix it. And too often, they can't, at least not yet. Think of Rick Wagoner, and the other managers at GM who knew they were on the road to disaster, but couldn't exit without the consent of stakeholders who weren't quite ready to believe it was necessary. Faced with that situation, what does the CEO say? He puts the best face on things.--Megan McArdle

The president’s friend and adviser Valerie Jarrett sometimes pointed out that not only had he never managed an operation, he’d never really had a nine-to-five job in his life. Obama didn’t know what he didn’t know, yet his self-confidence was so stratospheric that once, in the context of thinking about Emanuel’s replacement, he remarked in all seriousness, “You know, I’d make a good chief of staff.”--John Heilemann

Many people watching tonight can probably remember a time when finding a good job meant showing up at a nearby factory or a business downtown. You didn’t always need a degree, and your competition was pretty much limited to your neighbors. If you worked hard, chances are you’d have a job for life, with a decent paycheck and good benefits and the occasional promotion. Maybe you’d even have the pride of seeing your kids work at the same company. That world has changed. And for many, the change has been painful. I’ve seen it in the shuttered windows of once booming factories, and the vacant storefronts on once busy Main Streets. I’ve heard it in the frustrations of Americans who’ve seen their paychecks dwindle or their jobs disappear -– proud men and women who feel like the rules have been changed in the middle of the game. They’re right. The rules have changed. In a single generation, revolutions in technology have transformed the way we live, work and do business. Steel mills that once needed 1,000 workers can now do the same work with 100. Today, just about any company can set up shop, hire workers, and sell their products wherever there’s an Internet connection. Meanwhile, nations like China and India realized that with some changes of their own, they could compete in this new world. And so they started educating their children earlier and longer, with greater emphasis on math and science. They’re investing in research and new technologies. Just recently, China became the home to the world’s largest private solar research facility, and the world’s fastest computer. So, yes, the world has changed. The competition for jobs is real. But this shouldn’t discourage us. It should challenge us.--President Obama

Our nation is approaching a tipping point. We are at a moment, where if government's growth is left unchecked and unchallenged, America's best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency. Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked - and it won't work now. We need to chart a new course. Speaking candidly, as one citizen to another: We still have time... but not much time. If we continue down our current path, we know what our future will be. Just take a look at what's happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn't act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody. Their day of reckoning has arrived. Ours is around the corner. That is why we must act now. Some people will back away from this challenge. But I see this challenge as an opportunity to rebuild what Lincoln called the "central ideas" of the Republic. We believe a renewed commitment to limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper. Under this approach, the spirit of initiative - not political clout - determines who succeeds. Millions of families have fallen on hard times not because of our ideals of free enterprise - but because our leaders failed to live up to those ideals; because of poor decisions made in Washington and Wall Street that caused a financial crisis, squandered our savings, broke our trust, and crippled our economy. Today, a similar kind of irresponsibility threatens not only our livelihoods but our way of life. We need to reclaim our American system of limited government, low taxes, reasonable regulations, and sound money, which has blessed us with unprecedented prosperity. And it has done more to help the poor than any other economic system ever designed. That's the real secret to job creation - not borrowing and spending more money in Washington.--Representative Paul Ryan

The combination of implicit debt forgiveness and the wide spread between the lending and deposit rate has been a very large transfer of wealth from household depositors to banks and borrowers. This transfer is, effectively, a large hidden tax on household income, and it is this transfer that cleaned up the last banking mess. It is not at all surprising, then, that over the past decade growth in China’s gross domestic product, powered by very cheap lending rates, has substantially exceeded the growth in household income, which was held back by this large hidden tax. It is also not at all surprising that household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year. This is how China’s last banking crisis was resolved. It did not result in a collapse in the banking system, but it nonetheless came with a heavy cost. The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy.--Michael Pettis

Brooks' main point is that preventing kids from sleep-overs and other childhood games deprived them of essential, nay, dominant skills in managing status rivalries, negotiating group dynamics, understanding social norms, navigating the distinction between self and group. These are the really important skills learned in childhood. Clearly, these are essential skills, but the problem with prioritizing this kind of competence is you can't really monitor them, and what you can't monitor, you can't instruct, drill, or correct, other than simple things like teaching your kids to say please and thank you, and to see 'getting mad' as basically an internal failure. So, while letting your kid play with other kids is essential, I don't see it as a more important parenting strategy because kids will naturally work these skills without prompting. Math, reading, and writing, are not natural activities, and there's a brief window in childhood where one can put these concepts into their brain efficiently.--Eric Falkenstein

In a season where N.F.L. owners have steadily threatened to lock out the players next year unless they secure more profits in the next collective bargaining agreement, it’s poetic justice to see the Green Bay Packers, the team without an owner, make the Super Bowl. Actually, it’s not quite accurate to say the Packers are without an owner. They have a hundred and twelve thousand of them. The Packers are owned by the fans, making them the only publicly owned, not-for-profit, major professional team in the United States.--Dave Zirin

Some anti-globalization protestors view Klaus Schwab, the seventy-two-year-old German economist who set up Davos forty years ago and still runs it, as the devil incarnate. I prefer to view him as a savvy nightclub promoter or restaurateur, a German version of Ian Schrager and Steve Rubell, or Keith and Brian McNally. Back in the nineteen-eighties, when I first moved to New York, people used to queue around the block to get into the McNallys’ latest hotspot, such as Odeon, Canal Bar, or 150 Wooster. But unless you knew the private reservation line or worked on Page Six you had little chance of securing a table. Davos works on the same principle. The actual sessions are largely devoid of meaning, as evidenced by the recent themes of the conference. 2011: “Shared Norms for the New Reality.” 2010: “Improve the State of the World: Rethink, Redesign, Rebuild.” 2008: “The Power of Collaborative Innovation.” I defy anybody to find any meaning in this corporate-speak gobbledygook. The point of Davos is not to learn or think or do deals, but simply to be there—and to be seen to be there. If the shareholders are picking up the tab, that’s all the better.--John Cassidy

In four studies, we show that participants with creative personalities who scored high on a test measuring divergent thinking tended to cheat more (Study 1); that dispositional creativity is a better predictor of unethical behavior than intelligence (Study 2); and that participants who were primed to think creatively were more likely to behave dishonestly because of their creativity motivation (Study 3) and greater ability to justify their dishonest behavior (Study 4). Finally, a field study constructively replicates these effects and demonstrates that individuals who work in more creative positions are also more morally flexible (Study 5). The results provide evidence for an association between creativity and dishonesty, thus highlighting a dark side of creativity.--Harvard Business School Working Paper 11-064

A former AOL exec explains that this is AOL's "dirty little secret" – "that 75% of the people who subscribe to AOL's dial-up service don't need it."--Nicholas Carlson

The ultimate woman should have Taylor Swift's hair, Anne Hathaway's eyes and January Jones' cheeks, say two hot-shot Beverly Hills plastic surgeons. "Hollywood's Hottest Looks," compiled by Dr. Richard Fleming and Dr. Toby Mayer, also found that their patients desired Natalie Portman's nose, Scarlett Johansson's lips, Halle Berry's jaw line, Amy Adams' skin and Penelope Cruz's body. The Tinseltown nip-and-tuck specialists surveyed more than 1,200 of their current and former patients to craft this snapshot of favorite celebrity body parts. On the male side, the most admired looks included Jude Law's nose, Hugh Jackman's eyes, Jon Hamm's jaw line, Ashton Kutcher's lips, George Clooney's hair, Leonardo DiCaprio's cheeks, Neil Patrick Harris' skin and Mark Wahlberg's body.--David Li

Embodying smiles not only lets people recognize smiles, Dr. [Paula] Niedenthal argues. It also lets them recognize false smiles. When they unconsciously mimic a false smile, they don’t experience the same brain activity as an authentic one. The mismatch lets them know something’s wrong.--Carl Zimmer

I tried to understand differential cohomology

but realized that I am more in tune with something simpler, like this:

Tuesday, January 25, 2011

Quotes of the day

The economy sucks up people who know [math and science], and the pay and the respect of working for Google or Microsoft, ... or Goldman Sachs (Heaven help them, ... uhhh, just kidding) is a heck of a lot more than there is to teaching in a high school.--Jim Simons

I consider high frequency trading to be natural, and definitely socially useful. What's happened is, that as the markets have become more electronic, and computers have been applied for generating prices and accepting trades, the markets have grown tremendously more liquid. The bid-ask spread has come down. The fellas of old that used be specialists on the floor were supposed to be the market and they were full of baloney, and they would create wide spreads and at the first sign of trouble they would disappear. ... There was a glitch, I think they called it the 'Flash Crash' ... and for 8 minutes or so, some parts of the market took a dive. It came right back. ... In 1987, when the stock market crashed it went down 25% in half a day and didn't recover for 6 months, 'cause there was nobody there on the other side. ... Yes, I consider high speed trading socially useful, and those people who argue against it are wrong.--Jim Simons

[Jim] Clark was particularly irked by the disclosures surrounding Abacus. He had met with Paulson & Co. founder John Paulson in August, 2006 and been impressed by the hedge fund manager’s plans to bet against the subprime-mortgage market. His Goldman brokers talked him out of investing with Paulson, describing him as a bit player, Clark says.--Richard Teitelbaum

Sentiments on how the country is doing break down along partisan lines. Among Democrats, 14 percent said the country is doing very well, while another 51 percent said it is doing fairly well. Thirty-five percent of Democrats said the country is doing badly. Just one percent of Republicans surveyed said the country is doing very well and 24 percent said it is doing fairly well, while 76 percent said it is doing pretty badly or very badly. Independents’ views are middling, with 41 percent saying the country is doing well, while 49 percent said it is doing badly.--Jennifer Epstein

Do we think the administration has even considered that the problem [the slowing pace of new drugs coming out of the pharmaceutical industry] might be the huge costs imposed on new drug development by the FDA?--Jeffrey Miron

As states struggle with enormous deficits and exploding pension costs, some analysts are urging Congress to enact a law enabling states to declare bankruptcy the way municipalities can under Chapter 9 of the federal bankruptcy code. This is a bad idea. A state bankruptcy provision could create more problems than it solves. Bankruptcy proponents understandably worry that states such as California and Illinois are so deep in the hole they may end up petitioning Congress for federal relief. To forestall this possibility, the argument goes, even the threat of bankruptcy would give governors and legislators a powerful new weapon for forcing concessions from recalcitrant public employee unions. Yet state officials committed to cutting costs already have options for putting the squeeze on their unions.--E.J. McMahon

Here we go again with the political grandstanding around the idiotic "debt ceiling" -- idiotic because it's defined in a fixed number of dollars instead of a percentage of GDP.--Steven Conover

The experimental study reported here employed one of the most compelling visual cues of female sexual attractiveness (low waist-to-hip ratio) to test the influence of news anchor sexualization on audience evaluations of her as a professional and their memory for the news that she presents. Male participants saw the sexualized version of the anchor as less suited for war and political reporting. They also encoded less news information presented by the sexualized than her unsexualized version. Conclusions were drawn in line with evolutionary psychology expectations of men’s cognitive susceptibility to visual sex cues.--Maria Elizabeth Grabe and Lelia Samson

Is it better to test sexual compatibility as early as possible or show sexual restraint so that other areas of the relationship can develop? In this study, we explore this question with a sample of 2035 married individuals by examining how soon they became sexually involved as a couple and how this timing is related to their current sexual quality, relationship communication, and relationship satisfaction and perceived stability. Both structural equation and group comparison analyses demonstrated that sexual restraint was associated with better relationship outcomes, even when controlling for education, the number of sexual partners, religiosity, and relationship length.--Dean Busby, Jason Carroll & Brian Willoughby

Chart of the day: S&P predicted performance based on third year of Presidential first term

Source here (click to see Superbowl correlation prediction). Via Abnormal Returns.

Monday, January 24, 2011

Quotes of the day

The [central moral challenge in this century] is oppression of girls and women around the world.--Sheryl WuDunn

It’s easy to see why liberal feminists were miffed. Because of their efforts, conservative women were now hurrying down congressional corridors. But where were these newcomers back when the struggle was on? ... But liberal feminists were troubled by much more than conservative women’s wanting to crash the party. What threatened feminism as we knew it was the Palinites’ fundamental beliefs about the nature of the American social contract. ... Many heartland women had seen in feminism’s enthusiastic careerism, as well as its resentment of men and domesticity, an implicit criticism of their own lives. Hence their rejection of the feminist label even as they joined the workforce and lived lives that looked, in many respects, consistent with the movement’s principles. ... something important sets today’s maternal feminism apart from the earlier strain: it casts budgeting and governance as maternal issues. ... the Palinites have drawn big question marks around language like this. What does “equality” mean? Is it equal opportunity, as the newcomers would probably say? Or equal results, as many feminists appear to believe? Does it mean women’s choosing how to run their lives, just as men do? (Grizzlies.) Or does it refer to absolute parity between men and women? (Liberals.) How can both sides claim the feminist mantle with such different understandings of government’s function and of women’s progress?--Kay Hymowitz

Economic growth requires secure property rights, encouragement of private enterprise, openness to international trade, stimulation of education, limited and sensible regulations, and reasonably honest government. Microfinance makes only a small direct contribution to any of those variables.--Gary Becker in 2006

... if I may introduce a practical consideration,
intellectuals by and large have elevated
tastes-they like to eat, dress, and live well, and
especially to travel. The late Walton Hamilton,
lawyer and economist, once said that our
customary salutation, “Good Day,” was a vestige
of an agricultural society where people
were asking for good weather, and he expected
city dwellers eventually to greet each other
with the phrase, “Low Prices.” If Hamilton’s
theory is correct, the intellectuals will come to
the salutation, “Fair Fullbright.” ... inquiry
has been most free in the college whose trustees
are a group of top quality leaders of the market
place-men who, our experience shows, are remarkably
tolerant of almost everything except
a mediocre and complacent faculty. Economics
provides many examples: If a professor wishes
to denounce aspects of big business, as I have,
he will be wise to locate in a school whose
trustees are big businessmen, and I have. ...
Our ruling attitude toward the market place has
not changed since the time of Plato. Is it not
possible that it is time to rethink the question?--George Stigler

The New York Times reports that President Obama, in his State of the Union speech, will call, among other things, for encouraging exports. Now, since exports must equal imports in the long run, encouraging exports is exactly the same thing as encouraging imports. And wouldn’t you expect that if you were out to encourage imports, your first step might be to stop discouraging imports, say by declaring an end to all tariffs and quotas on foreign-made goods?--Steve Landsburg

As Arnold Schwarzenegger stepped down as governor of California, he could behold two dispiriting sights: a state struggling with structural budget deficits, just as it had struggled when he marched into office as a conquering action hero, and an approval rate just 1 point higher than his disgraced and recalled predecessor’s. Schwarzenegger’s failed governorship—he did good and bad, of course, but he never accomplished his recall-driven task of taming the deficit—has elicited harsh criticism, especially from conservatives, who view him as something of a traitor. ... in the end, he did very little that was unconventional. Did he ever have core beliefs? Or was he always just acting?--Steven Greenhut

The American people say, don't touch Social Security, don't touch Medicare, don't cut defense. That's 84% of the federal budget. If you can't touch 84% of the federal're down to 16% of the budget at a time we're borrowing 40 cents of every dollar we spend.--Senator Kent Conrad

I am committed to repealing and replacing the President’s new health care law. A majority of the American people don’t like this law, and they are right. The law does nothing to lower health care costs—that’s the verdict from the nonpartisan Chief Actuary of Medicare. Democrats have spent thousands of words and hours falsely claiming that this law controls costs. Their actions tell a different story. Right now, Americans are being hit with higher health care bills due to Washington mandates. Meanwhile, well-connected businesses and labor unions are being handed “waivers” from the Obama Administration that excuse them from bearing the costs of the same mandates. If the powerful and politically connected can escape the costs of this bill through waivers, it’s only fair that ordinary Americans coping with the recession get the same waivers. I am going to fight to make sure they do.--Senator John Barrasso

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress. ... The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.--Gretchen Morgenson

... George Lucas addressed nearly all of [Michael] Lind’s issues with the “Star Wars” universe in movies one through three. (I am bracketing the more creative interpretations of those films …) Queen Amidala of Naboo, Princess Leia’s mother, turned out to be an elected queen, who moved on to senatorial duties after serving out her term as monarch. (How a teenager managed to navigate Naboo’s version of the Iowa caucuses remains a mystery …) The once-mystical Force was given a scientific explanation, in the form of the “midichlorians,” the micro-organisms that clutter up the bloodstream of the Jedi and give them telekinetic powers as a side effect. And the lost Old Republic that the rebels fight to restore in the original films was revealed to be, well, “a sort of galactic League of Nations or UN,” with the Jedi Knights as its peacekeeping force and the lightsaber as the equivalent of the blue helmet. For Lind, then, I can only assume that watching the prequels was an immensely gratifying experience. And for the rest of us, the knowledge that Lind’s prescription for “Star Wars” helped produce three of the most disappointing science-fiction blockbusters ever made should be reason enough to reject his prescription for America without a second thought.--Ross Douthat

There are periods in a company's life when the founder is the better leader and there are times when the operating executive is the better leader. And there are times, like what is certainly the case at Apple, where you have no choice.--Fred Wilson

One noticeable link between this year's two Super Bowl teams is that they think differently than that. Instead of going out and signing the big free agent, they draft the right players, develop them, and then draft some more good players. Free agency is utilized as a supplement more than a cure-all.--Mike Reiss

Friday, January 21, 2011

Baptist-bootlegger symbiosis of the day

Sarah Palin and the liberal media.

Quotes of the day

Let’s try for the fancy [academic peer-reviewed] journal.--Eight year old Anna Ayres

If you (highly) discount future rewards, you’re less likely to be willing to invest in human capital; why give up leisure/consumption today for something in the future about which you don’t care very much? Of course, if your discount rate is too low, you will sacrifice most of today’s pleasures for the prospect of even modestly greater rewards in the future. I want my kids’ discount rate to be low, but I don’t want it to be zero. I don’t want them to sacrifice all of today’s pleasures for some future pie in the sky. ... If you had to choose your child’s discount rate, what number would you choose, and why? How much pleasure would you want them to sacrifice now in exchange for more pleasure in the future? How low would you go?--Ian Ayres

America is on a path to bankruptcy. It's easy to get bogged down arguing about lots of small cuts, but we'll only make progress by abolishing whole departments and entire missions. I hope the public understands it has to be done.--John Stossel

... the current talk about municipal bankruptcies is designed to fix the past problems - obligations we've already rung up - but doesn't address the underlying problem which, uncorrected, will guarantee that we have this discussion again in 15, 30 or 50 years. That problem is defined benefit pension plans which are based on overly aggressive underlying return assumptions.--Kid Dynamite

Although my mandate was to cut back, I spent more time fighting new proposals than getting rid of old ones. The staffs wanted more, not less. Whenever I met acquaintances from other agencies the invariable comment was "You won't believe what they want to do now." ("They" were the permanent staffs.) The current regulatory agencies are not going to hire or promote people like me. Without managers with a strong interest in deregulation and with the backing of senior administrators, there will be no serious power to buck the staffs. The current executive order seems to impose cost-benefit analysis, but it has enough loopholes ("equity, human dignity, fairness") so that agencies will be able to do whatever they want. Deregulation was hard even under Reagan. I am afraid it will be impossible under Mr. Obama.--Paul Rubin

I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion. ... The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well. Because of this bill, the advocates say, the federal government is on a sounder fiscal footing. Repealing it, they say, would make the budget deficit worse. So, by that logic, giving me $1 billion is fiscal reform as well.--Greg Mankiw

Suppose someone - say, the president of United States - proposed the following: We are drowning in debt. More than $14 trillion right now. I've got a great idea for deficit reduction. It will yield a savings of $230 billion over the next 10 years: We increase spending by $540 billion while we increase taxes by $770 billion. He'd be laughed out of town. And yet, this is precisely what the Democrats are claiming as a virtue of Obamacare. During the debate over Republican attempts to repeal it, one of the Democrats' major talking points has been that Obamacare reduces the deficit - and therefore repeal raises it - by $230 billion.--Charles Krauthammer

It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of Government.--Ronald Reagan

After all, what ultimately ails the world is its inherent imperfectability — its fallen character, if you’re a Christian; its irreducible complexity and tendency toward entropy and dissolution, if you’re a strict materialist. This is true on all the great issues of the day. No matter how many lives may be saved or lost because of health care policy, no lives will be saved forever, and every gain will be an infinitely modest hedge against the wasting power of disease and death. No matter the wisdom of our politicians or the sagacity of their economic advisors, no policy course can guarantee universal wealth or permanent economic growth. And no matter the temperature of our discourse, the state of our gun laws, or the quality of our mental health care, nothing human beings do can prevent the occasional madman from shooting up a crowded parking lot.--Ross Douthat

Perhaps one strong outside indicator that a contrarian view is right is when the media goes out of its way to say that it is opposed by a “scientific consensus”!--Robin Hanson

I think it’s so unfair of people to be against Jack because he is a Catholic. He’s such a poor Catholic.--Jackie Kennedy

... although extraverted leadership enhances group performance when employees are passive, this effect reverses when employees are proactive, because extraverted leaders are less receptive to proactivity.--Academy of Management Journal

I once heard a senior European official remark that the trouble with democracy was that George W. Bush was its cheerleader. He had a point. Iraq had recently descended into bloody chaos. As long as the then US president was proselytizer-in-chief, democracy was a pretty tough sell. Western values have been out of fashion ever since. First came the post-Iraq realization that it is not that easy to impose them at the point of a cruise missile. Then it dawned on neoconservatives and liberal internationalists that there is more to all this than a ballot box. There are small matters such as the rule of law, an independent judiciary and robust institutions. All these have to fit the cultural circumstances. The lesson from Afghanistan is that the west lacks the stomach for nation-building. ... One of the striking things about today’s world is that it is full of despots pretending to be democrats. Even regimes that disdain anything that smacks of a western model want to claim the legitimacy conferred by democratic choices. --Philip Stephens

Video of the day: Changing education paradigms

Via Felix Salmon.

Chart of the day: Manufacturing output of the Top 8 nations

Via Mark Perry.

Thursday, January 20, 2011

Map of the day: GDP comps between states and countries

Source here, via Abraham Piper.

I want to live in a democracy and not be offended

Via Abraham Piper.

Quotes of the day

Real eyes
Real lies.--Anonymous

... the insatiable love of riches is a desire that brings far more torment to the soul than their enjoyment brings refreshment.--Bernard of Clairvaux

If you think health care is saving your life, then it doesn't seeem outrageous for it to cost as much as your rent, or your car payment. But because the cost is disguised for so many people--hidden in employer accounts or taxes--people don't understand that it actually is quite costly. Especially in the individual market, where both adverse selection and very high administrative costs take their toll. So it may be that the people who we expected to be covered by the high risk pools either can't afford it, or won't afford it--simply won't pay what they think are outrageous prices. And yet neither of these explanations is very satisfying. People with disabling chronic conditions are indeed often too poor to afford health insurance, but they're also disproportionately likely to end up on disability and thus Medicaid. Certainly, I wouldn't be surprised to hear that uptake had been depressed by the pricetag of insurance in the individual market. But I don't think this explains why 98% of the potentially insurable population is missing.--Megan McArdle

How, then, does the Affordable Care Act magically convert $1 trillion in new spending into painless deficit reduction? It's all about budget gimmicks, deceptive accounting, and implausible assumptions used to create the false impression of fiscal discipline.--Douglas Holtz-Eakin, Joseph Antos and James Capretta

... most Americans don’t actually disagree strongly about whether we should have a stronger safety net or a more limited government. They think, in a vague and none-too-consistent fashion, that we should have both at once — low taxes and expensive entitlements, subsidies for me but not for thee, a go-go free market when G.D.P. is rising but a protective government ready to save us from our foolishness when the economy goes bad, and so on. ... The shouters are sincere, but they’re also strategic: Framing the choice in stark, apocalyptic terms can feel like the only way to persuade the vast American middle to sit up and pay attention.--Ross Douthat

I liken being a conservative at the NY Times to being chief rabbi at Mecca.--David Brooks

I am not sure how much the portraits of researchers are intended as positive, but overall I take away from [A History of Autism: Conversations with the Pioneers] the message that many of them are arrogant and also partially incompetent.--Tyler Cowen

The New England Journal of Medicine and 13 other research publications may force scientists who submit studies to disclose payments from hedge funds in the wake of insider-trading probes involving a drugmaker and technology companies.--Alex Nussbaum

... lawyers themselves prevent bankers from saying anything. Bankers' public disclosure documents and courtroom testimony read like Vogon VCR manuals for the simple reason that all substance, spirit, and fact has been thoroughly and religiously bleached out of them prior to their release by an army of lawyers: bankers' in-house lawyers, client counsel, and even attorneys on the other side of the deal. ... If the world were not populated with flesh-eating securities litigators chomping at the bit to prove malfeasance because a banker was caught on record alleging the sun is hot, we bankers wouldn't have to wrap our every public utterance in 50 pounds of cotton wool. Physician, heal thyself.--Epicurean Dealmaker

The reason Hu Jintao decided to visit the U.S. this month is that the Chinese leader wants to know when the U.S. economy and its currency will be stable and strong again. It’s good the Chinese are known for patience because Hu may have to wait a while. At least that’s the view according to John Taylor, a Stanford University economist who has influenced Federal Reserve policies in the past. Fed officials often refer to the Taylor Rule, a formula devised by Taylor that shows how a central bank should manage interest rates in response to inflation and other data. At a recent joint lunch of the American Economics Association and the American Finance Association, Taylor, a Treasury undersecretary in President George W. Bush’s administration, delivered a second, equally interesting, rule. Taylor Rule II doesn’t have math. And it doesn’t say what the Fed should do. It predicts what the central bank will do. Taylor says a period of less Fed intervention and stable strong growth will come, along with a strengthening dollar. But by the time this happens, Hu, now 68, might be approaching 80.--Amity Shlaes

There has been a recent upswing in conservative articles discussing the idea of going back to some sort of gold standard. I don’t think people realize how dangerous this idea is. You can’t just “give it a shot” and see how it works out. It’s like marrying the daughter of a Mafia chieftain–you need to be very sure you are willing to commit. A true gold standard (not Bretton Woods) allows Americans to buy or sell gold. If you are not 100% committed to staying on gold, but instead hint you might devalue the dollar at some point, people will dump dollars and buy gold. The increase in demand for gold will raise its value, or purchasing power. This is deflationary under a gold standard, where the nominal price of gold is fixed.--Scott Sumner

The Wilders trial has also inflamed feeling everywhere in Europe about the place of Islam in European society. In France, the burqa has been banned; in Switzerland, the prohibition of new minarets was passed by referendum; in Sweden, the results of the elections last September were called a “catastrophe” by Muslim leaders because of the gains of the Swedish Democrats, an anti-Islamic party; in Germany, a party officially “inspired” by Wilders’s Freedom Party has been organized. Almost certainly, then, the Wilders trial backfired, and not just in Holland. Yet this may only be the beginning. Now that new trial judges will be appointed, it is possible that new witnesses—such as Mohamed Bouyeri, the murderer of van Gogh—will testify, verifying Wilders’s claim that Islam is a fascist political ideology rather than a religion. Not only Wilders but Islam itself may thus stand trial in Holland. Opponents of Islamism have long said that the trial should never have been held in the first place; but apologists for Islamism may come to regret that they ever pressed for it.--Thierry Baudet

... a student who entered college in the 50th percentile of students in his or her cohort would move up to the 68th percentile four years later -- but that's the 68th percentile of a new group of freshmen who haven't experienced any college learning.--Scott Jaschik

I started a garden last summer. It went to weeds, and then the weeds grew parched under the relentless Kansas sun, and then they withered and died. I traveled more than I’d anticipated, and when I was home other things competed for my time, if only fatigue. I think on that garden and I fear it will be my fatherhood — ground broken with good intentions, but scorched and barren all the same. All we parents begin with dreams of what our lives will mean. We dream that our children will be healthy and safe, that they will learn good things from us, that our God will be their God. We dream that when they are older they will be people we like, and that they will in turn want to be near us. Lately I have wrestled with bouts of panic. I fear I am too far behind, already, in this father’s race.--Tony Woodlief

... find the simplest title not yet taken for your papers. One word titles are the best. Second, before you get started on a paper, think about the title. If you can’t come up with a short title for it then its probably not worth writing.--Jeff Ely

Wednesday, January 19, 2011

Quotes of the day

... football by its nature is animalistic, raw, a bloody piece of meat. That’s what fans want, as close to the bygone days of the Roman Coliseum as we can position ourselves. It also sells.--Buzz Bissinger

If teacher salaries reflect the will of the people, then why does the union have to engage in political activity at all?--Arnold Kling

The brain benefits from being used, so that, in a neat circle, resistance training may both demand and create additional brain circuitry. Imagine what someone like Einstein might have accomplished if he had occasionally gone to the gym.--Gretchen Reynolds

A more reliable gauge of the banks’ health, then, would be not the bottom line of the income statement but rather the top-line revenue, which is not affected by rainy-day reserves. Here, the picture is less rosy. Industrywide, revenues are off 17 percent from their peak in 2007, and the latest figures are flat or declining.--Eric Dash

... Goldman’s decision is likely to step up the scrutiny of nonpublic markets for common stock. The fact that Goldman was unwilling to sell these [Facebook] shares to domestic investors but give the opportunity to foreign ones will raise some outcry to liberalize the rules for offering stock on these markets. This outcry will be countered by claims that the Facebook media fury is unique. These markets should not exist unless the kind of information made available for a public company is made available for private companies or only investors who can truly assess the risks should be allowed to participate. This is a real debate and should spur a rethinking of how we want these markets to be regulated.--Steven Davidoff

... if you listen to the rhetoric very carefully and press them particularly on what I'm describing—the Secretary of the Treasury speaks not to defaulting on our outside creditors, he speaks not about being able to pay our outside obligations and so when people talk about a default, what they are really talking about is defaulting on our outside creditors—the people holding our debt. That's how it would affect our bond ratings in the financial markets for the most part. And what I'm telling you is if we force the Treasury to pay those obligations first through the legislation I'm advocating for that default would not occur. And that scare tacit they are using would be off the table. We need to address the more meaningful reforms like the obligations the government owes within itself between various accounts. That's the heart of the matter here. The crisis is not paying the outside creditors. Its about whether we can pay all the operating costs of the federal government- that's the real crisis.--Tim Pawlenty

The reason why it was so easy to sell securities rated triple-A -- like the higher tranches of the now notorious collateralized debt obligations -- was not that every potential buyer was a true believer in the theory of efficient markets. It was because financial regulators insisted a triple-A rating was necessary for many of the investments made by pension and mutual funds, which the regulators would never have done had they been convinced that the market would take care of these investment decisions by itself. If the market is always right, why insist that investors choose highly rated assets? So the problem was not that market failure was thought to be impossible, but the much more sinister belief that someone else was going to take care of it when it happened.--Paul Seabright

Practicing a piece of music for four hours requires focused attention, but it is nowhere near as cognitively demanding as a sleepover with 14-year-old girls. Managing status rivalries, negotiating group dynamics, understanding social norms, navigating the distinction between self and group — these and other social tests impose cognitive demands that blow away any intense tutoring session or a class at Yale. Yet mastering these arduous skills is at the very essence of achievement. Most people work in groups. We do this because groups are much more efficient at solving problems than individuals (swimmers are often motivated to have their best times as part of relay teams, not in individual events). Moreover, the performance of a group does not correlate well with the average I.Q. of the group or even with the I.Q.’s of the smartest members. Researchers at the Massachusetts Institute of Technology and Carnegie Mellon have found that groups have a high collective intelligence when members of a group are good at reading each others’ emotions — when they take turns speaking, when the inputs from each member are managed fluidly, when they detect each others’ inclinations and strengths. Participating in a well-functioning group is really hard. It requires the ability to trust people outside your kinship circle, read intonations and moods, understand how the psychological pieces each person brings to the room can and cannot fit together.--David Brooks

The reasons that I have for wishing to go to Harvard are several. I felt that Harvard can give me a better background and a better liberal education than any other university. I have always wanted to go there, as I have felt that it is not just another college but is a university with something definite to offer. Then too, I would like to go to the same college as my father. To be a “Harvard man” is an enviable distinction, and one that I sincerely hope I shall attain.--John F. Kennedy

... creating a 21st-century regulatory system is about more than which rules to add and which rules to subtract. As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs. This means writing rules with more input from experts, businesses and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices. And it means making sure the government does more of its work online, just like companies are doing. We're also getting rid of absurd and unnecessary paperwork requirements that waste time and money. We're looking at the system as a whole to make sure we avoid excessive, inconsistent and redundant regulation. And finally, today I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses. Small firms drive growth and create most new jobs in this country. We need to make sure nothing stands in their way. ... This is the lesson of our history: Our economy is not a zero-sum game. Regulations do have costs; often, as a country, we have to make tough decisions about whether those costs are necessary. But what is clear is that we can strike the right balance. We can make our economy stronger and more competitive, while meeting our fundamental responsibilities to one another.--President Obama

It really is not conceivable that a shift of power from technocrats to legislators would help. Instead, I think that the only solution is to shift power to smaller units of government, and to make it as easy as possible for people to choose the manner they are governed using exit, rather than voice.--Arnold Kling

And to prove that his admiration of capitalism has nothing to do with naked political expediency, Obama signed an executive order that will "root out regulations that conflict, that are not worth the cost, or that are just plain dumb." Sounds rather subjective, though, don't you think? How do we gauge excessive regulation in the Age of Obama? I can't recall a single federal program, legislation or proposal in the past two years that was initiated to ease the burden on consumers or businesses. (If you know of any, please send specifics to Obama doesn't have to look far, if he's serious. Nor does he need an executive order. Right now the EPA is drafting carbon rules to force on states, even though a similarly torturous 2,000 pages on a cap-and-trade scheme intending to make power more expensive was rejected. Maybe there's something in that pile of paper to mine? Right now, the FCC is shoving net neutrality in the pipeline — again, bypassing Congress — so government can regulate the Internet for the first time in history, though the commissioners themselves admit that, as of now, any need for rules are based on the what-ifs of their imaginations. There exists no legislation more burdensome and expensive than the "job-crushing" (not "job-killing," because, naturally, we can't stand for that kind of imagery) "Patient Protection and Affordable Health Care Act," formerly known as Obamacare and presently being symbolically repealed by House Republicans.--David Harsanyi

We are seeing fewer jobs where there is the external discipline of the time clock and the assembly line. The human robot that was once needed to lift and pound in a factory continues to be replaced by non-human robots. Instead, we are seeing more jobs where internal discipline is required. I suspect that this explains some of the wage differential that shows up for college graduates. Graduating high school shows that you can submit to external discipline. Graduating college shows that you can operate under internal discipline. In the 1920's, the boom (or bubble) in stocks helped raise perceived wealth. This maintained demand for agricultural products, which allowed some Jeffersonian agriculture to persist longer than it would have otherwise. The 1930's forced a rapid transition. Similarly, the housing boom earlier in this decade helped to raise perceived wealth and maintained demand in many sectors. This allowed many nine-to-five jobs modeled on the industrial form of organization to persist longer than they would have otherwise. The crash forced a rapid transition.--Arnold Kling

How else could anyone paint immigrants as "intruders" when their landlords, employers, and grocers are delighted to see them? You might think that it would be easy to persuade conservatives to reject the Overlord Argument. It's basically a single-issue rationalization. And it's a slippery slope to most of the policies conservatives abhor: If your employer can require health insurance as a condition of employment, why can't your government require health insurance as a condition of citizenship? Alas, doublethink is no monopoly of the left.--Bryan Caplan

Krugman’s moral stance is not only incoherent but it isn’t even a moral stance.--Tibor Machan

I’d stop following myself [on Twitter]. In fact I have.--Don Miller

Tuesday, January 18, 2011

I never thought I'd ever type these following words

I disagree with Gary Becker.

I believe that subsidies are responsible for hyperinflation in college education consumer costs.

Just like we end up paying multiples* for other subsidized goods and services, such as sugar, corn, healthcare, and real estate in Manhattan.

For example top Canadian universities charge half of the top U.S. schools' rates, and I don't think that McGill or Waterloo, just a couple lakes over from Becker, are merely half as good as U. Chicago (despite the assumption that Canada also subsidizes its college sector).

I think the esteemed Becker is human, like everyone else who wants more competition and less subsidies in every other industry save his own. Those who advocate for "green jobs", greater entitlement programs, agricultural subsidies pretty much make the same arguments that Becker is making in his pro-education subsidy piece. I'd guess I'd agree more with whatever James Buchanan might say in countering Becker's opinion.

But this is a tricky subject. While I am a big believer in school vouchers (patterned after the less distortive food stamps program) for K-12 education, I think that we are minting more college grads than we have college-grad jobs. I've told my wife that only one of our three children needs to go to college. Unsurprisingly, my more educated spouse completely disagrees. Maybe if she had gotten a Ph.D in econ instead of a J.D. ...

The trouble for me is, which kid? Can't 'favor' one kid over the others.

So I guess a bachelor's degree is an expensive option (to grad school, to higher employment, to meeting hotter mates, whatev).

*Prices over what the rest of the world pays.

Quotes of the day

... there's an old sayin' amongst gamblers: 'If you look around a room and you can't find the mark, you're the mark.  ... I've been swindled out of quite a bit quite a bit of money on the stock market. And I bought a lot of Enron stock once. And I got swindled. I bought a lotta WorldCom stock, got swindled. I bought a lotta Tyco stock. I got swindled--Billy Walters

[Billy Walters is] the most dangerous sports better in the history of Nevada, history of the world.--Kenny White

Sports betting is a fool's errand, given the wide spreads and limited markets (due to legistalative constraints).  But it is helpful medium for learning how to trade futures contracts in legitimate markets.  Trade sports small (or just paper trade them, no losses)--Cav

It sounds crazy, but making mid-five-figures monthly income when I was 25 years old was probably the worst thing that could've ever happened to me. It was a brief run, but its amazing how quickly one gets themselves accustomed to "having money." Lifestyle inflation happens swiftly - especially when you're young.--ChicagoSean

Suppose you wanted to create your own digital ghost to live for eternity in the Internet and maybe do some haunting. What would that look like?--Scott Adams

... most people do not really see themselves as members of a large multinational unit, global citizens, or "mass consumers." Instead the drivers of history remain the essentials: the desire to feed one's family, support the health of the tribe, and shape the immediate community. The particularistic continues to trump the universalistic. ... The end of the Soviet Union, it turns out, did not usher in a wider embrace of universal capitalism so much as engender various forms of ethnicity-based irredentism and, in Russia itself, a renewed Slavic nationalism. ... The new tribalism is also increasingly evident in Europe. Just a few years ago Europhiles like French eminence grise Jacques Attali or left-wing author Jeremy Rifkin could project a utopian future European Union that would stand both as a global role model and one of the world's great powers. Today, Rifkin's ideal of a universalistic "European dream" is collapsing -- a process accelerated by the financial crisis -- as the continent is torn apart by deep-seated historical and cultural rifts.--Joel Kotkin

Three years after bad home loans helped trigger the recession and six weeks after the government cashed in the last of its $45 billion Citigroup investment, the New York-based bank is still selling mortgages that violate quality standards, according to an internal Freddie Mac review obtained by Bloomberg.--Bob Ivry and Bradley Keoun

Commercial banks controlled by the government hold more than 90 percent of China’s domestic financial assets. The government, not a financial market, also decides both lending and deposit interest rates and broadly instructs the banks to lend to favored sectors. In short, banks are passive entities that absorb all the credit, interest and market risk involved in the government’s policy decisions. If, for example, inflation were to grow rapidly, the value of existing bank assets would be decreased. In a closed financial system like China’s, banks must inevitably be the institutions at risk.  ... the business model of these banks in effect destroys capital.  History has shown time and again that state enterprises, the principal borrowers, are not reliable borrowers. Despite the appearance of profitability, the banks don’t create sufficient capital given their high growth rates, dividend payouts and credit losses. This has been clearly underlined by this ongoing round of equity offerings.  ... if China’s banking system today – a nonconvertible currency combined with government designated loan and deposit rates as well as policy-directed lending – represents such a strong model, why hasn’t it been exported or adopted by other countries, many of which are in dire need to thorough reforms?--Carl Walter

Investors in mainland China are clearly expressing concerns over inflation and slowing growth that the USA and much of the rest of the world is comfortable ignoring for now. The Shanghai Composite fell -3% on Monday to close almost -16% off its November highs. Investors are increasingly concerned over the government’s ability to contain inflation and steer the economy towards a soft landing.--Cullen Roche

The Epicurean Dealmaker skewers Sebastian Mallaby

here.  Some angry invective embedded.

Superbowl Futures, part 8

New England let me out of my big short (sniff).  I expired my short NE, short ATL, long BAL, and long SEA.  Also unwound my long GB, and got short.

P/L Team Position Paid Market  Exposure 
$96.03 GB -1 152% 56%  $ (56)
($26.82) PIT -1 22% 49%  $ (49)
$13.38 NYJ 1 9% 22%  $  22
$9.21 CHI 1 7% 16%  $  16
$21.11 ATL -1 21% 0%  $    -
$5.08 BAL 1 -5% 0%  $    -
$25.18 NE -2 13% 0%  $    -
($8.75) SEA 7 1% 0%  $    -
($7.69) IND 1 8% 0%  $    -
($9.72) KC 4 2% 0%  $    -
($16.70) NO 2 8% 0%  $    -
($7.02) NYG 1 7% 0%  $    -
$18.25 PHI -1 18% 0%  $    -
($3.85) SD 1 4% 0%  $    -
($10.44) TEN 3 3% 0%  $    -
$107.69 Total

143%  $ (66)

*Market prices sourced from Matchbook latest odds quotes.

UPDATE: I've never gotten hit so much by Jets fans over a single game--via text, email, in the office--than Sunday's win over the Patriots. Even when not counting my favorite broker or favorite management consultant, who have pointed me to material for the blog, and are big Jets fans.

People expect me to be mournful. I was disappointed and surprised by the outcome. But as you can see, I was short the Pats in my trading exercise, for the simple reason that I thought the bettors were overvaluing them. (As impossible as it sounds and seems, I try to trade for my bank, my personal account, and paper trade as much in the same way as possible).

And qualitatively, I've been saying for whole season that this team, as surprisingly good as they were, were not as strong as the 2007-8 team. And on Sunday night, I started thinking that this Jets team is better than the Giants Superbowl team that beat the Patriots. What about them is better? The head coach. The running backs. The receivers. The defensive line. The secondary. Mark Sanchez looked as poised on Sunday as Eli Manning did in XLII.

The Jets may not walk away with the Lombardi Trophy. But if they do, don't ask me if I'm surprised.

UPDATE:  Joe Posnanski notes an interesting statistic about the NFL bye teams performance since changing to the current playoff format:
In 2002, the system changed — but it didn’t seem a particularly big change. The league expanded to eight divisions. So that meant there were now eight division champions instead of six. To compensate, the NFL wisely (methinks) eliminated two wild-card teams, going back to four. So that meant there were still 12 teams getting into the playoffs. And four of those 12 — the two division winners with the best records in each league — got a first-round bye.

On the surface, it would not seem the system should change much. The same number of teams were making the playoffs. Two of the wild-cards were replaced with division winners … but that just seems to be cosmetics. In 2002, everything looked about the same. The four bye teams all won their first playoff games and by a total of 115-52. Only one of those games — Tennessee’s 34-31 overtime win over Pittsburgh — was even remotely close.

But something kind of bizarre has happened since 2003. That something might just be a fluke or a statistical anomaly, but that doesn’t make it any less fascinating.
Since 2003, bye teams have gone just 18-14 in their first playoff games.
Since 2005, it’s even more stark — bye teams are just 12-12.

Think about that for a moment. Bye teams have:
(1) The best regular season records.
(2) Home field advantage.
(3) An extra week to rest and prepare.

That’s a pretty sizable advantage, isn’t it? You take what looks like the superior team, you play the game at their stadium in front of their fans and you give them an extra week’s preparation. You would expect that team to win almost every time wouldn’t you? But the past six years, the bye team has lost as many times as it has won.
As usual, Joe comes up with some interesting theories behind the trend, and also makes some interesting cultural observations. Read the whole thing.

UPDATE: This is the MOST surprising quote yet:
I didn’t out-coach Belichick. There’s no way. Our players out-played their players. That’s really what it came down to. There was nothing schematically I did to win that game. Our guys were prepared to play and that’s my job… But to say that I out-coached Belichick, I would not agree with that. I think it’s almost a joke. I don’t think anybody out-coaches Belichick.--Rex Ryan