Tuesday, April 19, 2011

Quotes of the day

Avenge the patriotic gore
That flecked the streets of Baltimore--James Ryder Randall

... the $94,900 in [median household] income includes the estimated value of the median family’s health care plan as well as their salary, which is not what most people think of when they hear the term “median income.”--Ross Douthat

Of course Standard and Poor's does not have access to special, secret information about the US debt situation than we do; that sort of thing is, thankfully, public knowledge. And given the performance of the ratings agencies on mortgage-backed securities, I think we are justified in being skeptical that this represents some revolutionary new piece of information. However. S&P is certainly entitled to their opinion--for all their failings, they do spend a great deal of time analyzing government finances, ... Inflation was a good way to ease the burden of our World War II borrowing--once the war was over. But it is not a good way to ease the burden of an increasingly expensive entitlement program that shows no signs of winding down. Especially since these days, the debt markets are much more efficient than they were in 1948; information about the money supply is transmitted very quickly to potential buyers of our bonds. You can pull all sorts of tricks to force bondholders to eat some losses on the money they lent you--but you can't pull them over and over. America was able to wriggle its way out of a substantial portion of its WWII debts in large part because it was otherwise pretty fiscally sound.--Megan McArdle

I know the idea that reduced [Peoples Bank of China] purchases will lead to higher US interest rates is part of a very widely-held consensus, and so I am reluctant to disagree too quickly, especially when someone as smart as Martin Feldstein makes the case, but I have to say that there is something about this argument that really bothers me. I don’t think a decline in the amount of capital recycled by China, whether through the PBoC or through other institutions, will likely lead to higher US interest rates at all. The reason I say this is because if we accept this argument, then it seems to me that we are also saying that one way for the US to reduce interest rates is to allow its current account deficit to explode to significantly higher levels. Why? Remember that foreigners don’t fund fiscal deficits. They fund current account deficits, and they do so automatically. As long as the US runs a current account deficit, in other words, it will receive exactly the same amount of net capital inflows as the size of its current account deficit. So if the US current-account deficit doubles, for example, net foreign inflows will double too.--Michael Pettis

The “it works in Scandinavia!” case for higher taxes tends to understate both the differences between our respective economies (we’re a vast continental empire with high levels of family disruption, large pockets of extreme poverty, a legacy of racial oppression, and an ongoing influx of low-skilled immigrants; they’re small, homogeneous, and highly educated, with children who are much more likely to grow up in intact households) and the already-existing similarities between our respective welfare states (which are greater than a simple glance at federal taxes as a share of G.D.P. would suggest). I think a better approach is to just take the state of the United States economy on its own terms. Whatever the differences between the Scandinavian experience and our own, as a general rule tax increases tend to dampen economic growth. And growth is what we need.--Ross Douthat

“Taxing the rich” cannot work unless you do it in a way that induces the rich to consume less. Journalists make this mistake a lot ...--Steve Landsburg

Suboptimal hypotheses, rightly worked from, have produced more useful results than unguided observations. I think the key is to be intelligent, start from a decent set of assumptions, and work every day towards becoming a better man. If you use reality as a filter, you will do OK. Alas, I think more often then not such maxims from famous people are used as signals as opposed to principles. I remember one NYT story about how these junk bond investors were all acolytes of the great Ed Altman, yet I have never met a junk bond investor who thinks highly of such models, and Altman's model is pretty lame, about as powerful as rank-ordering firms by Net Income/Assets. They wanted to project gravitas, so they paid lip service to the old man. Similarly, people highlight their idea is derivative from some esteemed source, but that's merely posturing.--Eric Falkenstein

We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992-2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs.--Wang, Shin and Francis

There is hardly anyone that is both knowledgeable and [sic] unco-opted.--Larry Summers

The essay [I, Pencil] traces all the amazing transactions that need to occur for a simple pencil to be made, pointing out that not one of the people involved could make a pencil by themselves, and most of them don't even know that they're involved in producing a pencil. But what about the US Forestry Service? Rail rights of way? The education system? This is an argument to which the left-wing has a great deal of recourse whenever anyone suggests that people have a right to keep what they earn from voluntary transactions. You can only make money in the context of society, and so society has a right to regulate your transactions, and seize the proceeds, in any way that society sees fit. And yet, the argument applies just as well to our sex lives or our political beliefs: they take place in the context of all sorts of government protections, from rape prosecutions to whistleblower laws. Without markets and the government, the "anything between two consenting adults" morality to which the majority of the elite subscribes would be impossible; the closest substitute for these things is family, and families have a very clear, deep, and persistent interest in regulating the sexual behavior of their members. Does this mean that the government (or our employers) may properly restrict our sexual behavior to that of which a majority of our neighbors approve? That bed you're having sex in probably travelled on the interstate highway system, so standby for government inspection . . . No? The government can't do that? Then why is this argument supposed to be a telling blow against arguments for strong property rights and freedom from interference in voluntary economic transactions?--Megan McArdle

Your perceptions of others reveal so much about your own personality.--Dustin Wood

When I asked why he desires to help so many people, his answer surprised me. He said “because it’s fun.” And then he went on to say “I like helping people because I enjoy it, I’m the opposite of an evangelical.” I don’t know if he knew I was a Christian, but the comment came like a curveball and I had nothing to say. I was so accustomed to the passive guilt complex so many of us hear week after week and in book after book that I knew he’d have no shortage of evidence that Evangelicals are constantly being made to do good things they don’t really feel like doing. In contrast, as I read through the book of Acts, a defining characteristic of the early church is they felt joy in their work. I don’t see a lot of shame and guilt manipulation in Acts, just a bunch of people who act like they are weirdly in love with each other and with God. And I want to emphasize the word weirdly.--Don Miller

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