Saturday, March 14, 2009

N. Gregory breaks it down for us

Mankiw in the NY Times gives 4 things he learned from reading Team Obama's budget proposal. Here they are in brief:

1. "They are economic optimists."

2. "They like to spend."

3. "They are serious about climate change."

4. "They are deficit doves."

It's actually #3 that scares me.

Separated at Birth: Hoops edition

Check it out right here!!

KPC's choice for NEA head

I Guess I'm Not a Republican

I guess I am (still) not a Republican.

The surprising thing is that Michael Steele may not be a Republican. Who knew?

Entropy

"I think we in government have great capacity, but we are constrained, as your questions suggests, by the Second Law of Thermodynamics when it comes to entropy." [Larry Summers, in response today to a question from a representative of the LaRouche Youth Movement]

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Economic Profitability Versus Ecological Entropy

Martin Weitzman
Quarterly Journal of Economics, February 2000, Pages 237-263

Abstract:
There is a long-standing trade-off in bioculture between concentrating on high-yield varieties and maintaining sufficient diversity to lower the risks of catastrophic infection. The paper uses a simple ecology-based model of endogenous disease to indicate how a local decision to plant more of a widely grown crop creates negative externalities by increasing the probability that new pathogens will evolve to attack the crop globally. Society's basic issue concerns where to locate on an efficiency frontier between economic profitability and a standard formula for ecological entropy-proved here to be a rigorous measure of "generalized resistance" to crop-ecosystem failure.

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The Changing Relationship between Theory and Experiment in Economics

Robert Sugden
Philosophy of Science, December 2008, Pages 621-632

Abstract:
Until recently, economics was generally understood to be a nonexperimental science with a hypothetico-deductive methodology. This article considers how the methodology of economics has changed with the spread of experimental methods. Initially, most experimental economists saw their work as testing pre-existing theories. However, a method of systematic inductive enquiry in which theory plays a less central role is now evolving. This method is structured around the discovery and progressive refinement of regularities. "Exhibits" - experimental designs that generate significant regularities - are taking over some of the functions formerly performed by theoretical models.

(nod to Kevin L)

Friday, March 13, 2009

It Sucks to Be Allen Craig....

My Cardinals invited 20 guys as non-roster invitees this spring. One of them is Allen Craig, a 25 year old who has banged around the low minors for nearly five years.

This spring, here is his line: AB: 20 SO: 3 BB: 4 OBP .583 SLG .750 AVG.500

So....he's 10 for 20, slugging .750, with 2 doubles, a homer, and 8 RBIs.

Oh, and they are showcasing him....at first freakin' base. The kid is having as a good a spring as anyone could ever have, and as a reward they are putting him at first behind...who is that guy? The first baseman for the Cards? A Latino name..... I'll think of it.

Anyway, it sucks to be Allen Craig. He has to hope that somebody notices, and they can trade him.

You know who is having an amazingly good spring? Our new shortstop, Khalil Greene.

You know who is really, really sucking? Ryan Ludwick. Yikes.
OBP .267 SLG .160 AVG .120

The "Mungowitz line*": If your slugging average is less than the weight of Mungowitz, you are not going to be playing in the majors for very long. I just went and weighed myself: 262. Careful, Ryan. Get your SLG back above the Mungowitz line before the end of spring training. And I'm only about two barbecue dinners away from catching your OBP. Sad, really.

And if your batting average is below the "Angus line" (I think Angus weighs in at about 135, but that's a guess)....well, you should follow the advice in the old Uranium Savages song: kill yourself, before someone does it for you. Poor Ludwick is below the Angus line.

*Yes, yes, like the Mendoza line. Exactly. What did you think I meant? Jeez...

From the department of... WTF?

I got the following email from the Dean's office yesterday:

I want to make you aware of two recent classroom disruptions. On Wednesday afternoon, two groups of men entered two large adjacent lecture rooms in Dale Hall during classes. Seven to eight men entered each room, walked in a uniform manner and sat down in unison in seats, and two men stood at the back doors to the classrooms. They refused to leave when requested to do so by the instructor and eventually left the room in the same manner as they entered it. OUPD is investigating this matter.

For the curious, OUPD is the University of Oklahoma Police Department (yes we abbreviate the University of Oklahoma as OU 'round here!).

Christy Romer kicks it old school

Check out her "Lessons from the Great Depression" here.

Here are the bullet points:

"One crucial lesson from the 1930s is that a small fiscal expansion has only small effects."

"A second key lesson from the 1930s is that monetary expansion can help to heal an economy even when interest rates are near zero."

"This discussion of fiscal and monetary policy in the 1930s leads me to a third lesson from the Great Depression: beware of cutting back on stimulus too soon."

"The fourth lesson we can draw from the recovery of the 1930s is that financial recovery and real recovery go together."

"The fifth lesson from the Great Depression is that worldwide expansionary policy shares the burdens and the benefits of recovery."

"The final lesson that I want to draw from the 1930s is perhaps the most crucial. A key feature of the Great Depression is that it did eventually end."

The whole thing is worth reading, interesting and well documented, but what ultimately stayed with me is how politicized it is, essentially trying to justify all the Administration's moves as being drawn from "the lessons of history". Also, I am not sure how the final lesson is supposed to be any sort of actual lesson or even source of comfort.

Thursday, March 12, 2009

Lou Dobbs Likes "Indoctrinate U"

Not sure how to take this.

Lou Dobbs likes "Indoctrinate U"

In fact, Lou says so.

I do have some small part in this movie. Have achieved minor cult status, as the review of a showing at the Kennedy Center reveals:

The left-wing “academics” portrayed in "Indoctrinate U" have an almost comic-book-like rigidity, and yet they take themselves with the utmost seriousness.

The absurdity of campus life was summed up by conservative professor Michael Munger in a line that had the entire Kennedy Center audience hooting and cheering.

After describing how most university classes — whether it be English, science, or government — tend to begin with a long political harangue by the teachers to condemn the war in Iraq or ridicule George W. Bush, he concluded, “What most faculty want is for students to validate their pathetic life experiences.”

Let natural selection work

Don't do things like this.

"A man has survived despite plunging 180ft (55m) over Niagara Falls and spending 45 minutes in freezing waters resisting his rescuers.

The unnamed man was seen by tourists to scale a wall and leap into the rapids above the falls.

Shortly afterwards he was spotted in the water near the base of the falls clinging to a log.....

A specially trained falls rescue team had rushed to the man's aid after receiving reports of him going over the Horseshoe Falls, one of Niagara's three waterfalls.

However, the man - who was naked - swam away from them toward the middle of the river, police said.

A private helicopter was called in and used the force of its rotor blades to blow him closer to shore.

Firefighter Todd Brunning and another rescue worker then swam about 60 yards, grabbed the man and pulled him to safety, officials said.....

Local resident Phil Richmond, who witnessed the rescue, told The Toronto Star that the man clearly didn't want to be saved.

"It appeared he didn't want to come into shore. I thought he was an idiot to be honest with you," he said. "


My favorite part has to be the helicopter turning itself sideways and blowing the guy towards shore as he (apparently) tries to swim away from shore.


Quote of the Day

"Fixing one problem at a time may strike Obama as mere gum-chewing. But in modern-day Washington, one is a very high number. The reason so many people were left slack-jawed by the Obama budget was not that they disagreed with his premise that health-care costs are out of control or that energy independence is desirable or that better schools are important to the future of the economy. It was the real-world knowledge that financial calamity has not magically transformed our slow-moving, reform- resistant, cantankerous government into a peaceful, streamlined, problem-tackling machine."

From here, well worth reading the whole thing.

Good News!

People, James. F. Jarmusch has a new movie coming out called "The limits of control". Jarmusch, along with Hal Hartley, Alejandro González Iñárritu and Wong Kar Wai make up the indie director pantheon at Chez Angus. Cast includes Gael Garcia Bernal, Tilda Swinton, and Bill Murray. Here are a couple links (link1, link 2).

I will probably have to drive to Dallas to see this movie when it's released, but that's ok with me!

Some Credit Crisis Conjectures

From Douglas Diamond and Raghuram G. Rajan in their recent NBER working paper (ungated version here). I have been suffering from crisis overload and not posting much about it lately, but this piece is an extremely readable, clear, non-technical and interesting overview of the underlying causes of the crisis and it also contains some interesting ideas about why we continue to have a credit crunch and what the government can do about it.

They address one element of the crisis that I have found very weird. Securitization is a way to package up and sell off risk. Yet tons of banks (originators) held on to mortgage backed securities. Here's their take:

Given that originators would have understood the deterioration of the underlying quality of mortgages, it is surprising that they held on to so many of the mortgage-backed securities (MBS)in their own portfolios. These were not just the low-rated equity portions that would have signaled their faith in the packages, but also the high-rated tranches that found a ready market
around the world. The amounts of MBS held seemed too high to be purely inventory. Some holdings could have been portions of the package they could not sell, but then this would not explain why banks held on to AAA-rated securities, which seemed to be the most highly demanded of mortgage
backed securities. The real answer seems to be that bankers thought these securities were worthwhile investments, despite their risk. Investment in MBS seemed to be part of a culture of excessive risk taking that had overtaken banks (see Raghuram G. Rajan, 2005; and Anil K. Kashyap, Raghuram G. Rajan, and Jeremy C. Stein, 2008). A key factor contributing to this culture is that, over short periods of time, it is very hard, especially in the case of new products, to tell whether a financial manager is generating true excess returns adjusting for risk, or whether the current returns are simply compensation for a
risk that has not yet shown itself but that will eventually materialize.

Wednesday, March 11, 2009

My Dinner With Rush

Okay, it wasn't dinner, it was a 45 minute phone interview.

But....I really did get to talk to himself today, for 45 minutes. The results, or some of the results, will come out in the Limbaugh Letter.

And, I have to admit, he is a terrific interviewer. Really, really prepared, interested in the response, happy with long answers. I realize it would be different if I were a guest on the radio show. But he doesn't DO guests on the radio show, because he doesn't need to. He can do it himself, regardless of whether you might agree with the content.

The point is, it was not a Chris Matthews style interview, where the guest is really just a mute prop. We talked about a lot of stuff. Rush appeared particularly interested in how American history is taught, and what is going to happen in Cuba.

A blast, in other words. Regardless of whether anything gets used (and that is entirely up to the EIB; that is an entertainment business, first and foremost), it was quite an experience, talking to the man that the Obama administration considers to be the intellectual leader of the conservative movement.

Right to Work and Unemployment

The January state level unemployment figures came out today. The rates range from 3.7% in Wyoming to 11.6% in Michigan.

Over at Carpe Diem, my friend Mark Perry correctly points out that the 8 states with the lowest unemployment rates are all "right to work" states.

But that's not really the whole story. There are data for 50 states plus DC and there are 22 right to work states. We'd want, at a minimum to know, if right to work states have significantly lower unemployment rates than the others.

A couple minutes of slaving over EVIEWS produced the following simple regression

State Unemployment = 7.631 - 0.990*Right to work State

While this says that right to work states have about 1% point less unemployment on average, the t-statistic testing the null hypothesis that the coefficient on the right to work state variable is actually zero is computed to be -1.935. Thus we cannot reject that there is no difference between right to work and non right to work states at the traditional 5% significance level (though we could at the 10% significance level). If we adjust the standard errors for heteroskedasticity the t-statistic falls to -1.87 but the inference remains the same.

If we add an additional dummy variable for the 4 states hit hardest by the foreclosure crisis (California, Arizona, Nevada, and Florida (three of which are right to work states)) we get this:

State Unemployment = 7.47 - 1.183*Right to work State + 1.557*Foreclosure crisis State

In this case both the right to work coefficient and the foreclosure crisis coefficient are significantly different from zero at the 5% level.

So at the simple level of differences between means, there is no significant difference in current unemployment rates between right to work and non right to work states. Multiple regression may reveal a different picture. Of course in all these cases, without a theoretical model behind it, the results are only correlations and can't really be taken as anything causal.

Rockin' Like a Hurricane

Tonight....tonight......I'll watch hockEEEE tonight.

'Canes have actually pulled their sorry butts back into contention for an NHL playoff spot. If you want to argue that this is only because the Panthers, Rangers, and Sabres suck so bad, I won't disagree, but still.

I've had a hard few years. 'Canes won Lord Stanley's giant protective Cup in 2006, which was pretty fun. Hockey season lasted well into June here in Carolina.

Then, the last two years, hockey season ended in April, when the 'Canes didn't even make the playoffs. Last year, they had to take what looked like a Shaq on His Back Intentional Dive Attack to avoid the playoffs. They were four points ahead of the Washington Capitals with four games left in April 2008, but failed to hold the lead. Now THAT is sucking.

'Canes play the Blackhawks (36-19-9) tonight. They are playing in Atlanta (Make that CHICAGO; thanks DD, in comments!). The Blackhawks are quite good. We need to win this, but it will be tough....

And, with the help of "Anna Banana," we just might!

Sympathy From the Devil

"Influenced by Adam Smith, Darwin believed that a sense of sympathy is essential for the existence of a workable society. That accounts for having a concern for the welfare of others, but not for why one organism within a society will come to the aid of another when to do so is risky or expensive. There are various possible ways of explaining such behavior, some of which Darwin considered...he invoked group selection, with the tribe the unit that gets selected. This may seem odd at first, but consider Darwin's experience during the Beagle voyage. He repeatedly saw evidence of one tribe exterminating another, and found native peoples in decline when thrown into competition with the more economically advanced." [Ghiselin, Journal of Economic Behavior & Organization, forthcoming]

"We suggest that in fact social Darwinists came to regard sympathy, the social glue of small groups, as an impediment to racial perfection because it allowed the 'unfit' to survive...The loss of sympathy is tied up with the question of how ideas of race entered into 19th century economics. A critical step occurred when Darwin's Descent of Man proposed that concern for the 'greatest happiness' be replaced with concern for the 'greatest good,' which is defined as racial perfection effected through 'natural selection'...The question is how did economics move from universalism to a form of particularism? Our answer is that The Economist served as a network for late 19th century racial theorizing in British economics...When Spencer's reciprocity norm was replaced by 'natural selection' in which the killer has higher rank than the killed, economics changed. We have conjectured (Peart and Levy 2005) that the coming of 'natural selection' into economics meant the end of sympathy as an analytical construction. Sympathy was an impediment to the law of the strong." [Levy & Peart, Journal of Economic Behavior & Organization, forthcoming]


(Nod to Kevin L)

Greenie: "IT WASN'T ME!!!"

In today's WSJ, Alan Greenspan says blame the Chinese, not him, for the low interest rates that fueled the housing bubble. Yes the Fed funds rate was low and far lower than the Taylor rule would have set it, but mortgage rates and monetary policy had become "decoupled". Mortgage rates were not low because of easy monetary policy, they were low because of the Chinese savings glut!

People, I am not making this up. You can read it from the great equivocator's own word processor right here.

He basically says that even if the Fed had tried to tighten policy it wouldn't have affected any investment relevant interest rate. Hmmmm, so Alan, should we just get rid of the Fed then??

This is a new low, even for Greenspan. Yes, he says, monetary policy was too loose by any traditional standard but it didn't have anything to do with the bubble because monetary policy also happened to be completely irrelevant at the time. The former "second most powerful person in the world" now is claiming that he was actually powerless.

Tuesday, March 10, 2009

Get in line, and wait your [ ]ing turn

New commercial for Nationalized Citibank

Very

Much

NSFW,

Especially if you work in a bank.

Careful....

(Nod to Mr. Zorro)

When Bad Decisions Happen to Good People.....

Do we really know "bad" financial choices when we see them?

In August 2007, I persuaded my wife to take almost all of our assets out of the stock market, and parked the money in real estate, money markets, and short term bonds.

About two months later, my wife saw a financial "expert" mocking the people who had bailed out of the market in fall of 2007. We talked about it, and to her credit she still agreed that we had done the right thing. Not because we knew anything, but because we wanted to be safe.

Well, Mr. "Expert," you can blow me now. And, unlike a lot of people, I can actually PAY you to blow me, because I made 2% on my retirement fund in 2008. I've even made a little bit this year. Angus talked a little while ago about another guy who made more than that, but there are not many of us out there.

The question is: should we provide better financial advice to poor people? Should we flog idiots like that "expert" who was so sure he knew what he was talking about? Should there be some standard for financial literacy before you get to invest?

I have my own answers. But this Fed paper is quite interesting, and provocative.

(nod to SH)

Campus Corner

1. The Chronicle has a fun article, "13 reasons why colleges are in this mess"

Some of my personal favorites are #5 "overbuilt", #6 bowed to boosters, and #11 built duplicative centers.


2. The WSJ has a sobering article about the financial counter-productiveness (for most schools) of the upcoming NCAA basketball tournament. Here's a nugget:

"Amid this cornucopia, the schools themselves are usually the losers. According to the NCAA's latest Revenues and Expenses report, in 2005-06 the median Division I men's basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. If capital expenses and full university overhead were included, these results would be even more dismal."


3. James Joyner has bad news for academic job seekers. Here's a lovely excerpt:

“This is a year of no jobs,” said Catherine Stimpson, the dean of the Graduate School of Arts and Sciences at New York University. Ph.D.s are stacked up, she said, “like planes hovering over La Guardia.”







Monday, March 09, 2009

All that glitters....

So LeBron tells me there is a " brilliant post by Simon Johnson. Too good to excerpt." Since LeBron has rarely (if ever) steered me wrong in the 20 years I've known him I rush over to check it out.

And people, I found comedy gold:

"There is a good reason that the IMF is not free to speak candidly about the United States; it is full of experts who know what they are talking about."

Wow. First Johnson is a former IMFer so pretty arrogant, no? Second, if the IMF is "full of experts who know what they are talking about" how come it collectively does such a bad job so often? Ask Joe Stiglitz about its performance in the 97 Asian financial crisis. Ask Bill Easterly about its lending programs. Ask any developing country how they enjoyed their stuctural adjustment. Ask Przeworski and Vreeland about the effect of IMF programs on growth.

Yikes!

Keynes to the Kingdom?

Jonathan Chait reviews The Forgotten Man: A New History of the Great Depression, By Amity Shlaes

Quite a useful response, this.....

And, I'm ashamed to admit I don't know this book. Should I?

And they all moved away on the Group W bench

Willem Buiter eviscerates the modeling assumptions of modern macroeconomics.

My favorite line:

"The irony of modelling liquidity by imposing money as a constraint on trade was lost on the profession."

The whole thing is well worth reading.

Sunday, March 08, 2009

Vegas verdict

On the plus side: great shows. George Lopez and Ray Romano & Kevin James were terrific. Also, great food. Mrs. Angus liked Spago so much we went back there for lunch on Sunday. And if you live in Oklahoma, there is great shopping in Las Vegas. We had fun.

On the minus side: poker. I get more action in the Native American casino by my house than I did in a couple daytime sessions in Vegas poker rooms (maybe it's night time when things get wild and fishy). Also on the minus side, the sex trade, the drunks, the low lifes, the noise. Maybe I shouldn't have come during the Public Choice meetings!