All too often, physicists dabbling in economics just embarrass themselves, and infuriate me.
But here is a fine South African fellow, a PhD physicist, who recognizes that there are laws of economics, different from but no less constraining than, the laws of physics. Further, he draws the right lessons: be humble in what you think economists can accomplish, and keep the communists away from the money supply.
An excerpt:
...there are basic laws of economics, such as the relationship between supply and demand. These laws are extremely important, and it is a mistake to try to fiddle with them too much.
...a shiver went down my spine when I saw newspaper reports stating that South African Communist Party (SACP) deputy general secretary Jeremy Cronin was advocating that the Reserve Bank should consider fiddling with inflation targeting.
I gather that what this actually means is that inflation should be allowed to rise so that goods are artificially cheap. You do this by just paying people more and more devalued money. In other words, kid the poor folks until the spark eventually hits the gunpowder.
Imagining the SACP having a real input into economic policy gives me a bad feeling – like imagining a remake of the movie Basic Instinct, but starring Julie Andrews.
A capital fellow. May his "amber liquid" be tasty and frosty always.
(ATSRTWT)
Friday, February 08, 2008
Thursday, February 07, 2008
McCain and the Death of Small Government Conservatism
Angus and I agree on many things. But not McCain. He terrifies me.
The BCRA (that is, the MCCAIN-Feingold bill against political speech for challengers, also called "The Incumbent Protection Act")
The "Let's Attack, Attack Iraq!" thing
The whole "Let's do more to help ______!", where
the fill in the blank is basically anyone with a pulse.
The national LP mourns the death of conservatism, and the rise of the McCain revolution.
(Nod to SG)
The BCRA (that is, the MCCAIN-Feingold bill against political speech for challengers, also called "The Incumbent Protection Act")
The "Let's Attack, Attack Iraq!" thing
The whole "Let's do more to help ______!", where
the fill in the blank is basically anyone with a pulse.
The national LP mourns the death of conservatism, and the rise of the McCain revolution.
(Nod to SG)
Why has CEO pay increased so much?
A paper forthcoming in the QJE by Gabaix & Landier provides a straightforward answer:
"This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay depends on both the size of his firm, and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance.
We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences. In recent decades at least, the size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries.
In particular, in the baseline specification of the model’s parameters, the six-fold increase of U.S. CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period."
The paper is a very nice application / extension of Rosen's Economics of Superstars paper in the AER.
"This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay depends on both the size of his firm, and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance.
We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences. In recent decades at least, the size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries.
In particular, in the baseline specification of the model’s parameters, the six-fold increase of U.S. CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period."
The paper is a very nice application / extension of Rosen's Economics of Superstars paper in the AER.
Wednesday, February 06, 2008
A simple explanation of three Financial Economics Puzzles
Martin Weitzman has an excellent piece in the Sept. 07 American Economic Review that provides exactly that. He argues that papers using a Rational Expectations Equilibrium (REE) approach generate the equity premium puzzle (it's too big), the risk free rate puzzle (it's too low) and the equity volatility puzzle (it's too volatile compared to fundamentals), by incorrectly assuming that the underlying density generating growth shocks is known to agents. Simply replacing the known variance with an estimated variance (changing the normal density to a student-t density) can actually REVERSE the puzzles.
Maybe I should let him tell it:
"Intuitively, a normal density “becomes” a Student-t from a tail-thickening spreading-apart of probabilities caused by the variance of the normal having itself a (inverted gamma) probability distribution. There is then no surprise from expected utility theory that people are more averse qualitatively to a relatively thick-tailed Student-t child distribution than they are to the relatively thin-tailed normal parent which begets it. A much more surprising consequence of expected utility theory is the quantitative strength of this endogenously-derived aversion to the effects of unknown variance-structure. The story behind this quantitative strength is that thickened posterior left tails represent structural uncertainty about rare disasters that terrify people. This fear-factor effect holds for any utility function having everywhere-positive relative risk aversion."
So fear of rare events whose generating distributions are not known can cause the puzzles we see without any excessive amount of risk aversion by agents. I think this is a very nice and important paper.
Maybe I should let him tell it:
"Intuitively, a normal density “becomes” a Student-t from a tail-thickening spreading-apart of probabilities caused by the variance of the normal having itself a (inverted gamma) probability distribution. There is then no surprise from expected utility theory that people are more averse qualitatively to a relatively thick-tailed Student-t child distribution than they are to the relatively thin-tailed normal parent which begets it. A much more surprising consequence of expected utility theory is the quantitative strength of this endogenously-derived aversion to the effects of unknown variance-structure. The story behind this quantitative strength is that thickened posterior left tails represent structural uncertainty about rare disasters that terrify people. This fear-factor effect holds for any utility function having everywhere-positive relative risk aversion."
So fear of rare events whose generating distributions are not known can cause the puzzles we see without any excessive amount of risk aversion by agents. I think this is a very nice and important paper.
KPC readers' Poll: Who's Your favorite Wilson??
Last night, as we watched the last new episode of House for the foreseeable future, Mrs. Angus commented to me about the abundance of sidekicks named Wilson, and this morning's Plutowalk turned into a spirited debate about their relative merits.
So people, I ask you: Who's your favorite Wilson?
This one?
Or perhaps this one?
Or maybe this one?
Am I missing anybody??
Wednesday morning's sign of the apocalypse
In a Newsweek article about the overselling of happiness, we are told many great people suffered dark moods. The examples are Aristotle, Vincent Van Gogh, Abraham Lincoln, and Morrissey!!So I'll see your "fourscore and seven years ago", and raise you a "girlfriend in a coma, I know I know it's serious"? This is what Newsweek is telling us?
This may seem like a trivial complaint, but I am telling you that it's a serious tear in the fabric of society. Vincent Van Gogh cannot be compared to Woody Allen (also on the list). Abraham Lincoln cannot be compared to freakin' Morrissey.
It just ain't right.
Tuesday, February 05, 2008
Neanderbill: Doha Diarist
More greetings from Doha
You might like to hear about the country, and about where I work. As I learn more, I’ll tell you more.
1. Qatar
Qatar has more than 800,000 inhabitants, of which only some 15 percent are genuine Qataris. About half the total population lives in Doha, the capital. Workers are from all over; I was recently served by someone from Nepal. Some of you ask what the Qataris think and what they are like. I have no idea. Of all the many people I see, I know only one to be Qatari, and she is in my class. (On my sample of one, Qataris are very nice, very bright and I like them a lot.) We are all foreigners here on one or another kind of work permit. Many of us foreigners are from Arabic speaking countries, but one does not need to learn Arabic to get around. (I am working on the numbers, having thought that we used Arabic numerals. More on that later.)
It is very difficult to get Qatari citizenship (even harder than getting US citizenship). Perhaps the fact that lots of stuff is free for citizens, and that there are payments by the government to Qatari citizens has something to do with that. There are no income taxes.
Qatar is a monarchy, and an Islamic state. The main ways that this bears on me is that the workweek is Sunday through Thursday, with Friday and Saturday the weekend. Before 1971 it was a British protectorate. The al-Thanis are the royal family. The current Emir succeeded his father when the latter was off gambling somewhere. It is a tight ship, maybe a little like Singapore. The Sheika is the driving force behind the Qatar Foundation and Education City.
2. Higher education. There is a University of Qatar, and a campus of the College of the North Atlantic, a Canadian two year school. We (XXU) are part of Education City, a branch of the Qatar Foundation. There are five schools here, and we will be joined by Northwestern next fall.
The oldest is Virginia Commonwealth University School of the Arts in Qatar, founded in 1998. They have 193 students. Next oldest is Weill Cornell Medical College in Qatar, founded in 2002. They have 203 students. Biggest is Texas A&M University in Qatar (2003), with 268 students. XX University in Qatar was next (2004). We have 163 students majoring is Business Administration and Computer Science. We will have our first graduation at the end of this semester. We are starting an Information Systems major. We share a building with Georgetown University School of Foreign Service in Qatar (2005), which has 110 students. Next year we will be in our own new building, which we will share with Northwestern. Total enrollment among all the schools is 937, and as you see, schools specialize in programs that they are known for.
3. Bicycling XXU has informal volleyball, basketball, football and bicycling. I had known about the cycling and had shipped my bike over. The case and shipping cost more than the bike, which wasn’t real cheap (I was the first on my block to have disc brakes), but XXU gives us a shipping allowance for personal items that covers it. I have already been reimbursed.
There are “slow rides” on Fridays and “serious rides” (longer, with drafting) on Saturdays. (ED: FOGHAT LIVES!!)
So I went for my first ride on Friday, fully expecting to be a laggard on the fast rides, but to hang in there on the slow ones. Well even on the slow rides everyone else was out of sight within the first kilometer. We rode about 16 miles, most of it into a ~12 mph headwind. (I had already ridden over 4 miles to the starting place.)
I was a little embarrassed to be so slow, but was thinking to myself, hey, you’ve been on Medicare for three years! Pretty soon they noticed that someone who had started was not with them, and one or two people took pity on me and rode with me. This gave me company and kept me from becoming hopelessly lost. We got out into the outskirts of Doha after passing hundreds of Al-Mansions under construction. (That’s my inference of Arabic for McMansion.)
The other cyclists are very nice, and we agreed that I should stick to the Friday rides. Even so, there were two guys on Friday who had run a marathon in Dubai the previous week, and one of them is an ex-Marine tri-athlete who had done the Alcatraz triathlon. This means swimming from Alcatraz to San Francisco (brrr), biking ten miles on the hills of San Francisco; and then running for who knows how many more miles. Jerry Boskin, the tri-athlete has a sweat shirt on the Alcatraz Triathlon which has the slogan “between a rock and a hard place.” He claimed to be out of shape for biking, but I never saw him on the bike trip, he was so far ahead of me.
Well that’s the current news from Doha. About the only thing I am not enjoying is SXXXX’s absence, but we still chat at least once a day.
You might like to hear about the country, and about where I work. As I learn more, I’ll tell you more.
1. Qatar
Qatar has more than 800,000 inhabitants, of which only some 15 percent are genuine Qataris. About half the total population lives in Doha, the capital. Workers are from all over; I was recently served by someone from Nepal. Some of you ask what the Qataris think and what they are like. I have no idea. Of all the many people I see, I know only one to be Qatari, and she is in my class. (On my sample of one, Qataris are very nice, very bright and I like them a lot.) We are all foreigners here on one or another kind of work permit. Many of us foreigners are from Arabic speaking countries, but one does not need to learn Arabic to get around. (I am working on the numbers, having thought that we used Arabic numerals. More on that later.)
It is very difficult to get Qatari citizenship (even harder than getting US citizenship). Perhaps the fact that lots of stuff is free for citizens, and that there are payments by the government to Qatari citizens has something to do with that. There are no income taxes.
Qatar is a monarchy, and an Islamic state. The main ways that this bears on me is that the workweek is Sunday through Thursday, with Friday and Saturday the weekend. Before 1971 it was a British protectorate. The al-Thanis are the royal family. The current Emir succeeded his father when the latter was off gambling somewhere. It is a tight ship, maybe a little like Singapore. The Sheika is the driving force behind the Qatar Foundation and Education City.
2. Higher education. There is a University of Qatar, and a campus of the College of the North Atlantic, a Canadian two year school. We (XXU) are part of Education City, a branch of the Qatar Foundation. There are five schools here, and we will be joined by Northwestern next fall.
The oldest is Virginia Commonwealth University School of the Arts in Qatar, founded in 1998. They have 193 students. Next oldest is Weill Cornell Medical College in Qatar, founded in 2002. They have 203 students. Biggest is Texas A&M University in Qatar (2003), with 268 students. XX University in Qatar was next (2004). We have 163 students majoring is Business Administration and Computer Science. We will have our first graduation at the end of this semester. We are starting an Information Systems major. We share a building with Georgetown University School of Foreign Service in Qatar (2005), which has 110 students. Next year we will be in our own new building, which we will share with Northwestern. Total enrollment among all the schools is 937, and as you see, schools specialize in programs that they are known for.
3. Bicycling XXU has informal volleyball, basketball, football and bicycling. I had known about the cycling and had shipped my bike over. The case and shipping cost more than the bike, which wasn’t real cheap (I was the first on my block to have disc brakes), but XXU gives us a shipping allowance for personal items that covers it. I have already been reimbursed.
There are “slow rides” on Fridays and “serious rides” (longer, with drafting) on Saturdays. (ED: FOGHAT LIVES!!)
So I went for my first ride on Friday, fully expecting to be a laggard on the fast rides, but to hang in there on the slow ones. Well even on the slow rides everyone else was out of sight within the first kilometer. We rode about 16 miles, most of it into a ~12 mph headwind. (I had already ridden over 4 miles to the starting place.)
I was a little embarrassed to be so slow, but was thinking to myself, hey, you’ve been on Medicare for three years! Pretty soon they noticed that someone who had started was not with them, and one or two people took pity on me and rode with me. This gave me company and kept me from becoming hopelessly lost. We got out into the outskirts of Doha after passing hundreds of Al-Mansions under construction. (That’s my inference of Arabic for McMansion.)
The other cyclists are very nice, and we agreed that I should stick to the Friday rides. Even so, there were two guys on Friday who had run a marathon in Dubai the previous week, and one of them is an ex-Marine tri-athlete who had done the Alcatraz triathlon. This means swimming from Alcatraz to San Francisco (brrr), biking ten miles on the hills of San Francisco; and then running for who knows how many more miles. Jerry Boskin, the tri-athlete has a sweat shirt on the Alcatraz Triathlon which has the slogan “between a rock and a hard place.” He claimed to be out of shape for biking, but I never saw him on the bike trip, he was so far ahead of me.
Well that’s the current news from Doha. About the only thing I am not enjoying is SXXXX’s absence, but we still chat at least once a day.
Breakin' it down, so we don't have to!
Some great links that break it down for ya!
(1) Long or Short Capital break down the allure of China
(2) Dan Drezner breaks down the Republican Presidential Candidates
(3) the WSJ breaks down the joys of price controls
(4) Tyler Cowen breaks down the joys of being alive (see comments as well as the main post).
(1) Long or Short Capital break down the allure of China
(2) Dan Drezner breaks down the Republican Presidential Candidates
(3) the WSJ breaks down the joys of price controls
(4) Tyler Cowen breaks down the joys of being alive (see comments as well as the main post).
Has it Really Come to This?
I guess it's high time we realized we are all just wards of the government and we better think twice before we become a financial burden to it. It turns out that there's no reason to fight obesity, because dying young is a real money saver. I am not making this up.
"Preventing obesity and smoking can save lives, but it doesn't save money, researchers reported Monday. It costs more to care for healthy people who live years longer, according to a Dutch study that counters the common perception that preventing obesity would save governments millions of dollars. "It was a small surprise," said Pieter van Baal, an economist at the Netherlands' National Institute for Public Health and the Environment, who led the study. "But it also makes sense. If you live longer, then you cost the health system more."In a paper published online Monday in the Public Library of Science Medicine journal, Dutch researchers found that the health costs of thin and healthy people in adulthood are more expensive than those of either fat people or smokers....Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on. The cost of care for obese people was $371,000, and for smokers, about $326,000. The results counter the common perception that preventing obesity will save health systems worldwide millions of dollars."
Five observations:
(1) I swear this is not from the Onion.
(2) Wouldn't it be best to have fat smokers? Would that not stand a good chance of getting our cost to the government down below $300,000?
(3) Are there really no important benefits from living longer and healthier lives? Really?
(4) Isn't the logical end of this road an extremely repugnant one?? Once your health care costs the government over $250,000, you're done. You're soylent green.
(5) Crap like this makes me more convinced than ever that I do not want any sort of single payer government monopoly health care system.
So grab some Krispy Kreme and fire up a Camel, people. We don't want to be a burden on the gubmint when our tax-paying days are through!
"Preventing obesity and smoking can save lives, but it doesn't save money, researchers reported Monday. It costs more to care for healthy people who live years longer, according to a Dutch study that counters the common perception that preventing obesity would save governments millions of dollars. "It was a small surprise," said Pieter van Baal, an economist at the Netherlands' National Institute for Public Health and the Environment, who led the study. "But it also makes sense. If you live longer, then you cost the health system more."In a paper published online Monday in the Public Library of Science Medicine journal, Dutch researchers found that the health costs of thin and healthy people in adulthood are more expensive than those of either fat people or smokers....Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on. The cost of care for obese people was $371,000, and for smokers, about $326,000. The results counter the common perception that preventing obesity will save health systems worldwide millions of dollars."
Five observations:
(1) I swear this is not from the Onion.
(2) Wouldn't it be best to have fat smokers? Would that not stand a good chance of getting our cost to the government down below $300,000?
(3) Are there really no important benefits from living longer and healthier lives? Really?
(4) Isn't the logical end of this road an extremely repugnant one?? Once your health care costs the government over $250,000, you're done. You're soylent green.
(5) Crap like this makes me more convinced than ever that I do not want any sort of single payer government monopoly health care system.
So grab some Krispy Kreme and fire up a Camel, people. We don't want to be a burden on the gubmint when our tax-paying days are through!
Monday, February 04, 2008
Gridlock and Flip-Flops
Tomorrow is the big day, and the conventional wisdom is that McCain will emerge with a stranglehold on the nomination while Obama and Clinton will still be in a dogfight.
However, pollsters have not exactly covered themselves in glory so far this primary season, so I think anything can still happen (well, Ron Paul ain't gonna win, but you know what I mean).
I base my political wishes on two things. (1) a fervent desire for gridlock. (2) a visceral hatred of flip-floppers and panderers.
This of course puts me rooting for the Republicans in the general election for reason (1), and preferring Obama over Clinton and McCain by a mile over Romney (as Don Rickles is ironically known as Mr. Warmth, so could Mitt be known as Mr. Sincerity), for reason (2).
However, I think that Hillary is more "beatable" in the general election so (1) weighs in her favor there. It would be optimal on gridlock grounds to have McCain vs. Hillary, but I still actually find myself rooting for Barack Obama to secure the nomination. I always thought I was lexicographic in gridlock, but maybe not. In fact, definitely not. If Romney is the nominee, I'll support the Democratic candidate (Ann Coulter style)!! Take that Mitt you evil flip-flopper!
Any predictions people??
However, pollsters have not exactly covered themselves in glory so far this primary season, so I think anything can still happen (well, Ron Paul ain't gonna win, but you know what I mean).
I base my political wishes on two things. (1) a fervent desire for gridlock. (2) a visceral hatred of flip-floppers and panderers.
This of course puts me rooting for the Republicans in the general election for reason (1), and preferring Obama over Clinton and McCain by a mile over Romney (as Don Rickles is ironically known as Mr. Warmth, so could Mitt be known as Mr. Sincerity), for reason (2).
However, I think that Hillary is more "beatable" in the general election so (1) weighs in her favor there. It would be optimal on gridlock grounds to have McCain vs. Hillary, but I still actually find myself rooting for Barack Obama to secure the nomination. I always thought I was lexicographic in gridlock, but maybe not. In fact, definitely not. If Romney is the nominee, I'll support the Democratic candidate (Ann Coulter style)!! Take that Mitt you evil flip-flopper!
Any predictions people??
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