Saturday, February 28, 2009

The right way and the wrong way..... score a lot of points.

The right way: Shaq! (1) be a center, (2) get 45 points on 25 shots, (3) throw in 11 boards, (4) have a +17 rating for the game, (5) get the W.

The wrong way: Russell Westbrook! (1) be a point guard, (2) get 33 points on 32 shots, (3) have 4 turnovers to go with your 5 assists, (4) have a -6 rating (tied for worst on the team) for the game, (5) lose.

Do androids dream of electric cigs?

"With its slim white body and glowing amber tip, it can easily pass as a regular cigarette. It even emits what look like curlicues of white smoke. The Ruyan V8, which produces a nicotine-infused mist absorbed directly into the lungs, is just one of a rapidly growing array of electronic cigarettes attracting attention in China, the U.S. and elsewhere — and the scrutiny of world health officials.

Marketed as a healthier alternative to smoking and a potential way to kick the habit, the smokeless smokes have been distributed in swag bags at the British film awards and hawked at an international trade show.

Because no burning is involved, makers say there's no hazardous cocktail of cancer-causing chemicals and gases like those produced by a regular cigarette. There's no secondhand smoke, so they can be used in places where cigarettes are banned, the makers say."

I am pretty sure that nothing can go wrong with a product that sprays atomized nicotine down your throat. Kudos to you Ruyan Group LTD. Full story is here. FYI, according to the AP "Ruyan" means "like smoking". It doesn't say in what language.

Fried Onion Lad

Lance seems to be having some issues about adjusting to the new kind of "change" our President is helping us out with.

And, for those of you who wonder what EBT cards are going to be hearing a lot more about them.

Friday, February 27, 2009

Takes Me Back....Though I Don't Want to Go

A lot of you folks think I exaggerate the....well.....redneckitude of my upbringing.

But, here's an example:

Appparently Roosevelt Holloman just died. There was an obituary in the Orlando Sentinel.

But it was a bit odd. People protested. And the Sentinel pulled the obit. I found it on the cache at Google:

Roosevelt Holloman devoted himself to helping others learn
Winter Park residents will remember Roosevelt "Big Holly" Holloman as an educator with a big voice and an even bigger heart.

Pretty standard obit, right. Well.....there's more to the story. You see, Roosevelt Holloman was an assistant principal at my high school, West Orange High. And Roosevelt got into a spot of trouble with the head principal, Raymond Screws. Mr. Holloman, it appears, was likely to be fired.

And, so, Mr. Holloman did what any red-blooded Central Floridian from our area would do. He took a gun to school, and shot Mr. Screws dead. In December 1977, just after I graduated from this Mecca of higher learning.

Yes, he did. The obit in the Sentinel left that out. Wow. Mr. Holloman was sentenced to life in prison without parole. So, when he died just now, on Feb 20, 2009, he prison. The obit in the Sentinel left THAT out, also.

Now, the football field, where the Mighty Warriors get killed every Friday night in the fall, is named....Raymond Screws field. And that, as Paul Harvey would say, is the REST of the story.

The West Orange Times gives the denouement....

So he COULD keep up, after all.....

Quite a party. Two young ladies bet a guy he couldn't "keep up" with them for an all night....activity.

But he did. Of course, he took an entire bottle of Viagra first. (Article)

And then he died, after 12 hours of solid....activity.

I even have a picture of the guy, after about 8 hours of the....contest.

Gestapo? PAH! Girly Men....

One of the radio shows I am on each week sometimes gets complaints, and since I am in the studio I get to hear the cross-talk between producer and host. What surprises me most is the little tiny distinctions that really matter to listeners.

Within the last month, I heard the following conversation:

PRODUCER: "You really made a guy mad yesterday. A Russian guy. You were talking about Russians, and during that Russian music, you said something about the Gestapo."

HOST: (Honestly confused) "I was justing making the point that many totalitarian regimes have disappeared. We weren't just talking about Russia. In fact, I...."

PRODUCER: (interrupting) "Well, he just thought you should have said KGB."

HOST: (Even more confused) "You mean he just wanted me to get the correct thuggish sercret police name? He just wanted me to say KGB instead of Gestapo?"

PRODUCER: "Yeah, he thought the KGB was much worse than the Gestapo. And he seemed kind of proud of that. He was going for the 'Germans were just girly men, compared to the KGB.'"

HOST: (Staring, shakes head slowly)

All Hail Thomas Forester

There are apparently 8200 stock mutual fund managers in the US of A. Last year 8199 of them lost money, at an average clip of 39%. Not Thomas Forester of the Forester Value Fund though, He returned + 0.4% making him a god among men. His secret? Avoid stocks and hold cash. Of course that strategy made his fund under-perform relative to the S&P 500 in 2005, 2006 and 2007.

The full story is here.

Thursday, February 26, 2009

If this is true we are REALLY in trouble

Pastor and Stambaugh in a new NBER working paper argue that, contrary to received wisdom, stocks are actually more volatile over long horizons than over short ones. Here's their abstract:

Conventional wisdom views stocks as less volatile over long horizons than over short horizons due to mean reversion induced by return predictability. In contrast, we find stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. We decompose return variance into five components, which include mean reversion and various uncertainties faced by the investor. Although mean reversion makes a strong negative contribution to long-horizon variance, it is more than offset by the other components. Using a predictive system, we estimate annualized 30-year variance to be nearly 1.5 times the 1-year variance.

Here is an interesting paragraph, raising a point I had not thought about before:

Of the four components contributing positively, the one making the largest contribution at
the 30-year horizon reflects uncertainty about future expected returns. This component (iii) is
often neglected in discussions of how return predictability affects long-horizon return variance. Such discussions typically highlight mean reversion, but mean reversion—and predictability more generally—require variance in the conditional expected return, which we denote by ut . That variance makes the future values of ut uncertain, especially in the more distant future periods, thereby contributing to the overall uncertainty about future returns. The greater the degree of predictability, the larger is the variance of ut and thus the greater is the relative contribution of uncertainty about future expected returns to long-horizon return variance.

here is the link to an ungated version of the paper

Setting vs. Rising

"How you gonna sing a song that runs
From the mouth of where the singing comes
From the mouth of where the song is sung
Do you call a setting sun a sun rising?

How you gonna get the soil and the glory
When you want to be a harvester of light
But the soil only turns under the moon's shitty story?

There may be churches burning down next year
If I'm a city then my citizens will pass no pails along
There may be temples of temptation to take refuge in my dear
If I'm a city then my citizens will cast a vote

As to:
Where you pray Vs. What you're praying for
What/who you love Vs. What you bow before
Where you beg and what you're begging for"

--Spencer Krug

Wednesday, February 25, 2009

Free at last

Starbury is finally free. I guess the Knicks were so embarrassed about Steph's $400,000 grievance that they just let him go (or maybe Stephon caved and gave up a more substantial chunk of his salary than the $1 million he'd said was his max).

In any event, if he signs with another team before March 1, he'll be eligible to play in the playoffs for that team.

I used to be a hater but this "Me and Stephon" set of mini-videos has made me into kind of a fan.

Check them all out here.

Tuesday, February 24, 2009

A Sticky Information manifesto

Ricardo Reis' new NBER working paper (ungated version here) is exactly that.

The SIGE (sticky information general equilibrium) model does away with the various real rigidities generally included in DSGE (dynamic stochastic general equilibrium) models like habit formation in consumption, and various ad-hoc-ish adjustment costs with the single assumption that many people only update their information sets sporadically.

The paper outlines a full GE model, and then estimates it using Bayesian computational methods for the US and the Euro-zone.

According to Reis: "The end result is a laboratory that is
rich enough to account for the dynamics of at least …five macroeconomic series (inflation,
output, hours, interest rates, and wages), and which can be used to inform applied
monetary policy."

Monday, February 23, 2009

Nicely put, Governor.....

Christmas is the time when kids tell Santa what they want and adults pay for it.

Deficits are when adults tell government what they want and their kids pay for it

Richard Lamm, Governor of Colorado, 1975-1987

Jeff Sachs knocks it out of the park

This is astonishingly good:

"Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared! Panics end badly, even panics of policy; more moderate policies will be safer in the medium term.

There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort. Moreover, the Gold Standard of the 1930s, which we long ago abandoned, acted like a kind of straightjacket on monetary policies.

In short, although the sharp downturn will unavoidably last another year or even two, we will not need zero interest rates and mega-deficits to avoid a depression or even to bring about a recovery. In fact, the long-term, sustainable recovery will be accelerated by a policy framework in which the budget credibly returns to balance over several years, the government meets its critical responsibilities in social services, infrastructure and regulation, and the Fed avoids dangerous swings in interest rates that actually contribute to the booms and busts we seek to avoid."

Full text here. Hat tip to LeBron!

Fair Trade

Our good friends over at Adam Smith Institute Blog were kind enough to publish a post of mine, on "Fair Trade."

For more on the effects of REAL commerce on "primitive" peoples, see Tyler Cowen's excellent book, "Creative Destruction: How Globalization is Changing the World's Cultures." He really nailed it, with lots of interesting details.

My own conclusion:

"Fair trade" raises costs to consumers. Worse, it enslaves the people it claims to help, with the invisible chains of artificial subsidy, and arrested economic development. If it pleases you to think of happy natives, living primitive lives, just go rent a BBC documentary, and let the market work.

Labor conquers all things???

Click image to view larger version. Source is here.

sweet shooting

On the menu bar off to the side, if you click on 18 three pointers, you can see Baron Davis besting Nash. I am still laughing about their version of the movie "Stepbrothers".

Movie Closure

This weekend was the Oscars (I know, horrible grammer, eh?) AND also I finally saw the last two movies I projected would be in my top 10. They were Frozen River and Happy Go Lucky. Frozen River was terrific. Melissa Leo nailed her role as did the kids playing her kids and the actress playing Leila. Well done all around. Not exactly a feel-good movie, but excellent.

Happy Go Lucky was just alright. I was expecting a lot because I really like Mike Leigh, but this was, for him, just about average. If anyone out there has seen this film, do you have any explanation for the weird scenes in the middle where Poppy is first strolling alone through a sunny meadow and then out at night with a deranged homeless guy? To me they were complete non sequitors.

I wouldn't be Angus if I also didn't take this opportunity to point out to my pal Mungowitz that his "disappointment" and my top movie of the year, Slumdog Millionare won 8 Oscars. I got your "objective verification" right here, bro!

Sunday, February 22, 2009

Just in Case Any Prospective Obama Cabinent Members, or....

Just in case any prospective Obama Cabinet members read this, or if ANYONE from Illinois is doing their taxes:

"Bribes: If you receive a bribe, include it in your income...

"Illegal activities: Income from illegal activities, such as money from dealing
illegal drugs, must be included in your income on Form 1040, line 21, or on
Schedule C or Schedule C-EZ (Form 1040) if from your self-employment

"Kickbacks: You must include kickbacks, side commissions, push money, or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity....Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner." [IRS Publication 525
(Taxable and Nontaxable Income)]

I do have one question: If you steal something in one tax year, and return it the following year, are you supposed to pay the tax in Year 1, and then apply for a refund in Year 2? It's that sort of complexity that kills entrepreneurship, your realize.

(Nod to Kevin L, who pays his taxes)

Getting mad about the wrong thing

An "activist" put a bug up UConn coach Jim Calhoun's butt about Calhoun getting a big salary in these tough economic times.

Calhoun went off on the guy as follows:

“My best advice to you is, shut up,”

“Quite frankly, we bring in $12 million to the university, nothing to do with state funds,” Calhoun shouted back. “We make $12 million a year for this university. Get some facts and come back and see me. … Don’t throw out salaries and other things.

“Get some facts and come back and see me. We turn over $12 million to the University of Connecticut, which is state-run. Next question.”

People, Jimmy's rant unwittingly reveals the real outrage about Jim Calhoun, the University of Connecticut athletic department, Bob Stoops, the University of Oklahoma athletic department, indeed all of "big time" college sports.

For you see, the way Jim Calhoun turns over millions of dollars to the University is the same way all big time athletic programs turn a profit. On the backs of young men (and in some cases women) who toil on the last plantation left in America, the NCAA.

TV networks make money, journalists make money, coaches make money, Universities make money, but the actual performers do not make money. I can't believe we have made it to 2009 with this archaic, unfair, and often racist system still in place.

Saturday, February 21, 2009

Friday, February 20, 2009

Strange advice from an excellent economist

"Encourage your wealthy neighbors to buy new Cadillacs."

-- Ed Glaeser, Harvard University

(you can read the whole thing here)

Our new....Commerce Secretary!

So, a Democrat who cheats on his taxes, but has no qualms about staying in office?

Don't waste him on a state office; this guy has US Commerce Secretary written all over him!

(Nod to Anonyman)

UPDATE: Anonyman points out that another Dem stalwart believes that "Spending your taxes is my name; paying taxes myself is just so LAME!!" Here

Communication, Threats, and Laughter

Homo Politicus and Argument (Nearly) All the Way Down: Persuasion in

Neta Crawford
Perspectives on Politics, March 2009, Pages 103-124

Much theorizing about world politics and many policy recommendations are predicated on a rather thin view of homo politicus, often assuming that humans are rational and self-interested strategic actors and that force is the ultima ratio of politics. This thin notion should be replaced by a richer understanding of homo politicus that includes the characteristic activities of political actors: we fight, we feel, we talk, and we build institutions. This understanding helps illuminate the scope and limits of strategic action, argument and persuasion in world politics in both empirical and normative senses. I describe the spectrum of political action that situates the role of argument and persuasion within the extremes of brute force on one side and mutual communication on the other. I also discuss barriers to argument and communication. Noting the role of argument in this spectrum of international and domestic political practice suggests that it is argument (nearly) all the way down and that the scope of argument can be and in some cases has increased over the longue durée. Coercion, by itself, has a limited role in world politics. The claim that there are distinctive logics of argumentation, strategic action, or appropriateness misses the point. Argument is the glue of politics — its characteristic practice. Understanding politics as argumentation has radical empirical and
normative implications for the study and practice of politics.


The laughter of the 1962 Tanganyika ‘laughter epidemic’

Christian Hempelmann
Humor – International Journal of Humor Research, February 2007, Pages 49–71

The present article discusses the role of laughter in the much cited ‘laughter epidemic’ that occurred in Tanganyika in 1962. Despite its extraordinary nature, the veracity of the event is confirmed, crucially on
the basis of similar reports. But most current representations are flawed by their exaggeration and misinterpretation of the role of laughter in the event, relating it to a humorous stimulus, a virus or environmental contaminant, or identifying it as contagious laughter. It is argued that the event is a motor-variant case of mass psychogenic illness of which laughter is one common symptom. Therefore it cannot serve as support for other arguments in humor research.


Essential conditions for evolution of communication within a species

Alexander Feigel
Journal of Theoretical Biology, 21 October 2008, Pages 768-774

A major obstacle in analyzing the evolution of information exchange and processing is our insufficient understanding of the underlying signaling and decision-making biological mechanisms. For instance, it is unclear why are humans unique in developing such extensive communication abilities. To treat this problem, a method based on the mutual information approach is developed that evaluates the information content of communication between interacting individuals through correlations of their behavior patterns (rather than calculating the information load of exchanged discrete signals, e.g. Shannon entropy). It predicts that correlated interactions of the indirect reciprocity type together with affective behavior and selection rules changing with time are necessary conditions for the emergence of significant information exchange. Population size variations accelerate this development. These results are supported by evidence of demographic bottlenecks, distinguishing human from other species’ (e.g. apes) evolution line. They indicate as well new pathways for evolution of information based phenomena, such as intelligence and complexity.
(ED: These conditions do not appear to have been met in the state of Rhode Island. Communication there is nearly impossible!)


When Sweet Talk Sours: The Evil Eye in Rivalry

Tanya Menon & Oliver Sheldon
University of Chicago Working Paper, January 2008

Friendly gestures (e.g. flattery, positive affect, praise) typically earn good will. However, drawing from anthropological research on the “evil eye”, we suggest that people are wary of friendly gestures, especially when rivals initiate them. In Study 1, neither Botswanans nor Americans credited friendly rivals for their overtures. In Study 2, the more negotiators exhibited kindness to rivalry-primed counterparts, the less those
counterparts trusted them. In Study 3, friendly rivals provoked more superstitious learning (“jinx” attributions, avoidance, and contamination fears) than hostile rivals. We argue that friendly gestures backfire because they violate people’s predictable schemas about how rivalry should proceed. In Study 4, people reliant on schemas (those making fast judgments versus careful judgments) viewed rivals negatively regardless of the gestures they conveyed. Study 5 literally cast the “evil eye” upon participants by placing them in a room with photos of friendly or hostile eyes gazing at them. Schema-reliant people (those with high need for closure) were most likely to scapegoat friendly rivals.


Avoiding the sharp tongue: Anticipated written messages promote fair
economic exchange

Erte Xiao & Daniel Houser
Journal of Economic Psychology, forthcoming

Research in economics and psychology has established that informal non-monetary sanctions, particularly expressions of negative emotion or disapproval, can enforce fair economic exchange. However, scholars are only beginning to understand the reasons non-monetary sanctions affect economic outcomes. Here we provide evidence that a preference to avoid written expression of disapproval, or negative emotion, plays an important role in promoting fair decision making. We study one-shot Dictator games where one subject has the right to determine a division of an amount of money between herself and her receiver. In relation to the standard game, we find significantly fewer earning-maximizing decisions when receivers can react to
offers with ex post written messages. We further find that credible threats of monetary sanctions, while economically inefficient, are significantly more effective than written messages in deterring selfishness. Our data provide new perspectives on the role of communication in promoting economic efficiency in social environments, and support economic theories of decision incorporating psychological factors such as guilt, shame, and self-deception.

On the "1962 Tanganyika Laughter Epidemic": I have no way of knowing. But I bet the cause was the announcement that the Legislature was going to pass a "Stimulus Package." (Actually, the apparent cause was that some kid at a boarding school told a joke. My second bet: it involved flatulence. Everybody loves flatulence. And passing gas and passing a Stimulus Bill are very similar, and have similar effects. So, I stand vindicated!)

(Nod to Kevin L)

Thursday, February 19, 2009

Michael Smerconish, in Philly

Radio host and columnist Michael Smerconish, on the Porkulus.


About 200 prominent economists, including a dozen Nobel laureates, signed a petition pledging support for the stimulus package. Paul Krugman, himself a Nobel economics winner, has called for an even bigger government footprint than the one the president signed. Treasury Secretary Tim Geithner might have to run TurboTax on his computer, but he also ran the New York Fed. He's no dope.
So it should be easy to believe that Obama and his economic brain trust are poised to steer the country out of recession, right? Not necessarily.
ON THE OTHER side sits the conservative Cato Institute, which recently placed full-page ads in the country's major newspapers to express disagreement with the president's plan.
Among the 200-plus who signed that petition was Michael Munger, chairman of the political-science department at Duke.
Munger, who holds a doctorate in economics, told me the president had mischaracterized the nature of the objections. The issue isn't that the Cato petition signers are simply "philosophically" opposed to government intervention. It's that government intervention doesn't work.
"All we're doing is funding things that were already set up, that would have been done anyway by the state. So the point is not that I think the government has no business. The point is that what they're doing is going to do more harm than good. I find it outrageous that he would misrepresent the position of 400 professional Ph.D. economists," he said.

Like Summers, Krugman, Geithner and the hundreds of economists supporting the stimulus plan, Munger and his allies are impressive. And these competing views leave many Americans stuck in the middle of two opposing "expert" opinions.
When I raised that with Munger, he said stimulus supporters know that the statistical realities don't bear out their case.
"But they're desperate," he said. "They're hoping that by giving some sort of sense of confidence - the idea that someone is in charge - that they can reverse this by giving people a sense of confidence."
Which is starting to remind me of global warming. Loads of experts and a similar number of opinions. On one hand, the Intergovernmental Panel on Climate Change deemed it "unequivocal" and "very likely" that global warming, if it truly exists, is spurred by human activity.
Meanwhile, Weather Channel founder John Coleman has called it "the greatest scam in history." Once again, the rest of us are stuck somewhere in the middle, unsure of whom to believe.

My own view: There is a LOT more evidence that there is global warming than there is that Porkulus will work. Porkulus is just faith-based economics married to political entrepreneurship.

Each major party says the other is unfit to rule. Both are correct.

Anonyman muses:

If you controlled congress for 12 of the past 14 years, would you think it's a good move to go after the guy that's been in office for 1 month and accuse him of wasting taxpayer's $$$$ ?

The source of his (be)muse(ment)--

Remember, Anonyman is, or was until recently, a Republican.

Reminds me of the H.L. Mencken quote I used today on the radio:

In a democracy, the two major parties spend the majority of their time and energy trying to inform an ignorant electorate that the other party is unfit to rule. And both do that admirably. And both are right.

A pox on BOTH their Houses, and their Senates.

After you cough up $800 Billion, everything else is just chump change

The stimulus bill sure has accomplished one thing; it has raised the bar for what kind of expenditures are big enough to raise eyebrows. President O has followed it up with announcing $75 billion to "stem foreclosures" and serial corporate mendicants GM and Chrysler have asked for another $21 billion in aid.

But I guess we have reverse sticker shock; nobody seems to care about a few measly 10's of billions. That's now officially petty cash.

In fact the AP story linked above about the foreclosure plan repeatedly notes that it's not enough money to "save every home".


Wednesday, February 18, 2009

India: the fun just never stops

This just in from Reuters:

"BHUBANESWAR, India (Reuters) – An infant boy was married off to his neighbours' dog in eastern India by villagers who said it will stop the groom from being killed by wild animals, officials and witnesses said Wednesday.

Around 150 tribes people performed the ritual recently in a hamlet in the state of Orissa's Jajpur district after the boy, who is under two years old, grew a tooth on his upper gum.

The Munda tribe see such a growth in young children as a bad omen and believe it makes them prone to attacks by tigers and another animals. The tribal god will bless the child and ward off evil spirits after the marriage.

"We performed the marriage because it will overcome any curse that might fall on the child as well on us," the boy's father, Sanarumala Munda, was quoted as saying by a local newspaper.

The groom, Sagula, was carried by his family in procession to the village temple, where a priest solemnised the marriage between Sagula and his bride Jyoti by chanting Sanskrit hymns, a witness said.

The villagers then ate a feast with rich food and alcohol to celebrate.

The dog belongs to the groom's neighbours and was set free to roam around the area after the ceremony. No dowry was exchanged, the witness said, and the boy will still be able to marry a human bride in the future without filing for divorce."

The Onion: Disturbingly Prophetic

Wow. Wowie Wowie Wow.

The Tao of Abstracts

Writing a good title is easy ("Alliteration!" James Buchanan once told me). Writing a good abstract is hard. You need to get across the main points of your paper and make them sound interesting in a very compact space. You have to be disciplined and produce a paragraph with a very high signal to noise ratio.

In the negative example department, here is the abstract of a recent NBER working paper where the signal to noise ratio is ZERO!

"This paper uses the first three waves of the Gallup World Poll to investigate differences across countries, cultures and regions in the factors linked to life satisfaction, paying special attention to the social context. Our principal findings are: First, using the larger pooled sample, we find that answers to the satisfaction with life and Cantril ladder questions provide consistent views of what constitutes a good life, with an average of the two measures providing a clearer picture than either measure on its own. Second, we find strong evidence for the importance of both income and social context variables in explaining within-country and international differences in well-being. For most specifications tested, the combined effects of a few measures of the social and institutional context are as large as those of income in explaining both international and intra-national differences in life satisfaction. Third, the very significant influences of both income and social factors permit the calculation of compensating differentials for social factors. We find very large income-equivalent values for key measures of the social context. Fourth, the international similarity of the estimated equations suggests that the large international differences in average life evaluations are not due to different approaches to the meaning of a good life, but to differing social, institutional, and economic life circumstances."

Aaargh!! So long, yet so uninformative. I've heard of Cantrel's Raiders and Jacob's ladder, but Cantril ladder?? But the best part is how it continually and differentiably beats around the bush as to exactly what the relevant "social and institutional" variables are. It makes me want to yell at the authors much more than it makes me want to read the paper.

Tuesday, February 17, 2009

Oh Noes!

Well it only took 50 games, but the Thunder now have a mascot. I guess that's good news.

The bad news is that it appears to be a Wookie, and not a very macho one at that.

Feast your eyes on some Okie folly, people:

Thundercats are Go!!!!!!!!!!!!

The Thunder have traded Chris Wilcox and Joe Smith to the Hornets for Tyson F. Chandler.


Hornets get expiring contracts and we get an honest to God center. Fantastic! Chandler has been hurt and less effective so far this year but I'da traded Wilcox and Smith for a pack of gum!

I think this also make the locally popular idea of drafting Blake Griffin if the Thunder get the number one pick make more basketball sense (i.e. Thunder really needed a center, Griffin is not really a center but now they have Chandler).

Big ups to Sam Presti.

Teamwork: yer doin' it wrong!

another modest proposal

When I lived in Northern Virginia, the DC folks were always complaining about their lack of Federal representation. They had no Senators and only a single non-voting delegate to the House (maybe the delegate gets to vote now though?).

I actually think this set up should apply to more states rather than fewer. Take Illinois as a semi -random example. Wouldn't we all be a lot happier if they had no Senators and a single non-voting House delegate?

I have an additional suggestion for Illinois politics: just have your governors report directly to the nearest Federal penitentiary on inauguration day.

Monday, February 16, 2009

Analysis of Texas Roads: Multipliagra

This is truly remarkable.

Here you will find the "Texas 2030" report on the benefits of road-building in the "On Loan to Keynes State."

How do I know they changed the name, the old "Lone Star State"?

In the report, they make a first pass in which they do not model ANY benefits to increased capacity, at all. So the report claims that the first $70 billion spent does not reduce congestion ONE BIT....

...But the project still yields a 3.4 Benefit to Cost ratio because of (WAIT FOR IT!!!) construction spending multipliers. NO. ROAD. JUST THE CONSTRUCTION SPENDING CREATES A POSITIVE MULTIPLIER OVER THREE.

If you do account for the reduced congestion, according to these rent-seeking bandits, you get a cost of $213 billion, and an economic benefit of $1.4 trillion. That's a "multiplier" of more than *6*! Now, you should all know that "Priapobamaism," or a multiplierection lasting more than four hours, is not normal. You should stop taking Multipliagra, and seek medical attention.

No matter how you slice it: Deficit spending is its own reward! The new voodoo ecnomics....

Just as tax cuts were supposed to increase total revenue (if you are a Republican), the idea here is that deficit spending more than pays for itself, and increases tax revenues, to boot!

I am awestruck by the sheer brazen brass of it! No economist could be that stupid; it has to be a bald-faced lie. It take juevos of pure orichalcus to make this work. Brav-o!

As I believe Angus has pointed out before, by this logic Zimbabwe should have the largest GDP on earth. Robby Mugabe should get the Nobel Prize for his innovative Keynesian policies. (I shouldn't joke; the second part may happen, come October.)

(Nod to Jason Scheppers, P.E., who also posed this excellent question:

When you go to the store and buy a loaf of bread you likely pay a market price. The bread provider likely provides jobs to wheat farmers, truckers, grocers, bakers and those folks in the supply chain likely spend the money that they earn from their services. Given those factors buying a loaf of bread creates a multiplier affect just as claimed for the transportation construction activity in the 2030 report. I see no evidence presented that the multiplier on "buy a loaf of bread," or any other product, is materially different than the multiplier applied to construction activity. )

Jason continues, in his comment to the Authority:

I suggest that the optimal infrastructure improvement is when the incremental cost is equal to the incremental benefit or the incremental B/C ratio equals 1. With the report’s assumed value of economic activity for each dollar of construction there are no amounts of improvements that have a benefit cost ratio lower than 1. It is nonsensical to think that there are no levels of infrastructure spending that go too far and waste resources. I challenge the committee and their technical experts to enumerate the funding level that sets incremental cost benefit ratio equal to 1.

See!? Mugabe is CORRECT! As the deficit heads to negative infinity, GDP heads to positive infinity, FASTER, because of Mulipliagra, Daddy's Little Helper.

So let me get this straight

Suns management/ownership is tired of Mike D'Antoni's 7 seconds or less and lets him go. Brings in Terry Porter as coach. Porter wants them to walk the ball up and D up. Lots of Suns complain. Management then gets rid of multiple players that Porter doesn't like. And now, at the all-star break, the metaphorical, if not actual, midpoint of the season, Suns management FIRES Terry Porter.

Epic Fail. So now you don't have D'Antoni or Porter or the players that Porter didn't like. You do have Jason Richardson though. Sweet!

And you have Alvin Gentry who said the following at his press conference: “We are who we are and I think we have to go back to trying to establish a breakneck pace like we’ve had in the past.”

Only they are NOT what they were. Not anymore.

What a bunch of dolts. If you look up FUBAR in the dictionary I bet there will be a picture of the Suns front office.

"I'm fine with a tuition increase...."

My son Kevin, on the tuition hike at UNC-Chapel Hill:

"I'm fine with a tuition increase. I'm surprised it wasn't more."
(Link to the video) (Kevin's voice, and then picture, starts at about 1:25 on the video).

It is interesting that UNC, where taxpayers pay at least $3 for every dollar paid in tuition, for each student, gets depicted as screwing over the students, rather than the taxpayers.

There is a big difference between artificially low tuition, where taxpayers subsidize college education for an elite few with the grades and SATs to get in, and financial aid, which ensures that lack of wealth is no barrier to entry.

Still, to my son Kevin, who is "fine with a tuition increase": Your mother and I are "fine with you getting a job this summer."

UPDATE: In comments, an anonymous commenter bravely confronts my hypocrisy in sending my son to a public school. Dude! Suppose bandits broke into my house while I was away, and stole everything in it. If they offered me my television back, would I take it? YES! That doesn't mean I approve the original theft. But you takes back what youse can gets.

Confirmation: I Took More Votes From Perdue....

Interesting....more analysis of the Gov race. PPP concludes, again, that I took many more votes from Perdue than from McCrory.

The problem is.....I didn't take nearly enough.

One other interesting finding from our analysis. We pointed out several times last fall that our data showed Michael Munger was pulling more votes from Perdue than McCrory, contrary to the conventional wisdom that Libertarians take from Republican candidates. The county where he ended up doing best? Deep blue Orange, where he pulled 5% of the vote.


A modest proposal

Obama seems to patterning himself after FDR. Between the election and inauguration FDR went on a Caribbean cruise while the depression raged. Obama went Hawaii. FDR had a very active 100 days, Obama has his mega-bill.

I would like to encourage Obama to emulate one other FDR move. At the beginning of his term FDR managed to find the time to get Congress to legalize beer. So please Barack, take another page out of the FDR playbook and legalize weed!! What better way to help us look past our ruined retirement accounts and impending doom?

Legalize it!

Sunday, February 15, 2009

A brutal business in Buffalo

Buffalo-area man accused of beheading his wife

Associated Press - February 13, 2009 7:15 PM ET

"ORCHARD PARK, N.Y. (AP) - A Buffalo-area man who runs an American-Islamic television station is accused of beheading his wife.

Orchard Park police say 44-year-old Muzzammil Hassan told police Thursday evening that his wife was dead at his office. That's where police found the body of 37-year-old Aasiya Hassan.

Hassan is now charged with second-degree murder and police believe the killing occurred sometime late Thursday afternoon. Authorities say his wife had recently filed for divorce and had an order of protection that had him out of the home as of February 6th.

Hassan is the founder and chief executive of Bridges TV, which he launched in 2004 in hopes of portraying Muslims in a better light.

Police didn't know Friday if Hassan had an attorney."

Wow, this is a serious and horrible story but I have two comments and they are the same as Janet's at SCSU scholars. (1) How can cutting off someone's head be only second degree murder? (2) Did Mr. Hassan think this would help the stated mission of Bridges TV?

Get ready for another serving of Hugo

From the informative blog Caracas Chronicles:

Sí wins : 54% to 45%

Quico says: With 80% of the votes tallied, reliable sources are confident, Sí will win by a wide margin.


Kevin Durant has come up about as big as you can on all-star weekend without actually being on the all star team. First in the Sophomore - Rookie game on Friday, he cut loose for 46 points and 7 rebounds. Then in the H-O-R-S-E contest on Saturday, He got behind early but then came back for the win basically by bombing in 30 footers.

I think this is the last year that KD won't be in the Sunday game. He has improved a lot over last year and is going to be a big star. We in Okie-land are happy Portland drafted Oden.

Saturday, February 14, 2009

A real poem

I am not generally a big fan of poetry but I read this today and really liked it:

I am a Hittite in love with a horse I don't know what blood's in me
I feel like an African prince I am a girl walking downstairs
in a red pleated dress with heels I am a champion taking a fall
I am a jockey with a sprained ass-hole I am the light mist
in which a face appears
and it is another face of blonde I am a baboon eating a banana
I am a dictator looking at his wife I am a doctor eating a child
and the child's mother smiling I am a Chinaman climbing a mountain
I am a child smelling his father's underwear I am an Indian
sleeping on a scalp
and my pony is stamping in
the birches,
and I've just caught sight of the
Niña, the Pinta and the Santa
What land is this, so free?

It's by Frank O'Hara courtesy of a lecture by Zadie Smith, one of my favorite young novelists (White Teeth is terrific).

Friday, February 13, 2009

Friday poetry corner

Here are two short poems I composed.

The first came out accidentally in an email to Mrs. Angus this morning:

"Me dejaste plantado sin un pinche centavo"

The second while ruminating on teaching econometrics IV:

"Thomas Bayes was no fool. He made up his very own rule. When you want the answer, don't tempt fate, derive the posterior and integrate"

India = Comedy Gold

As evidenced by previous KPC posts (here, here, and here), India is a comedy gold mine. Now LeBron points us to another classic case: Cow Urine Soda.

Here is a different article about it, from Reuters.

This the best bit:

"The Rashtriya Swayamsevak Sangh (RSS), or National Volunteer Corps, said the bovine beverage is undergoing laboratory tests for the next 2 to 3 months but did not give a specific date for its commercial release.

The flavor is not yet known, but the RSS said the liquid produced by Hinduism's revered holy cows is being mixed with products such as aloe vera and gooseberry to fight diseases such as diabetes and cancer.

Many Hindus consider cow urine to have medicinal properties and it is often drunk in religious festivals.

The organization, which aims to transform India's secular society and establish the supremacy of a Hindu majority, said it had not decided on a name or a price for the drink.

"Cow urine offers a cure for around 70 to 80 incurable diseases like diabetes. All are curable by cow urine," Om Prakash, the head of the RSS Cow Protection Department, told Reuters by phone."

Snarky observations follow:

1. "The flavor is not yet known". Really?? They don't know what cow urine soda is going to taste like?

2. Om Prakash seems to be suffering from an extremely serious misunderstanding of what the word "incurable" means.

3. Extra bonus, stolen from commenter Lars on Marginal Revolution: "Doesn't Budweiser already produce this beverage?"

Thursday, February 12, 2009

Too much monkey business

Over on Freakonomics, people have discovered the dark side of the Nudge. More companies are putting extra charges as a must decline option instead of a must accept option for online transactions. The poster, Ian Ayers, while decrying these moves writes:

"In their best-selling book Nudge, Cass Sunstein and Richard Thaler show that default setting can be a powerful force for the social good.”

So I went all Don Boudreaux on him and wrote him a letter/comment, reproduced below:

Ian: what is the “social good”? Is there a representative agent? Or do you believe somehow that Sunstein and Thaler have been gifted by the gods so that they can make valid interpersonal welfare judgements? Nudge is about getting people to do what you want. Calling it “Social good” is like putting lipstick on the proverbial pig.

If you like it, it’s social good. If you don’t like it, it’s a disturbing evil trend. Give me a break.

hat tip to PR.

Breaking news: The first job created by the Stimulus Bill

Yes, that is a guy wheeling the House and Senate versions of the bill. Sweet gig.

Cuckoo for Locopops! Cuckoo for Locopops!

Hot diggety pops! Locopops has opened in Raleigh.

Locopops is one of the few places in all of the South (at least, in my experience) where you can get the real deal paletas that are sold by street vendors in Mexico, and now increasingly by street vendors in the larger U.S. cities. Paletas are made with fresh fruit, and (often) chiles or other spices that are surprising the first time you eat one. They also (sometimes) have too much salt, but Locopops doesn't do that.

The Durham location, rather unassuming....

(Nod to Anonyman, who loves Locopops. I expect he'll be out front of the Raleigh Locopops location, trying to sell his large body for enough quarters to go in and buy just one more "Mango Hibiscus Habanero." Good luck with that, bud.)

Wednesday, February 11, 2009

K-Ville, Game Day, Game Face, Two Ties

A picture of K-Ville, taken from the steps of the Basketball Palace.

A picture of me, in front of K-Ville. Note the neckwear: A UNC tie and a Duke tie. In other words, I have ties to both schools.

Three Questions, and My Answers.....

(This should be up at REASON later today. I'll post the link. But, for now, an exclusive to KPC readers!) (UPDATE: Link here! Warning: Don't click on the link, in comments, that Naga Sadow put up. It's an obnoxious RickRoll. On the other hand, if you have never been RickRolled, go for it. You'll have to kill your browser process to get out, though)...

1. Outside of the obvious pork and special interest goodies, what are the biggest problems you see with the stimulus package?

The creation of new bureaucratic and regulatory structures, restrictions on creation of liquidity. The genius of the American system, for all its flaws, has been that we can mobilize LOTS of liquidity quickly. Silicon Valley exists because you could sit down, make a pitch, and get $10 million that afternoon.

If we start governing finance like we govern universities, or city councils, we are going to lose that. Having committees, and a bunch of forms to sign off on, and stamps.....Hernando de Soto wrote about systems like this. They strangle business, investment, and growth.

2. Is there anything in the stimulus package that you think will work? If so, what?

Keynes said that Y=C+I+G. Borrowing money to raise "G" (government spending) will work, I suppose. But the cost to future generations is enormous. I am amazed by the hypocrisy of both sides. John McCain calls the stimulus "intergenerational theft." Well, he's right, but he came LATE to this wisdom. The Republicans have been just pouring out new deficit spending since 2002.

And then Obama says he doesn't want to do tired old ideas, and failed economics. But he is doing EXACTLY what the Republicans did: huge deficit-financed spending on largely useless or irrelevant programs designed to reward political friends. The only thing that's different is the identity of the "friends."

So, some of the spending may increase measured GDP slightly for 2009. But the price is increased inflationary pressures in 2010, and the squandering of the birthright of our children for decades.

3. Obama says that doing nothing is not an option. Do you agree with that?

This makes me furious. Doing nothing is NOT an option, anymore. Because first Pres. Bush, and now Pres. Obama, have engaged in a completely irresponsible fear campaign. "We must do something, or you should cower in helpless fear, behind locked doors, in darkened rooms!" Presidents should not use this kind of fear as a weapon to pass their pet projects. Roosevelt, for all his flaws, got it right: "The only thing we have to fear is fear itself." Well, not quite right: it turns out we need to fear fear itself, and also Pres. Obama.

The sensible thing to do at this point would be to make an offer, at 40 cents on the dollar, for the "toxic" assets, both the collaterlized debt obligations packaged by Freddy and Fannie, and also the credit default swap "insurance" derivatives sold by AIG (and some other firms, but mostly AIG). Since AIG wrote so many "naked" CDSs, even for people who don't own the underlying, or "insured" asset, they are going to keep hemorrhaging until someone puts a floor on the value of the assets.

So, a one-time, take it or leave it, offer. One big reason that credit markets are frozen is the uncertainty created by Treasury indecision and vagueness. Asset owners are holding out for a better price, and they are trying to negotiate through the Senate, not the Treasury. Obama needs to lead here, and say, "Take this partial buyout, or hang on to the asset at your peril. There is no better deal coming tomorrow."

The Mayor Updates Us on "Shovel Ready": Digging Up Roads and FIlling Them Back Up Again

The Mayor writes, after going to a meeting of state and county officials on how to suck down money from the Obama "shovel ready" gravy train.

In order to meet the "shovel ready in 90 days" rule, the only projects that can be considered are those for which the environmental assessments and the engineering are done. Almost all of those will already have some or most of their funding in place. Today, for example, our metropolitan planning organization met because we had until 5:00 p.m. to get a project on the Obama list. We chose one that has a combination of federal, county, and local funding. One of the rules is that the new money cannot replace existing federal money. But local money can be replaced. In our case, the county was going to bond for about $4.5 million in order to take a $13 million project to bid. The bond would be paid for over time from a 1/4 cent sales tax the voters approved--it is bringing in about $1 million a year. If we get the Obama money, the county will not bond. Thus, the stimulus money produces no new jobs in our county. It just saves the County Council from having to borrow. The county will not bond, federal cash will replace the county money, and we can count the project as contributing to the stimulus.

At the state level expect to see lots of lane miles of road improved--that is, the asphalt chewed up by a big machine and laid back down as road base. New asphalt is then put on top of the base. No environmental work needs to be done for existing roads so we should see states improving miles of road that do not need to be replaced because those projects are shovel ready--they can go out for bid in a few weeks. Sounds like digging holes and filling them back up--the perfect Keynesian solution.

An epiphany

You are all familiar with Andy Warhol's famous prediction.

It just struck me that the Obama promise is an extension. No one should go bankrupt, and bad business decisions should be paid for by taxpayers, with government guaranteeing against "risk." No one should have to bear the responsibility for bad choices, stupid investments, or lack of planning. But, everyone should live beyond their means, and spend more than they make.

In short:


Gary Marcus ups the ante

Recently I wrote about the arrogance of how the Nudge movement assumes that humans need help but that they, despite themselves being humans, not only don't need help but instead are somehow qualified to engineer choices for other humans.

Now in today's WSJ, one Gary Marcus, goes even further. His basic argument is that (A) evolution is not perfect so (B) neoclassical economics is completely invalid. Really, that is pretty much it. Check it out for your own self here.

Then he gets down to bidness:

"All this matters because endeavors like economics and social policy are all built around theories about what human beings are and how they function. We allow consumers access to credit cards, for example, because we assume (despite ample evidence to the contrary) that they will be smart enough to balance their short-term needs as consumers with their long-term capacity to maintain a fiscally sensible reality."

Yikes! People, what is up with "We allow consumers access to credit cards"? Is Mr. Marcus somehow immune to the imperfection of evolution in a way that entitles him to run other people's lives?

I guess his actual thesis is (A) evolution is imperfect for everyone but me and people who agree with me so (B) we have a clear duty to shape the world for the regular imperfect dolts that inhabit it.

Tuesday, February 10, 2009

Welcome Rush Limbaugh Listeners!

Dear Friends:

Those of you coming to this site because of the discussion on Rush Limbaugh today....welcome!

The web site for the interview Mr. Limbaugh quoted from can be found here...

And feel free to browse around. My blogging partner, Dr. Kevin Grier, and I, have written quite a bit about the bailout, and we welcome your thoughts.

For those who missed the Limbaugh show, here is the transcript, in section #2....

Mike Munger, email me
Political Science Department
Economics Department
Duke University

Putting the "Cuss" back in "Homo Economicus "

The Maximization Paradox: The costs of seeking alternatives

Ilan Dar-Nimrod, Catherine Rawn, Darrin Lehman & Barry Schwartz
Personality and Individual Differences, forthcoming

Contrary to the common belief that more options lead to better decisions, recent research has demonstrated that choosing from a large number of options can have detrimental psychological effects. We investigated whether people were willing to sacrifice resources for more options, and whether choice-making orientation moderated such willingness. As predicted, people who were motivated to make the best choice possible—“maximizers”—were more willing to sacrifice resources such as time to attain a larger choice array than were people who tend to search for a satisfactory choice (i.e., “satisficers”). Additionally, maximizers who sacrificed to attain more options were ultimately less satisfied with their choice relative to maximizers who chose from a small assortment, and to satisficers (Studies 2 and 3). We term the pattern in which maximizers tend to sacrifice resources to attain more options that ultimately reduce their satisfaction, the “Maximization Paradox”.


Beware of Venturing into Private Equity

Ludovic Phalippou
Journal of Economic Perspectives, Winter 2009, Pages 147–166

As a step towards understanding whether a private equity governance structure reduces overall agency conflicts relative to a public equity governance structure (as is often argued), this paper describes the contracts between private equity funds and investors, and the returns earned by investors. The paper sets the stage with a puzzle: the average performance of private equity funds is above that of the Standard and Poor's 500 - the main public stock market index - before fees are charged, but
below that benchmark after fees are charged. Why are the payments to private equity buyout funds so large? Why does the marginal investor invest in buyout funds? I explore one potential answer (and probably the most controversial): that some investors are fooled. I show that the fee contracts for these funds are opaque. Considering this and the way that compensation contracts bury, in details, costly provisions that are difficult to justify on the basis of proper incentive alignment, it would be premature to assert that the agency conflicts are lower in private equity
than in public equity.



In Search of Homo Economicus: Cognitive Noise and the Role of Emotion in
Preference Consistency

Leonard Lee, On Amir & Dan Ariely
Journal of Consumer Research, forthcoming

Understanding the role of emotion in forming preferences is critical in helping firms choose effective marketing strategies and consumers make appropriate consumption decisions. In five experiments, participants made a set of binary product choices under conditions designed to induce different degrees of emotional decision processing. The results consistently indicate that greater reliance on emotional reactions during decision making is associated with greater preference consistency and less cognitive noise. Additionally, the results of a meta-analytical study based on data from all five experiments further show that products that elicit a stronger emotional response are more likely to yield consistent preferences.


Driven to Distraction: Extraneous Events and Underreaction to Earnings News

David Hirshleifer, Sonya Seongyeon Lim & Siew Hong Teoh
Journal of Finance, forthcoming

Recent studies propose that limited investor attention causes market underreactions. This paper directly tests this explanation by measuring the information load faced by investors. The investor distraction hypothesis holds that extraneous news inhibits market reactions to relevant news. We find that the immediate price and volume reaction to a firm's earnings surprise is much weaker, and post-announcement drift much stronger, when a greater number of same-day earnings announcements are made by other firms. We evaluate the economic importance of distraction effects through a trading strategy, which yields substantial alphas. Industry-unrelated news and large
earnings surprises have a stronger distracting effect.


Carrots, Sticks, and the Multiplication Effect

Giuseppe Dari-Mattiacci & Gerrit De Geest
Journal of Law, Economics, and Organization, forthcoming

Although a punishment can be applied only once, the threat to punish can be repeated several times. This is possible because when parties comply, the punishment is not applied and can thus be used to support a new threat. We refer to this feature of sticks as the "multiplication effect." The same is not possible with promises to reward since carrots are used up every time a party complies; hence, at each round a new reward is needed. We show that the multiplication effect of sticks has pervasive consequences in economics and law and provides a unified explanation for seemingly unrelated phenomena such as comparative negligence, legal aid, the dynamics of riots and revolutions, the use of property rules, the commons problem, and the
most-favored-nation clause in settlement negotiations.

Motivating Loan Officers: An Analysis of Salaries and Piece Rates

Sumit Agarwal & Hefei Wang
Federal Reserve Bank Working Paper, December 2008

Whether incentive contracts provide the right incentives to individuals in organizations is a central question in modern economic theory. We study loan officers' incentives for loan origination and their choice of effort to assess loan quality under fixed-wage salary and a piece-rate contract based on loan origination. We find that whether piece-rate contracts distort loan officers' incentive to search for bad credit depends crucially on the strength of the monetary incentive and the information asymmetry between the bank and the loan officers. We further examine the relationship between loan origination decisions, loan size and other loan characteristics under the two compensation schemes, and derive a number of predictions regarding these two types of pays. Using a unique dataset on loan officer compensation from a major commercial bank, we test these implications and find results that generally support the predictions of our model.


Painful Regret and Elation at the Track

Adi Schnytzer & Barbara Luppi
Journal of Gambling Business and Economics, December 2008, Pages 85-99

We present an empirical study of loss aversion in the Hong Kong horse betting market. We provide evidence of the presence of loss aversion in a context of complete absence of the favourite-longshot bias. This would suggest that, since loss aversion is a psychological bias, the favourite-longshot bias may not necessarily be caused by psychological issues and may be due, for instance, to informational asymmetry. We investigate different types of bettors and their attitude towards loss aversion. Our data set enables us to distinguish approximately among insiders, unsophisticated outsiders and sophisticated outsiders. The results show clearly that even sophisticated bettors are beset by loss aversion, while even unsophisticated outsiders display no favourite-longshot bias. Thus, our paper provides evidence that loss aversion may be an attitude innate rather than learned, regardless of the level of sophistication in designing economic behaviour or the extent of information asymmetry. Chen et al (2006) show that capuchin monkeys display biases when faced with gambles, including loss aversion, and provide evidence that loss aversion extends beyond humans. The present work supports the idea that loss aversion may be a more universal bias, arising regardless of experience and culture and demonstrates that loss aversion is displayed even by those bettors regarded in the market as “smart money”. Further, we find that more sophisticated and experienced bettors display a higher level of loss aversion. This result is consistent with the findings of Haigh and List (2005), who show that professional traders in financial markets exhibit more loss aversion than do students.

(Nod to Kevin L.)

Did tax cuts cause the current crisis?

Obama sez yes:

"But as we've learned very clearly and conclusively over the last eight years," Obama said, "tax cuts alone can't solve all of our economic problems, especially tax cuts that are targeted to the wealthiest few Americans. We have tried that strategy time and time again, and it's only helped lead us to the crisis we face right now."

With all due respect, I don't think tax cuts had much to do with the housing boom (unless you mean things like the deductibility of mortgage interest and the elimination of capital gains on housing appreciation but those weren't Bush's). I don't think tax cuts gave us years of overly loose monetary policy. I don't think tax cuts caused the incredible decline in standards for getting a mortgage. I don't think tax cuts caused the failure of ratings agencies to recognize the risk in repackaged mortgages. In sum, I don't think tax cuts had anything to do with us getting to the crisis point where we currently sit.

Timmy We Hardly Knew Ye II

Maybe it's just because I predicted, back in December, that Geithner would be the pick for Treas Sec (I'm huge in Brazil, HUGE I tell you!)....

But it bugs me that he did such a remarkably craven and illegal thing, and then got rewarded for it. Check this out.


Tim Geithner must be wondering where he fits in now that principles have triumphed over personality. Geithner played by the prominent-people’s rules, cut corners on his taxes, found religion, said he was sorry, said he was sorry again, and won Senate confirmation as Treasury secretary by a vote of 60-34. It was the narrowest margin for a Treasury secretary in more than half a century.

If Obama screwed up in nominating and backing Daschle, the former Senate majority leader who ponied up $140,000 in back taxes and interest, what does that say about his support for Geithner?

Geithner (B.A., Dartmouth College, 1983; M.A. in economics, Johns Hopkins, 1985) was in arrears to the Internal Revenue Service, an agency he now heads, for $50,000. Somehow he “missed” the part in the annual hand-outs from the International Monetary Fund, his former employer, where he was told about his obligation to pay Social Security and Medicare taxes -- a document he signed annually in order to get reimbursed.

Monday, February 09, 2009

Timmy, We Hardly Knew Ye.....

Lots, and I mean LOTS, of IRS employees have been fired or reprimanded for doing 1/100 the wrong things that Tim Geithner freely admits to having done (or failed to do!)

Interestingly, Geithner didn't even have to pay penalties, which CLEARLY would have been the fate of the rest of us.

There are two sets of rules: One set of rules (loose and soft) for those in power, and I mean Dems OR Repubs. And another set (tight and hard, to give bureaucratic psychopaths something to do) for the rest of us, those of us who are just trying to get by.

And the bureaucratic psychopaths will even prey on their own. The people who have suffered most from this "I'm just following orders" thing are IRS employees themselves.....Check the following excerpt, written by the Tax Reporter for the New York Times:

Timothy Geithner is one lucky man. Not because he had Robert Rubin as a mentor and not because he was head of the Federal Reserve Bank in New York when investment and commercial bankers ran wild, but because when he cheated the government on his payroll taxes, he wasn't working for the IRS.

Had Geithner been working at the IRS, here is what he could have expected for being suspected of shorting the government tens of thousands of dollars in payroll taxes: He might have been rousted from bed before dawn in a commotion that terrified his children and embarrassed his wife when it awoke the neighbors. He would have been treated like a scheming criminal and, while not subjected to what the Bush administration euphemistically called "enhanced interrogation techniques," he would have been scared enough to suffer a stroke or heart attack, like some of those grilled by the agents from the Treasury Inspector General for Tax Administration.

Had he told them that he failed to pay his Social Security, Medicare, and unemployment taxes in full because TurboTax did not alert him to the problem, TIGTA agents almost certainly would have called him a liar and warned him about criminal prosecution.

The TIGTA agents would have thrust in his face the documents that he was given when he worked at the IMF, telling him that while those taxes were not withheld from his pay, his salary was grossed up to cover them. They would have waved his own signed statements acknowledging that he had to pay the levies and had been given step-by-step instructions on how to calculate the amount due.

Any suggestion by Geithner that it was just a mistake, that the law is too complicated, or that the software made him do it would have drawn derisive laughter and worse, based on what IRS clerks whom TIGTA went after have told me and have testified about in proceedings aimed at saving their jobs.

Section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998 provides that "in general . . . the Commissioner of Internal Revenue shall terminate the employment of any employee of the Internal Revenue Service if there is a final administrative or judicial determination that such employee committed any act or omission," including "willful understatement of Federal tax liability, unless such understatement is due to reasonable cause and not to willful neglect."

The Treasury inspector general has interpreted that law as a license to go after people who made, the record later showed, minor or innocent mistakes, including some mistakes caused by the government.


I actually agreed with Krugman before I disagreed with him

Krugs is right (see here and here ) that many of the things being cut in the Senate's version of Porkulus are those more likely to give a short term stimulus (or avoid a further short term de-stimulus). He is also right that tax rebates and transfers disguised as tax cuts will not do much stimulating.

Where I think he is wrong is in his stubborn insistence in viewing the bill as a stimulus bill. I just don't see how you can look at it and the way it was constructed and keep arguing that the sole or even primary intent of the bill is to produce a fast acting economic stimulus.

It seems to me there are three major components to the bill: Shoveling dough to Congressional Democrat's pals, implementing Obama's rebuild America vision, and the stimulus.

Now all these can be seen as interlinked; as Obama pointed out stimulus = spending, but philosophically I think they are different.

#1 is business as usual and probably would have increased anyway just given the new political power alignment. It's just pretty convenient for the Dems to lump it into a "save the world" bill and be done with it. Plus once it's in the budget, it's the new baseline. #2 should be done carefully and slowly on a cost benefit basis, not on a which is ready to go sooner basis. The rush will cause a lot of money to be wasted. And even shovel ready projects take a fair amount of time to complete. #3 should be done in a serious way. Tax rate cuts, not rebates. No further subsidies for housing, in the short term the best thing is for the Government to buy stuff they can take immediate delivery of (and possibly even somehow use).

Note that I am not advocating a stimulus be done, I am just saying if we were going to do it seriously we'd get input from experts and do it technocratically, Bryan Caplan style.

Finally, I think it's a tactical mistake by the Republicans to insist on cuts/modifications to the bill. If it works, they aren't going to get any credit at all. If it doesn't they could well get blamed for having been too stingy.

Media Matters

A test of the representativeness bias effect on stock prices: A study of
Super Bowl commercial likeability

Charles Chang, Jing Jiang & Kenneth Kim
Economics Letters, forthcoming

We test 17 years of Super Bowl commercials, finding that "liked" commercials coincide with higher stock returns, despite controls for firm size and changes in sales. This is consistent with representativeness bias, the irrational relation of firm characteristics to returns.

Queerness, the Quality Audience, and Comedy Central's Reno 911!

Hollis Griffin
Television & New Media, September 2008, Pages 355-370

Comedy Central currently attracts the same kind of quality audience that broadcast television networks courted in the 1990s, one that resulted in the sharp increase in gay-themed content on the networks at that time. Yet the parodic mode of address that so permeates the cable network's content makes the different levels of gay cultural competency a heterogeneous viewership brings to a program like Reno 911! an issue of considerable import. A parodic situation-comedy based on reality crime programming, Reno 911! narrativizes an ambiguously gay police detective who, in turn, provides
different viewing pleasures for differently situated viewers. As such, the character foregrounds questions about the political consequences of television's use of queer cultural signifiers and the pleasures that viewers take in a parodic representation of queerness on television.


The Impact of Editorial Slant: Evidence from the Hearst Media Empire

Siona Listokin & Jason Snyder
GMU Working Paper, November 2008

We examine whether editorial slant influences electoral outcomes in the context of one of the most powerful media conglomerates in US history. In the early 1900s, the Hearst newspaper empire was politically charged and considered influential. We test if the Hearst newspapers affected elections. Using a difference-in-differences and matching methodology, we find that the introduction of a Hearst newspaper into a county did not change electoral outcomes compared to similar counties - in contrast to other studies of media effects. We consider explanations for the results, and offer historical perspective to an issue that remains both salient and ambiguous.


Politicized Places: How Local Reactions to the Post-Katrina Migrants Were
Shaped by the Media

Daniel Hopkins
Harvard Working Paper, December 2008

This paper uses the post-Katrina migration as an exogenous shock to confront concerns of selection bias that have long plagued research on contextual effects. Drawing on a new phone survey of 3,879 respondents, it demonstrates that despite the national concern about issues of race and poverty following Hurricane Katrina, people in some communities that took in evacuees actually became less supportive of spending to help the poor and African Americans. In other communities, residents became more supportive of anti-crime spending during the same time period. These observations accord with a new "politicized places" theory of contextual effects emphasizing the interaction of local conditions and the media environment. Under this theory, sudden changes in local demographics make demographics salient to local residents. Media coverage can convey information about these shifts and can also frame people's thinking on issues related to them. Observed variations in local media coverage provide further evidence for this approach.


Taking Late Night Comedy Seriously: How Candidate Appearances on Late Night
Television Can Engage Viewers

Michael Parkin
Political Research Quarterly, forthcoming

Candidate appearances on entertainment television have become a staple of recent presidential campaigns, yet little is known about their effect on voters. Many assume that they leave viewers uninformed and focused on the candidate's personal image. In this article, the author investigates this idea with an experiment using John Kerry's 2004 appearance on the Late Show with David Letterman. He finds that - contrary to popular expectations - late night interviews have particular features that can, at times, engage otherwise politically disinterested viewers, causing them to process and recall substantive policy information.


It's the Media, Stupid - How Media Activity Shapes Public Spending

Christian Bruns & Oliver Himmler
University of Goettingen Working Paper, December 2008

Politicians seeking reelection need voters to know what they have done for them. Thus, incentives may arise to spend more money where media coverage is higher. We present a simple model to explain the allocation of public spending across jurisdictions contingent on media activity. An incumbent seeking to maximize the probability of reelection will shift more money to jurisdictions where an extra dollar gains more votes because a larger share of the electorate is informed about his policy. This prediction is tested using US data on county-level public spending, Designated Market Areas (DMAs) and location of licensed television stations. Instrumenting for the possible endogeneity of media activity to public spending, 2SLS results confirm a positive effect of media coverage on county-level public spending. Spatial regression rules out the possibility of confounding media effects with spatial autocorrelation.

(Nod to Kevin L., who knows stuff)

Sunday, February 08, 2009

They Report

Pitchers and Catchers report in 5 days and 13 hours.

Not that I'm counting.

The unbearable arrogance of the "Nudge-ers"

Behavioral economics has never been my favorite type of economics (for now neuronomics remains my absolute least favorite) but I couldn't describe succinctly exactly what bothered me so much.

Now I can.

It's the incredible arrogance of some of its practitioners. Really. Check out this NY Times story about the "Nudge" movement:

Let's begin with this:

"Mr. Thaler has found that people often don’t act rationally and in their own best interests, as is assumed by traditional economic models. He calls such idealized people “Econs,” as distinguished from “Humans.” Econs are walking computers, and behave according to the laws of classical economics; Humans are quirky, like the people you meet on the street. Humans may know that they should eat less and exercise more, but they often miss the mark. They may know that they should save more, but often don’t. And so, Mr. Thaler says, most of us would benefit from a nudge."

Ah yes, pity us poor, weak, misguided, humans. Lucky for us we have benevolent demi-gods like Sunstein and Thaler to shove us onto the path of enlightenment via their "libertarian paternalism".

Yes people, that's what they call it; libertarian paternalism:

"Nudging people for their own benefit in unobtrusive ways is part of what the co-authors call “libertarian paternalism,” a seeming oxymoron that links the notions of freedom from constraint and firm, well-intentioned guidance."

"Mr. Sunstein and Mr. Thaler say that this apparent contradiction is reconciled through what they call “choice architecture.” This is the deliberate imposition of structure in an environment — etching flies in a urinal — to induce people to make better choices. Consider a cafeteria where healthy foods like fruit and yogurt are placed in a prominent location, while junk foods are relegated to an out-of-the way spot. People are free to choose, but they are being nudged toward healthier decisions. "

So I would ask the nudge-ers: if people are quirky humans who don't know what's best for themselves, how in the world can you know what is best for them and exactly where to nudge them? After all, you are human too, aren't you?

This stuff is pretty much just trying to enforce a particular view of the world or pattern of behavior on others via implicit taxation. Paternalistic, yes, but libertarian? No.

Almost any economist, if asked how to curb some behavior or increase some other behavior will tell you they'd alter the incentives on the margin. This is not a new insight. What is new I think is the glee with which the Nudge-ers propose to use economics for social engineering. I can't see any way how it's not saying "We are better than you so we will make the rules of the game for you".