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".