Saturday, January 16, 2010

How come people named Kevin are so darn smart?

Great stuff from Kevin Murphy (source here):

(Q) What about skepticism toward the government: Isn’t that also a key part of the Chicago tradition?

(A) Sure. You have to ask why would the government get it right. You can’t just say, here’s a market failure and the government needs to step in and address it. You have to look in detail at what the government might do, and compare the relative effectiveness of the two.

Friday, January 15, 2010

This....THIS is entertainment

This is REAL music.

And performance talent.

WOW! I almost get creamed in a drug bust.

So, I walk to the service station where we have our car worked on. It's 4.2 miles, but it's pretty, and today was a nice day. So I walked to go pick up the Lincoln, which had had some battery cable work.

Here is the route I walked.

Between 3 and 5 minutes after I passed this spot, this happened. Here is the raw video footage, after the white van ran over the "stop strips."

Note how after two cops are holding him down a third cop comes and puts a knee on his neck. If the guy is not resisting, that is likely to make him try to resist, just so he can breathe.

Also, watch when the camera pulls back at the end. At least 20 cop cars. That is what I saw, though of course at earth level, when I came out of the McDonalds across the street, and saw that cop world had opened in the middle of Creedmoor Road at rush hour.

I wish I had been three minutes later. It would have been cool to see.

Against the grain

I guess I am the only person misguided enough to be against the “Federal Crisis Responsibility Fee” to be levied on the largest US banks. Besides the usual suspects, Brookings is in favor and Mankiw gives a qualified endorsement.

To me, though, it's heinous. Here's why:

1. It's supposed to be for TARP recovery, yet remember, money is fungible, these revenues can't /won't be earmarked. It just goes into the giant slush fund.

2. Basic tax incidence theory tells us that a significant part of this tax on banks will be passed on to their customers, presumably the very people the administration is trying to placate with the fee to begin with.

However, let us grant the idea that banks got a TARP gift so it's only fair they repay it. Well,

3. Many big banks have already repaid their TARP funds

4. Some banks were strong-armed into taking TARP funds that they didn't want in order not to stigmatize the banks that did need them.

5. Over 50 billion of TARP money went to automakers GM and Chrysler and this money won't be paid back. This is I believe the biggest chunk of TARP funds that won't be recovered. Why should big banks pick up that bill?

6. In the larger picture, this ex-post targeting of very narrow groups, whether punitively as in this case, or positively as occurred in the health bill negotiations, is a disturbing trend in the current administration's method of operation.

7. Finally, this is mere window dressing when compared to what needs to be done with our banking sector. Leverage needs to be limited. Some enlightened form of Glass-Steagall needs to be re-instated. Credit default swaps should trade on exchanges. We need real reform in this sector not a populist, window dressing, revenue grab.

Upstairs, Downstairs

Downright Sexy: Verticality, Implicit Power, and Perceived Physical Attractiveness

Brian Meier & Sarah Dionne, Social Cognition, December 2009, Pages 883-892

Abstract: Grounded theory proposes that abstract concepts (e.g., power) are represented by perceptions of vertical space (e.g., up is powerful; down is powerless). We used this theory to examine predictions made by evolutionary psychologists who suggest that desirable males are those who have status and resources (i.e., powerful) while desirable females are those who are youthful and faithful (i.e., powerless). Using vertical position as an implicit cue for power, we found that male participants rated pictures of females as more attractive when their images were presented near the bottom of a computer screen, whereas female participants rated pictures of males as more attractive when their images were presented near the top of a computer screen. Our results support the evolutionary theory of attraction and reveal the social-judgment consequences of grounded theories of cognition.

(Nod to Kevin L)

Thursday, January 14, 2010

Interesting: Fed Making Money, But May Need to Have Fire Sale

Interesting article.

The Fed is making huge "profits," and depositing them with the Treasury.

Now, in order to support the financial sector and stop deflation, the Fed bought up huge quantities of debt, spending down its account at the Treasury.

It is making lots of money on some of that debt, which turns out to have been pretty solid.

On the other hand, lots of that debt is still pretty low in value, because of uncertainty. More than $1.5 trillion of that debt is private, or quasi-private (it's not t-bills!), in the sense that it is made up of mortgage-backed securities or collateralized debt obligations, or else bonds issued directly by the mortgage giants.

Here's the thing: if inflation cranks up, the Fed is going to have to unload a buttload of debt, really fast. The only way to sell that much debt, and take excess cash out of the economy, is to sell at fire sale prices.

So, if there is inflation, the Fed is going to take truly ginormous capital losses on the debt it will have to sell. But this is exactly Bernanke's plan, the one he is so sure will work to prevent inflation. Big Ben's talk at the AEA meetings made much of this policy. But who in the world is going to buy CDOs in this market?

The lagniappe: Lots of the CDOs are based on fixed interest rate mortgages. If there is inflation, the capital value of those gets hammered. All the rest are based on ARMs of some kind. And for those the PAYMENTS skyrocket with nominal interest rates, and defaults go up, and AGAIN the CDOs' capital value takes it right up the ol' gazoch, with a red hot poker.

This is not really a good policy.

(Nod to the Ward Boss)

The Pot Calling the Kettle Whack

Glen Beck v. Sarah Palin: Who is the bigger whack job? "All of them"? Yikes!

(Nod to Anonyman)

Nutty Buddy--Redux!

(I wrote about the "El Jefe" Nutty Buddy four years ago...)

(Nod to Josh H)

(SUPER UPDATE: I missed this the first time I saw it! Fantastic idiocy. Right at the six minute mark (5:59) in the video, the moron says that a baseball hits unprotected juevos with 2,400 pounds of force. Not clear what the units are...per square inch? Kinetic energy? But, okay, call it 2,400 pounds of force. THEN the moron says that the Nutty Buddy reduces this to 110 pounds of force. Let's suppose that's right. THE MORON CONTINUES: "That's a 2000% reduction in force!" Really? 2000% reduction? Impressive. Actually, going from 2,400 down to 110 is a 95% percent reduction in force, dude. Any decrease more than 100% means that those juevos are exploding outward and exerting force on the baseball. Ouchie!)

What sets the great ones apart is their attention to detail

Case in point:

CARACAS, Venezuela – President Hugo Chavez says there's too much capitalism on Venezuelan TV. So he's urging producers to start making films and TV shows that stress socialist values.

Chavez says producers should be making "socialist soap operas."
He said Sunday he recently visited Cuba "and they have soaps there. But they're not capitalist soap operas."

.... Chavez-allied producers made a 2004 soap opera called "Love Inside the Barrio" that emphasized socialist values but failed to draw many viewers.

Come on Venezolanos, show some initiative. He can't be expected to do EVERYTHING!!


Grade Inflation: Bad

Less grade inflation ==> more effort by students. Less "happiness," perhaps, but more effort and more learning.

Real Costs of Nominal Grade Inflation? New Evidence from Student Course

Philip Babcock, Economic Inquiry, forthcoming

Abstract: College grade point averages in the United States rose substantially between the 1960s and the 2000s. Over the same period, study time declined by almost
a half. This paper uses a 12-quarter panel of course evaluations from the University of California, San Diego to discern whether a link between grades and effort investment holds up in a micro setting. Results indicate that average study time would be about 50% lower in a class in which the average expected grade was an "A" than in the same course taught by the same instructor in which students expected a "C." Simultaneity suggests estimates are biased toward 0. Findings do not appear to be driven primarily by the individual student's expected grade, but by the average expected grade of others in the class. Class-specific characteristics that generate low expected grades appear to produce higher effort choices — evidence that
nominal changes in grades may lead to real changes in effort investment.

(Nod to Kevin L)

Wednesday, January 13, 2010

Surprise Kitty!

Painfully cute....

Funky days are back again

People, Cornershop is back! Sweet! Here is a video from their new album (available for sale at 

Durant is the man in OKC

Great article in about how Kevin Durant has turned from a defensively liability to a defensive assest and how with him on board, the Thunder are winning with defense.

Thunder are third in the Western Conference in defensive efficiency and third in the entire Association in field goal percentage allowed, while they are actuall giving up fewer points per possession with Durant on the floor vs. him off the floor, which was not true in his first two years in the league.

Thunder v. Spurs tonight. Should be fun.

Hot Grandma N.E. Prostitute

Wow. The cops messed up.

Perhaps the cops should have to stay after school, and write 1,000 times: "Woman in tight clothing walking down street does NOT EQUAL prostitute."

(Nod to Anonyman, would never had to pay for it)

Just so you know

Source is here.

Poll Cats: Congressional Repubs hammered by 75%

For those who think that the Republicans are ascendant.....

The point is that not liking the Dems does NOT imply liking RINOs.

The Rasmussen poll. 75%? Wow.

(Nod to Angry Alex)

Harvard Takes One in the Shorts

Ouch. I think that this is going to leave a mark.

Tuesday, January 12, 2010

Good Thing I'm Already Married!

'Letting fatties roam the site is a direct threat to our business model and the very concept for which was founded.'

No to fatties!

(Nod to Anonyman, who could stand to lose 5 pounds)

Murdering the Data

These guys got in touch with their inner Grier. Turns out if you poke a fork at the wall around econometric studies of death penalty deterrence, then roaches come pouring out.

Estimating the Impact of the Death Penalty on Murder

John Donohue & Justin Wolfers, American Law and Economics Review, forthcoming

Abstract: This paper reviews the econometric issues in efforts to estimate the impact of the death penalty on murder, focusing on six recent studies published since 2003. We highlight the large number of choices that must be made when specifying the various panel data models that have been used to address this question. There is little clarity about the knowledge potential murderers have concerning the risk of execution: are they influenced by the passage of a death penalty statute, the number of executions in a state, the proportion of murders in a state that leads to an execution, and details about the limited types of murders that are potentially susceptible to a sentence of death? If an execution rate is a viable proxy, should it be calculated using the ratio of last year's executions to last year's murders, last year's executions to the murders a number of years earlier, or some other values? We illustrate how sensitive various estimates are to these choices. Importantly, the most up-to-date OLS panel data studies generate no evidence of a deterrent effect, while three 2SLS studies purport to find such evidence. The 2SLS studies, none of which shows results that are robust to clustering their standard errors, are unconvincing because they all use a problematic structure based on poorly measured and theoretically inappropriate pseudo-probabilities that are designed to capture the key deterrence elements of a state's death penalty regime, and because their instruments are of dubious validity. We also discuss the appropriateness of the implicit assumption of the 2SLS studies that OLS estimates of the impact of the death penalty would be biased against a finding of deterrence.

(Nod to Kevin L)

Europe: you guys know it's not a single country, right?

The latest debate in the blogosphere revolves around comparing the economic performance of the US relative to Europe. This is problematic, as people are not using a common metric or any real data analysis. Krugman has claimed that any superior US performance in growth is only due to increased population. 

Lets take a look at some actual numbers, shall we? These are from the total economy database started by Angus Maddison, and taken over by Groningen University and the Conference Board. I am using the Table for GDP per capita in 1990 US$ (converted at Geary Khamis PPPs).

In 1980, where this debate seems to start, we can see that all the European countries I've chosen were considerably poorer than the US except for Switzerland.

Below I list Per Capita GDP as a % of US Per Capita GDP for selected European countries in 1980 and 2008:

Austria   74.06    76.72
Denmark   81.96    78.82
France   81.31    72.91
Greece   48.29    52.33
Ireland   45.97    90.70
Italy   70.78    63.70
Neth    79.15    78.83
Norway   81.15    93.01
Portugal   43.30    46.07
Spain   49.53    55.62
Sweden   80.40    78.81
Switz   101.0    79.56
UK   69.61    76.47
Germany             66.34 (2008 only)

As one can see, the European experience is quite varied. Greece, Portugal and Spain have done a little bit better than the US over the period but are still extremely poor in comparison at roughly half of US per capita GDP in 2008. 

France and Italy have done notably worse than the US over the period and are at less than 75% of US per capita income. 

Austria, Denmark, the Netherlands and Sweden have basically performed about the same as the US over the period and remain at roughly 80% of US per capita income. 

Norway has done quite a bit better than the US over the period and is now above 90% of US per capita income. Ireland has done even better, going from around 50% of US income levels to 90% of the US over this period. The UK has also done better than the US in per capita growth but still has only reached about 3/4s of the US level of per-capita income. 

Germany at re-unification (1989) was at 69% of US levels and has fallen to 66% by 2008.

So, it's very misleading to talk about growth or wealth levels in "Europe" as if one number captured the European experience. Italy and France appear to be from different worlds than Norway and Ireland!

It is also not correct that US growth has been higher only due to population growth. Many European countries, including large ones like France, Germany and Italy have seen their per-capita incomes fall relative to the US since 1980.

And, while it is true that many European countries have had very similar per capita growth as the US since 1980, these countries generally are quite a bit poorer than the US by this metric at least and thus perhaps should not be too proud of only matching our growth rates (you know, convergence and all that). 

I hate to bring up neoclassical growth theory, but in the steady state of that model, all countries should grow at the same rate (in per capita terms). Differences in institutions or policies only result in permanent differences in income levels in the standard model. 

Finally, big ups to Ireland and Norway for their amazing economic performance over this 1980 - 2008 time period. Ireland I know, changed their economic institutions over this period, but I don't really know anything about Norway (well, they do have oil, right?)

Why No "Credit" for BHO?

My good friend, Jennifer Merolla, chair of Claremont Grad School's Politics and Policy Department, has a piece in the HuffinPuff Post. Interesting...

Throughout most of his presidency, public support for George W. Bush increased in conjunction with the terror threat level. Conventional wisdom tells us that the public rallies behind the sitting president when its national security is perceivably threatened. Yet, following the recent Christmas Day bombing attempt, approval ratings for President Barack Obama have remained fairly flat. Is this lukewarm response to our current president symptomatic of public apathy toward terrorism?

Hugo Cracks Down on Inflation

Hugo cracks down on beating up people who raise prices.

Very clever. He can bankrupt the middle class in six months.

WHY he would want to do that is hard to say. But it is an effective policy, if that is the goal.

Monday, January 11, 2010

The Venezuelan devaluation

The Bolivar has been pegged at 2.15 to the dollar for about 5 years. Over those 5 years, Venezuelan inflation has ranged from 15 - 30 percent per year while US inflation ranged from 0 to 5 percent per year. That is to say, unless the Bolivar was massively overvalued when pegged in early 2005, it has become way overvalued. Yesterday, President Chavez ordered the devaluation of the Bolivar to 4.3 per dollar (2.6 per dollar for some specific imported goods).

Chavez did a pretty good job of explaining the Venezuelan situation as one of a country suffering from the Dutch disease. It heavily exports a primary commodity, which supposedly causes currency appreciation and hurts manufacturing. He emphasized that the country needed to overcome this problem and produce stuff, not just pump stuff out of the ground. Here is a relevant fragment from his TV show:

The devaluation is good policy for sure. I am not crazy about the tiers and controls, and opposition leaders in the country say Chavez will use the increased local currency revenues from oil exports to boost domestic spending in advance of elections, but it is the correct move for the country at this time (and should have been done much sooner). Fixing the nominal exchange rate to a country whose inflation rate you are unwilling to match is a recipe for economic disaster that we have seen cooked up over and over again in Latin America.  Venezuela is getting out before the disaster hits, at least this time.

Sunday, January 10, 2010

Rush Can't Play Tom Sawyer?

Art Carden makes a nice comparison, I think.

(This is Rush the band, not the radio personality, btw)

A post in the Chronicle

An article in the most recent Chronicle of Higher Ed.

Frequent readers will recognize the story, but I am trying to make a larger point.

A Sunday stroll in Normatopia

It was finally warm enough this morning to bring my camera when we went on the family walk.

Here is a bit of what we saw:

Ice is melting

Hawks are flying

Mr. Tooty is vigilant

but the water wheel is still iced over!

Robert Frank pummels a straw man

In todays NY Times "Economic View" Frank opines:

"At the heart of attempts to curb carbon dioxide emissions are two related proposals: taxation of those emissions and a system of tradable emission permits, also known as cap and trade. Both have been attacked as unacceptable restrictions on individual liberty. The attacks have come from both sides of the political aisle, but have been pressed with particular insistence by conservatives and libertarians."

Yet, throughout the entire article Frank goes on to name exactly zero libertarians who oppose a carbon tax and only one conservative, some guy named Henry Lamb.

Let me go him two better in my debunking here:

Greg Mankiw is a well known conservative (and NY Times columnist) and is famously in favor of a carbon tax. I am small (invisible?) potatoes compared to Mankiw, but I am a quasi-libertarian and I am in favor of a carbon tax as long as it is overall revenue neutral (meaning that the increase in revenues from this tax are offset by decreased revenues from other taxes).

Even though, in principle, a cap and trade program can be designed to have the same anti-pollution effect as a given tax, I think Mankiw and myself both dislike the current cap and trade bill because of how the permits are not going to be auctioned off and generally how stinky something becomes once it emerges from our grand sausage factory.

It's nice to see the shout-out to R. H. Coase in the article, but Frank is attacking a straw man throughout.

All taxes and regulations are obviously infringements on personal liberty in some sense, and there may well be libertarians who think our current levels of taxation represent "unacceptable restrictions", but I am not aware of libertarians who specifically object to a carbon tax.

ps. the article also contains the following sentence:

Climate scientists agree that the cheapest way to combat global warming is to curb carbon dioxide emissions.

Is that true? Is curbing CO2 is the "cheapest" way to combat global warming?