Saturday, January 01, 2011

Markets in everything

Hat tip to Mrs. A!

Evo got Evo'ed!

or, the gasolinazo that wasn't.

First big news story of the year (if you are a weirdo like me) is that Evo Morales has abruptly cancelled his cancellation of gasoline subsidies in Bolivia in the face of growing street protests.

Of course, changing policy (or even governments) via street protests was Evo's calling card before he himself became president.

PS. One thing I really like about Latin American Spanish is the -azo. Take a soccer goal (gol). If it's spectacular, add the azo and call it a golazo! If Serge Ibaka busts open Josh Smith's pumpkin with a vicious elbow (codo)? That, people, is a codazo!

Let's start the new year out right

Thanks to Yahoo for collecting an absolutely amazing compendium of diet and health tips to help us roar into 2011.

Here's a sample:

"A tablespoon of semen has your equivalent of steak, eggs, lemons and oranges."

PS. I really dislike how the media always use this "he said, she said" approach to health news.

Friday, December 31, 2010

Dr. Newmark

End of year Newmarkian link dump.

Some fine entertainment there.

Don' mess wit dem Eagles, Gov!

Selective snow removal for Eagles game... Is the Gov a wuss?

Stupid is as Stupid Does

"The Fair Trade Challenge to Embedded Liberalism"

Sean Ehrlich, International Studies Quarterly, December 2010, Pages 1013-1033

Abstract: The embedded liberalism thesis, a major component of the trade policy literature in political science, argues that governments can build support for free trade by compensating economically those hurt by trade, usually with welfare or education policies. This strategy depends, though, on opposition to trade being driven by employment factors, such as job or income loss because of increased competition. The current fair trade movement raises many non-employment criticisms of trade such as concerns about the environment and labor standards but the literature tends to treat these concerns as traditional protectionism in disguise. This article argues, instead, that for many, these concerns are sincere and that this presents a growing challenge to the compromise of embedded liberalism. The article demonstrates this by examining survey data in the United States and showing that those who support fair trade tend to have characteristics that are opposite those who support economic protection.

A clear problem with democracy. Idiots who are racist or homophobic get to decide employment and marriage policy. And idiots who have no idea how an economy works get to regulate the economy. Democracy is overrated.

(Nod to Kevin Lewis)

Thursday, December 30, 2010

Old and retarded

I actually thought that Angus must be making up the thing about "old people should be ignored because they were retarded." After all, Arnold Kling is hardly a left-wing goober.

But the left-wing goobers are saying the same thing! Check this bon mot from the aggressively useless Ezra "History Begins With Me!" Klein:

He actually says that the reason no one should read the Constitution is that it is old, and no one can tell what it says.

To be fair, I'm sure he means that one has to read the "midrash" of Supreme Court decisions before you can know what the "torah" of the Constitution actually means. (At least, I hope he means that.)

But, consider the 2nd Amendment. Ten years ago I had lunch with a friend who teaches Con Law. I mentioned that the 2nd Amendment clearly creates a personal, individual right to have and bear arms. The only question is how much the state can regulate and limit the size and use of such weapons.

My "friend," with amazing condescension, suggested I should read some undergraduate books to learn what the Constitution really means. Clearly, given what the Court had said in Miller (for example) there is NO right to individual ownership. It doesn't really matter what I think the Constitution says, he told me in the patient tone of a parent lecturing a wayward and willfully ignorant child.

Well, my good friend Prof KM, given the recent decisions in Heller and in McDonald...HOW DO YOU LIKE ME NOW, SWEETIE! Maybe YOU should go read that old Constitution. It has some really cool parts.

Of course, some of it is very hard to understand, I admit. Take the first Amendment, where it says, "Congress shall make no law..." Opaque language, that, as Stephen Gutowski notes. Must mean that Congress can make pretty much any law it wants, right? As long as a majority approves, like in McCain-Feingold?

(Nod to Angry Alex)

Why I love the NBA

Exhibit A:

Exhibit B:

Exhibit C (pay close attention starting at the 0.40 second mark here):


100 years ago, Ronald Coase was born. 20 years ago, I was privileged to write a book review of Ronald's book, THE FIRM, THE MARKET, AND THE LAW. Here is part of that review:

"The reason the collection works as a book is that Coase frankly recognizes that though his work (particularly "The Nature of the Firm" and "The Problem of Social Cost," Chapter Five) is often cited it is apparently little read or accepted. In fact, Coase seems frustrated at the misuse of his work, particularly regarding the apocryphal "Coase Theorem":

The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave . . . Economists [have] been engaged in an attempt to explain why there are divergences between private and social costs and what should be done about it, using a theory in which private and social costs were necessarily always equal. It is therefore hardly surprising that the conclusions reached were often incorrect.., their theoretical system did not take into account a factor which is essential of one wishes to analyze the effect of a change in the law on the allocation of resources. This missing factor is the existence of transactions costs.
(pp. 174-175, red emphasis added.)

So Coase actually thought transactions costs could make social and private costs diverge. Does that mean Pigou was right? Well, yes, Pigou was certainly right, especially when he said:

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. (1920; p. 296)

The point is that we should READ the classics, not just cite them. Especially when we cite them wrong. Both Coase and Pigou are much more subtle than the caricature they generally get in intermediate micro classes. Happy birthday, Dr. Coase.

(Lagniappe: I should note that a better review of Coase's contribution is Posner's. That is my favorite)

when people were shorter and lived by the water

I was browsing through Econlog this morning and found just the most amazing bit of analysis ever. I just had to share it with you all:

I focus a lot of my historical reading on the first World War and on the 1930s. I think that people were really stupid back then. I take the Flynn Effect seriously, which suggests that the average IQ several generations back was what today would be considered to be mentally retarded. In my view, this helps to explain how cheerfully the nations went to war in1914. Yes, the war turned out to be worse than what they expected. But how were their expectations not influenced by the Civil War or the Franco-Prussian war?

--Arnold Kling

OMFG, people. World War I happened because world leaders 100 years or so ago were "mentally retarded"? Really?


So going back another 50 years or so, Abraham Lincoln must have been the intellectual equivalent of a spider monkey?

Go another 100 years back from that. The founding fathers were the mental equivalents of dung beatles?

Adam Smith had an IQ of 13?

Blogger, please.

Wednesday, December 29, 2010

Frogger: No Darwin Award, But Close

A guy in Clemson was playing Frogger. For real.

Guy survived. So not Darwin eligible.

(Nod to Tommy the Country Gent Brit)

Roubini vs. Roubini

Or, saying things are bad has been very very good.

Item 1: Nouriel gives an interview on December 28th with CNBC saying housing prices can "only move down".

Item 2: Earlier this month, Nouriel bought a $5.5 million apartment in Manhattan! He got a $2.99 million dollar ARM (so I guess he made a $2.51 million down payment??)!

Best. Letter. Ever.

This is a "What Would Angus Do?" moment, from the past.

An exchange of letters.

A most Angus-esque response.

(Nod to Angry Alex)

Tuesday, December 28, 2010

The EYM Speaks

The EYM Speaks on Hipness

The article begins on p. 110. Interesting, actually.

Great Thread on PSJR

A great thread about "should you take a dog to your office?" for academics.

The Coase theorem, manners, and a variety of madcap exchanges like this:

A: I never liked having to maneuver around strange large dogs in tight offices in my suit

B: what was a dog doing in your suit?

I liked the whole thing. It's ALL good. Yes, I cheated to spend so much time on the computer. But I couldn't help it. I often took "Louis, King of Dogs" to the office in grad school. And Angus would get in some pretty good basketball-doghead-dribbling. Louie had a pretty solid upward head bounce, and was not smart enough to walk away.

Thomas Friedman finds a friend in politics

I can only hope PA governor Ed Rendell was trying to be funny when he had the following reaction to the postponement of an Eagles game (but I fear that he was serious):

"We've become a nation of wusses. The Chinese are kicking our butt in everything. If this was in China do you think the Chinese would have called off the game? People would have been marching down to the stadium, they would have walked and they would have been doing calculus on the way down."

Holy Moly!

I will say this though. If the Communist party wanted the game to go on, it would go on and the people would walk there if ordered to and would do calculus, or even the hokey pokey on the way if ordered to.

KPC is officially "short" on Ed Rendell AND China for 2011.

New Regs Hurt the Poor

The Inefficiency of Refinancing: Why Prepayment Penalties Are Good for Risky Borrowers

Christopher Mayer, Tomasz Piskorski & Alexei Tchistyi
NBER Working Paper, December 2010

Abstract: This paper explores the practice of mortgage refinancing in a dynamic
competitive lending model with risky borrowers and costly default. We show that prepayment penalties improve welfare by ensuring longer-term lending contracts, which prevents the mortgage pools from becoming disproportionately composed of the riskiest borrowers over time. Mortgages with prepayment penalties allow lenders to lower mortgage rates and extend credit to the least creditworthy, with the largest benefits going to the riskiest borrowers, who have the most incentive to refinance in response to positive credit shocks. Empirical evidence from more than 21,000 non-agency securitized fixed rate mortgages is consistent with the key predictions of
our model. Our results suggest that regulations banning refinancing penalties might have the unintended consequence of restricting access to credit and raising rates for the least creditworthy borrowers.

It has been the maintained hypothesis here at KPC for some time that the PRIMARY burden of the new nanny regs on financial markets will be poor or risky borrowers. It's actually pretty obvious, when you think of it.

(Nod to Kevin Lewis)

Monday, December 27, 2010

I Heart FA Hayek

Gotta be tough for the young lady. Hayek is long dead, and she can't use ...well, let's call them battery-powered products. 'Cause no true Hayek-lover would accept artificial stimulus.

(Nod to Angry Alex)

Grade Inflation? Not here! Well, maybe....

NYTime article on grade inflation in Chapel Hill, and a remedy (?)


(NOD to MAG)

Competitive Markets Are the Enemy of Profits, So Wall Street Opposes Market Competition

Reputation, the SEC, and the requirements of SARBOX are extremely effective entry barriers. SARBOX doesn't apply to privately held companies, but no small company could hope to compete with the big companies.

"If Hertz sees much of its rental fleet lying idle, it will cut its prices to better compete with Avis and Enterprise. Chances are that Avis and Enterprise will respond in kind, and the result will be lower profits all around. On Wall Street, the price of various services has been fixed for decades. If Morgan Stanley issues stock in a new company, it charges the company a commission of around seven per cent. If Evercore or JPMorgan advises a corporation on making an acquisition, the standard fee is about two per cent of the purchase price. I asked TED why there is so little price competition. He concluded it was something of a mystery. 'It’s a commodity
business,' he said. 'I can do what Goldman Sachs does. You can do what I can do. Nobody has a proprietary edge. And if you do have a proprietary edge you’ll only have it for a few weeks before somebody reverse engineers it.' After thinking it over, the best explanation TED could come up with was based on a theory of relativity: investment-banking fees are small compared with the size of the over-all transaction. 'You are a client, and you are going to do a five-billion-dollar deal,' he said. 'It’s the biggest deal you’ve ever done. It’s going to determine your future, and the future of your firm. Are you really going to fight about whether a certain fee is 2.5 per cent or 3.3 per cent? No. The old cliché we rely on is this: When you need surgery, do you go to the discount surgeon or to the one you trust and
know, who charges more?'" [John Cassidy, New Yorker]

Now, you could say it would be hard for new firms to enter this market anyway. But our government makes it impossible.

(Nod to Kevin Lewis)

Sunday, December 26, 2010

Movin' on up

Congratulations to the Mexican drug cartels, who've had a very good 2010. They now allegedly control 75% of neighboring Guatemala (with the deployment of only 800 operatives), and have muscled out the Colombians for the European cocaine distribution routes.

KPC is officially "long" on Mexican drug lords for 2011.

Hat tip to Boz and Wikileaks.