Friday, October 28, 2011

Your Euro Death Watch update

1. Yields on Italian sovereign debt are RISING today!

2. Euro officials are going hat in hand to Beijing. Rumor is that China wants their loan to the EU to be DENOMINATED IN RENMINBI!

YIKES and double YIKES!

Age-Based Taxes--Age Discrimination?

The Surprising Power of Age-Dependent Taxes

Matthew Weinzierl
Review of Economic Studies
, October 2011, Pages 1490-1518

Abstract: This paper provides a new, empirically driven application of the dynamic Mirrleesian framework by studying a feasible and potentially powerful tax reform: age-dependent labour income taxation. I show analytically how age dependence improves policy on both the intratemporal and intertemporal margins. I use detailed numerical simulations, calibrated with data from the U.S. Panel Study of Income Dynamics, to generate robust policy implications: age dependence (1) lowers marginal taxes on average and especially on high-income young workers and (2) lowers average taxes on all young workers relative to older workers when private saving and borrowing are restricted. Finally, I calculate and characterize the welfare gains from age dependence. Despite its simplicity, age dependence generates a welfare gain equal to between 0.6% and 1.5% of aggregate annual consumption, and it captures more than 60% of the gain from reform to the dynamic optimal policy. The gains are due to substantial increases in both efficiency and equity. When age dependence is restricted to be Pareto improving, the welfare gain is nearly as large.


Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective?

David Neumark & Joanne Song, NBER Working Paper, September 2011

Abstract: Supply-side Social Security reforms to increase employment and delay benefit claiming among older individuals may be frustrated by age discrimination. We test for policy complementarities between supply-side Social Security reforms and demand-side efforts to deter age discrimination, specifically studying whether stronger state-level age discrimination protections enhanced the impact of the increases in the Social Security Full Retirement Age (FRA) that occurred in the past decade. The evidence indicates that, for older individuals who were "caught" by the increase in the FRA, benefit claiming reductions and employment increases were sharper in states with stronger age discrimination protections.

(nod to Kevin Lewis)

Help! I need a CDS for my CDS

To me, one of the strangest parts of the latest EU bailout-rescue fund saga is Brussels' seeming determination to kill off the sovereign CDS market. I wrote about it back in July, but in this current round, the issue is much more stark.

Private investors are supposed to take a "voluntary" 50% haircut on Greek sovereign debt. The reason why EU negotiators worked so hard to get it called voluntary is that they don't want the default to trigger payment clauses in CDS contracts.

Why they so strenuously object to this is not fully clear (at least to me). Maybe they feel like if the CDS don't pay out, it's not really a default? Maybe they think they are being clever and "punishing evil speculators"?

But it's not really that simple.

First, the ability to buy insurance puts more people into the Greek (and Italian and Spanish) sovereign debt markets than would otherwise be there. At the margin, invalidating these insurance policies will drive people out of the very markets the EU is begging people to enter.

Second, if I ran a bank that held Greek debt that was hedged via CDS, I would fight like hell against accepting the haircut. After all it's voluntary, right? I'd wait around until a haircut that would trigger my insurance payment came on the horizon. And, if I somehow got strong-armed into taking the "voluntary" 50% reduction, I'd litigate and fight like hell to force the insurance to be paid to me anyway.

However, I guess I wouldn't worry too much about the CDS not triggering yet though. This deal, as a best case scenario (i.e. everyone accepts the voluntary haircut and Greece hits all its promised revenue and deficit targets for the next decade) reduces the Greek Debt/GDP ratio from 180% to 120% in 10 years! Why doesn't a 50% haircut cut the debt ratio by at least 50% (more if you think the Greek economy will expand at all in the next 10 years)? Because at this point a lot of the debt is payable to the ECB, IMF and other "official" creditors who are not taking a seat in the barber's chair.

Thursday, October 27, 2011

It's all in the (sow) genes

Idaho pig farmer (and James Carville look-alike) Lindy Hinkelman has won over $300,000 in the last 3 years playing fantasy baseball.

Lindy says pig-farming is good training for baseball management:

"Raising pigs and this baseball thing really go together," he told the Times. "There are certain things in farming -- keeping track of productivity, indexes for your sows, the genetic lines there."

Time for an Angus breakdown:

This is just one of many reasons why the internet is so great. Isolated, useless, genius can emerge and be rewarded.

I think pig farming would help real world baseball executives by getting them accustomed to how players behave.

The accomplishment seems remarkable, but given the innumerable number of fantasy leagues and players, wouldn't we expect something like this to happen at some point? Is it really pig-inspired baseball genius or is it more like a guy winning the lottery twice in a row (see Kahneman on the illusion of skill)?

Wednesday, October 26, 2011

Not the Onion?

Man throws Molotov cocktail at Taco Bell because Chalupa has too little meat.  But he made the Molotov cocktail with a plastic bottle.  So of course it didn't break, just burned slowly

The folks at "Occupy George" want to use dollar bills as...I'm not really sure. But they really feel sincere about it.

How do you make a business go bankrupt? Have Prez Obama praise it, and then give it a subsidy! If that is not the cause, the Prez O is not spending our money very wisely...

Wiener still standing tall! And spending his campaign funds on.... stuff he wants.

12 "Eye-opening" TED talks
for political scientologists.

(Nod to Dave S., the Blonde, and Anonyman)

My Economics Haiku

Please consider voting for my economics Haiku:

Those kids blame the banks
Is Wall Street pre-occupied?
Next: capital strike

Or vote for one of the others...


OWS: They are the government now...

Email from Chris S, this little gem of an article...

Money quote:

"The other day, I took in $2,000. I kept $650 for my group, and gave the rest to Finance," he told the Post. "Then I went to them with a request -- so many people need things, and they should not be going without basic comfort items -- and I was told to fill out paperwork. Paperwork! Are they the government now?"

To be fair, that kind of bureaucracy is also characteristic of a group that OWS fears FAR more than government. And that is....corporations!

William Niskanen's classic BUREAUCRACY AND REPRESENTATIVE GOVERNMENT, in fact, was written after he worked at Ford Motor Company.

Look, governments MUST have bureaucracy. Large corporations, too. They deal with government, they have to use forms and fill out reports.

If you don't like bureaucracy, then my friends at OWS, you must want that thing we call "capitalism," with its emphasis on new, dynamic firms and innovation. What you are getting a taste of is corporatism, where the line between government and large corporations simply disappears.

"Bye, Kids! Have fun storming the castle!" ("Do you think it will woik?" "It would take a miracle...")

Obama's Books: Good Enough to Buy, But Not to Read?

A strange juxtaposition of two stories.

1. U.S. taxpayers pay for more than 7,000 copies of Pres O's books. Mostly "Dreams from My Father," apparently.

2. Those same books have been banned as subversive and objectionable, containing material "potentially detrimental to national security"

Now, I should say two things. I thought "Audacity of Hope" was more like "The Mendacity of a Dope," a load of ideological pap. But "Dreams From My Father" is terrific book, very moving, honest. (Well, maybe not honest, exactly, but coming across as honest). I read DFMF twice, and really liked it.

Second, the fact that Prez O's books were banned as "detrimental" doesn't mean much. In the supermax setting, newspapers and books that contain any passages that even refer to foreign policy are banned.

Still, it does seem odd that these two things are happening together. Our embassies are handing out the book to foreigners as inspirational, UNLESS those foreigners happen to be in jail.

(Nod to the Blonde)

It's 1986 again in America....

Dutch Boy sends this interesting TIME story from 1986.

The US bombed Libya, even back when Libya had airplanes.

The answer to the question is "nothing"

Tyler asks, What happens in the Super Committee Fails?

I answer, Nothing of any significance.

Less than $1 trillion in actual cumulative total spending cuts ($167 billion is "interest savings") starting in Fiscal 2013 and going on for the next 8 years after that.

Pretty much nothing happens to entitlements. Defense is cut an average of $50 billion per year (from a base level of around $900 billion +).

Look, we are spending $3.6 trillion + every year! Knocking $95 billion/year off for 9 years is really less than chump change.

Of course the Super Committee will fail; failure is basically costless.

Tuesday, October 25, 2011

Nero and Caligula are a' feudin'!

Well, OK, it's actually Sarkozy and Berlusconi, but that's more than close enough. Sarky is really worked up about the ECB, which is good, except what he's worked up about is that there might be two Italians and (gasp) no Frenchmen on its board come November.


Yeah, Nicky, that's really the problem that you should be focussed on. Well done. At least you are proving that you play a mean fiddle.

At the latest rescue summit, these two giants of statecraft managed to feud over the future of one, Lorenzo Bini Smagi (aka the Lusitania?):

Sarkozy has made clear that France wouldn't accept a situation under which Italy would have two of its nationals on the board and France none, when Frenchman Jean-Claude Trichet is replaced at the helm of the Frankfurt-based bank by Draghi in November.

After repeating in piqued diplomatic language Friday that it expected Bini to quit the ECB board to honor a commitment he made this summer to step down by year-end and clear the way for a French official to join the ECB board, the French government appeared to be losing its patience.

But Berlusconi argued it was none of its responsibility. "We offered him prestigious posts, but Bini Smaghi declined them all," Berlusconi said, adding that he bore no responsibility in the spat. "At a certain point, I asked [ Sarkozy]: What should I do? Kill him?"

Monday, October 24, 2011

KPC Dallas summit

Mungo and I converged on Dallas yesterday to take in game 4 of the WS. We warmed up by eating a pile of pupusas (the official food of KPC by the way) and then headed to the game early, to see STL take BP (which was pretty much the only time they hit the whole game). While the outcome was disappointing, the experience was tremendous.

The Rangers have a great ballpark, super fans and a fun team. Their only real drawback is GEORGE F. BUSH, who threw out the first pitch to a standing O!

Some foties:

Sunday, October 23, 2011

Do We Remember Bad Things More? Not in Baseball...

Effects of Event Valence on Long-Term Memory for Two Baseball Championship Games

Carolyn Breslin & Martin Safer, Psychological Science, forthcoming

Abstract: We investigated how event valence affected accuracy and vividness of
long-term memory for two comparable public events. In 2008, 1,563 fans answered questions about objective details concerning two decisive baseball championship games between the Yankees (2003 winners) and the Red Sox (2004 winners). Both between- and within-groups analyses indicated that fans remembered the game their team won significantly more accurately than the game their team lost. Fans also reported more vividness and more rehearsal for the game their team won. We conclude that individuals rehearse positive events more than comparable negative events, and that this additional rehearsal increases both vividness and accuracy of memories about positive events. Our results differ from those of prior studies involving memories for negative events that may have been unavoidably rehearsed; such rehearsal may have kept those memories from fading. Long-term memory for an event is
determined not only by the valence of the event, but also by experiences after the event.

(Nod to Kevin Lewis)

LAGNIAPPE: Along those lines...

They see me rollin'. They hatin'

Despite last minute hysterics from the usual suspects, the first Mexican truck rolled across the border on Friday. Mexico has now cancelled the $2 billion in tariffs they put on American products in retaliation for Obama's 2009 cancellation of an earlier Mexican trucking pilot program.

According to the NAFTA agreement of 1994, Mexican trucks were supposed to have full access to border states by 1995 and access to all of the USA by 2000 (Canadian trucks enjoy this same full access)!

The current "program" for letting Mexican trucks in is so protectionist that only 11 companies are going through the certification process. There are electronic monitors to measure how long the trucks are running. There are drug tests and English tests for the drivers. All things we do not mandate for drivers of American trucks. If it really is a safety issue, then these measures should be applied in a non-discriminatory manner.

The mix of protectionism and racism on display here is unseemly to say the least.