Thursday, May 31, 2012

Euro Racists

Nice.  If you want to insult someone, you call them "Jew."  (Video is long, but very interesting; disturbing.)

The guy in the video explains that it's not meant to be an INSULT insult, just a terrible thing to call someone.


And of course all the things they call black people.  I'm pretty tired of Euroweenies calling Americans racist.
(Nod to Dutch Boy)

There must be something wrong with my iPad

Because it won't do this:

and apparently, David Hockney's will.

Hat tip to the Roving Bandit.

Links: Stupid Government Tricks

Wow.  Government 'round the globe have lost their mind.  But as usual New York leads the way.

1.  Thailand's rice policy...well, it's really dumb.

2.  New York I:  No more big drinks, you fat ass people.  Of course, you can always buy two small ones.

3.  New York II:  Sen. Schumer, NY's gift to the looney bin called "the Senate," wants to regulate metal grill brushes.  No, really, he does.  He wants FEDERAL regulation of grill brushes.

4.  The EPA actually uses helicopters, and sends agents armed with automatic weapons, to help regulate cows.  In Nebraska.  There are no mountains, and few forests, in Nebraska.  Why does everything have to be so militaristic?  If you want to blame GW Bush, okay, but that was a while ago now.  It's not getting better.

5.  I always say that actions taken by citizens are called "crimes" when the same actions taken by government are just "policy."  Like Pres. Obama's list of people he wants to murder, without due process or legal justification.  But here is an actual list of crimes committed by police over the Memorial Day holiday.  None of them will likely be prosecuted.  Enjoy your weekend!

Wednesday, May 30, 2012

Someone else calls out Mr. Burns

From another perspective, here's some great invective about Christine Lagarde's tender feelings for the children of Niger.

Mo' Money

From LeBron's requests, "How do economics professors negotiate their salaries? Do econ professors share notes on this"?

On a year to year basis, there isn't much actual salary negotiation. The Dean will allocate a raise pool to the department along with instructions on how it is to be allocated. For example, there might be a 4% pool, 2% for across the board raises and 2% for merit (in recent years 0% raise pools have been common). Then the department chair or executive committee will review records and recommend an allocation of the money to professors which has to be approved by the Dean. Then every professor in the department goes to the chair and complains about their raise!

In the longer term, salaries are set by the market. Getting another offer can create competition and sometimes even bidding wars. Sometimes people make the move, other times they get a strong counter-offer and stay.

Econ professors talk about other professors' salaries a fair amount. When they talk about their own, I generally feel like they are, shall we say, less than completely honest.

If you work at a State school the information is public and every so often a newspaper might publish it.

Professors in departments that are hiring at the entry level often compare notes on what their departments are planning to offer new Ph.D.s and where the market for them might clear. New hires tend to negotiate more for 1 time expenses like start up money, moving costs, and temporary teaching reductions, and less on salary where schools often have less flexibility. Deans are seemingly more willing to agree to large-ish one time expenditures more than large recurring expenses like a substantially higher salary for new hires.

Tuesday, May 29, 2012

Why the Thunder will win Game 2 tonight

Hat tip to loyal KPC reader R. E.

He was a Lego Man, but now he's an Ass Man

So, perhaps this is the problem, says Angry Alex:

But this seems a bit much

An executive at a Palo Alto software giant was charged Monday with four felony counts of burglary, after authorities said he allegedly made his own bar code stickers, switched the tags, and then bought boxes of LEGOs at Target stores for huge discounts.

The guy had nearly 2,500 boxes of LEGOs in his house, and he was selling them on eBay.  The thing is that if he was making $50 each, and he sold 2,500, that's still only $50,000.  How can that possibly have been worth the time and risk?  Amazing.

Hate is NOT a Crime

I took the tube back out of town
Back to the Rollin' Pin
I felt a little like a dying clown
With a streak of Rin Tin Tin

Well, this lady took the Tube back in to town, after having had too much to drink.   And she has a massive streak of Rin Tin Tin, no doubt.

And now she is going to jail. TO. JAIL. For 21 weeks. For causing "harrassment, alarm, and abuse" to the people who were around her. Hate is not a crime. She didn't assault anybody, she didn't harm anyone. She is an idiot, sure. But nearly half a year in JAIL?

The Brit press is quite supportive, surprisingly. So is the HuffPo, less surprisingly. With only a few exceptions, HuffPo writers would prefer to have the police be in charge of everything that anyone says.

As we hear from the Brit press:  "Condemning her showdown, District Judge Michael Snow at Westminster Magistrates' Court in central London, said: "Anyone viewing it would feel a deep sense of shame that our citizens could be subject to such behaviour who may, as a consequence, believe that it secretly represents the views of other white people.""

She has to go to jail because she made the judge feel guilty about being white?  When he should jail himself, because he feels guilty about being a moron?

A drunk woman being a loud idiot is unremarkable. An advanced nation jailing citizens for voicing opinions, without physical threats or violent actions, is barbaric. Even if those opinions are "hate." Judge Brandeis had this right: “If there be time to expose through discussion the falsehood and fallacies, to avert the evil by the processes of education, the remedy to be applied is more speech, not enforced silence.”—U.S. Supreme Court Justice Louis D. Brandeis (1856–1941), Whitney v. California, 274 U. S. 357 (1927).   (Special bonus points because Brandeis said this in pirate-talk: "Aye, there be time!  Don't punish her.  Expose her to disagreement!  Aarrrrr!")

England chooses enforced silence, even though there was plenty of time to have a conversation about this. True, Ms. Woodhouse will avoid racist rants in the future. Out of the fear of the government and the fact that it has guns and strong-arm thugs to enforce their requirements of obedient silence. NOT because she learned anything, or was educated. But because she is afraid.

Selection or Accountability in Elections

Democratic Accountability and Retrospective Voting: A Laboratory Experiment
Jonathan Woon
American Journal of Political Science, forthcoming

Understanding the incentives of politicians requires understanding the nature of voting behavior. I conduct a laboratory experiment to investigate whether voters focus on the problem of electoral selection or if they instead focus on electoral sanctioning. If voters are forward-looking but uncertain about politicians’ unobservable characteristics, then it is rational to focus on selection. But doing so undermines democratic accountability because selection renders sanctioning an empty threat. In contrast to rational choice predictions, the experimental results indicate a strong behavioral tendency to use a retrospective voting rule. Additional experiments support the interpretation that retrospective voting is a simple heuristic that voters use to cope with a cognitively difficult inference and decision problem and, in addition, suggest that voters have a preference for accountability. The results pose a challenge for theories of electoral selection and voter learning and suggest new interpretations of empirical studies of economic and retrospective voting.

Monday, May 28, 2012

A new record

As "pro-bailout" parties take the lead in Greek polls, focus turns more to Spain, where the spread between its 10 year bonds and Germany's broke the 500 basis point barrier, hitting the highest level since the dawn of the Euro.

Spanish 10 year bonds are currently "yielding" 6.49%.


Sunday, May 27, 2012

Kindred spirits

Kindred and Thomas have a nice piece in FP about the peripheral-ness of Greece and the low likelihood that a Grexit will cause a global downturn like the US financial crisis did.

I largely agree with their points (though the 97 Asian crisis wasn't a small event to me), even though I recently put up a post asking "Will Greece be Europe's Lehman Brothers"?

Kindred commented on my post making many of the points in the FP piece, but now I can see that we were somewhat using the same words to talk about two different things.

In the US financial crisis, the political decision to let Lehman Brothers go, was the catalyst to all hell breaking loose in US financial markets. I was asking whether a political decision to let Greece go would be the catalyst to all hell breaking loose with the Euro (spurring contagion to produce multiple exits from the Euro)

I still think it could, but that is not to say the global fallout will be anything like the global fallout from the US financial crisis, which is Kindred's point.

Also of note, in this morning's NY Times, LeBron has a piece arguing that the Euro may fall apart altogether, which would probably have greater global consequences that just a southern member exit.

Saturday, May 26, 2012

Lagarde unguarded in the Guardian

Mister Burns, er, a freakishly tan IMF chief Christine Lagarde gave a fascinating interview on, among other things, her views about the Greek debt crisis.

Here's a great excerpt:

So when she studies the Greek balance sheet and demands measures she knows may mean women won't have access to a midwife when they give birth, and patients won't get life-saving drugs, and the elderly will die alone for lack of care – does she block all of that out and just look at the sums?

 "No, I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens." 

She breaks off for a pointedly meaningful pause, before leaning forward. "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." 

 Even more than she thinks about all those now struggling to survive without jobs or public services? "I think of them equally. And I think they should also help themselves collectively." How? "By all paying their tax. Yeah." 

 It sounds as if she's essentially saying to the Greeks and others in Europe, you've had a nice time and now it's payback time. "That's right." She nods calmly. "Yeah." 

And what about their children, who can't conceivably be held responsible? "Well, hey, parents are responsible, right? So parents have to pay their tax."

Wow, ok. So taxes fix every thing eh, Christine?

And, while the sentiment on poor children in Niger is quite noble, the IMF doesn't do squat about education in Niger. A restructuring/forgiveness of Greek debt is not going to cut aid to Niger.

The IMF was asleep at the wheel as Greece loaded up on debt and became totally uncompetitive. The IMF was asleep at the wheel as the Eurozone drifted into untenability. Now its head is blaming the Greek people and implying that if they'd just do the right thing and pay their taxes, there would not be a problem.

And that's pretty much a pile of horsesh*t.


Great speech by Charles Plosser. It starts with a nice concise history of the evolution of mainstream macro  which leads into a set of suggestions for research on monetary policy.

Well worth reading in its entirety, but here is the money quote:

Fourth, and related, macroeconomists need to consider how to integrate the institutional design of central banks into our macroeconomic models. Different designs permit different degrees of discretion for a central bank. For example, responsibility for setting monetary policy is often delegated by an elected legislature to an independent central bank. However, the mandates given to central banks differ across countries. The Fed is often said to have a dual mandate; some banks have a hierarchal mandate; and others have a single mandate. Yet economists endow their New Keynesian DSGE models with strikingly uniform Taylor-type rules, always assuming complete credibility. Policy analysis might be improved by considering the institutional design of central banks and how it relates to the ability to commit and the specification of the Taylor-type rules that go into New Keynesian models. Central banks with different levels of discretion will respond differently to the same set of shocks.

 Let me offer a slightly different take on this issue. Policymakers are not Ramsey social planners. They are individuals who respond to incentives like every other actor in the economy. Those incentives are often shaped by the nature of the institutions in which they operate. Yet the models we use often ignore both the institutional environment and the rational behavior of policymakers. The models often ask policymakers to undertake actions that run counter to the incentives they face. How should economists then think about the policy advice their models offer and the outcomes they should expect? How should we think about the design of our institutions? This is not an unexplored arena, but if we are to take the policy guidance from our models seriously, we must think harder about such issues in the context of our models.

Shout it from the rooftops!

Friday, May 25, 2012

Computer Audio

Loyal reader Gerardo asks,

"If you hadn't made the jump to digital music beyond CDs, how would you go about doing it"?

Let me start by saying that I'm an analog guy. I use a home-made 2 watt vacuum tube amp. I have a record player and hundreds of LPs.

I made the jump to no-CDs by burning all my CDs onto an external hard-drive. Because a lot of music that I like doesn't come in a lossless digital format (i.e. digital downloads are often MP3), I still buy CDs, burn them onto my hard drive and then get rid of them. Until uncompressed downloads are routinely available, I will probably stick to this ritual. If you are OK with MP3s or are willing to limit yourself to music available as either uncompressed CD quality or higher resolution downloads, then you can get away from having any physical items except a hard-drive.

It drives me nuts that LPs are offered for sale with a free MP3 download instead of a FLAC download.

If you are planning to make the jump to computer based audio, the Well-Tempered Computer is an excellent resource and the Computer Audio Asylum is a lively forum. There are places to get hi-rez downloads, like HD Tracks.

You basically have two choices:  (A) Put together your own system with storage, computer, playing software and DAC, or (B) buy an all in one music server device, like the SB touch or the J-River

The "audiophiles" seem to prefer putting their own systems together based on a computer. Mac minis are popular; I use a Macbook and prefer Pure Music for playback software.  I learned a lot about computer audio from this guy.

Joy to the fishes in the deep blue sea

From the KPC request for posts pool:

"If you were the supreme ruler of the USA, what would be the top 5 things you would do?"

1. Increase the inflow of immigrants, especially skilled immigrants.

2. Increase school choice, especially for lower income families.

3. Big tax reform with a broad base, low rates, and a carbon tax included in the mix.

4. Use a combination of size limits, leverage limits, and capital requirements that move with size/leverage to reduce the frequency with which finance blows up the economy (instead of trying to micro-manage a la Dodd-Frank / Volcker rule).

5. De-porkify the Federal Government (Dept. of Agriculture, Ex-Imp bank, small business administration,   military procurement).

Other priority items would be work to privatize public universities,work for a "trade not aid" approach to developing countries, and work on patent reform.

I shudder to think what Tom will think of it, but that's it; that's my list!

Thursday, May 24, 2012

but enough about you...

....let's talk about me!

Over at MR, folks are peppering LeBron with requests for posts.

One request that really struck me was, "What’s the most important economics question you ever asked?"

At a facile level, it's, "why are some nations so rich and others so poor?", but I can't claim any originality there as it was asked many, many times before I got there. I'm guessing the commenter meant an original question.

The next contender would be, "why do macroeconomists ignore politics?". Here I was a little less un-original, but several others were before me.

I guess the closest thing to an original economics question I've asked is, "if we want to study growth, why are we throwing away information by using cross-sectional averages instead of panels?"

p.s. if you have requests for posts from Mungo or me, please put them in the comments and we'll see what we can do. At least here, your odds of getting chosen are much much higher!

Wednesday, May 23, 2012

Hey Hobo!

Y U NO write me back?

Peter Orzag wants to sell you a bridge

Over at Bloomberg, Orzag assures us that stimulate now, cut later is a realistic strategy because it has worked well in the past.

The piece is titled, "History Shows the US can Stimulate Now, Cut Later"!

His examples? Well there's really only 1 given:

"From 2017 to 2022, Social Security’s normal retirement age is scheduled to gradually increase to 67. And I’ll bet that not only happens as planned, but does so with little fanfare -- which is pretty much what happened several years ago when the age rose from 65 to 66."

Oh, man. I stand corrected. A phased in over 5 years one year increase in the normal retirement age is going to happen? Well of course we can run a big stimulus now and pay for it with cuts later!

People, this is just so wrong in so many ways. First, this is a tiny "cut". Second, it wasn't part of a deal that included increased spending in the present. Third, as Krugman and others have pointed out recently, the US Congress is the most polarized it's been in recent history. Fourth, that example is a pretty thin reed on which to base "History Shows".

Orzag goes on to cite a 2009 study showing Medicare cuts were largely implemented. But they weren't implemented as part of a deal to allow increased current spending nor was there a long time delay between the legislation and the enactment.

Current Congresses cannot bind future ones. Sure the filibuster or veto threat can create some status quo bias, but a law saying let's spend a bunch more right now but don't worry, we'll cut in 10 years in basically just a con game.

I am not aware of any examples in peacetime (sorry I know we have "wars" going on vs. drugs and terror) US history where the Federal government rationalized an immediate spending increase of 500 billion to 1 trillion dollars in a time where the deficit was already over 1 trillion dollars by promising to cut spending 5 to 10 years in the future and actually did it.

I am pretty sure if Peter Orzag actually knew of such a case, he'd have mentioned it in his piece.

Tuesday, May 22, 2012

stimulus in a backpack

A friend, who was in a military unit in central Iraq some years ago, sends this photo.

Those are $100s.  Approximately $1 million US.  Actual real American simolions. 

My friend took this pic just before they stuffed this into a backpack, and went to go give it away in a village.  This was supposed to buy loyalty.

I submit that the military enlisted personnel are not well suited to carry out this task.  And that the task itself is asinine, because one-time "payments" like this are no more likely to cause growth, or loyalty, then the idiot Keynesian "stimulus" policies in the US.  Both of these policies are just political payoffs to friends, with no prospect of benefit to the nation, or to the taxpayers who are footing the bill.

Still, it had to be fun to have a thousand large in a backpack, walking on the streets of [city in central Iraq].  They should have invested in brown paper bags, to make the Mafia comparison even more realistic.

Monday, May 21, 2012

Hobo hears from 2T

Came, Saw, Bailed

Okay, so I clearly waited three weeks too long.

But I liquidated all the stock in my retirement accounts today.  It was only 25%.  But now it is 0%.

I sincerely hope that I did this at the bottom, and that things get very much better, quickly.  You can all laugh at me.

But I doubt it.  Because Spain cannot survive another month.  And banks and financial institutions in England have truly massive exposure.  This is the end.  Boom.  Not like economic boom.  Like really loud heavy object hitting a floor boom.

UPDATE:  LeBron describes capital flight from the wreckage of the EuroZone.  The comments are quite funny.

UPDATE 2:  Mr. Overwater asks, "Why?"  Not the volatility thing, volumes have not been that high lately.  In fact, holy shinola, volumes have fallen through the floor:

We are at 1999 levels of volume, even allowing for the Facebook IPO and etc.  Yikes!  I hadn't even seen that.  Damn.

No, the problem I see (before I scared myself with this volume picture) is the bets that so many banks have made on Euro bailouts.  It's not just JP Morgan and MF that did it, they just got caught first.  Many banks, worst in England, but bad elsewhere also, took huge net long positions in sovereign debt from Eurozone nations, betting that the bailout woud happen.  To the extent that the bonds were selling at a discount, and you end up getting par, that's a good bet.

The problem is that these banks are taking long positions with customers' money.  There were not hedges, they were net bets, big ones. 

Banks should be bookies, not bettors.  Bookies lay off bets and use the line (whether it's points, or odds, or whatever) to adjust the market so they get equal amounts of exposure on either side.  A bookie who himself takes a net position on a game, a horse race, or Greece is called (technically) an "idiot."  Bookies take bets on both sides, and make money on the vig, and cash in on volume of trades.

Well, it turns out nearly every bank you can think of is an "idiot."  They do NOT have equal positions betting for and against a Euro-zone sovereign debt bailout.  They all bet the bailout would happen.  As Louis XV said, "Apres (JP) MOIrgan, le deluge."

The End of College?

Not sure if I am the problem, the solution, or just confused.  But I'm a "member" of five departments:  Duke Econ, Duke Poli Sci, Duke Public Policy, UNC Poli Sci, and UNC Public Policy.  That's not really a silo.  A two-part series in Bloomberg.  Interesting.

Part I: Competition Kills Colleges

Part II:  The College Cave Age

Sunday, May 20, 2012

We like to party

Saturday morning we heard the sound of a large truck in our rustic cul-de-sac. Since that is big doings in these parts, Mrs. A looked out the window to see a dump truck depositing a large load of topsoil onto our neighbors' driveway. We speculated about how this load would be employed, but we never got anywhere near the answer.

People, the dirt pile was the entertainment at a kid's birthday party! I've heard of clowns, magicians, ponies, & pinatas, but this was a first in my limited (no kids) experience.

What's the strangest kids party that you've seen?

(clic the pics for even more glorious images)

Saturday, May 19, 2012

Credibility & the Fed

Let's get right to it. The Fed has no credibility. Not just now, but in the whole course of its history.

At least not if we define central bank credibility the way the economics literature does (Kydland & Prescott, Barro & Gordon), as the ability to overcome the time inconsistency problem.

This is a fundamental problem of central banking: All the Fed can do is maximize its current period utility function. Bernanke saying we will keep rates low till late 2014 is like Lucy telling Charlie Brown to go ahead and kick the football while she holds it steady.

Since nothing makes the Fed actually do in the future what they say they are going to do, no one has any incentive to believe the pronouncements (Charlie Brown if you are out there, pay attention to this post)!

But you say, inflation targeting worked!

People, inflation targeting is so incredibly powerful that it even worked in countries that DID NOT ADOPT AN INFLATION TARGET!

Here's the abstract from a 2007 paper in the Journal of Monetary Economics (Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries by Shu Lin and Haichun Ye):

We evaluate the treatment effect of inflation targeting in seven industrial countries that adopted this policy in the 1990s. To address the self-selection problem of policy adoption, we make use of a variety of propensity score matching methods recently developed in the treatment effect literature. Our results show that inflation targeting has no significant effects on either inflation or inflation variability in these seven countries. Further evidence from long-term nominal interest rates and income velocity of money also supports the window-dressing view of inflation targeting.

Inflation and its volatility did not fall in the 90s because the adoption of inflation targeting gave central bankers credibility. "Good luck" is a more convincing reason for the outcomes than inflation targeting.

This point cuts both ways.  Yes, it implies that the expectational miracle the market monetarists expect to ensue from the Fed unilaterally announcing a target path for NGDP is unlikely. But it also implies that all the Fed talk about "losing hard-won credibility" and "expectations might become un-anchored" is meaningless as well.

There is no anchor.

Friday, May 18, 2012

Are you ready for a miracle?

Is Greece the Lehman Brothers of Europe?

It looks like Greece is going to finally call Germany's bluff. The head of the party projected to win a plurality in the June election (Alexis Tsipras, head of Syriza), wants no part of the agreed upon package and expects Germany to keep financing Greece with few to no conditions or else they will simply default on everything.

It's a shame for them they didn't do this a lot sooner when they had more leverage. German and French banks have had several years to write down or otherwise reduce their exposure to Greece.

Given this reduced direct leverage and all the rhetoric from Germany and the ECB, things may come to a head this summer.

Will Germany let Greece go the way Paulson and Bernanke let Lehman Brothers go?

If so, will they be able to contain the fallout and be able to keep Spain (and Italy) in the EZ?

I say it's 60% that Greece goes this summer and 60% that no one else does over the next year.

One thing that is 100%: we are living in interesting times.

A Parable of Modern Mercantilism

Lots of folks think that what the economy produces is a magical product called "jobs."

That's nonsense, of course.  A capitalist economy is focused on producing goods and services, those goods and services that citizens want.  Jobs come and go; consumers rule.

One of the objections to politics that Public Choice scholars make is that politicians try to "protect" jobs at the expense of consumers / citizens.  So where the old mercantilists tried to hoard metal specie, modern mercantilists hoard jobs.  This can do great harm to citizens, the people political theorists claim a democracy SHOULD protect.  But political theorists ignore the actual incentives in the political system:  there is almost no reason to serve voters.  They are ill-informed, apathetic, and distracted. (I mean voters, not political theorists.  Though...)  Interest groups, on the other hand, are focused, tanned, and ready to help the politician out.  Serve the interest group, get reelected; serve voters, get hammered.

Examples are legion.  But a recent example here in NC is egregious that I have to admit to being surprised.  Usually some attempt is made to hide behind made up arguments.  But these guys just straight up demanded that their jobs be protected, even they themselves admit that the jobs serve no useful purpose whatsover. 

Do read the article.  Then go below the fold for some commentary.

Thursday, May 17, 2012

Rick Martinez on Amendment One in the N&O

I am sorry to have to write this post.

Let me start with some disclaimers.  First, Rick Martinez is my friend.  I don't mean the "I've met him, we've had coffee" sort of friend.  An actual friend, the sort of friend who honestly prayed that my eyesight would recover, and who is one of the most sincere, and brightest, people I know.

But Rick wrote a column yesterday, for the News and Observer here in Raleigh.  Here is the column.  I feel obliged to respond.

Wednesday, May 16, 2012

"poison the cereal"

In this clip, among other things, MWP invites my awesome neighbor, Berry Tramel, to take over coaching the Lakers:


Amar Bhide on JPM

My good friend Amar Bhide on JP Morgan.
Bloomberg video...
Too big to fail is too big.  There may be some first best world where size could be allowed.  But it is not the world we live in.

Tuesday, May 15, 2012

Teaching Penalty

The teaching penalty in higher education: Evidence from a Public ResearchUniversity
Melissa Binder et al., Economics Letters, forthcoming

Abstract:  This article investigates whether faculty members are rewarded for teaching. We find that teaching a wider variety of courses and devoting more time to teaching results in a significant wage penalty, even when research productivity is carefully controlled.

(Nod to Kevin Lewis)

The Graduation of the EYM: UNC Math B.A.


LeBron has a post on "genoenomics."

Alex T. does also.

But they missed the story.  The real answers to these questions can be found in the APSR paper written by my guys Evan Charney and Bill English.  All is revealed there.


1.  In the future, all your minor quirks will be medicalized within 15 minutes.

2.  Exports?  You can't HANDLE the exports!  Unless we pay you extra, apparently.

3.  No controlling legal authority.  Bizarrely, it takes the FEC to point out that the money given to John Edwards and spent entirely on a coverup of the mistress is NOT a campaign contribution.  This is what happens when you try to regulate campaign finance broadly.

4.  Re John Edwards:  I have written on the campaign finance problem before.  Citizens United just made the problem even more strange.

5.  This seems insane.  Hard to imagine a bank turning down an account from a successful business.  And it's likely exaggerated.  But....rare wood?  Really?

6.  Yes, really.  At least on the Gibson Guitar part of the story.  The feds cannot tell Gibson how, or even if, they broke the law.  But in the meantime the feds broke into the factory, shut it down, and confiscated the product.  "We'll get back to you."

7.  Why does France have so many firms with 49 employees?  Does anyone think this might be a problem for growth?

(thanks to the Blonde and to Angry Alex)

Monday, May 14, 2012

Atlas Pooped: A love story

"You should never feel guilty about your abilities. Including your ability to repeatedly peg a fellow toddler with your Elmo ball as he sobs for mercy"

Full story here, and it's terrific.

Euro woes

Some European financial news for you this Monday.

A Euro-wide stock index is down around 2%, The Greek stock index is down around 5%, Spain's down around 2.5%.

Spanish 10 year bonds are up to yielding 6.22%, Italy's now yield 5.75%.

German 10 year bonds are paying 1.45%, but the German and French stock indices are both down around 2%.

The big, big question is, can the Euro-zone limit contagion from a Greek exit and keep Spain and Italy in?

Sunday, May 13, 2012

Shine on you crazy Dimon

JP Morgan has taken a $2 billion loss on derivatives trading. As I've tweeted, that's around .1% of their assets and 1% of their equity, so on the surface it's hard to see what the fuss is about.

Over at Bloomberg, I found a clue:

It’s not often that a huge company calls an emergency teleconference on short notice to discuss an intra-quarter trading loss that’s equivalent to only 1 percent of shareholder equity. So when a Deutsche Bank AG stock analyst named Matt O’Connor asked Dimon why the company had disclosed it at all, the answer was bound to be revealing. “It could get worse, and it’s going to go on for a little bit unfortunately,” Dimon replied. The meaning was clear. Worse could mean disastrous.

So maybe the $2 billion is just the tip of the iceberg? Still it would have to be a very big iceberg to cause much worry about systemic risk and taxpayer involvement, wouldn't it? Maybe it is a very very big iceberg. That would be bad.

The other open question is what exactly were they doing, hedging or betting?

A classic hedge involves taking a position in the derivatives market that is opposite to your position in the "real world" to achieve certainty about future costs or revenues. If you are hedging to avoid a decline in price of an asset you own, and the price of that asset goes up, you will in all likelihood suffer a loss in the derivative that offsets the gain in the "real world". It's unlikely, though that JP Morgan would report such an outcome as an overall loss.

Even if you set up your hedge correctly, if the correlation between the "real world" asset and the derivative asset is not perfectly predictable, you can suffer an overall loss in your hedge. This is basis risk.

Maybe that is what JP Morgan is reporting; a good hedge gone bad due to basis risk.

My man at Bloomberg doesn't think so though:

Here’s what little Dimon said of the trades in question: “The synthetic credit portfolio was a strategy to hedge the firm’s overall credit exposure, which is our largest risk overall in this stressed credit environment. We’re reducing that hedge. But in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective as an economic hedge than we thought.” 

There is a tantalizing clue in this language. Read the statement carefully and you can see this wasn’t a bona fide hedge. That means it probably was no different, in substance, than a speculative wager. The definition of an “economic hedge,” literally, is an investment that doesn’t qualify for hedge accounting, meaning its effectiveness at offsetting a given risk isn’t sufficiently reliable. Otherwise the wiggle word “economic” wouldn’t be needed.

This made me happy, as I learned a new term, "economic hedge" that apparently can be a synonym for "shitty hedge" or used as a fig leaf for a speculative bet.

In general, I think we want banks and businesses to hedge risk. Structured finance is not an unmitigated bad. And I think we need to recognize that even a well-executed hedge can produce losses, so we can't judge the quality of a hedge purely by its ex-post outcome. On the other hand, in this environment, banks and firms have incentives to misrepresent failed speculation as a problematic hedge and regulators need to be sensitive to that.

The question is whether it's possible to write a rule that distinguishes clean hedges from "economic hedges", especially when you realize that for many real world assets a clean hedging instrument may not even exist.

If it's not possible (and I don't think it is), then should we make banks pay for insurance against the creation of systemic risk? If so, isn't pricing that insurance going to have the same issues as writing the rule?

Or maybe we should put size caps on banks so that one bank's behavior, no matter how shitty, cannot cause systemic risk. But does it matter for systemic risk if one big bank makes bad "economic hedges" or 3 smaller banks each make the same bad bets?

I just don't see a simple rule or magic bullet that gets us out of harms way that doesn't also throw the structured finance baby out with the "economic hedge" bathwater.

Saturday, May 12, 2012

Can data sooth the "savage" meme?

Veronique & Tyler took a beating for displaying a graph of government spending in selected Eurozone countries and questioning the severity of European austerity.

They were criticized for confusing austerity with spending cuts, not adjusting for inflation, not expressing the data as a percentage of GDP.

Despite its flaws, I think the graph has an important message, as just yesterday the AP ran a story that was picked up everywhere which had the following lede:

The European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs.

The dreaded MSM is in love with the "savage cuts" meme.  The graph shows that such cuts don't generally exist.  And that is a valuable service (though the message is not yet getting through).

As to whether or not there's "austerity" in Europe, that determination would require a precise, agreed on definition of the term, which we currently lack. Perhaps the NBER could devise a method to identify austerity periods like they currently do for recessions.

As an awkward aside, I'd also like to point out that expressing government spending as a percentage of GDP when the economy is in a recession would tend to hide rather than reveal spending cuts, so I think giving the raw numbers is the right approach (though an inflation adjustment would be helpful).

Friday, May 11, 2012

We have met the enemy....

As a diagnosed Celiac sufferer, I am often asked to explain why I am not eating bread. When I do so, people often tell me something to the effect that they "couldn't live" without bread or some other wheat-based product. To which I often reply to the effect that if they had my symptoms, they'd never want to eat their beloved wheat-based food.

However, I think I may be very wrong about this.

 Check out the 8 minute prologue to this episode of "This American Life", where people eat nuts knowing they'll be headed to the emergency room, or bring an epi-pen with them when they go out for a shellfish meal.


An ER doctor is quoted as saying "the ER is a virtual laboratory of dysfunctional behaviors and bad choices".

And that puts it into perspective for me at least. If some people spend a lifetime smoking or abusing alcohol or not dealing with their diabetes, of course there are going to be those who won't worry too much about poisoning themselves for a comforting meal.

The Thin Black Comb

There's a fun WSJ op-ed this morning on dialing down occupational licensure requirements for professions like barber, auctioneer, interior designer, and others.

Here's how the "director of a barbering school in Michigan" responded to a proposal to eliminate licensing for barbers:

"I'm not saying we are as important as doctors, but we are the closest you can get. We are turning this into the Wild, Wild West."


I was not aware that licensed barbers are the thin line between life as we know it and the zombie apocalypse.

I guess there are few things more scary than the prospect of a haircut not sanctioned by your government.

Thursday, May 10, 2012

Baffle them with bulls**t

Oh my.  Jeff Sachs has a piece in The Lancet, extolling the accomplishments of his Millenium Village Project, that is, shall we say, weak.

Let's concentrate on child mortality, described in the Lancet piece as the "primary study outcome".

Sachs et. al. claim that, "Mortality rates in children younger than 5 years of age decreased by 22% in Millennium Village sites relative to baseline (absolute decrease 25 deaths per 1000 livebirths, p=0·015) and 32% relative to matched comparison sites (30 deaths per 1000 livebirths, p=0·033)."

They present this evidence in a table (page 7 of the article, the last row of the results there) comparing the change from year zero to year 3 in the MVs and in the comparison villages.

So far, so good, right? Well, what if I told you that, in the words of Sachs et. al., "Local comparison village sites were introduced in the third study year to enhance the plausibility that recorded changes were the result of intervention exposure."

In other words, the comparison villages were added ex-post! So how then can they report the change in child mortality in the comparison villages over a time period that started before they started to study those villages?

"Year-0 value is based on recall items in the year 3 survey (eg, women’s reproductive histories)."


So in year three, they asked women how many children they had under 5 that died in year zero and compared that to the actual numbers they measured in year 3, while the MV change was computed from measurements (not surveys) in both years.

Why does this matter? Well according to the table in the Sachs et. al. article, child mortality is RISING in the comparison villages. This "result" is driving the whole claim quoted above. In the MV case, child mortality falls from 113 to 88.7 over the time period, while in the comparison villages the rate rises from 90 to 96!

So if that comparison is no good what can we use? Well, the total percentage decline in child mortality in the MVs was around 22% which is pretty much right in line with the overall figures the World Bank is reporting for many Sub-Saharan African countries!

I am by far not the first one to point this out. Here's an article from Nature, quoting Michael Clemens than makes many of the same points.. Here's the Roving Bandit pointing out other statistical silliness in the Lancet paper. Here's more from Aid Thoughts about the overall decline of child mortality in Africa.

I really don't understand why a well published PhD economist would bend good practice to this extent, no matter how noble his ultimate goals.

Wednesday, May 09, 2012

never say never

Hugo Chavez has called home from Cuba to affirm that he's alive and running the government. As for the future, he had this to say:

"The opposition are never going to win any elections in Venezuela, ever again,"

Wow, those are some doctors, those Cuban doctors. Apparently they are not only curing Hugo but making him immortal?

 Or maybe he says that because he feels like there won't BE any elections in Venezuela ever again?

Hat tip to Greg Weeks

Fooled by randomness?

Wikipedia tells me  Philip Tetlock is a distinguished chaired professor at Penn, who is best known for being highly skeptical of the value of "expert" forecasts.

Yet today here is a guest post up at Marginal Revolution from him this morning that I find extremely confusing. Tetlock is describing a multi-year forecasting experiment and doing things that I find quite surprising/shocking.

First consider the claim is that the forecasters did well because an ex-post weighted average of the "most insightful and engaged forecasters" crushed a control group.


In fact, they did so well that the Tetlock's group is breaking their planned experimental study after one year and is creating a group of "super-forecasters" based on their first year track record.

Double Yikes!

People, in a small sample stochastic environment, there will always be individuals that do better than others. This could purely be by chance. If you ex-post weight them higher, you can get a very impressive short term performance.

Generally speaking though, godding them up and following their forecasts into the future is a fools game, because their success was just short term randomness, or in plainer terms, luck.

Or as Mrs. Angus succinctly put it: "mean reversion, y'all".

 If you do decided to enter the contest, you may find this information helpful.

Tuesday, May 08, 2012

Are Corporations People?

Ron Artest sets the record straight

The artist formerly known as World Peace went on Conan last night to give his side of the James Harden concussion saga.

It turns out that Harden frequently "runs into people's elbows".

I love this spin. People should use it more frequently.

Lincoln runs into people's bullets ~ John Wilkes Booth

Rodney King runs into people's nightsticks ~ LAPD

Give me some better examples in the comments.

Monday, May 07, 2012

What do the European elections mean for the Euro?

People, it's another beard vs. beard situation as Lebron takes the pessimistic view while PK says the results may be good news for the Euro.

The bottom line is that electorates in the PIGS (so far Ireland is resolute in taking its medicine) are unwilling to tolerate the Troika policies. Their only unilateral alternative is to exit the Euro, and they all seem unwilling to take this step.

So, I guess the "optimistic"view is that these results scare Germany enough to get them to pay more for their southern neighbors and to throw their weight behind the ECB significantly raising the Eurozone inflation rate.

Sunday, May 06, 2012

Job wars

Nothing takes worse of a beating in presidential elections than do facts and figures.  We know that (a) our employment levels have not recovered to their pre-recession levels and (b) job losses in this recession are far worse than in any post-war recession.

But yet someone manages to produce this (clic the pic for an even more misleading image):

So this "recovery" is "normal", even though we know it isn't.

The trick is accomplished in three steps. The first is by using the total number of jobs and not taking into account that the labor force is much larger now than it was in 1990 or 2001. The second is to date the chart from the bottom of the recession. The third is to ignore all the other post-war recessions.

The invaluable Calculated Risk blog provides a more accurate view about the strength of our current recovery (clic the pic for an even more enlightening image):

Yes people, that is actually where we are and what we are still up against. The first graph is roughly comparing the upward sloping part of the red line against the upward sloping part of the brown line (the 2001 recession and recovery) on a total number of job basis instead on of a percentage of jobs basis, and trying to get you to think that we are better off in this recovery than we were in the 2001 recovery, which of course is utter nonsense.

On a more positive note, I am fairly certain that Bin Laden is actually dead.

The more we prosecute drug crimes, the less successful we can be in prosecuting other crimes. Judge Jim Gray:

Nod to Angry Alex

Saturday, May 05, 2012

The Munger Games

Lots of insider jokes on B-schools

I like where the girl is going to be smacked by the Wharton kids, and she says, "Don't hurt me!  I love Pittsburgh!"

Creepiest Card Trick

Orson Welles (creepy enough already) does a card trick with Angie Dickinson. When he asks her to "stroke the cards, very gently, that's it, yesssss...." I got a little creeped out.

Nod to Jacob Grier @jacobgrier

Thursday, May 03, 2012

Federalist Society Debate

I got to do a Federalist Society debate on Amendment One (I'm against).

Here is Amendment One, the "protect marriage amendment."

Here is the ad for the debate.

My notes (only notes, didn't retype it, but this was my opening statement).

Any political system must balance the rights of individuals and the power of the majority.  The US is not a democracy, if by democracy you mean “majority rule.”  Many parts of the US system are explicitly anti-majoritarian.  The Bill of Rights protects individuals against majority tyranny.  Not against “the government,” but rather against majorities.  James Madison in particular was very concerned about majority tyranny.

The power of the majority is most dangerous when the minority is small and isolated.  The greatest constitutional protections focus on conscience and property.  Suppose I want to build a house on my property.  But my five neighbors like it with trees.  They vote to take my property and make it a permanent park.  We vote, and I lose, five to one.

The ability to sign contracts is one of the key provisions protected by the Constitution.  And because the ability to sign and enforce contracts was restricted by state governments intent on using racial prejudice to apply the laws in discriminatory fashion, the 14th Amendment was passed after the Civil War.
That 14th Amendment is perhaps the single most important change in the US Constitution regarding the ability of states to allow majorities to tyrannize over minorities. 

Section I has three majestic clauses, separated by semi-colons: 
Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.
No State shall make or enforce any law which
(a) shall abridge the privileges or immunities of citizens of the United States; nor
(b) shall any State deprive any person of life, liberty, or property, without due process of law; nor
(c) deny to any person within its jurisdiction the equal protection of the laws.

 Now, this is the U.S. Constitution, and we are amending the NC Constitution.  So what am I even talking about?

Wednesday, May 02, 2012

Stephen King should NOT be ALLOWED TO VOTE!

Check this genius quote:

"Charity from the rich can’t fix global warming or lower the price of gasoline by one single red penny. That kind of salvation does not come from Mark Zuckerberg or Steve Ballmer saying, “OK, I’ll write a $2 million bonus check to the IRS.”

So my man wants the government to both "fix global warming" and "lower the price of gasoline".

Nice work there, Steve. Your political economy is way scarier than your fiction.

I would like the government to make it never rain and have my lawn, plants and trees still stay green and vibrant. Can't do that with the rich man's charity either, right Mr. King?

We Get Letters: OKC Edition

SdM writes:
Dallas lost to OKC last night by 1 pt and I think it's bc they can't do math. Replay: 9 secs left: Nowitski gets a free throw and gives Dallas the lead. 1 secs left: Durant makes a 15 ft shot and gives OKC a 1pt lead. 0 secs left: Dallas is unable to get up the floor and shoot. Assume everyone on the floor makes 75% of their free throws and is 50% from the floor. If there's an OT, winner is determined by a coin toss. What do you do if you're Dallas at the 9 second mark?

SdM's answer: Dallas should have fouled, even though they had the lead, with 7 or 8 seconds left. That's obviously stupid, so I told SdM that was stupid. He pathetically tried to defend himself.

Four cases: 1. OKC misses both free throws. Dallas up 1 and has ball with ~8 secs left. 2. OKC makes 1 and misses 1. Unless OKC gets an offensive rebound off a free throw, Dallas has ~ 8 seconds to (2a) win the game on a last shot. If (2b) they miss, they go to OT and have a 50/50 chance. 3. OKC makes both, takes the lead by 1, but Dallas gets the last shot with ~8 secs left. Assuming teams make 50% of their field goals and 75% of free throws, ...

So, take those probabilities as right.

Here is what I came up with:
prob of case #1: .0625 (if two throws are independent)
prob of case #2: .375 (two ways to make one and miss one
prob of case #3: .5625 (again, independent)

case #4: what they actually did. If 50% from the floor is right, Dallas had a 50% chance of winning, with what they did, NOT fouling. No chance of overtime; they win, or lose, depending on whether Durant hits the shot with 1 second left.

If they fouled, Dallas has the following chances (assuming overtime is a coin flip):
A. Case #1, Dallas wins (assume OKC fouls, or not, but there's tool little time left for anything) p(DalWin)=.0625
B. Case #2, Dallas makes basket from floor p(DalWin)=.375*.5= .1875 Case #2, Dallas misses basket from floor, wins in overtime, p(DalWin)=0.09375 Case #2, Dallas misses basket from floor, loses in overtime
C. Case #3, Dallas .5 chance of taking last shot and winning, p(DalWin)=.5 If I have this right, and assuming OKC does not get off reb'd on it's foul shot, and assuming OKC does not foul Dallas, even in case #1, it looks to me like Dallas's chances of winning, if they foul, are .8375, whereas if they don't foul their chances of winning are 50-50.

Is this right? That's not even close, Dallas should foul. Maybe SdM is not so pathetic after all.

And what matters is just that Dallas' chances of winning if they don't foul are only 50-50, and if they do foul their chances are 50-50 to win, EVEN IF OKC makes both free throws, the worst case scenario. But is it really .8375 if you foul, compared to .50 if you don't? I must have missed something.

La reconquista continues apace

Inspired by La Penguina, Evo Morales chose a Spanish-owned electricity distribution company to nationalize on May Day.

"long live the first of May and long live nationalization", quoth Morales.

Since he nationalized natural gas production on May 1, 2006 and electricity production on May 1, 2010, perhaps the Spanish firm should have known what was coming?

Tuesday, May 01, 2012

And sometimes a picture is pure gold

Sometimes a picture isn't worth spit

Take this one in today's WSJ for example. A scatterplot of countries average growth rate over the 41 years from 1960-2000 against their average math test scores in the same period.

And, yes, of course the authors take the graph as causal explaining how that if we could just get our math performance up to the level of Canda's, we would all become way richer (yes I know the graph shows us growing faster than Canada already. The authors certainly could have picked a better example to tout their "theory").

I agree with the authors that K-12 education in America is failing an unacceptably large number of students and I favor reforms and experiments to search for better solutions. But let's not kid ourselves that the graph presented provides us a "menu" where we pick the growth rate we want by achieving the requisite test scores.