Saturday, December 15, 2012

What is "Wealth"?

The Asset Price Meltdown and the Wealth of the Middle Class

Edward Wolff, NBER Working Paper, November 2012

Abstract: I find that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades of little movement, was up sharply from 2007 to 2010. Relative indebtedness continued to expand from 2007 to 2010, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class actually fell in real terms by 25 percent. The sharp fall in median wealth and the rise in inequality in the late 2000s are traceable to the high leverage of middle class families in 2007 and the high share of homes in their portfolio. The racial and ethnic disparity in wealth holdings, after remaining more or less stable from 1983 to 2007, widened considerably between 2007 and 2010. Hispanics, in particular, got hammered by the Great Re cession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth  declined sharply from 2007 to 2010.

This raises, as always in my mind, the question of policy:  is the problem the boom, or the bust.  After all, there's a boom and bust cycle, and good reason to fear it.  But should we blame low interests, or the animal spirits?

Suppose I have a house, and you have a house.  Each is worth $100,000.  Then I value your house at $1,000,000, and loan you $500,000 based on that collateral.  You do the same for me.

Now each of us has a house "worth" $1,000,000, plus $500,000 in cash to go buy stuff with.  But neither of us can pay back the loan, and we both go bankrupt.  The houses, however, are still worth the same old $100,000 each will actually command in a stable market.

If you measure from the peak of the bubble, we lost a lot of wealth.  But that wealth was entirely fake, created by a revved up demand for houses as assets expected to appreciate rapidly.  (The rule in financial pricing:  "anything we all know will happen tomorrow actually happened yesterday"). existential, ontological, and epistemological question:  was there a wealth loss?  Or did the wealth never "really" exist in the first place?  And how would we know?

Social Networks

Are Close Friends the Enemy? Online Social Networks, Self-Esteem, and Self-Control

Keith Wilcox & Andrew Stephen
Journal of Consumer Research, forthcoming

Online social networks are used by hundreds of millions of people every day, but little is known about their effect on behavior. In five experiments, the authors demonstrate that social network use enhances self-esteem in users who are focused on close friends (i.e., strong ties) while browsing their social network. This momentary increase in self-esteem reduces self-control, leading those focused on strong ties to display less self-control after browsing a social network. Additionally, the authors present evidence suggesting that greater social network use is associated with a higher body mass index and higher levels of credit card debt for individuals with strong ties to their social network. This research extends previous findings by demonstrating that social networks primarily enhance self-esteem for those focused on strong ties during social network use. Additionally, this research has implications for policy makers because self-control is an important mechanism for maintaining social order and well-being.


Optimal Social-Networking Strategy Is a Function of Socioeconomic Conditions

Shigehiro Oishi & Selin Kesebir
Psychological Science, forthcoming

In the two studies reported here, we examined the relation among residential mobility, economic conditions, and optimal social-networking strategy. In Study 1, a computer simulation showed that regardless of economic conditions, having a broad social network with weak friendship ties is advantageous when friends are likely to move away. By contrast, having a small social network with deep friendship ties is advantageous when the economy is unstable but friends are not likely to move away. In Study 2, we examined the validity of the computer simulation using a sample of American adults. Results were consistent with the simulation: American adults living in a zip code where people are residentially stable but economically challenged were happier if they had a narrow but deep social network, whereas in other socioeconomic conditions, people were generally happier if they had a broad but shallow networking strategy. Together, our studies demonstrate that the optimal social-networking strategy varies as a function of socioeconomic conditions.

Nod to Kevin Lewis

Friday, December 14, 2012

P-Kroog on the Death of the Republican Party

P-Kroog in the NYT...

He makes two points.  One is that we are NOT having a debt crisis.  And he's clearly right,
in an unimportant way.  It's important to keep track of a distinction.  If I open a line of credit with a banker, then I get (say) $250k of "credit."   Then, I borrow $50k.  Compare me to someone else who has only borrowed $20k.  Who has more of a debt crisis?  It depends on the remaining credit of the other guy.  If he has a credit line of $20k, and he has borrowed ALL of it, then he has a debt crisis.  I have borrowed far more, $50k, but my credit is still fine, because lenders believe that I have a capacity to repay even more.

The amount of CREDIT the US has with the world is much, much bigger than the amount we have borrowed.  So, no one is seriously worried about us repaying.  Because a company that is bankrupt has no way of getting more revenues.  But the US could easily collect enough revenues to service its debt, just by raising taxes by 20%.  I think PK is underestimating the temporary effects of the Eurozone crisis, and our borrowing costs are artificially low because people just want to hold dollars and get out of Euros.  So the reason people are buying T-bonds is NOT because they are US debt, but rather because they are US dollars.  Still and all, sure, he's right about that.  I worry that we are going to raise taxes in the future to pay for stupid spending now, but there is no "Crisis".

As for the Republicans, his second point....gosh, I hope so!

It's not the HABBAL

So, it is useful to know HABBAL.*  And B. Nyhan is right to admonish people who blame Obama for not being able to control or direct the nut jobs who make up the U.S. Senate. 

But I think it is just fine to blame Obama for stepping up DEA and Justice Department enforcement against state-legal pharmacies and growers.  For expanding the scope and impact of executive orders and extra-constitutional decrees.  For expanding the use of drone strikes, without due process, and for imprisoning and mistreating citizens, of the world and of the US, without evidence or chance for a hearing.  For being a coward on immigration policies that are entirely in the control of the executive branch.

In short, you apologists have your heads up your Birkenstocks.  Obama is quite a bad president.  When you defend him, you are basically saying that Mussolini was better than Hitler.  Okay, yes, that's true, Obama is better than Bush was or McCain would have been.  But stop making excuses.  Obama is quite a disappointment, if you are anything but an unreasoning Democratic hack.

*How A Bill Becomes A Law.  If you don't know HABBAL, you'll be needing some more Schoolhouse Rock! 

Notice that there is nothing there about executive orders and systematic violation of the 1st, 4th, and 5th Amendment.  And THAT is why Obama is a bad President:  he ignores the Constitution.  Not because the Senate is even worse.

Thursday, December 13, 2012

Interesting Discussion of FIscal Cliff

Myself, I think the whole "Fiscal Cliff" thing is overblown.  After Simpson-Bowles specified a set of tax increases and spending cuts, as a STARTING POINT, rather larger than that that would be imposed if we go off the "cliff." (The intelligent and attractive DW has been saying this for a while, to be fair).  And I am for the most part a fan of Simpson-Bowles, if no one will take the KPC proposal of actually cutting military spending and entitlement spending F'REAL.

But, for those of you interested in the "Cliff" notes for their own sake, here is an interesting analysis by John Cochrane.*  It's not simple, but it is interesting.  There are parts I disagree with, but he raises some terrific points you won't hear in the MSM.

A nod to JR

*Misspelled earlier, corrected


1.  Playing "hard to get" as an economic tactic.  Restricting output (putout?) is a means of raising price, but ONLY if you face a downward sloping demand curve for the putout.

2.  "r-K Life History Theory of Penis Length" as an evoluntionary and cultural adaptation.

3.  Evolution of Fairness -- Variation in Bargaining Behavior

4.  The state doesn't really like to be challenged.  "Occupy" protests had one main effect--stringent new limits on protests.

5.  Turkey's TV watchdog has fined a TV channel for airing an episode of hit US animation The Simpsons which shows God taking orders from the devil.  Fundman, say it for me:  "D'OH!"

Nod to Kevin Lewis

Wednesday, December 12, 2012

Mom! He TOUCHED Me Again!

Twin boys, kicking the bejesus out of each other, in the womb.  Note that the larger twin does NOT start it; it's always the little one that makes trouble:

I assume this is what happened later. Two twin boys (with mohawks), one ball.

Nod to Angry Alex...

Tuesday, December 11, 2012

Like Shoveling Snow in a Blizzard

Like shovelling snow in a blizzard... Korea's neo-Comstockery.

Wow.  I'm pretty sure I've seen the porn video the guy is referring to.  That's not snow, buddy.  And that's no blizzard.  Ewwww....

Nod to Angry Alex.

Rule of Law...NOT

Driving in Russia.  The premise is that "everybody" has a video camera to record accidents that are not their fault, because other people lie and police are corrupt.  I'm not so sure.  The point is that these are people who have video cameras on their dashboards, so whatever that implies about selection, is implied.  Caveat inspectoris!

with a nod to Mark Fey... 

Monday, December 10, 2012

Knowledge Problem

Regulatory Fog: The Role of Information in Regulatory Persistence

Patrick Warren & Tom Wilkening
Journal of Economic Behavior & Organization, December 2012, Pages 840–856

Abstract: Regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog, the phenomenon by which regulation obscures information regarding the value of counterfactual policies. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the social planner's ability to observe the state of the world. Compared to a full-information benchmark, regulation is highly persistent, often lasting indefinitely. Regulatory fog is robust to a broad range of partially informative policies and can be quite detrimental to social welfare. Regulatory experiments, modeled as costly and imperfect signals of the underlying state, do not eliminate the effects of regulatory fog. We characterize their effects and provide a framework for choosing amongst a set of potential regulatory experiments.

Monday's Child is Full of Links

1.  Building skyscrapers in less than three weeks.  Very cool.  Because it's so simple and interesting.  And the head guy is such a nut job.  If you are going to be an arrogant ass, it's way better to be an innovator rather than just pure arrogance without accomplishment.  Donald Trump, you got nothing, 'cause this guy actually BUILDS stuff, and he makes them memorize how to brush their teeth HIS WAY.  Donald, you're fired!

2.  I'd heard about this.  But actually listening to the 911 call makes it funnier.  "I'm out in the country somewhere..."  Clearly a well-planned burglary:  he doesn't even know what STREET he's on.  Home break-ins with someone home are almost unknown in the parts of the U.S. that allow guns.  A shotgun at close range is extremely uncomfortable.  Enough so that the burglar was the one who called 911....heh.  Audio: "Hurry up, now!  My husband's fixin' to shoot him."  Not so funny:  I'm not sure what I would have done.  Guy was in the house.  You don't have to give warning, and you don't have to allow him to retreat.  This homeowner didn't panic, though, and he did the right thing.  No reason to shoot.  I'm just saying I might not have been that brave.  Just being in the house is enough for me to infer "bad intentions."  If I had had a shotgun, I would certainly have shot him in the legs and then asked questions.  Well done on the homeowner.

3.  Forget the "Easy" button.  What you need for dire situations is Vader's "NOOOOOO!" button.

4.  There may be some complex relation to Obamacare/ACA.  No employees necessary (because health care is expensive) to make the kind of meal (giant hamburgers) that make health care necessary.  The burger-bot.

5.  Not sure all of these "funny headlines" are real.  But they are real funny.

6.  My friend Chris Alcantara writes about the "flipped classroom," game theory edition.  Nice!

(Nod to Angry Alex and Anonyman)

Sunday, December 09, 2012


Many words being spilt in UC's logo-gate. Here's an example:

The newly designed monogram of the University of California, while attempting to be modern, loses the prestige and elegance of the current seal.

Have a gander;

Let's give this kerfuffle the KPC breakdown:

(1)  there is nothing elegant about the original seal. A star, a book, and a plagiarized quote that makes no sense in this context.

(2) The second seal (sounds like we're discussing a Bergman movie) isn't "attempting" to be modern. It is modern and pretty cool at that.

(3) Most importantly, the seal doesn't give prestige to the institution, the quality of the institution gives prestige (or recognition) to the seal! Harvard isn't Harvard because of the prestige of their seal. It's the other way around.

Do Violent Video Games Make Violent People?

Violent Video Games Stress People Out and Make Them More Aggressive

Youssef Hasan, Laurent Bègue & Brad Bushman
Aggressive Behavior, forthcoming

It is well known that violent video games increase aggression, and that stress increases aggression. Many violent video games can be stressful because enemies are trying to kill players. The present study investigates whether violent games increase aggression by inducing stress in players. Stress was measured using cardiac coherence, defined as the synchronization of the rhythm of breathing to the rhythm of the heart. We predicted that cardiac coherence would mediate the link between exposure to violent video games and subsequent aggression. Specifically, we predicted that playing a violent video game would decrease cardiac coherence, and that cardiac coherence, in turn, would correlate negatively with aggression. Participants (N = 77) played a violent or nonviolent video game for 20 min. Cardiac coherence was measured before and during game play. After game play, participants had the opportunity to blast a confederate with loud noise through headphones during a reaction time task. The intensity and duration of noise blasts given to the confederate was used to measure aggression. As expected, violent video game players had lower cardiac coherence levels and higher aggression levels than did nonviolent game players. Cardiac coherence, in turn, was negatively related to aggression. This research offers another possible reason why violent games can increase aggression — by inducing stress. Cardiac coherence can be a useful tool to measure stress induced by violent video games. Cardiac coherence has several desirable methodological features as well: it is noninvasive, stable against environmental disturbances, relatively inexpensive, not subject to demand characteristics, and easy to use.


The More You Play, The More Aggressive You Become: A Long-Term Experimental Study of Cumulative Violent Video Game Effects on Hostile Expectations and Aggressive Behavior

Youssef Hassan et al.
Journal of Experimental Social Psychology, forthcoming

It is well established that violent video games increase aggression. There is stronger evidence of short-term violent video game effects than of long-term effects. The present experiment tests the cumulative long-term effects of violent video games on hostile expectations and aggressive behavior over three consecutive days. Participants (N = 70) played violent or nonviolent video games 20 minutes a day for three consecutive days. After gameplay, participants could blast a confederate with loud unpleasant noise through headphones (the aggression measure). As a potential causal mechanism, we measured hostile expectations. Participants read ambiguous story stems about potential interpersonal conflicts, and listed what they thought the main characters would do or say, think, and feel as the story continued. As expected, aggressive behavior and hostile expectations increased over days for violent game players, but not for nonviolent video game players, and the increase in aggressive behavior was partially due to hostile expectations.

Nod to Kevin Lewis