Angus gets nudged!

So Richard Thaler has an NYT op-ed, The Power of Nudges for Good and Bad

You can read it here.

I thought it was a bit unbalanced, and I tweeted the following:

Shorter version of @R_Thaler: Government nudge good, Private nudge bad. https://t.co/Trv12cjg8V

— kevin grier (@ez_angus) October 31, 2015

Richard was not pleased and tweeted back (he's pretty aggressive on Twitter):

Total and willful misread. Nudges can be good or evil from either source. https://t.co/oG6vAw6Yh7

— Richard H Thaler (@R_Thaler) October 31, 2015

"Total" is a matter of fact, and can be discussed "Willful" is just a cheap shot.

As to whether or not I misread it, here is Thaler in the piece:


"As far as I know, the government teams in Britain and the United States that have focused on nudging have followed these guidelines scrupulously. But the private sector is another matter. In this domain, I see much more troubling behavior."

So I tweeted a 140 character version of that quote back to him and dropped the mic.

But then Richard tweeted,

@FarmerHayek @ez_angus I have said the opposite dozens of times. Read the book!
— Richard H Thaler (@R_Thaler) October 31, 2015


And then I realized, "hey Angus, you got NUDGED"!!!

Though it's not clear to me how the first sentence in any way incentivizes me to follow the command in the second.

Blog it out, bros

So Eduardo Porter wrote this, where he lets John Bogle apparently say that passive investing could fix "the greater part" of America's retirement savings "shortage".

Then two of my internet buds, Noah Smith and Ryan Decker threw down.

Here's Ryan.

Here's Noah.

Now if people are approaching retirement with $104,000 and we decide that they need $500,000 or more, then clearly active investing fees are not "the greater part" of the problem. I gotta give that one to Ryan.

But, just because people do things that we think are a problem, doesn't mean it's actually a problem or crisis. Maybe people want to enjoy stuff while they are young and are willing to deal with a lower standard of living when old. I gotta give that one to Noah.

All that said, in general and on average over the long run, people are going to be notably richer from going with the low fee, buy and hold, passive investing approach. Even though his quotes in the Porter piece were messed up, I gotta give that one to Bogle.

Put more pudding on my platter

People, it's no mystery why we are fat. We are fat because the costs of being fat have fallen.

We don't have to be in shape to do our jobs and live our lives.

Calories have never been cheaper.

It has never been harder to die from a heart attack.

If you clog up your arteries they give you a pill, or router out the clogs, or just put in replacements. Hell, they'll even just give you a new heart if you destroy the one you have.

As a wise man once said, "solve for the equilibrium". All the Cass Sunstein's and Miguel Bloombitos, and Sarah Conly's of the world don't stand a chance.

Fat is the new skinny.

PS: should the opposite should be true for drugs and alcohol? Discuss

Caption Contest

So, please put in the best caption, in comments. (This picture is from the SFL conference at Salem College; pic taken by Mark Benfield).

Feel free to click for an even more ridciulous image...


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Are firms acting irrationally by not investing more?

In an amazingly hubristic NY Times opinion piece, Richard Thaler tries to nudge American companies into doing the right thing:

Corporations are hoarding cash at record rates. The Federal Reserve recently reported that nonfinancial companies in the United States were holding more than $2 trillion in cash and other liquid assets — money that is earning next to nothing. A considerable amount of that cash has been accumulated in the last two years — and the totals exclude the substantial sums the companies hold abroad in foreign subsidiaries. Of course, it can be sensible for businesses to have a source of emergency cash, but many appear to be stockpiling so much that it’s hard to imagine what emergency they fear. To cite just one example, Google is holding more than $39 billion in cash...

Yet is such caution rational? As a shareholder, I would worry about a company that says it can’t find investments that can reasonably be expected to earn well above the tiny return of its cash.

Investment does not necessarily have to involve increasing capacity. Are there no plants or equipment that need upgrading? No promising research-and-development opportunities to be explored? Not even any parking lots that need to be repaved and painted?

I also do not buy the idea that companies need all this cash for acquisitions. If they really want to buy another business, they can issue stock to do so.

It's pretty hard to unpack all the errors/hubris in this quote, but let's try.

The biggest error Thaler makes is that he implies that the idea that firms are acting irrationally by delaying investment can be confirmed by the fact that positive NPV projects are not being done.

"Yet is such caution rational? As a shareholder, I would worry about a company that says it can’t find investments that can reasonably be expected to earn well above the tiny return of its cash."

The problem with this "logic" is that it is contradicted by the entire body of modern economic literature on investment. The literature shows that there is an option value to waiting to invest until conditions are favorable.

See for example "The Value of Waiting to Invest" by McDonald & Siegal (QJE 1987 cited over 2000 times according to Google Scholar) or "Waiting to Invest: Investment & Uncertainty", by Ingersoll & Ross (Journal of Business 1992 cited over 350 times according to Google Scholar).

Here's a crucial sentence in the Ingersoll & Ross abstract:

"The ability to delay a project means that almost every project competes with itself postponed"

The second mistake Thaler makes is downright embarrassing. He seems to assume that investment by firms is actually zero!

Are there no plants or equipment that need upgrading? No promising research-and-development opportunities to be explored? Not even any parking lots that need to be repaved and painted?

Umm, what evidence does Thaler show that these routine tasks are not being undertaken? Firms are sitting on a lot of cash, but firms are also currently investing over $1.5 trillion dollars (in 2005 dollars) this year. That should be enough to pave a few parking lots.

Finally, Thaler informs us that: "I also do not buy the idea that companies need all this cash for acquisitions. If they really want to buy another business, they can issue stock to do so."

Amazing! This is true just because he says so? The horrible condition of the stock market, the problems in the IPO market (which is different but clearly related) are apparently irrelevant; just issue stock, you bungling morons!

This is really one of the worst editorials I've ever seen by a respected economist.

Iz our children learning?

No George, but our teachers are cheating and that's almost the same thing, innit?

"Award-winning gains by Atlanta students were based on widespread cheating by 178 named teachers and principals, said Georgia Gov. Nathan Deal on Tuesday. His office released a report from the Georgia Bureau of Investigation that names 178 teachers and principals – 82 of whom confessed – in what's likely the biggest cheating scandal in US history.

This appears to be the largest of dozens of major cheating scandals, unearthed across the country. The allegations point an ongoing problem for US education, which has developed an ever-increasing dependence on standardized tests.
The report on the Atlanta Public Schools, released Tuesday, indicates a "widespread" conspiracy by teachers, principals and administrators to fix answers on the Criterion-Referenced Competency Test (CRCT), punish whistle-blowers, and hide improprieties."

Sounds like a RICO case just waiting to be filed.

All you need is a good press agent

Amazing headline from Reuters: "PUTIN FROLICS WITH SNOW LEOPARD"

Here's the lede:

Russian Prime Minister Vladimir Putin frolicked with the real-life mascot of the 2014 Winter Olympics over the weekend, an endangered snow leopard that had been injured in the valleys of central Siberia.

The cat is called "Mongol" by local scientists who rescued it after a harrowing ordeal at the hands of poachers.

Putin broke a business trip to Russia's Far East to visit it in the Khakassia region some 3,500 km (2,000 miles) east of Moscow.


Ummm, OK, so Vlade is a judo black belt, I guess he is well equipped to frolic with a full grown wild animal with a full set of teeth and claws. Maybe he will ride it? or carry it on his shoulders? or just snuggle with it?

Now here's a link to the video showing what passes for frolicking when you are the dictator of Russia and the international press LOVES you.

Apparently frolic actually means to pose crouching for the cameras 10 feet away from the perimeter of the cage holding the snow leopard!

Plenty of other memorable Putin moments in the video as well!!

In Socialist Sweden, Piano Plays YOU!

Maybe Cass Sunstein can make the cap & trade bill look like a jack-in-the-box??