Friday, October 31, 2008

Why Fiscal Stimulus Stimulates the Wrong Things

If you want a perfect demonstration of how an understanding of public choice and rent-seeking can change what kind of policy recommendations you should make, then have a look at this post from Greg Mankiw:
If there is going to be another fiscal stimulus, there will likely be a division between those who want tax rebates to households and those who want to help states pay for extra infrastructure spending. I have a compromise, based on the grand U.S. tradition of federalism: Let each state decide.

Congress could pass a fiscal stimulus of a certain amount per person but offer two ways to have it paid out. Each state governor could be allowed to determine whether to take the money as state aid or have it paid directly to his or her state's citizens. Those governors who think they have valuable infrastructure projects ready to go would take the money. Those who do not would let their citizens take the extra cash. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters.
So, first we'll have all the rent-seeking at the Federal level, which will encompass those trying to avoid being taxed for it and those who want the receipts as riders to the bill. Followed by a new round of rent-seeking at each of the 50 states as they doll out the goodies.

Survey of NFL Players

Labor is polled on the management, results reported by Kansas City Star, n=1440 with response rate=.8:

Which active coach they would most like to play for:
1. Tony Dungy (Indianapolis Colts)
2. Lovie Smith (Chicago Bears)
3. Bill Belichick (New England Patriots)
4. Herman Edwards (Chiefs)
5. Mike Tomlin (Pittsburgh Steelers)

The least?
1. Tom Coughlin (Giants)
2. Eric Mangini (Jets)
3. Jon Gruden (Tampa Bay Buccaneers)
4. Bobby Petrino (formerly of the Atlanta Falcons)
5. Bill Belichick (New England Patriots)

The worst organizations:
1. Oakland
2. Miami
3. Arizona
4. Cleveland
5. Cincinnati

The best:
1. New England
2. Indianapolis
3. Dallas
4. Green Bay
5. Pittsburgh

Time for compensating differential study!

From the Department of Hhmmmm...

That was CNN's homepage at 8:18 am Eastern on 10/31/2008.

Attn: California; Subject: The Problem is Prices

From the AP:
California said Thursday that it plans to cut water deliveries to their second-lowest level ever next year, raising the prospect of rationing for cities and less planting by farmers.

The Department of Water Resources projects that it will deliver just 15 percent of the amount that local water agencies throughout California request every year.

Since the first State Water Project deliveries were made in 1962, the only time less water was promised was in 1993, but heavy precipitation that year ultimately allowed agencies to receive their full requests.

The reservoirs that are most crucial to the state's water delivery system are at their lowest levels since 1977, after two years of dry weather and court-ordered restrictions on water pumping out of the Sacramento-San Joaquin Delta. This year, water agencies received just 35 percent of the water they requested.

Farmers in the Central Valley say they'll be forced to fallow fields, while cities from the San Francisco Bay area to San Diego might have to require residents to ration water.
Rationing. Get used to it, it's not just for water anymore.

Thursday, October 30, 2008

MNF Ruins My Perfect Election Season

I have carefully avoided interveiws and debates throughout this entire election process. It's something I'm pretty happy about, that instead of watching these socialists discuss how they plan to level our liberties, I have spent time with the family or at least watching good TV.

I have received no help on in my avoidance, however, from TV. Late night shows I expect this from, but I was truly annoyed when they canceled The Office for the VP debate. I didn't go for their ploy to con me into watching the campaign just because my show wasn't on.

However, the next stooge in the game is ESPN's Monday Night Football. DURING the game, they will be splicing Chris Berman's one-on-one interviews with each of the candidates. WTF! Now I would have to avoid the entire game just to dodge the inane double talk of the campaign. Unfortunately, my interest in hoping Pittsburgh loses some ground will outweigh my desire to dodge the election, thereby ruining my otherwise perfect record of indifference.

What's the problem?

People have some pretty strong thoughts on placebos; CNN implies this morning that the action of knowingly prescribing a placebo is "awful" and "deceptive."

But is it really that bad? You have to consider the following situation: Let's consider all previous ailments you had in the past that no longer afflict you (so as not to change the placebo mindset and possible effectiveness of any current medication you are taking) in which you were prescribed medication. If you were told today that every single medication you were prescribed was a placebo, how could you be upset, strictly concerning the medication's efficacy towards your condition? I suppose if you felt that the medicine didn't do anything to help your condition you could have an issue-- but the usual response is not to sit and complain about the ineffective medicine, it's to go back to the doctor and get something else that works. And if that was placebo #2 instead of placebo #1...again, can you really have a complaint?

FDA regulations require that new medicines, in general, outperform a placebo. So, if medicine X has a 10% success rate, yet a placebo also has a 10% success rate, that medicine can not go to market. Obviously, why prevent a medicine with a positive success rate from going to market, but in addition-- if a placebo has a 10% success rate, why not sell the placebo!?

In an unregulated medicine market, those companies and those medicines that rely on placebo effects will be weeded out should that effect wane.

Wednesday, October 29, 2008

Assorted thoughts, October 29 edition

- I noticed a shuttle to take people to the early voting booths this afternoon on its way through campus; presumably, the idea of voting over a span of time should increase the turn out, and so too should the availability of a shuttle to take you there as well.

Some may think that this increased voting would cut against the rational voter hypothesis-- quite the opposite, actually, as decreasing the cost of voting yields a higher turnout rate. Are these shuttles/early voting times varied across states? That's testable!

- I've heard a decent amount recently about the Washington Redskins proclivity to predict the winner in an upcoming presidential election. The theory goes as follows: In their last home game prior to the election, if Washington wins, then the incumbent party remains in power, and if they lose, the challenging party assumes the presidency. In 2004 it did not hold true, but in every presidential election prior to that it did, all the way back to 1936. I think I'm hearing about this because I receive Pittsburgh television broadcasting, and the Steelers are playing in Washington on Monday night.

Let's assume that this were a causal relationship-- through what mechanisms could this be true? I'm having a hard time even pulling something out of thin air. Would a better Washington team mean, across the board, the rest of the NFL cities are doing worse, and that means we want to keep the same party in office? Elections are on a Tuesday and the NFL plays on Sunday/Monday-- is there enough of a national Redskins following to have a national impact on elections immediately following the outcome of a game? Is there reason to believe that the success of Washington's football team is coincident with political cycles?

Yes, it's spurious correlation, but from 1936 to 2000-- that's 17 straight successes for a (presumably) 50/50 outcome. That just doesn't happen. (Though I believe there was one season where the St. Louis Rams lost the coin toss every single week, or something close to that.)

- What do you do when there's malinvestment in the economy? Add more credit!

-Here's an interesting result from Vegas concerning the ever intriguing Game 5 of the World Series. Just to clarify-- the possibility still exists that you could have bet the Phillies to win every single game of the World Series, have had it paid off four times, yet Tampa Bay could take home the trophy. Who doesn't love Vegas?!

By the way, the decision to postpone the game was a big edge for Tampa Bay-- Philly now has had a few days to think about winning 3 innings. Hamels could probably have gone another inning or two-- now he's out. And Balfour is a reliever who is used to working on sporadtic pitching schedules-- now he's basically on full rest coming into the 6th inning, with Price in the pen in case things drag on. And Philly doesn't want to go to Tampa. And Tampa has seemed to have their big players begin to produce now. In baseball, things even out over the long run, and even a World Series isn't long enough to always determine the best team, so 3+ innings tonight certainly could fall anywhere. But if you're Tampa, you've got to feel better after 6 innings than you did right before the first pitch of Game 5.

Tuesday, October 28, 2008

Will Politicians Keep Their Campaign Promises?

According to my colleague here at SPEA, Evan Ringquist, they will about 70% of the time on environmental issues. I hope it is lower on economic issues. Here's the abstract from his paper, published at Social Sciences Quarterly (sorry, gated only):
Objective. The extent to which candidates for elected office keep their campaign promises holds great interest for citizens and has important consequences for the quality of democracy. However, we know very little about whether candidates actually keep these promises. This article examines the relationship between campaign promises and the subsequent legislative behavior of members of Congress in the area of environmental protection. Methods. Responses to the 1996 National Political Awareness Test (NPAT) are matched with roll-call data on environmental issues from the 105th Congress. A series of bivariate probit models with selection are then used to assess the extent to which roll-call votes are consistent with candidate policy statements in the NPAT. Results. We find that members of Congress vote consistent with their campaign promises 73 percent of the time, and that NPAT responses help to predict roll-call votes even when controlling for party, race, gender, campaign contributions, and previous environmental voting record. We also find that the propensity to keep campaign promises varies systematically across types of legislators. Conclusions. Contrary to public perceptions, candidates for Congress routinely act to keep their campaign promises once elected, at least in the area of environmental protection policy.


Hayek used the word "catallaxy" not only to mean exchange, but taking from the Greek meaning to "admit into the community" and "to change from enemy into friend". The photo taken yesterday shows Christian and Islamic images on carpets hanging in a marketplace in Baghdad. A small piece of evidence of markets supporting peaceful social coordination among socially distant agents?

Saturday, October 25, 2008

Winning Paper

The Society for the Development of Austrian Economics has selected TPS blogger Emily Schaeffer's paper, "Mixed Income Development Housing: What’s Left in Neighborhood Economic Planning" as one of the winners for the Don Lavoie Memorial Essay Competition. The prize is $1,000 and a place on the SDAE panel to present it at the Southern Economics Association meeetings. Congrats Emily!

What You Don't Know Won't Hurt You.

My colleague, Jason Aimone, has an interesting paper with Dan Houser on "betrayal aversion". Here's the abstract:
Trust promotes economic growth and development, and previous research has shed much light on reciprocity and other motives for trusting decisions. Why people choose not to trust has received substantially less attention, perhaps in part because not trusting is predicted by standard economic theory: selfish people consider the (perhaps subjective) stochastic nature of the environment and make the earnings-maximizing decision. This explanation is incomplete: we provide evidence from a laboratory analysis with an investment game that people’s decisions vary according to how an environment’s uncertainty will be resolved. In particular, if resolving uncertainty requires an investor to learn whether her trustee chose to betray then she is much less likely to trust. Our data thus provide evidence that “betrayal aversion” detrimentally affects propensities for trusting decisions. Our results also emphasize the importance of impersonal, institution-mediated exchange in promoting investment and economic efficiency.

Thursday, October 23, 2008

Pure Public Choice

From the IndyStar:
The state Democratic Party is accusing Republican U.S. Rep. Mark Souder of inappropriately seeking a $1 million federal grant for a project involving a company in which he owned stock, a charge the congressman denies.

Indiana Democratic Party spokeswoman Lauren Smith pointed out that Souder, who bought stock in Warsaw-based medical device maker Biomet in 2003, announced that he had secured the grant that Biomet and two other orthopedic companies would share with three Indiana universities and then sold the stock last year.
Sarcasm On: I'm sure all of this is the function of the political party, not the incentives facing the individual.

Things that frustrate me, October 23 edition

- That trade deficits are bad. Maybe this just especially gets me because it's in tomorrow's State Journal. I thought I'd done a workman's-like job of culling such nonsense from these pages over the last few years. Then again, it is from the West Virginia Center on Budget and Policy, whose beta is as close to -1 as I've ever witnessed.

- That economic diversification is the best/safest/insert-your-adjective-here path for economic growth.

- The belief that we have entered into a "new economy," and that this "new economy" requires a re-thinking of economics as a whole and of the role of the public sector. It just occurred to me now, but is this the leftists circling the wagons, coming up with a new push and ceding defeat on past margins? Perhaps that's a bit too optimistic.

- That the current financial situation is what happens when you leave the free market to its own devices.

- That some regulation is crucial to protect the little people and to keep big profit-driven companies in line.

The last three are culled from topics that came up during a panel discussion I recently participated in.

Stiffling Housing Demand

If this was KPC, the title of this post would be something like "Housing Demand: yer doin' it wrong!"

Anyway, many have suggested that allowing more immigration to help prop up housing prices as a possibility to help slow the spread of foreclosures. However, according to Miriam Jordan of the WSJ the U.S. is doing precisely the opposite (Hat Tip to Philippe Legrain for the article pointer):
Dubbed ITIN mortgages, the loans that made homeownership a reality for thousands of undocumented workers have withered -- although not because they underperformed.

The loan program highlights contradictions in U.S. polices toward illegal immigrants. Even as the Department of Homeland Security sought to deport them, the Federal Deposit Insurance Corp. goaded banks and credit unions to bring undocumented immigrants into mainstream banking if they could prove they had steady income and were creditworthy. Beginning in 2003, when banks and credit unions first offered mortgages to undocumented immigrants, the small segment blossomed. The mortgages performed better than some others, partly because of stringent lending criteria and because they usually had fixed rates over a period of time.
But amid the crackdown on illegal immigration and the economic slowdown, the market for immigrants who boast the alternative nine-digit taxpayer ID is dying.
"If you want to buy a house and you're here without papers, now you can forget it," says Jesus Benitez, a real-estate agent who caters to Hispanics in Brooklyn.
Bank of Bartlett, a small bank that serves the greater Memphis area, endured the "political heat," says John Byrd, president of Bartlett Mortgages, a unit of the Tennessee bank. "We felt we were doing the right thing; these people had been working here many years and paying taxes." All told, the small bank originated about $20 million in ITIN mortgages over four years, each worth about $100,000. Less than 5% of Bank of Bartlett's ITIN loans are delinquent. Nationally, for loans more than 90 days in arrears, ITIN mortgages had a delinquency rate of about 0.5% last year, compared with 9.3% for subprime mortgages, according to independent estimates.
Unwilling to shoulder the risk alone, Bank of Bartlett and others began withdrawing from the ITIN home-loan market -- though they continue to service their current clients.

Your Morning Moment of Zen

From an Obama sponsored ad on Facebook:

Politicians do these kind of pictures because it works on voters.

Wednesday, October 22, 2008

World Series Betting

The World Series begins tonight, and whoever wins we'll get a fantastic scenario-- the World Series trophy residing in Tampa Bay (!) or Philadelphia fans who are likely to boo the championship parade. Personally, I like Tampa Bay in the matchup-- I think they're just a little better on all margins in the pitching/defense/offense comparison-- but a short series can be won by an inferior team. (St. Louis was far worse than Detroit in 2006 and won the Series in a remarkably easy 5 games.) Anyhow, I'm especially excited to see how Hamels pitches the Tampa Bay lineup this evening.

Nonetheless, I believe there may be something of interest on the betting end of things; at this point, it may be too late to do anything about it, but it struck me this morning as I was driving. Tampa Bay, as you may or may not know, is a young franchise that has been remarkably bad up until this season. Not surprisingly, the general consensus was that Tampa Bay was in for another awful season, so the getting was good on a title bet on Tampa Bay prior to the season, through Spring Training and into the first few weeks of the season. And you don't need to put much money down in order to have a 100-to-1 (or greater) bet become pretty valuable if things shake out your way.

As TPS gambling consultant Rob Holub has let me know (numerous times over the year), the sportsbooks were a bit slow on adjusting their Tampa Bay win-the-World-Series line for the entire season. On May 14, Tampa Bay to win the World Series could have been had at 100-to-1. Tampa's record on May 14 was 23-17, which was slightly pace in terms of the rest of the season-- certainly, the inertia from their franchise history kept the odds very high. And a number of people jumped on board, if for no other reason than to root for Tampa Bay for the rest of the summer.

The problem for the sportsbooks was that Tampa Bay kept on winning. Now there is a large potential payout should the Rays pull it out. This article here talks about the situation, but I think it misses the larger issue. Should you be sitting on a large potential Tampa payout, the risk-minimizing thing to do is to turn your position into a risk-free payout by hedging your bet by betting Philadelphia to win the Series. This is the situation that sportsbooks have to dread-- not that they could be in trouble if Tampa wins (which could well be the case), but that they could have to pay out a large amount of money no matter who ends up winning. Whether Tampa wins or not, I'd be surprised if lines lingered at 100-to-1 or more for any length of time in the future, due to the exact scenario described above.

The interesting part to ponder is exactly what effect this will have on the posted lines for the World Series itself. In years past, the hedging of bets shouldn't have affected (in a large manner) the overall odds on the Series; so long as the hedging is about equal on both sides of the matchup (no reason to believe it would be largely skewed one way or the other in the recent past-- perhaps someone can correct my memory), the line should be a pretty good indicator of the subjective mindset on the outcome of the Series. And, in the long run, this subjective probability should mimic the objective probability pretty closely. (Systematic bias issues aside, of course, though I'm not aware of any within the scope of this situation.) But this year, you could have a large push on one side from people who aren't utilizing any special information to their advantage, just simply improving their position in a risk/reward sense. And this could lead to odds that don't reflect the true public belief of the outcome-- and given an unrestricted gambling market, this is pretty remarkable.

I guess an arbitrage model would have all of those hedges pushed back to the subjective-matching-objective level, but with so much uncertainty in baseball outcomes...should we expect that to happen? On top of that, is volume robust enough to generate the pure market outcome? The latter wouldn't worry me as much as the former; I think if you're a confident handicapper (and nothing outlandish happens over the next few weeks), I think there's a market discrepancy to be taken advantage of. Which, again, spells not good things for the sportsbooks.

Rob, what's your take on this? You follow the lines much closer than I do-- what has the movement on the series line been since it opened late Sunday?

Stossel on Permits and Licenses

Stossel's 'Politically Incorrect Guide to Politics' is quite entertaining and informative. (It's available on YouTube in 6 parts.) The third segment examines a topic of great interest to me -- which I discuss in my working paper Restricting Reconstruction -- how the government creates great barrier to rebuilding and repair of New Orleans through permitting and licensing requirements

The X-Files, Economics Edition: Revisited

Pete Leeson and I are currently working on an economic explanation for UFO sightings across states. In a previous post over at the Freakonomics blog, we showed a strong positive correlation between UFO sightings and Bigfoot sightings. Our goal behind doing so was to show that the sightings are clearly motivated for economic reasons not because they actually exists (Why would UFOs and bigfoot visit the same state?)

We now have new preliminary results suggesting that UFO Sightings are strongly correlated with several different measures of tourism. Both state park acres and hotel expenditures are positive and significant in explaining the number of UFO sightings. This holds after controlling for income and urban population. We also find that UFO sightings are positively and significantly related to state and local government spending.

I am interested in getting feedback to see what you think. We recognize that at this point the relationship may not be causal, but I think these basic results are strongly suggestive that individuals may 'see' UFOs if there is an economic reason to do so.

Tuesday, October 21, 2008

Update on Labor Demand: Still Downward Sloping

Even for single mothers. Here's the abstract of Joseph Sabia's paper in the new issue of JPAM:
Using pooled cross-sectional data from the 1992 to 2005 March Current Population Survey (CPS), this study examines the relationship between minimum wage increases and the economic well-being of single mothers. Estimation results show that minimum wage increases were ineffective at reducing poverty among single mothers. Most working single mothers were not affected by minimum wage hikes because they already earned wages above state and federal minimum wages. And less-educated single mothers who were affected did not see a rise in net income because of negative employment and hours effects. For this low-skilled population, a 10 percent increase in the minimum wage was associated with an 8.8 percent reduction in employment and an 11.8 percent reduction in annual hours worked.

How Do I Distinguish Between Bad Scientists and Confirmation Bias?

On the environment, by Lorne Gunter:
In early September, I began noticing a string of news stories about scientists rejecting the orthodoxy on global warming. Actually, it was more like a string of guest columns and long letters to the editor since it is hard for skeptical scientists to get published in the cabal of climate journals now controlled by the Great Sanhedrin of the environmental movement.
On economics:
And free trade is not the only sacred subject, Mr. Blinder and other like-minded economists say. Most efforts to intervene in the markets — like setting a minimum wage, instituting industrial policy or regulating prices — are viewed askance by mainstream economists, as are analyses that do not rely on mathematical modeling.
Both articles claim that confirmation bias crowds out the good science, which is "global cooling" in the environment and "free markets are bad" in the economics article. I know enough economics and about the response to Blinder's work on the minimum wage (published in AER, later refuted with own data) to feel confident in dismissing the confirmation bias argument in the second article. However, I have 3 concerns:

1) Given that I am unqualified to weigh environmental evidence, should I assume the same would be true in environmental science as I feel it is in economics?

2) In observing a debate among scientists, where one side is claiming confirmation bias while the other was claiming bad science, how could I discern the truth without years of dedicated study?

3) If my research leads to controversial results that are greeted harshly by the mainstream, how can I tell whether or not I am working against confirmation bias or if I am simply not as good of a scientist as I would like to think I am?

Universities Do Not Operate in the Economy

I've been seeing this a lot recently, an example from the IDS:
Ambitious plans and a sputtering economy might put pressure on IU trustees to find other ways to balance their budget, such as increasing tuition and cutting back on employee pay, IU officials said.
During a recession, cutting back on labor costs is not unusual, but charging your customers a higher price?

Monday, October 20, 2008

A Wonderful Day on the Blogosphere

When Bryan Caplan puts out a post on the Tiebout model, and I scroll down to find a comment from Bill Fischel, whose Homevoter Hypothesis I have previously admired as the most underappreciated theory in economics. First, Caplan asks:
The economist Charles Tiebout is famous for analogizing local government to perfectly competitive firms. His model inspired this question on my last public finance midterm:

If the Tiebout model were correct, how would you expect local governments to raise revenue? Carefully explain your answer.

Who wants to take a stab at this? I'll post my preferred answer as a followup.
To which Fischel responds in the comments (#22):
A student pointed this question out to me, so let me give it a try. There is some literature on this that suggests that a land tax is the ideal method. It is incentive compatible (you don't want to trash your neighbor because it would lower taxable values) and it has no deadweight loss. Henry George had a point. I have argued that a system of local zoning with ordinary property taxation (land and buildings) is actually a pretty good approximation of a land tax in a Tiebout model. The citation is (please excuse my pedantic aside) Fischel, William A. 1998. “The Ethics of Land Value Taxation Revisited: Has the Millennium Arrived Without Anyone Noticing?” In Land Value Taxation: Can It and Will It Work Today? ed. Dick Netzer. Cambridge, Mass.: Lincoln Institute of Land Policy. The reason zoning is essential is that it keeps supply of capital inelastic (in fixed proportion to land), so the tax on both is like a tax on land. A related argument is Glaeser, 1996. “The Incentive Effects of Property Taxes on Local Governments.” Public Choice 89 (October): 93-111. I was a little surprised to learn that Bryan had asked this question, since I gather that he does not think too highly of voters' ability to make rational decisions, one of which would be choice of tax base. I would demur on that on the basis of median voter evidence and Condorcet's jury theorem, but now I've really veered from the topic.
I'm actually preparing to speak at Beloit College on Fischel's Homevoter Hypothesis as a prelude to my current research, and I've already incorporated a slide that defends both Fischel from Caplan and Caplan from Fischel. In short, voter's at the municipal level are more likely to pay a price for irrational beliefs and respond by voting wisely with respect to their housing prices.

Copper Thefts

Life is full of cost/benefit decisions; theft is not less applicable to this reality than buying a hamburger or voting. (HT: Gary Becker) So, if you see the scrap price of copper rise, what do you expect? More theft of copper.

I wonder if you could track thefts at gas stations as well-- false credit cards used, people leaving without paying the bill, etc. It should hold true there as well.

The Bayesian probability of an Obama majority is 53%

Today's Gallup Poll states:
Gallup Poll Daily tracking from Friday through Sunday gives Barack Obama an 11 percentage point lead over John McCain in the presidential vote preferences of all registered voters, 52% to 41%.
Sounds like Obama will win by something like 11%, but here's an alternative Bayesian interpretation, just for fun:

The survey has a +/- 2 % sampling error, implying that the true Obama vote is between 54 and 50 percent (for what I suspect is a 95% confidence interval), and between 43 and 39 for McCain. The relevant question is actually: What is the probability that more registered voters will vote for Obama (BO) than McCain, based on the polling data we have available? In other words, we want to know p(BO|poll data). Bayes' Theorem tells us that this is proportional to p(BO) multiplied by p(poll data|BO).

If we ignore the other candidates, a binomial distribution can give us the likelihood for p(poll data|BO) by defining a "success" as a vote for Obama, and a "failure" a vote for McCain. From the poll cited above and the 3 previous polls prior to it, we can adjusting to eliminate the third parties, we can create the following Table:

Oct. 19-16 Oct. 15-13 Oct. 13-11 Oct. 12-10 Totals
Obama 1455 1365 1424 1419 5664
McCain 1175 1198 1173 1141 4687

Total 2630 2563 2597 2560 10351

So, using these we get p(poll data|BO) = BO^{1455} (1-BO)^{1175}, where BO is the proportion of the population voting for Obama. Now we need to define the prior p(BO), which would probably be best served by defining it as a beta distribution, using the sums of the 3 prior polls as alpha and beta:
p(BO)=BO^{4209-1} (1-BO)^{3512-1}
So, multiplying these functions will yield Bayes' Theorem as:
p(BO|poll data) "propto" BO^{5663}(1-BO)^{4686}
Graphically, it takes the following shape:
The horizontal axis is the proportion of the population voting for Obama, and the vertical axis demonstrates the result of this function after normalization. To answer to the question "what is the probability Obama will receive more votes than McCain?" is the result of summing the area under curve to the right of 0.50 on the x-axis, which is approximately 53.12%.

The interpretation is a bit clearer than the confidence intervals generated by Gallup and it incorporates prior survey results as well. The Gallup poll simply told us that the true share of the voters for Obama based on the single survey data will be somewhere between 50 and 54% and that McCain would get between 39 and 43%.

Here is my Excel file, if you care to play with it or change the numbers to try different assumptions. Enjoy!

Note: The poll data is different from the CNN Opinion poll currently occupying their homepage, even though they are frequently citing Gallop polls.
Update: This CNN story could use a refresher course in Bayesian Theory.

British Navy Goes Green

Angus at KPC points us to this article:
THE Royal Navy, once the scourge of brigands on the high seas, has been told by the Foreign Office not to detain pirates because doing so may breach their human rights.

Warships patrolling pirate-infested waters, such as those off Somalia, have been warned that there is also a risk that captured pirates could claim asylum in Britain.
I suspect the Foreign Office is simply deciding to do battle with global warming instead of pirates:

An economics blog cannot discuss pirates without providing you with a link to Peter Leeson's work.

Friday, October 17, 2008

Buffett Takes My Advice to Buy Low

Though he doesn't cite me ;(

"In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary," Buffett wrote.

But for that reason, the Berkshire CEO said, he has converted his personal portfolio almost entirely to U.S. stocks. Previously, he said he owned nothing but Treasury bonds.

My previous tongue-in-cheek gloating about my benefiting from the financial crisis here.

Quote of the Day: October 17

I'm a label-making fool today!

Here's a good quote, courtesy of the Georgia Public Policy Foundation's Friday Facts:

"The government is good at one thing ... it knows how to break your legs, and then hand you a crutch and say, 'See, if it weren't for the government you wouldn't be able to walk.'"
- Harry Browne

Midway Airport privatized

The lease seems to have been signed about a week and a half ago; $2.5 billion upfront to run the place for the next 99 years. TPS Chicago-ites (Chicago-ers? Chicagans?), I know you're out there, what have you heard?

The service will improve, naturally, though I'm curious what kind of regulations they will be under. Since this airport happens to be one of two that serves Chicago, there's also a good barometer by which to judge progress over the upcoming years.

Airport services aside, there's another upside to the deal. Mayor Richard Daley (from another source): "For the airlines, the lease will mean lower and more predictable airport rates and charges, which will improve their financial situation."

I've blogged a few times in the before-Justin-Ross era about privatizations-- the Indiana Toll Road comes to mind-- but here's to hoping we can get a few more. Got a good privatization story? Send it along and let's put it under the Privatization label. It would also be good to revisit them down the line and see how things are going.

Thursday, October 16, 2008

Was There a Debate Winner?

CNN is trying to determine, and while I didn't watch I am looking at the Intrade market over the last 24 hours:

It seems that the debate gave Obama a boost throughout, but it then reverted back to its generally increasing trend. I'd say it did nothing except serve as "noise in the trend,"but you'll need a political scientist to tell you if that is "winning" a debate or not.

Point Pleasant, West Virginia

Claudia is still waiting for just the right time to make her first post, so I thought I'd send along this news of her hometown, Point Pleasant, West Virginia. While I've never been, I hear Point Pleasant is the home of the infamous Mothman, as well as statues of both the Mothman and Chief Cornstalk.

Here's to West Virginia winning a beautification contest!

Aunt Dot Dot and Truxton Stables

When I need horse racing information, I go to Marshall Gramm. He runs the Equinometrics blog (TPS Seal of Approval winner), and can not only explain equine nomenclature to me in English, but he's a fantastic economist as well. I'm looking forward to presenting during his gamlbing session at the Southerns here in about a month.

Anyway, Marshall has taken his love of horse racing one step further-- he's set up stables and purchased a horse! Aunt Dot Dot is the initial acquisition of Truxton Stables. Here is the story of how it all came to be. Aunt Dot Dot is running this Sunday in the 5th race at Philadelphia Park, so think good thoughts and check out how she did Sunday evening.

Re: Destruction is Creation?

Over at Cafe Hayek, my favorite blogger writes

Adam Smith argued that the wealth of nations is enhanced by labor specialization, capital investment, and peaceful trade. Economist Mark Skidmore argues that wealth is enhanced by destroying things: "When something is destroyed you don't necessarily rebuild the same thing that you had. You might use updated technology, you might do things more efficiently. It bumps you up" ("How disasters help," July 6).

I offer to test Prof. Skidmore's thesis by wrecking his car and burning down his house. If he's correct, he'll surely want to reward me with a handsome payment.

Donald J. Boudreaux
I don't think it is as easy of a slam dunk as Boudreaux is stating here, and as a result I think Skidmore is an unfair target. It is of course, absurd to think about destroying things as being beneficial, but natural disasters do have support in the empirical literature as generating economic growth. I think it is almost entirely an accident of our accounting...that the calculation of GDP does not correct for the fact that our new production is merely replacing what was destroyed, causing us to forego other opportunities (that perhaps lie in different regions). An example would be if we went around breaking all the windows in town, it would appear that economic growth would be generated because of all the new windows produced and installed despite the fact that society is no better for it.

However, unintended destruction does open the door for improving efficiency along some small margins. If the only reason you aren't demolishing your factory and rebuilding from scratch is because of all the difficulties it entails (permits, construction, TNT), then a fire that does the work for you lets you take on that new project.

To stick with Boudreaux's car example, suppose Skidmore's car and house are both in terrible shape. The car only gets 5 miles to the gallon and requires an oil change every 1,000 miles, while his house is on the verge of collapse. He'd like to buy a new car, but faces a "car disposal tax" of $10,000. He'd like to tear down and rebuild his house, but just the tear down process would cost $30,000. These things hinder his productivity by leaving him stranded on the road and spending time keeping the house from falling down, but those dispose and destroy costs are enough to disuade him from getting a new car and house. However, if he goes away to an economics conference, and returns home to find that a Tornado has removed his house and car for him free of charge, then he can get the new car and build a new house and move to a higher level of productivity.

I doubt these gains are ever going to be enough to overcome the other costs on the net, but my guess is the Boston Globe reporter asked a question in a manner that got Skidmore thinking similar to the story I just told. If someone asked me "are there any benefits to disasters," I would come up with a story like Skidmore, but if they asked me "are there any net-benefits to disasters," I would say "unlikely for the affected region, and no for society as a whole."

Krugman on himself

Here is a nice rundown of Paul Krugman's work in his own words.

It is interesting to note that where industries tend to concentrate is, oftentimes, a matter of historical accident. But you wonder if there isn't at least a bit more to the story. He talks of wide-body aircraft-- I couldn't help but to think that Boeing produced in Seattle for a long while, and still does the majority of its factory production there, but it up and moved its corporate office to Chicago not too long ago. Big, and costly at least in transactions terms, moves like that can't be chalked up to historical accident. The location in Seattle in the first place might a historical accident-- but maybe it's not. I'd be willing to bet there's a political economy story to the location of a lot of large manufacturers. An "accident" in the trade sense is far from that in the economic history/political economy sense.

Still, the overarching moral is that it's not particularly important that the jets are produced Seattle, or Chicago, or Mexico City, or Tokyo, but that they are produced and everyone trades for them-- places that we wouldn't expect to trade according to existing trade theory. And yes, that's obvious, and that's how you know it's a profound finding.

Wednesday, October 15, 2008

A Letter to Consumer Reports

In response to an e-mail petition from Jim Guest (from Consumer Union, the non-profit publisher of Consumer Reports), I replied with the following letter:

Dear Mr. Guest,

I am afraid I cannot support your request to join your petition to Congress, and I must express my disappointment that this letter has emerged from Consumer Reports Advocacy.While each paragraph between links is riddled with error stemming from an apparent misunderstanding of the situation at hand, I am most opposed to your claims that there were “no cops” and “no rules” in the financial markets due to deregulation.

In fact, much of this crisis is due to the various complexities and perverse incentives created by the extensive regulation and government interference in the financial market. It is not that there were “no cops” and “no rules,” but that there was strict enforcement of bad rules. You would see your goals more quickly realized if you were to advocate the removal of bad rules, rather than creating petitions asking for concerned citizens to blindly request their politicians to “do something.”

Of all organizations that should understand the emergence of voluntary regulatory agencies in markets, I would think Consumer Reports should be at the top of the list.Firms clamor for your approval and parade it in front of consumers when they receive it. These reputation and brand building effects have made America home to the safest and affordable products in the world. Your intentions to undermine it have caused me to cancel my subscription with Consumer Reports, but if you are successful in your endeavors for government regulation, I will have no better options.

Justin Ross
Professor of Economics
Indiana University, Bloomington

Election advertising information

Here is a great breakdown by CNN concerning advertising spending by candidate, by state, by interest group, over the last 5 weeks. Combine this with polling figures at the state level over these same dates and there's some fun to be had. Cause/effect of spending? Critical deficits in which spending is reduced (ceding the state)? Spillover effects from one state to the next?

The Mountaineer Jeffersonian

I am pleased to announce the inaugural issue of The Mountaineer Jeffersonian, West Virginia University's newest publication. First off, I love the name. That's 26 letters in three words, and one of them is "the."

From the byline:

"No government out to be without censor; and where the press is free, no one ever will."

- Thomas Jefferson

Articles include "The Subprime Meltdown: Greed or Government" and "A Declaration of Independence".

The Mountaineer Jeffersonian, for providing a beacon of freedom in oppressive West Virginia, gets the TPS Seal of Approval.

Things I Wish Were More True Than They Are

David Boaz, senior vice president of the Cato Institute says:
"Most of life -- our families, our romances, our jobs, our travel, our learning -- is outside the government sector."
Here I go in the same order: gay marriage bans, sodomy laws, minimum wage, Cuba, and public schools.

Hat Tip: Carpe Diem
P.S. Not a critique of Boaz here, as he is advocating for more freedom.

What Can Japan Teach Us About Our Bailout?

New NBER working paper by Hoshi and Kashyap:

The U.S. government is hiring asset managers to purchase up to $700 billion of toxic real estate securities that are the center of the current credit crisis. Buying up assets, if done properly, might address the collective under-capitalization that is the fundamental problem plaguing the financial system. But, experience with financial crises in other countries suggests that success is by no means guaranteed. Japan was the largest other country where the banks were seriously undercapitalized and where asset purchases were a critical part of the government's response to the problem. The U.S. bailout plan is similar to the Japanese approach in that it does not clearly identify the capital problem as critical and instead proposes using AMCs to remove distressed assets from bank balance sheets. When Japan used AMCs, their effectiveness was limited in part because they did not purchase enough assets. AMCs did not help recapitalization, either, and Japan had to come up with different mechanisms to use public funds for recapitalization. Both these risks are also present for the U.S. plan.

Tuesday, October 14, 2008

The Winner's Curse in 14 Seconds

I previously advised TPS readers to keep a look out for this commercial from Edward Jones, but now I have been able to find it online so here it is:

Iceland's Market Issues

Think the American market is doing poorly? Well, the volatility is something to behold, but at least it's not Iceland.

Shares opened trading today down seventy-seven percent. That's hard to get your head around; it wasn't unanticipated, though, as Icelandic officials closed the market after last Wednesday's trading and just reopened it this morning. Iceland's government had seized three banks, and that's what the market had to say about it when it finally opened up again.

Russia is looking to provide support-- the IMF has been contacted as well. But volume on the exchange is low-- 1.5M by American morning time, compared to a usual 245M-- is there that much lower to go, especially if no one is trading? Would standing pat and riding it out be an option considering the volume stats?

Just for a sense of scale, I was looking for the total market cap of the Icelandic Stock Market, but came up short after a brief look. Tom, do you have a place to go for info like this?

And you can't undervalue the impact of being tied to Russia in the foreseeable future; clearly, they're in it to buy an ally.

Any Economist Could Have Told You This

Unions play the role of both bootlegger and baptist in their efforts to make policy for us all. Take this example from CHE which lists groups deserving criticism for their treatment of adjunct faculty:
Faculty associations and unions. The American Association of University Professors, the American Federation of Teachers, and the National Education Association all claim to represent the interests of nontenured faculty members, he said, at the same time they push colleges to decrease their reliance on that group of employees.
"He" is Angelo-Gene Monaco, University of Akron's associate vice president for human resources and employee relations.

State Election Info

Many people are hesitant to accept rational ignorance. It just feels wrong, doesn't it? We learned in elementary school that democracy is sacred, and darn it, it's your social responsibility to get out there and vote...lest Puff Daddy will shoot you.

Well, rational ignorance exists because voting is a costly process, but towards the end of lowering these costs, here is the National Taxpayers Union's General Election Ballot Guide. State-by-state, they give a brief rundown of measures and proposals that could impact the size and scope of state government-- and even supplies a nice color-coded green plus or red minus to help in the synthesis.

"Hope" for "Change" is a Unicycle Ramp

People who expect the world to change once their candidate gets elected are often vastly disappointed by the results. They think everything will be awesome, wonderful, and a new age of utopia will emerge. If this fits you, consider the following video to be foreshadowing if November 4 turns out your preferred way: - Watch more free videos

The Brighter Side of Krugman

I'm certainly no fan of Krugman's modal NYT article, but I've always enjoyed his piece in Slate on sweatshops. I wish he would write more stuff like that.

The Impact of Nobel Research

TPS blogger David Skarbek's work on the impact of Nobel laureates on other Nobel laureates is reported on over at The Austrian Economists. His findings: F.A. Hayek is the second most cited laureate in official prize lectures. Arrow comes in first.

Monday, October 13, 2008

Anticipated but Unintended Consequences

LOS ANGELES (Reuters) - Former Beatles drummer Ringo Starr has told fans to stop sending letters and requests for autographs, saying mail will be thrown away after October 20 because he has too much to do.
"I want to tell you after the 20th of October please do not send fan mail to any address you have. Nothing will be signed after the 20th of October. If that is the date on the envelope, it's gonna be tossed.
What do you think his mail will be like for the next week?

Playing Economics

The Nobel website has a game online all about trade.

A Sad Day For Economics

Paul Krugman has won this year's Nobel Prize. Okay, pinch yourself. Never mind the numerous individuals whose work has advanced the profession of economics and contributed to our stock of knowledge (my pick was Alchian and Demsetz).

Is this just one more reason to fear that the Age of Milton Friedman is coming to an end? The worldwide growth experienced over the past decade began with ideas influencing politics. Thacher, Regan and Xiao Peng liberalized markets and trade, insired by the likes of Milton Friedman and F.A. Hayek. Despite public choice problems of reform and good economics (which Friedman and Hayek understood) - ideas matter. What will the results of "strategic trade theory" if protectionism is the mechanism for increasing returns? Since when did an economist when the Nobel Prize for contradicting Adam Smith? Aren't increasing returns realized through the division of labor, the division of labor being limited by the extent of the market!

Congrats to Paul Krugman

An award well deserved, his centripetal versus centrifugal forces work in economic geography will increase in importance as the world becomes more globalized and prosperous.

Also, since my suspicion is that Nobel prize winning economists become more ideological and politically active after winning the award, the science won't lose as much quality research in this case. If we wanted to distribute the award in a maximizing scientific output manner, I think it is better to give it to someone who has already moved in that direction rather than someone still heavily involved in their research.

Sunday, October 12, 2008

Brief Notes on the National Debt

Inspired by this:
In fact, the digital counter has been moving so much that it recently ran out of digits to display the ballooning figure: $10,150,603,734,720, or roughly $10.2 trillion, as of Saturday afternoon.
"It's symbolic," Stauber, a 40-year-old pilot from Switzerland, said of the counter's lack of space. "It's a very big symbol. It's a complete failure of the system. It's the most powerful country in the world with a conservative government for the last eight years, and it's running the biggest debt ever."

The reaction of Stauber's wife, Roberta, to the escalating debt was more pointed: "It's good for the United States," the doctor said, adding that maybe the country's current predicament would deflate its "ego" and "arrogance."

"You think you are the best country in the world," she continued. "I hope America reflects about this."

Me too, but before the Swiss get too cocky about U.S. public debt consider this...government expenditures as a percentage of GDP were roughly half in the U.S (19.9%) what they are in Switzerland (37.8%). There is plenty of room to argue over the actual numbers, but I doubt you'll find a way to change the order between these two. In short, the Swiss are catching up. Germany, Canada, and France are notables who are ahead of us in both debt and spending as a % of GDP.

Second, about 3 quarters of public debt is held domestically. Again, you can argue over the numbers, but most debt is ultimately staying in the U.S. Meaning? Much of the repayment will be a transfer from U.S. taxpaying households to other U.S. households. Deadweight losses? Yes. Should you be outraged? Maybe, I certainly don't like it but neither am I feeling very apocalyptic about it for the aggregate.

Third, there is probably too much attention on private debt. My student loans (except the Federal subsidized ones) are probably not your problem, just as your car loan is probably not mine. Debt exists because people can pay it back, on average. In the end, debt is a trade that is a positive sum game.

Who Cares What the Experts Think Anyway?

They've only dedicated their adult lives to the study of the economy, how narrow! From CHE:
But now that the dust is beginning to settle in Washington, many academic economists have the gnawing feeling that during moments of crisis, they don't have much ability to sway public policy. James K. Galbraith, an economist who is a professor of government at the University of Texas at Austin, worked with Rep. David Scott, Democrat of Georgia, to draft two homeowner-protection provisions that made it into the final bill, which President Bush signed into law last Friday. But even Mr. Galbraith views the bailout package with dismay and says he is astonished that Congress did not invite economists to testify at public hearings.
The real question is why would Galbraith expect this to be the case? Congress is not good in crisis mode (just try googling "The Great Depression" and "The Patriot Act"). Perhaps economists just need to develop a more realistic outlook on how policy is actually made.

Saturday, October 11, 2008

Rewriting History Through Art

The new Saatchi Gallary opened in London this week featuring the exhibition entitled "The Revolution Continues: New Chinese Art". Featured artists Shi Xinning's work is influenced by social realism, history, politics, and iconic imagery. Shi's work stirs up counterfactual accounts of monumental history and explores historical projections of Western Eurocentracism and Eastern isolationism.

Above is Shi's featured painting entitled, Yalta No. 2. Shi has rewritten history to encorporate Mao among Churchill, FDR, and Stalin. Below is the original photograph. I am reminded of the similarities in statism across the spectrum and think about what a bleak future it will be without liberty in trade and politics.

Friday, October 10, 2008

MRTS(L,K) = 2K/1L or 2Monkeys/1Waiter

video here.

Hat tip to Tim Swanson.

Another day, another politically motivated voodoo death ritual...

Think I can't top Justin's gonorrhea/beer prices post? Well, here goes:

Thompson said he's still trying to make sense of a Cobb police report that alleges District 4 Commissioner Annette Kesting met with a high priestess of voodoo in South Carolina and paid the priestess to perform a "death ritual" on him.

Yes, an incumbent Commissioner in Georgia met with a high priestess in South Carolina to put a death ritual on her opponent.

My thoughts:

- There weren't any voodoo priestesses in Georgia that could do the job? Maybe the one in South Carolina was superior. Here's to division of labor!

- Dana, care to comment on the legal aspect of this? According to a South Carolina sheriff's office, "payment for a death ritual is illegal and would be considered a 'solicitation of hire for murder.'" I'm taking it that Georgia's law officials don't see it the same way. I can't say this is a crime yet at this point any more than wishing someone trips on stage during a debate. Now, if something were to actually happen to her opponent, would this change? Should it change?

- Great line that speaks exactly to the probability of this death ritual request actually occurring:

"Who would make this up?" [Thompson] said. "What's the point?"

The priestess-- named Georgia, by the way-- vouches for the story as well. The incumbent says she lost her purse "a while back" and that explains the checks. When's the last time you lost your wallet/purse and didn't get around to canceling checks and credit cards for a few weeks? The checks did bounce, but then money orders backed up the original owed funds. Bizarre.

- Who filed the report? It seems that the opponent was taken aback by the police report; maybe a supporter of his?

How Beer Prices Affect STD's

CEP article by Sen and Luong:

We attempt to contribute to the literature by evaluating the effects of higher beer prices on gonorrhea and chlamydia rates through pooling data across Canadian provinces and over time. Ordinary least squares as well as instrumental variables estimates suggest that higher real beer prices are correlated with a reduction in both gonorrhea and chlamydia rates, with corresponding implied elasticities within a tightly defined interval of (roughly) −0.7 to −0.9. However, the increase in real beer prices over the sample period is only responsible for less than a tenth of the decline in gonorrhea rates.

How Many Ways Can it be a Down Year for the Browns?

On political debate within my favorite football organization:

Browns kicker Phil Dawson has been with the club since its 1999 expansion rebirth. This is his third presidential election since coming to Cleveland, and he said this one has been remarkably subdued inside the team.

"This has been the calmest one," he said. "I can remember open, loud, lively debates over the last couple. This year, it seems relatively quiet. You'll hear guys talk at lunch a little bit, but there haven't been arguments. Maybe we all know each other better and where everyone stands."

I find that quite surprising. I remember last election Bush came and threw footballs with the team and that Condi Rice wanted to become a part of the team's management, maybe that energized more discussion at the time.

Thursday, October 09, 2008

Attack on "A Libertarian Utopia"

In response to this op-ed piece, I replied with a letter to the editor containing the following:
How Ironic is it that the IDS would print Indira Dammu's commentary "A Libertarian Utopia" in the same issue as one providing a picture of a Che Guevara caricature on the side of a dilapidated building in Cuba? It requires thick ideological glasses to reach her conclusions that the United States had a laissez-faire banking system and that free market principles have destroyed the livelihood of people in developing countries around the world.

The mortgage-backed security market exists because of the Government Sponsored Enterprises’ Freddie Mac and Fannie Mae. Interest rates throughout the banking system are distorted by the Federal Reserve, and numerous acts of regulation manipulate the behavior of banks. The current crisis is the result of political altruism, in the form of politicians pushing others to expand homeownership to absolutely everyone.

Like a creationist lamenting the scientific process in biology, Dammu's irreverence for Milton Friedman's "statistical concepts" and "economic abstractions" are equally misplaced in blaming markets for poverty in South America and Africa. When Chile was overtaken by a murderous and totalitarian military regime, Friedman did advocate to their leaders the implementation of markets.

What Friedman understood was that markets required freedom in personal life, which could not stand in contradiction with totalitarianism in public life. Instead of adopting a system where government controls resources and ultimately the personal lives of its citizens, thereby guaranteeing a future of isolationism and poverty, Chile adopted the personal freedom of markets and prospered economically. Today they are one of the most stable and democratic nations in South America.

Dammu was right in calling Friedman a radical, as he argued against the War on Drugs, the draft, the fixed exchange rate, and in favor of all voluntary interactions regardless if they were from home or abroad.
Hat Tip: To Don Boudreaux, whose magical keyboard has inspired economists everywhere to write these types of letters.

Beer regulations of a different breed...

So it's not the beer itself...

...but the name of the beer that causes drunken brawls?

Though you have to love this bit:
Mr Carmichael said the name would be inappropriate if it were a low-priced drink aimed at youngsters.

But he said it was an award-winning beer which is bought by "discerning drinkers who appreciate its quality and who drink it responsibly".
Yes-- 11-year-olds can't appreciate the historical subtlety of Skull Splitter Ale, but seasoned veterans can.

Grant Bashing

Steven Peck in CHE writes:
One problem is that federal grants, especially those from the NSF and the NIH, typically support work that the reviewers of grant applications believe will produce immediate, important results. Successful grants tend to focus on manageable questions generally recognized as key within the current paradigms of a discipline. They seldom involve innovative science or tackle deeply challenging questions that might turn out not to have answers, even though such risky approaches could well lead to vital new knowledge.
This seems to me a natural result of the political process reflecting the public's skepticism of good new ideas.

Wednesday, October 08, 2008

Explaining Why Trade Deficits Are Okay: Analogy # 1,295,674

Paraphrased discussion after today's class with student, thought it might be worth sharing:
Student: Recalling macro, imports were negative for GDP. In the news, they always mention how economic growth has increased to some extent because imports have been down lately.

Me: No, that is just a common misinterpretation of an accounting relationship. Think about a firm who keeps a income statement. On that income statement there are expenses like "employee salaries and benefits." These are subtracted from revenues to calculate profits, right?

Student: Right.

Me: Would the firm be more profitable if it didn't have employees and therefore didn't have to be paying salaries and benefits?

Student: <Initially looks like he wants to say yes, but then dawns on him> Okay, so firms hire the workers because they increase profits even after you take into account their costs.

Me: <Internally I am doing a happy dance> Very good. Trade is the same way for GDP, as it uses the balance of trade to measure our production, but it does not tell us that we would be better off if we imported less anymore than salary expenses tell firms they would be better off without those employees.

So let me get this straight...

At least part-- and that's the most conservative view possible-- of the current financial situation is a function of loose credit in the recent past, that misplaced capital needs to be culled from the economy... we're going to add more?

New economics? Anyone? Bueller?

Tuesday, October 07, 2008

Falcon 1 in Orbit

A GMU Ph.D. student and entrepreneur-extraordinary notified me of some interesting news about a project he's been working on. Watch your back, NASA.
A privately financed company launched a rocket of its own design successfully into orbit on Sunday night, ushering in what the company’s founders hope will be a new era of spaceflight.

Abstinence is Back


So today was go-to-the-Morgantown-DMV Day for me, as my car needed re-registering and I also needed a new West Virginia driver's license. I know Justin's had his fair share of fun with the Department of Motor Vehicles in a number of states; my trip was pretty pain-free. Nonetheless, if you're a political economist and forced to wait in the DMV, your mind gets to wandering...

- There exists a computer system that links all 50 states' DMVs, presumably to help serve people like myself. And you'll never guess what-- it took 15 minutes to send my request through this system! Usually government operated services are the mark of speed and efficiency. Guess I hit them at an inopportune time; namely, operating hours.

- There were 9 windows, each with an attendant, working to serve a total of 10 customers that came through the doors during my 20-25 minute visit. Cut back labor during down periods? Why? It's not like they see the hit to the bottom line.

- On Seinfeld, there is an episode where Kramer notes that any time you meet a proctologist, park yourself and listen to his stories. I'm going to go ahead and say the same thing about the people that administer driving tests. I bet they're loaded with great stories.

- Since I had to register my car, I got to thinking about all of the slices that the state government takes out of me as a result of having a car. Register the car for one year: $31. Get a new driver's license: $15.50. Personal property tax on the car: ~$150. Gas taxes: 32.2 cents per gallon. Then I got to wondering-- which state has the highest footprint on its citizens in terms of driving? Oftentimes, we think of gas taxes for individual's public cost of driving, but there are other nontrivial costs as well. In California, for example, the registration cost for a car is very high, but there is no personal property tax to be paid. Are all states more or less the same if we consider all of the public costs together? If there's variation, can we explain it? I wonder what the tax elasticity of driving is.

- I was a bit sad to part with my California license-- through mail-in renewals, I'd successfully retained my original driver's licence picture, taken on the day of my 16th birthday, for almost 13 years. I'd have liked to have made it to 16 years of using that picture-- that would have had a nice symmetry to it. It featured beautiful hat hair and also was a convenient reminder of what my face looked like prior to breaking the right half of it playing basketball during my freshman year in college.

How's This For A Change of Pace?

Usually it is pork that keep's them in office:

One of Rep. John Boehner’s local offices was evacuated Monday afternoon after a suspicious package arrived in the mail.
Staffers received the letter from Georgia by U.S. mail. After noticing it was leaking an oily substance, they called the Capitol police in Washington, who advised them to evacuate as a precaution and call in local authorities.

Multiple police agencies responded to the Republican congressman’s West Chester office and began an investigation.

After an X-ray analysis, investigators determined the package contained bacon.

Boehner voted twice last week for a $700 billion bailout of the financial industry, which passed Friday and was signed into law by President George W. Bush.Some critics have charged that the legislation contained unnecessary giveaways, which are sometimes referred to as “pork barrel” spending.

A spokeswoman said it's ironic someone would send Boehner bacon because he has spent his career fighting pork barrel spending.

No injuries were reported, and the incident remains under investigation. A note found in the package with the bacon was not disclosed by authorities.

Dow Responds to My Staying at Home Today

Alternative explanation here.

Asset Specificity

While returning from an enjoyable conference hosted by the Bruno Leoni Institute in Sestri Levante Italy, I watched a comedy - Baby Mama - about a businesswoman who hires a surrogate mother. The movie is of average quality (although that's not bad on an international flight) but it illustrates the importance of asset specificity and post-contractual opportunism.

Once the "investments" are made, both party's assets have subustantially less value in market exchange due to the specificity involved. As a result, costly bargaining (and in this case hilarity) ensues.

Gun Shows Are Okay

Using data from California and Texas Gun and Knife Show Calendar, a new NBER working paper finds no evidence that gun shows lead to substantial increases in gun homicides or suicides. The paper also finds no evidence to support the claim that tighter regulation of gun shows reduces the number of firearm-related deaths.

If you are like me and have never had the pleasure of attending a gun show, take the opportunity to do so here.

Monday, October 06, 2008

Spend Some Time with Heroes of Capitalism

One of my former students, Travis Wiseman, is one of the authors of the new blog Heroes of Capitalism. Check it out when you get a chance, and definitely have a listen to their podcast. Ann Zerkle has a nice intro podcast that describes what got them to start this.

HT: Bob Lawson at DOL

Saving for retirement?

TPS comedian-come-lately Thomas Johnson sends along this fun one:

If you had purchased $1000 worth of Bear Stearns stocks one year ago, it would now be worth $71.

$1000 worth of AIG stock? $53 left.

$1000 worth of Washington Mutual stock? $16 left.

$1000 worth of Wachovia stock? $103.50 if Wells Fargo prevails, or $1.60 if Citi prevails with their current offer.

However, if you had purchased $1000 worth of beer one year ago, drank all the beer, then turned in the cans for aluminum recycling refund, you would have $214.

Clearly, dependent on the state in which you reside.

Diminishing Comment Quality

One of my all-time favorite posts at Marginal Revolution is on the quality deterioration of blog comments, where TC guesstimates that roughly the first 15 comments on a post are the best, after which quality takes a big downturn. Since reading this post, I have developed the habit of trying to skim the comments to see when comments "turn south."

Based on my experience, here is my ranking of the fastest deterioration of comment quality among the blogs I read. Note that I do not think bad comments are a reflection on the blog authors:

1. The Chronicle of Higher Education: By far the fastest depreciation of comments, which seem to almost always be from professors. Case in point, look at the comments on this post for a story on students with unprofessional email handles.
2. Freakonomics: I believe this is just because they are on the NYTimes website.
3. Megan McArdle's blog: However, this has drastically improved since she started moderating the comments. For whatever reason, she seems to draw a lot of venom from a fair portion of readers. Surprising to me given how good her posts usually are.

Eminent Domain is for Suckers. Annexation on the Other Hand...

Indiana is all about annexation (previous post here):
A crucial decision expected tonight could determine the path of the latest annexation tussle to hit Central Indiana. Bargersville and Greenwood officials remain confident as they hammer out their differences at the negotiation table rather than risk a costly showdown in front of a county judge.
At stake is valuable land in development-ripe White River Township.
"There is an awful lot of tax money there," Armstrong said of the annexation area. "The other side of it is controlling the growth. Who's going to have the better plan for controlling the growth and having what the people of the area want?"

"You've got Greenwood and Bargersville fighting, but nobody actually cares about the residents of White River Township," said Dennis Gamache, 65, who has lived in the township since 1985.

"Center Grove, that's my property, and not yours for you to be able to come in and annex," Gamache added. "There's no consideration for us. They need to realize we're alive here."

Hat Tip: Matt Ryan's quote of an anonymous professor for the label.

Sunday, October 05, 2008

PhD Comics

TPS contributor cum laude Thomas Johnson sends along these figures from the good people at PhD Comics. If you're in grad school, you can relate! I also like this one concerning the current economic situation. (I refuse to call it a "crisis.")

PhD Comics gets the TPS Seal of Approval.

Friday, October 03, 2008

Economy's Impact on Sports

Here's a somewhat interesting rundown of the economy's impact on major league sports; I took from it that we are, and have been, in a culture of "how-to-make-money-at-the-stadium-is-luxury-boxes," and if that fundamentally changes, then there are going to be a bunch of ill-suited stadiums in a profit maximizing sense.

Is this likely to be the case? Probably not. But it's intriguing to think about.

Also humorous-- this bit at the end concerning Manchester United's choice of jersey sponsor:

Funny thing is, there had been a bidding war between AIG and Mansion, a gambling service, for Man U's rights.

"Mansion might have won, but Man U was not totally happy with the association with gaming," Currie says. "Image was a part of it. So they opted for what looked like a conservatively run, respectable business."

Airport Landings

Here's a fun article on harrowing airport landing spots; the only American runway offered is the strip at Reagan National. I've flown there a number of times and don't recall it being too gut wrenching (though I can't remember a daytime landing). San Francisco can be tough on the nerves for those that haven't done it before, as it appears the pilot's going to put it down in the water-- thankfully, I've done that one quite a few times and it doesn't bother me anymore when I head home. But I'm going to offer San Diego as the American airport that got me the most worried-- close proximity (from what I remember) to high-rise buildings on the approach. Nothing else comes to mind at the moment. Anyone?

And I'm not sure it would take a difficult airport approach to keep me from flying in Bhutan. But that's just me. And you're telling me only 8 pilots land at Paro? I find that hard to believe.

Is High-End Prostitution an Inferior Good?

Very interesting article from Slate, by Sudhir Venkatesh:
But bad times seem not so bad either, at least in the short run. After the dot-com bubble burst and again in late 2006 when the housing market began to flatten, the high-end women I interviewed in New York and Chicago reported upticks in business. Their clients were coming to them for a mix of escape and encouragement. As Jean, a New Yorker and a 35-year-old former paralegal turned "corporate escort" (her description) told me, "I had about two dozen men who started doubling their visits with me. They couldn't face their wives, who were bitching about the fact they lost income. Men want to be men. All I did was make them feel like they could go back out there with their head up." (Like most of the sex workers I interviewed, Jean was concerned about her participation in an illegal trade and asked that only her first name be used.)
In my study, approximately half of the sex workers I have been following (150) work in the high-end sector. Nearly all of them tell me that this pattern of increased activity following an economic downturn lasts about six to eight months.

"I Want to Feel At You"

Voter's want Stephen Colbert, at least for Vice President. This from CNN in response to last night's debate:
Many in the room couldn't point to specific issues they felt went unanswered. Rather, they said they wanted to be moved, they wanted to feel something. They wanted to see some genuine fire behind the podiums, not hear another campaign pitch.

Edward Jones Commercial: Art Auction and the Winner's Curse

Keep an eye out on the TV for what is the best possible 30-second demonstration of the winner's curse. Unfortunately, I can only find this online, which requires a subscription to view it.

The commercial is for Edward Jones Investments. The setting is an art auction where a piece sells for $50,000 to an enthusiastic buyer. The buyer, immediately upon winning, stands up and requests the auctioneer to auction-off the painting again on his behalf.

Thursday, October 02, 2008

The Power of Choice

Evan Handler on being a bad patient, demonstrates the importance of choice, if not to the doctor then to the patient:
Doctors had told me that I would be endangering my care if I switched doctors, but that advice was criminal. Look, the only way to change things is through the marketplace. Recently I needed to have something in my mouth looked at. The doctor performed a biopsy without lidocaine -- just put a blade in my mouth and cut without telling me. I never went back, and I wrote him a three-page letter. You should leave a bad doctor, and if you have the energy, tell them why you left.
The ability to switch doctors would likely be severely dampened in a universal system. Stationary public goods (like schools) generally must be rationed according to geography.

The rest of the story is about how Handler spent his time in chemo trying to keep the hospital staff from killing him. A friend of mine who recovered from cancer about two years ago had a similar story, so it seems to still be a problem.

A Free Lunch on the First Day

Intrade Beta Contract: "United States GDP in Q3 2008 will be positive"

Intrade Probability: 69%

Actual Probability: 100%

Explanation: GDP is always positive. GDP growth on the other hand...

Note: Their contract at the real Intrade website correctly states what this is supposed to mean, growth from the preceding quarter.


De facto TPSer Thomas Johnson sends along this story about mackerel as currency in prisons from the Wall Street Journal. Everyone knows how cigarettes widely played this role for a long time-- The Shawshank Redemption even notes this-- but federal prisons banned smoking in 2004 and, with it, so went the cigarette as the spontaneously agreed-upon unit of currency.

It really fits the requirements for a good unit of currency. You can't debase the mackerel; it comes in pouches. It's small and easy to store and transport. You don't want to consume it.

The prisons are trying to keep the markets from existing; my guess is the markets are operating best where wardens have no idea they exist.

I'd presume there is some variation in what is allowed in some prisons and not in others-- the article notes that federal prisons banned smoking, maybe some state level ones don't. Could an exchange rate between mackerel and cigarettes and whatever else is used in other prisons be established? I'd love to see that. That's a great paper.

Here's another: Shocks to the mackerel system and the effect on prices in prisons? You could do shocks to mackerel substitutes as well, though in one of my favorite lines from the article:

"[Mackerel] never has done very well at all, regardless of the retailer, but it's very popular in the prisons."