Tuesday, September 30, 2008

Bailout Mystery

Here's something I don't understand regarding the bailout (however, there are many others). Someone reconcile for me the fact that the author of this blog post has his name appear here. This seems to be of no help in helping me understand an apparent contradiction. The hour is late, so maybe I'm missing something in the tone or not googling the correct words.

Forbes' Most Valuable Sports Teams

Here is Forbes' rundown of the most valuable soccer teams in the world; Barcelona seems low and Schalke seems far too high. (Is Manchester United really two-and-a-half times that of Barcelona? That surprises me.)

I believe Manchester United would then be the most valuable sports franchise in the world; the most valuable non-soccer team would be the Dallas Cowboys at $1.6 billion, football teams are here, basketball teams are here, hockey teams are here, and baseball teams are here.

I just noticed-- three of the seven lowest valued baseball teams have qualified for the playoffs, as did five of the top 10. Obviously, payrolls are connected (at least loosely) to team value, and it seems to have been that the teams which are successful in the recent past (last 8-10 seasons) are those either near the top in payroll or near the bottom...I wouldn't think a bimodal outcome could persist, and maybe it won't, but it has recently.

Forbes' Best Countries To Do Business list

It's been a while since we've dipped into the Forbes rankings. Here's a list of the top ten countries in which to do business. The underlying article has this gem of an opening line:

"What do Lego and 18th century political economist Adam Smith have in common? Both show why Denmark has become the best country in the world for business."

So, as the quote says, Denmark tops the list, and usual suspects are there as well. This is a bit broader than an economic freedom ranking-- they value being able to take part in elections and having freedom of expression-- but it's still another stab at explaining growth at the country level, insofar that one ranking can do that. They look at 120 countries.

There's a paper to be had in simply aggregating all of these rankings-- Frasier, Heritage, Forbes' ranking, etc., and many large scale companies do their own analyses as well. I'd love to see it all in one place.

Denmark, by the way, might be the most underrated country that I've visited. Copenhagen is a great town, and a day trip to Helsingor to see Kronborg Castle is well worth the trek. And the Copenhagen airport has hardwood floors. All considered, I'd return there before revisiting any other city except maybe Prague. Maybe I should do a top ten ranking of European cities...

It Is Always About What Others Should Do

Isn't it:
Former vice president and environmental campaigner Al Gore has urged young people to protest against new coal-fired power plants that don't use carbon capture and storage technology.

Speaking at the opening plenary session of the Clinton Global Initiative Annual Meeting in New York, Gore said: "If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration."
Yes, kids, go get arrested and damage your future prospects! Miss time with family and friends, I will be supporting you from home!

Nevermind that the new plants will use more efficient technologies that will create less pollution than the old plants they are replacing!

Nevermind that new and more efficient technologies will result in lower consumer prices! Consumers love paying higher energy prices!

Nevermind that more efficient and lower pollution technologies reduce the need for capture and sequestration in the first place!

Don't bother looking into any of those possibilities, just get out there and protest!

The Externalities of Branson

The private push towards space has been enjoyable to follow-- not only for its embarrassment of the government's attempts to explore the frontier, but who doesn't like the possibility of being weightless?

When people argue that NASA is worthwhile, oftentimes it goes down the path of "they do a lot of research and come up with a lot of things we wouldn't otherwise have." Well, true, but think of all the things we don't have because of NASA. Anyway, the positive externalities of technology need not come only from government ventures-- it looks like the climate change people will benefit from Richard Branson's space push.

$200,000 is the price for a trip at the moment; will it be 1/100th of that price in 15 years?

Good Reading

Will Wilkinson reviews "Nudge" by Thaler and Sunstein in Reason. A nugget:
The great hope among many left-leaning behavioralists is that wider recognition of our earthbound limitations and self-defeating tendencies will loosen the grip of Chicago-style laissez-faire dogma in social and economic policy, clearing a little intellectual and political space for benign, welfare-promoting government regulation. The fear—shared by libertarians, liberals, and some of the behavioral economists themselves—is that exposing humans as "irrational" perpetrators of cognitive "anomalies" invites invasive control by paternalistic elites. Thaler and Sunstein's libertarian paternalism is best understood as an attempt to hasten the hope—the death of laissez faire—while assuaging fears that our would-be rulers have been handed a dangerous intellectual weapon. "Emerging developments should strengthen, at once, the principled commitment to freedom of choice and the case for the gentle nudge," they write. The "gentle nudge," they assure us, is to be welcomed, not feared.

He comes down harder on Thaler than I would for these ideas. From Thaler I have usually heard the reasonable argument that if government is going to do something, we might as well get that something to be libertarian paternalism. The general libertarian view (as I interpret it) is that opening the door for libertarian paternalism simply opens the door for paternalism of all types, very little of which will wind up being libertarian.

I continue to hold the view that paternalism is endogenous, so government supply will create its own demand, which is dangerous. If I take for granted that regulation of food ensures safety, I don't develop the habit of looking on the wall for a certificate of inspection. Meanwhile, I accept all sorts of paternalism from the private sector when I deem it appropriate. My ability to spell has been decimated by Spell Check, as well as the ability to remember phone numbers in the presence of unlimited speed dial memory.

The private sector's aim to satisfy my demands for paternalism doesn't concern me. Politicians looking for a new venue to lord over me does.

Yesterday Ended On a Good Note

  1. The bail-out failed.
  2. CNN actually posted a commentary by Jeffery Miron that explained the reason this mess actually happened.
  3. TIME posted an article that has the message right and contains no logical or factual errors. In short, it is TIME's best article in a year.
The public is very schizophrenic on the bailout issue, I hope that creates time for cooler heads to prevail. From those who favor the bailout, enough with the various complicated plans with theoretical models demonstrating where the bailout can succeed.

Instead I would like to see a well articulated case that explains how our roughly 535+1 handsomest politicians, most of whom have no formal training in the complexities of financial markets and bank regulation, and all with a diverse array of political incentives for their particular constituency and special interests will come out of Congress with a plan that will create significant net benefits.

Monday, September 29, 2008

Intrade on Bailout

Will Congress approve the bailout tomorrow? Probably not.

Price for US Government bailout plan to be passed by Congress at intrade.com

Will Congress approve the bailout by Halloween? Scary.

Update: The vote is in at 205-228. Not today.

McDonald's versus the Treasury

TPS regular Thomas Johnson wrote in the comments of this post a wonderful observation that I had to bring to the forefront:
To insure a McDonald's bond, for instance, costs 28 basis points (i.e., 0.28% of the face value of the bond). Strangely, you can also buy CDS contracts on the ultimate risk-free asset: Treasury Bonds. Historically, Treasury CDSs have traded around 1 to 2 basis points. They closed Thursday at 25 basis points. Market participants believe that the US is only slightly less likely to default on its debt than McDonalds.

Sunday, September 28, 2008

Onwards and upwards!

The expansion continues!

I'd like to welcome Claudia Williamson into the fold here at TPS. Claudia is an assistant professor at Appalachian State University and does fantastic work concerning culture and development. We're thrilled to have her.


Saturday, September 27, 2008

The Dress

This weekend I am attending a wedding. Before the beautiful celebration, I am reminded of the perennial question of why brides purchase their wedding gowns while grooms typically rent their tuxedos. Men have the occasion to re-wear tuxedos at a variety of other events (other weddings, funerals, baptisms, retirement parties, etc) whereas most women will never re-wear their wedding dress. So why not rent a gown?

I think the wedding gown is an artifact of the dowry days, when the bride's father sold the lucky lady to the husband-to-be. Under those conditions, it was hard for the groom to ex ante observe the quality of the good he was purchasing. A low-quality woman could cost the man the ability to propagate his genetic material and effectively contribute to the household production. Thus, costly signaling mechanisms served to indicate the bride's quality. Dowry was part of this, no doubt. But last minute butterflies may still prevent exchange. Purchasing a garment that indicates the bride's status and quality (pure white, perhaps?) may have served to communicate the uniqueness, and quality of the woman.

Any other possible explanations for this seemingly inefficient social convention?

Friday, September 26, 2008

Ah, college football and bad policy...

Now, I grew up in the San Francisco Bay Area, so there were a lot of options when it came to sports. Three of the major sports were represented for the duration of my childhood, and the NHL came along about the time I was in middle school. On top of that, there was Stanford and Cal representing the Pac-10, and San Jose State, Santa Clara and USF all played a host of Division I sports.

So when I moved to Morgantown, it was interesting to see how West Virginia University dominated the sports scene here. Yes, there are some Pirates fans, and a few more Steelers and Penguins fans, but it's generally the Mountaineers that people care about.

But one thing's for certain: The state would never "care" this much. It must be an SEC thing. (The speed! The power! The fury! God help us all!)

While there's so many margins in which to slice this one up (knowledge problem, anticipation by businesses of demand shocks, governments-as-companies, pricing system, etc., etc...), I think my favorite part of this is the "An action like this is serious business...and the Georgia/Alabama football is exactly the kind of serious business that calls for dire measures like this" mindset.

Good times!

John Allison chimes in on the financial situation

John Allison, CEO of BB&T Corp., sent his own letter to Congress on Tuesday. Here is the letter itself, here is a story about it. It's a nice bullet-pointed take on the current situation. I think the most important gist to be take from it is that this is a Wall Street problem, not a Main Street problem-- that is, it's large national banks that are in trouble. The smaller, more responsibly managed ones are doing just fine. BB&T, it should be noted, posted a $428 million profit in the second quarter.

BB&T is the nation's 14th largest financial institution. For the initiated, BB&T refuses to make commercial loans to companies seizing private land via eminent domain, which makes them heroes in my book.

May I Sit Next to You, Senator Byrd?

Readers may find this of interest. As part of a project on vote-trading (aka logrolling) Matt and I are working on, the below is a picture of the Senate Chamber seats with the color scaled to the amount of pork-barrel spending in millions of dollars. It is much easier to see if you click on the image itself.
Here is the same map, this time scaled according to the number of years in the Senate:
A map based on the number of pork projects is almost identical to the pork spending map at the top. I'm surprised that tenure map doesn't look more similar to the spending map. Any thoughts?

What Does It Mean That I Cleaned My Office Yesterday?

Your office or bedroom holds telltale signs of whether you are a conservative or a liberal, finds a new study. While political conservatives tend to keep a tidy, organized office, political liberals favor colorful, more stylish but cluttered spaces.
Story here.

Hat Tip: Pavel Yakovlev

Thursday, September 25, 2008

Alternative Bail Out Plans: The "We Deserve It Dividend"

A staff member of SPEA forwarded me this e-mail and asked why it wouldn't work (they seemed sure that it would not, they just weren't sure why):
WEDID (We Deserve It Dividend) -- The BEST Economic Plan EVER!

*As heard on The Bobby Rich Morning MIX, 94.9MIXfm, Tucson

Forget about the $700 billion bailout.

Instead, I'm in favor of giving the same amount they gave A.I.G. $85 billion to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free. So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage – housing crisis solved.
Repay college loans – what a great boost to new grads Put away money for college – it'll be there Save in a bank – create money to loan to entrepreneurs.
Buy a new car – create jobs
Invest in the market – capital drives growth Pay for your parent's medical insurance – health care improves Enable Deadbeat Dads to come clean – or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to do another bailout, let's bail out every adult U S Citizen 18+!

Sure it's a crazy idea that can "never work."

But can you imagine the Coast-To-Coast Block Party!

My response:
Pretty funny, but they mistakenly calculate $425,000 instead of $425.

85 billion divided by 200 million (or 85,000 million divided by 200 million) is $425.

The principle idea of the plan is also mistaken. The money has to come from somewhere (higher taxes on households or government selling bonds to households), which offsets the money "given" back to them. If they print the money, it just becomes inflation and prices rise to offset the artificial increase in income.

Evidence from the Homeless that the World is Getting Better

Last night I walked by a homeless man listening to an iPod Nano while holding out a cup for collections. The 3 thoughts that ran through my mind
  1. The world is really becoming a better place to live for everybody.
  2. Where does he charge the batteries?
  3. That's not a good strategy to elicit sympathy.
#3 is so obvious that he must have truly been poor, because someone faking their desperate state would not make that mistake. You may now reference the counter argument to thought #3 in Tyler Cowen's final chapter of Discover Your Inner Economist on "How to Save the World."

A reformed Mugabe?

Here's a piece in today's New York Times noting that Zimbabwean dictator Robert Mugabe will be addressing the United Nations today. When was the last time time that happened? As one of the most oppressive dictators in the world, I'm not sure they smile upon leaders like that...then again, Iran's president has made a few addresses in the last few years, maybe I just haven't been paying close enough attention.

Mugabe is talking today, of course, due to the power sharing agreement he reached with Morgan Tsvangirai and his Movement for Democratic Change party. (Here's the Economist's take on the deal.) Many are very doubtful that this agreement will hold any water, but Mugabe is as much economic actor as any, and I think he's got decent reason to try, at least in the short term, for this to work. Aid is ready to flow like water from a broken dam into Zimbabwe, and we all know that aid intended for citizens more often than not ends up in the pocketbooks of leaders. Mugabe's got such a horrible track record that any action above slaughtering the opposition party's members-- his recourse for a March electoral loss, by the way-- will be viewed as an improvement by the development community as a whole. So if he could act only pretty bad, just not really bad, then he'll stand to gain quite a bit.

Clearly, the rule of law has been very minor in Zimbabwe, so the ability to back up this agreement with any sort of legitimacy is going to be tough. Nonetheless, I feel somewhat optimistic about this agreement. Zimbabwe could use better days.

My Wife the Behavioral Economist II

See the first post on this here.

Two shows I don't watch: Heroes and 24

Why? A self-imposed constraint that comes from my wife, whose argument can be summed as the following:
If we start watching it, chances are it will be as good as everyone says and we will love it. We will watch every episode already released to DVD and watch it every week, making it harder for us to do other things we would enjoy.
In short, this is an opportunity cost minimizing strategy. We are intentionally not exposing ourselves to a show that we would enjoy because we do not think we would have the self-control to adhere to the proper constraints that should accompany it.

Justin Ross's I am Not

More struggles with the DMV's of America that have resulted in my circulating copies of my birth certificate, passport, drivers license, and social secuirty card (all in a single envelope(s)) make me feel obligated to define who I am not:
  • I am not a New Yorker speeding through Massachusetts on August 15th, 2002. As the internet will tell you, I was setting a (short-lived) speeding record of a different kind on that day in Dayton, Ohio.
  • I am not a 29-year old in Topeka, Kansas with multiple parking tickets.
  • I am definitely not Maryland State Delegate Justin Ross, who unlike me supports video game regulations, bans on gambling, tuition subsidies, and the Healthy Air Act.
  • I am not the JR led by Jesus, but good for those who are, as there are far worse people to follow (here and here).
  • Unfortunately, I cannot dance on ice or play in a band. Hopefully these links will help redirect the constant onslaught of mistaken groupies.

Wednesday, September 24, 2008

You know...I had an idea once...

Google's paying for ideas to help the world! $10 million to the lucky few, and you have to answer six questions, of which include:
What one sentence best describes your idea?

What problem or issue does your idea address?

If your idea were to become a reality, who would benefit the most and how?

Describe your optimal outcome should your idea be selected and successfully implemented. How would you measure it?
I've got a few ideas-- buy me a beer if you get the prize:

- Don't spend $700 billion bailing out bad businesses. One sentence that best describes it: Incentives matter. What problem does my idea address? Ever-expanding nanny state. Who would benefit the most? Consumers...taxpayers...the health of the economy...tough to say who would be "most" though. How would I measure it? Estimate how many failing companies would have been bailed out if it weren't for the idea...then do some macro-esque hand-waving and arrive at a $352 trillion increase in world GDP.

- Start a kids-free airline. One sentence that best describes it: Crying babies makes for surly travelers. What problem does my idea address? Crying babies and surly travelers. Who would benefit the most? Everyone! For those wanting a child-free flight experience, they now have it. For those that love being around kids, they can pursue that too! People travel more! Tourism sky-rockets! Emotional drainage from traveling plummets. Productivity goes through the roof. Never-ending travel boom ensues. How would I measure it? You can't measure contentness.

Who else has a great idea?

Cherry Garcia or Mother's Milk?

Story here:
People for the Ethical Treatment of Animals sent a letter to Ben Cohen and Jerry Greenfield, cofounders of Ben & Jerry's Homemade Inc., urging them to replace cow's milk they use in their ice cream products with human breast milk, according to a statement recently released by a PETA spokeswoman.

"PETA's request comes in the wake of news reports that a Swiss restaurant owner will begin purchasing breast milk from nursing mothers and substituting breast milk for 75 percent of the cow's milk in the food he serves," the statement says.
"The fact that human adults consume huge quantities of dairy products made from milk that was meant for a baby cow just doesn't make sense," says PETA Executive Vice President Tracy Reiman. "Everyone knows that 'the breast is best,' so Ben & Jerry's could do consumers and cows a big favor by making the switch to breast milk."

"We applaud PETA's novel approach to bringing attention to an issue, but we believe a mother's milk is best used for her child," said a spokesperson for Ben and Jerry's.

Tuesday, September 23, 2008

A new solution to stock market woes: Get rid of Congress!

Tom and Dana Johnson send along this bit concerning the Singer Congressional Fund. The idea is straight-forward-- the market performs worse when Congress is in session, so invest accordingly. Though I guess short-selling can't be part of the strategy anymore.

Here is a background of how the fund got started. It mentions a paper by Michael Ferguson and Hugh Douglas Witte that look at the "Congressional Effect." These are some pretty heavy lines:

"Since 1897, the year after the Dow was created, an impressive 90 percent of gains came on days when Congress was out. [Ferguson and Witte's] charts show that a dollar invested in 1897 that was converted to cash every time Congress met was worth $216 by 2000. The opposite strategy — investing only when they were in session — only got you $2 by 2000."

Here's another bit on the fund.

The Singer Congressional Fund gets the TPS Seal of Approval.

An Economic Model of Information Provision by the Daily Show with Jon Stewart

Not really, but close. "Media versus Special Interests" by Alexander Dyck, David Moss, and Luigi Zingales. Here's the abstract:
We argue that profit-maximizing media help overcome the problem of "rational ignorance" highlighted by Downs (1957) and in so doing make elected representatives more sensitive to the interests of general voters. By collecting news and combining it with entertainment, media are able to inform passive voters on politically relevant issues. To show the impact this information has on legislative outcomes, we document the effect "muckraking" magazines had on the voting patterns of U.S. representatives and senators in the early part of the 20th century. We also show under what conditions profit-maximizing media will cater to general (less affluent) voters in their coverage, providing a counterbalance to special interests.
So in an effort to draw consumers and make a profit, firms bundle the information in an entertaining way that makes consumers more likely to remember it and more likely to listen to it. Remember this story from the last presidential election:
In a recent survey, viewers of Stewart's "The Daily Show" on Comedy Central tested better than Letterman and Leno viewers on a six-question politics quiz.

Viewers of all three shows know more about the background of presidential candidates and their positions on issues than people who don't watch late-night TV.

On top of that, "Daily Show" viewers know more about election issues than people who regularly read newspapers or watch television news, according to the National Annenberg Election Survey.
Also relevant 2007 survey here:

Ron Paul's take

Ron Paul sounds off on the current state of things, he's always a breath of fresh air not because I tend to agree with what he says but because he genuinely upsets people, and I respect that. I get a handful of angry emails from the columns I write at the State Journal-- and if I can write something that makes someone want to vent at me through email, I must be getting somewhere.

Note also his allusion to Austrian Business Cycle theory!

"The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.


Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable. Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand."

Who'd have thought CNN would have an article with a slice of ABC in there?

Updating Coase: Hail Cannons vs. Sweetmakers

If Ron Coase was writing on his discoveries today, the technology would have to be updated to fit the times:

After a series of hailstorms devastated the orchard's apple crop in 2007, the owner resorted this summer to using a hail cannon, a noisemaking machine whose sound waves supposedly disrupt the formation of hailstones.
"It sounds like artillery fire," said Gregory Connors, a 38-year-old software designer whose children have been woken up by the booms. "I'm up for everybody's right to farm. We support local farmers. But the technology and the way it's being utilized is not acceptable."

My Benefits Derived from the Financial Crisis

"Crisis" is a matter of perspective:
  • I just started saving for retirment, and I can now buy shares in index funds on the cheap.
  • I hope to buy a house early next year, which will have a depressed price.
  • The mortgage I finance the house with will have an artificially low interest rate, thanks Ben!
  • My private student loans have an artificially low interest rate, thanks Ben! (Federal loans also, for that matter.)
  • I can replace $7,500 in mortgage loans to a private bank with a $7,500 interest free 20 year loan from the government, and I can wait 2 years before I start repaying. I also will get a $7,500 tax credit for playing.
  • Given the option of splitting my retirement contributions between the public employees account and a account serviced by a private provider (WaMu), I went against my urge to diversify and instead went 100% with the system that would be bailed out, if the worst were to happen. Thanks, Paulson!

Notes on Racial Bias in Polling and Voting

From CNN:
A small percentage of voters -- 2.5 percent of those surveyed -- said they may turn away from Obama because of his race.
The article claims that Obama will lose 6 percent due to his race, but I find no mention of whether or not they asked if anyone was voting for him because of his race.

The concern I think this article is implicitly trying to get at is what is more popularly known as the Bradley Effect or the Wilder Effect, which is the observation that sometimes black candidates do systematically worse in actual elections than they do in the polls leading up. My understanding is that the academic literature has not found this to be the case (or has disappeared), and that it is more likely a flaw in poll methodology.

For those who are more interested in that subject, I suggest they turn to this EconTalk interview with polling expert Doug Rivers and tune in a little after the 40 minute mark.

P.S. A while back the DOL was throwing out predictions for the outcome of the election. I'm betting a Democratic sweep, as both Congress and the White House go to the challengers. Note that I prefer a split, and I don't care which party gets which branch.

Monday, September 22, 2008

Spilled Milk

The Beckerian punishment of last year’s execution was not enough to ensure better food safety under restricted competition and bureaucratic state institutions. I suspect the additional oversight of the Ministry of Health that followed in 2007 only lengthened the chain of crisis response. From the first baby to become sick, it took a staggering 3 and a half months before official recognition of contamination; the numbers now stand at least 53,000 sick, 4 dead, and over 100 infants with severe kidney failure. I also doubt the arrests and detainment of 18 others will do anything to solve the systemic problems of the perverse incentives and limited information in an institutional context of collective ownership and highly regulatory bureaucracy. And the prevailing government response is…..official resignation, more regulation, and farm subsidies. Really sad.

So lets take a minute to reflect. While China was executing its food and drug czar last year, America was appointing one. But not even Krugman celebrated. Instead, he blamed Milton Friedman, capitalist ideology, and globalization for causing regulatory inefficiency by not providing federal oversight agencies with enough resources. So, in 2008 after calling the tomatoes and spinach incidents analogous to The Jungle - what did Krugman call for?

"And in the case of food, what we need to do now — for the sake of both our health and our export markets — is to go back to the way it was after Teddy Roosevelt, when the Socialists took over."

So why stop at socialism when communism is going such a wonderful job?

Two Questions

Leave an answer in the comments to these two questions:
  1. Who was the more devastating president for the long run interests of the U.S. economy, Franklin D Roosevelt or George W. Bush?

  2. If the U.S. becomes the socialist paradise its leaders (not to mention Stiglitz and Krugman) seem hellbent on making it, where to should Atlas shrug? That is, which country has the best mix of a strong freedom-preserving constitution and low cultural shock change?

Australia joins the fray...

So the Australians have joined in and banned short selling in a range of instances.

From the article:

"The Securities and Exchange Commission and the U.K.'s Financial Services Authority clamped down on the practice, which they blamed for the declines of financial stocks, late last week."
Short selling is why stocks go down? Is buying stocks why they go up? Is it scary that this is the reasoning of the regulatory agency?

I can't remember this from my derivatives class, Tom will have to fill in the details, but can't you manufacture a short-sell in a manner that doesn't involve short selling? Or is that only with options?

Hat tip: TPS Legal Expert and Protoss aficionado Dana Johnson

No Relationship Between What You Pay and What You Get

Study can be found here.

Sunday, September 21, 2008

How Will This Affect Campaigning?

From CNN Instapoll:

When will you cast your ballot in this year's presidential race?
On Election Day 61% 159062
In early or absentee voting 29% 75217
I'm not voting 10% 24661
Total Votes: 258940

My guess is there will be a shift away from "appealing to the base" to get closer to the median voter more rapidly than otherwise.

Saturday, September 20, 2008

Stupid Eggheaded PhD's!

From the Curious Mercantilist Capitalist:
This is not, yet, a unanimously held opinion. There is even still some debate over whether this even is a recession. But I'm thinking that's going to fade away soon. "All my cousins already know we’re in a recession," says Bob Barbera, chief economist at ITG and, coincidentally, a former Lehman chief economist. "You need a Ph.D in economics to have a debate about it." Barbera thinks that, "in the fullness of time," it will be apparent that the recession began in autumn 2007.
Of course, Barbera is likely just looking for an external villain like the recession to blame for his company's failure, but a more correct statement would have been:
You need to avoid watching the news and election campaign to have a debate about it.

Large Hadron Update

Looks like my prediction of years, not months, is looking better by the day.

Taking Aim at the Pigou Club

In a recent issue of Regulation magazine, John Nye takes the Pigouvian tax to task. His argument is basically two-fold. First, economists need to measure both the optimal level of externality and the actual externality. If Coasean bargains are taking place (to any extent), then measuring only the perceived externality will lead to too little of the externality. Second, no studies account for the myriad of other factors that either encourage or discourage externalities. For example, the government may increase pollution through subsidizing rural neighborhoods or discourage it through high taxes on automobile related purchases. Until all of these factors are accounted for, then even a perfectly accurate measurement of the Pigouvian Externality wouldn't tell us whether we have too little or too much of the externality.

Friday, September 19, 2008

Cultural Rights?

Today, I listened to Bill Ivey present the thesis of his book Arts, Inc: How Greed and Neglect are Destroying Our Cultural Rights. Here is Tyler Cowen's brief review. Here's the gist of the thesis:
  1. We have "cultural rights" to things like music, art, photography.
  2. Firms lobby for copyright law to try and profit articles we have a cultural right to.
  3. Firms are successful because there is no regulatory agency, something equivalent to a Ministry of Cultural Rights.
  4. Conclusion: We need a Ministry of Cultural Rights that is strong enough to balance our cultural rights against firm greed.
It was an interesting talk throughout, and he is optimistic because he has some inside info that Obama is willing to do something about. He does recognize the enormous dangers of such an Orwellian/Taliban sounding institution, he says he recognizes the importance of copyright law, and doubts that firms would be able to capture an institution if it is strong enough. I think Americans will never go for it because it sounds like a left-wing attempt to create a right-wing Frankenstein.

I think this argument will have much more staying power than it is really justified because #1 is so inherently subjective. Explaining the enormous dangers and potential costs of such an institution won't matter if its proponents value #1 highly.

Yet, #1 to me seems the easiest to defeat intellectually. I find I have to teach my 2-year old that "just because someone shows you something, that doesn't make it yours." The lesson is the same for cultural rights activists. Just because I have seen pictures of JFK Jr saluting his father's coffin, doesn't mean I possess any rights to it. The photographer had rights to it (which he took for a profit), he sold those rights to a firm, which sold to another firm, etc. At no point does my having seen it entitle me to ownership, let alone any vague notion of "we" own it.

Be ready, if Mr. Ivey is right and Obama is on board, this may have to find its way into the Freedom Index.

Questions I Must Ask

For elementary and middle school students, only homework grades "that raise a student's average" will be recorded.
Story here. I've been trying to write out the mathematical formula for how this would be accomplished, but I can't figure out where the "average" comes from.

As to the parents who are outraged about this, just ask for your money back and go somewhere else. Oh, wait...

Oh, Baby! Who is to blame?

China's official news agency says that the tainted milk powder crisis "reflected chaotic industry conditions, as well as loopholes in the supervision and management of the industry". Was this horrible act attributable to greedy businessmen who will do anything (including poisoning babies) to make a buck? Hmmmm. Maybe. Is more government oversight the answer? No.

This sad disaster is a result of the incentives present in an institutional context of collective ownership and the presence of a highly regulatory bureaucracy that makes a practice of handing out privileges and restricting competition. In a competitive market of private enterprise, companies that poison babies are out competed by those that don’t poison babies. Market incentives exist to report wrongdoers and for companies to take extensive precautions against contamination all kinds. Protecting customers is a profit maximizing strategy when a firm can capture the benefits of doing so. This does not mean that foods will always be 100% safe in a free market. There is an optimal level of food safety. However, I am sure that the optimal level includes not poisoning your consumers or their babies.

Speaking of things that make you sick...

There have been a lot of scary interventions in the recent past; this one might take the cake.

Banning short selling? Can we ban stocks from going down too? Why don't we just prevent companies from failing while we're at it? Oh wait...

Hat tip: TPS Clevelander Rob Holub

Thursday, September 18, 2008

Incredible Statements

From the IndyStar, tell me if there is anything in this story that does not make you sick to your stomach:
The town government has paid lawyers, public relations consultants, city planners and other experts more than $1.2 million over the past 21 months to help it try to annex homes around Geist Reservoir.
Town officials said almost all of the expenses came after Geist homeowners last summer rejected Fishers attempt annex them voluntarily.

"People should know that barely any of these expenses would have been incurred if the homeowners didn't insist on fighting us," said Bryan Babb, an attorney for Bose McKinney. "It has become a lot more expensive based on what GUO has done."

The legal bill was worth the investment, officials said, because a successful annexation will bring the town millions in property taxes from Geist homeowners for years to come.

It's Called a "Government Granted Monopoly," Betty...

...and it's coming to a financial market near you. This from CNN on Ike:
Tempers are running hot in Cincinnati even as hundreds of energy workers try to get the power back on, WLWT reported.

Resident Betty Ruark told the station she was "really teed off" that houses either side of her had power, but she still needed a generator just to make coffee.

"They're right here a week after you pay your bill to read your cotton-picking meter for next month," she said. "They're threatening to cut you off if you don't pay it, but could they care less that they don't got the electric on. It don't make sense, you know?"
Yes, I do know Betty, and I can't wait to pass it along to the other sectors of our economy. Check out this commentary from Nell Minow:
American International Group (AIG) replaced CEO Martin Sullivan after the company posted losses for two consecutive quarters totaling $13 billion. Sullivan's contract entitled him to about $68 million. His replacement, a board member who served as CEO for three months before the company was taken over by the government, will get as much as $7 million.

The boards of directors approved pay that was completely disconnected to performance. This, after all, is the world of the ultimate oxymoron: the "guaranteed bonus." So we should not be surprised that executives took the money and ran.
I agree wholeheartedly Nell, but fortunately the market forces these businesses out of existence. Oh, wait....

Is there a basic principle of economics that is not being raped and pillaged by policy makers right now?

Interview with John Nash

John Nash, of Nash Equilibrium fame, is interviewed here. I bring it up because it may be of interest to our friends in the school of Austrian Economics. If you skip to 28:00 in the video, he talks about the influence of teachers in his life. He says he only took one course in economics, but it was taught by an Austrian economist who was very influential in his way of thinking.

It is brief, but you may find it interesting that one of the most mathematical economists to ever live drew on a Austrian background.

TPS Welcomes Guest Blogger!

TPS welcomes guest blogger Emily C. Schaeffer. Emily is a Ph.D. candidate at George Mason University. Her fields of interest include applied microeconomics, political economy and urban development. Currently she is working on natural disaster response by public and private bureaucracy.

See her first post here. Her website is here.

Is a Ban on Abortion Consistent with Libertarianism?

This is mostly a pointer to DOL's Tim Shaughnessy's post, where he makes the anti-abortion case for libertarianism (and more to his point, the case for religion). I think this is an interesting topic for libertarians to think about precisely because they do seem to come off overwhelmingly in favor of abortion, and it is the party's official platform. I don't have a firm stance on the issue simply because I can't decide, I seem to agree with whoever is arguing their point at the moment (assuming it is a good point).

I tend to think that the role of government is to offset coercion. Yes, the government makes would-be murderer's worse off when they are denied or discouraged from killing someone else, but that merely offsetts the coercion they were to place on the person who was going to be murdered. To me, it is not clear there is or is not coercion because of the ambiguity in determining the human status of the fetus.

My understanding of the Supreme Court's Roe v. Wade decision was that since pregnancy is a medical condition, and the government has no place knowing what your medical condition is, they cannot punish those who terminate their pregnancy. I get that, and that kind of wording seems on the surface a fairly libertarian take (welcome to disagree). However, the government's knowledge of the existence of a person does not seem to grant others the right to murder them.

Ultimately, I think that libertarian philosophy brings nothing new to the abortion debate and we should justs accept this. If the fetus is a person, then the government has a police role to play. If they are not a person then it's not the business of government to intervene. I think this is a improvement over an entire political party taking a stance on it, which mostly seems to serve as a bundling strategy for political views.

Disagree if you wish. Insightful comments that are respectful to everyone's views are welcome.

Apocalypse Now?

If a picture speaks a thousand words, this one encapsulates the fallacious Marxian theories of historical cycles. What may be worse are the parallels between what is written on the gentleman’s sign above and conventional understanding of the relationship between business failure, the market process, and the role of government.

A market process theory of capitalism necessarily requires that firms that make poor decisions (not to name names…eh.. Lehman Brothers et al) collapse and fail. Failure by some is fully consistent with a well working capitalist system. Losses serve the important role of disciplining agents in the market. Losses indicate that using resources in a particular manner is undesirable to the rest of society and unsustainable in accordance with others’ plans. Sometimes (particularly as a result of distortions in crucial price signals) losses mean that large pockets of mal-investment have occurred and will require liquidation.

The process is painful for employees and those whose assets are tied-up in the mal-investment. Nevertheless, the pain is temporary and limited barring any additional government intervention. Resources are freed up by liquidation to be used in profitable undertakings elsewhere, ultimately fueling economic growth throughout the economy. This is part and parcel to the capitalist system, not the ultimate indication of its demise.

Bailouts, not failures, weaken the overall market order. The bailouts of Fannie, Freddie, and AIG are not only unhelpful in current recessionary period, but ultimately harmful and damaging interventions that impede and cripple the market process. Unprofitable allocations of resources and investments persist. Growth for all is curtailed for the protections of the few. More regulation, greater controls, and more government oversight is the immediate recommendation. However, it is not surprising that giving banks money in times of crisis allows for fewer failures in the short run. Example, here. These interventions produce expectations of future bailouts that lead to more risky and unprofitable behavior in the future. Call me crazy, but if the sign read “AIG’s bailout points to a crippling attenuation of capitalism” I would be inclined to agree, even if it was with the crazy man shouting on the corner.