Friday, June 29, 2007
Two Posts I'm not Inclined to Write, but am glad another did
by Ken Houghton
most notable is the coda, which notes the short-term needs of a "long-term" position:
Contrast this with Brad DeLong's comment at the bottom of the quoted post summarizes the actual economics if the market decides not to call its own bluff:
Jimmy Cayne is already describing the funds as "a blip on the radar" (per a former co-worker). Rich Marin may disagree. Whether he has company is left as an exercise, though not an academic or intellectual one.
The previous paradigm—Structured Notes—did not end in disaster. But no one was leveraging them.
The Epicurean Dealmaker: Marks in the Sand is a good explanation of what happens if you actually mark a levered position to market and find out that your model and the market disagree.
most notable is the coda, which notes the short-term needs of a "long-term" position:
That is one of the instructive lessons from the Long-Term Capital Management implosion: Meriwether and his colleagues were convinced all throughout LTCM's long collapse that the market was irrationally selling into all their positions. They did not want to liquidate because they knew they were right about their portfolio's underlying value. Guess what? In retrospect, they probably were right. But that didn't help them avoid the forced liquidation and takeover of LTCM to meet their Wall Street financiers' margin calls.
A strong stomach won't help you when you've borrowed a lot of money and your broker wants it back.
Contrast this with Brad DeLong's comment at the bottom of the quoted post summarizes the actual economics if the market decides not to call its own bluff:
As long as underlying asset values don't collapse, this is a redistribution: those hedge and other funds leveraged and without liquidity lose big, and those hedge and other funds that are liquid gain big. The caravan moves on, and the returns of those who make it down the California side of Donner Pass look very impressive, with the flesh-stripped bones of the illiquid and their investors scattered near Donner Lake for future archeologists to examine.
Jimmy Cayne is already describing the funds as "a blip on the radar" (per a former co-worker). Rich Marin may disagree. Whether he has company is left as an exercise, though not an academic or intellectual one.
The previous paradigm—Structured Notes—did not end in disaster. But no one was leveraging them.
Labels: Brad DeLong, hedge funds, Market Failures, The Old Firm
Leegin vs. PSKS: Vertical Price Fixing is Good for Some
by Tom Bozzo
As an equity holder in an economic consulting firm, my first reaction was, "Woohoo! The economic consultant's full employment act of 2007!" The second reaction, after seeing Justice Kennedy refer to economic literature (Greg Mankiw, via PGL at Angry Bear, has the story as told in his principles textbook) on potential beneficial effects of RPM arrangments was, "Oh, really?"
Before going further, these RPM agreements are not the same sort of restrictions as are provided by minimum markup laws such as Wisconsin's Unfair Sales Act. Such laws directly affect the terms of interbrand competition — the Shell station is limited in its ability to try to underprice the Mobil station down the street — whereas the RPM agreements (directly) limit intrabrand competition. The former are much likelier to have adverse effects on consumers.
The standard story (again via Mankiw) suggests that RPM agreements may be valuable in that they ensure retailers enjoy sufficient markups to pay for what the manufacturer considers to be valuable ancillary services — retail shop ambiance, demonstrations of complex products, etc. In the absence of such arrangements, it's claimed, there's a free-rider problem as cut-price retailers direct their customers to go to full-service stores for the free services and then to come back to buy the product on the cheap. In the end, the full-service retailers can't provide the services (or underprovides them) and everyone's worse-off.
One thing about this type of arrangement is that it appears, on the face, to be allocatively inefficient. That is, in static resource allocation problems, the "market" puts resources to their best possible uses when prices and marginal costs are equal. RPM agreements increase the gap between prices and marginal cost of the affected retail products in order to subsidize the provision of ancillary services at zero price. Whether and how much consumers benefit depends on how they value the ancillary services; it seems uncontroversial that there are, indeed, some people who don't need the hand-holding and/or don't care about having a "free" skinny chai latte while they shop.
The part of the theoretical story that I buy less is that the subsidy is necessary to solve the free-rider problem. An alternative is not that the provision of the ancillary services collapses, but rather than full-service retailers explicitly charge for them (or at least those with nontrivial costs). This happens quite a bit in some markets. For example, interior decorators can (and do) "unbundle" their design services by charging for design consultation; they can (and will) rebate the design fees for customers who subsequently purchase stuff through the designers. Car dealers in Wisconsin can charge a fee to cover "reasonable" costs related to the sales process. The stickers advertising these fees seem to have become much more prevalent since the advent of Intertube-assisted car buying. We haven't yet had the opportunity to determine whether those fees are negotiable. Clothing stores charge for alterations on sale merchandise. The list, I'm sure, could go on.
PGL also points to a very interesting Wall Street Journal Econoblog face-off on the subject. There, Larry White raises some rhetorical questions that don't obviously have the answer he perhaps implies:
To the extent that the potential market failure doesn't turn into an actual one, then it's very hard to see how consumers would enjoy significant net benefit from RPM arrangements. The appearance of amici such as the American Petroleum Institute and National Association of Manufacturers — not exactly defenders of the Little Guy — in favor of the legality of RPM heightens my doubt that consumer benefits are what's really at stake in the case. And I'm skeptical that maintaining brand images by keeping up the appearance of high prices has dynamic efficiency benefits to speak of.
That said, the SCOTUS majority's view that, in effect, the costs and benefits should be weighed isn't that controversial. However, the end result may still be consistent with Justice Breyer's expectation, in the dissent, that the main effect will be higher retail prices.
Yesterday, the Supreme Court's conservative majority decided that arrangements to fix minimum retail prices ("resale price maintenance," or RPM) between manufacturers and their retailers are not "per se" anticompetitive and must instead be judged by the "rule of reason" on the merits or demerits of particular RPM deals.
As an equity holder in an economic consulting firm, my first reaction was, "Woohoo! The economic consultant's full employment act of 2007!" The second reaction, after seeing Justice Kennedy refer to economic literature (Greg Mankiw, via PGL at Angry Bear, has the story as told in his principles textbook) on potential beneficial effects of RPM arrangments was, "Oh, really?"
Before going further, these RPM agreements are not the same sort of restrictions as are provided by minimum markup laws such as Wisconsin's Unfair Sales Act. Such laws directly affect the terms of interbrand competition — the Shell station is limited in its ability to try to underprice the Mobil station down the street — whereas the RPM agreements (directly) limit intrabrand competition. The former are much likelier to have adverse effects on consumers.
The standard story (again via Mankiw) suggests that RPM agreements may be valuable in that they ensure retailers enjoy sufficient markups to pay for what the manufacturer considers to be valuable ancillary services — retail shop ambiance, demonstrations of complex products, etc. In the absence of such arrangements, it's claimed, there's a free-rider problem as cut-price retailers direct their customers to go to full-service stores for the free services and then to come back to buy the product on the cheap. In the end, the full-service retailers can't provide the services (or underprovides them) and everyone's worse-off.
One thing about this type of arrangement is that it appears, on the face, to be allocatively inefficient. That is, in static resource allocation problems, the "market" puts resources to their best possible uses when prices and marginal costs are equal. RPM agreements increase the gap between prices and marginal cost of the affected retail products in order to subsidize the provision of ancillary services at zero price. Whether and how much consumers benefit depends on how they value the ancillary services; it seems uncontroversial that there are, indeed, some people who don't need the hand-holding and/or don't care about having a "free" skinny chai latte while they shop.
The part of the theoretical story that I buy less is that the subsidy is necessary to solve the free-rider problem. An alternative is not that the provision of the ancillary services collapses, but rather than full-service retailers explicitly charge for them (or at least those with nontrivial costs). This happens quite a bit in some markets. For example, interior decorators can (and do) "unbundle" their design services by charging for design consultation; they can (and will) rebate the design fees for customers who subsequently purchase stuff through the designers. Car dealers in Wisconsin can charge a fee to cover "reasonable" costs related to the sales process. The stickers advertising these fees seem to have become much more prevalent since the advent of Intertube-assisted car buying. We haven't yet had the opportunity to determine whether those fees are negotiable. Clothing stores charge for alterations on sale merchandise. The list, I'm sure, could go on.
PGL also points to a very interesting Wall Street Journal Econoblog face-off on the subject. There, Larry White raises some rhetorical questions that don't obviously have the answer he perhaps implies:
It's the manufacturer's judgment that [the RPM arrangement] is the best way to sell the product. Shouldn't the manufacturer's judgment be controlling? Isn't that what a market economy generally relies on to benefit consumers?Neither is a clear affirmative. Why shouldn't the retailer's judgment be controlling? They, presumably, have better information about the demand for ancillary point-of-sale services than the manufacturers. And it would seem reasonable to believe that vigorous competition among retailers would help ensure efficient provision of those services.
To the extent that the potential market failure doesn't turn into an actual one, then it's very hard to see how consumers would enjoy significant net benefit from RPM arrangements. The appearance of amici such as the American Petroleum Institute and National Association of Manufacturers — not exactly defenders of the Little Guy — in favor of the legality of RPM heightens my doubt that consumer benefits are what's really at stake in the case. And I'm skeptical that maintaining brand images by keeping up the appearance of high prices has dynamic efficiency benefits to speak of.
That said, the SCOTUS majority's view that, in effect, the costs and benefits should be weighed isn't that controversial. However, the end result may still be consistent with Justice Breyer's expectation, in the dissent, that the main effect will be higher retail prices.
Thursday, June 28, 2007
Programming Note: The Man Comes Around
by Ken Houghton
I volunteered to take one for the team, but Lance is stepping up to the plate himself—his only live appearance during the Burnoff Episodes of Studio 60.*
That in itself should make it worth being there at 10:00pm Eastern. The other questions:
These, and other questions, Tonight at Mannion's Place. Be there.
*My wife thinks she saw in EW that the show has been renewed. Fortunately, this rumour is unconfirmed.
**Robert Klein reference.
***"My pl*ms, y**r g*ms" doesn't seem likely to be Matt/Harriet dialog. Whether this means anything is left as an exercise.
****One of the best lines in the book, but curiously (yeah, right) left out of the adaptation so far, which has lasted several months and may have gotten to Page 60.
"Nothing is forgotten/Or Forgiven/When It's Your Last Time around."
I volunteered to take one for the team, but Lance is stepping up to the plate himself—his only live appearance during the Burnoff Episodes of Studio 60.*
That in itself should make it worth being there at 10:00pm Eastern. The other questions:
- Will Joshua Molina make an appearance, or will his Every-Sorkin-Show-Ever-Recorded** streak end with a whimper?
- Will The Boss really be the Special Musical Guest?
- Will Lance work in any references to Meadowlands*** (the series, not to be confused with the last place I saw The Boss)?
- Will Pen-Elayne hold true to her Nevermore vow?
- Will my DVR again refuse to record the episode?
- Now that Gigi has been "Cruised"**** herself, will Hour 932 of The Starter Wife beat S60 in the ratings?
These, and other questions, Tonight at Mannion's Place. Be there.
*My wife thinks she saw in EW that the show has been renewed. Fortunately, this rumour is unconfirmed.
**Robert Klein reference.
***"My pl*ms, y**r g*ms" doesn't seem likely to be Matt/Harriet dialog. Whether this means anything is left as an exercise.
****One of the best lines in the book, but curiously (yeah, right) left out of the adaptation so far, which has lasted several months and may have gotten to Page 60.
Wednesday, June 27, 2007
The Eco-Friendly Hummer? Why Yes, I Am Kidding.
by Tom BozzoH2 H3 (see update, below) costs a mere $1.95/mile. CNW's claims were also crowed by a Reasonite and parroted by the handsome but not very bright George Will.
Much of the negative reaction focused on the assumption that the Prius would be driven roughly 100,000 miles over its life, whereas the Hummer is assumed to have a 300,000-mile life. The latter figure, I'm sure, is far into the outer tail of the actual distribution of Hummer lifetimes, but that actually isn't CNW's biggest problem. The numerator of the energy cost-per-mile is off by a good order of magnitude, and almost nobody figured it out — not least CNW, who provide sufficient backup material to unearth the order-of-magnitude error and don't seem to realize it.
Economists should be instantly suspicious of a claim that the "cost of energy" for 109,000 miles of Prius driving (including the cost of recycling the Prius at the end) would be on the order of a third of a million dollars. (An Oregonian letter-writer and Mark of Denialism.com, among others, figured out that something was terribly wrong.) A ceiling for the energy's (expected) private cost — in fact, a cathedral ceiling in the MBR of a nice Toll Bros. McMansion — would usually be the price paid for the car plus the bills for fuel, maintenance, and insurance. This is because the various suppliers should pass their input costs on to the end consumer.
In the ballpark of CNW's assumed $3 cost per gallon of gasoline for the actual driving, that would work out to something like of $40,000-$50,000 over the 109,000 miles for a Nicely Equipped Prius. Much if not most of that reflects non-energy input — the metal in the car, mechanics' labor, etc. In fact, analyses showing that most of the life-cycle energy input is mostly in the driving (useful links here from the Union of Concerned Scientists' hybrid blog) would suggest that the energy cost is no more than around $15,000. So the actual private cost per mile is around 14 cents for the 109,000 miles.
CNW asserts that they are not trying to reflect only the pump price of gasoline, but the total social cost of the energy. Can that reasonably account for the differences? As a good liberal, I believe in the existence of substantial external costs of motoring as much as the next person, but I would suggest the answer is No Frackin' Way.
It's tough to put a price tag on those externalities, but let me throw out a figure of $2 trillion a year, worldwide, to cover national security expenditures, pollution controls, CO2 emissions offsets, etc., indirectly related to motoring. Clearly, this can pay for the portion of the worldwide military forces dedicated to securing oil supplies, the Bushist clusterf**k in the Middle East, and leave lots left over.
The $2 trillion is not accidental; it's also roughly the annual bill for worldwide oil demand at the present $65-70/bbl market price. [**] Whatever the real figure, note that there must be enormous external costs to escalate the 14 cent/mile private cost figure by a factor of two, let alone the factor of 20 CNW's Prius cost requires.
The error on the Hummer side of the equation is not as large, though still substantial. The Hummer's energy cost per mile is probably around 2-3 times the Prius's under a more usual accounting. The Hummer's much greater bulk is probably a bigger driver of its embodied costs than the Prius's more advanced materials mix, and on the road it consumes 3-4X the fuel per mile. So if the social cost of the Prius is 30 cents/mile, the Hummer works out in the range of 60 cents to $1/mile.
As I said, CNW could and should have found their error. An example of the information they had at hand is on p. 303 of the report, quoting a Google Answers document that cites a Ford study to the effect that a Taurus-type family sedan would have lifetime energy usage of 961 GJ. A parenthetical note added by CNW claims that the Taurus replacements (Fusion, Five Hundred) would have 1.53 times the energy cost thanks to being "significantly more complex" [***]. That factor is unsourced, but let's grant it: the Five Hundred's energy usage is 1470.33 GJ. How much energy is that, you might ask? The EIA says a gallon of gas has energy content of about 0.124 GJ (it's variable with the fuel blend). Thus, by advanced math, the Five Hundred-type vehicle uses the equivalent of 11,763 gallons of gas. At CNW's assumed $3/gallon cost, that would cost $35,288. Yet for the Mercury Montego (the Five Hundred's Mercury-brand twin), the cost-per-mile and assumed life work out to an energy cost of $344,128. This implies a cost of $29 per equivalent gallon of gas.
Inability to catch order of magnitude discrepancies in your own report does not inspire confidence. CNW's "Dust to Dust" results, in fact, appear to be nearly total bullsh*t.
Update 9/16/07: A rude anonymous commenter points out that the $1.95/mile figure applies to the Hummer H3, not the H2. This doesn't make any appreciable difference to the post, since the H3's fuel economy is 15 MPG city/20 highway by the 2007 EPA methodology, so even the relatively fuel-efficient H3 consumes 2-3x the energy per mile vs the Prius, and its 4,700-lb. curb weight implies higher embodied energy. It was disingenuous for James Martin to pluck the H3 figure out and call it the "Hummer" without a model qualifier; the H3 isn't exactly the "bete noire" of environmentalists in the sense of the CAFE-skirting H1 and H2. For the record, CNW's measured per-mile cost for the H1 was $3.51 and for the H2 was $3.03.
[*] A "nonpartisan" association devoted to the interests of the residuum of senior citizens who have not been made better off by the New Deal and Great Society retirement safety nets.
[**] Which is around 86 million barrels/day.
[***] From the excessive two-digit precision to the potentially mistaken assumption that greater complexity implies more embodied energy, there are lots of uncomplimentary things that could be said about this had I the time.
A "Dust to Dust" study of the life-cycle energy cost of cars by CNW Marketing Research has made a couple rounds of the intertubes, most recently following an update published this past spring. I caught wind of it by way of a commentary which ran in the Philadelphia Inquirer in April, authored by one James Martin of the 60 Plus Association [*], h/t to Autospies for the link,. Martin tells a horror story (debunked here) regarding pollution near the Sudbury Ontario smelter that supplies Toyota with the nickel that is eventually made into hybrid car batteries, then cites CNW's research for a claim that the life-cycle energy cost of a Prius is $3.25/mile, whereas the energy usage for a Hummer
Much of the negative reaction focused on the assumption that the Prius would be driven roughly 100,000 miles over its life, whereas the Hummer is assumed to have a 300,000-mile life. The latter figure, I'm sure, is far into the outer tail of the actual distribution of Hummer lifetimes, but that actually isn't CNW's biggest problem. The numerator of the energy cost-per-mile is off by a good order of magnitude, and almost nobody figured it out — not least CNW, who provide sufficient backup material to unearth the order-of-magnitude error and don't seem to realize it.
Economists should be instantly suspicious of a claim that the "cost of energy" for 109,000 miles of Prius driving (including the cost of recycling the Prius at the end) would be on the order of a third of a million dollars. (An Oregonian letter-writer and Mark of Denialism.com, among others, figured out that something was terribly wrong.) A ceiling for the energy's (expected) private cost — in fact, a cathedral ceiling in the MBR of a nice Toll Bros. McMansion — would usually be the price paid for the car plus the bills for fuel, maintenance, and insurance. This is because the various suppliers should pass their input costs on to the end consumer.
In the ballpark of CNW's assumed $3 cost per gallon of gasoline for the actual driving, that would work out to something like of $40,000-$50,000 over the 109,000 miles for a Nicely Equipped Prius. Much if not most of that reflects non-energy input — the metal in the car, mechanics' labor, etc. In fact, analyses showing that most of the life-cycle energy input is mostly in the driving (useful links here from the Union of Concerned Scientists' hybrid blog) would suggest that the energy cost is no more than around $15,000. So the actual private cost per mile is around 14 cents for the 109,000 miles.
CNW asserts that they are not trying to reflect only the pump price of gasoline, but the total social cost of the energy. Can that reasonably account for the differences? As a good liberal, I believe in the existence of substantial external costs of motoring as much as the next person, but I would suggest the answer is No Frackin' Way.
It's tough to put a price tag on those externalities, but let me throw out a figure of $2 trillion a year, worldwide, to cover national security expenditures, pollution controls, CO2 emissions offsets, etc., indirectly related to motoring. Clearly, this can pay for the portion of the worldwide military forces dedicated to securing oil supplies, the Bushist clusterf**k in the Middle East, and leave lots left over.
The $2 trillion is not accidental; it's also roughly the annual bill for worldwide oil demand at the present $65-70/bbl market price. [**] Whatever the real figure, note that there must be enormous external costs to escalate the 14 cent/mile private cost figure by a factor of two, let alone the factor of 20 CNW's Prius cost requires.
The error on the Hummer side of the equation is not as large, though still substantial. The Hummer's energy cost per mile is probably around 2-3 times the Prius's under a more usual accounting. The Hummer's much greater bulk is probably a bigger driver of its embodied costs than the Prius's more advanced materials mix, and on the road it consumes 3-4X the fuel per mile. So if the social cost of the Prius is 30 cents/mile, the Hummer works out in the range of 60 cents to $1/mile.
As I said, CNW could and should have found their error. An example of the information they had at hand is on p. 303 of the report, quoting a Google Answers document that cites a Ford study to the effect that a Taurus-type family sedan would have lifetime energy usage of 961 GJ. A parenthetical note added by CNW claims that the Taurus replacements (Fusion, Five Hundred) would have 1.53 times the energy cost thanks to being "significantly more complex" [***]. That factor is unsourced, but let's grant it: the Five Hundred's energy usage is 1470.33 GJ. How much energy is that, you might ask? The EIA says a gallon of gas has energy content of about 0.124 GJ (it's variable with the fuel blend). Thus, by advanced math, the Five Hundred-type vehicle uses the equivalent of 11,763 gallons of gas. At CNW's assumed $3/gallon cost, that would cost $35,288. Yet for the Mercury Montego (the Five Hundred's Mercury-brand twin), the cost-per-mile and assumed life work out to an energy cost of $344,128. This implies a cost of $29 per equivalent gallon of gas.
Inability to catch order of magnitude discrepancies in your own report does not inspire confidence. CNW's "Dust to Dust" results, in fact, appear to be nearly total bullsh*t.
Update 9/16/07: A rude anonymous commenter points out that the $1.95/mile figure applies to the Hummer H3, not the H2. This doesn't make any appreciable difference to the post, since the H3's fuel economy is 15 MPG city/20 highway by the 2007 EPA methodology, so even the relatively fuel-efficient H3 consumes 2-3x the energy per mile vs the Prius, and its 4,700-lb. curb weight implies higher embodied energy. It was disingenuous for James Martin to pluck the H3 figure out and call it the "Hummer" without a model qualifier; the H3 isn't exactly the "bete noire" of environmentalists in the sense of the CAFE-skirting H1 and H2. For the record, CNW's measured per-mile cost for the H1 was $3.51 and for the H2 was $3.03.
[*] A "nonpartisan" association devoted to the interests of the residuum of senior citizens who have not been made better off by the New Deal and Great Society retirement safety nets.
[**] Which is around 86 million barrels/day.
[***] From the excessive two-digit precision to the potentially mistaken assumption that greater complexity implies more embodied energy, there are lots of uncomplimentary things that could be said about this had I the time.
Labels: Economics, Energy, innumeracy, Trains Planes and Automobiles
Home Builder, Sweet Home Builder
by Ken Houghtonoffer a counterpoint to be pilloried by her.
The sound is off here, so I went to the CNBC site to try to find out who the guest was and instead found this:
Cokehead is giving a lot of airtime to Ann Coulter right now, before and after letting another guest
The sound is off here, so I went to the CNBC site to try to find out who the guest was and instead found this:
Beazer Homes USA said on Wednesday it fired its chief accounting officer Michael Rand due to violations of the company's ethics policy stemming from attempts to destroy documents.
In a regulatory filing, the sixth largest U.S. home builder said its board's audit committee was conducting an internal investigation of the company's mortgage origination business and related matters.
Labels: Moral Hazard, mortgage
Jaw Dropping Economic Policy Making
by Ken Houghton
Oh, and one other interesting moment in the article. Ed Lazear apparently needed Cheney to tell him that the mortgage-interest tax deduction is popular:
Looks as if Jared Bernstein or pgl of AngryBear was more right than the ever-optimistic Brad DeLong on this one: which DeLong, much to his credit, declares openly today [all links to DeLong's site].
Via John Fox at the Curious Capitalist, THE summary of Bushonomics (via the WaPo series):
Oh, and one other interesting moment in the article. Ed Lazear apparently needed Cheney to tell him that the mortgage-interest tax deduction is popular:
When Edward P. Lazear, chairman of the White House Council of Economic Advisers, broached the idea of limiting the popular mortgage tax deduction, he said he quickly dropped it after Cheney told him it would never fly with Congress. "He's a big timesaver for us in that he takes off the table a lot of things he knows aren't going to go anywhere," Lazear said.
Looks as if Jared Bernstein or pgl of AngryBear was more right than the ever-optimistic Brad DeLong on this one: which DeLong, much to his credit, declares openly today [all links to DeLong's site].
Labels: Brad DeLong, Bushonomics
A Non-Defence of The Old Firm
by Ken Houghton
This is the closest I'm going to come to saying anything directly about The Old Firm: If things had been done differently at the time of LTCM, we might not be talking about Bear so much right now. Via Naked Capitalism, this Bloomberg Exclusive:
As I noted previously, there is good reason that Bear trades lower than its comps. "[T]he most sharp-elbowed culture on the Street" may be a competitive advantage, but then there are the (rare?) times when "collegial" is more important than competitive—most often, in a time of crisis.
PART 2: There was, of course, a time when Cayne thought differently, as noted in When Genius Failed:
(Moved up due to addition of Part II, below)
This is the closest I'm going to come to saying anything directly about The Old Firm: If things had been done differently at the time of LTCM, we might not be talking about Bear so much right now. Via Naked Capitalism, this Bloomberg Exclusive:
Bear Stearns Cos. is getting a taste of its own medicine.
It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid.
Merrill Lynch & Co., which pumped $300 million into LTCM, said no and seized $850 million of bonds held as collateral for loans it had made to the funds. Lehman Brothers Holdings Inc., JPMorgan Chase & Co. and Cantor Fitzgerald LP also pulled out, leaving Bear Stearns to sort through the wreckage of bad bets on subprime mortgage bonds and collateralized debt obligations.
As I noted previously, there is good reason that Bear trades lower than its comps. "[T]he most sharp-elbowed culture on the Street" may be a competitive advantage, but then there are the (rare?) times when "collegial" is more important than competitive—most often, in a time of crisis.
PART 2: There was, of course, a time when Cayne thought differently, as noted in When Genius Failed:
Labels: hedge funds, Market Failures, Naked Capitalism, subprime, The Old Firm
Tuesday, June 26, 2007
Does This Mean They're Getting Rid of "NOT Paul"?
by Ken Houghton
Via Economics Roundtable, Daniel Gross will sooon having a larger readership:
This is addition. A Strategic Subtraction, as subtly hinted in the title, would make it Even Better.
UPDATE: Chez DeLong, Justin Fox of Curious Capitalist fame notes that Allan Sloan, not "NOT Paul," is departing Newsweek (for Fortune, a TWX property).
Via Economics Roundtable, Daniel Gross will sooon having a larger readership:
I am delighted to announce that Daniel Gross will be joining Newsweek on July 1 as a business columnist for the print edition of the magazine and for Newsweek.com....
Dan will write a biweekly column for the print edition of the magazine, additional pieces for our website and for Slate each week, and will contribute longer articles from time to time. He will also create a blog on Newsweek.com.
This is addition. A Strategic Subtraction, as subtly hinted in the title, would make it Even Better.
Labels: just life
The OVP is not PART of the Executive Branch
by Ken Houghton
From Daniel Drezner's archives (I was looking for something else), this—from 12 January 2004—deserves to be re-examined in the current context:
So, what does O'Neill reveal? According to the book, ideology and electoral politics so dominated the domestic-policy process during his tenure that it was often impossible to have a rational exchange of ideas. The incurious President was so opaque on some important issues that top Cabinet officials were left guessing his mind even after face-to-face meetings. Cheney is portrayed as an unstoppable force, unbowed by inconvenient facts as he drives Administration policy toward his goals.
O'Neill's statements dovetail with the TNR cover story by John Judis and Spencer Ackerman fromsix weeks ago[the 1 Dec 2003 issue] (sorry, subscription required again) -- this section in particular:
Cheney's ideology hardly made a dent in the first Bush White House. But, in the second, George W. Bush tasked him with a robust foreign policy portfolio....
The Office of the Vice President (OVP) was more than a consolation prize. Cheney gave his national security staff far greater responsibilities than had traditionally been accorded the vice president's team. His regional specialists wouldn't be involved only in issues relevant to the vice president--they would participate fully in the policymaking process and attend almost every interagency meeting. When Cheney first created this new structure, some Bushies openly described the operation as a "shadow" NSC. For those in the NSC itself, it often seemed like the "shadow" had more power than the real deal. One former Bush official says, "In this case, it's often the vice president's office that's driving the policy, leading the debate, leading the arguments, instead of just hanging back and recognizing that the vice president is not supposed to be driving the policy."
I'm beginning to wonder how much Cheney's activism -- which Bush enabled -- has thrown the NSC process completely off-kilter.
UPDATE: I'm not sure I explained that last point completely. This has nothing to do with the policy positions Cheney has taken on Iraq or anything else. Rather, the difficulty is that even cabinet-level officials can be reluctant in disagreeing with him because he's the vice-president. This leads to a stunted policy debate, which ill-serves both the President and the country. Brad DeLong's excerpt from the Wall Street Journal on the cabinet-level meeting on steel tariffs provide another case where Cheney seemed to choke off opposition to his position.
Labels: Politics, separation of powers
The Economy as a Mirror on the Reporter's Soul
by Tom Bozzo
Believe it or not, these headlines all came from what some might think to be a single reality (from mid-afternoon, 25 June 2007)!
Labels: Economics, Journamalism
Monday, June 25, 2007
These May Be the Same Book
by Ken Houghton
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber.
Lempriere's Dictionary by Lawrence Norfolk*
Two books attempting to make sense of a world in which the underlying reality often is difficult to see.
*Yes, it's an additional copy. One can never have too many, especially when there are daughters who should learn how prose can be written.
Bought at Strand Books today:
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber.
Lempriere's Dictionary by Lawrence Norfolk*
Two books attempting to make sense of a world in which the underlying reality often is difficult to see.
*Yes, it's an additional copy. One can never have too many, especially when there are daughters who should learn how prose can be written.
Labels: hedge funds, investment strategies, just life
Brutal, Nasty, Short, but probably not really Cruel
by Ken Houghton
The latter is probably not really true. The most expensive middle reliever in history was Jose Canseco, whose inning in late May of 1993 cost Texas the rest of his season.*
*fairness probably requires me to note that Canseco pitched the eighth inning against a home team with a fairly insurmountable lead, which makes calling it "middle relief" arguable. Fairness also requires me to note that seeing that Clemens had pitched in relief led me to assume, erroneously, that Kim's post anticipating the All-Star Game was more proximate than it is.**
**Anyone who has seen my team's performance in the LGM ESPN Baseball Challenge knows I haven't been paying attention to the season. Until this morning, I owned the ChiSox pitching staff.
Scott will love this:
Here's the Yankee pitching rundown: Two scouts who saw Kei Igawa say he's bumped his fastball from 88 to 91 and improved his changeup but that he's still looks pretty ordinary. Mike Mussina would need to improve to reach ordinary. Kyle Farnsworth, who's done almost nothing right except shame Roger Clemens into showing up when he isn't pitching, simply has to go. And lastly, on Sunday Clemens became the most expensive middle reliever in baseball history.
The latter is probably not really true. The most expensive middle reliever in history was Jose Canseco, whose inning in late May of 1993 cost Texas the rest of his season.*
*fairness probably requires me to note that Canseco pitched the eighth inning against a home team with a fairly insurmountable lead, which makes calling it "middle relief" arguable. Fairness also requires me to note that seeing that Clemens had pitched in relief led me to assume, erroneously, that Kim's post anticipating the All-Star Game was more proximate than it is.**
**Anyone who has seen my team's performance in the LGM ESPN Baseball Challenge knows I haven't been paying attention to the season. Until this morning, I owned the ChiSox pitching staff.
Girls of Summer -- Answers
by Anonymous
Sources: my main source is the Exploratorium's exhibit on the science of baseball, which includes a section on the girls of summer. Other sources include the AAGPBL site and the Baseball Almanac.
1) How many years did women play professional baseball in the US?
Answer: b, 60-65 years. Women first played professional ball in 1875 -- before they could vote or own property in their own names after marriage. The Bloomer Girls teams, many of which were integrated by sex, played until 1934.
Wrigley founded the All-American Girls Softball League in 1943. League play morphed into baseball some time around 1953 or 1954, depending on which criterion you use to define real baseball. The Colorado Silver Bullets, a women's professional team, operated from 1994-1997 until Coors pulled the plug.
2) Who was the first woman to play baseball under a contract in the men's minor leagues?
Answer: a, Lizzie Arlington. She pitched one game for Reading against Allentown in 1898. She was later hired to play in exhibition games in the Atlantic league.
3) Which female pitcher struck out Babe Ruth and Lou Gherig, back-to-back, in an exhibition game in her rookie year?
Answer: a (corrected thanks to Ken), Jackie Mitchell, who at age 17 played for the Chattanooga Lookouts, a farm team for the Yankees. She had one pitch, a sinker. In her rookie season in 1931, the Yankees came to town on their way back from spring training. She faced three batters: Babe Ruth, Lou Gehrig, and Tony Lazzeri. Babe Ruth got caught looking; Lou Gehrig swung at three sinkers in a row. She then walked Tony Lazzeri, and the manager pulled her from the game.
Neither the Babe nor Gerhig were terribly pleased at being struck out by a girl. A few days later, baseball commissioner Kenesaw Mountain Landis voided Mitchell's contract. Mitchell later signed on with a men's barnstorming team, but didn't like the circus elements of the trade (e.g., riding a donkey through an inning).
4) In which decade was a woman first paid to umpire a pro or semi-pro baseball game?
Answer: b, 1900s. Amanda Clement umpired semi-pro games in the Midwest between 1904-1910. She used her earnings ($15-25 a game) to pay for college.
5) In what year did a male player argue that women shouldn't be in baseball because God created women to be feminine and submissive to men.
Answer: Perry nailed this one. Bob Knepper of the Astros purportedly had this to say after pitching a game that Pam Postema umped:
Virtually the same reasoning was used when Landis voided Mitchell's contract with the Yankees in 1931, and also when George Trautman voided Eleanor Engle's two-day-old contract with a Senator's farm team in 1952 and banned women from the MLB minors.
6) Who replaced Hank Aaron at second base for the Indianapolis Clowns?
Answer: b, Toni Stone, an African American woman, played from 1949-1954. Ineligible for the AAGPBL because of her race, she played on otherwise all-male black teams, mostly in the Negro League. She signed on with the Clowns in 1953 after Aaron left for the Braves. When she left the Clowns, she was replaced by another woman, Connie Morgan.
7) Who holds the record for the most stolen bases in a season in professional ball?
Answer: c, Sophie Kurys, who played for the Racine Belles from 1943-1950. In 1946, she stole 201 bases out of 203 tries. Lou Brock's long-time record was 118 bases; Ricky Henderson's is 130.
8) Who was the first person to play on All-Star teams for both the AL and the NL and in the Negro League?
Answer: a, Lizzie Murphy. Murphy played in the American League All-Star game in 1922 and the National League All-Star game in 1928. This is a bit of a trick question, in that both were before the modern era of inter-league All-Star play.
In 1928, Lizzie Murphy played one game at first base for the Cleveland Colored Giants. During the game, she got a hit off Satchel Paige, much to the latter's embarrassment. (Toni Stone also got a hit off Satchel Paige.)
Murphy's career lasted 17 years. At the peak of her popularity, the Queen of Baseball could make as much as $50 per game selling cards of herself.
Here are the answers to last Thursday's Girls of Summer quiz. If you want to take the quiz before you see the answers, stop reading here! (Sorry, I don't know how to do the "below the fold" thing.)
Sources: my main source is the Exploratorium's exhibit on the science of baseball, which includes a section on the girls of summer. Other sources include the AAGPBL site and the Baseball Almanac.
1) How many years did women play professional baseball in the US?
Answer: b, 60-65 years. Women first played professional ball in 1875 -- before they could vote or own property in their own names after marriage. The Bloomer Girls teams, many of which were integrated by sex, played until 1934.
Wrigley founded the All-American Girls Softball League in 1943. League play morphed into baseball some time around 1953 or 1954, depending on which criterion you use to define real baseball. The Colorado Silver Bullets, a women's professional team, operated from 1994-1997 until Coors pulled the plug.
2) Who was the first woman to play baseball under a contract in the men's minor leagues?
Answer: a, Lizzie Arlington. She pitched one game for Reading against Allentown in 1898. She was later hired to play in exhibition games in the Atlantic league.
3) Which female pitcher struck out Babe Ruth and Lou Gherig, back-to-back, in an exhibition game in her rookie year?
Answer: a (corrected thanks to Ken), Jackie Mitchell, who at age 17 played for the Chattanooga Lookouts, a farm team for the Yankees. She had one pitch, a sinker. In her rookie season in 1931, the Yankees came to town on their way back from spring training. She faced three batters: Babe Ruth, Lou Gehrig, and Tony Lazzeri. Babe Ruth got caught looking; Lou Gehrig swung at three sinkers in a row. She then walked Tony Lazzeri, and the manager pulled her from the game.
Neither the Babe nor Gerhig were terribly pleased at being struck out by a girl. A few days later, baseball commissioner Kenesaw Mountain Landis voided Mitchell's contract. Mitchell later signed on with a men's barnstorming team, but didn't like the circus elements of the trade (e.g., riding a donkey through an inning).
4) In which decade was a woman first paid to umpire a pro or semi-pro baseball game?
Answer: b, 1900s. Amanda Clement umpired semi-pro games in the Midwest between 1904-1910. She used her earnings ($15-25 a game) to pay for college.
5) In what year did a male player argue that women shouldn't be in baseball because God created women to be feminine and submissive to men.
Answer: Perry nailed this one. Bob Knepper of the Astros purportedly had this to say after pitching a game that Pam Postema umped:
I just don’t think a woman should be an umpire. There are certain things a woman shouldn’t be and an umpire is one of them. It’s a physical thing. God created women to be feminine. I don’t think they should be competing with men. It has nothing to do with her ability. I don’t think women should be in any position of leadership. I don’t think they should be presidents or politicians. I think women were created not in an inferior position, but in a role of submission to men. You can be a woman umpire if you want, but that doesn’t mean it’s right. You can be a homosexual if you want, but that doesn’t mean that’s right either.
Virtually the same reasoning was used when Landis voided Mitchell's contract with the Yankees in 1931, and also when George Trautman voided Eleanor Engle's two-day-old contract with a Senator's farm team in 1952 and banned women from the MLB minors.
6) Who replaced Hank Aaron at second base for the Indianapolis Clowns?
Answer: b, Toni Stone, an African American woman, played from 1949-1954. Ineligible for the AAGPBL because of her race, she played on otherwise all-male black teams, mostly in the Negro League. She signed on with the Clowns in 1953 after Aaron left for the Braves. When she left the Clowns, she was replaced by another woman, Connie Morgan.
7) Who holds the record for the most stolen bases in a season in professional ball?
Answer: c, Sophie Kurys, who played for the Racine Belles from 1943-1950. In 1946, she stole 201 bases out of 203 tries. Lou Brock's long-time record was 118 bases; Ricky Henderson's is 130.
8) Who was the first person to play on All-Star teams for both the AL and the NL and in the Negro League?
Answer: a, Lizzie Murphy. Murphy played in the American League All-Star game in 1922 and the National League All-Star game in 1928. This is a bit of a trick question, in that both were before the modern era of inter-league All-Star play.
In 1928, Lizzie Murphy played one game at first base for the Cleveland Colored Giants. During the game, she got a hit off Satchel Paige, much to the latter's embarrassment. (Toni Stone also got a hit off Satchel Paige.)
Murphy's career lasted 17 years. At the peak of her popularity, the Queen of Baseball could make as much as $50 per game selling cards of herself.
In Defence of the Old Firm
by Ken Houghton
It may well happen, but it won't be cause and effect. Dealing strictly with public information:
That said, both of their conclusions are reasonable:
"Never seemed eager to sell itself" is appropriately wishy-washy, but leaves an impression that is (being wishy-washy myself) arguably inaccurate.
More accurate is Naked Capitalism's own comment:
The second part may be true, even if Ken Lewis doesn't think so. On the first, you have to assume that the "best talent" would be able to find acceptable compensation elsewhere.
In short, there is a reason that BSC trades lower than its "comparables," and the takeover price would, were the market efficient, adjust accordingly. As usual, it would be a matter of haggling over the price.
If it does happen, the delay has probably cost BSC shareholders several dollars per share. But, again, Jimmy Cayne isn't getting any younger, and may see last week as an opportunity.
The authors of Naked Capitalism (h/t cactus at Angry Bear) post the first discussion taking last week's events to their logical conclusion.
It may well happen, but it won't be cause and effect. Dealing strictly with public information:
- There have been rumours of other firms (most noticeably HSBC) making serious bids for the firm in the past several years
- There are firms that would be a very good fit (most notably, imnvho, this one).
- James E. Cayne isn't getting any younger.
That said, both of their conclusions are reasonable:
However, [Merrill Lynch analyst Guy] Moszkowski estimated that if Bear Stearns loses half the amount of its loan, that would knock roughly $7 a share off its net earnings in a year. That's about half this year's forecast profit, the analyst noted.
He added that if such losses mount, Bear Stearns could become vulnerable to a takeover....
Bear has never seemed eager to sell itself, but would benefit from a greater global presence, Moszkowski wrote.
"Never seemed eager to sell itself" is appropriately wishy-washy, but leaves an impression that is (being wishy-washy myself) arguably inaccurate.
More accurate is Naked Capitalism's own comment:
But that begs the question of who would be so rash as to purchase Bear. Investment bank acquisitions have a terrible track record, and Bear would be a particularly tough deal. It has the most sharp-elbowed culture on the Street, and also the highest payout on revenue production, a toxic mix to any acquirer (bringing pay practices in line with those of the new parent would lead to an exodus of the best talent). And its most attractive business, its number one spot in prime brokerage, appears almost certain to be on the verge of a cyclical, if no a secular, decline.
The second part may be true, even if Ken Lewis doesn't think so. On the first, you have to assume that the "best talent" would be able to find acceptable compensation elsewhere.
In short, there is a reason that BSC trades lower than its "comparables," and the takeover price would, were the market efficient, adjust accordingly. As usual, it would be a matter of haggling over the price.
If it does happen, the delay has probably cost BSC shareholders several dollars per share. But, again, Jimmy Cayne isn't getting any younger, and may see last week as an opportunity.
Labels: Angry Bear, Market Failures, Naked Capitalism, The Old Firm
Go Hit the Tip Jar
by Ken Houghton
Isn't this post alone worth a few bucks?
CR is allocating all tips received until the end of the month to Tanta. (Has it really been six months?!)
Isn't this post alone worth a few bucks?
Labels: Calculated Risk, The Old Firm
We're Breaking the Law, therefore You Should Change it
by Ken Houghton
Suppose I declare publicly that I'm robbing pension funds. (Just to be clear, I'm not.) And suppose there are several pension fund managers who are helping me? (Just to be clear, they're not helping me.)
You would assume that I would be arrested, no? Or at least forced to talk with George Mitchell. And that people would try to stop me from doing it. And, when they found out about it, they would (rightly) object that it was done, probably noting that the pension fund managers (if not I) have a "fiduciary responsibility." (This, by the way, dovetails to the answer I would give to this post by Brad DeLong: absolutely, since the integrity of the system is otherwise compromised; reputational risk didn't used to be something with which firms took chances.)
The last thing anyone would expect would be to find people argue that, since I was robbing pension funds, robbing pension funds should be made legal.
Ladies and gentlemen, I give you Tyler Cowen (as noted previously, via DeLong):
Follow the pieces:
(Note also that any time an economist says "of course," he's unlikely to be telling the strict truth, as with [5] above. The general rule of "2 and 20" links the hedge fund managers compensation to the amount of funds invested [2% of assets] and the gain of the fund [20% of the profits]. HOWEVER, the gain of the fund will be proportionate to the assets invested. If your "hedge fund" has $100, you can make a $200 or $500 "bet," but not a $2,000 one. In all cases, the maximum return of this portion of compensation is limited by the initial investment. So, in both cases, the hedge fund manager is realistically being compensated for the Assets Under Management, just as the PM is.**)
So mutual funds are attempting to imitate hedge fund strategies. Or, in some cases, investing in hedge funds. Now, since the MF has more than 15 clients, one would assume that the hedge fund would have to report. One would likely be incorrect.
In such an atmosphere—with your pension funds and mine being invested in a manner that is not reported, not conducive to easy access, and (to be direct) not legal, all for an unpredictable relative return, but with higher upfront costs—one would think that a sane economist would consider the "prudent investor" rule*** and decry this activity.
Ladies and gentlemen, Tyler Cowen:
"Not necessarily beneficial." Which part is that: the part that requires investor access, the part that requires investor consent, or the part that requires reported returns with enough information that the investor can make the first two decisions?
*This is not to suggest that Vanguard, Fidelity, et al. don't try to hide their lesser/loser funds. But those were reported, so at the very least an analyst or an economist could tell that they existed and don't any more, and report that accordingly.
**This ignores the so-called "real estate agent" problem.
***This used to be known as the "prudent man" rule, iirc.
UPDATED with DD links.
Suppose I declare publicly that I'm robbing pension funds. (Just to be clear, I'm not.) And suppose there are several pension fund managers who are helping me? (Just to be clear, they're not helping me.)
You would assume that I would be arrested, no? Or at least forced to talk with George Mitchell. And that people would try to stop me from doing it. And, when they found out about it, they would (rightly) object that it was done, probably noting that the pension fund managers (if not I) have a "fiduciary responsibility." (This, by the way, dovetails to the answer I would give to this post by Brad DeLong: absolutely, since the integrity of the system is otherwise compromised; reputational risk didn't used to be something with which firms took chances.)
The last thing anyone would expect would be to find people argue that, since I was robbing pension funds, robbing pension funds should be made legal.
Ladies and gentlemen, I give you Tyler Cowen (as noted previously, via DeLong):
2. Hedge funds exist because mutual funds do not deliver "complex investment strategies." In part this is because mutual funds are regulated.
4. Investment advisors with fewer than 15 clients do not have to register with the SEC.
5. Regulations restrict the compensation of mutual fund advisors in various ways, typically requiring symmetric treatment of gains and losses (if a dollar of profit leads to a bonus, a dollar of loss must lead to a penalty). That is why mutual fund managers are compensated in proportion to the size of their funds, not their performance. This is not obviously efficient, and of course hedge funds pay for performance.
6. Hedge funds don't have to disclose information to investors, other than by contractual agreement.
7. Diversification and redemption requirements make it harder for mutual funds to exploit some profit opportunities, or to hedge in particular manners.
8. The number of mutual funds that try to replicate hedge fund strategies is growing rapidly.
9. Available data on hedge fund returns are nearly worthless.
Follow the pieces:
- (2) mutual funds are regulated and part of that regulation minimizes (restricts) their attempting "complex investment strategies."
- Also (7) the ability of people to manage their own money (be able to move it from one fund to another, subject to regulation) limits the ability of mutual fund managers to take some risks while hedge funds.
- Hedge funds do not necessarily answer to their investors (6), and where said investors generally are required to commit their funds for a defined period of time. (LTCM was five years; most hedge funds require at least one.), and
- We don't know that hedge funds outperform mutual funds.* Indeed, it's not the way to bet, since (by dd's rules, especially Good ideas do not need lots of lies told about them in order to gain public acceptance and Fibbers' forecasts are worthless.) if they did, they would all be advertising their performance, not (9) keeping it quiet—especially when the regulators start sniffing.
(Note also that any time an economist says "of course," he's unlikely to be telling the strict truth, as with [5] above. The general rule of "2 and 20" links the hedge fund managers compensation to the amount of funds invested [2% of assets] and the gain of the fund [20% of the profits]. HOWEVER, the gain of the fund will be proportionate to the assets invested. If your "hedge fund" has $100, you can make a $200 or $500 "bet," but not a $2,000 one. In all cases, the maximum return of this portion of compensation is limited by the initial investment. So, in both cases, the hedge fund manager is realistically being compensated for the Assets Under Management, just as the PM is.**)
So mutual funds are attempting to imitate hedge fund strategies. Or, in some cases, investing in hedge funds. Now, since the MF has more than 15 clients, one would assume that the hedge fund would have to report. One would likely be incorrect.
In such an atmosphere—with your pension funds and mine being invested in a manner that is not reported, not conducive to easy access, and (to be direct) not legal, all for an unpredictable relative return, but with higher upfront costs—one would think that a sane economist would consider the "prudent investor" rule*** and decry this activity.
Ladies and gentlemen, Tyler Cowen:
Overall I was struck by how much hedge fund activity is an artifact of regulations, and not necessarily beneficial regulations. Deregulating some aspects of mutual funds may be an alternative to regulation of hedge funds.
"Not necessarily beneficial." Which part is that: the part that requires investor access, the part that requires investor consent, or the part that requires reported returns with enough information that the investor can make the first two decisions?
*This is not to suggest that Vanguard, Fidelity, et al. don't try to hide their lesser/loser funds. But those were reported, so at the very least an analyst or an economist could tell that they existed and don't any more, and report that accordingly.
**This ignores the so-called "real estate agent" problem.
***This used to be known as the "prudent man" rule, iirc.
Labels: Econbrowser, hedge funds, Market Failures, Tyler Cowen
Sunday, June 24, 2007
Paper, Not Plastic (or, better still, cloth)
by Ken Houghton
The dynamic is somewhat different in non-metropolitan areas, where buying is done on a less frequent basis. But the damage is exaggerated every time one opts for "plastic" instead of paper.
Now, one city is battling back:
Think globally, act locally. Or maybe follow Tom's suggestion and "kill all the subsidies":
The tax is just a realisation of the cost of externalities, which, as Prince Charles noted, is actually just a matter of presenting people with the information about the full cost of their decision and letting them decide.
Those who support Greg Mankiw's "Pigouvian tax" argument have only two possible answers to "Paper or plastic"? One is "paper." The other is "I brought my own."
An entire British city and several other economies understand this. UPDATE: And so, apparently, does the mayor of San Francisco, at least as a start.
A marvelous novelist in her own right, spouse of (and coauthor with) Steve Gould—a novelist in his own right as well as the tech-brain behind of Eat Our Brains—and a lapsed Investment Banking professional, Laura Mixon was the first person who taught me (while shopping in NYC) that one of the easiest ways to help the environment is to carry your own bag for the small-shopping moments that are endemic to big cities.
The dynamic is somewhat different in non-metropolitan areas, where buying is done on a less frequent basis. But the damage is exaggerated every time one opts for "plastic" instead of paper.
Now, one city is battling back:
It was watching sea creatures choke on plastic bags in the Pacific Ocean that finally persuaded Rebecca Hosking that enough was enough.
The British filmmaker had already recoiled in disgust at deserted Hawaiian beaches piled up with four feet of rubbish, the jetsam of Western consumerism washed up by an ocean teeming with plastic. Now, filming off the coast, she looked on aghast as sea turtles eagerly mistook bobbing translucent shapes in the water for jellyfish.
"Sea turtles can't read Wal-mart or Tesco signs on plastic bags," fumes Ms. Hosking, who returned to Britain in March. "They will home in on it and feed on it. Dolphins mistake them for seaweed and quite often they'll eat them and it causes huge damage."
Within a few weeks of coming back, Hosking persuaded her hometown to ban plastic bags outright and found herself in the vanguard of a sudden British revulsion for that most disposable convenience of the throwaway society.
Think globally, act locally. Or maybe follow Tom's suggestion and "kill all the subsidies":
And there is a climate-change dimension as well: Plastic bags are manufactured using oil. Cutting usage in Britain by a quarter would reduce CO2 emissions by as much as 63 tons a year – equivalent to taking 18,000 cars off the road, the government says.
Some countries have taken decisive action against the plastic bag. Bangladesh and Taiwan have banned them. Ireland took a much-lauded step of imposing a tax (€0.15 per bag) in 2002, leading to usage reduction of up to 95 percent. Next month, California will become the first US state to force supermarkets to provide recycling bins.
The tax is just a realisation of the cost of externalities, which, as Prince Charles noted, is actually just a matter of presenting people with the information about the full cost of their decision and letting them decide.
Those who support Greg Mankiw's "Pigouvian tax" argument have only two possible answers to "Paper or plastic"? One is "paper." The other is "I brought my own."
An entire British city and several other economies understand this. UPDATE: And so, apparently, does the mayor of San Francisco, at least as a start.
Labels: Eat Our Brains, environmentalism, externalities, Pigouvian tax
Friday, June 22, 2007
The Old Firm, and Another
by Ken Houghton
Now that you've gotten a good laugh, let's play Left Hand-Right Hand via two posts from Calculated Risk that are too precious not to juxtapose:
Bank of America CEO Ken Lewis, 20 June 2007:
Lewis's firm, 21 June 2007:
If you missed this Felix Salmon post, and especially its links, go there and have fun. I'll wait.
Now that you've gotten a good laugh, let's play Left Hand-Right Hand via two posts from Calculated Risk that are too precious not to juxtapose:
Bank of America CEO Ken Lewis, 20 June 2007:
The worst U.S. housing slump in 16 years will begin to ease in the next month or two, and job growth will lift home prices and spur construction early next year, Bank of America Corp. Chief Executive Officer Kenneth Lewis said.
Lewis's firm, 21 June 2007:
Losses in the U.S. mortgage market may be the "tip of the iceberg" as borrowers fail to keep up with rising payments on billions worth of adjustable-rate loans in coming months, Bank of America Corp. analysts said.
Labels: Housing Bubble, mortgage, The Old Firm
Why You Shouldn't Buy a Hedge Fund's Stock Offering
by Ken Houghton
Good basic rule. And more detail about why there is a severe principal/agent problem in the making:
Read the whole thing, and think carefully about what it means when a Mutual Fund invests in a Hedge Fund.
Working on a longer rant, but why not leverage Mark Cuban at Blog Maverick?
I'm far from a sophisticated investor, although I guess I am an accredited investor because of my networth. As I have written before, I'm a big believer that whenever you do a business deal with people you don't know, particularly buying and selling stocks, you always look for the sucker. If you don't see the sucker, then you are the sucker.
Good basic rule. And more detail about why there is a severe principal/agent problem in the making:
Appeasing hedge fund investors is a very, very different business than making shareholders happy.
If a shareholder sells their share of stock, the hedge fund wont really care. Sure, they want the stock price to go up. They own shares of stock in the fund, and as the stock price goes, so goes some percentage of their networth. That should be enough for them to do whatever it takes to increase the stock price, right ? Maybe
Increasing the price of a share of stock is as much marketing to create demand for the stock as it is earnings of the fund.We also call this increasing the P/E of a stock. There are dozens of ways to increase the PE of a stock that is showing a profit. Hedge fund investors care about 1 thing. Cash. Money that is returned to them. Shareholders care about the price of the stock. One is capital returns, the other is capital appreciation.
That difference is just common sense, but its significant....
They can't be responsive to shareholders and investors with the same story
Read the whole thing, and think carefully about what it means when a Mutual Fund invests in a Hedge Fund.
Labels: Economics, hedge funds, investment strategies, Moral Hazard, principal/agent problems
The Death of Significance?
by Tom Bozzo
(Cross-posted at Total Drek.)
(*) This sometimes leads to wacky advice being given to everyday applied researchers from econo- or sociometricians, of the "if a result from an inconsistent esitmator goes away with a consistent (but inefficient) procedure, be suspicious [or vice-versa]." Armstrong's bottom-line recommendations address the reasonable suspicions that might arise.
At Decision Science News (another h/t to Brad DeLong), Dan Goldstein prints a comment from J. Scott Armstrong who has "concluded that tests of statistical significance should never be used." [Emphasis mine.] He is not conducting statistical performance art, and I substantially agree with the conclusion. A couple random remarks:
- There are results which lead to a conclusion that social science researchers tend to tweak their statistical models to cross significance thresholds so they can produce positive results with (presumably) greater probability of publication. But,
- To do so invalidates the published inferences. Because,
- The "classical" statistics reported by most software packages are invalid under any pretesting (i.e., deciding on a model specification based on results from preliminary estimation). And,
- The prospects for computing or simulating correct statistics are as good as the quality of the researcher's choice trail. But,
- A lot of social science "theories" don't determine the full set of explanatory variables, making the lure of statistical model diagnostics attractive. Though,
- There are families of models (e.g., the 'flexible functional form' cost models in economics, which I work with) where individual coefficients have no theoretical interpretation, in which case the researcher has no direct basis for evaluating the consequences of a restriction. More broadly,
- Properties of social science data often mean we need to use consistent but inefficient estimators; sometimes "better" significance from inappropriate estimation methods has little if any meaning. (*) Last,
- Some researchers (not least many who publish empirical results in top economics journals) tend to focus excessively on statistical significance to the detriment of more interesting discussions of the non-statistical significance of their results. (Views differ.)
Authors... instead... should report on effect sizes, confidence intervals, replications/extensions, and meta-analyses.For those of you with institutional access, links to the International Journal of Forecasting article are at the Decision Science News link.
(Cross-posted at Total Drek.)
(*) This sometimes leads to wacky advice being given to everyday applied researchers from econo- or sociometricians, of the "if a result from an inconsistent esitmator goes away with a consistent (but inefficient) procedure, be suspicious [or vice-versa]." Armstrong's bottom-line recommendations address the reasonable suspicions that might arise.
Labels: Econometrics, Economics, Social Science, Statistics
A Tale of Two Realities
by Ken Houghton
So why is NATO asking Canada to extend past two years from now?
Many the reason is the final 'graf of the first piece, in which Karzai's declaration is put into some context.
In the long run, we are all stable. It's just those pesky pre-equilibrium moments that the Afghanis are worrying about now. Such as this one:
I guess this means we can get our troops out of Afghanistan now:
The Taleban do not pose a threat to long-term stability in Afghanistan, President Hamid Karzai has said.
So why is NATO asking Canada to extend past two years from now?
Nato Secretary General Jaap de Hoop Scheffer has urged Canada to keep its military mission in Afghanistan beyond the planned 2009 pullout date.
Canada was playing a vital role in helping Afghanistan to rebuild, he said during a visit to Montreal....
Canada has 2,500 troops deployed in southern Afghanistan as part of the 40,000-strong International Security Assistance Force.
Many the reason is the final 'graf of the first piece, in which Karzai's declaration is put into some context.
The south of the country has this year seen the worst violence since the Taleban were ousted from power in 2001 by US-led troops.
In the long run, we are all stable. It's just those pesky pre-equilibrium moments that the Afghanis are worrying about now. Such as this one:
Three Canadian Nato soldiers have been killed by a roadside bomb in southern Afghanistan, military officials say....
A Nato spokesman said that the soldiers were in a small open-top all-terrain vehicle[!!] when the bomb went off.
About 90 foreign troops have been killed in Afghanistan this year, most in combat for the Nato-led military force Isaf in the country's south.
Labels: Afghanistan, terrorism
Now THIS is (a move toward) fair trade
by Ken Houghton
No, they haven't stopped playing that McCartney disc. But they have agreed (after claiming last year that they had nothing to do with it) to treat Ethiopian specialty coffees more fairly:
Of course, there is a catch of sorts.
Looks like a deal that will lift traders profits, not farmers. But it's a start.
Good news from Starbucks.
No, they haven't stopped playing that McCartney disc. But they have agreed (after claiming last year that they had nothing to do with it) to treat Ethiopian specialty coffees more fairly:
Starbucks has agreed a wide-ranging accord with Ethiopia to support and promote its coffee, ending a long-running dispute over the issue.
The US retailer will market, distribute and, in some cases, license Ethiopia's range of high-quality coffee brands....
[T]he new agreement acknowledges Ethiopian ownership of popular coffee designations such as Yirgacheffe, Harrar and Sidamo, regardless of whether they are registered or not.
Of course, there is a catch of sorts.
Ethiopian farmers will not receive royalty payments from the deal, but it is hoped that more effective distribution and marketing will help boost demand and, in time, lift prices....
"Having the commitment and support of Starbucks will help enhance the quality of Ethiopian fine coffees and improve the income of farmers and traders." [said Getachew Mengistie, director general of the Ethiopian Intellectual Property Office]
Looks like a deal that will lift traders profits, not farmers. But it's a start.
Labels: free trade
Thursday, June 21, 2007
Program Note: Elsewhere in teh Intertubes
by Tom Bozzo
Warren Ellis's dispatches from SL for Reuters (yes, a First Life news agency covers virtual goings-on) really make me wonder whether corporations know what they're getting into in the Metaverse.
Total Drek co-blogger Slag and I talk about aspects of Second Life chez Drek.
Warren Ellis's dispatches from SL for Reuters (yes, a First Life news agency covers virtual goings-on) really make me wonder whether corporations know what they're getting into in the Metaverse.
Labels: Economics, Realities Virtual and Otherwise, Sociology, technology
Girls of Summer
by Anonymous
1) How many years did women play professional baseball in the US?
a) 5-10 years
b) 60-65 years
c) 80-85 years
d) don't be ridiculous, women are too weak to play professional baseball
2) Who was the first woman to play baseball under a contract in the men's minor leagues?
a) Lizzie Arlington
b) Jackie Mitchell
c) Toni Stone
d) Kim Braatz-Voisard
e) don't be ridiculous, women can't compete against men at that level
3) Which female pitcher struck out Babe Ruth and Lou Gherig, back-to-back, in an exhibition game in her rookie year?
a) Jackie Mitchell
b) Edith Houghton
c) Rose Gacioch
d) don't be ridiculous, women are too weak to pitch against men
4) In which decade was a woman first paid to umpire a pro or semi-pro baseball game?
a) 1870s
b) 1900s
c) 1970s
d) don't be ridiculous, women can't make decisions fast enough to be umpires
5) In what year did a male player argue that women shouldn't be in baseball because God created women to be feminine and submissive to men.
a) 1888
b) 1918
c) 1948
d) 1988
e) all of the above
6) Who replaced Hank Aaron at second base for the Indianapolis Clowns?
a) Rose Gacioch
b) Toni Stone
c) Sophie Kurys
d) Connie Morgan
7) Who holds the record for the most stolen bases in a season in professional ball?
a) Lou Brock
b) Ricky Henderson
c) Sophie Kurys
d) Toni Stone
8) Who was the first person to play on All-Star teams for both the AL and the NL and in the Negro League?
a) Lizzie Murphy
b) Jackie Robinson
c) Hank Thompson
d) Frank Robinson
In honor of the impending All Star break, here's a test of your knowledge of baseball. All of the answers could, of course, be googled, but that's between you and your conscience:
1) How many years did women play professional baseball in the US?
a) 5-10 years
b) 60-65 years
c) 80-85 years
d) don't be ridiculous, women are too weak to play professional baseball
2) Who was the first woman to play baseball under a contract in the men's minor leagues?
a) Lizzie Arlington
b) Jackie Mitchell
c) Toni Stone
d) Kim Braatz-Voisard
e) don't be ridiculous, women can't compete against men at that level
3) Which female pitcher struck out Babe Ruth and Lou Gherig, back-to-back, in an exhibition game in her rookie year?
a) Jackie Mitchell
b) Edith Houghton
c) Rose Gacioch
d) don't be ridiculous, women are too weak to pitch against men
4) In which decade was a woman first paid to umpire a pro or semi-pro baseball game?
a) 1870s
b) 1900s
c) 1970s
d) don't be ridiculous, women can't make decisions fast enough to be umpires
5) In what year did a male player argue that women shouldn't be in baseball because God created women to be feminine and submissive to men.
a) 1888
b) 1918
c) 1948
d) 1988
e) all of the above
6) Who replaced Hank Aaron at second base for the Indianapolis Clowns?
a) Rose Gacioch
b) Toni Stone
c) Sophie Kurys
d) Connie Morgan
7) Who holds the record for the most stolen bases in a season in professional ball?
a) Lou Brock
b) Ricky Henderson
c) Sophie Kurys
d) Toni Stone
8) Who was the first person to play on All-Star teams for both the AL and the NL and in the Negro League?
a) Lizzie Murphy
b) Jackie Robinson
c) Hank Thompson
d) Frank Robinson
A Fishy Case Against the 'New Atheists'
by Tom Bozzo
Fish criticizes Sam Harris and Richard Dawkins for their confidence that natural explanations will be found for currently not-well-understood phenomena of human behavior and consciousness. He invokes Francis S. Collins to name a scientist who would
(If I wanted to be snarky, I would say that writers inclined to lofty phraseology like "the universal presence of moral impulses like altruism" should read more anti-"death tax" polemics. I'd also wonder why Kotsko's postmodern allergy to overarching meta-narratives isn't aggravated by such questionable assertions of universality in human motivation.)
What Fish's argument really does is lays down a bet against future achivement of science:
Younger folks might not want to risk too much of their wealth on the anti-materialist position, for there's already evidence suggesting that behavior not totally unlike "moral intuitions" are in fact emergent properties of physical processes. For example, many people who are more-or-less miserable find themselves not as miserable while taking SSRIs. This suggests that "misery" is, at least in part, a property that's mediated by the chemical reactions SSRIs interfere with. A non-materialistic alternative explanation would seem to imply that SSRIs have some mystical effect on the "soul" or "spirit" despite being the products of scientific research that makes no appeal to mysticism, not to mention being manufactured in non-magical labs by secular corporations.
Yet this is likely a pillar of Kotsko's affection for Fish's essay, since Kotsko dislikes "reductionism." It is Kotsko's own business if he finds the set of all explanations from the in-principle effable world inadequate. But labeling "naturalism" in this sense as "reductionism" of the bad sort does some violence to much-less-innocent forms of reductionism, such as reducing people to reified utility functions and enacting policies that are sensitive to the assumptions one places on H. Economicus. (Cf. Waldmann's Wager.)
Kotsko starts quoting Fish in what is little more than a "past performance is no guarantee of future results" argument:
Kotsko also quotes what, to me, is Fish at his most infuriating:
Fish carries this idea of circular reinforcement of belief systems to the point of gross misrepresentation:
Part of the problem seems to be that Fish and Kotsko go at least a bit off the anti-empirical deep end. This is especially evident in Kotsko's claim that "[t]heological claims are also falsifiable within any given theological community -- it's not as if people can just say any old thing and be accepted." [Emphasis added.] Since theological claims aren't empirical, it could be argued that he really means something other than "falsifiable." To swipe a thought from Robert Waldmann, theological "facts" may be derived in logically correct ways from theological axioms, but since those facts not only are non-empirical, but often claimed not to be subject to empirical validation (i.e., they constitute "articles of faith" independent of empiricism). This renders them something other than testable theories in the scientific usage.
Kotsko makes a valid point that it's wrong to treat theological dogma as immutable.
Ultimately, Fish warns that his own beliefs can't be inferred from his arguments and he may think the entire preceding argument is total bullshit and he won't say. ("Despite what some commentators assumed, I am not taking a position on the issues raised by the three books; readers of this and the previous column have learned nothing about my own religious views, or even if I have any.") So maybe the whole exercise has been an extended masturbation or devil's advocacy session; Fish isn't telling. My guess is left as an exercise for the reader.
Brad DeLong points to Adam Kotsko, who not only liked Stanley Fish's "Atheism and Evidence," but indeed lamented that the Times Select paywall keeps it from a broader audience. So let me expand on my previous reaction to Fish.
Fish criticizes Sam Harris and Richard Dawkins for their confidence that natural explanations will be found for currently not-well-understood phenomena of human behavior and consciousness. He invokes Francis S. Collins to name a scientist who would
argue that physical processes cannot account for the universal presence of moral impulses like altruism, “the truly selfless giving of oneself to others” with no expectation of a reward. How can there be a naturalistic [i.e., evolutionary] explanation of that?Fish, let alone Collins, shouldn't need an economist to answer, "easy." Behaviors that don't seem to maximize individual fitness but may improve the population fitness aren't a problem for evolutionary explanations. (Elaboration of this concept, I gather, is Dawkins's major contribution to evolutionary theory.) Taking the politically charged subject of human behavior out of the picture, evolutionary accounts explain how, for instance, the gene that causes sickle-cell anemia can persist in populations at high risk for malaria despite the fatal consequences for individuals who get two copies of it.
(If I wanted to be snarky, I would say that writers inclined to lofty phraseology like "the universal presence of moral impulses like altruism" should read more anti-"death tax" polemics. I'd also wonder why Kotsko's postmodern allergy to overarching meta-narratives isn't aggravated by such questionable assertions of universality in human motivation.)
What Fish's argument really does is lays down a bet against future achivement of science:
Of course one conclusion that could be drawn [from hitherto limited progress in obtaining naturalistic explanations of human behavior] is that the research will not pan out because moral intuitions will not be reducible to physical processes. That may be why so few of the facts are in.It's not good when you're trying to make the case that others are making logical leaps to leap to a conclusion that purportedly limited progress in a relatively new field of scientific research implies a problem beyond naturalistic explanation. Fish may offer the argument in the (not totally unreasonable) expectation that there will remain uncertainty over the physical processes that might be responsible for "moral intuitions" for the remainder of his life and thus that he won't be around to suggest that this explanation for the limitations of present knowledge is facially foolish.
Younger folks might not want to risk too much of their wealth on the anti-materialist position, for there's already evidence suggesting that behavior not totally unlike "moral intuitions" are in fact emergent properties of physical processes. For example, many people who are more-or-less miserable find themselves not as miserable while taking SSRIs. This suggests that "misery" is, at least in part, a property that's mediated by the chemical reactions SSRIs interfere with. A non-materialistic alternative explanation would seem to imply that SSRIs have some mystical effect on the "soul" or "spirit" despite being the products of scientific research that makes no appeal to mysticism, not to mention being manufactured in non-magical labs by secular corporations.
Yet this is likely a pillar of Kotsko's affection for Fish's essay, since Kotsko dislikes "reductionism." It is Kotsko's own business if he finds the set of all explanations from the in-principle effable world inadequate. But labeling "naturalism" in this sense as "reductionism" of the bad sort does some violence to much-less-innocent forms of reductionism, such as reducing people to reified utility functions and enacting policies that are sensitive to the assumptions one places on H. Economicus. (Cf. Waldmann's Wager.)
Kotsko starts quoting Fish in what is little more than a "past performance is no guarantee of future results" argument:
[Fish:] A very strong assertion is made – we will “undoubtedly discover lawful connections between our states of consciousness [and] our modes of conduct” – but no evidence is offered in support of it; and indeed the absence of evidence becomes a reason for confidence in its eventual emergence.I'm inclined to call this as the first of a couple of flagrant fouls, insofar as I don't think this fairly characterizes the basis for confidence in future scientific progress. First, there is plenty of evidence of "lawful connections" between natural processes and "states of consciousness" and/or "modes of conduct" (q.q.v.) which frankly are obvious enough that it's inappropriate to criticize the Harrises and Dawkinses for not reciting them. Second, it takes something like willful blindness to suggest that science doesn't have an excellent track record in developing naturalistic explanations for natural processes. Third, also on the obvious side, the toolkit available to would-be students of the brain-ethics link has been rapidly expanding — think of the prospects for a computational biology research program based on 1980s technology. Last, the system under consideration is rilly rilly complex and it stands to reason that such "facts" as may be teased out of naturalistic explanations will take time to develop.
Kotsko also quotes what, to me, is Fish at his most infuriating:
[Fish:] [Dawkins says there] are “good Darwinian reasons for individuals to be altruistic, generous or ‘moral’ towards each other.”So there's the answer to the "how can there be a naturalistic explanation" question.
[Fish, continuing directly:] Exactly! They are good Darwinian reasons; remove the natural selection hypothesis from the structure of thought and they will be seen not as reasons, but as absurdities. I “believe in evolution,” Dawkins declares, “because the evidence supports it”; but the evidence is evidence only because he is seeing with Darwin-directed eyes. The evidence at once supports his faith and is evidence by virtue of it. [Emphasis added.]That's flagrant foul #2. Note the demotion of "natural selection" to a "hypothesis" as opposed to a natural mechanism that can be demonstrated empirically in the wild and/or simulated in a variety of lab-type settings (not least, the human body). The Darwinian explanation is that the behavior makes the group better off despite (maybe) having cost to some individuals, which frankly doesn't sound facially absurd under, say, a Divine Selection Hypothesis where "good works" facilitate more pleasant after-lives. (An economist might argue that it's not necessarily true that altruism necessarily is "costly" to the individual; at a minimum, I would argue specifically that it narrows the real scope of source-of-moral-behavior conundrums.) More to the point, Dawkins makes no claims that obviously can't be explained in terms of neuron interconnections and brain chemistry.
Fish carries this idea of circular reinforcement of belief systems to the point of gross misrepresentation:
The reasoning is circular, but not viciously so. The process is entirely familiar and entirely ordinary; a conviction (of the existence of God or the existence of natural selection or the greatness of a piece of literature) generates speculation and questions, and the resulting answers act as confirmation of the conviction that has generated them.Even if you believe that the exsistences of God and of natural selection are "convictions" of equal stature — I doubt you'd get buy-in from either the theist or the atheist directions — the claim that answering "speculation and questions" necessarily reinforces the foundational convictions is just so much bullshit. Kotsko (presumably with Kuhn and/or Feyerabend in mind) criticizes falsificationism as the "Newtonian mechanics" of the philosophy of science, suggesting that scientists should better represent how the process of science really works. But science does not tell us that Newtonian mechanics are useless. Neither Kuhn nor Feyerabend is correctly read as demonstrating that scientific theories are inherently self-reinforcing. The actual dynamics might not be "maverick researcher proves the establishment wrong to universal acclaim," but convictions leading to scientific theories that ultimately explain stuff badly aren't renowned for their social-Darwinistic fitness. Falsification doesn't have to be the whole story to be a useful concept.
Part of the problem seems to be that Fish and Kotsko go at least a bit off the anti-empirical deep end. This is especially evident in Kotsko's claim that "[t]heological claims are also falsifiable within any given theological community -- it's not as if people can just say any old thing and be accepted." [Emphasis added.] Since theological claims aren't empirical, it could be argued that he really means something other than "falsifiable." To swipe a thought from Robert Waldmann, theological "facts" may be derived in logically correct ways from theological axioms, but since those facts not only are non-empirical, but often claimed not to be subject to empirical validation (i.e., they constitute "articles of faith" independent of empiricism). This renders them something other than testable theories in the scientific usage.
Kotsko makes a valid point that it's wrong to treat theological dogma as immutable.
[D]ogma does change over time. If everything was unequivocally "set" for all time in some indisputable set of revealed propositions, then the history of Christianity, with its many controversies and many moments of genuine uncertainty as to which side would win, would literally make no sense at all.But this, too, undermines another contention of Fish's:
[Fish:] Asking that religious faith consider itself falsified by empirical evidence is as foolish as asking that natural selection tremble before the assertion of deity and design. Falsification, if it occurs, always occurs from the inside.At best, this depends on what you mean by "religious faith." Looking at a document such as the 1950 encyclical Humanae Generis (a Ground Zero for religion-science interactions), it's clear enough that a core of Catholic faith is put beyond the reach of empirical falsification. But it would seem to demand evidence that there isn't pressure on aspects of religious faith from emprical science. It seems beyond credulity that the processes by which many religions dropped (or diminished) tenets that the solar system is geocentric, that mental illnesses are not caused by demonic possession, or that the creation of the universe was according to the accounts in Genesis were generated "from the inside."
Ultimately, Fish warns that his own beliefs can't be inferred from his arguments and he may think the entire preceding argument is total bullshit and he won't say. ("Despite what some commentators assumed, I am not taking a position on the issues raised by the three books; readers of this and the previous column have learned nothing about my own religious views, or even if I have any.") So maybe the whole exercise has been an extended masturbation or devil's advocacy session; Fish isn't telling. My guess is left as an exercise for the reader.
Labels: Atheism, Evolution, Philosophy, Religion
Wednesday, June 20, 2007
The Old Firm is much discussed at Calculated Risk
by Ken Houghton
Not to mention this.
UPDATE: Tanta at CR provides a helpful summary.
I'm not saying anything. But the pieces should give you a better picture of what hedge funds do than Tyler Cowen is wont to present (via DeLong).
Not to mention this.
UPDATE: Tanta at CR provides a helpful summary.
Labels: Brad DeLong, Economics, hedge funds, Moral Hazard, mortgage, subprime, The Old Firm
Sir Topham Hatt's Railway Isn't a Good Product Safety Model
by Tom Bozzo
(*) We've been there before.
David Leonhardt scores some easy points (*) in a good Economix article on outsourcing that puts in the Paper o' Record something I said in our comments last week: it lets rich-country outsourcers reap benefits of what would otherwise be outlaw behavior while (mostly) preserving their corporate images. Leonhardt:
This secrecy [about companies' relationships with Chinese contract manufacturers] brings a number of advantages. It keeps competitors from finding out tricks of the trade. It keeps consumers from discovering that their $100 brand-name shirt comes from the same assembly line as a $40 generic version. And it prevents activists from criticizing a company for the working conditions in a factory where its products are made. The companies get the cost advantages of outsourcing without the publicity disadvantages.This leads us to the Quote of the Day, from Dani Rodrik:
[Rich and poor nations] should consider instead exchanging policy space: “I [poor nation] will allow you to protect your national social compact, if you allow me to engage in development strategies that conflict with WTO and IMF rules of good behavior.” The challenge is to design procedures that enable the use of policy space for socially desirable purposes, while limiting it for beggar-thy-neighbor purposes.That's from a short essay (MS Word), "Saving Globalization From Its Cheerleaders," linked from this post.
(*) We've been there before.
Labels: Economics, Outsourcing, Product Safety, Thomas the Frackin Tank Engine
Tuesday, June 19, 2007
MSFT is a Force for Good?
by Ken Houghton
But there's a lot of productivity created by the Blue Screen of Death Crew, so what's a few votes?
While Robert Barro fellates MSFT (though not Bill Gates) in the WSJ (h/t Mark Thoma via DeLong), saner heads note that arguing a Consumer Surplus requires making a positive contribution to the commonweal:
Over the last two months Microsoft and a cadre of high paid lobbyists have been working a full-court press in Albany in an attempt to bring about a serious weakening of New York State election law. This back door effort by private corporations to weaken public protections is about to bear fruit....
In an earlier blog I wrote about Microsoft's unwillingness to comply with New York State's escrow and review requirements. Now the software giant has gone a step further, not just saying “we won't comply with your law” but actively trying to change state law to serve their corporate interests. Microsoft's attorneys drafted an amendment which would add a paragraph to Section 1-104 of NYS Election Law defining “election-dedicated voting system technology”. Microsoft’s proposed change to state law would effectively render our current requirements for escrow and the ability for independent review of source code in the event of disputes completely meaningless - and with it the protections the public fought so hard for.
But there's a lot of productivity created by the Blue Screen of Death Crew, so what's a few votes?
Labels: Brad DeLong, Economists View, Mark Thoma, MSFT, programming, WSJ
Adventures in Spelling, Beachside Edition
by Anonymous
So, does the bottom sign contain an extra "N" or an extra "H"? Or, perhaps the second "N" should be a "G" -- see Making Light's discussion of whinging vs. whining.
In Santa Cruz, CA, where modern hippies, dot com millionaires, and modern hippie dot com millionaires live side by side (not always comfortably), it's anyone's guess. Perhaps the person who ordered the sign suffered from the same uncertainty.
(the street address on the top sign is edited to protect the guilty.)
So, does the bottom sign contain an extra "N" or an extra "H"? Or, perhaps the second "N" should be a "G" -- see Making Light's discussion of whinging vs. whining.
In Santa Cruz, CA, where modern hippies, dot com millionaires, and modern hippie dot com millionaires live side by side (not always comfortably), it's anyone's guess. Perhaps the person who ordered the sign suffered from the same uncertainty.
(the street address on the top sign is edited to protect the guilty.)
Labels: just life, The New Gilded Age
Gee, Ya Think So?
by Ken Houghton
There is, however, a sentence to which I wish to object: "This is because people with equity in their homes have more at stake in avoiding default."
That is just patently untrue. If I have equity in my home—that is, a Loan to Value (LTV) of materially less than 100%—then there will not be a "default." I may have to sell the home, but my creditors will be paid in full and, net of transaction costs (e.g., moving expenses), I will be materially worse off only in the sense that the new residence is less utile than the old.
The "moral hazard" here is not with the borrower, who does what he or she can to preserve their way of life. Instead, it is with the lender, who recognizes that the collateral offered will more than compensate them if the loan is defaulted.
This has nothing to do with "their borrowers’ financial circumstances." Financial institutions support MEW and HELOCs and the like because they present them with relatively low risk for a relatively high gain, regardless of the borrower's financial situation.
If Ben Bernanke wants to pretend otherwise, he's not doing so for economic reasons.
Via CR, who got it from Nouriel Roubini, this from the FT:
[Ben Bernanke] told a conference hosted by the Atlanta Fed that, in addition to making homeowners richer or poorer, changes in house prices might influence the cost and availability of credit to consumers.
This is because people with equity in their homes have more at stake in avoiding default. That, in turn, reduces the premium charged by lenders owing to their imperfect knowledge of their borrowers’ financial circumstances.
If this theory is correct, Mr Bernanke said, “changes in home values may affect household borrowing and spending by somewhat more than suggested by the conventional wealth effect”.
There is, however, a sentence to which I wish to object: "This is because people with equity in their homes have more at stake in avoiding default."
That is just patently untrue. If I have equity in my home—that is, a Loan to Value (LTV) of materially less than 100%—then there will not be a "default." I may have to sell the home, but my creditors will be paid in full and, net of transaction costs (e.g., moving expenses), I will be materially worse off only in the sense that the new residence is less utile than the old.
The "moral hazard" here is not with the borrower, who does what he or she can to preserve their way of life. Instead, it is with the lender, who recognizes that the collateral offered will more than compensate them if the loan is defaulted.
This has nothing to do with "their borrowers’ financial circumstances." Financial institutions support MEW and HELOCs and the like because they present them with relatively low risk for a relatively high gain, regardless of the borrower's financial situation.
If Ben Bernanke wants to pretend otherwise, he's not doing so for economic reasons.
Labels: Housing Bubble, Moral Hazard, mortgage
For Tom
by Ken Houghton
If you look at the data from high enough up, you can see nothing:
If you look at the data through the eyes of the politicians, you see data without context:
And buried in the 15th 'graf is the lede:
I biked in NYC for over ten years, and lived to tell the tale. But I stopped biking to work after the second or third theft. (The daily attempts to run me off the road at Columbus Circle or on Riverside Drive weren't helping, either.)
The legacy of Robert Moses is that there is no safe bicycling area in NYC. The "bike lanes" added during the Koch administration are a joke (and were made even more so when Steady Eddie declared them a failure three months into their use—February of a harsh, heavy snows winter). So this presents some hope:
This is one of the times that I wish NYC were more like Madison.
Cities build new bike paths
If you look at the data from high enough up, you can see nothing:
While some municipalities see a surge in bicycling, national figures for 2005 show the same number bike to work as did in 1990.
If you look at the data through the eyes of the politicians, you see data without context:
New York Mayor Michael Bloomberg has called for 200 miles of bike paths throughout the city by 2009.
And buried in the 15th 'graf is the lede:
If cities make biking easier and safer, proponents say, more residents will do it.
I biked in NYC for over ten years, and lived to tell the tale. But I stopped biking to work after the second or third theft. (The daily attempts to run me off the road at Columbus Circle or on Riverside Drive weren't helping, either.)
The legacy of Robert Moses is that there is no safe bicycling area in NYC. The "bike lanes" added during the Koch administration are a joke (and were made even more so when Steady Eddie declared them a failure three months into their use—February of a harsh, heavy snows winter). So this presents some hope:
Another measure of the move to biking is the growth of Thunderhead Alliance – a coalition of state and local bike and pedestrian organizations that help strengthen local advocacy groups. They have grown from 12 member organizations in 1996 to 128 coalitions in 49 states. The alliance's Complete the Streets Campaign has helped win legislation in 23 cities and nine states, which requires that streets be designed to be safe and accessible for all users. [links added]
This is one of the times that I wish NYC were more like Madison.
Labels: Economics, externalities, Trains Planes and Automobiles
The Upper East Side, by contrast, is Very Happy
by Ken Houghton
So what's the alternative?
That's a much more positive image.
Newsday.com: Politician not happy with Staten Island landfill-themed ice cream
Kim and Scott Myles, the Queens couple who founded 5 Boroughs Ice Cream, which produces "Staten Island Landfill," said they intended no harm with the moniker.
Kim Myles, 33, told the Daily News in Wednesday's edition that it is a "flavor with heart."
The company markets other city-based ice cream flavors, including "Jackson Heights Mangodesh," "South Bronx Cha Cha Chocolate" and even "Upper East Side Rich White Vanilla."
The chairman of the upper East Side Community Board 8, David Liston, said if the ice cream was good, he would eat it.
So what's the alternative?
The Staten Island borough president has offered an alternate name for a Staten Island ice cream _ "Ferry Berry," after the Staten Island Ferry.
That's a much more positive image.
Labels: just life
Monday, June 18, 2007
Headline of the Day
by Ken Houghton
Buddhist nationalism behind Sri Lanka's violent surge
Both Sinhalese and Tamils trace their presence in Sri Lanka back centuries. Until relatively recently, theirs was a harmonious coexistence.
But in the 19th century, many Buddhist Sinhalese felt that the British, who then ruled Ceylon, gave the Tamils preferential treatment. At independence in 1948, a disproportionate number of civil servants were Tamils.
In 1956, the Sinhalese made swift and brutal amends. Prime Minister Solomon Bandaranaike, an ardent Buddhist nationalist, launched a successful campaign to make Sinhalese the official language.
He was heavily backed by the island's monks in a move that excluded many Tamils from educational opportunities and prestigious jobs. In 1970, university admission rules were changed to favor the Sinhalese.
Labels: just life
Dep't. of Declining Standards in Public Intellectualism
by Tom Bozzo
(*) If I needed 10,000 words written about nothing, Fish would be the first guy I'd call. Boy, that guy can blather.
Much (*) shorter Stanley Fish (behind the Times Select wall for the betterment of society):
If I elide the fundamental differences between science and religion, I can show that prominent atheist scientists (and one, uh, lovable lush) reason just as circularly as the religious!
(*) If I needed 10,000 words written about nothing, Fish would be the first guy I'd call. Boy, that guy can blather.
Labels: Atheism, Religion, Science, Tortured Logic
Saturday, June 16, 2007
Yankees Update (fourth in a series)
by Ken Houghton
So now, 65 games into the season, with a headline-making winning streak ended only yesterday (Clemens must have felt as if he were back with the Astros), where are they?
That's right. They would need to win the way they have in the past fifteen games consistently, for the rest of the season, to match the prediction.
In fact, they would have to win almost two games of every three just to reach the team's Expected Wins, per the bettors, at the beginning of the season.
The previous three posts are here, here, and here, if you're curious.
Just so you don't think I'm a fair-weather Yankee/mathematician basher, I decided to update this post after the Yankees recent winning streak:
Fifty games into the season, the Yankees now need to play .795 baseball—win just shy of eight out of every ten games—the rest of the way to reach 110 wins.
So now, 65 games into the season, with a headline-making winning streak ended only yesterday (Clemens must have felt as if he were back with the Astros), where are they?
Games Left 97
Need to Win 110
Have Won 33
Remaining Wins 77
Winning Pct Required: .794
That's right. They would need to win the way they have in the past fifteen games consistently, for the rest of the season, to match the prediction.
In fact, they would have to win almost two games of every three just to reach the team's Expected Wins, per the bettors, at the beginning of the season.
The previous three posts are here, here, and here, if you're curious.
Labels: baseball, sabremetrics, Yankees
Friday, June 15, 2007
Notes on the Car Society: First, Kill All The Subsidies?
by Tom Bozzo
Rob Zaleski has a pretty interesting article in the Cap Times describing how U.S. Highway 12 was expanded from two to four lanes along a 17-mile stretch between the far west side of Madison and Sauk City without turning it into a sprawl magnet. I think the jury is out on near-Madison sprawl — that depends, for instance, on the fate of the to-be-heavily-subsidized and comically named Tribeca Village development proposed to occupy a chunk of ex-open space on the Middleton fringes.
The Highway 12 project went ahead despite concerns about the amount of land it consumed along the route, etc., in part because of strong support from Tommy "King of Pavement" (*) Thompson and the political implications of the amount of money to be spent — $130 million. That's $1.91 million per lane-mile. (**)
One major way our transportation policies are screwed up is that transit projects are criticized (usually) from the right for failure to cover their costs. Apologists for sprawl often suggest that people are still voting with their feet in favor of suburbia, and some barely stop short of suggesting that suburbia and the accompanying automobile use is the natural economic ordering of things. I wouldn't object under the principle of 'if you pay the full cost of what you're doing I'm happy to be a libertarian.' But, as even us liberal economists will tell you, incentives matter, and less commonly aired is whether plain-old roads cover their costs and thus if sprawl is at least partly a response to subsidies.
Short answer: The car society requires roads that are, at best, funded by a tangle of cross-subsidies from very heavily-trafficked roads to feeder routes that can't pay their own way. In practice, motoring is heavily subsidized by general tax revenues and not-entirely-voluntary contributions of resources from motorists themselves.
The Highway 12 project provides a good example. Servicing the construction cost runs about $300 per lane-mile per day. That assumes a 30-year life of the road, 4% cost of funds, and does not include interim maintenance. If you think of the route's "revenue" as the tax on the gas burned by the traffic, that works out to about 2 cents per vehicle-mile (combined federal and Wisconsin tax) assuming 25 mpg. It follows directly that the break-even traffic is about 15,000 vehicles per day per lane.
The DOT helpfully provides traffic projections (PDF) for the stretch heading out of Madison. Only the sections (near Madison) with the heaviest traffic have half that much traffic. More typically, U.S. 12 carries less than 1/3 the breakeven volume, even in the 2025 projection.
Yet, as the state's project page notes, "The [pre-construction] Average Daily Traffic (ADT) volume on this corridor was over double the average statewide volume for similar two-lane highways. The increasing volumes had caused the road to become congested and unsafe."
Indeed, Zaleski notes that accident rates have dropped dramatically since the new road opened, avoiding perhaps 130-140 accidents annually. If that saves $30,000 per crash (***) in avoided economic losses, the safety improvements make up much of shortage of traffic-generated revenue, though probably not all. Highway 12 is something of an exceptional case, since the old road was very dangerous. Major reconstruction of an existing road would tend to have negligible safety benefits.
The conclusion is that most roads become congested and/or unsafe long before they even get close to "paying for themselves" without tolls or congestion charges. To the question in the title, the subsidies arguably can't be killed off entirely, but there would be less mode-choice foolishness, perhaps, if people didn't act like we motor about under conditions that have, or would, arise under the "free market."
So, Susan Lampert Smith, next time you're sitting in Verona Road traffic and inclined to complain about city-dwelling smartypantses who aren't, just keep in mind that in doing so, you're not even paying for the costs your suburban motoring lifestyle. (****)
(*) Another byproduct of our spelunking in the state Democratic Party files at the Wisconsin Historical Society: back in the late 40s, the Democratic Organizing Committee's platform documents complained about the influence of the "concrete lobby" in the Republican-dominated politics of the time.
(**) Portions of the project re-used stretches of the old highway, so this is may be somewhat less than the average cost of totally new construction, even netting out state DOT expenditures on conservation easements along the route. The current phase of reconstruction of East Washington Avenue on the east side of Madison has a contract cost of roughly $1.8 million per lane-mile; weekday traffic along that segment is between 7,000-8,000 cars per lane-mile.
(***) The Wisconsin DOT's crash facts indicate some $1.7 billion in economic losses due to 60,000 rural accidents in 2005, for an average loss of $28,333.
(****) Driver of gas guzzlers pay for more of the road but lard on external costs that I haven't considered and which work in the opposite direction. And if you're inclined to object that roads at least could be construed as recovering some of their capital costs, I'll add that the external costs are massive.
(Another installment in an occasional series of posts.)
Rob Zaleski has a pretty interesting article in the Cap Times describing how U.S. Highway 12 was expanded from two to four lanes along a 17-mile stretch between the far west side of Madison and Sauk City without turning it into a sprawl magnet. I think the jury is out on near-Madison sprawl — that depends, for instance, on the fate of the to-be-heavily-subsidized and comically named Tribeca Village development proposed to occupy a chunk of ex-open space on the Middleton fringes.
The Highway 12 project went ahead despite concerns about the amount of land it consumed along the route, etc., in part because of strong support from Tommy "King of Pavement" (*) Thompson and the political implications of the amount of money to be spent — $130 million. That's $1.91 million per lane-mile. (**)
One major way our transportation policies are screwed up is that transit projects are criticized (usually) from the right for failure to cover their costs. Apologists for sprawl often suggest that people are still voting with their feet in favor of suburbia, and some barely stop short of suggesting that suburbia and the accompanying automobile use is the natural economic ordering of things. I wouldn't object under the principle of 'if you pay the full cost of what you're doing I'm happy to be a libertarian.' But, as even us liberal economists will tell you, incentives matter, and less commonly aired is whether plain-old roads cover their costs and thus if sprawl is at least partly a response to subsidies.
Short answer: The car society requires roads that are, at best, funded by a tangle of cross-subsidies from very heavily-trafficked roads to feeder routes that can't pay their own way. In practice, motoring is heavily subsidized by general tax revenues and not-entirely-voluntary contributions of resources from motorists themselves.
The Highway 12 project provides a good example. Servicing the construction cost runs about $300 per lane-mile per day. That assumes a 30-year life of the road, 4% cost of funds, and does not include interim maintenance. If you think of the route's "revenue" as the tax on the gas burned by the traffic, that works out to about 2 cents per vehicle-mile (combined federal and Wisconsin tax) assuming 25 mpg. It follows directly that the break-even traffic is about 15,000 vehicles per day per lane.
The DOT helpfully provides traffic projections (PDF) for the stretch heading out of Madison. Only the sections (near Madison) with the heaviest traffic have half that much traffic. More typically, U.S. 12 carries less than 1/3 the breakeven volume, even in the 2025 projection.
Yet, as the state's project page notes, "The [pre-construction] Average Daily Traffic (ADT) volume on this corridor was over double the average statewide volume for similar two-lane highways. The increasing volumes had caused the road to become congested and unsafe."
Indeed, Zaleski notes that accident rates have dropped dramatically since the new road opened, avoiding perhaps 130-140 accidents annually. If that saves $30,000 per crash (***) in avoided economic losses, the safety improvements make up much of shortage of traffic-generated revenue, though probably not all. Highway 12 is something of an exceptional case, since the old road was very dangerous. Major reconstruction of an existing road would tend to have negligible safety benefits.
The conclusion is that most roads become congested and/or unsafe long before they even get close to "paying for themselves" without tolls or congestion charges. To the question in the title, the subsidies arguably can't be killed off entirely, but there would be less mode-choice foolishness, perhaps, if people didn't act like we motor about under conditions that have, or would, arise under the "free market."
So, Susan Lampert Smith, next time you're sitting in Verona Road traffic and inclined to complain about city-dwelling smartypantses who aren't, just keep in mind that in doing so, you're not even paying for the costs your suburban motoring lifestyle. (****)
(*) Another byproduct of our spelunking in the state Democratic Party files at the Wisconsin Historical Society: back in the late 40s, the Democratic Organizing Committee's platform documents complained about the influence of the "concrete lobby" in the Republican-dominated politics of the time.
(**) Portions of the project re-used stretches of the old highway, so this is may be somewhat less than the average cost of totally new construction, even netting out state DOT expenditures on conservation easements along the route. The current phase of reconstruction of East Washington Avenue on the east side of Madison has a contract cost of roughly $1.8 million per lane-mile; weekday traffic along that segment is between 7,000-8,000 cars per lane-mile.
(***) The Wisconsin DOT's crash facts indicate some $1.7 billion in economic losses due to 60,000 rural accidents in 2005, for an average loss of $28,333.
(****) Driver of gas guzzlers pay for more of the road but lard on external costs that I haven't considered and which work in the opposite direction. And if you're inclined to object that roads at least could be construed as recovering some of their capital costs, I'll add that the external costs are massive.
Labels: Economics, externalities, Trains Planes and Automobiles
Thursday, June 14, 2007
I am Russian, Tom is South African, Kim is (or at least was) Brazilian
by Ken Houghton
There are more details at their site. And maybe more later here.
Via Steve Gould and Eat Our Brains comes Strange Maps (clearly, a website to add to the Reader, especially if you already "read" Jessica Hagy's indexed), and this great map:
There are more details at their site. And maybe more later here.
Labels: Eat Our Brains, GDP, Income Inequality
Wednesday, June 13, 2007
Brad DeLong Redefines "Seriousness" Beyond Recognition
by Ken Houghton
In this corner, PhD #1, J. Bradford DeLong, lets Sebastian Mallaby define "economic seriousness." The result is predictable, though not pretty:
One would hope that DeLong—who has previously documented (PDF) and podcast that the gains from NAFTA do not approach what was promised—would know better.
Out of the fear that he doesn't, we present Ph.D. #2, Duncan Black discussing the difference between Free Trade (the economic concept) and "free trade":
CAFTA makes NAFTA look "fair and balanced." If DeLong is seriously endorsing the idea that not objecting to CAFTA should be considered "economic seriousness," both his and Berkeley's reputations are going to take a serious hit.
The standard for the word seriousness has, apparently, become using a phrase that doesn't mean what you would think it does.
In this corner, PhD #1, J. Bradford DeLong, lets Sebastian Mallaby define "economic seriousness." The result is predictable, though not pretty:
In the 2004 election, the Kerry-Edwards ticket forfeited its claim to economic seriousness by opposing trade deals such as the Central American Free Trade Agreement.
One would hope that DeLong—who has previously documented (PDF) and podcast that the gains from NAFTA do not approach what was promised—would know better.
Out of the fear that he doesn't, we present Ph.D. #2, Duncan Black discussing the difference between Free Trade (the economic concept) and "free trade":
And, unlike the axis of Mallaby and Friedman, I understand that not every treaty with the words "free trade" on the cover has all that much to do with "free trade." Even if one is basically pro-free trade, one can object to such things on the grounds that they don't go far enough (still protecting Big Sugar), or that they include unrelated intellectual property protections. [link in original]
CAFTA makes NAFTA look "fair and balanced." If DeLong is seriously endorsing the idea that not objecting to CAFTA should be considered "economic seriousness," both his and Berkeley's reputations are going to take a serious hit.
Labels: Brad DeLong, CAFTA, Economics, free trade, NAFTA, Politics, WaPo
