Friday, February 27, 2009

More on buyers remorse

A while ago I wrote about the possibility of buyer's remorse with elected officials (here and here). I have now heard the term being applied to President Obama, so this morning (Feb 27, 2009) I googled "buyers remorse" President Obama. There were 7520 matches on the web, and 2199 for blogs. I looked at a couple and was led to this article, which does not actually use the term. I will be updating the count over time.
March 7, 2009, 1:00 CDT: web 10400, blogs 2918
(I checked to see if there were entries under "buyers regret." There were a total 249 on the web and 42 in blogs. Apparently people know the proper term.)
March 11 at 10:00 pm 9270 and for the web, 2682 for blogs (how did they go down?)
for "buyers regret, 291 and 51
Meanwhile, over on yahoo the first page of the search says 1 - 10 of 170,00, and the same search on Live Search gives 1-10 of 30,300 results. That is a pretty big difference than what is happening on Google.
March 20 on Google: 10300 for the web and 2818 for blogs at 9:00 pm. Meanwhile, there are 195000 on yahoo and 31,400 on Live Search.
April 25, 2009: Google about 11,000 for web and about 3098 for blogs. Yahoo says 326,000 and Live Search says 60,100.
August 14, 2009: Google has 9640 for the web and 2696 for blogs. (The number has decreased. How do you explain that?) Yahoo has 134,00 and Live Search (now Bing) says 151,000.
Sept 30 2009 at 2:20 CDT: Google has 14800 for the web and 3484 for blogs. Yahoo says 159.000 and Bing says 91,600.

Nov 23, 2009 10PM CST: Google has 30600 for the web and 4564 for blogs. Yahoo hs 151,000 and Bing has 69,700. Now Google is saying that there is an increase, but Yahoo and Bing say the number is decreasing.
This exercise has made me much more skeptical of the numbers that appear on searches.

data from Jan 5, 2010 12:30 a.m.
Google web 28900; blogs 3931; Yahoo 135,000 and Bing 77,400
data from June 19, 5:15 p.m.
Google web 27100; blogs 2570; Yahoo 136,009; and Bing 61,100
data from July 23, 2010 2:00 pm
Google web 22,100. blogs 2580; Yahoo 137,003, and Bing 70,600

data from August 13, 2011 8:22 pm
Google web 367,00; blogs 52900; Yahoo 71700; Live Search 70400

Thursday, February 26, 2009

A world record

What would the marginal utility be for another piercing for this woman who has the Guiness World Record for body piercing at 6005? She said that the only reason she has them is to set the world record. Are many of the Guiness World Records cases of destructive competition?

Tuesday, February 24, 2009

More mark to market

This morning on CNBC a trader, Art Cashin, was pleading for a six month suspension of mark-to-market rules. He pointed out that it was a zero-cost move, and if it did not help, the requirement could be re-imposed. And two economists in Forbes argue that mark-to-market rules are destabilizing, something that the accountants and lawyers seem remarkably blind to.

Update: March 10, The SEC has no plans to alter mark-to-market rules.

Sunday, February 22, 2009

Detroit and Las Vegas

Detroit and Las Vegas are the two cities with the highest vacancy rates of rental and owner-occupied housing according to a story from ABC.
The national rental vacancy rate now stands at 10.1 percent, up from 9.6 percent a year ago; homeowner vacancy has edged up from 2.8 percent to 2.9 percent. Richmond, Va.'s rental vacancy rate of 23.7 percent is the worst in America, while Orlando's 7.4 percent rate is lousiest on the homeowner side. Detroit and Las Vegas are among the worst offenders by both measures--the Motor City sports vacancy rates of 19.9 percent for rentals and 4 percent for homes; Sin City has rates of 16 percent and 4.7 percent, respectively.

An accurate prediction

Found on The Anchoress, a link to an article in the New York Times about housing policy in 1999:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Saturday, February 21, 2009

Malaria personalized

Iowahawk, who usually has political satire, makes a personal connection between malaria and DDT.

Wednesday, February 18, 2009

Fisher in the news

A few days ago had an article about Irving Fisher, who argued that a feedback cycle involving deflation and debt was a source of the Great Depression.
And he developed his debt-deflation theory. In 1933 in Econometrica, published by the Econometric Society, which he co-founded, he described debt deflation as a sequence of distress-selling, falling asset prices, rising real interest rates, more distress-selling, falling velocity, declining net worth, rising bankruptcies, bank runs, curtailment of credit, dumping of assets by banks, growing distrust and hoarding.
Fisher was also one of the great monetarist, the Milton Friedman of the early 20th century.

Sunday, February 15, 2009

Opportunity cost at Google

The New York Times has an article about how Google decides when to kill a product. I liked this sentence:
With services that don’t generate much cash, the company looks less at money spent than at measures of usefulness and the opportunity cost of devoting employees to one project over another.
Elementary economics stresses that cost is not money spent--cost is what the people and resources that are developing the product could be doing elsewhere. Cutting through all the exposition, Google uses a cost-benefit approach to managing its business.

The politics of Jim Crow

From an column in the Boston Globe:
Many Americans know that it took strong government action in the 1950s and 1960s to end segregation and bring civil rights to the South. Fewer realize that it was government action that established segregation in the first place.


Desert Survivor writes about life in the desert and on a cattle ranch, but sheep are also raised in her area, and she sometimes writes about them. She has had several posts that provide examples of specialization and division of labor.
Nevertheless, they still do a lot of the sheepherding the old-fashioned way, living in small sheep camps, riding horses to move the sheep, and having only their border collies and sheep dogs for company most of the time. At one point most of the sheepherders were Basque, but today they are all from Peru.
More recently she had pictures of a sheep herd and noted:
They will be sheared in April by sheep shearers that come all the way from New Zealand and Australia.

Friday, February 13, 2009

Foreign ownership of the U.S. government debt

The Treasury has a table that shows the top fifteen countries that own U.S. government debt.

An interesting question that some have been asking is what will change with the much increased deficit that the so-called stimulus package will cause. Since the amount borrowed must equal the amount saved, this equation must hold:

(Private savings - private investment) + (Government surplus) + (net lending by foreigners) = 0

Currently the middle term is negative and will become much more negative. The final term is positive--we buy goods from foreign countries, and they use some of the proceeds to lend back to us, buying our debt. Among the things that a fiscal stimulus could do are:
a) Increase private savings--the traditional Keynesian multiplier argument. If fiscal spending increases income, people will save more.
b) Reduce private investment--one of the crowding-out arguments. If the government borrows, it may crowd out private borrowers, reducing investment.
c) Increase net lending by foreigners. One way for this to happen is for the value of the U.S. dollar to rise, reducing our exports and increasing our imports. A decrease in exports provides another way to crowd out the effects of fiscal policy. (A reason the value of the dollar might rise is that U.S. interest rates might rise above the level in other countries, causing a capital inflow.)

Those who argue for a fiscal stimulus package believe the first effect is important relative to the second and third. Those who argue against a fiscal stimulus usually believe that the first of these is unimportant relative to the second and third items.

25 reason for the financial crisis

Econlog links to this pdf file. Every explanation will probably be some mix of them, each with a different emphasis.

Thursday, February 12, 2009

A promising four years

Here is a blog that looks like it will have lots to write about for the next four years.

Tuesday, February 10, 2009

The S&P 500

Today the stock market fell after Secretary of the Treasury Tim Geithner announced a bank rescue plan that lacked specifics. The Bloomberg article on the decline ended in this way:
The S&P 500 has climbed 9.9 percent from an 11-year low on Nov. 20. The benchmark dropped 38 percent last year, its worst performance since the Great Depression. The S&P 500, Dow and MSCI World Index posted their steepest January declines as companies reported disappointing earnings and the U.S. economy shrank at the fastest pace in 26 years. Link
The S&P index was introduced in 1957 (although it seems that someone has extended it back to 1950). Why one would write that the S&P index had its biggest decline since the Great Depression? Why not write that it had its biggest decline since the Revolutionary War? Or the Bubonic Plague?

Update: I wrote the author of the Bloomberg article and he replied back that data exists back to 1928. And in this piece in the Financial Times, there is mention of the S&P 500 being measured in the 1930s. On there is a link to a site that contains old S&P data. However, these data may be taken from other series and then connected to the S&P 500 series, something I have done with series in the past. The S&P 500 index did not exist until 1957, though other S&P indexes exist back much further.

Talking down the economy

I cannot not remember any president who has talked down the economy the way that President Obama seems to be doing. Granted, he wants to get legislation passed. But does he realize the importance of hope and fear in times of crisis?

Normally presidents are reluctant to even use the word recession in fear that they will make the situation worse. He keeps stressing comparisons to the Great Depression. Doesn't he worry that the rhetoric can have consequences?

Monday, February 9, 2009

A man destroys himself on national TV

One of the very few network shows I occasionally watch is Wife Swap. It looks like it is partially staged, but only partially. Last week I saw the most obnoxious jerk to ever appear on television. I searched for reaction on the Internet the next day, but could not find any. There is quite a bit now, as this piece suggests.
San Francisco residents Stephen Fowler, a venture capitalist, and Renee Stephens, a weight-loss therapist, disastrously appeared on ABC's Wife Swap, confirming every stereotype one might have about the city's precious, spoiled environmentalists. Boy, they're sorry!
It was both painful and funny to watch him. Painful because he was so abusive, funny because he acted in such a stupid manner but was so sure that he was brilliant. I guess even the best credentials in the world are no guarantee that the possessor is not a complete idiot.

Sunday, February 8, 2009

Convicting the innocent

I always use the comparison to a criminal trial when I discuss the logic of hypothesis testing. When we are making decisions with partial information, we can make two types of error: rejecting a claim when it is true, or accepting a claim when it is false. Finding a guilty person innocent is the first, and finding an innocent person guilty is the second. I found an excellent post illustrating the second here.

Saturday, February 7, 2009

A failed system

In Repairing a failed system Viral Acharya and Matthew Richardson try to make sense of the financial panic and arrive at solutions for reform. A taste:
[L]ack of proper pricing of deposit insurance and too-big-to-fail guarantees has distorted incentives in the financial system. And, for years, regulation – capital requirement in particular – has targeted individual bank risk, when the justification for its existence resides primarily in managing systemic risk. It is to be expected that financial institutions would maximise returns from the explicit and implicit guarantees by taking excessive aggregate risks, unless these are priced properly by regulators.

Update: Acharya and Richardson argue that the large financial institutions took on too much risk, and that is what made this financial panic different from past financial crunches.
This lack of risk transfer – the leverage “game” that banks played – is the ultimate reason for collapse of the financial system, in our opinion.
I like the way that they proceed to ask why this crisis was not an ordinary one, but one that was extraordinary deep and wide in the financial markets.

John Taylor has his take on the crisis, and like Acharya and Richardson, is writing a book. Taylor, of the Taylor Rule, argues in The Wall Street Journal that bad government policy is the reason this crisis is so deep. Monetary policy was too easy for several years, there was excess risk taking tied to various mortgage instruments, and the Fed misread the problems that surfaced in September of 2007. The poorly-thought-out TARP program made the problem worse rather than solving it.

Time to delete mark-to-market?

There were rumors on Friday that the mark-to-market rules might be relaxed, and those rumors were credited with the rise in bank stocks.

Which leads to the question, why are those rules still in place? There have been suggestions throughout the financial panic that the mark-to-market rules were one of the things that was accentuating the fall. And if we look at how the Federal Reserve has responded, we can see that this financial panic is like no other. What is different this time? Could it be that the mark-to-market rules have introduced amplifying feedback, making the financial crisis a self-feeding process?

When FDR became president, his administration was a lot like the character in a comedy reacting to a crisis by pushing buttons. FDR pushed a lot of wrong buttons, but he did push one correct button by severing the tie to gold and eliminating the Fed from monetary policy, which had established an amplifying feedback loop in monetary policy. Maybe the mark-to-market button is the right one this time. Certainly it is worth trying. If the U.S. is willing to spend nearly two trillion dollars, the amount of the TARP and the so-called stimulus plan, why would it not also be willing to junk a rule that costs virtually nothing at all to junk? I wonder why the Bush administration was never willing to take this simple step given that they were willing other steps that were far more drastic.

Economics lacks a consensus framework in which to view macroeconomics. A framework of shocks and feedback, in which shocks knock the economy off path and the feedback accentuates the effect of the shock, leads one to focus on items like mark-to-market. The equilibrium approach of Keynesian economics leads to a focus on stimulus packages. If we get both a stimulus package and an elimination of mark-to-market, it may be very difficult to distinguish the effects of each.

Update Feb 16, 2009: Brian Wesbury, chief economist at First Trust Portfolios L.P., argues in a National Review piece, "Untouchable Accounting Rules? Really?", that mark-to-market has been a major contributor to the current crisis because of its procyclical feedback properties, and needs to be eliminated. He points to some history:
Fair-value accounting as we know it today is based on rule FAS 157, which was implemented by the FASB in 2007. But it has a longer history than that. Fair-value accounting existed in the 1930s, which was when we had the Great Depression. In 1938, President Roosevelt suspended those rules, and between then and 2007 the economy had no panics or depressions. Maybe its time we put fair value through the shredder once again.

Friday, February 6, 2009

Abandoned cars

Marginal Revolution points to an article on a Financial Times blog that discusses reports of car abandonment in Dubai, where the construction boom is ending. It reminds me of what has happened in Las Vegas, where there have been large auctions of construction equipment.

There are people questioning the original report that there has been a large increase in car abandonment. The police say that only 11 cars have been abandoned at the airport in the last year, not 3000. Also, a reader leaves this comment in the post:
About the abandoned cars in Dubai bit. there is a salient fact that is not mentioned. In 2008 the UAE government instituted a new law designed to get old cars off the road, whereby any car older than ten years cannot be re-registered by a new owner. That is, if you own an old car, you can continue to drive and register it, but a new owner cannot. Thus, cars over 10 years old suddently have a resale value of near zero - the only people you can sell them to are dealers who specialize in exporting them to places like Iraq or Uzbekistan.

So, if your stint in Dubai is up, and you have an older car (and a lot of the Indian and Pakistani expats did have cars this old), leaving it at the airport is the sensible thing to do, because going through the process of selling it for next to nothing and then renting a car for your last few days is a bigger PITA.

Update 2: The New York Times now has an article that says that conditions are deteriorating in Dubai.
No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.

Thursday, February 5, 2009

The cultural divide

In Commentary Yuval Levin reflects on the what the reactions to Sarah Palin show us about American.
The answer has much to do with the age-old tension between populism and elitism in our public life, which is to say, between the notion that we are best governed by the views, needs, and interests of the many and the conviction that power can only be managed wisely by a select few.
The whole piece is worth reading.

Reasonable stock market price

Greg Mankiw has a link to a graph that I wish I had seen several years ago. It suggests that stocks are not presently undervalued. They have been overvalued for the past ten years.

Tuesday, February 3, 2009

Reforestation in the third world

As happened in the U.S., land in the tropics once stripped of forest for agriculture is now reverting back to forest.

U.S. sneezes, China get pneumonia

The economic downturn that the U.S. is experiencing is also being experienced in other parts of the world, and in some of that world the effects are more dramatic than in the U.S. The Wall Street Journal reports that 10 million Chinese workers may be returning to the farm because of a lack of factory and other urban jobs.

The Financial Times says it is 20 million.

Working for Walmart

Charles Platt, a senior writer at Wired magazine, spent two weeks working at Walmart and reported his impressions at Boing Boing. Why do this? He explains:
It started when I read Nickel and Dimed, in which Atlantic contributor Barbara Ehrenreich denounces the exploitation of minimum-wage workers in America. Somehow her book didn’t ring true to me, and I wondered to what extent a preconceived agenda might have biased her reporting. Hence my application for a job at the nearest Wal-Mart.
Platt finds that the workers were treated well and liked working for Walmart. The sentence that caught my eye was this:
Most of all, my coworkers wanted to avoid those “mom-and-pop” stores beloved by social commentators where, I was told, employees had to deal with quixotic management policies, while lacking the opportunities for promotion that exist in a large corporation.
When my father folded up his retail business and went to work for a family owned store, he found little good about it. After a few years, he sought and found greener pastures at a chain in St. Paul. He made more money and was treated better.

Update: A longer version of his impressions is here.

Innovation at google

Google has found a new way to use Google Earth--to explore paintings. It has taken a technology used for one thing and found another thing that it can do. Right now it has a number of famous painting from the Prado, including Bosch's Garden of Earthly Delights. Check out

If Google follows its usual course, it will soon have a great many famous pictures available, and will make museums as obsolete as it has made libraries.

Sunday, February 1, 2009

Stimulus and the Great Depression

The Huffington Post has an article about the two views of the Great Depression,
The dominant story in the public mind is of President Franklin Delano Roosevelt's success. It goes like this. Like Obama, FDR comes to power with the American economy haemorrhaging jobs. He believed that, if private industry is withering, the government has to take up the slack by large public spending programmes. He set millions to work preserving green spaces and rebuilding the country's infrastructure.
The other view is attributed to a small number of right-wing economists in the 1980s.
They argued that the American people had been wrong: the New Deal actually made the Depression worse. By borrowing and spending so much, the government created a climate of uncertainty. This made investors hold on to their money - prolonging the despair. It didn't restore private investment, it "crowded it out".
The author, Johann Hari. then argues the first is correct for two reasons. First, when FDR cut back spending and raised taxes in 1936, we had relapse. Second, it was the spending of WWII that finally ended the Depression.

The article skips the interesting questions that are needed to frame the whole debate. We have had recessions every few years for the past two centuries. Most of them have been mild. Nothing else was close to being as severe or as long-lasting as the Great Depression. Why was it so deep? At the time, many thought it revealed an inherent flaw in capitalism, that it showed that Marx was correct. A large part of the intellectual class that grew up in that era accepted this explanation and became Marxist. But when there was no depression after World War II, despite the predictions of people such as Paul Samuelson, an ardent Keynesian, people had to start looking for other explanations. The most convincing explanation that has emerged is a monetary interpretation, arguing that the Great Depression was special because government policy set up an amplifying feedback loop. As things became worse, government (monetary) policy changed to make it even worse, etc. That loop was not broken until FDR neutered the Federal Reserve by abandoning gold. There remains disagreement among economists as to the importance of the real-bills doctrine and the gold standard in contributing to that feedback loop, but most economists who have looked at the episode with any care now see Federal Reserve policy as key to understanding the decline from 1929 to 1933, and also the sharp recession in 1936-7 when the Fed raised reserve requirements. This explanation was developed and popularized by Milton Friedman and Anna Schwarz, but it can be found far earlier, in, for example, a book by Lauchlin Currie.

Compared with other recoveries, the recovery after 1933 was slow. Why was this recovery so slow? One answer, favored by the left, is that because the fall was so deep, normal resiliency of markets was impaired, and government policy was needed. The New Deal was doing the right thing, but just not enough of it. On the other side, the conservative answer focuses not only on expectations and uncertainty (though not primarily caused by borrowing and spending), but also on interference with markets. When a market has a surplus, either a fall in price or an increase in demand will restore market clearing. If there is no increase in demand, then an attempt to keep price from falling will stop that market from finding an equilibrium. In a system of markets, preventing some markets from adjusting can keep the entire system from re-adjusting. The New Deal interfered with price adjustment in many ways--various programs attacked a symptom of recession (deflation), not the cause (insufficient demand). Hence, it is only natural for economists to argue that some New Deal policies made the problems worse rather than better.

The first rule of medicine is, "First, do no harm." It should also be the first rule of economic policy making. Economists have made a convincing case that government policies during the Great Depression did harm. Hari does not seem to take seriously the possibility that the stimulus package being discussed in Washington could do more harm than good.

(If Johann Hari is correct on what got us out of the Depression, shouldn't he be advocating a massive expansion of the military?)

Update: The Wall Street Journal has an piece dated Feb 2, 2006 by economists Harold Cole and Lee Ohanian that emphasizes the negative role of the New Deal's attempts to micromanage markets.

The Dark Knight

I finally got around to watching the movie The Dark Knight last night. I had read that it could be seen as political allegory, and I could see that in the movie. Like the movie Hero, it also poses interesting questions about how we select those we put on pedestals.

However, what struck me as an economist was the comic-book way in which it treated banks. The mob used the banks as a storage place for huge stacks of currency. I suspect that if the movie actually tried to show how modern finance works, it would have made the movie less understandable. Also, I wonder how many people noticed that the Joker was tremendously patriotic when he burned a huge pile of money. Since currency is indirectly debt of the U.S. government, its destruction reduced government debt. Burning money is an alternative to paying taxes, just as, for the government, printing money is an alternative to collecting taxes.