Tuesday, March 31, 2009

Another economics blog

There is another new economic blog, this one focused on economic policy. It is written by Keith Hennessey, who worked as a high level policy adviser for the Bush administration. Time will tell if it is worth reading regularly.

Wrong on many levels

The story here is wrong on many levels--so many I do not know where to begin to unravel it.

Friday, March 27, 2009

The economics of Wife Swap

One of the few TV shows that I usually watch is Wife Swap on ABC, a show that illustrates Aristotle's principle of virtue. I have always wondered why people volunteer to go on the show, but then I saw a post on a blog that explained why.
In addition, each family that tapes an episode of Wife Swap receives a $20,000 honorarium for their time. Anyone who refers a family that appears on our program receives $1000 as a ‘thank you” from us.

Asymmetry and government failure

Imagine that the TARP program had not passed in early October, 2008, and that in the months following the unemployment rate had soared to 8.1% in February with further rises expected, on March 9 the Dow Jones Industrial Average had dropped below 6650 in the most severe bear market since the Great Depression, and that the GDP had declined at a 6.3% rate in the fourth quarter of 2008. Do you doubt that those who voted nay on the bill would be blamed for the disastrous course of the economy and the financial markets followed? So why are we not damning those who voted for a bill that obviously did not meet the expectations of those who advanced and implemented it? It is because they can always reply that in the absence of action, the situation would be even worse. But there is no evidence for that and there cannot be because we do not know what would have happened if the bill had not passed. Logically if the bill had not passed and the same things had happened in the economy, those who had opposed the bill could say that if the bill had passed, things would be even worse. However, few would believe them. We live in a world that has great faith in the ability of government to right wrongs.

Asymmetry of this sort, in which there is risk in only one direction, causes bad decision. I have no idea of how to right this, but it should be mentioned when the topic of government failure is discussed.

Thursday, March 26, 2009


What happens if surrogate mothers stop being paid?
If you stop paying your surrogate, she needs to quit and find another job, just like any other worker. But surrogacy isn't like any other job. The only way to quit a pregnancy is to abort it.
If you buy into the pro-choice arguments, why isn't it just like any other work?

How bad was it updated

Back in November I computed the decline in the stock market based on a bottom on November 20, 2008. The decline in the Dow from its peak was 46.66% and of the S&P 500 Index was 51.92%.

However, it turned out that November 20, 2008 was not the bottom. On March 9, 2009 both the Dow and the S&P closed below the November 20 levels. The S&P got down to 676.53, 888.62 points below its peak level of 1565 on October 9, 2007, a decline of 56.78%. The Dow dropped to 6547.05, 7617.48 below its peak value of 14164.53, a decline of 53.78%. The great bear market of 2007-2009 has been exceeded only by the bear market of 1929-1933.

Let us hope there is no need to update this dismal statistic again.

"We have declared war on work."

I found a great Mike Rowe video over at The Anchoress, who in turn got it from someone else. It is worth watching the whole 20 minutes. Rowe admits, "I got it wrong about a lot of things."


Those on the Left affected by BDS (Bush Derangement Syndrome) for the past eight years have been able to see nothing good in Bush. BDS has led to an atrophied and sophomoric political dialog in the country because a lot of intelligent people who should have known better succumbed to it.

The people who suffered from BDS thought it would have no adverse consequences for Barack Obama. How else could you make sense of the widespread expectation that Obama would usher in a new post-partisan epoch? However, the Right has picked up the thought processes of BDS. For everything that Obama says or does, they now automatically think, "What would have been the reaction if Bush had said or done that?" And then they pounce.

Slate.com has a feature, Bushism of the day, which highlights gaffes by George Bush. Now that Bush has gone, you might expect a new feature, one featuring gaffes by President Obama. But instead, in what one can only call a moronic decision, Slate decided to keep adding to the Bushisms, a true sign of BDS. The result? The blog Hotair decided to initiate a new feature, Obamateurism of the Day. Hotair may have even more to choose from than the Bushism column because Obama says so much more in public. Even when he uses the teleprompter, as he does except when he is responding to questions, he sometimes screws up. (Or maybe not--the last link may itself be evidence of ODS.)

So BDS remains alive but has now been joined by ODS, the Obama Derangement Syndrome. Check out Michelle Malkin. If she does not yet have it, she is very close to catching it and it is appearing in a lot of other right-wing blogs as well. Just as BDS resulted in an atrophied and sophomoric political dialog in this country, so will ODS. And whatever Republican next is elected will be subject to a new derangement syndrome. (Of course, within days of Sarah Palin's selection as the GOP vice presidential candidate, full blown PDS arrived, so if she ever becomes president, the derangement will not be new. Also, those on the Left have been eagerly searching for ODS for some time, though their case up to now has been weak. There has been nothing comparable to this.)

For those on the right to avoid ODS, they need to be able to praise Obama when he does something that they would praise if a Republican did it. They will find plenty to criticize, but not everything that Obama does should meet with disapproval. In addition, if those suffering from BDS would be able to recognize that there were things that Bush did that they should applaud and that he is not evil incarnate, it might help restore a bit of civility to the political discourse in this country.
Update: I am not the only one who has noticed this.

Wednesday, March 25, 2009


The Internet challenges the gatekeepers--the mainstream press, academics, and librarians, among others. Here is a great example from England.

Mob rule

From Commentary's Contentions, a link to a letter in the New York Times.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

Monday, March 23, 2009

Toxic assets

From Openmarket.org
The Treasury Secretary claims taxpayers won’t lose a full trillion, because the assets aren’t as worthless as their current market prices suggest. But if that’s true, why does he continue to insist on federal accounting rules that force banks to value their assets at the current depressed market prices? Either the accounting rules are right — in which case taxpayers will end up losing a trillion dollars — or they are wrong, amplifying financial panics — in which case the rules should be repealed, so that banks, not taxpayers, will be able to take the risk of holding the assets. (If these accounting rules, known as “mark-to-market” accounting, had been in place in the late 1980s, “every major commercial bank would have collapsed,” wiping out the economy).

The informal sector

The Wall Street Journal has an article on the growth of the informal sector in the undeveloped economies.
Economists have stressed the negative aspects of informal trade for decades. Informal businesses often don't pay taxes, and they routinely lack the capital and expertise to be as productive as big enterprises, leading to less innovation and lower standards of living.

I guess the reporter never read Hernando De Soto.

Sunday, March 22, 2009

A big deficit

From the Washington Post:
THE NEW estimates by the Congressional Budget Office showing a federal deficit of 13.1 percent of gross domestic product for the current budget year, which began Oct. 1, are neither surprising nor particularly alarming, though it's larger than the 12.3 percent foreseen by the White House.
The Washington Post may not think a deficit equal to 13.1% of GDP is alarming, but I do.

More good blogs

Carpe Diem is a blog by Mark Perry, a professor of economics and finance at the University of Michigan-Flint Campus. He is quite active and has a good readership. Examples of recent interesting posts are one on a doctor in trouble for charging too little to treat the uninsured, another on average housing prices in Detroit (in 2004 they were almost $98K, in 2009 less than $14K), and a post showing that the number of miles driving in the U.S. has declined for 15 consecutive months.
McNamara' blog contains musings on church history by a historian. It is very well done.
The Chicago Boyz has a big bunch of contributors and sometimes they discuss interesting topics.

Saturday, March 21, 2009


I often see the initials SCOTUS on blogs and I know that it means Supreme Court of the United States. And POTUS means President of the United States. A few days ago I began seeing the initials TOTUS , and being rather dense, could not figure out what it meant. Now I know.

Not mincing words

I saw a number of articles about the latest in U.S. births, but did not feel like linking to any until I saw this post, which cuts through all the polite and euphemistic terms and tells it like it is. I liked the third comment by Ian and the sixth by Joe.
And on the general topic of the disintegration of society, this post by Rachel Lucas--who I rarely read so I do not know much about her--seemed worth a link.
Update: Also this.

Friday, March 20, 2009

Money and the Internet

"I, Cringley" looks at a successful, money-making website. (Who knew that the parrot market was this lucrative?)

Thursday, March 19, 2009

Sexual liberation

In the era of sexual liberation, not everything is permitted. The question remains, why are some things OK and others are not? What is the underlying logic of it all?

(I can understand the traditional moral arguments against bestiality. One of the first persons executed in Plymouth Colony was convicted of taking liberties with the livestock, which strikes me as extreme, but I understand the position. However, in the new morality in which it is illegal to discriminate against people based on sexual preference, aren't bestiality laws a form of discrimination against some with a particular sexual preference? Why should the right of a goat to its virginity outweigh the rights of a pervert a person with a "special" sexual orientation or need? I do not understand the logic of the animal rights people, but it seems to me that they are a lot like the Puritans.)

The article also has a funny bit about a state legislator who did not know what animal husbandry was.

Where no Fed has gone before

The Fed has decided to change policy, no longer setting the federal funds rate and letting banks determine how many bank reserves they want, but directly targeting bank reserves, and in a massive fashion.

But to the surprise of investors and analysts, the committee said it had decided to purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities on top of the $500 billion that the Fed is already in the process of buying.

In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months. That would tend to push down longer-term interest rates on all types of loans.
Here is the statement from the FOMC:
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

Here is a take by Scott Sumner, an economist who is actively following monetary policy (as opposed to someone like me, who currently finds a number of other topics more interesting, though not necessarily more important.)

This graph shows the M1-data until March 2

Here is a chart of excess reserves. Banks now earn interest on excess reserves, and cannot get more by trading them for T-bills, so they do not have the normal urge to get rid of them.
The Fed is not worried about inflation--it does not see that as a threat given the large amount of idle resources. However, because the Fed is increasing reserves even more, there will be a major inflation when the economy starts rebounding (because then those excess reserves will be traded for more profitable assets, spurring monetary growth) unless the Fed can take these reserves out of the banking system quickly enough and at the right time. How much faith do you have in the Fed? If you do not have a lot, then soon you should start betting on inflation in the future.
Update: China is worried about the future value of the dollar. It apparently is moving out of longer-term U.S. securities in favor of short-term.

Union picketing

In a case that seems as strange as the story of the unions outsourcing the picket lines, the Washington Post reports that a union is filing unfair labor practices against another union, the SEIU, which hires its members.

The SEIU's national office has been contracting out more and more work to a staffing agency, Harris said, including advocacy for card check. He said it looks as though SEIU is trying to phase his union out of existence.

Wednesday, March 18, 2009

Consistency of message

There is a controversy about an e-mail group called JournoList. Does it provide a way for one political group--liberal bloggers and reporters--to present a more consistent party-line message? (Do you think the people on the list would be as friendly towards the idea if it were conservatives who had the list? Or would that be evidence of a great right-wing conspiracy? Or should conservatives now construct a similar list?)

Sunday, March 15, 2009

Madoff's victims

The New York Times has an piece arguing that Madoff victims were part of the problem.
People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff.

An unintended consequence of the stimulus bill

Increased U.S. borrowing to fight the recession will crowd out developing nations from capital markets.
Here’s a paradox for Obama supporters: The first American president with personal roots in the developing world (Kenyan father, Indonesian stepfather, childhood residence in Indonesia) is doing more harm to the developing world than any American in history.

Friday, March 13, 2009

Change we can believe in?

Peggy Noonan senses that Americans feel that things have changed, but they seem not to be happy with the change.
People sense something slipping away, a world receding, not only an economic one but a world of old structures, old ways and assumptions.

House of cards

Marginalrevolution.com recommends William Cohen's House of Cards, the story of the collapse of Bear Stearns.

More remorse?

Does Megan McArdle have buyer's remorse?

Thursday, March 12, 2009

Cleaning out old bookmarks

Here are some interesting items that I have bookmarked lately but do not have time to describe more fully.

A review of John Taylor's explanation of the recent panic and financial meltdown
The equation that killed Wall Street, the quants going wild.
The politics of cap and trade--why businesses sometimes advocate regulation
God vs Darwin among the philosophers
An interview with Robert Barro
An article from 2002 asking whether the housing bubble would crash soon.
An argument we are genetically wired to believe or be religious, which can be spun several ways.
Another article on mark to market, which I may already have linked somewhere.
Jennifer Roback Morse on the octuplets

There are too many interesting things on the Internet to read them all.

Wednesday, March 11, 2009

WSJ on mark-to-market regulation

Harold Jenkins reports on what Warren Buffet said, but CNBC cut out, in his recent interview with CNBC:
CNBC, sadly, has been playing a loop of Mr. Buffett's remarks that does a consummate job of leaving out his most important point. Nobody cares about the merits of mark-to-market in the abstract, but how it impacts our current banking crisis. And his exact words were that it is "gasoline on the fire in terms of financial institutions."
The American Spectator has had a series of articles on the topic.

Tuesday, March 10, 2009

Fractional reserve banking bits the dust

A note on marginalrevolution.com a few days ago noted that we now have 100 percent reserve banking--bank reserves now totally cover demand deposits.

Food and sex

I enjoyed this column by George Will, which is based on this paper by Mary Eberstadt. They note that what is vice and what is not has changed over the past half century. Many areas of sexual practice that were once considered immoral are now, in popular culture, considered non-issues, while choices of what to eat which were once considered non-issues are not considered vice.
Today "the all-you-can-eat buffet" is stigmatized and the "sexual smorgasbord" is not. Eberstadt's surmise about a society "puritanical about food, and licentious about sex" is this: "The rules being drawn around food receive some force from the fact that people are uncomfortable with how far the sexual revolution has gone -- and not knowing what to do about it, they turn for increasing consolation to mining morality out of what they eat."

I would bet against this working

Austin, Texas wants to go green, so has approved a new solar project.
The council gave a unanimous thumbs up to a private company's proposal to build and operate a 300-acre solar array on land near Webberville, east of Austin, and sell the power to Austin. The array is scheduled to be operating by the end of 2010.
The catch is that the power generated will be considerably more expensive than conventional electricity. Their solution is to sell it to those who are willing to pay extra for "clean" power:
The green charge for a solar package, if the cost estimates are accurate, would be about $160 a month for the average-value Austin home. The same homeowner would pay about $36 a month under the city's standard program.
The solar price isn't set, though. Duncan said new federal tax credits could reduce the cost by as much as a third.
I think they will have a hard time finding enough people to volunteer for that.

Monday, March 9, 2009

Agency problem?

I saw an unfamiliar real estate sign on a lawn today, and all I could think was "agency problem."


Out-of-town investors are buying up houses in Detroit in bulk. Detroit already has the lowest owner-occupied housing rate, and it looks like it will go lower.

Tit for tat and kids

I have been re-reading Robert Axelrod's The Evolution of Cooperation, in which he makes the case for a tit-for-tat response when situations resembling the prisoner's dilemma are repeatedly played. It struck me that children do not play tit-for-tat in interacting with their parents. Instead they are much more likely to test to see if the parents will retaliate, or perhaps they test to see if parents will play a tit-for-tat strategy. In any case, they violate the rule that one should not be the first to defect. And parents often do not retaliate--they often let themselves be exploited. I suspect that there is an explanation in evolutionary biology.

Horses not on the menu

Horse lovers have waged a successful campaign against the slaughter of horses, arguing that they are not like cows and pigs. Has this campaign had some unintended consequences?

Ukraine's non-Malthusian future

From the blog at First Things:
By the middle of this century, according to UN projections, 57 percent of the entire Ukrainian population will be dependent elderly. That of course is impossible. No country can survive where only 30 percent work and most of the remainder are elderly (and a few children).
Fertility rates are an under-appreciated statistic.

Update: Here is an article about population implosion by Jennifer Roback Morse, an economist who has become an advocate for parenthood and the family.

Sunday, March 8, 2009


Recently an employee of a large, multinational company told me that his management was unable to prioritize, and as a result, the company was doomed to be second-rate. I know well a much smaller organization that has great difficulty prioritizing and is mediocre, but had never thought of the connection in the way he stated it. I also thought of the current administration, which seems to have trouble prioritizing and wondered if that difficulty was predictive of it place in history.

Piling on Geithner

Some Aussies are not impressed by Treasury Secretary Geithner.

If I could buy stock in Ann Coulter...

I have not read much by Ann Coulter and I have usually found her too strident for my tastes. However, when I read her put-down of Keith Olbermann, I realized just how terrifically gifted she is as a polemicist. Even if you do not like what she says, you should recognize the skill she has at her craft.

If I could, I would buy stock in Coulter and sell short Olbermann. Coulter should do very well in the next few years because an audience will develop for her, those who are frustrated and alienated by President Obama and the Democratic Congress. On the other hand, people like Olbermann and Rachel Maddow will probably struggle because they, like Coulter, are best at attacking, and their audience, those frustrated and alienated by former President Bush and the Republicans who controlled Senate and House, will diminish. If there were only five Republican senators and ten Republican congressmen, they would still rail against the evil Republicans, but when the Democrats are so firmly in control of the centers of power in the country, only the delusional can keep blaming Republicans for the world's problems. On the hand, that control by the Democrats will present virtually unlimited targets for a polemicist as skilled as Coulter.

People on the right will be demanding catharsis in the next few years, not people on the left.

Saturday, March 7, 2009

Money illusion blog

Here is a new blog on monetary policy that looks interesting. I have not had the time to look at it closely yet.

Wednesday, March 4, 2009