Long trips and death

The U.S. has plans for a manned visit to Mars by the mid-2030s. The ESA and Russia have sketched out a similar joint mission, and it is claimed that China’s space program has the same objective. Apart from their destination, all these plans share something in common: extraordinary danger for the explorers. What happens if someone dies out there, months away from Earth?

Swedish ecologists Susanne Wiigh-Mäsak and Peter Mäsak are the inventors of an environmentally friendly alternative to cremation and burial, called Promession. The technique entails freezing a body, vibrating it into tiny pieces, and then freeze-drying the pieces, which can then be used as compost to grow a memorial shrub or tree. The pair recently collaborated with NASA and design students in Denmark and Sweden to adapt Promession for use on a Mars mission.

Death in Space by MARY ROACH

In The Space Merchants, they send 3 people on a one way trip to Venus. That saves a ton of money, though I think only China could get away with that these days. They eventually send a midget on a round trip to Venus before sending a colonization mission.  Sounds lonely.

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Theater on the high seas

This reminded me of Everything Bad is Good for You: How Today’s Popular Culture is Actually Making Us Smarter in the way that a somewhat low brow form of vacation becomes a venue for high art:

Which brings me to cruise ships (bear with me on this). Cruise entertainment doesn’t have the best of reputations, but I took my maiden voyage earlier this year and it was a real eye-opener. I was there to review shows on board the Celebrity Eclipse, and both the productions and facilities were extremely impressive. The theatre itself was actually of a far higher standard than many of the West End’s crumbling playhouses – more comfy seats, better sightlines, excellent acoustics and high-end equipment.

Celebrity spends up to $1m per show for three 60-minute productions on every ship in its line. Each vessel has a 1,150-seat theatre, employs a cast of 18, plus nearly 40 musicians, a stage crew of six and various other technical crew across the music lounges on the ship.

And cruising is a huge growth area in the entertainment business. Looking across some of the other lines – P&O has its own on-board theatre company with more than 100 entertainers, Royal Caribbean is staging cruise versions of Hairspray and Chicago, and elsewhere there are licensed versions of Andrew Lloyd Webber musicals or other popular shows such as Saturday Night Fever.

And while you’re unlikely to see Chekhov on the high seas, some of the smaller lines do stage a little drama – Crystal Cruises has previously put on one-woman shows by Lynn Redgrave and Susannah York. There is huge scope for employment for people in the theatre industry on cruise lines and because it’s a profit-making industry – the amount these ships take on their bars alone is quite staggering – the number of openings is steadily growing.

Celebrity, for example, is planning to launch two more of its gigantic luxury ships, each with 1,150-seat theatres and jobs for more than 50 entertainers over the next couple of years. People can be a bit sniffy about working on cruise ships and, to be fair, the performers I spoke to on Celebrity admitted the first time they accepted work on a cruise, they thought it would just be filling in between other jobs. But, they came to love it and now see it as a long-term career choice

Can cruise ships keep the theatre industry afloat?  As job opportunities in theatre dry up on land, cruise ships are pouring money into productions out on the high seas

I’ve been on several cruises between 10 and 15 years ago. I never particularly enjoyed the shows but now I would give them another shot. It is hard to imagine something more conducive to the long term health of the theater business than a solid dose of capitalism.

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Not so much a rule as a linear approximation

Incredibly famous macroeconomist John Taylor writes:

The Taylor rule says that the federal funds rate should equal 1.5 times the inflation rate plus .5 times the GDP gap plus 1. Currently the inflation rate is about 1.5 percent and the GDP gap is about -5 percent (using the average of the seven estimates of the gap provided in the recent update by Justin Weidner and John Williams).

The Taylor Rule Does Not Say Minus Six Percent

Kling replies that if you give different (what he calls reasonable) inputs you get a different answer:

I think that core inflation (the CPI excluding food and energy) has been running at about 0.5 percent. I look at an unemployment rate of 9.5 percent and think that is 5 percent above full employment. Using Okun’s Law (the 2-for-1 version), that says that GDP is 10 percent below its full-employment level. So I get that the Fed funds rate should be -3.25.

he point is not to claim that the assumptions I would have used are more reasonable than Taylor’s. The point instead is to suggest that there is a lot more play in his “rule” than you might otherwise presume.

Is the Taylor Rule Really a Rule?

Then a commentator Liberty says:

Wasn’t it you, Arnold, who said you put the “Taylor rule” in the same category as the “don’t step on a crack” rule?

That is among my favorite quotes about economics. Sums it up perfectly. (Arbitrary correlations + desire to avoid badness => silly superstitions).

I don’t see it as quite as bad as Liberty says. If you were going to do a linear approximation to Fed behavior you’d expect that the coefficient on inflation to be positive and on output be negative. That doesn’t mean that there is some iron law of history going on, and I dislike even calling it a rule, but it there are solid reasons why the parameters of that linear approximation would persist over time. That would be a product of the Fed using the same models over time.

You would also be unsurprised to learn that inflation and output gap were the best predictors. Nevertheless, as Kling points out, there are several measures of the output gap and inflation, and you might not know which provides the best approximation. But I also don’t see it as arbitrary as Kling does. It is an empiric question which data series best predict Fed behavior in this simple linear model and which series give the most stable parameters over time.

What I have a problem with is looking at the output of the Taylor rule and saying that the Fed is doing something wrong, say that rates are too low. The Taylor isn’t actually calibrated to the economy, it is calibrated to Fed behavior. At best you’ve shown that they are breaking their own rule. That might not be so, you may just have entered an economic regime where this simple linear approximation does a poor job. You’d have to look at what the Fed models say the Fed should be doing. I haven’t heard anyone say that the Fed is ignoring the results of their own models. Or the linear relationship might still hold with respect to Fed models, but the Fed’s models might be unreliable in the current regime. Who want a linear approximation to a bad model? In that case, the Fed ignoring their models (and therefore the Taylor rule) is a good thing. I’m not an insider, so I really don’t know what is the real story, but it is hard for me to see how knowing the Taylor rule’s recommendation here is helpful.

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What states get the most from the government?

Rampell says there is no clear pattern among Red and Blue states:

Obligations for federal domestic spending rose 16 percent in fiscal year 2009 to $3.2 trillion. That comes out to $10,548 per person living in the United States.

Alaska received nearly twice the national average, taking in $20,351.13 per resident, the most of any American state. The state with the second-highest total in per-capita federal funds received was Virginia, at $19,734.

The District of Columbia, however, received an even higher amount per capita than both those states. The nation’s capital received $83,196.12 per resident, mainly because of salaries and wages paid to the many federal employees who work there.

The state receiving the least federal money per resident was Nevada, which obtained $7,148.49 per capita, followed by Utah with $7,434.65 per capita

States That Received the Most Federal Funds

I’m skeptical that the current administration would be so foolish as to do something as foolish as channel money to their favorites and punish the other states. The politics are horrible, and in any case the incentives are unclear. Perhaps they would want to channel money to battle ground states rather than to their favorites to win more power rather than reward their base. In that case the most purple states would get the most money. That too is unclear because both Virginia and Nevada appear to be battle ground states.

In any case, this isn’t the right assessment, you’d need to know some distribution of the demand for government services to know if this was political.For example, density makes it generally cheaper (up to a point) to provide government services. Alaska is near Russia, which means that there are bases and radar stations that have to be there which are going to pull money into the state. The poorest Americans live in the inner cities and rural America, so government transfers are going to raise the spending in those states that contain large rural and urban areas. If you wanted to do some econometrics on this, I guess you could do some diff in diff measures, looking at changes in state spending between Red and Blue states depending on who controls the government. Even so, nothing so simple will work well. The cyclicality of government spending probably has a lot to do with how hard a state was hit by a recession, and so the government spending thereby effected (though unemployment and stimulus for example). It would be clearer to look at something less ideological or geographically determined, like pork barrel spending to know how politically minded dollars are allocated.

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How much unemployment is caused by unemployment insurance

If you subsidize unemployment by providing people with basic income you get less employment. But being out of work sucks and most people want to get a new job promptly, so it is unclear how big this effect should be. Everyone (Derek Thompson, Scott Summers, Arnold Kling, Don Boudreaux, Greg Mankiw, and many many others) seems to be talking about it recently. In short we don’t seem to know, but the effect is in the massive interval of 1/20 – 1/3 of the level of unemployment. What sort of welfare state we should have on utilitarian grounds is going to depend a lot on the answer. Nevertheless, we don’t know yet with great confidence what to do.

Thompson’s post gives me an idea on how you could measure this effect.

(3) Not all of the long-term unemployed are collecting UI, or extended UI, because some are in states that don’t offer all 99 weeks

His argument, pursued anecdotally (rather than statistically) by him and the Washington Post cries for using this as a natural experiment using the cutoffs by states and unemployment rates. We just need time series of unemployment rate and duration of UI benefits by state to get started. Well, not exactly. We want panel data on employment histories too, to see if people can find work when their benefits run out. I am sure that people have looked at the issue as a whole, but I don’t think that anyone has put these parts (state policies as instruments, the federal unemployment insurance extensions, panel level data on employment histories) together this way. This is not my area in any case, but I am always on the lookout for low hanging fruit.

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Amazing market micro-structure

In the post, Zero Hedge says that the maximum possible level implied correlation can reach is 100%.  That is wrong.

Although a 100% maximum is true when talking about realized correlation, it is NOT TRUE when talking about implied correlation.  Implied correlation is basically a measure comparing the implied volatility of index options to the implied volatility of the options of the constituent securities.  If the implied volatility of the index options spikes to a sky-high reading while individual stock option volatilities don’t rise as fast, you could get a situation where the implied correlation rises above 100%.

In fact, it’s already happened once.  The 2009 index spiked above 100 a few times in November 2008.

Implied Correlation … How High is High?

This is fascinating, but I don’t see how they assign a number to this. Correlation is Cov(X,Y)/ SQRT(var(X)*Var(Y)). It can be shown mathematically that this is always between -1 and 1. I assume that there is some underlying pricing model, probably built on a Gaussian copula. But given that mathematically that this relationship cannot be greater than one, are they saying simply that the pricing model implies that the only way to reconcile the observed price is to see a correlation of greater than 1 which is impossible. But clearly the market is inefficient and / or the model is wrong. In either case, why would we care specific number is generated, because we know it is garbage in any case. I’d view any implied correlation higher than 1 as simple model and market breakdown and not a useful quantity beyond that.

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Link roundup

Things I thought were interesting or provocative but with little comment

Conrad Black’s Decline, but Not Inevitable Decline

What is needed is a colossal reorientation of the country away from consumption and toward investment, the cleaning out of the morass of the plea-bargain justice system and attendant vacuum cleaners of the legal and prison industries (and the gigantic fraud of the War on Drugs), drastic education reform, genuine health-care reform, a redefinition of U.S. national interests in the world to what is essential and defensible, and then restructured alliances to reflect shared interests. Until those issues are addressed, all talk of the American superpower is rubbish. Obama’s is the fourth consecutive failed administration, and each succeeding one will make the festering problems more dangerous and difficult. As the problem is misdirection, not internal degeneracy or imperial overreach, it is a decline that will end in recovery, not a fall.

Why complex numbers are fundamental in physics

The shocking revelation came in 1572 when Rafael Bambelli was able to find real solutions using the complex numbers as tools in the intermediate calculations. This is an event that shows that the new tool was bringing you something useful: it wasn’t just a piece of unnecessary garbage for which the costs are equal the expenses and that should be cut away by Occam’s razor: it actually helps you to solve your old problems.

10 Rules for Radicals on how to win against government bureaucracies. Amazing and must see.

Why is the government trying to force me to divorce my wife? On the marriage penalty

How to tell when your boss is lying It’s not just that his lips are moving

David Larcker and Anastasia Zakolyukina of Stanford’s Graduate School of Business analysed the transcripts of nearly 30,000 conference calls by American chief executives and chief financial officers between 2003 and 2007. They noted each boss’s choice of words, and how he delivered them. They drew on psychological studies that show how people speak differently when they are fibbing, testing whether these “tells” were more common during calls to discuss profits that were later “materially restated”, as the euphemism goes. They published their findings in a paper called “Detecting Deceptive Discussions in Conference Calls”.

Deceptive bosses, it transpires, tend to make more references to general knowledge (“as you know…”), and refer less to shareholder value (perhaps to minimise the risk of a lawsuit, the authors hypothesise). They also use fewer “non-extreme positive emotion words”. That is, instead of describing something as “good”, they call it “fantastic”. The aim is to “sound more persuasive” while talking horsefeathers.

When they are lying, bosses avoid the word “I”, opting instead for the third person. They use fewer “hesitation words”, such as “um” and “er”, suggesting that they may have been coached in their deception. As with Mr Skilling’s “asshole”, more frequent use of swear words indicates deception. These results were significant, and arguably would have been even stronger had the authors been able to distinguish between executives who knowingly misled and those who did so unwittingly. They had to assume that every restatement was the result of deliberate deception; but the psychological traits they tested for would only appear in a person who knew he was lying.

The obscure spices quiz

Enhancing linux terminals with byobu, a better version of screen

Momentum in Employment: Why it Matters

The story I would tell is that there are clusters of firms that interact with one another. In an expanding cluster, growth of one firm leads to growth in others. In the 1920′s, as more people were employed in building automobiles, there were bound to be more people employed at gas stations. In a contracting cluster, declines in some firms lead to declines in others. As you get fewer horse-and-buggy drivers, you get fewer horse trainers, fewer horseshoe makers, and fewer manure sweepers.

A Time to Appease  by  Paul Kennedy

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Bond holders and impartiality.

Felix Salmon discusses the chatter around the impartiality of Pimco’s El-Erian Op-Ed Why another fiscal stimulus won’t do.

A better answer is that there simply isn’t a clash between what’s good for the global economy and what’s good for Pimco, which is overwhelmingly a long-only investment house. Pimco’s long-term health is a function of there being a strong global economy which generates lots of savings for Pimco to manage.

The best answer, however, is that it doesn’t really matter who wrote the op-ed: it should stand or fall on its own merits.

This first point cannot be right. Bond holders only own the downside of the capital structure. Any upside goes to the equity holders. If bondholders solely ran the economy for their own benefit then risk taking would diminish substantially. Sure, there might currently be too much risk taking and this would reduce it. But that’s a separate case to be made.  Untimately, bond holders have a distinct set of interests that do not perfectly align with labor and equity holder interests.

The second point is absolutely right. Ideas should live and die on their own merits. That said, the Op-Ed page of a major American newspaper is a serious bully pulpit that leaves little room for the extensive footnoting and exposition of scholarly discourse. They are often filled with factual claims without basis to check them. As such, we have to trust the writer or at least the editing process to have properly checked the facts in the face of their inevitable biases. That’s why we care about conflicts of interest in scholarly work. Not because bias prevents us from generating excellent scholarship, but because it is hard to check everything. Therefore, we can avoid checking those without vested interest with less danger of being lead astray.

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From the everything you believe is a lie department: Katrina edition

  1. KATRINA WASN’T A SUPERSTORM

  2. FLOODWALLS WERE BUILT PROPERLY

  3. ANARCHY DIDN’T TAKE OVER

  4. EVAC PLANS WORKED

  5. GOVERNMENT RESPONDED RAPIDLY

  6. GOVERNMENT SUBSIDIES ENCOURAGE BAD PLANNING

  7. THE ENERGY INFRASTRUCTURE SURVIVED

Debunking the Myths of Hurricane Katrina: Special Report

A good read.

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This was pretty awesome

I liked the way that it combined 70′s-80′s style animation with a neat rock song.

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