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November 26, 2008

Myths of history?

A French Connection is a myth-busting piece in today's NY Times :

To commemorate the arrival of the first pilgrims to America’s shores, a June date would be far more appropriate, accompanied perhaps by coq au vin and a nice Bordeaux. After all, the first European arrivals seeking religious freedom in the “New World” were French. And they beat their English counterparts by 50 years. That French settlers bested the Mayflower Pilgrims may surprise Americans raised on our foundational myth, but the record is clear.

It certainly is an interesting fact, but Roanoke was earlier than the Pilgrims as well. I thought the reason we celebrate the Pilgrims was because unlike the French Huguenots or the people of Roanoke, the Pilgrims were successful. They have living decedents today and their settlement survived long enough to become part of the colony of Massachusetts and become a founding state. The author got so excited about the exciting format of presenting his essay a a myth-buster that it blinded him to the real reasons why we celebrate Thanksgiving.

Posted by OneEyedMan at 7:36 AM | Comments (0)

November 25, 2008

Why is Darwin always pictured as old?

I'm reading The Moral Animal, a good introduction to the fruits of evolutionary psychology. Much of the book relates to Darwin's experiences and how they relate to the insights into human behavior from evolutionary psychology. The book has several photographs of Darwin throughout his life.

I, like I imagine most Belligerati readers, imagine Darwin as a sage and bearded elder statesman. In fact, just today I saw these paper craft scientists, of which one was the bearded elder Darwin

Papercraft Scientists
And yet, Darwin didn't have a beard for much of his adult life, and he formulated his insight into the origin of the species. Though didn't publish his theory until later in life, he was a famous naturalist long before he published his treaty of evolution. It isn't as though no pictures exist of him as a younger man. Simply check out Darwin's wikipedia page for several pictures of the younger Darwin. Therefore, I am left to wonder why the popular imagination is so focused on a particular depiction of Darwin, and why we couldn't pick his younger looks out of a lineup.

Posted by OneEyedMan at 8:46 AM | Comments (0)

November 24, 2008

A dark and fascinating* gedankexperiment

Here’s a little thought experiment. Imagine that, on September 11, 2001, when the Twin Towers came down, the President of the United States was not George W. Bush, but Ann Coulter. What would have happened then? On September 12, President Coulter would have ordered the US military forces to drop 35 nuclear bombs throughout the Middle East, killing all of our actual and potential enemy combatants, and their wives and children. On September 13, the war would have been over and won, without a single American life lost.

Yes, we need a woman in the White House, but not the one who’s running.

Why we are losing this war

I sat in stunned silence, mouth hanging open when I read this.

*- In the attention grabbing sense.

Posted by OneEyedMan at 7:31 PM | Comments (2)

Look at all the lonely people -- where do they all come from?

Mostly Manhattan it seems. The astounding fact of the day is that more Manhattan residences have only one occupant:

Until I was 37 years old, I lived alone. It never struck me as particularly odd. If you’ve been in New York for any length of time, you know from both intuition and daily observation that many people live on their own in this town. But I never fully appreciated how many—and by extension, how colossally banal my own solitary arrangement was—until I checked with the Department of City Planning a couple of months ago. How many apartments in Manhattan would you have guessed have just one occupant? One of every eight? Every four? Every three?

The number’s one of every two. Of all 3,141 counties in the United States, New York County is the unrivaled leader in single-individual households, at 50.6 percent. More than three-quarters of the people in them are below the age of 65. Fifty-seven percent are female. In Brooklyn, the overall number is considerably lower, at 29.5 percent, and Queens is 26.1. But on the whole, in New York City, one in three homes contains a single dweller, just one lone man or woman who flips on the coffeemaker in the morning and switches off the lights at night.

Alone Together
Of course, that isn't to say that half of Manhattan residents live alone. Since on average households with more than one resident have more than 2 residents within them, less than a third of Manhattan's residents live alone.

Posted by OneEyedMan at 7:20 PM | Comments (0)

Reason 412 not to talk to the press

Is to avoid sounding like a pig in front of the world:

Geoff Parcells, who was running along the street, said that he sympathized with residents but that the area “is a public place” and that he did not quite know how to view the enhanced enforcement.

"If I lived here and there were all really good-looking people working out, I probably wouldn’t mind," said Mr. Parcells, 45. "So I guess it depends on who parks in front of your house."

Where the Traffic Median Is a No-Pilates Zone

Posted by OneEyedMan at 7:12 PM | Comments (0)

November 23, 2008

We live in a different world

I bought a chili cookbook in a thrift store a few years ago. Titled Chili Madness, it was published in 1980. Not too long ago really.

Page 39, in the recipe for Jay's Chili has the following note about one of the ingredients:
Note: Chili salsa is a relish made from equal parts of finely chopped raw onion, tomatoes (peeled, cored, seeded, and finely chopped) and canned chopped green or pickled jalapeno chilies. It is widely available in supermarkets and specialty foods stores.

In 20 years salsa went from unusual enough to warrant a note in a chili cookbook to the most popular condiment in America.

Posted by OneEyedMan at 10:23 PM | Comments (0)

Is this a good thing to do?

As the sun sets on the Bush administration, the survival rite known as burrowing is under way. Burrowing is when favored political appointees are transformed into civil servants and granted instant tenure on the federal payroll. ... [Obama] aides will have to circumvent or dump any Bush burrowers intent on sabotaging that effort.

As a general matter, if what these government agencies do is purposeful, doing something that for all their warts we want them to do, then burrowing is a good policy. We want to be able to recruit people to run agencies from the mass of regulators that they employ. Yet we don't want them to have to retire or find a new and unrelated job when the leave by necessity. Their leadership role will have developed unique skills and knowledge related to the agency's operations, and if they can't help run it, they'll surely help lobby it. Similarly, when we recruit others from the military or business to do so, we want them to be able to continue to help after the end of the current administration. If skilled an knowledgeable former leaders are willing to take a paycut and a demotion to continue to work for that agency, we the people should be happy about that. Not only do we get the immediate benefits, but knowing that senior government service leads to a career if one is desired makes it easier to attract top talent.

These reasons are the major motivation for abandoning the spoils system of appointment we used to have in American government in the 19th century. Unless you want everyone in government chosen more for their political connections than their subject expertise, you want a avenue for professional exit of leaders to return to ordinary service. To do otherwise may serve a small ideological agenda at the expense of an enormous decrease of competency and quality.

This isn't an argument for keeping the incompetent or the corrupt. But because government is political, employees have a process to protect them from unduly political firings. The probably have to many protections, but I see no reason to single out former leaders for harsher treatment.

Posted by OneEyedMan at 9:05 AM | Comments (0)

November 21, 2008

Interesting article but bad statistics

Daniel Gross has a piece in Slate (The Subprime Good Guys) where he blasts those trying to pin some (or most) of the blame for the financial crisis on subprime and other low-quality lending. I'm still unconvinced by his argument that since the CRA only applied to banks and non-banks did much of the bad lending that the CRA had nothing to do with this. We don't know what the sensitivity of the price of real estate was to marginal lending. If the CRA was pumping money into marginal borrower (those who otherwise would have rented) then it would have continued to drive up real estate prices in the US. That continued price appreciation held the default rate down to an artificially low level. Lenders it seems treated it instead as a regime change to lower credit risk and therefore lent out money at too low a rate. I'm not sure if that is what happened, but you cannot infer from the widespread origination of bad loans that the CRA had nothing to do with our current crisis.

But the article has another problem. In search of the ethical subprime-lending industry, he finds three nice companies that had low default rates on their loan portfolios and yet managed behave overall in a manner that he approved of, including lending to high risk borrowers. Maybe there was a better business model that all lenders could have followed, and he's found 3 firms that were doing it.

My problem with this analysis is that the three firms are small. Yes, even a couple billion in loans is small. The average mortgage size nationally was $191,917, so call that $200k. A firm with $2 billion in mortgages is just 10,000 mortgages and not all were issued in the boom years, many of the older ones were made when real estate prices were more reasonable and so the older and more established who borrowed from them are now more well established and there homes haven't lost as much relative to the loan value.

Default rates are ratios. The numerator is the value of the defaults and the denominator is the value of the total loans. Ratios behave oddly when there is great variation in the size of the entities for which we are calculating ratio. For the sake of argument, let's say that these firms don't have a superior business model. They all have the same probability of a lender defaulting, and call that probability 2% on any loan, although, among the high risk lenders the the delinquency rate has been about 7%. The fewer loans that a lender makes, the higher the probability of seeing the 2% delinquency rate because of the central limit theorem. As the number of loans increases, the standard deviation of that sample mean shrinks to zero around that mean of 7%. The analog in coins is as follows. When you flip a fair coin 20 times, the probability of getting 1/4 or fewer heads is close to 2%. Scale by to 200 flips and the probability is 4.19651E-13 of getting 50 or fewer heads. So if we had two large classrooms of kids recording the number of coin flipping successes, the first from 20 flips and the second from 200 flips, we'd expect to see a couple with 5 or fewer in the first room and non in the second getting fewer than 50.

The take away here is that when consuming ratio statistics, watch out for unequal (what we call unbalanced) samples. The likelihood of an event a fixed percentage away from the expected value varies greatly based on the size the ratio is sampled from.

This isn't my insight by any means. In Edward Tufte's The Visual Display of Quantitative Information, on pages 17-19 he has maps on cancer rates by US county, and the highest rates are observed in the counties with the smallest populations. My undergraduate professor Greg D. Adams pointed this phenomena out to me in the butterfly ballot situation in Florida in 2000. Yes it was highly unusual that Buchanan got such a high vote share in Miami-Dade county. But when you consider that there are small counties with unusual vote shares because of this ratio phenomena, it was much less unusual (although still odd).

Posted by OneEyedMan at 9:29 AM | Comments (0)

November 20, 2008

What can we infer when behavior fails to respond to incentives?

Duke economics professor Dan Ariely has an interesting Op-Ed (What’s the Value of a Big Bonus?) on how performance is actually harmed in some cases by large performance incentives.

Of course, there are many reasons to be disgusted with executive pay. It feels unfair that so many people make so much money managing our money, and it is often difficult to see how their talent and abilities justify their compensation. We find it particularly offensive when executives receive high bonuses after disastrous performances. But doesn’t the promise of a big bonus push people to work to the best of their ability?

To look at this question, three colleagues and I conducted an experiment. We presented 87 participants with an array of tasks that demanded attention, memory, concentration and creativity. We asked them, for instance, to fit pieces of metal puzzle into a plastic frame, to play a memory game that required them to reproduce a string of numbers and to throw tennis balls at a target. We promised them payment if they performed the tasks exceptionally well. About a third of the subjects were told they’d be given a small bonus, another third were promised a medium-level bonus, and the last third could earn a high bonus.

We did this study in India, where the cost of living is relatively low so that we could pay people amounts that were substantial to them but still within our research budget. The lowest bonus was 50 cents — equivalent to what participants could receive for a day’s work in rural India. The middle-level bonus was $5, or about two weeks’ pay, and the highest bonus was $50, five months’ pay.

What would you expect the results to be? When we posed this question to a group of business students, they said they expected performance to improve with the amount of the reward. But this was not what we found. The people offered medium bonuses performed no better, or worse, than those offered low bonuses. But what was most interesting was that the group offered the biggest bonus did worse than the other two groups across all the tasks.

An interesting result. Certainly that seems at odds with simple models of rational agents responding to increasing rewards of doing similar tasks. However, I see a couple of problems. First, the narrow tasks and lack of selection challenge the external validity. Isn't the real question how people who choose to work in industries with performance based compensation do, not how the average person does? Plus, I wonder how the tasks in question relate to real work. Finally, these tasks all seem to be short duration. Maybe in the sort term bonuses don't do much, even having big bonuses interfere through nervousness to reduce performance. But over the long term they keep the mind focused and allow people to not just work better (intensively) but also for longer (extensively). Therefore total productivity increases.

Posted by OneEyedMan at 7:59 AM | Comments (1)

Terrible Op-Ed on the Electoral College

From today's NY Times:

And, while these reasons for the Electoral College have lost all relevance, its disadvantages loom ever larger. To start, the system excludes many voters from a meaningful role in presidential elections. If you live in New York or Texas, for example, it is generally a foregone conclusion which party will win your state’s electoral votes, so your vote has less meaning — and it can feel especially meaningless if you vote on the losing side. On the other hand, if you live in Florida or Ohio, where the outcome is less clear, your vote has a greatly magnified importance.

Voters in small states are favored because Electoral College votes are based on the number of senators and representatives a state has. Wyoming’s roughly 500,000 people get three electoral votes. California, which has about 70 times Wyoming’s population, gets only 55 electoral votes.

Flunking the Electoral College

I certainly am not the first to make the following observations, but they bear repeating.

By the criterion above, unless an election for president is decided by one vote then any voter has wasted their vote, be that they voted for the winner or the loser. Being decisive is not the primary reason to vote or no one would vote.

But if you care about making people's votes valuable by putting them into decisive situations, the electoral college actually increases the likelihood that your vote changes an election outcome. In a state by state apportionment of electoral votes, you only have to switch your state to get a electoral votes to change. So all you have to do is swing your state to swing the nation. That is suboptimal under some social welfare functions, but does increase the rewards of voting, and therefore turnout and the rewards of voting.

Wyoming gets three electoral votes. If California apportioned their electoral votes the way that Maine or Iowa does, then more than three electoral votes would be in play there. They could get all the attention they want. Working completely within the system of the electoral college you could reduce the amount of focus on rural stats. It is true that close states get more attention, but it is also true that there are large numbers of swing voters there, so they would get more attention under any almost system, including a plurality based national vote.

Posted by OneEyedMan at 7:23 AM | Comments (0)

November 19, 2008

More evidence of the age of miracles

Take a trachea from a corpse. Etch it using detergents and enzymes to strip away the genetic material. Use cells from lung (on the inside) and bone marrow (on the outside) to create an organic stent to unblock a bronchus restriction. The result is a restoration of airway function and no need for immune suppressants.

Grow your own: tissue engineering saves patient's lung

I find that astonishing. Between stuff like this and the artificial limb technology improvements for Iraq war veterans, we seem ever closer to the science fiction type cybernetics.

Posted by OneEyedMan at 11:14 AM | Comments (0)

Setting up Samba is a pain

I managed to get it to work after a bunch of help and reading several websites.

Following these directions allowed me to configure samba itself
How to install Samba Server for files/folders sharing service
(Starting at this section and relevant subsequent sections)

This allowed me to share the directory I wanted
Where did shared folders go?

Posted by OneEyedMan at 11:05 AM | Comments (1)

November 18, 2008

Maluses are double-plus-ungood bonuses

The Times of London is reporting that UBS is going to make "maluses" (negative bonuses) to go with bonuses as part of their performance compensation plan.

Maluses will be awarded for financial losses at group or divisional level, for asset writedowns, for personal misconduct, for breaches of risk rules and for missing performance targets. A worker receiving a malus will forfeit previously awarded cash and/or share bonuses held in ringfenced accounts. Both cash and share bonuses will be held in ringfenced accounts for up to five years. Executives underperforming repeatedly could be given so many malusus that they could end up with a negative balance, UBS said.

The Economist is skeptical:

I'd say that the primary result of such a rule would likely be the quick departure from UBS of anyone able to find work elsewhere, but the Times story quoted above notes that UBS is pulling out the legal stops to see if it can hand "maluses" to employees who have already left the firm.

More financial neologisms

Seems interesting. On the one hand, there isn't much new here. Long term incentive plans have the ability to award low units for low long term performance. That means that much of corporate America already has a pay plan where not only do the stock and bonds you hold do poorly, but where they can reduce the quantity of units in the plan for poor performance. However, the ability to go negative appears to be an innovation. But there shouldn't be much difference for an executive between losing a million dollars as a penalty and losing a million bucks from your stock going down. Yes, people are loss averse, but these are financially sophisticated people and who typically have extensive wealth outside the firm, so I don't know how much of a difference that makes. As such, I doubt this will cause many people to leave UBS and I doubt it will cause much behavioral modification in employees.

However, risk aversion is real. Forcing employees to defer their compensation longer and run the risk of having that compensation clawed back means that they discount that income more compared with cutting them a check at the end of the year. That means we should expect top traders at UBS to actually make more on average, to make up for the fact that their earnings will be more volatile. How's that for an unintended consequence.

I also think this puts people who make P&L for the firm (typically traders) and those who manage them in a position to suffer more. Sales people, middle office, technology, and other areas of the firm don't have as obvious and direct way of screwing up the firm and so I wonder by what criteria this policy would judge them.

Posted by OneEyedMan at 12:59 PM | Comments (0)

Interesting quote

On one crucial point, there must be no confusion: There’s nothing remotely Jewish about the Jewish vote.

As Jewish author Dennis Prager notes, if there was a connection between Judaism and liberalism, those Jews grounded in Torah and most committed to living a Jewish life, would be the most liberal. Democratic presidential candidates would carry Borough Park and Crown Heights in Brooklyn by a landslide every time, while Manhattan’s Upper West Side would be painted red.

THE TRAGIC PREDICTABILITY OF THE JEWISH VOTE

Not a fabulous piece, but I liked the quote.

Posted by OneEyedMan at 12:58 PM | Comments (0)

November 13, 2008

An idea for Obama

Back in 2004 Luigi Zingales made a simple policy suggestion. Pay 10% of whatever fees and legal awards are generated by whistle blowing to the whistle blower. This is an idea that would help encourage rule compliance, increase the amount of information the public had about corporations, and counteract the enormous incentive firm insiders have to remain quiet about misdeeds.

A 1992 survey of 1,500 federal workers who reported misconduct provides a snapshot of
the consequences: Twenty-five percent experienced verbal harassment and intimidation;
20 percent were shunned by co-workers and managers; 18 percent were assigned to less
desirable duties; 11 percent were denied a promotion. A 1998 survey of 448 emergency
physicians is even more bleak: Twenty-three percent of those who complained about an
issue reported having been fired or threatened with termination.

Want to Stop Corporate Fraud? Pay Off Those Whistle-Blowers

I could see why Bush wouldn't like this idea. When anyone could be a turncoat without consequence, it creates an atmosphere of fear among insiders. It might encourage enforcement of regulations laws best left unenforced because they lack a real regulatory purpose but have very real punishments and mitigation costs. But for Obama, with a different sort of attitude towards regulations, this is the exact sort of law he should like. It gives us more bang for out buck on regulatory enforcement. It protects whistle blowers from the dismal financial future of being shunned by future employers. Finally, by providing an award to the first whistle blower (or fist group) it provides an incentive to alert the authorities early, while problems are more manageable.

Posted by OneEyedMan at 5:46 PM | Comments (0)

November 12, 2008

Or maybe not

The other day I got all excited about the Chevy Volt as a car to change the world. Holman Jenkins' article in the WSJ (Obama's Car Puzzle) has made me completely revisit my hopes for what the serial hybrid electric car could archive. The introduction is one of the most scathing sends ups I've ever read.

You have in GM's Volt a perfect car of the Age of Obama -- or at least the Honeymoon of Obama, before the reality principle kicks in.

Even as GM teeters toward bankruptcy and wheedles for billions in public aid, its forthcoming plug-in hybrid continues to absorb a big chunk of the company's product development budget. This is a car that, by GM's own admission, won't make money. It's a car that can't possibly provide a buyer with value commensurate with the resources and labor needed to build it. It's a car that will be unsalable without multiple handouts from government.

The first subsidy has already been written into law, with a $7,500 tax handout for every buyer. Another subsidy is in the works, in the form of a mileage rating of 100 mpg -- allowing GM to make and sell that many more low-mileage SUVs under the cockamamie "fleet average" mileage rules.

Even so, the Volt will still lose money for GM, which expects to price the car at up to $40,000.

We're talking about a headache of a car that will have to be recharged for six hours to give 40 miles of gasoline-free driving. What if you park on the street or in a public garage? Tough luck. The Volt also will have a small gas engine onboard to recharge the battery for trips of more than 40 miles. Don't believe press blather that it will get 50 mpg in this mode. Submarines and locomotives have operated on the same principle for a century. If it were so efficient in cars, they'd clog the roads by now. (That GM allows the 50 mpg myth to persist in the press, and even abets it, only testifies to the company's desperation.)

Hardly mentioned is the fact that gasoline goes bad after a few months. If the Volt is used as intended, for daily trips of 40 miles or less, the car's tank will have to be drained periodically and the gas disposed of.

Posted by OneEyedMan at 7:42 PM | Comments (4)

Should you be mad at people who give money to political causes you dislike?

I'm a pretty informed guy. I go out of my way to learn about issues and use that learning to vote well. Let's say that I saw a convincing argument in a TV advertisement that made me prefer a particular position or candidate and voted accordingly. Or if you weren't planning to vote this year, but the commercial raised an important issue for you, and now you are going to you are going to vote on that issue in the manner that the commercial suggests. Not that that's ever happened, but bear with me. Let's further assume that the advertisement's contents are accurate, although perhaps in a presentation that does not paint the alternative in its most favorable light.

Is it fair to say that the person who paid for that advertisement bought my vote? I think not. In fact saying so is insulting. I was convinced. When you are persuaded by an Op-Ed in the NY Times you don't say that they bought your vote, you say that you were convinced, and TV should be no different, even if the content was paid for and partisan. Given that the NY Times loses money and is clearly partisan, that shouldn't be the difference if there is any.

I strongly prefer that voters bear the significant moral responsibility for the positions they take. That's the way we want it, because we want voting to be a serious matter where people endeavor to do what is best. To transfer the majority of that responsibility to the people that advocate from the public is an idea that undermines the premise underlying democracy. To take the opposite position, by believing that most voters are essentially mindless automatons that just do what the richest guy with the biggest printing press says, then to what purpose to is an institution that in some way illuminates the people's will? Why bother having elections at all?

My understanding is that even the very best large campaigns only manage to move outcomes by a few percentage points. The money contributed to them reflects public support of the candidates and positions, it largely does not generate that support.

So next time some state initiative passes that pisses you off, be mad at the millions who votes for it far more than the thousands who chipped in to run the advertising campaign. Likewise for candidates who advocate positions with which you disagree. I didn't want Obama to be our next president, but I hold no special animosity for those that donated to his campaign instead of merely voting for him.

Posted by OneEyedMan at 5:39 PM | Comments (0)

Should this have made my blood boil?

Because it did. I seems that in Utah, the water falling from the sky is attached to water rights, and so you can't catch runoff water and use it as you like.

I guess as a matter of rights, I don't have a problem with selling off the water rights to your land and selling them separately. But there is something ugly and wasteful about the way this is implemented, not to mention capriciously going after offenders with deep pockets. Given the small fraction of Utah covered by buildings, there surely would be little harm to collecting that water instead of allowing it to evaporate and be contaminated as it runs off roofs and onto streets. And if it is only a matter of property rights, why is there a state enforcement bureau getting involved and not the owner of the water rights?

Posted by OneEyedMan at 7:45 AM | Comments (0)

November 10, 2008

I stand by my position that the left is also anti-intellectual

In my post of the same title, I discussed that while the Republicans (or the right) catch most of the flack for it, [b]oth parties are firmly tied to anti-intellectualism.

One of my readers pushed back, articulating for me the position of one of his friends upon hearing about my piece. He said there was a qualitative difference of degree between the two parties. Essentially, the position the Republicans take on evolution is absurd know-nothingism, and that their position on global warming is almost as bad. Finally, on the free trade issues I raised, he said that many on the left view tariffs as a temporary measure, a deviation from from a free market that they know works well normally to allow time for workers in those industries to be retrained and switch to new jobs.They know this isn't efficient but they are willing to suffer that inefficiency in order to reduce the pain of those involved.

Contrary to the claim, the left is the predominate home to those who do not believe that free markets and free trade are generally the most efficient methods of arranging social production. Yes, there are all sorts of moderate Democrats and lefties who say that they generally advocate for trade and markets. Nevertheless, when it comes time to discuss and specific policy consequences of that advocacy, their policy positions seem to inevitably be hostile to the interests of property rights, markets, and trade. Or course as an economist I know all about externalities, market failures, monopoly power, transaction costs, and undefined property rights, but a scientific approach to solving these problems would revolve around addressing these deviations not the bizarre smorgasbord of health care, unionization, subsidized green energy, tariffs, fair trade, minimum wages, detailed regulation, and targeted tax policy that the left puts forward as economic policy. There also is strand of economic ignorance or anti-intellectualism, again more home to the left than the right, that holds that exports are good and imports are bad, and so tariffs are a good policy tool to encourage the former and discourage the latter.

Worse than this marginal miss-allocation, the left is home to most who believe that we would all be richer if countries were self sufficient. The American political party home to those who are least likely to use the lessons of economics and simple accounting in policy making is the Democrats and the friends on the left.

For another example, remember it was a serious Democratic challenger from president that said:

When asked this morning by ABC News' George Stephanopoulos if she could name a single economist who backs her call for a gas tax holiday this summer, HRC said "I'm not going to put my lot in with economists."

Clinton Gas Tax Holiday: Hillary Attacks Economists
And yes, I know McCain proposed something similar, but only one took this hostile attitude to their economists. Unless you count Obama's hostility to NAFTA.

Evolution may be mouthed more on the left than the right, but I think in terms of having an understanding of the idea such that you can bring it to bare on policy, there isn't much of a difference. Much of left is highly skeptical of ability inheritance in the face of significance evidence to the contrary. Evolutionary biology and psychology have taught us a lot about how to design human institutions and what attributes of the human condition are more and less difficult to modify with institutions. Yet much of the left believe that humans are tabula rasa, and if we could only educate people well enough and early enough we could get them to behave as we like. Again, a premise I believe is rejected by modern science. Further, to hold evolution as an intellectual position, don't you have to understand evolution and not just believe it? Most Americans, including our leaders, do not understand evolution. For example, if asked to explain natural and sexual selection, they would be helpless. Or, better yet, see that most view evolution as improvement rather than adaption. Most will say that we are more advanced than simpler creatures rather than just larger or more complex. Really we are just as advanced from that same primordial soup.

As for global warming, I don't know much about the subject, but every time I see a group of scientists say that it is horrible and imminent, I see another skeptic scientist stand up and challenge that. As a member of a discipline that his much better at after the fact analysis than prognostication and similarly dependent on models for inference, color me skeptical about the external validity of climate modeling. I certainly can see that global climate change remediation is a pet project of the left and the seemingly the majority opinion of climate scientists.

But again, you only get credit for holding a scientific opinion here if you hold it for scientific reasons. And if you view pollution as an intrinsic evil, hold American consumption levels as grotesque, and prefer small families and urban living as a manner of ascetics, that puts you in a cognitive frame to want global warming to be true because if jives with your values and encourages remediation that would tax lifestyles you don't like.

I know that many Republicans and right-wingers are guilty of similar failings, but my point is that both parties are guilty of anti-intellectualism. Just as there are many religious voters who believe in creationism found in the Democratic party. Plenty of global warming skeptics operate in the Democratic party. You often find them from rust belt or coal mining states. Ideally, a comparison of the relative power of reason within parties would find an issues under which their ideologically suggests one position and reason the other. Global warming doesn't strike me as that issue. Nor evolution.

It would be an interesting to audit the beliefs among our political leadership in search of positions that were 1) the intellectual one and 2) painful and costly for them to hold. My prediction is that there is no significant difference between the parties.

Posted by OneEyedMan at 8:44 AM | Comments (0)

November 9, 2008

You mean the poor are rational?

The NY Times has a fascinating and fair discussion of payday lending and check cashing to the poor.

The first thing you notice when you walk in the door at Nix is a list of products, services and prices, a bit like a fast-food menu. Some of the prices are quite high, but the charges are neither confusing nor deceptive. “They’re going to charge you $13, is that O.K.?” a cashier — young, Latina, long blond hair, long pink nails — asked as a bulky, middle-aged guy handed over a stack of cash to send via Moneygram.

Even the payday loans are transparent. “Your max is $150, so make it out for $172.50,” the cashier Joseph told a stocky black woman in a baseball cap, standing at the counter with an open checkbook. (Unlike check-cashing customers, payday borrowers are by necessity bank customers — they have to write a postdated check to get a loan.) The woman was paying a lot — $22.50 to borrow $150 for just two weeks. But there were no surprises, no hidden fees.

Compare that with what a lot of banks do. Bank of America took heat earlier this year for more than doubling the interest rate on some credit-card accounts, even if the cardholder pays every bill on time. Banks, meanwhile, have nearly quadrupled their fee income in the last decade, according to the F.D.I.C., while credit-card late charges and over-limit charges have nearly tripled. Fees imposed on customers for temporarily overdrawing their accounts — by accident or on purpose — have been particularly lucrative; banks made $25.3 billion in 2006 on overdraft-related fees, up 48 percent in two years, according to the Center for Responsible Lending. On the Web site of Strunk and Associates, a big seller of overdraft programs, bank and credit-union executives offer glowing testimonials. “Strunk’s program has exceeded expectations,” one writes. “We have generated a 100 percent increase in overdraft revenue.”

Check Cashers, Redeemed

This libertarian is unsurprised that poor people make rational decisions about their financial lives. Like the rest of us, they make financial mistakes, appreciate being respected, and enjoy a transparent fee structure. However, because they are more credit constrained than richer people, they bump into situations more frequently where they pay arcane and high banking fees and feel like they are treated disrespectfully by banking staff. As such, there choices seem reasonable. If we were in their shoes we could very well make the same decisions.

Posted by OneEyedMan at 4:45 PM | Comments (0)

November 8, 2008

Wisdom in its madness

Even though I though the overall piece was a bit of an insane ramble, I thought that the following description of the TARP and capital injection was pretty good:

Magic, anthropologists have always known, is about what people throughout the world do when faced with uncertainty, catastrophic damage, injustice, illness, suffering or harm, while ritual (also magical in its logic) is performed to forestall or prevent these very things. Magic is not about deficient logic, childish mental mistakes, clever priestly illusions or other mistaken technologies. It is the universal feeling that what we see and feel exceeds our knowledge, our understanding and our control. Can we deny that the infusion of 700 billion dollars into our banks is a magical act designed to make our banks rain credit again? Has it worked yet? Are we discarding our belief in banks and credit as a result? Magic is a method for deploying modest technical means to address outsize ethical challenges. Human beings have always done this and always will. We might as well have a grown-up word for this set of practices.

The magic ballot

We don't really understand our financial system well enough to know how to fix and reboot it. But our leaders seem to have a sort of magical belief that if we poor enough money into it we'll all be okay. And yes, I do think we should ask for our money back.

Thanks to Reason for the hat tip:
Pay No Attention to the Man behind the Curtain

Posted by OneEyedMan at 10:00 AM | Comments (0)

Sunspots for Bush

Have you heard that we seem to be having a year without sunspots, and some believe this will make it colder than it otherwise would be?

In 1801, the eminent British astron­­omer reported that when sunspots dotted the sun's surface, grain prices fell. When sunspots waned, prices rose.

He suggested that shifts in grain prices were a stand-in for shifts in climate. Large numbers of sunspots led to a warmer sun, he reasoned. With more warmth reaching Earth, crop yields would increase, depressing grain prices.
...
The vast bulk of research to date, however, points to greenhouse gases – mainly carbon dioxide from burning coal, oil, and natural gas – as the main force behind the current warming trend, most climate scientists say.

Still, over the past decade some researchers say they've found puzzling correlations between changes in the sun's output and weather and climate patterns on Earth. These links appear to rise above the level of misinterpreted data or faulty equipment.

Are sunspots prime suspects in global warming?

Some have gone to claim that solar activity has more to do with global warming than we do.
"One thing is certain, based on past climate history and solar history, if in fact the suns magnetic activity slows, or collapses and we enter a prolonged period of little or no sunspot activity, we’ll see a global cooling trend."
All Quiet Alert

Others don't buy it.

To say that current warming trends are "all cosmic rays and no carbon dioxide is totally ludicrous, in the same way that people say that it's all [human-induced] carbon dioxide and nothing natural. That is equally ludicrous," says Jasper Kirkby, a physicist who is actively exploring potential links between cosmic rays and clouds at CERN, Europe's center for high-energy physics research in Geneva.

If that turns out to be true, Bush would really turn out to be a hero of skepticism. By not signing Kyoto and otherwise spending tons of money on global warming, he'll have saved us all a ton of money and wasted effort. I'm not saying that's likely, just possible, and it will be hard for him to get any credit.

Posted by OneEyedMan at 8:02 AM | Comments (0)

November 7, 2008

I thought this was funny

In Palm Beach, Florida, today Sen. John McCain, R-Ariz., attacked Sen. Barack Obama's pending 30-minute prime-time address as a "gauzy, feel-good commercial," that was "paid for with broken promises."

McCain: Obama Ad "Paid For With Broken Promises"

Posted by OneEyedMan at 6:39 PM | Comments (0)

What about the principal?

How Inflation Swindles the Equity Investor
Warren E. Buffett, FORTUNE May 1977

In the article he suggests that stock is fairly accurately modeled by treating equity as a bond with a 12% interest rate.

For many years, the conventional wisdom insisted that stocks were a hedge against inflation.
...
Must we really view that 12 percent equity coupon as immutable? Is there any law that says the corporate return on equity capital cannot adjust itself upward in response to a permanently higher average rate of inflation?

There is no such law, of course. On the other hand, corporate America cannot increase earnings by desire or decree. To raise that return on equity, corporations would need at least one of the following: (1) an increase in turnover, i.e., in the ratio between sales and total assets employed in the business; (2) cheaper leverage; (3) more leverage; (4) lower income taxes, (5) wider operating margins on sales.

Buffet knows more about accounting than I ever will, but I think he's missed the ramifications of the fact that bonds have a fixed principle, while equity does not. I wonder if he still agrees with this 30 year old analysis.

When there is inflation it means that on average everything is more expensive than it was before. That includes raw materials, inventory, machines, intellectual property, and land the things that firms own as well as labor and skills. We don't know the mix of price rises without more detail, but just looking at the headline inflation number just tells us something about the amount that average prices increased. If you own a diversified pool of investments, you are going to end up owning a fractional share of practically every sort of asset their is (from the prior list and then some). So the assets of the firms you invest in should increase in price, because if they didn't then inflation wouldn't have happened. For the same reason, the price of the things the firms sell must too have gone up on average. I certainly buy his argument that this should have had no influence on the 12% asset return of equity, because both the numerator and the denominator must on average have increased by the rate of inflation. But if we treat the stock as the value of the firm less the value of all the bond, we see that the price of the stock should have increased by at least the rate of inflation.

Why?
Lets say that in the old world the firm had an equal mixture of all the productive assets in the economy and was worth $200. The firm has $100 in equity and $100 bond. Now we are in a new world where inflation has doubled the average price level. It must be that the price of all the firm's assets is $400, because it is an equal weighting of the economy's assets. The bond is not indexed to inflation. It remains worth $100. Note that the bond holder has suffered terribly, they have lost half their bond's value. The equity holder gets the remainder $400-$100= $300. They still get the average 12% return, but they also get an adjustment to their principle that modifies their return even if all the financial variable above are unchanged. In fact, it is only the case that there was no debt (or all debt were somehow indexed to inflation) that inflation would increase equity by the same amount as inflation. In all other circumstances it should be more.

It is true that inflation causes waste and dislocations, and this represents a dead weight loss for the economy. That money is gone forever but at least for the stable levels of inflation we typically see, that's modest, and equities should go up in response to inflation. The fixed principal of the bond holder and the appreciating assets of the firm combine to require this. Sure, some firms can win or lose depending on how their assets and prices respond to inflation, but on average this has to hold. It follows directly from the concept of inflation as a general rise in the price level.

Posted by OneEyedMan at 7:59 AM | Comments (0)

November 6, 2008

Gender equality and tipping

I was reading When Is a Gratuity Gratuitous?, an article on tipping in the WSJ and I had an odd thought. The article points out the low end servers are disproportionately female, and presumably upscale servers are disproportion ally male.

Once again, custom dictates that we tip as a percentage of the bill. That automatically makes it a far more lucrative system for servers who work in upscale restaurants. Servers at coffee shops and diners -- mainly women -- work very hard for relatively little money. You can argue there's a lot more skill involved in being a server in a fancy restaurant than at a coffee shop; the waiter may know quite a bit about wine to serve up that $100 bottle. But it still seems a bit out of whack.

Is this an example of the norm of tipping serving to perpetuate unequal treatment of the sexes?
If you look through Zagats or Chowhound, you'll see that you can dine at restaurants with nearly any combination of service quality and price. Nevertheless, the norm we have in America is to tip a fixed proportion of the bill, forcing the compensation for wait staff to be tied more to price than to quality. In general, more expensive restaurants have better service, so it isn't a horrible rule, but certainly the variation in service quality is extensive within nearly any price level. Therefore, I find it hard to believe that waiters receive their marginal product. If they were, then service would vary more uniformly with price, because restaurants with the most expensive checks would hire the most talented wait staff.

So given that we are recognizing that some people are not being paid their marginal product of labor, we can consider the social norm encouraging that economic disequilibrium. And this norm seems to encourages us to systematically underpay low-end servers and over pay the high-end ones. Which happens to raise male wages relative to female wages. So maybe the women's liberation activists should try to end the practice of gratuities.

Which leads me to a few questions. First of all, is relationship between the proportion of restaurant revenues (including tips) going to wait-staff compensation different in countries that lack the norm of tipping? Second, this disconnection between the marginal product of labor and wages should imply that turnover is higher in high service expensive restaurants than in low service expensive restaurants. Is that true?

Posted by OneEyedMan at 2:38 PM | Comments (0)

November 5, 2008

A big mandate

I wish it had occurred to me to ask partisans what they considered a strong mandate from the election would be. Drat.

Of course, now that the election is over, the libertarians (More on the Lack of a Democratic Tsunami, Some Ruminations on the Exit Polls:), moderates (The Mandate Thing) and right wing folks (No mandate for Obama, no lopsided Congress) are saying the mandate was small. Mean while, many center and leftward are saying others saying it was large victory (Conservatives Who Slammed Obama For Being A Socialist Now Say He Ran A ‘Center-Right’ Campaign», America the Liberal, Mandate). If we had asked the question before, maybe we'd get a more honest assessment. If we did it beforehand, we might see Republicans defining a mandate upward and Democrats downward, but at least we'd have the pleasure of measuring the results against their own assessments.

Under the flap is some data on every contested American presidential vote and the results.
Ratio is (vote share of winner) / (vote share of second place). In 33 of the 52 elections the winner had a higher ratio. In the post WW II period, which we like to study as economists, 60% of the time the winner got a bigger share than Obama.

This is still a flawed assessment. A better one would also look at changes in the number of congressmen and senators from each party and the number of governors but I don't have that data handy. Ideally it would include what sort of ballot initiatives passed, and which didn't. Such a categorization would be difficult, but add a lot of information on the electorate's mood.

Year Winner RunnerUp Ratio Contest Winner Loser
2008 0.52 0.46 1.13 Obama-McCain
2004 0.507 0.483 1.04 Bush-Kerry
2000 0.479 0.484 0.98 Bush-Gore
1996 0.4924 0.4071 1.20 Clinton-Dole
1992 0.43 0.377 1.14 Clinton-Bush
1988 0.534 0.456 1.17 Bush-Dukakis
1984 0.588 0.406 1.44 Reagan-Mondale
1980 0.507 0.41 1.23 Reagan-Carter
1976 0.501 0.48 1.04 Carter-Ford
1972 0.607 0.375 1.61 Nixon-McGovern
1968 0.434 0.427 1.01 Nixon-Humphrey
1964 0.611 0.385 1.58 Johnson-Goldwater
1960 0.497 0.496 1.00 Kennedy-Nixon
1956 0.574 0.42 1.36 Eisenhower-Stevenson
1952 0.552 0.443 1.24 Eisenhower-Stevenson
1948 0.496 0.451 1.09 Truman-Dewey
1944 0.534 0.459 1.16 Roosevelt-Dewey
1940 0.547 0.448 1.22 Roosevelt-Willkie
1936 0.608 0.365 1.66 Roosevelt-Landon
1932 0.574 0.397 1.44 Roosevelt-Hoover
1928 0.582 0.408 1.42 Hoover-Smith
1924 0.54 0.288 1.87 Coolidge-Davis
1920 0.603 0.341 1.76 Harding-Cox
1916 0.492 0.461 1.06 Wilson-Hughes
1912 0.418 0.274 1.52 Wilson-Roosevelt
1908 0.545054903 0.454945097 1.20 Taft-Jennings 7,678,395 6,408,984
1904 0.600145883 0.399854117 1.50 Roosevelt - Parker 7,630,457 5,083,880
1900 0.531542091 0.468457909 1.13 McKinley-Bryan 7,228,864 6,370,932
1896 0.522171522 0.477828478 1.09 McKinley-Bryan 7,112,138 6,508,172
1892 0.517740104 0.482259896 1.07 Cleveland - Harrison 5,556,918 5,176,108
1888 0.49587389 0.50412611 0.98 Cleveland - Harrison 5,443,892 5,534,488
1884 0.501320762 0.498679238 1.01 Cleveland - Baline 4,874,621 4,848,936
1880 0.500106744 0.499893256 1.00 Garfield - Hancock 4,446,158 4,444,260
1876 0.484726699 0.515273301 0.94 Hayes-Tilden 4,034,311 4,288,546
1872 0.559340469 0.440659531 1.27 Grant-Greeley 3,598,235 2,834,761
1868 0.526641472 0.473358528 1.11 Grant-Seymour 3,013,650 2,708,744
1864 0.550305306 0.449694694 1.22 Lincoln-McClellan 2,218,388 1,812,807
1860 0.574813546 0.425186454 1.35 Lincoln-Douglas 1,865,908 1,380,202
1856 0.577668695 0.422331305 1.37 Buchanan-Frémont 1,836,072 1,342,345
1852 0.536829443 0.463170557 1.16 Pierce-Scott 1,607,510 1,386,942
1848 0.526681014 0.473318986 1.11 Taylor-Cass 1,361,393 1,223,460
1844 0.507480589 0.492519411 1.03 Polk-Clay 1,339,494 1,300,004
1840 0.530474444 0.469525556 1.13 Harrison-Van Buren 1,275,390 1,128,854
1836 0.581125969 0.418874031 1.39 Harrison-Van Buren 764,176 550,816
1832 0.591727551 0.408272449 1.45 Jackson-Clay 701,780 484,205
1828 0.561942367 0.438057633 1.28 Jackson-Adams 642,553 500,897
1824 0.427855503 0.572144497 0.75 Jackson-Adams 113,122 151,271
1816 0.687960335 0.312039665 2.20 Monroe-King 76,592 34,740
1812 0.514000117 0.485999883 1.06 Madison-Clinton 140,431 132,781
1808 0.666435139 0.333564861 2.00 Madison-Cotesworth 124,732 62,431
1804 0.727894343 0.272105657 2.68 Jefferson-Cotesworth 104,110 38,919
1800 0.614280194 0.385719806 1.59 Jefferson-Adams 41,330 25,952
1796 0.534492303 0.465507697 1.15 Jefferson-Adams 35,726 31,115

Posted by OneEyedMan at 2:26 PM | Comments (0)

Time for a quick question?

For many reasons in Obama's biography and resume this election was a momentous electoral accomplishment. He will be the first president of color, the second or third professor to become president, the 3rd sitting senator to become president, the 6th president with an immigrant parent, and a rare example of relative outsider defeating the party favorite for the party nomination. I understand the appeal of biography. However, I've never participated in an election where I felt that the differences in policy positions of my first and second choice were small enough to allow biography to trump policy. This election was no exception. Similarly, I recognize that much of the president's power is soft power. Surely, Obama's presidency will buy some good will abroad and inspire many minority Americans. Nevertheless, such benefits can be fickle and fleeting and so I have never found candidates so similar that one candidate's soft power advantage justified choosing them over another more ideologically similar.

Having viewed the contest between Obama and McCain as strictly one of ideology and ideas and not one of biography, resume, or character, I'm curious to see what policies are actually going to be enacted. Obama and the Democratic leadership should have a significant margin with which to pursue their policy agenda. While Democrats haven't managed to achieve a filibuster proof super-majority, the do have a large majority in the house and senate and a decisive popular and electoral vote margin. Of course, every politician finds upon election an economic and political reality that interferes with implementing the agenda they laid out in the campaign. But subject to these new constraints they get to prioritize. When Obama does so, we will learn a lot about what Obama thinks is important. I imagine that when Obama gets a chance to implement an agenda some of his supporters will have voters’ remorse and similarly some McCain voters will believe they voted for the wrong man.

But everyone knows that politicians are imperfect vessels for polices espoused during campaigns. Since you made it clear to me that you preferred Obama (and I apologize if mistaken), I imagine that you recognized this, and still thought you would like what Obama would accomplish and not just what he said. I know that for many Obama's biography and resume were what got them excited about him, but I bet everyone on this list preferred his policies too. I wonder if you will indulge me by telling me what policy positions Obama will implement that you preferred. What are the top five (or three or even one) polices you look forward to under the Obama presidency? I'm hoping you can be specific. So, for example, hoping that Obama follows an aggressive and unilateral foreign policy would be more general than what I am looking for. However, hoping that Obama used American troops to intervene in Darfur even over the objections of Russia and China would be a just the sort of precise policy aspiration I'm looking to learn about. Similarly, fixing health care is vague, but requiring that all Americans be insured is exactly the sort of policy hope I'm looking for.

Posted by OneEyedMan at 10:12 AM | Comments (0)

November 4, 2008

Mazel Tov

Congratulations to President Elect Barack Obama. Best of luck to him. The world has major problems and he'll need all the help he can get. The Republicans are going to hold at least 40 senate seats, so there is hope for some divided government to last us until the next election.

Posted by OneEyedMan at 10:46 PM | Comments (0)

November 3, 2008

What to make of Dawkins?

Dawkins likes to joke that old people go to church because they're "cramming for the final". He never worries that one day in old age he may wake and find himself feeling drawn towards faith, though. If he did, he would put it down to senile dementia. He seems much more worried about spurious reports of a fictitious deathbed conversion being put about by his enemies after he dies. He is probably not joking at all when he says "I want to make damn sure there's a tape recorder running for my last words."

'People say I'm strident'

What sort of man hopes that there is no creator of the universe that reaches out to us at the moment of our death and comforts us? I can understand thinking that such a think is unlikely. Nevertheless, the idea of a powerful supernatural being that loves us and wants to comfort us in our moments of suffering is a powerful wish in a world that often seems painful and inexplicable. To actively hope that it isn't true seems unfathomable, even monstrous.

Posted by OneEyedMan at 9:37 PM | Comments (0)

Another thing to be careful about

At one point you told your children not to post their private information online. A few years later we all took down our email addresses. At one point corporations took their directories offline. We've all become more security conscious as the internet has grown to be a more complex place home to not just nice folks but also much of the same evil as found in the physical world. Now it seems we need to avoid having pictures of our keys appear online! That's because computer scientists at UCSD have devised an automated method of turning digital images of keys into working replicas.

In one demonstration of the new software system, the computer scientists took pictures of common residential house keys with a cell phone camera, fed the image into their software which then produced the information needed to create identical copies. In another example, they used a five inch telephoto lens to capture images from the roof of a campus building and duplicate keys sitting on a café table about 200 feet away.

Keys Can be Copied From Afar, Jacobs School Computer Scientists Show

Abstract The access control provided by a physical lock is based on the assumption that the information content of the corresponding key is private --- that duplication should require either possession of the key or a priori knowledge of how it was cut. However, the ever-increasing capabilities and prevalence of digital imaging technologies present a fundamental challenge to this privacy assumption. Using modest imaging equipment and standard computer vision algorithms, we demonstrate the effectiveness of physical key teleduplication --- extracting a key's complete and precise bitting code at a distance via optical decoding and then cutting precise duplicates. We describe our prototype system, Sneakey, and evaluate its effectiveness, in both laboratory and real-world settings, using the most popular residential key types in the U.S.

The paper.

Inventor website
Reconsidering Physical Key Secrecy: Teleduplication via Optical Decoding

Posted by OneEyedMan at 7:19 AM | Comments (0)