Tyler Cowen

German police arrested a man on Friday suspected of detonating three bombs that targeted the Borussia Dortmund soccer team bus in the hope of sending the club’s shares plummeting and making a profit on an investment, prosecutors said.

In a statement, the federal chief prosecutor said the 28-year old man, a dual German and Russian national identified as Sergei V., had bought options on Borussia Dortmund’s stock before the attack.

The team bus was heading to the club’s stadium for a Champions League match against AS Monaco on April 11 when the explosions went off, wounding Spanish defender Marc Bartra and delaying the match by a day.

Prosecutors last week expressed doubts about the authenticity of three letters left at the site of the attack that suggested that Islamist militants had carried it out.

The prosecutor’s office said the suspect had bought 15,000 put options, or contracts giving him the right to sell Borussia Dortmund’s shares at a pre-determined price, on the day of the attack, using a consumer loan he had signed a week earlier.

Here is the full story at Reuters.

Friday assorted links

by on April 21, 2017 at 11:23 am in Uncategorized | Permalink

That is the topic of my latest Bloomberg column, here is one bit:

One possibility is that a lot of talk about inequality gives the audience the impression that it is inevitable, and thereby renders potential remedies less urgent. Another speculation is that human beings are constantly evaluating the status of others. To the extent analysts reiterate that some group of citizens doesn’t have as much, maybe they’re actually reminding us that those citizens hold a lower social status. Perhaps subconsciously, we then respond by thinking those citizens deserve less, or by downgrading the urgency of their needs.

Another possibility is that talk about economic inequality increases political polarization, which lowers the chance of effective action. Or that criticizing American society may cause us to feel less virtuous, which in turn may cause us to act with less virtue. Perhaps if critics of inequality praised this nation more for what is has done to redress inequality, rather than criticizing it for the gaps, that might cement a self-image of Americans who are capable of tackling this problem, and thus spur interest in additional progress. That mechanism shouldn’t sound so strange to anyone who has tried to raise children.

When I bring up such points in dialogue, I’ve found that a lot of my fellow academicians retreat to the moral platitude that the “good guys” simply need to fight harder against the special interest groups. Maybe so, or maybe that response is just another way of digging in deeper to what so far has been a losing battle. The reality is that income inequality has gone up a great deal since the early 1980s, and we haven’t done so much to reverse the basic trend. The potentially egalitarian effects of  tax increases under the past two Democratic presidents and Obamacare have been outweighed by globalization, which benefits most those individuals who can access global markets, and by increases in the returns to highly skilled labor. The reality is that government expenditures have not become radically more poverty-reducing over the last few decades, although we do send more resources to the elderly.

Do read the whole thing, the various biting comments about other academics are in other parts of the piece.

Two years later, the quota of imported movies permitted into China was raised to 34 from 20 in a deal negotiated between then-Vice President Joe Biden and then-Vice President Xi. The deal all but guaranteed that most big-budget Hollywood features—except those with content deemed objectionable—would be shown in China.

“I prefer to watch Hollywood films because the chance of a domestic film being crappy is much bigger than a Hollywood film,” said Liu Jing, a 25-year-old postgraduate student studying finance policy in Beijing.

Ms. Jing said she became a fan of superhero films from Marvel Studios as a high-school student and now goes to movie theaters at least once a month.

Hollywood executives can rattle off the rules for getting a movie approved by Chinese censors: no sex (too unseemly); no ghosts (too spiritual). Among 10 prohibited plot elements are “disrupts the social order” and “jeopardizes social morality.” Time travel is frowned upon because of its premise that individuals can change history.

U.S. filmmakers sometimes anticipate Chinese censors and alter movies before their release. The Oscar-winning alien-invasion drama “Arrival” was edited to make a Chinese general appear less antagonistic before the film’s debut in China this year.

The superhero hit “Logan” was 14 minutes shorter in China after Chinese censors cut scenes of beheading and impalement.

For “Passengers,” the space adventure starring Chris Pratt and Jennifer Lawrence, a scene showing Mr. Pratt’s bare backside was removed, and a scene of Mr. Pratt chatting in Mandarin with a robot bartender was added.

Here is the full Eric Schwartzel WSJ piece.

From Erik Hembre:

State- and local-income tax rates differ across locations, giving low-tax teams a competitive advantage when bidding for players. I investigate the effect of income tax rates on professional team performance between 1977 and 2014 using data from professional baseball, basketball, football, and hockey in the United States. Regressing income tax rates on winning percentage, I find little evidence of income tax effects prior to 1994, but since then a ten percent increase in income taxes is associated with a three percent decline in winning percentage. A robustness check using within state variation in income taxes affirms this result. The income tax rate effect varies by league, with the largest effect in professional basketball, where teams in states without income tax win 4.5 more games each year relative to high-tax states. The income tax effect is smallest in major league baseball, which could be explained by greater team payroll disparity. Placebo tests using college team performance find no evidence of an income tax effect.

The pointer is from the excellent Kevin Lewis.

Now operators have started scrutinizing complimentary drinks, introducing new technology at bars that track how much someone has gambled—and rewards them accordingly with alcohol. It’s a shift from decades of more-informal interplay between bartenders and gamblers.

Sports books have capitalized on big events, too. During March Madness, a five-person booth at the Harrah’s Las Vegas sports book cost $375 per person, which included five Miller Lite or Coors Light beers a person. In the past, seating at most sports books was free and first-come, first-served, even during big events. Placing a small bet or two could get you free drinks.

“The number-crunchers, the bean-counters have ruined Las Vegas,” said Brad Johnson, who lives in North Carolina and has come to Las Vegas almost every year since the early 1970s. “There’s no value to it; there’s no benefit.”

Casinos on the Strip now derive a smaller share of revenue from gambling. In 1996, more than half of annual casino revenue on the Strip came from gambling. Last year, the share was down to about a third, according to the University of Nevada-Las Vegas. More of the revenue comes from hotels, restaurants and bars.

That is from Chris Kirkham at the WSJ, via Annie Lowrey.

Thursday assorted links

by on April 20, 2017 at 12:20 pm in Uncategorized | Permalink

If you were trying to assess a person’s rationality on the basis of one not-directly-verbal indicator, given his or her behavior over the course of a meal, what would it be?

And if you could ask only one question of a person, to assess his or her rationality, which question would it be?

That’s from me!  As for the first benchmark, you cannot refer to verbal answers to questions you might ask.  You could however nominate “the person hesitated for a long time before answering each question,” or something similar along the behavioral dimension.  That is what I mean by “not-directly-verbal.”

Part of me wishes to suggest “are they carrying a book or not?”, but alas too many semi-rational people don’t do that.  I might consider the process by which they select a menu item and order their food, as a kind of proxy for decision-making more generally.  How well they treat the server would be another variable of interest.

As for the second question, I suggest asking the person who he or she thinks are the rational people.  If the answer is considered and uncertain and complex, upgrade the rationality of that person.  If the answer is dogmatic and refers to holding a particular doctrine…

I considered asking the person if he is himself rational, but that simply will induce lying and false modesty.

Can you think of better tests?

Nigel, a loyal MR reader, asks me:

Is it possible for the US to abuse the dollar’s privileged position, and do you expect a monetary conference to take place in the future that would alter the post-Bretton Woods arrangement in ways less favorable to the US?

A good question, but at current margins I don’t see many directions for movement.  I don’t know whether such a monetary conference will take place, but it is unlikely to be a decisive event for shaping actual outcomes.  I see these as the relevant questions:

1. Will China move to a true “free float”?  And if so, what is the collateral damage along the way?

2. Will some countries leave the eurozone? (and if they do, it is a big deal for them, but probably not a big deal for the global monetary order, unless it is Italy or France)

3. Will more countries attach to the euro (Iceland?) or to the U.S. dollar (additional parts of Latin America?)

4. How many additional countries will institute capital controls?

For the most part, those questions will be decided at the national level, although for potential euro leavers the nature of the proposed EU alternative (another bailout?) will be significant.

The most likely outcome is that more countries will institute partial capital controls, and in that regard we will move closer to some aspects of the initial Bretton Woods 1.0, in which capital controls were an integral feature.  Capital controls may come to keep a euro peg (already happened in Cyprus), to try to keep domestic jobs (ha, but recall Trump and Carrier), to prevent an imminent explosive capital outflow (China), to strengthen or preserve a banking system, to limit wild currency swings, or simply because governments will try all kinds of policies before admitting they have failed.  Other forms of “capital controls” may come through tax reforms and regulatory barriers designed to keep capital at home.

My best guess on China is that capital outflow pressures eventually will force a free float, but only briefly, and then they will return to capital controls in some form.

So my forecast for the future is much more in the way of capital controls, but without the hegemonic/cooperative international architecture that characterized Bretton Woods 1.0.

At the very least we can ask what they say they would do, and it is not entirely encouraging:

Drawing from literature associating superheroes with altruism, this study examined whether ordinary individuals engaged in altruistic or selfish behavior when they were hypothetically given superpowers. Participants were presented with six superpowers—three positive (healing, invulnerability, and flight) and three negative (fear inducement, psychic persuasion, and poison generation). They indicated their desirability for each power, what they would use it for (social benefit, personal gain, social harm), and listed examples of such uses. Quantitative analyses (n = 285) revealed that 94% of participants wished to possess a superpower, and majority indicated using powers for benefitting themselves than for altruistic purposes. Furthermore, while men wanted positive and negative powers more, women were more likely than men to use such powers for personal and social gain. Qualitative analyses of the uses of the powers (n = 524) resulted in 16 themes of altruistic and selfish behavior. Results were analyzed within Pearce and Amato’s model of helping behavior, which was used to classify altruistic behavior, and adapted to classify selfish behavior. In contrast to how superheroes behave, both sets of analyses revealed that participants would hypothetically use superpowers for selfish rather than altruistic purposes. Limitations and suggestions for future research are outlined.

That is from a new paper by Das-Friebel, et.al., and the pointer is from Rolf Degen. Here is an earlier MR post about what an altruistic and incorruptible Superman should do; I found the question wasn’t so easy to answer.

Wednesday assorted links

by on April 19, 2017 at 11:48 am in Uncategorized | Permalink

The complacent lass?

by on April 19, 2017 at 4:28 am in Current Affairs | Permalink

The Easter message confirmed something about Mrs May that continues to escape some of the commentary about her. She is a believer in things. She has her own view of the world and it comes, if not from scripture, then at least from the Anglican cast of mind.

She favours a gentle society over a dynamic one, views the market with the suspicion of a mild social democrat and takes nationhood more seriously than the universalist end of Christianity tends to. None of these beliefs are extreme but they are held with enough strength to drive the government.

That is Janan Ganesh on Teresa May (FT).  Here is a good BBC analysis of some of the game-theoretic considerations, and one that makes May look a bit less complacent (and less of a lass, too).

Here is Rufus Wainwright:

What’s the biggest financial mistake you’ve made?
Signing a publishing deal years ago and asking them to throw in a piano. I thought they were gifting me a piano, when in fact I was just paying for the piano. I was confused by the big leagues—financially, it was a no-man’s land. That happens to most musicians. They get screwed by the industry. It’s a rite of passage. Don’t ask for a piano!

Here is Lee Daniels:

What do you wish you’d known about money before getting into showbiz?
That half of it goes directly to the government. And another 20 percent goes to your representatives, so that’s 70 percent of your income right there. You’d better make some money, honey! You’ve got to put $15 of that $30 away for your retirement.

Is that what you did?
No, of course not! That was the learning experience. It took me 34 years to find that out!

It is striking that none of them refer to “The d word,” namely diversification.  (Priyanka Chopra does mention she bought land in Goa and Mumbai, and that it worked out very well for her.)  Though you also have to wonder if that is not part of the reason why they rose to the top of their respective crafts.  Rather than setting for a sufficiently happy and complacent normal existence, perhaps many kept doubling down on what might have been fundamentally unsound bets.

Here is the full piece from Bloomberg.

From Lyman Stone:

…no matter the adjustment, the US is always one of the lowest-concentration countries, along with China, India, Brazil, Germany, and Japan. We have a very diversified metropolitan ecology, as do those countries.

Third, I’ve highlighted Nordic (purple) and Anglo (orange) countries. Notice that all of the Nordics are much more concentrated than the United States, as are all of the Anglo countries! That one was surprising to me, as I expected large countries like Australia and Canada to be much more comparable to the US. As it is, in terms of population concentration, Poland is more American than Canada.

…my most concentrated countries are indeed Mongolia and Peru. Not kidding here. Both results surprised me given that both countries are fairly large and have big rural populations and, in Peru’s case, my impression was that there were a good number of meaningfully sized cities. But it turns out that, in Peru, Lima metro area alone is almost 30% of the population, and then the other cities are pretty small by comparison; and Lima is, of course, also the capital. In Mongolia, Ulaanbaatar metro area is over half of the nation’s population!

So. If you want to know what country is the most city-state-ish, I would have to answer… it’s Mongolia.

Here is the full essay, noting that Singapore is normalized as a polar option at 100% and thus cannot win the competition.  Also scroll down to the interesting graph on “State and Local Taxes Collected as a Share of GDP”: I am surprised to see Sweden come in at number one.  For all the talk of American federalism, we are just at the OECD average and in fact slightly behind Iceland in these rankings.

West Virginia’s average ACT score and percentage taking the test are almost identical to the national average.

That is from Slocum, here is the comment and link.