Current Affairs

I can’t say I understand this FT article so well, but I suppose that is the point.  Which are two groups/persons implicated in buying oil from ISIS, or otherwise enabling such trades to take place?

First, Syria.  Or is that “Syria.”

Second, the head of the world chess federation, namely Kirsan Ilyumzhinov: “he is best known for his belief in aliens — he has repeatedly recounted an instance when he was abducted in 1997 by “people in yellow spacesuits”.”  And this:

Mr Ilyumzhinov has a diverse business empire, stretching from sugar to banking, and a network of contacts to match. He regularly meets the Dalai Lama, and he played chess with Libyan president Muammer Gaddafi shortly before his overthrow.

He also has been working with the Syrian central bank.  Here is NYT coverage, here are other sources.  As the old Haitian proverb states, if you’re not confused, you don’t know what’s going on…

My thoughts on this topic are extremely tentative, hypothetical I would say, but I’ve seen so much other bad commentary I thought I would lay out a possible “model” for what is going on.  I offer this with what I consider to be more than just caveats and qualifications, if you wish simply consider this an exercise in constructing some possibilities to think through.  These are “in my opinion the most likely to be true, compared to alternatives,” but still quite low in terms of their absolute chance of being true.  Here goes:

1. I don’t view Islam as essential to the conflict, though it helps explain some of the second-order causes and effects.

2. I think first in terms of Yugoslavia in the 1990s, which also saw the collapse of an untenable-once-placed-under-pressure nation-state, followed by atrocities.  Building a successful nation state seems to be a “win big, fail big” proposition, and both Yugoslavia and Syria failed.  The West also had its failures leading up to and during the two World Wars, though with a happyish ending.

3. Syria also has become a playground for a proxy war between Iran and Saudi Arabia (among others).  Being a playground for a proxy war is a bad place to be, just ask Vietnam, El Salvador, or Nicaragua.  The mix of #2 and #3 accounts for many of the key features of the crisis, plus as conflict proceeds trust frays and human beings are brutalized, worsening the dynamic.

3b. The proxy war heated up due to a rising Iran, a falling Saudi Arabia, and the collapse of creative ambiguity over roles and responsibilities in what were previously buffer zones.

4. It is very hard to model ISIS, ISIL, Daesh, whatever you wish to call it (the most thoughtful approach I have seen is from Shadi Hamid).  Maybe the group is one fraction crazies, one fraction semi-rational power brokers, and one fraction “momentum traders” who wanted higher status for their local terrorizing and never expected it to get this far and simply could not climb off and stop.  It is hard for groups to back out of strategies which have delivered consistent institutional growth.  In any case, I don’t think of the group as having transitive preferences, even in the intra-profile sense, much less the Arrovian inter-profile sense.

5. I view ISIS as “modern,” or even “hypermodern,” rather than a “return to barbarism.”  The medieval Arabic world was more advanced than Europe in most ways, yet still Islamic ideologically.

6. Islam has the important secondary effect of tying Syria and other Middle Eastern conflicts to disaffected (Muslim) groups living in Western Europe, most of all France and Belgium.  Labor market deregulation, people!

7. Islam has another significant effect.  By melding the political and the theological, it renders the conflict more complex and harder to resolve, and that effect is fundamental to the ideological structure of Islam.  It also helps motivate the proxy war sides taken by Iran (Shii’te) and the Saudis (Sunni).  But note this: when the political order is not up for grabs, Islam does not have the same destabilizing effects.  The merging of the legal and the theological therefore may create greater stability in some equilibria (e.g.,much of Ottoman history, the Gulf monarchies), while less stability in others.

8. The Laffer curve, resource extraction path of ISIS will weaken with time, causing a fiscal starvation and thus a further move toward mean-reducing, variance-increasing strategies.

9. This won’t end well.  Now go read a book on the Taiping rebellion.

Your thoughts are welcome, please try to stick with the analytical and avoid posturing.  And what Russia is up to in Syria is another mystery, best considered another time.

My latest piece is on the Syrian refugees and I’m delighted that it’s in Playboy. Next step is to get invited to the Mansion. Here’s the opening:

refugeeEven 4-year-old Syrian orphans are too dangerous to welcome to the United States, says New Jersey Gov. Chris Christie. What sort of man turns away desperate orphans out of fear? Christie’s words and actions are shameful and unbecoming of a great nation—as are those of 25 other governors who said they will work to keep Syrian refugees from moving to their state. Is America no longer the home of the brave?

Since 9/11 we have been told many times that our nation is at war. Our troops understand, and they have fought bravely whenever and wherever they have been called upon. Not once have they backed down or refused the call. Yet, when faced with the risk of orphan refugees, some of our leaders protest that the risk is too great. How can we ask so much of our troops but so little of ourselves?

Do read the whole thing. The link is surprisingly safe for work, at least when I clicked, but use at your own risk.

There is an ongoing controversy at Princeton over whether it should still be called the Woodrow Wilson School of Public Policy.  Wilson was a notorious racist and segregationist, bad even by the standards of his time, plus he was a terrible President to boot.  At Yale there are murmurings about a house named after John Calhoun.

Of course there is a slippery slope.  There are plenty of American institutions named after slaveholders, and for that matter was Amerigo Vespucci such a great guy?  For one thing, he helped Columbus commit genocide by provisioning one of his voyages.

Should George Washington stay on the dollar bill?  If you’ve decided that no university or other positive-sum institution should be named “School of Simon LeGree Satan,” it seems hard to draw a line in a meaningful, non-arbitrary manner.  Most famous people, especially in politics, have some pretty significant blemishes.  Yet we cannot open every can of worms in this regard, or so it seems.

No one seems to mind that the Nazi Party is called…the Nazi Party.  No one says “we can’t call the party that, those Nazis were the people who killed the Jews.  Can’t name anything after them.  Not even their own party.”  In fact calling them Nazis is designed to remind people of what they did, appropriately I would add.

I don’t mind if an institution names itself after a person of mixed moral quality, or allows such a name to persist, provided the institution, in both its framing of the name and its pursuit of its broader mission, is self-conscious about that person’s drawbacks and invests resources toward that self-consciousness beyond the usual rhetorical statements.  That said, others may mind more than I do, so it would be nice if we had a graceful way out of a slightly complicated situation.

I also would not be disturbed if they had kept the city names at Leningrad and Stalingrad.  Lenin and Stalin were evil guys, but it seems appropriate to remind people what a big role they played in the histories of those cities.  (At least for another hundred years, probably not forever.)  Of course if the citizens of the cities don’t want those names, I would not force the matter.

Perhaps in the longer run everything, including the Woodrow Wilson School, will be named after donors.

Why do we name things after people at all?

When I look at countries which are periodically renaming buildings, cities, and institutions, I get a little uncomfortable.  The renaming probably isn’t causing their bad or unstable qualities, but pushing for a world of constant renaming does not strike me as a useful goal.  It is not governed by a desirable feedback process, too much voice and not enough exit and competitive constraints.

There should be some kind of intermediate process where institutions can indicate that they take very seriously the moral failings of their namesakes, and publicize that message.  And then over time they can try to raise enough money so as to have a convenient excuse to rename the Wilson School after a wealthy donor, taking constructive action but not ending up in an endless game of renaming.

A simple concrete step would be to cut the price of the naming rights on the Wilson School by fifty percent.

That also could prove an efficient form of price discrimination, by selling the naming rights to one school for less, yet with a special circumstance so donors do not feel that every naming right now should sell for less.

Kenya Hathaway, a musician and vocal coach for television shows, has never talked with her husband about celebrity nannies, even in light of the unraveling marriages of the Afflecks and Rossdales.

There is more here, via the sharp-eyed Felix Salmon.  The NYT article is interesting throughout, with many good bits.

*The Iran-Iraq War*

by on November 21, 2015 at 3:03 pm in Books, Current Affairs, History | Permalink

Oddly this war isn’t discussed much any more, even though it is arguably the breakthrough event for the ongoing collapse of parts of the Middle East.  And by many metrics it was the worst and most brutal war since WWII, with the Congo clashes in the running too.

I found Pierre Razoux’s The Iran-Iraq War to be a highly readable and useful account, translated from the French, Harvard Belknap Press.  I can’t judge the details of the substance, but I never had the feeling it was overreaching or implausible.  Here is one quick excerpt, of relevance to contemporary events:

For his part, Hafez al-Assad saw Saddam Hussein as an even more ruthless rival now that he supported the Syrian Muslim Brotherhood.  The moment hostilities broke out between Iran and Iraq,Assad decided to provide military assistance to Teheran…Syria also provided Iran with numerous pharmaceutical and food products and allowed it to deploy several hundred Pasdaran in London.  This gave Irana foothold in the land of the Cedar, allowing it access to the Mediterranean and an opportunity tighten its grip on the Lebanese Shiite community.


China prediction of the day

by on November 20, 2015 at 2:58 pm in Current Affairs, Economics | Permalink

While the total amount of debt issued to pay interest is projected by Hua Chuang Securities to increase, it’s taking up a smaller portion of overall new credit. The firm predicts such borrowing will account for 45 percent of new total social financing — which includes bank loans, shadow banking credit and corporate bonds — down from 50 percent last year, according to a Nov. 4 report.

Well…it’s falling.  I guess that’s good news…sort of…

That is from Bloomberg News, via HaidiLun and Christopher Balding.

UnitedHealth may exit the provision of ACA plans:

The nation’s largest health insurance provider, UnitedHealth Group, dealt a blow to the Affordable Care Act on Thursday when it warned it may stop offering coverage to individuals through public exchanges after taking a big hit to the bottom line from disappointing enrollment and the law’s unexpected effects.

The insurer’s withdrawal from the Obamacare exchanges would force some 540,000 Americans to find coverage from another provider.

UnitedHealth (UNH) downgraded its earnings forecast, bemoaning low growth projections for Obamacare enrollment and blaming the federal health care law for giving individuals too much flexibility to change plans.

People who purchase insurance through the public exchanges are typically heavy users of their plans, draining insurers’ profits, analysts say.

In a sharp reversal of its previously optimistic projections, UnitedHealth suspended marketing of its Obamacare exchange plans for 2016 — which the company has already committed to offer — to limit its exposure to additional losses.

“We see no data pointing to improvement” in the financial performance of public-exchange plans, UnitedHealth CEO Stephen Hemsley said on a conference call, though he added that “we remain hopeful” the market will recover.

The move comes amid indications that insurers are absorbing steeper costs than they expected from plans offered to individuals through the public exchanges, which are purchased online.

The average premium for medium-benefit plans offered to 40-year-old non-smokers is set to rise 10.1% in 2016, according to the Kaiser Family Foundation.

…Even though UnitedHealth wasn’t a major player yet on the ACA exchanges, the fact that it priced plans conservatively and entered cautiously made its statements more significant, said Katherine Hempstead, who heads the insurance coverage team at the Robert Wood Johnson Foundation.

“If they can’t make money on the exchanges, it seems it would be hard for anyone,” Hempstead said.

But that is not all the news.  There is also:

In many Obamacare markets, renewal is not an option

Shopping for health insurance is the new seasonal stress for many

Health care law forces business to consider growth’s costs

Many say their high deductibles make their health insurance all but useless

and my own Obamacare not as egalitarian as it appears

All five are from the NYT, the first three being from the last two or three days, the other two from last week.  They are not articles from The Weekly Standard

To put it bluntly, I don’t think the mandate part of the bill is working.  These are mostly problems which decay and get worse, not problems which self-correct.

On UnitedHealth, here is commentary from Megan McArdle.  Here is Bob LaszewskiHere is Vox.

Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. According to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses. This means that the police are now taking more assets than the criminals [emphasis added].

That is from Martin Armstrong, via Noah Smith and Michael Hendrix.  While private sector robberies are underreported by a considerable amount, this is nonetheless a startling contrast.

Can this be true?

A meme going around compares Syrian refugees to jelly beans:

If i gave you a bag of 50000 jellybeans and told you 100 are poisonous, you wouldnt accept them right? Then why would we accept 50000 refugees if some of them are bad?

evil-jelly-bean-300x225I like jelly beans and numbers so I did a back of the envelope calculation. In the US there are about 15,000 murders per year. Most murderers kill only one person. Even serial killers kill only 2.8 people on average. Thus, 15,000 is also approximately the number of murderers in a year.

Let’s say that people live on average for 50 years–that’s a bit low but our figure for the number of murderers was a bit high–this means that in the current population there will be approximately 15000*50=750,000 murderers.

750,000 killers among us struck me as an awful lot when I first calculated the number but there are approximately 166,700 people in prison for murder right now and of the 750,000 some of them are not yet murderers and some of them won’t be caught. Thus, on reflection, 750,000 seems like a scary, yet reasonable estimate.

The current US population is 322 million so there are .0023 murderers per capita or 2.33 murderers per 1000 or 116 murderers per 50,000 people in the United States. Put differently, about 116 American babies out of every 50,000 will grow up to murder someone. (Perhaps the NYMag should rerun its poll?). In contrast, only 100 of the 50000 jelly beans were poisonous.

Thus, if anything, Syrian jelly beans look pretty good compared to American jelly beans.

Addendum: See Alex Nowrasteh for calculations going beyond jelly beans.

Here is the full transcript, video, and podcast of the chat.  Cliff was great from beginning to end.  The first thirty minutes or so were an overview of “momentum” and “value” trading strategies, and to what extent they violate an efficient markets hypothesis.  Much of the rest covered:

…disagreeing with Eugene Fama, Marvel vs. DC, the inscrutability of risk, high frequency trading, the economics of Ayn Rand, bubble logic, and why never to share a gym with Cirque du Soleil.

Here is one excerpt:

COWEN: I think of you as doing a kind of metaphysics of human nature. On one side, there’s behavioral economics. They put people in the lab, one-off situations, untrained people. But here it’s repeated data, it’s over long periods of time, it’s out of sample. There’s real money on the line, and this still seems to work.

When you back out, what’s the actual vision of human nature? What’s the underlying human imperfection that allows it to be the case, that trading on momentum across say a 3 to 12 month time window, sorry, investing on momentum, will work? What’s with us as people? What’s the core human imperfection?

ASNESS: This is going to be embarrassing because we don’t have a problem of no explanation. We have a problem with too many explanations. Of course, we can observe the data. The explanations you have to fight over and argue over. I will give you the two most prominent explanations for the efficacy of momentum.

The first is called underreaction. Simple idea that comes from behavioral psychology, the phenomenon there called anchoring and adjustment. News comes out. Price moves but not all the way. People update their priors but not fully efficiently. Therefore, just observing the price move is not going to move the same amount again but there’s some statistical tendency to continue.

Take a wild guess what our second best, in my opinion, explanation for momentum’s efficacy is? It’s called overreaction. When your two best explanations are over- and underreaction, you have somewhat of an issue, I admit. Overreaction is much more of a positive feedback. It works over time because people in fact do chase prices. So if you do it somewhat systematically and before them you make some money.

One of the hard things you find out in many fields but I found out in empirical finance is those might be the right explanations but they’re not mutually exclusive.

And here is from the overrated/underrated part of the chat:

COWEN: …In science fiction, the author Robert Heinlein.

ASNESS: Early stuff, underrated. Later stuff, overrated.

COWEN: What’s your favorite?

ASNESS: That is a really — Methuselah’s Children.

COWEN: Ah, good pick.

ASNESS: I could have gone with the obvious. I’m a bit of a libertarian. I could have gone with, The Moon Is A Harsh Mistress. It’s his most famously libertarian book.

COWEN: But it doesn’t age so well.

ASNESS: No, no. I like Methuselah’s Children.

This was the funniest segment:

ASNESS: I live in Greenwich, Connecticut. In some parts of the world, if you said, “my daddy runs a hedge fund,” I’d say, “what’s a hedge fund?” In Greenwich, Connecticut, the kids say, “what kind of hedge fund is your daddy running? Is he event arbitrage? Trend following? What does dad do?”

Interesting throughout, as they are known to say…

That is the subject of a new paper by Devin Caughey, Christopher Warshaw, and Yiqing Xu (pdf).  It turns out that before the 1980s it hardly mattered at all which party controlled a state government.  These days it matters much more, but how much?

Even today, for example, electing a Democratic rather than Republican governor should be expected to increase monthly welfare payments by only $1-2 per recipient, and to increase by just half a percentage point the proportion of policies on which a state has the liberal policy option. These eff ects are small relative to policy diff erences across states. They are also small relative to the partisan divergence in legislative voting records. These results thus partially assuage the normative concern that partisan polarization has led to extreme policy swings, degrading the congruence between policy outcomes and citizens’ preferences.

OK, you can all go home and relax now…and just to be clear, these estimates are adjusting for what is already the ideology of the state.

Some other things to note from this paper:

1. The effect of having a Democratic governor seems to be rising.

2. Whatever Democratic governors accomplish, they accomplish in their first two years in office.  Policy effects do not seem to cumulate over time.

3. “The estimated policy effect of a switch in unified party control is one-twentieth the size of the typical difference between states…”

The bottom line?  Worry about the culture people, not about the election.

From an email from the Harvard Kennedy School:

“Identifying Barriers to Muslim Integration in France”
Adida, Claire L.; Laitin, David D.; Valfort, Marie-Anne. Proceedings of National Academy of Sciences (PNAS), 2010, Vol. 107, No. 52, doi: 10.1073/pnas.1015550107.

Abstract: “Is there a Muslim disadvantage in economic integration for second-generation immigrants to Europe? Previous research has failed to isolate the effect that religion may have on an immigrant family’s labor market opportunities because other factors, such as country of origin or race, confound the result. This paper uses a correspondence test in the French labor market to identify and measure this religious effect. The results confirm that in the French labor market, anti-Muslim discrimination exists: a Muslim candidate is 2.5 times less likely to receive a job interview callback than is his or her Christian counterpart. A high-n survey reveals, consistent with expectations from the correspondence test, that second-generation Muslim households in France have lower income compared with matched Christian households. The paper thereby contributes to both substantive debates on the Muslim experience in Europe and methodological debates on how to measure discrimination. Following the National Academy of Sciences’ 2001 recommendations on combining a variety of methodologies and applying them to real-world situations, this research identifies, measures, and infers consequences of discrimination based on religious affiliation, controlling for potentially confounding factors, such as race and country of origin.”

There are other interesting papers at the top link, many of them topical with regard to recent events.  This article, by the way, argues that 9-11 decreases the rate of Muslim assimilation in the United States.

That is the title of an Arnold Kling blog post, it runs like this (I am not adding an extra layer of indentation):

“With this:

Speaking this week at the EmTech conference in Cambridge, Massachusetts, Editas CEO Katrine Bosley said the company hopes to start a clinical trial in 2017 to treat a rare form of blindness using CRISPR, a groundbreaking gene-editing technology.

…The condition Editas is targeting affects only about 600 people in the U.S., says Jean Bennet, director of advanced retinal and ocular therapeutics at the University of Pennsylvania’s medical school.

I don’t think that the FDA is prepared for what is coming.”

Questions that are rarely asked

by on November 16, 2015 at 12:59 pm in Current Affairs, Economics | Permalink

Suppose we were back in the 1990s, and unemployment was 5.0%.  But now suppose the economy was growing slowly due to slow growth in the working age population and slow growth in productivity.  A “Pop Keynesian” says that we can solve this problem with fiscal stimulus.  What do the smart 1990s Keynesians say in reply?

What do they say today?

That is from Scott Sumner.  And in these articles you can read about “Japan” and “labor shortage,” two topics which fit well together these days.