Month: June 2006


1. Top-down cosmology, from Stephen Hawking: "Out of this profusion of beginnings, the vast majority withered away without leaving any real imprint on the Universe we know today. Only a tiny fraction of them blended to make the current cosmos, Hawking and Hertog claim."  Hat tip to Jason Kottke.

2. France yields on iTunes, sort of.

3. A listing of libertarian professors; apparently I still make the grade.

4. Bryan Caplan doubts himself.  Beware the intelligent argument, it may seduce you.

5. "People are going to be having sex with robots within five years."

6. Larry Summers offers investment advice: poor countries should buy fewer U.S. Treasury securities and more equities.

Is art a good investment?

Daniel Gross writes:

…the data shows that art performs well as an asset over time.

He offers plenty of evidence but I am skeptical.  Studies of auction prices are usually biased toward the winners; the losers never go on the block again or are sold quietly at a loss through dealers.  Many pieces turn out to be fakes.  The placement costs in the dealer market can be higher than those at Sotheby’s.  Storage and insurance costs for masterpieces are considerable.  Art is so much fun it can’t earn the same rate of return as equity, otherwise no one would buy stocks.

Why are corporate reports hard to read?

Apparently there’s a simple reason why annual reports are hard to
read: managers, in many cases, are trying to hide something.

The study, Annual Report Readability, Earnings and Stock
, found that the annual reports of underperforming
companies are harder to read than those of companies that are
performing well.

Feng Li, an assistant professor of accounting at the university,
measured annual report "readability" using a sample of more than
55,000 company reporting years. He examined syllables per word and
words per sentence in reports filed with the Securities and
Exchange Commission.

He used two readability measures.

First, the "Fog Index" indicated the number of years of formal
education a reader of average intelligence would need to read the
text once and understand it. Fog = (words per sentence + per cent
of complex words) x 0.4. Complex words were defined as words of
three syllables or more.

Second, the Kincaid Index rated the reports on a US primary
school level.

According to the study, annual reports of companies with lower
earnings were more difficult to read. Similarly, companies that had
volatile earnings were more likely to produce abstruse reports.

Here is the full story.  The bad companies might be obfuscating.  Alternatively, poor quality production might be correlated with poor quality writing.  Thanks to Natasha for the pointer.

Adam’s Fallacy: A Guide to Economic Theology

Adam Smith that is, the author of this new book is Duncan Foley, and the fallacy is the idea of the invisible hand of the marketplace turning greed into the public good.  Imagine a neo-Marxist introduction to the classical economists, written at a popular level, with plenty of Marx plus bits of commentary on Hayek and Veblen.  Overall the book puzzled me; it hovers on the verge of making definite claims but draws back each time.  I’d rather have a good slugfest with clearly staked out positions.  This is an attempt to be the next Robert Heilbroner.  It is not my cup of tea, but some of you will want to buy it here.  Here is my earlier post on what remains valid from the economics of Karl Marx.

Is the demand for money interest-elastic?

Read the ongoing debate over at EconLog.  Bryan Caplan writes:

When I’ve asked economists "Do you hold less money when
interest rates rise?," they usually admit that they don’t. And we’re
trained to think we should! If we asked non-economists the same
question, I bet that most would simply be baffled.

I have much sympathy for this view as long as we are talking about currency.  But it is a trickier question for the broader monetary aggregates.  High measured nominal interest rates alter the real interest rates faced by some market participants.  We don’t all face the same rate of price inflation.  High nominal rates of interest, for this reason, proxy for a high variance of real interest rates (across individuals) and perhaps a more general greater future uncertainty as well.  I would not be surprised if these effects kept down the broader measures of money demand, albeit not the demand for currency through the mechanism of portfolio substitution. 

Let’s not forget the Litterman and Weiss result (Econometrica, 1983) that high nominal interest rates in a VAR model predict bad times ahead.  Who knows why, but they do.  So why can’t they predict money demand as well?

Sometimes a nominal interest rate is not just "a nominal interest rate," to turn Freud’s aphorism on its head.

The Redemption of Love

The full title is The Redemption of Love: Rescuing Marriage And Sexuality from the Economics of a Fallen World. The author is Carrie Miles, psychologist and also wife of my colleague Larry Iannaccone.  Where is my review copy?  In the meantime, here is a summary, it sounds very Protestant.  Someone is going to write a bestseller on this topic, let’s see if it is Carrie.  Here is an earlier book by Carrie and her husband.

Rental markets in everything

Some husbands in western India are renting out their wives to other
men, cashing in on a shortage of single women available for marriage,
according to a news report Monday.

Atta Prajapati, a farm worker who lives in Gujarat state, leases out
his wife Laxmi to a wealthy landowner for $175 US a month, the Times of
India reported, citing unidentified police officials. A farm worker
earns a monthly minimum wage of around $22. Laxmi is expected to live
with the man, look after him and his house, and have sex with him, the
report said.

Here is the story.  Might we call this temporary polygamy?  For the pointer I thank Pablo Halkyard and also SunCraig.

Open Letter – The Signatories

My Open Letter on Immigration has been officially released by the Independent Institute.  It has now been signed by over 500 economists including 5 Nobel Laureates – Thomas Schelling (University of Maryland), Robert
Lucas (University of Chicago), Daniel McFadden (University of
California, Berkeley), Vernon Smith (George Mason University), and
James Heckman (University of Chicago).  Many other prominent economists are also signatories including Eugene Fama, Robert Pindyck, Jeffrey Perloff, Barry Eichengreen, and Steven Salop to name just a few of many.

My personal thanks to everyone who signed and all who helped to make this a big success.  Thanks!