Month: October 2008

Joe the Illegal Plumber

I do not think that either candidate will come out against the mandatory licensing of plumbers, but here is the real scoop on Joe:

Thomas Joseph, the business manager of Local 50 of the United
Association of Plumbers, Steamfitters and Service Mechanics, based in
Toledo, said Thursday that Mr. Wurzelbacher had never held a plumber’s
license, which is required in Toledo and several surrounding
municipalities. He also never completed an apprenticeship and does not
belong to the plumber’s union, which has endorsed Mr. Obama. On
Thursday, he acknowledged that he does plumbing work even though he
does not have a license.

Not only that, he calls himself Joe but his real name is Samuel.  He also owes back taxes.  I wonder if he has ever hired illegal immigrants to help him out.  Yes the Republican Party is ******* and I will not vote for them, but how many Democratic politicians will speak out against the coercive restraints placed on Joe (Samuel)?  That’s a serious question.

Addendum: As is often the case, those few of you who are mad at me simply haven’t
read the post carefully enough.  Just for a start, I’m not at all
criticizing the guy for calling himself Joe rather than Samuel.  I was
making fun of those people who are upset by this. Some of you are
committing other misunderstandings as well.  By the way, here are details on Toledo and licensing.

What do you do to stay sane?

Here’s a project asking people to list five things they do to stay sane.  I’m going to arbitrage and ask only for one thing you do to stay sane.  Please leave your answer in the comments.

I try to listen to beautiful music at least once a day, I don’t check my portfolio even in the best of times, I hug a loved one at least one more time than was expected (with adaptive expectations this is hard to sustain over time but I have my tricks), and also I avoid television advertisements as much as possible.  That’s four, you need only offer one.

The Big Necessity

I can’t decide if that is a very good or a very bad title.  Nonetheless the book itself is excellent.  The author, Rose George, stresses:

To be uninterested in the public toilet is to be uninterested in life.

You also learn that toilets may have saved more lives than any other human invention, public toilets are disappearing in London and many other cities, and that many Kenyans have "helicopter toilets," which start with the use of a plastic bag.  My favorite moment in the book is this:

After five hours of my questions, Mr. Tanaka shyly offers two of his own: "Why don’t English people want high-function toilet?  Why is Japan so unique?"

Definitely recommended and yes it is a serious book too.

Kenneth Arrow gets a sentence

There is obviously much more to the full understanding of the current
financial crisis, but the root is this conflict between the genuine social value
of increased variety and spread of risk-bearing securities and the limits
imposed by the growing difficulty of understanding the underlying risks imposed
by growing complexity.

Here is more.  Arrow, of course, has long been interested in issues of complexity and computability, even though his work is within the usual neoclassical confines.  One way of putting the point is that starting a new market creates a negative externality on other people by eroding their knowledge and understanding of context and thus limiting the general ease of economy-wide transparency.  I’m not sure this is true (we usually think of the extra market as adding knowledge), but it is an interesting way to categorize current problems.

The Playmate Indicator

The Environmental Security Hypothesis says that in tough times men will prefer women who are good at production, generally older, taller, heavier, less curvaceous women with less body fat.  In good times, they will prefer women who are good at reproduction, generally younger, shorter, lighter, more curvaceous women.  Pettijohn and and Jungeberg look at the characteristics of playboy playmates from 1960 to 2000 and find:

Consistent with Environmental Security Hypothesis predictions, when social and economic conditions were difficult, older, heavier, taller Playboy Playmates of the Year with larger waists, smaller eyes, larger waist-to-hip ratios, smaller bust-to-waist ratios, and smaller body mass index values were selected. These results suggest that environmental security may influence perceptions and preferences for women with certain body and facial features.

Econometricians who wish to investigate further may download the data here (yes really).  The 2008 Playmate of the year, Jayde Nicole. does not seem to fit the hypothesis however.

Paul Krugman summarizes Paul Krugman

The new trade theory starts with the observation that while this
[the old trade theory] explains a lot of world trade, it also misses a lot. France and Germany
sell lots of stuff to each other, even though they have similar
climates and resources; so do the United States and Canada. What’s that

The answer is that there are many goods that aren’t like wheat or
bananas, but are instead like wide-bodied jet aircraft. There are only
a few places in which wide-bodied jets are produced, because of the
enormous economies of scale – you only want a couple of factories
worldwide. Those factories have to be somewhere, and those countries
that get the factories export jets, while everyone else imports them.

But who gets the aircraft factories, or the factory producing a
specialized kind of machine tool, or the plant producing a particular
model of car that selected consumers all over the world want? The
answer of new trade theory – and it was a tremendously liberating
answer – is that it doesn’t matter. There are many economies-of-scale
goods; everyone gets some of them; and the details, which may be
largely a story of historical accident, aren’t important.

Here is the whole post, which covers his work on economic geography as well and relates it to his work on trade.  As you might expect, it is a very good exposition of…Paul Krugman.

If you are wondering, one early writer who saw a link between trade, location, urban economics, and increasing returns was the 17th century British pamphleteer Nicholas Barbon; his full name was Nicholas Unless-Jesus-Christ-Had-Died-For-Thee-Thou-Hadst-Been-Damned Barbon.  Barbon was also a precursor of aggregate demand theories of macroeconomics and an influence on Adam Smith.

Facts about occupational licensing

We find that in 2006, 29 percent of the workforce was required to hold
an occupational license from a government agency, which is a higher
percentage than that found in studies that rely on state-level
occupational licensing data.

That is from a new paper by Morris Kleiner and Alan Krueger.  I am happy to see such respected economists turning their attention to a neglected issue.  Here is a non-gated version of the paper.

There is, by the way, an interesting sentence buried near the end of the paper:

In contrast, union members perceive themselves as less competent than other workers.

What are economics blogs good for?

But the Harvard economist [Dani Rodrik] finds the blog – short for Web log – useful because it serves as a reference catalog for his ideas. “I now constantly Google my own blog for ideas that I knew I had at some point,” he says. “Previously, the ideas would have come and gone. The first good thing is that I have them a little more developed, and, secondly, I can actually recover them.”

Here is the whole story, on the rise of the econ blogosphere, which has much from yours truly.  It is in this issue from the Richmond Fed, which has much of interest on economics and the economics profession.  Here is an article on experimental vs. behavioral economics.

Power vs. knowledge

Arnold Kling weighs in:

We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon’s bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.

He refers to Paulson as "the American Mussolini."

The prospects for credit market revitalization

Today you get more Felix Salmon, who nails it:

America’s banks — and the world’s, for that matter — have had de facto
unlimited access to very cheap Fed liquidity for many months now. That
hasn’t induced them to lend. Will this latest recapitalization do the
trick? I’m far from convinced. And what’s more, the demand for loans is drying up fast: do you
really feel like buying a bigger house right now, or taking out a car
loan? Well, businesses are in the same boat. In a recession, their ROI
falls, so they borrow less.

I am, however, a little worried about Felix’s proposal to make banks lend the money.  It’s not that I have a better idea, but I suspect any scheme of compulsion will bring either higher risk or ways to game the scheme or both.  And if bank shareholders and CEOs do not wish those loans to be made, our current system of corporate governance quickly becomes unworkable.

These days there are so many sentences to ponder

If you’re running an insolvent bank, and you get a slug of equity from
Treasury, your shareholders will thank you if you use that equity to
take some very large risks. If they pay off and you make lots of money,
then their shares are really worth something; if they fail and you lose
even more money, well, there was never really any money for them to
begin with anyway.

That’s Felix Salmon: read the whole thing.  Read this too.  Here is Megan McArdle on the pooling equilibrium.  Here is a good article on how Paulson "sold" his plan to the bankers.  And here are yet some more sentences to ponder:

So it in the end, we have what is basically an economic loan, but structured
in a way to game bank capital adequacy requirements. What strange times we live
in when Treasury and the Fed have to engineer a deal to circumvent their own

Indian phone call of the day

For the past three years, [Bhumika] Chaturvedi has been a top collection agent at
her call center, phoning hundreds of Americans a day and politely
asking them to pay up. As the U.S. financial crisis plunges Americans
into debt, her business is one of the fastest-growing sectors in Indian
outsourcing. It is also one of the few sectors of outsourcing in India
that is still hiring aggressively.

By the way:

India handles an estimated $16 billion — or about 5 percent — of delinquent U.S. accounts

The responses are numerous:

"My mortgage payments are just too high, honey. I just can’t make the
payment this month," a weeping woman with a Southern accent recently
told her in response to a call for a $200 credit card payment. "I’m
sure y’all heard about the credit crunch and gas prices. I’m flat

I wonder what the Indian bill collector thinks in these moments.  Has anyone tried saying: "Pay up.  My aunt earns $1300 a year and pays 80 percent interest on her microcredit loans"?  Probably not.  In fact the strategy is the opposite:

Aparup Sengupta, global chief executive officer and managing director
of Aegis, encourages his debt collectors to use a "hospitable Indian
touch," meaning less arm-twisting and more emotional therapy.

"This business is a performing art," Sengupta said. "We are part
therapists because the core of the issue is that every human being
wants to be honorable in life. We don’t just push someone into a bad
situation. We try to create a real solution."

Decorating the office are dozens of yellow smiley faces with the
words, "Happy People. Happy Customers. Happy Investors," along with
other posters that read: "Connect and Collect."

If I owed money I would simply stop answering the phone.