Month: January 2009

Markets in everything, book lovers’ edition

I picked up a copy at my local used book store at a discount. It was
only $7,000 so I feel like it was a HUGE bargain. What value! First let
me say that the book does start off a little slow but once you get into
the third chapter, "Silicon Molecules: We Hardly Knew Ye'", you just
can't put this book down. It isn't without it's moments though. The
contrast between antagonist and protagonist is just simply fantastic. I
highly suggest reading this book by flashlight under the covers or in a
homemade fort/tent in your bedroom. A+ and Highly recommended!


I'm a big fan of the NMR genre, but this book was really just phoned
in. I mean, "Chemical Shifts of P-31 Compounds" had me on the edge of
my seat, and "Hyperfine Coupling Constants of the Pnictogens" had a
little something for everybody. I can say this with the conviction that
only comes with love when I say that "Chemical Shifts and Coupling
Constants for Silicon-29" is total crap.


Every page was worth the $18.44 cents it cost me to read! One would
think "for the cost of $8000, one better be able to do rocket science
after reading." Well, I have even better news. After I closed this
book, I realized I had gained the knowledge to spontaneously teleport!
That's right! I don't even need this junky telepod anymore.


I clicked on the "I'd like to read this book on Kindle" link. Can't wait to hear from Springer.


Fascinating, witty, and very subtle in it's criticisms of our modern
times. It's an intensely moving story about how a young Nepalese boy
"Silicon" (age 29) struggles to get by in a city that offers no support
for immigrants as he works a meaningless job to get by. The woman he
loves is a violent criminal, and this book chronicles his struggle to
hold on to his righteousness while simultaneously trying to woo her and
become a couple.

But I won't spoil the ending! Buy this book and you won't be disappointed!

I liked this one-star review:

Do not be fooled! Lechner and Marsmann are mental infants. Every third
year grad student knows that you can't manipulate subvolume III/35A
with nuclei B-11 without first lowering the magnetic replicator to -300
ohms! Not to mention that unless you lower the cylindrical volume 4
quarks you'll freeze 90% of the atoms! And don't get me started on
nucleus Si-29, you can't…


This is a good book. But it's just not worth the price. I suggest you shop around for a used copy!

Africa’s World War

The subtitle is Congo, The Rwandan Genocide, and the Making of a Continental Catastrophe and yes the book truly explains all of these things or at least gives it a noble try.  The author is Gérard Prunier.  I've been stunned by how much I've learned from this book, which is clear without denying the underlying complexities.  I rate it as one of the two excellent books of the year so far, the other being Ted Gioia's book on the history of the blues.

You'll find a very critical review of the book here but I was more impressed by the book than by the review.  I liked this excerpt:

Interviewer: What model of democracy do you see as suitable?

Kabila: I cannot say now, you are asking too much.  Being a head of state is not like being in a restaurant.  I have to have time to think about it.

What is the best food produced en masse?

Ben, a loyal MR reader, asks:

What is the preferable type of food to eat when it is produced en masse? I.e., for what type of food does the quality not diminish significantly when it's produced for a buffet? How much worse is Panda Express from "real" Chinese food vs. Fast Food Mexican from "real" Mexican?

Indian food, produced en masse, sits relatively well, especially the non-meat dishes and the ground meats.  It can sit and stew for a long time.  Chinese food, which usually should be cooked at high heat and served immediately, wares about the worst.  Barbecue can do fine, if it is cooked properly to begin with (not usually the case, however).  At Chipotle the carnitas are pretty good and they are cooked sous vide at a distance and then reheated in the restaurant.  But the top prize goes to Korean vegetable dishes, many of which are fermented and pickled in the first place.  Natasha and I catered our wedding party with Korean vegetables (and a bit more, including some cold meats) with no loss of culinary value.

How financial economics should evolve, from this point onwards

I read this in Temple Grandin's new (and often quite interesting) Animals Make Us Human: Creating the Best Life for Animals:

She [Jane Pruetz] spent four years just habituating the chimpanzees to her presence before she could study them.  Then she spent three summers observing their lives.  She discovered that some of the chimpanzees make spears out of tree branches and use them to spear bush babies inside hollow trees.  Bush babies are small furry animals.  The chimpanzee breaks a branch off the tree, strips off the leaves, and sharpens one end to a point with its teeth.  Then it stabs the spear violently inside the hollowed trunk to kill any bush baby that might be inside.  This discovery is so revolutionary that it has caused a big controversy in the field of primate research, because it is the first documentation of an animal using a tool as a weapon for hunting.

But alas we are told:

Animal research is getting more and more what I call "abstractified."  Instead of people studying the real animals in their natural habitats, researchers use fancy statistical software to construct statistical models, and then they study the models.

Department of I just don’t believe this

Remember the debates on whether/why conservatives are happier than liberals?  Here is a new contribution, from Jamie Napier and John Jost::

In this research, we drew on system-justification theory and the notion that conservative ideology serves a palliative function to explain why conservatives are happier than liberals. Specifically, in three studies using nationally representative data from the United States and nine additional countries, we found that right-wing (vs. left-wing) orientation is indeed associated with greater subjective well-being and that the relation between political orientation and subjective well-being is mediated by the rationalization of inequality. In our third study, we found that increasing economic inequality (as measured by the Gini index) from 1974 to 2004 has exacerbated the happiness gap between liberals and conservatives, apparently because conservatives (more than liberals) possess an ideological buffer against the negative hedonic effects of economic inequality. 

I am not at all committed to the view that conservatives are truly happier than liberals, whether adjusting for relevant demographics or not.  But to think that if liberals are less happy, it is because of they suffer under a greater awareness of economic inequality…that to me is dubious.  We’re simply being told that conservatives are more happy because they enjoy living with evil.  You’ll notice that the paper does not provide a single piece of causal evidence for this claim.  (And do you recall the results that conservatives give more to charity?)  A simple alternative model (but not the only one) is that people have a certain amount of unhappiness in them and they channel their political discontents to fill that unhappiness. 

This paper is drawn from a long list of new papers devoted to attacking markets, linked to a Harvard Law conference, and I thank Daniel Klein for the pointer.

Political Credit Cycles

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in non-election years, or in private bank lending. I show capture is costly: elections affect loan repayment, and election year credit booms do not measurably affect agricultural output.

That's from a new paper (free here) by Shawn Cole in the premier issue of the American Economic Journal: Applied Economics.  Need I explain the relevance?

Looking for the placebo

I was invited to contribute to an Economist symposium on Olivier Blanchard's guest essay.  My piece is here and here is my bottom line:

Most of all, I don't think we are paying enough attention to the
placebo idea. It is well known in the medical literature that sometimes
placebos work as well as the drugs themselves.

Here is the complete set of essays, featuring Shiller, Caballero, Alesina, Thoma, and others.  Here is Bryan Caplan making a similar point about placebos.

Is bank nationalization cheaper?

I'm sure you've reading or hearing reports of the $4 trillion bailout.  I still don't know what this figure is supposed to mean, but it is incorrect to respond with something like the following: "that's really expensive, I guess we do need to nationalize the banks."  As one commentator on CR responded (approximately): "If Uncle Sam bails out the banks, who will bail out Uncle Sam?"

Bank nationalization is (possibly) cheaper when the banks have upside profit potential, which is then captured in whole or in part by the government.  But say that banks are in the red by $2 trillion for ever and all eternity.  Taking over the banks simply means that the government picks up these losses as owner.  Government ownership makes it less likely, not more likely, that bank creditors will "take a haircut."

Nationalization isn't going to solve this kind of cost problem. 

Should bank dividends be banned?

New appointee Jeremy Stein says yes:

Simply put, the government should force the banks to suspend all dividend payments," he told The Wall Street Journal in October.  "It makes absolutely no sense for the government to put money into the banks, only to see a significant fraction of it flow out again as dividends to shareholders, and in many cases, bank executives with large equity stakes."

I haven't seen much discussion of this issue.  Dividends are in general poorly understood by economists, in part because they continue to be paid when they face a significant tax disadvantage.  Surely there are cheaper ways to signal the quality of the firm.  One way of thinking about dividends is as a way to take advantage of bondholders.  Start a new firm, borrow $50, issue $50 in equity, and on day one pay $100 in dividends and by 4 p.m. declare bankruptcy.  Not a bad business model but of course neither the government nor the bondholders will let you.  This same strategy is also a way to take advantage of government subsidies and recapitalizations, even if you can't get the dividend up to one hundred percent.  So yes, I do see a case for following Stein's suggestion, at least for banks receiving government assistance above some threshold measure.

Stein, by the way, also favors this:

He advocated aggressive government audits of banks, aimed at separating
solvent ones from insolvent ones. Once that was done, insolvent banks
would be forced into closure or sale while solvent ones would be pushed
to raise more private capital. In addition to dealing with the bad bank
problem, putting the plan in place would remove much of the uncertainty
in financial markets that the government’s ad hoc approach to banks
thus far has helped instill.

Stimulus update

The financial crisis has made my life busier and that means more to blog as well.  Here is the latest:

Sen. Charles Schumer,
a senior member of the Senate Banking Committee, said that if
Washington undertakes an effort to buy up bad assets from struggling
U.S. banks, it could cost taxpayers up to $4 trillion.

I don't know if he means net or gross but I am assuming the latter.  It's still a lot to pull out of capital markets.  And:

Democratic amendments are expected as well. Senate Banking Committee Chairman Christopher Dodd said he might try to insert a 90-day moratorium on home foreclosures, which have been skyrocketing.

Addendum: More info here.

Aldo Crommelynck passes away

Here is an obituary.  He was arguably the very finest of the 20th century print makers at creating textures.  Here is one amazing example of his work; even on the internet the talent is evident.  Here is a Terry Winters print with him.  Here is a simple Braque print done with Crommelynck.  Jasper Johns also did fine work with Crommelynck, whose talents he stood in awe of.  Jim Dine benefited greatly from his collaboration; here is Dine's sculptural tribute to Crommelynck.  Crommelynck printed this Picasso etching, as well as doing many other fine Picasso works.  The talents of print makers are very often underappreciated.

If you are curious as to my (generally positive) views on John Updike, see these previous MR posts.

At first they came for the Irish oatmeal, and no one spoke up…

It is an interesting question whether an administration can be judged by its parting gifts:

In its final days, the Bush administration imposed a 300 percent duty
on Roquefort, in effect closing off the U.S. market. Americans, it
declared, will no longer get to taste the creamy concoction that, in
its authentic, most glorious form, comes with an odor of wet sheep and
veins of blue mold that go perfectly with rye bread and coarse red

Besides, they said, Roquefort is only one of dozens of European luxury
products that were attacked with high tariffs. The list includes, among
other things, French truffles, Irish oatmeal, Italian sparkling water
and "fatty livers of ducks and geese," which apparently is how
Washington trade bureaucrats say foie gras.

Here is the full and sad story.