Month: September 2009

Nobel Prize picks

The WSJ offers up some predictions, although not for economics.

For this year (NB: I've never been right in the past) I am predicting a joint prize for Oliver Williamson and Jean Tirole.  Williamson is by some accounts the most cited living economist, Tirole is European, the pick would not look "political," and yet agency problems have proven to be pretty important as of late.  The selection would look relevant.  I used to pick Fama each year but the time is no longer right for him, whether that is fair or not (I would say not).

My dark horse pick is a joint prize to environmental economists, including William Nordhaus for the concept of "green accounting."

I thank Akshay for the pointer.  What do you all predict?

Krugman’s Simplified History

One of the themes of Paul Krugman’s theya culpa is that the economics profession was so entranced by efficient markets theory that “Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse.” Alan Greenspan comes in for particular criticism:

Finance theorists continued to believe that their models were essentially right, and so did many people making real-world decisions. Not least among these was Alan Greenspan, who was then the Fed chairman and a long-time supporter of financial deregulation whose rejection of calls to rein in subprime lending or address the ever-inflating housing bubble rested in large part on the belief that modern financial economics had everything under control..[and]… a general belief that bubbles just don’t happen.

It’s a good story–not the least because there is some truth to it–but there are also many omissions which cast doubt on the thesis.  Hardly anyone wants to recall today, for example, that it was Alan Greenspan who popularized the term “irrational exuberance,” in a speech in December of 1996.  At the time, Greenspan’s remarks were covered around the world and they created a sell off in stocks.  In a NYTimes article titled Irrational Exuberance, Louis Uchitelle wrote:

That sort of optimism cannot last; stocks that are too highly priced will inevitably fall, perhaps over a long period, as they did in the mid-1970’s. Mr. Greenspan, who is 71, lived through that painful downturn as a top economic adviser in the Ford Administration.

This time, a falling stock market might have a broader impact. Many more Americans own stocks today than in the past, and a downturn could cut deeply into their sense of well-being. The result could be a severe cutback in spending, hurting the economy. For that reason, the stock market has become increasingly important in the deliberations of the Federal Reserve over interest rates — whether to raise them to slow the economy or lower them to encourage spending and growth.

Greenspan in Uchitelle’s piece is the one raising questions about market prices.  Furthermore, no economist in Uchitelle’s piece says that prices are always correct or that markets are perfectly efficient or that bubbles are impossible–the mainstream view according to Krugman.  Robert Shiller is quoted not Eugene Fama.  And, of course, it was Robert Shiller who would later author two bestsellers warning of bubbles, another discomforting fact for those who argue that dissenting economists were marginalized.

The point is not to defend Greenspan.  Indeed, in some sense Greenspan was as wrong about stocks in 1996 as he was about housing in 2004 but the errors were of opposite signs–this in itself is a telling point and a key element of a more nuanced story about how economists got things wrong and the difficulties of getting things right.

The point is that if we are to understand recent history it’s neither true nor useful to argue that Greenspan and other economists thought the price was always right.

In praise of Annandale

It's one of the smaller NoVa communities and it has a coherent downtown.  For me it has a useful frame shop, tennis club, dentist, a Western Union branch, Giant (easy in and out), and it has one of the best public libraries around, all within walking distance on a single strip and one side road.  Natasha gets her massage there.  There are plenty of small shops, ethnic and otherwise.  It has the best food of any single locale in the D.C. area, including a Korean porridge shop, Korean barbecue, gloopy, disgusting Korean noodles, Korean fried chicken, a Korean tofu restaurant, a Korean bakery (the best hangout around, period, plus the best bakery around), a Korean restaurant specializing in pumpkin dishes, non-disgusting noodle houses, a Korean crab and fish and chips place (with kimchee too), at least two restaurants with "Korean-Chinese" food, and a bunch of 24-7 Korean restaurants, with varying emphases but with Yechon as having the best late night or early morning crowd.  Many of the other places stay open until 2 or 3 a.m. (you'll find many reviewed here).  The town has over 900 small businesses run by Koreans and catering mostly to Koreans.

On the strip is also the area's best Afghan restaurant, a good Peruvian chicken place, and just off the strip is an excellent Manchurian restaurant, A&J.  There is a decent community of antique shops, including a place with some good Afghan textiles.  South of 236 you can find a colony of contemporary homes, rare in most parts of Fairfax County.  Annandale has the central branch of a 60,000 student community college.  The traffic is bearable for the most part, the rents are reasonable by NoVa standards, and you have easy access to the major arteries of 495 and 395.  The schools are well above the national average.

Exxon/Mobile has a base on the edge of town.  The first (third, according to some sources) toll road in America, ever, ran through Annandale.  Mark Hamill once lived there.  It has a lovely Civil War church and a rustic barn.  Its history dates back to 1685 and it is named after a Scottish village.  Many of the people in Annandale are very physically attractive.

What's not to like?

West Annandale is more of a cultural desert than is East Annandale, though it has some Korean cafes and billiard shops.  All of Annandale is ugly, with a vague hint of unjustified pastel in the central downtown area.  The Into the Wild guy grew up there.  They did fight on the wrong side in the Civil War but that has little relevance to the current town.  The used CD shop has closed up.

The pluses outweight the minuses.  You get all that — and more — for only 50,000 people or so.  Boo to Annandale naysayers.  Hail Annandale.

From the comments:

I was thinking about the interesting contrast between Annandale which is ugly but is very livable and has wonderful services, vs. some small towns abroad I've visited which had a beautiful town square but limited and overpriced services and few really good or interesting restaurants, with everything being very expensive. Undoubtedly, some tourist visiting the latter towns and spending "summer money" in the busy clubs and cafes would feel the latter superior, and might think Annandale a wasteland. But they may not want to live in said quaint town, especially if salaries were below Virginia standard.

Unacceptable thoughts about Quentin Tarantino

Tarantino made his Hong Kong movie, his martial arts movie, and his Blaxpoitation flick but I never expected him to dip into Nazi cinema.  He sure loves hearing those Germans talk — boy are they eloquent — and fascist chattering takes up most of the movie.  There is a veneer of a Jewish revenge plot against the Germans, but most of the movie strikes me as a re-aestheticization of various Nazi ideals, cinematic, linguistic, and otherwise.  I'm not suggesting Tarantino literally favors the rule of Hitler, rather he probably got a kick out of getting away with such a swindle, right under the noses of Hollywood and with commercial success to boot.  The Jewish assassin squad members hardly seem virtuous (in some ways they're portrayed to fit Nazi stereotypes), whereas the German characters light up the screen and show extreme cleverness.  (Hitler by the way is a "crummy Austrian," not up to the more rigorous German ideal.)  The sniper "movie within a movie" — which has Tarantino constructing a Nazi movie for a screening scene — is a stand-in for the broader enterprise.  Throughout one wonders what are the implied references to Israel, such as when the Jewish suicide bombers strap explosives to themselves.  There is homage to Riefenstahl, Pabst, Emil Jannings, Nazi "mountain movies" and other unsavory bits.  I found viewing this movie a disturbing and negative experience.  I've done a lot of work on the history of the state and the arts; if you don't believe me, go away and research Nazi cinema and watch the film again.

I disagree with Steve Sailer on fundamental issues but I thought on this movie he was right; if anything he didn't go far enough.

At first I thought BrĂ¼no would be the most politically incorrect movie of the year, then I thought District 9, but no it is this one and I doubt that claim will be dislodged between now and January 1.


It's now a rather famous anecdote in the life and times of Michael
Jordan that he was cut from the varsity when he was in high school. You
think that's merely a footnote more than 30 years later? You think
Jordan's forgotten the details or is willing to let go? Guess whom
Jordan invited to the Hall of Fame Friday night? Leroy Smith, the kid
who took his spot on the high school team. Jordan said he's still
saying "to the coach who picked Leroy over me: 'You made a mistake,
dude.' "

That is from Michael Wilbon, here is more.

Addendum: Here is another version of the tale.

“Too big to take a pay cut”

Here is my latest column.  It's about how politicization is behind the financial crisis (in part), why we haven't learned very much from the financial crisis, why we are treating the health care sector just as we have been treating the banks, and why Atlas Shrugged is selling so many more copies.


We should stop using political favors as a means of managing an
economic sector. Unfortunately, though, recent experience with health care reform
shows we are moving in the opposite direction and not heeding the basic
lessons of the financial crisis. Finance and health care are two
separate issues, of course, but in both cases we’re making the common
mistake of digging in durable political protections for special
interest groups.

came over the summer when it was reported that the Obama administration
had promised deals to doctors and to pharmaceutical companies under the
condition that they publicly support health care reform. That’s another
example of creating favored beneficiaries through politics.

If these initial deals are falling apart, it is only because reform
met with unexpected resistance. Even after Mr. Obama’s speech Wednesday
night, we’re still at the point where the medical sector is enshrined
as “too big to take a pay cut,” which is not so far removed from the
banking motto of “too big to fail.” In finance and health care, a
common political dynamic has created similar trends, namely,
out-of-control costs, weak accountability, and the use of immediate
revenue patches to postpone dealing with fundamental problems.

worse, these political deals threaten open discourse. The dealmaking
may be inhibiting some people in health care from speaking out in
opposition to the administration’s proposals. Robert Reich, who served
as secretary of labor in the Clinton administration, deserves credit
for complaining about this arrangement, but not enough people are asking where such dealmaking might stop.

The banking sector has been facing similar constraints; if bankers criticize the Treasury
or the Fed, they risk losing their gilded cages and could get a bad
deal when the next bailout comes. When major economic sectors can be
influenced in this way, are we really very far from the nightmare
depicted by Ayn Rand in “Atlas Shrugged”?

The conclusion is this:

In short, we should return both the financial and medical sectors and,
indeed, our entire economy to greater market discipline. We should move
away from the general attitude of “too big to take a pay cut,”
especially when the taxpayer is on the hook for the bill. If such
changes sound daunting, it is a sign of how deep we have dug ourselves
in. We haven’t yet learned from the banking crisis, and we’re still
moving in the wrong direction pretty much across the board.

My Favorite Review of Modern Principles

I have been reading your book and I must say I am most impressed. The layout is clear, the examples good but the writing is great!  It is clear, concise, logical and interesting. I have to say I found it good reading. Congratulations.

Love Mum.

If you are interested in a review less tangled with the bonds of affection, Robert Whaples is teaching his principles of economics class using a pre-pub version of our textbook (micro and macro; fyi, more on micro in a few weeks) and he is is blogging his thoughts as he covers each chapter. Whaples conveys the flavor of our book very well.

The revisionist view of Lehman

This kind of observation is becoming popular:

Almost everyone I’ve ever spoken to in Hank Paulson’s old Treasury
Department agrees that without the immediate panic caused by the Lehman
default, the government would never have agreed to make the loans
needed to save A.I.G., a company it knew very little about. In effect,
the Lehman bankruptcy caused the government to panic, which in turn
caused it to save the firm it really had to save to prevent
catastrophe. In retrospect, if you had to choose one firm to throw
under the bus to save everyone else, you would choose Lehman.

Here is much more, by Joe Nocera.

John Stossel is jumping to Fox Business

John Stossel, the ABC anchor known for his libertarian bent, is moving to the Fox
Business Network to host a weekly prime-time program. He will also make
regular appearances on the Fox News Channel.

…Mr. Stossel will start work in October, and his weekly program,
named “Stossel,” will begin sometime in the fourth quarter. Fox said
“Stossel” would include news segments and conversations about
“libertarian issues in the United States and abroad,” including
free-market economics and civil liberties.

In a post on his ABC
blog, Mr. Stossel said he wanted to “dig into the meaning of the words
‘liberty’ and ‘limited government’ ” on the program.

“ABC enabled me to do some of that, but Fox offers me more air time and a new challenge,” he added.

The story is here.  I thank Yana for the pointer.

Department of Duh

Justin, a loyal MR reader, writes to me:

new story
. Near the end it mentions citizen's group that wants to
remove cameras from a highway because, in their words, "It's nothing
but a speed tax".

I liked the opening paragraph of the piece:

A driver has racked up dozens of speeding tickets in photo-radar zones on Phoenix-area freeways while sporting monkey and
giraffe masks, and is fighting every one by claiming the costumes make
it impossible for authorities to prove he was behind the wheel.

Monkey masks I can see.  But giraffe masks?  That's good enough for a markets in everything.  Who, other than this guy, buys a giraffe mask?  And how is this for governmental wisdom?

…It took Arizona state police months to realize the same driver was involved

And the guy's car?

…has black-and-white checkered racing stickers on its sides and a sticker on the windshield that reads "Bucktooth Racin'."

The state now has surveillance photos of him putting on a mask before driving but vonTesmar, the driver, offers up a novel defense:

…[he] said if the Department of Public Safety
does have surveillance photos of him on the road, it proves he's not a
danger to other drivers. If he were, officers would have pulled him
over, he said.

The cameras remain unpopular in Arizona:

Arizonans have used sticky notes, Silly String and even a pickax to sabotage the cameras.

believe the shooting death of speed-enforcement van operator Doug
Georgianni on April 19 on a Phoenix freeway was a result of anger over
the cameras, although authorities haven't made that direct allegation.

Three separate citizens groups are targeting the cameras in initiatives for the 2010 ballot.

As you can see, the local government blogging marathon continues.  Soon I'll offer up some posts on crime.

Tax fiscalization as another cause of suburban sprawl

This hypothesis has its own paper, by Robert Wassner and David Edwards.  Here is the bottom line:

The more land use decisions in a state are driven by fiscal considerations, the more likely may be the degree of sprawl observed in the state’s urban areas. The reason is that outlying local governments in an urban area, with a greater likelihood of possessing undeveloped land, are more likely to use revenue considerations in choices related to land use. As discussed next, the extent that outlying local governments in a state’s urban areas weigh fiscal considerations in land use decisions is expected to depend on the relative reliance by local governments in the state on the different possible forms of local revenue. That is, greater statewide reliance on a form of local revenue that rises and falls with differences in land use choices can result in forms of land use decisions in an urban area that generate greater sprawl. The theoretical connection between sales tax reliance by local governments in a state and greater urban decentralization centers on the ability of local government officials to influence the location of retail activity in an urban area. The amount of overall retail activity in an urban area is determined by factors such as population, income, age distribution, etc. in the region and is unlikely to change due to local government influences. But local land use decisions can shape the distribution of overall retail development in an urban area. Local this land for retail activity if local greater retail generates for them. This surplus comes in the forms of (1) non-residents paying local sales taxes and (2) the lower alternate land uses.

The paper offers a good bit of evidence, though the authors are very careful to claim this is not the only or even the major factor behind sprawl.  Lots of little local governments, of course, also enhance educational competition and the quality of the local schools, which further encourages sprawl.

The myth of “no zoning” in Houston

I found this Michael Lewyn paper very interesting.  Here is his bottom line:

In fact, Houston regulates land use almost as intricately as cities with zoning by mandating suburban-style low densities, ordering businesses to hide their stores behind an asphalt ocean of parking, encouraging segregation of land uses, and forcing pedestrians to cross wide streets and to trudge through long, intersection-free blocks to go from one place to another. These policies have helped to make Houston as sprawling and automobile-dependent as other American cities (if not more so). By reversing such policies, Houston and other municipalities with similar policies can create an America that is both more deregulated and less sprawling.

It's a good paper.