Month: January 2010
The Volcker banking plan?
Obama proposes a new banking plan and everyone is commenting for instance here is Simon Johnson. The plan seems to involve limits on bank size and limits on proprietary trading. Some time ago I decided not to "chase around" all the different banking plans on tap. First, it would make me dizzy, and second it is hard to evaluate the plans in their early forms. But here are some general questions you should ask about any plan:
1. Do its restrictions apply to subsidaries, affiliates, and holding companies in a meaningful way? Can they apply?
2. How do the restrictions apply to off-balance sheet activities, if at all? Keep in mind the various lessons about the construction of synthetic asset positions.
3. How will Congressional oversight committees apply and interpret the plan? This is a big one.
4. Can a financial institution avoid or sidestep the restrictions by changing its status as a commercial bank, legally speaking?
5. If you cap bank size, are the new and smaller banks still "too big to fail" by prevailing standards?
6. How does the proposal treat bank leverage, including implicit forms of leverage through off-balance sheet activities? Does leverage get redistributed elsewhere?
7. How does it affect the political economy of bank lobbying?
I don't pretend to know the answers to these questions for the new Obama plan nor do I expect such answers to be announced on day one.
How is Chinese web use different?
There was a good (not on-line) FT article on this topic yesterday. It suggested the following:
1. Chinese tend to "roam the web like a huge playground," whereas Americans and Europeans use it more as a giant library.
2. Chinese users are more likely to use the web for entertainment and less for business, relative to Europeans.
3. Chinese users are younger and less educated.
4. Chinese users don't like to type ("Typing is a pain in Chinese") and thus they use the mouse much more for navigation.
5. "Most portals have reacted by filling their pages with hundreds of colourful links competing for attention — creating a cluttered and disorderly view to the western eye but making life easier for Chinese users."
The article may come on-line eventually, if so you can find it by googling that last quotation.
Addendum: Daniel Lippman finds the link.
Is this a big uh-oh for neuroeconomics?
Here's a new abstract:
Reward processing is a central component of learning and decision making. Functional magnetic resonance imaging (fMRI) has contributed essentially to our understanding of reward processing in humans. The strength of reward-related brain responses might prove as a valuable marker for, or correlate of, individual preferences or personality traits. An essential prerequisite for this is a sufficient reliability of individual measures of reward-related brain signals. We therefore determined test-retest reliabilities of BOLD responses to reward prediction, reward receipt and reward prediction errors in the ventral striatum and the orbitofrontal cortex in 25 subjects undergoing three different simple reward paradigms (retest interval 7-13 days). Although on a group level the paradigms consistently led to significant activations of the relevant brain areas in two sessions, across subject retest reliabilities were only poor to fair (with intraclass correlation coefficients (ICC) of -.15 to .44). ICCs for motor activations were considerably higher (ICC .32 to .73). Our results reveal the methodological difficulties behind across-subject correlations in fMRI research on reward processing. These results demonstrate the need for studies that address methods to optimize the retest reliability of fMRI.
Hat tip goes to the excellent Vaughn Bell. Here are related criticisms. Here is a related paper, possibly gated for you, "Is There a Method for Neuroeconomics?"
U.S. economists on the Euro, Econ Journal Watch
That's a forum in the latest issue of the new Econ Journal Watch, now on-line. It's entitled "It Can’t Happen, It’s a Bad Idea, It Won’t Last: U.S. Economists on the European monetary union and the euro, 1989-2002" and contributors include C. Fred Bergsten, Charles Goodhart, Steve Hanke, Roland McKinnon, George Selgin, and Roland Vaubal, among others. There are several other notes and comments in the issue as well.
Health care: where to go from here?
Megan McArdle recommends:
Raise the Medicare tax by half a percentage point, and eliminate the tax-deductibiity of health insurance benefits for people making more than $150K a year in household income, $100K for singles. Then make the federal government the insurer of last resort. Any medical expenses more than 15% or 20% of household income, get picked up by Uncle Sam.
Ezra Klein recommends:
Medicare buy-in between 50 and 65. Medicaid expands up to 200 percent of poverty with the federal government funding the whole of the expansion. Revenue comes from a surtax on the wealthy.
And that's it. No cost controls. No delivery-system reforms. Nothing that makes the bill long or complex or unfamiliar.
My earlier thoughts are here.
Competing currencies, sort of
South Korea has decided that virtual currency is the equivalent of real-world money bringing to light some very real ramifications for users not just in Korea but in other countries as well.
The ruling allowing "cyber money" is the first in Korea and was based on the acquittal of two gamers indicted on charges of illegally making money by selling goods earned in the game Lineage.
The full story is here and I thank Daniel Kent for the pointer.
Addendum: Read the fourth comment for a different take on this story.
Assorted links
The diamond oceans of Uranus and Neptune
Neptune and Uranus may have diamond icebergs floating atop liquid diamond seas closer to home. The surprise finding comes from the first detailed measurements of the melting point of diamond, Discovery News reports.
Scientists zapped diamond with a laser at pressures 40 million times greater than the Earth's atmosphere at sea level, and then slowly reduced both temperature and pressure. They eventually found that diamond behaves like water during freezing and melting, and that chunks of diamond will float in the liquid diamond.
The full story is here, with pictures, and I thank Gregory Rehmke for the pointer. Don't think, however, that a commercial mission to these planets could pay for itself — elasticity of demand!
Haiti and the problems with foreign aid
There are lots of recent comments chiding me for not recognizing the well-known problems with foreign aid, when it comes to Haiti. "Why embrace planning?" is one question. One reader wrote:
I have to say that Tyler disappoints me here; all of the discussion of the effectiveness of aid, and what type of aid works, is thrown out the window as soon as a real crisis hits.
I still believe that foreign aid does not raise economic growth rates, on average. But aid can alleviate human misery, such as when a visiting doctor gives vaccines or hands out medicine. (In fact per capita income may fall, as a result, if some "weaklings" are kept alive.)
I also believe that the U.S. military can make a huge difference in the immediate aftermath of catastrophes.
Imagine U.S. troops liberating Buchenwald. Would any commentators say the following? "Don't give him that blanket, sell it to him!" "Hey buddy, get a job!" "Moral hazard: they'll just go get captured again." etc. I don't think so.
That's one way to look at aid for Haiti, noting that perhaps as many as three million Haitians currently stand at risk. Just for a start, someone has to rebuild the port and it's going to be a foreign effort, organized by governments. The market-oriented solution is more immigration, but even that requires a lot of governmental organization and best of all would be if Obama threw his considerable international prestige behind a coordinated effort to take in Haitian refugees.
A related question is how well Haiti can do as an anarchistic society. Haiti is one right now and arguably many parts of the Haitian countryside have been quasi-anarchistic for a long time, ruled by either custom or gangs. So this is an option, and indeed it is the default option, but I don't see it as desirable, any more than it helped Somalia (recant, Peter Leeson!). In essence it would mean rule by gangs, funded by drug-running revenue.
It is striking how much cooperation and heroism we've seen in Haiti. It's evidence that the Haitian social fabric is a lot stronger than many people thought. It also suggests that economic growth models with a one-dimensional "trust" variable are not furthering our understanding very much. I do expect the violence to get worse, as hunger and thirst continue, but so far the Haitian people have a lot to be proud of.
Haitian public opinion
This is from a few years back:
Surprisingly, given the limited outreach of basic services in Haiti and their reputedly poor performance, the large majority of Haitians interviewed expressed confidence in schools, health services, and the police (see Table in Appendix G). All of these are given an “approval rating” of more than 60 percent by the rural population, and somewhat less in the cities. The schools rank highest with a 95 percent approval, which is far higher than school enrollment rates. Rather than an evaluation of performance, the statistics are best viewed as an expression of people’s expectations of the various institutions. Thus political institutions- including parliament, the popular organizations, and the political parties-received a very low approval rating in 2001. Again, approval is positively correlated with the distance from those institutions: in rural areas, approval of political institutions is nearly double that in the metropolitan area. Surprisingly, traditional religious institutions, voodoo, and houngans receive the lowest approval rating of any of the institutions surveyed.
I wonder how the houngans would do if you took out the Protestant respondants. And to what extent are the houngans viewed as responsible for the quality of all the other institutions? Or is it again a distance effect, namely that almost everyone knows a houngan?
The source document is here.
Markets in everything: the uncollectible artwork
Felix Salmon reports:
A Tool to Deceive and Slaughter is an artwork by Caleb Larsen, currently for sale on eBay. If it hasn’t sold in the next couple of days – the minimum bid is $2,500 – it will go back on eBay. On the other hand, if it does sell, it will still go back on eBay. That’s what it does, as clearly explained in the legal contract accompanying the work:
Artist has created a work of art titled “A Tool to Deceive and Slaughter (2009)” (“the Artwork”) which consists of a black box that places itself for sale on the auction website “eBay” (the “Auction Venue”) every seven (7) days. The Artwork consists of the combination of the black box or cube, the electronics contained therein, and the concept that such a physical object “sells itself” every week.
Crayola’s Law
Assorted links
1. Who owns Sherlock Holmes? (Hint: it's not in the public domain in the U.S., not until 2023).
2. Can you tell Republicans and Democrats from their faces?
3. How calm is Haiti and why does it matter?
The Haitian police
Haiti has one of the world’s weakest police forces. There are 63 police officers per 100,000 people, less than a quarter of the regional average of 283 per 100,000 and only a third of the average for sub-Saharan African countries. Moreover, a significant number of members of the Haitian National Police (HNP) are alleged to be involved in criminal and violent activities, including direct involvement in the past year’s wave of kidnappings, according to human rights organizations and police officials themselves.
That's pre-earthquake. Here are 118 pp. on other Haitian social and political indicators.
Other ways to help Haiti
1. Repeal tariffs on Haitian sugar and lower remaining restrictions on Haitian garment imports.
2. Give expedited approval, in terms of food safety rules, to the importation of Haitian mangoes.
3. Set up a Term Loan Auction Facility for Haitians, or alternatively apply quantitative easing to the market for Haitian mud cakes. It's worked for every other macro problem. Alternatively, get out the helicopter, I have heard worse ideas. Stabilize Haitian nominal GDP!
4. Find someone from the government to give a radio address.
5. In Port-Au-Prince and environs, define squatter's rights.
6. Invite Haitians to occupy the empty homes in the run-down parts of New Orleans.
7. Set up nearby charter cities which would welcome Haitian migrants.
8. Redefine the mission of Guantanamo to help Haiti.
9. Shift the capital to Cap-Haitean, if only temporarily, and build up Cap-Haitien in the meantime. That may be a better investment than PAP. As it stands, people will flow into Cap until living standards across the cities equalize.
10. Move Citigroup to St. Marc, which is underbanked (hat tip).
11. Offer special Haitian coffees at select shops, to boost employment in a more or less intact sector of the Haitian economy.
12. Continue military and special operations assistance. Reconstruct the port as quickly as possible.
13. Let more Haitians enter the United States and organize a consortium to accept refugees.
Addendum: Here is Whirled Citizen, a very good new blog on Haiti, which will eventually turn into a blog on development in general, Africa too.