Month: August 2010
Andrew Wiles and Fermat’s Last Theorem
Here is one of my all time favorite documentaries, the 45 minute Fermat's Last Theorem made by Simon Singh and John Lynch for the BBC in 1996. I've watched it many times and every time I am moved by unforgettable moments.
The plainspoken Goro Shimura talking of his friend Yutaka Taniyama, "he was not a very careful person as a mathematician, he made a lot of mistakes but he made mistakes in a good direction." "I tried to imitate him," he says sadly, "but I found out that it is very difficult to make good mistakes." Shimura continues to be troubled by his friend's suicide in 1958.
And then there is Andrew Wiles, the frail knight who for seven lonely years pursues the proof that has ensorcelled him since childhood. He announces the proof to the world, is featured on the front page of the New York Times and in People Magazine, he has the respect and admiration of his colleagues and then he discovers the proof is wrong. He works another year trying to fix it but every time he patches one area another fault line opens up. Even speaking of it now you can see and hear his utter despair. It is not too much to imagine that he was on the verge of a breakdown. Unforgettable.
Hat tip to Kottke.
Markets in everything, personal services edition
Whom would you hire to perform this function? A man or a woman?
A number of people have been hiring “virtual” assistants in lower-wage countries to do all the tasks in their life that don’t require a personal presence. Such assistants are found starting at a few bucks an hour…
Anyway, last weekend I was talking to an acquaintance about his use of such services. He has his assistant seducing women for him. His assistant, who is female and lives in India, logs onto his account on a popular dating site, browses profiles and (pretending to be him) makes connections with women on the site. She has e-mail conversations and arranges first dates. Then her employer reads the e-mail conversation and goes to the date.
The full story is here and for the pointer I thank the eagle-eyed KW.
Markets in everything
These Bed Stü shoes, sent in by Dmitriy T.M., are meant to appear as if they are covered in oil accumulated while cleaning up the BP oil spill in the gulf.
The photo is here and I thank Pamela for the pointer, and here is Pamela on Twitter. This is called "conspicuous conservation." The funds raised go to help Gulf wildlife.
Assorted links
Some results on Japanese quantitative easing
There is a useful paper by Hiroshi Ugai, which finds mixed results, here is part of the abstract:
This paper surveys the empirical analyses that examine the effects of the Bank of Japan (BOJ)'s quantitative easing policy (QEP), which was implemented for five years from March 2001 through March 2006…
…because of the QEP, the premiums on market funds raised by financial institutions carrying substantial non-performing loans (NPLs) shrank to the extent that they no longer reflected credit rating differentials. This observation implies that the QEP was effective in maintaining financial system stability and an accommodative monetary environment by removing financial institutions' funding uncertainties, and by averting further deterioration of economic and price developments resulting from corporations' uncertainty about future funding.
[yet]…many of the macroeconomic analyses conclude that the QEP's effects in raising aggregate demand and prices were limited. In particular, when verified empirically taking into account the fact that the monetary policy regime changed under the zero bound constraint of interest rates, the effects from increasing the monetary base were not detected or smaller, if anything, than during periods when there was no zero bound constraint. The studies generally show that the QEP had a greater monetary easing effect than that stemming from merely lowering the uncollateralized overnight call rate to zero percent, while the effects in raising aggregate demand and prices nevertheless turned out to be limited…the substantial decline in responsiveness to monetary easing on the part of corporations and financial institutions resulting from their deteriorated core capital due to a plunge in asset prices played a major roles.
Profile of Peter Boettke in The Wall Street Journal
Here is one bit:
But the 50-year-old professor of economics at George Mason University in Virginia is emerging as the intellectual standard-bearer for the Austrian school of economics that opposes government intervention in markets and decries federal spending to prop up demand during times of crisis. Mr. Boettke, whose latest research explores people's ability to self-regulate, also is minting a new generation of disciples who are spreading the Austrian approach throughout academia, where it had long been left for dead.
…Mr. Boettke "has done more for Austrian economics, I'd say, than any individual in the last decade," says Bruce Caldwell, an editor of Mr. Hayek's collected works.
And another:
Still, Mr. Boettke isn't too concerned with matters of style. More folksy than formal, his commitment to economics, as his wife Rosemary says, is "always on."
He has a tendency to ramble, interrupt and use salty language. In between the dozen books and over 100 articles he has written, he spends hours debating with students around his backyard barbecue grill.
Often, when Mrs. Boettke needs him to run errands, he makes students pile in the car with him to finish the debate. He also has trouble closing down his inner economist.
The full article is here.
Sentences to ponder
Chilean officials have not yet informed the miners of the months they will need to endure before a rescue shaft can be drilled and a cage lowered to pull them to the surface.
The story is here. At lunch today, one topic was how the Chilean miner experience, when it is over, might revise our understanding of social science. A related question was to estimate the probability that there will be a killing before the time underground is over. How much would that chance go up if one woman were in the group? An equal number of women?
Is it unethical for us to "watch" them, talk about them, or speculate about them? If doctors tell terminally ill patients the nature of their condition, why are the Chilean authorities waiting to tell the men how long they will have to wait for rescue?
How do they "stall them" when the miners ask when are they getting out?
Addendum: Apparently the miners were just told how long it is likely to be.
Fessing up to previously incorrect beliefs
Brad DeLong offers a list:
In my belief that central banks had the tools, the skill, and the political will to stabilize economies at high levels of employment and low levels of inflation, and thus that fiscal policy and financial institutions policy no longer had any compelling stabilization policy role to play.
In my belief that large, leveraged financial institutions had sufficient caution and sufficient control over their derivatives books that their derivative positions did not pose major systemic risk.
In my belief that the principal threat to the world economy would come from the fact that in a crisis the shaky long-term finances of the U.S. social insurance state might provoke a collapse of confidence in the long-term value of the dollar.
I shared in one and two, though not three. I'm starting to believe in #3 however.
(That said, I would word #1 differently; for instance, I have long believed in automatic stabilizers and still do and I remain more skeptical of "ramp-up" spending than Brad. I would phrase #2 to focus on the balance sheet more generally and not derivatives per se.)
I also take the data on slow median income growth more seriously than I used to. I no longer think those numbers are a mere statistical artifact.
What can you all cite as changed beliefs? Examples like "Person X or Policy X turned out to be even worse than I had thought" do not count.
Addendum: Megan McArdle adds her list, mine could be longer too!
Assorted links
1. China car story of the day.
2. David Brooks on the Germans.
3. Very good post on whether ex post compensation can help much with climate change.
4. Mexico drug gang hiring pretty hitwomen.
5. Bang ye, or "exposing grandfathers."
Markets in Everything: Subliminal Statistical Physics
The Superior Statistical Physics subliminal CD is designed to super charge your brain to learn statistical physics faster and easier than ever imagined. It will help you learn and master statistical physics so that you retain the material longer, understand it better, and enjoy it much more than you normally would. This session can help you pass statistical physics exams easier and with higher scores. All you have to do is continue the same statistical physics classes or text that youre studying now and listen to this CD to accelerate your learning ability.
Just in case you were wondering, "It does not actually teach statistical physics…"
And if you like that you can also subliminally learn paleontology, seismology, parliamentary procedure and, of course, monetary theory–this last makes me think of Scott Sumner whispering silently as Ben Bernanke goes to sleep, "you must increase NGDP, NGDP, NGDP."
Would more planned savings be good? How can we lower perceived risk premia?
One common claim these days can be put in terms of the expectations theory of the term structure: since short-term rates cannot much fall, long-term rates cannot much fall either.
Yet I would not put this argument forward as the best available understanding of the issue. First, the expectations theory of the term structure has a dubious empirical record. Long and short rates change for somewhat mysterious reasons and the long rates do not forecast future short rates very well. Second, there is a distinction between Treasury and corporate rates and the latter are not zero, especially for small businesses.
One possibility is that true corporate real rates are better reflected by the status of letters of credit, standby loan agreements, and the like. One can view borrowing in terms of the value of an option, rather than a single numerical rate. Many businesses no longer feel they have lots of liquidity "on tap" when they might need it from their banks and so they hesitate.
In general, I think of this crisis as having damaged a lot of agency relationships, and as having led to tighter leashes. For instance, if you are a worker of um…"ambiguous" marginal product you may no longer get the benefit of the doubt. The high perceived risk premium in the labor market is preventing a lot of reemployment.
Returning to interest rates, the question is what could call true real rates to fall. The expectations theory of the term structure is not very useful in analyzing this problem. Changes in the perceived risk premium have been an embarassment and a confounding factor for the expectations theory for a long time.
Given that background, should we plan to save more? On the no side, I would not push "more savings" is the magical elixir in lowering real rates, since the major issue is again the perceived risk premium.
(By the way, if we lower real rates through Sumneresque inflation — which I favor — we are altering the spectrum of these agency dealings and injecting more risk into those relationships, possibly in a socially optimal manner; in any case that second-order effect has not seen enough analysis.)
Another anti-savings argument runs like this: if we switch from spending to savings, that requires longer-term production processes and resource reallocations. The new market forecasts of what to produce involve greater risk, namely Keynes's "dark forces of time and ignorance". If that increase in the risk is too stiff, an increase in planned savings could lead to a greater collapse in output, exacerbating both AD and AS problems.
A pro-savings argument runs like this: We're overly dependent on Chinese capital. T-Bill auctions are now being soaked up much more by domestic lenders and that is a good thing for the world state where the Chinese economy implodes.
Another pro-savings argument is about balance sheet repair and about satisfying the preferences of consumers for greater long-term risk protection.
A major pro-savings argument is: If savings are not to go up now (and they have been rising since the onset of the crisis, supposed Keynesian paradoxes aside), then when?
The long-run boundary conditions require Americans to save more at some point and here's a fundamental point about macro. I believe we are in a situation where the short-run and long-term boundary conditions are interacting. People want to see the longer-term "we have to save more" problem (as well as some other longer-term problems) partially resolved before having much lower shorter-term risk premia and thus a freer flow of capital and private investment and also more ambitious hiring policies.
That makes the ride especially bumpy and the recovery especially slow. Both the long-run and short-run conditions require partial resolution, at the same time, and yet the long- and short-run conditions point in some different directions.
I get nervous when I see Keynesian models emphasizing the short-term only or non-Keynesian approaches emphasizing the long-term only. The more insightful approaches see the short-term and long-term factors interacting in a not always so helpful manner.
Addendum: Krugman has a recent post on savings. I am confused by his insertion of the Fed into the classical loanable funds mechanism, which does not require a central bank. I am also surprised that he associates the paradox of saving with the liquidity trap; Keynes for instance believed in the paradox of saving even though he thought he had never seen a liquidity trap. It could be, however, that I am misreading him on both counts; I found the post difficult to parse.
Central American sour cream stand-off, Markets in everything
Following a perceptive query from Kevin Drum, I bought and sampled sour creams from El Salvador, Honduras, Guatemala, and Mexico, all from my local Mundo Latino supermarket.
The Honduran cream had a taste and consistency somewhat like that of the El Salvadoran cream. Yet the cream from El Salvador was sweeter in a nice way; this came more to the fore when each cream was combined with a tamale. The Guatemalan cream tasted noticably worse than either — flatter, heavier, and less tart/tangy. Its label indicated it had a much higher level of saturated fat and cholesterol.
The Mexican cream was different altogether. One Kevin Drum reader commented:
Mexican crema is yellowish and buttery. Salvadoran is whiter and tangier. American is lighter, firmer and more yogurty.
Of the creams from El Salvador, the best ones are in the small plastic bags, not the plastic containers. If you have the feeling you don't know how to store the thing once you open it, that's the one you should buy.
Those are the supermarket brands. The very best sour cream I've had was in Nicaragua, where the poverty and underdevelopment have kept the food supply chain shorter and fresher, albeit at the cost of higher food prices relative to real wages. San Salvador has much more fast food than does Managua, for instance. But they don't have mass produced Nicaraguan sour cream in my local supermarket, perhaps because relatively few Nicaraguans live in northern Virginia.
Here is comment from a retailer who appreciates the diversity of the creams.
Assorted links
1. Quiz: "fertility drops by a factor of two" — across which North American border?
2. Andrew Gelman thinks I am cynical, yet I stand by my position (which he represents fairly).
3. How well is Estonia recovering?
4. How to fight corruption in Afghanistan, guaranteed to work.
5. Income inequality and the crisis?
6. It's about time I linked to Zombie ants.
The Chilean mine diet
The miners have lost about 10kg each after having survived on half a glass of milk and two mouthfuls of canned tuna every 48 hours until supplies ran out. They have been told to watch their weight so they will be able to squeeze through the narrow escape shaft that is being drilled, and given tape measures to ensure they keep their waists below 90cm.
The article is here; they are also being sent "games"; I wonder which ones? There are many articles (Sp.) about the miners receiving solidarity from Chilean soccer players and institutions. A formerly trapped Australian miner recommends that the trapped Chilean miners keep "a good sense of humor." Right now they are gradually increasing their rations of cereal and hard-boiled eggs.
A very good point from Dan Drezner
Quiggin thinks he’s only writing about the failure of free-market ideas, but he’s actually describing the intellectual life cycle of most ideas in political economy. All intellectual movements start with trenchant ways of understanding the world. As these ideas gain currency, they are used to explain more and more disparate phenomena, until the explanation starts to lose its predictive power. As time passes, the original ideas become obscured by ideology, caricature and ad hoc efforts to explain away emerging anomalies. Finally, enough contradictions build up to crash the paradigm, although current adherents often continue to advance the ideas in zombielike form. Quiggin demonstrates with great clarity how this happened to the Chicago school of economics. How he can think it won’t happen with whatever neo-Keynesian model emerges is truly puzzling.
Whether this applies to the Quiggin book is beside my point (I read an earlier draft of the manuscript but not the final). It is in any case a valuable observation and John Quiggin discusses it here. Drezner's full review, which covers a number of books, is here.