Month: September 2011

My quick response on the Fed

by  Tyler Cowen in

I’ve been making my way to Toulouse and haven’t followed all of the details.  Scott Sumner has many good posts on the topic, and I would put it thus: the Fed probably decided to do the best it could within political constraints and a framework of more or less stable prices.  Which won’t do much good at all.  Keep in mind:

1. The median voter hates price inflation.  Don’t blame Bernanke.

2. Today price inflation will accelerate real wage erosion, or at least is perceived so, who wants to take credit for that?

3. Core CPI is already going up at a rate of two percent and 3.8 percent for the broader bundle, at least for the time being.  Voters don’t know or care what is embedded in the TIPS spread, etc.

4. Some of the “inflationists” ignored supply-side factors and bottlenecks and didn’t see this price pressure coming.  That has thrown their entire analysis into doubt, unjustly probably but nonetheless.  In any case it is no longer the simple story where Q goes up first and only later does P rise.

5. If Ron Suskind is to be believed, our President seems not to know the difference between TFP and per hour labor productivity; in his defense a lot of economists don’t quite get that either.

6. The GOPers now send Bernanke epistolary romances.

7. Some people on Twitter were taking about “striking down Old Ben and having him come back stronger,” but a) Obi-Wan plain, flat out died, b) Obi-Wan’s younger prodigy, Luke, was a failure who relied on his dad and wouldn’t at the key moment listen to Old Ben and stay on the Dagobah system to invest in additional human capital (instead he read Caplan on the signaling model), and c) they never even made the final three movies of the planned nine, so we don’t know how it turned out with the unwinding of the fiscal stimulus on the Ewok world.  People, next time get your facts straight!

Every now and then, you ought to conclude that what you see is what you get and that is because of the rules of the game.  When it comes to further monetary stimulus, I’m not sure there’s so much more to say.

Irish recovery from “austerity” update, not exactly the Keynesian story

by  Tyler Cowen in

The economy expanded at a faster rate than expected in the second quarter of the year, putting in its strongest quarterly growth performance since the recession began, according to new data published today.

The seasonally adjusted figures estimated that gross domestic product – the widest measure of economic activity –  rose by 1.6 per cent between the first and second quarters of 2011. Gross national product, which excludes the profits of multinational firms, increased by 1.1 per cent compared with the first quarter of the year.

Domestic demand, which excludes exports and imports, expanded too, growing by 0.8 per cent.

It is the first time since the recession began that GDP, GNP and domestic demand all grew in the same quarter.

And all that in some very bad times for the U.S. and Europe, two main buyers of Irish goods and services.  The link is here, sadly this progress probably will be swept away by the forthcoming European implosion, we will see.

Addendum: Megan McArdle hits the nail on the head.

Did life come to the universe quite rapidly? (speculative)

by  Tyler Cowen in

Hydrogravitional-dynamics (HGD) cosmology of Gibson/Schild 1996 predicts that the primordial H-He4 gas of big bang nucleosynthesis became proto-globular-star-cluster clumps of Earth-mass planets at 300 Kyr. The first stars formed from mergers of these 3000 K gas planets. Chemicals C, N, O, Fe etc. created by stars and supernovae then seeded many of the reducing hydrogen gas planets with oxides to give them hot water oceans with metallic iron-nickel cores. Water oceans at critical temperature 647 K then hosted the first organic chemistry and the first life, distributed to the 1080 planets of the cosmological big bang by comets produced by the new (HGD) planet-merger star formation mechanism. The biological big bang scenario occurs between 2 Myr when liquid oceans condensed and 8 Myr when they froze. HGD cosmology explains, very naturally, the Hoyle/Wickramasinghe concept of cometary panspermia by giving a vast, hot, nourishing, cosmological primordial soup for abiogenesis, and the means for transmitting the resulting life forms and their evolving chemical mechanisms widely throughout the universe. A primordial astrophysical basis is provided for astrobiology by HGD cosmology. Concordance ΛCDMHC
cosmology is rendered obsolete by the observation of complex life on Earth.

That’s quick (two million years after the Big Bang)!  Here is much more (pdf), hat tip goes to Christian Bok on Twitter.

Be Safe, Break the Law

by  Alex Tabarrok in

The 55 mph speed limit was a vain attempt by the Federal government to reduce gasoline consumption; initially passed in the 1974 Emergency Highway Energy Conservation Act the law was relaxed in 1987 and finally repealed in 1995 allowing states to choose their speed limits. Highways and cars are safer today than in the 1970s and on many highways speed limits were increased to 65 mph. Higher speed limits are often safer because what is worse than speed is variable speed, some people driving fast and some driving slow. When the speed limit is set too low you get lots of people who safely break the law and a few law-abiders who make the roads more dangerous.

Unfortunately vestiges of the 55mph limit remain, in part because police like the 55mph limit which lets them write tickets at will whenever they need an increase in revenues. John Carr at the National Motorists blog gives a particularly egregious example from Massachusetts:

The speed limit on Route 3 is 55. The speed limit used to be 60….It was reduced by executive order in 1973 to comply with the national speed limit. When the national speed limit was repealed in 1995 the highway commissioner ordered the low limit retained…

It gets better. Route 3 was completely rebuilt a decade ago. The design speed for the project was 110 km/h (68 mph). The design speed is like a warranty: nothing in the road design requires a driver to go slower than 68 mph, not even on a wet road at night (the design conditions).

The average speed is not far from the design speed. The 85th percentile speed, which is supposed to be used for setting speed limits, is around 75 mph. A little over by my measurement, which found 1% compliance with the speed limit.

Eventually the absurdity of the 55 mph speed limit sunk in and in 2006 MassHighway traffic engineers recommended a speed limit increase. State Police vetoed the change, preferring the 99% violation rate that let them write tickets at will. Police have no legal role in setting speed limits. Somebody in the Romney administration weighed the risk of losing ticket revenue against the risk of being blamed for accidents. Police won.

After engineers lost that fight people began to worry about the high accident rate on Route 3. The state hired a consultant to do a Road Safety Audit. The consultant’s report blamed the low speed limit, among other factors, for the high crash rate. The report explicitly recommended raising the speed limit.

Three years later, state officials have not followed the advice of their engineers, their consultant, or 100,000 drivers per day. State police are still out there running speed traps and helping keep the road as dangerous and profitable as they can.

Hat tip: Radley Balko.

Is basketball scoring a random walk?

by  Tyler Cowen in

Not when there’s a strike on!  Otherwise, maybe so, as Gabel and Redner report (pdf):

We present evidence, based on play-by-play data from all 6087 games from the 2006/07–2009/10 seasons of the National Basketball Association (NBA), that basketball scoring is well described by a weakly-biased continuous-time random walk. The time between successive scoring events follows an exponential distribution, with little memory between different scoring intervals. Using this random-walk picture that is augmented by features idiosyncratic to basketball, we account for a wide variety of statistical properties of scoring, such as the distribution of the score difference between opponents and the fraction of game time that one team is in the lead. By further including the heterogeneity of team strengths, we build a computational model that accounts for essentially all statistical features of game scoring data and season win/loss records of each team.

For the pointer I thank Michelle Dawson.

The future of work

by  Tyler Cowen

“Online education will move from the add-on to the centerpiece,” Cowen told me. “Higher education will move towards a hybrid approach with top faculty teaching online, and motivational coaches working with students on a personal level.” Cowen sees the hybrid model making college education more affordable. He envisions new job opportunities in statistics, search, programming, and logic, “since you need people behind smart machines.” Cowen also envisions job growth in the motivational sector.

A link is here.

Claims about Iberia

by  Tyler Cowen in

In Portugal, non-financial companies (NFCs) have debt that is 16 times their pre-interest profit. An interest rate of little over 6 per cent would wipe that profit out. In Spain the numbers are 12 times and 8 per cent, respectively. So its entire NFC sectors are junk – a designation that kicks in at a ratio of about 10 times. The somewhat less dire Spanish ratio is exactly where Japan was in 1995-96. Japan had no real GDP growth between 1996 and 2002 – an ominous precedent – and finally emerged into growth again after a massive bank-debt write-off in spring 2003.

Here is more.

Assorted links

by  Tyler Cowen

1. When will the world have its first trillionaire?  In real terms I say never, marginal tax rates will rise to capture the rents, one way or another.

2. What’s in Fred Hersch’s iPod?  Very good post, via Jeff.

3. “What is to be done about this cacophony of copulation?”

4. About what is Bryan optimistic and pessimistic?

5. The 1987 Robocop commercials (video).  And the new TLS blog.

China estimate of the day

by  Tyler Cowen in

As a result, the IMF estimates, China’s domestic loans equaled 173% of GDP at the end of June 2011, which the IMF called “well above the levels of credit” for developing countries of similar income level as China.

Here is more.  And in the west, via Alex Kowalski:

In dozens of rural villages in China’s western provinces, one of the first things primary school kids learn is what made their education possible: tobacco.

“On the gates of these schools, you’ll see slogans that say ‘Genius comes from hard work — Tobacco helps you become talented,’” said Xu Guihua, secretary general of the privately funded lobby group Chinese Association on Tobacco Control. The schools are sponsored by local units of China’s government-owned monopoly cigarette maker. “They are pinning their hopes on young people taking up smoking.”

Cognitive style influences belief in God

by  Tyler Cowen

From Shenhav A, Rand DG, Greene JD:

Some have argued that belief in God is intuitive, a natural (by-)product of the human mind given its cognitive structure and social context. If this is true, the extent to which one believes in God may be influenced by one’s more general tendency to rely on intuition versus reflection. Three studies support this hypothesis, linking intuitive cognitive style to belief in God. Study 1 showed that individual differences in cognitive style predict belief in God. Participants completed the Cognitive Reflection Test (CRT; Frederick, 2005), which employs math problems that, although easily solvable, have intuitively compelling incorrect answers. Participants who gave more intuitive answers on the CRT reported stronger belief in God. This effect was not mediated by education level, income, political orientation, or other demographic variables. Study 2 showed that the correlation between CRT scores and belief in God also holds when cognitive ability (IQ) and aspects of personality were controlled. Moreover, both studies demonstrated that intuitive CRT responses predicted the degree to which individuals reported having strengthened their belief in God since childhood, but not their familial religiosity during childhood, suggesting a causal relationship between cognitive style and change in belief over time. Study 3 revealed such a causal relationship over the short term: Experimentally inducing a mindset that favors intuition over reflection increases self-reported belief in God.

The link is here and for the pointer I thank Razib Khan on Twitter.

Guinea pig repo markets in everything the culture that is Swiss

by  Tyler Cowen in

Swiss animal lover Priska Küng runs a kind of matchmaking agency — for lonely guinea pigs that have lost their partners. She lives with around 80 of the furry, squeaky little creatures, in addition to six cats, a number of rabbits, hamsters and mice in the village of Hadlikon, some 30 kilometers from Zürich.

Küng, 41, rents out her guinea pigs, a service that has been in high demand in the Alpine nation ever since animal welfare rules were tightened up a few years ago. Switzerland has forbidden people from keeping lone guinea pigs because the animals are sociable and need each other’s company.

As a result, the sudden death of a guinea pig, shocking enough in itself, can also place the hapless owners outside the law if they only had two of the pets.

Here’s the efficiency point, concerning liquidity premia and carrying costs and inventory cycles:

Without her rent-a-guinea pig service, the owner would have to purchase a new, probably younger guinea pig as a companion to the ageing survivor, whose eventual death would force the purchase of yet another guinea pig, locking the owner into an endless cycle of guinea pig purchases in order to adhere to Swiss law — even though he or she may only ever have wanted one guinea pig in the first place.

As you might expect from the Swiss, it’s done through a repo:

She takes 50 Swiss francs (€41) for a castrated male and 60 francs for a female, “as a deposit,” Küng explains. In effect, she sells the animals but pays back half the purchase price when they are returned

Attention all you hedge fund readers: if these people can arbitrage and convexify their guinea pig market, you’d better not bet against their currency peg.

The full story is here and hat tip goes to the excellent Robert Cottrell.

Greece and Benford’s Law

by  Tyler Cowen

To detect manipulations or fraud in accounting data, auditors have successfully used Benford’s law as part of their fraud detection processes. Benford’s law proposes a distribution for first digits of numbers in naturally occurring data. Government accounting and statistics are similar in nature to financial accounting. In the European Union (EU), there is pressure to comply with the Stability and Growth Pact criteria. Therefore, like firms, governments might try to make their economic situation seem better. In this paper, we use a Benford test to investigate the quality of macroeconomic data relevant to the deficit criteria reported to Eurostat by the EU member states. We find that the data reported by Greece shows the greatest deviation from Benford’s law among all euro states.

The full article is here, hat tip goes to Chris F. Masse.