Month: November 2011

Gift Giving among the Spiders

Male nursery-web spider presents gift to female

Male nursery web spiders often woo potential lady-friends with gifts wrapped in silk. Mating may ensue, during which a female unspools the present, expecting to find a tasty treat. But the males can be unscrupulous. Some offerings contain inedible plant seeds or empty insect exoskeletons.

…The empty-handed males were mostly unsuccessful at mating. Whereas those with a gift could get the girl. But if the gift was worthless, the females quickly realized the deceit and pushed the copulating males off.

The Scientific American blog post (based on this paper) makes it sound as if the males are the only ones using deception and dirty tricks. But why do the males silk wrap their gifts? Why not just present the females with food?

Females presented with food will often grab the food and run, leaving the males doubly hungry. A wrapped package is harder to steal (the males have a better grip on the silk) and as the females slowly unwrap their potentially delicious presents the males copulate. Thus, the rituals of silken wrapped gifts conceal intricate conflicts over resources and sex. Only among spiders, of course.

How best to improvise a new professional basketball season

Since a regular NBA season is looking unlikely, what are the remaining options?  I don’t see why the lead players should be so keen to start up in Europe.  What if Comcast (or cash-rich Google?) said to a bunch of top stars something like the following?:

We’ll take care of renting the arenas, you all just show up and play.  We’ll create four teams, heavy with stars and key role players, and let them barnstorm in a multi-round tournament, twenty-four games total, with elimination games toward the end.  Past stars, like Magic Johnson and Charles Barkley (no MJ!), will be the coaches and maybe sometimes the referees as well.  We’re going to pay you all with equity, with the final return depending on how much the TV ads sell for.  There also will be bonuses for the winners, so you don’t all mess around like in the All-Star game.

If more than four teams can be managed and coordinated, so much the better.  At the end of a tournament the world champion is announced, and come September or October you can pit that team against the Dallas Mavericks.

One of the four teams can be non-American-born players only, to get the rest of the world involved.

Couldn’t this be…um…more fun, or as much fun, as the so-called regular season?

What else could we do?

False deleveraging

European banks, vowing to sell distressed assets as regulators tighten capital requirements, are lending money to buyers to get deals done.

Royal Bank of Scotland Group Plc (RBS) may provide as much as 600 million pounds ($939 million) in debt to help Blackstone Group LP acquire part of a 1.4 billion-pound portfolio of commercial mortgages from the bank after the private-equity firm struggled to get outside funding, three people with knowledge of the transaction said. The deal, scheduled to close within weeks, follows Credit Suisse Group AG (CSGN)’s agreement to finance the sale of $2.8 billion of property loans to Apollo Global Management LLC in December, two people with knowledge of the matter said.

“The use of vendor financing to de-lever defeats its own purpose,” said David Thesmar, a professor of finance at HEC Paris, a business school. “The assets may become safer because the buyer injects equity, but the actual gain in core Tier 1 capital ratio for the bank isn’t as great as if it was purely and simply sold. It shows banks’ deleveraging is going to be tougher than planned.”

Here is more, none of it reassuring.  Hat tip to Interfluidity and Dvolatility.

Has the ECB been so passive?

Consider this chart:

There is a longer discussion here.  One way to read this is: “That’s not yet a lot.”  Another is: “Oh my goodness, they’ve already been doing quite a bit.”  Another is: “Lots of buying without a credible signal of future intent isn’t worth a whole lot.”  I would stress the point that credible long-run signals don’t exist for Europe right now.  No one knows what “the game” will be like a year now, or less.  That makes all possible solutions harder to pull off, since announcements can be shrugged off as idle chatter.

Very sad news, Mark Blaug passes away, 1927-2011

Here is a very nice biography, summary and tribute.  I chatted with Mark many times and always considered him a true scholar and gentleman.  I grew up learning from all of his books and as a kid read his Economic Theory in Retrospect several times (it’s actually the book I learned neoclassical economics from), plus his book on Ricardian Economics and his pamphlet on the Cambridge Capital debates, as well as many many other contributions, including extensive writings on the economics of education and economic method.  He was one of the best informed and wisest economists and I was very sorry to hear of this loss.

Here is Mark on  Here is Mark on Google.

For the pointer I thank DG.

Estimates about China

Is it really time to gear up that trade war?:

Li Daokui, an academic adviser to the central bank’s monetary policy committee, has said previously that since the trade surplus might account for less than 1.6 percent of GDP in 2011, the yuan might depreciate in two years.

“Capital outflows are evidence that the yuan is overvalued, not undervalued,” Bloomberg News cited Tim Condon, Singapore-based head of Asian research at ING Groep NV, as saying.

“We think the suggestion of outflows is a near insurmountable obstacle to any exchange-rate reform like widening the yuan trading band.”

But Zhuang said that the outflows would create a better environment for China to let market forces determine the exchange rate, because successful currency reform must be based on the possibility of fluctuations in both directions.

The story is here and hat tip goes to Mark Thorson.

We’re going to see a lot more part-time employment

This is from a few weeks’ back and I had been meaning to cover it:

Wal-Mart will drop health insurance benefits for its part-time workers, the New York Times reports this morning.

Sarah Kliff offers related comment:

The [ACA] law, however, is largely silent on the subject of part-time workers, and there are no penalties for not offering them coverage.

That makes the divide between “full time” and “part time” a key distinction for the health-care law, and one the Obama administration is fine-tuning.

It will not be an easy fine tune.

@JustinWolfers on the data revisions

Today’s weak GDP report bolsters the case that the debt ceiling debacle had real consequences.

In case you are feeling optimistic, remember: The optimistic GDP data tend to be revised toward the pessimistic GDI data. Not the reverse.

Why we should worry: The “recovery” has no momentum, shocks from Europe are coming, and fiscal drag will subtract substantially from growth.

The untold story of this recession: The many false signals given by US GDP data which have given false hope, leading policy mistakes.

The more reliable GDI data, US has grown at 0.3% rate over the past 2 quarters. Did we already double-dip? Certainly a per-capita recession.

Keep on tweeting, Justin! (He has much more to say in his account.)  One baseline report is here.

The 57,000 Page Tax Return

The NYTimes reported earlier this year that through an extraordinary use of tax breaks and clever accounting:

[General Electric] reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

The Times highlighted the skill of GE’s dream team:

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

More recently from The Weekly Standard we find what kind of effort it takes to pay no taxes on $14 billion in profits:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

(FYI, the length of GE’s tax return has doubled since 2006 when it (first?) filed electronically at an equivalent of 24,000 pages.)

GE’s tax bill illustrates both why our corporate tax rate is too high and too low. The nominal rate is too high which encourages a real rate which is too low.

Consider the resources that GE spends to lowers its tax bill, not just the many millions spent on clever accounting and accountants and the many millions spent on lobbying but also the many inefficient ways that GE structures its businesses just to avoid paying taxes and the many millions it invests in socially wasteful projects just in order to produce privately valuable tax credits. Now add to that the allocational inefficiencies of taxing some firms at different rates than others and you have a corporate tax system which wastes a lot of resources and raises relatively little revenue. Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue.

Hat tip: TaxProf blog.

More on countercyclical restructuring and ZMP

I have been reading some new results by David Berger (who by the way seems to be an excellent job market candidate, from Yale), here is one bit:

Finally, I discuss what changed in the 1980s. I provide suggestive evidence that the structural change was the result of a large decline in union power in the 1980s. This led to a sharp reduction in the restrictions …firms faced when adjusting employment, which lowered fi…ring costs and made it easier for fi…rms to …fire selectively. I test this hypothesis using variation from U.S. states and industries. I show that states and industries that had larger percentage declines in union coverage rates had larger declines in the cyclicality of ALP [average labor productivity], consistent with my hypothesis. The union power hypothesis is also consistent with evidence from detailed industry studies. A recent paper by Dunne, Klimek and Schmitz (2010) shows that there were dramatic changes in the structure of union contracts in the U.S. cement industry in the early-1980s, which gave establishments much more scope to …fire workers based on performance rather than tenure. They show that immediately after these workplace restrictions were lifted, ALP and TFP in the industry increased signifi…cantly.

This paper is a goldmine of information on the cyclical behavior of productivity and how it has changed in recent times.  Basically, we’re now at the point where a recession means they dump the bad workers and we subsequently have a jobless recovery.

While we’re on the broader topic, I’d like to make a few points about the recent ZMP (“zero marginal productivity“) debates between Kling, Caplan, Henderson, Boudreaux, and Eli Dourado:

1. There has been plenty of evidence for “labor hoarding”; oddly, once the ZMP workers start actually being fired, the concept suddenly becomes controversial.  The simple insight is that firms don’t hoard so much labor any more.

2. The ZMP worker concept can overlap with the sticky wage concept.  If a person is a prima donna who will sabotage production unless paid 120k a year and given the best office, that person has a sticky wage.  That same person also can be ZMP.  Very often the concept is about bad morale, not literal and universal incompetence; the ZMPers are often quite effective at sabotage!

3. No one thinks a worker is ZMP in all possible world-states.

4. The high and rising premium for good managers is another lens for viewing the phenomenon.  More workers could usefully be employed if we had more skilled supervisors, and thus the shadow value for a skilled supervisor is especially high.

5. Virtually everyone believes in the concept, although opinions differ as to how many workers it covers.  How about the people who are classified as having given up the search for work altogether?  There’s quite a few of them.  Put aside the blame question and the moralizing, can’t at least a few of these people — who aren’t even looking to work — be considered ZMP?

In any case, Berger’s concerns are more empirical and more concrete than some of the issues in those debates.  At the first link you also can find some very interesting papers, by Berger, on the cyclical behavior of price stickiness.  The observed data — surprise, surprise — are quite inconsistent with standard models.

I understand this…and yet I don’t

New curbs for US banks that restrict their ability to trade with their own capital will hit liquidity and demand for eurozone government bond markets at a time when both are in short supply, bankers have warned as they prepare to lobby regulators to water down the rules.

The FT story is here.  How about a simpler rule?:  “The Volcker Rule shall be applied, in the interests of bank safety, except we shall exempt all troubled and risky asset classes.”

*Currency Wars*

The author is James Rickards and the subtitle is The Making of the Next Global Crisis.  This book is rapidly proving influential, though you will not see it reviewed in all of the major mainstream outlets.  The so-called “Right” is walking away from “1990s WSJ Op-Ed CPI bias what’s so bad about poverty anyway?” narrative and looking for alternatives.  This is one of them, excerpt:

In sum, Chaisson shows how highly complex systems such as civilizations require exponentially greater energy inputs to grow, while Tainter shows how those civilizations come to produce negative outputs in exchange for the inputs and eventually collapse.  Money serves as an input-output measure applicable to a Chaisson model because it is a form of stored energy.  Capital and currency markets are powerful complex systems nested within the larger Tainter model of civilization.  As society becomes more complex, it requires exponentially greater amounts of money for support.  At some point productivity and taxation can no longer sustain society, and elites attempt to cheat the input process with credit, leverage, debasement and other forms of pseudomoney that facilitate rent seeking over production.  These methods work for a brief period before the illusion of debt-fueled pseudogrowth is overtaken by the reality of lost wealth amid growing income inequality.

I don’t understand the monetary theory lying behind this claim, nor do I agree with the fascination with gold.  The more important point is that if you dismiss this book as “unlikely to be influential” you are not in touch with the broader intellectual currents of our time.

Sentences of art and beauty

Indonesia’s growing wealth has also came into play as its collectors compete for the Balinese work of Mexican artist Miguel Covarrubias.

And the explanation is here:

“Before the Indonesians wanted the art but didn’t have the money to pay for it,” said Martin. “Now they do.”

At Christie’s in May, Covarrubias’ 1932 “Offering of Fruits for the Temple” set an auction record for the artist at $1.02 million, This week Covarrubias work on paper also hit a new high, selling for $290,500 also at Christie’s.

Here is the full report, mostly about the boom in Latin American art.

Movies I enjoyed this year

Overall I’ve never been less interested in the Hollywood and indie releases, but this year had high peaks from abroad, some would call them the best movies of the year:

1. Incendies; a French-Canadian movie set mostly in Lebanon, with Greek themes.

2. Uncle Boonmee Who Can Recall his Past Lives, from Thailand.

3. Of Gods and Men.

4. Even the Rain, Spanish movie filmed in Bolivia.

5. Melancholia; I liked this one, even though I agree with all the negative things that have been said about it.  See it on the big screen.

Presumably more Asian movies deserve to be on the list, but I won’t get to watch them until 2012.

Drive with Ryan Gosling had excellent moments and scenes.  Moneyball was a good but not a great movie, but it was a great movie about business (which is rare), with real insight and sensitivity, here is one good treatment of some points.

The median release this year was for me ZMP at best, “not even trying to be good,” and I have no long history of being anti-Hollywood, quite the contrary.